As of March 20, 2017,2020, there were approximately 800570 holders of record of our Class A Common Stock and the closing sale price of our stock as reported by the Nasdaq Global Market was $8.28.$5.15.

From our incorporation in 1963 through December 31, 2015, we declared no cash dividends on our Class A Common Stock. On March 8, 2016, theThe Company’s Board of Directors announced that it declared a special, one-time cash dividend of $0.50 per share payable on April 4, 2016, to stockholders of record at the close of business on March 21, 2016. The total amount of this special dividend payment was approximately $1,800,000 based on the then current number of shares outstanding. Further, the Company’s Board of Directors also announced that it approved the initiation of a dividend policy under which the Company intends to declare a cash dividend to its stockholders in the amount of $0.20 per share per annum, payable in equal quarterly installments. In conjunction therewith, during 2016, the Company’s Board of Directors declared four quarterly cash dividends of $0.05 per share to stockholders of record at the close of business on March 31, 2016, July 18, 2016,during 2019 and October 28, 2016.2018.

The Company continuesintends to maintain the dividend policy; however, the declaration of dividends under this policy going forward is dependent upon the Company’s financial condition, results of operations, capital requirements and other factors deemed relevant by the Company’s Board of Directors.

On the Closing Date, the Company and the President of Nationwide, entered into a purchase agreement pursuant to which, among other things, the Company acquired 30,000 shares of the Company’s Class A Common Stock at the aggregate purchase price of $254,940 and options to acquire 6,667 shares of the Company’s Common Stock at an aggregate price of $16,597.

ITEM 6.  Selected Financial Data

Not required.

ITEM 7.  

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT OVERVIEW Overview During 2016, our results of operations were impacted by a number of factors, some of which were: · the sale of Nationwide effective February 11, 2016, for approximately $22.2 million; · an impairment charge of $9.6 million on Hy-Tech’s goodwill and other intangible assets, resulting primarily from the on-going downturn in the oil and gas exploration and extraction sector; · the on-going slow-down in oil and gas exploration and extraction, which continues to negatively impact our Tools segment; · a decision by a Major customer of Hy-Tech to begin to manufacture internally certain air tools that were formerly manufactured by Hy-Tech contributed to the reduction in Hy-Tech’s total revenue; · a significant reduction in orders from another major customer of Hy-Tech; · a write-down of inventory at Hy-Tech of approximately $1 million due to weak demand, and; · the sale of the real property in Tampa, Florida in November 2016 for approximately $3.75 million.   KEY INDICATORS Recent global events While the COVID-19 pandemic has impacted our ability to source certain of our products, particularly with respect to factories that we utilize located in China and Italy, we do not believe this alone is likely to have a material negative impact on our results for the foreseeable future. However, we believe the impact of the virus on the global economy, particularly within the U.S., is likely to have a material impact on our results for at least the next couple of fiscal quarters. Furthermore, many U.S. states and the United Kingdom have ordered certain types of businesses to stop physical operations to contend with the impact of this pandemic. While we believe that we are currently able to continue our operations at each of our operating locations, this could change at any time in the future. We are closely monitoring the situation and taking actions to protect the safety of our employees and communities. For example, among other things, we have restricted international and domestic travel, taken a variety of steps to ensure social distancing in our facilities, including working remotely where available, and have increased our cleaning and sanitizing procedures in our facilities.    Economic Measures     Much of our business is driven by the ebbs and flows of the general economic conditions in both the United States and, to a lesser extent, abroad. Additionally, we track the number of drilling rigs, particularly those located in the Gulf of Mexico. Currently, weWe focus on a wide array of customer types including, but not limited to large retailers, automotive related customers, aerospace manufacturers, large and othersmall resellers of pneumatic tools and parts.parts, and automotive related customers. We tend to track the general economic conditions of the United States, industrial production and general retail sales.   A key economic measure relevant to us is the cost of the raw materials in our products. Key materials include metals, especially various types of steel and aluminum. Also important is the value of the (USD)United States Dollar (“USD”) in relation to the (TWD)Taiwanese dollar (“TWD”), as we purchase a significant portion of our products from Taiwan. Purchases from Chinese sources are made in USDs. However,USD; however, if the RMB,Chinese currency, the Renminbi (“RMB”), were to be revalued against the USD, there could be a significant negative impact on the cost of our products. As the result of the UAT acquisition,Additionally, we closely monitor the fluctuation in the Great British Pound (“GBP”) to the USD, and the GBP to TWD, both of which can have an impact on the consolidated results.   TheAs the result of several new tariffs imposed in the second half of 2018, specifically those imposed on products imported from China, we now must consider tariffs a key economic measure, as a significant portion of products imported by Florida Pneumatic for our Retail customers are subject to these tariffs. Lastly, the cost and availability of a quality labor pool in the countries where products and components are manufactured, both overseas as well as in the United States, could materially affect our overall results.   Operating Measures     Key operating measures we use to manage our businesses are:operations are orders; shipments; development of new products; customer retention; inventory levels and productivity. These measures are recorded and monitored at various intervals, including daily, weekly and monthly. To the extent these measures are relevant, they are discussed in the detailed sections below for each operating segment.below.   Financial Measures   Key financial measures we use to evaluate the results of our businessesbusiness include: various revenue metrics; gross margin; selling, general and administrative expenses; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization (“EBITDA”);amortization; operating cash flows;flows and capital expenditures; return on sales; return on assets; days sales outstanding and inventory turns. These measures are reviewed at monthly, quarterly and annual intervals and are compared to historical periods as well as to established objectives. To the extent that these measures are relevant, they are discussed in the detailed sections below for each business.detail below.     12     CRITICAL ACCOUNTING POLICIES AND ESTIMATES   We prepare our consolidated financial statementsConsolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Certain of these accounting policies require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates including those relatedpertaining to such matters as bad debts, inventory reserves, goodwill and intangible assets, warranty reserves, sales discounts and taxes. We base our estimates on historical data and experience, when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions.  Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the Consolidated Financial Statements in future periods. Actual results may differ from these estimates. Our critical accounting policies are further described below.   In addition to the Company’s significant accounting policies described in Note 1 to the Consolidated Financial Statements, P&F considersWe consider the following policies and estimates to be the most critical in understanding the judgments that are involved in the preparation of the Company’s consolidated financial statementsConsolidated Financial Statements and the uncertainties that could impact the Company’s financial position, results of operations and cash flows.   Revenue Recognition   We recognizeOur accounting policy relating to revenue when persuasive evidencerecognition reflects the impact of an arrangement exists, delivery,the adoption of Accounting Standard Codification, (“ASC”) 606Revenue from Contracts with Customers ("ASC 606"), which occurs either upon shipment by us or upon receipt by customers at the location specifiedis discussed further in the terms of sale, or title has passedour Notes to our customer or services have been provided, the sale price is fixed or determinable, and collectability is reasonably assured.Consolidated Financial Statements. As a result of our adoption of ASC 606 we record revenue based on a five-step model. We sell our goods on terms whichthat transfer title and risk of loss at a specified location, typically shipping point,which may be our warehouse, destination designated by our customer, port of loading or port of discharge, depending on the final destination of the goods. Other than standard product warranty provisions, our sales arrangements provide for no other post-shipment obligations. We do offer rebates and other sales incentives, promotional allowances or discounts from time to time and for certain customers, typically related to customer purchase volume, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale.sale, using the most likely amount approach. We periodically evaluate whether an allowance for sales returns is necessary. Historically, we have experienced minimal sales returns. If we believe there are material potential sales returns, we would provide the necessary provision against sales.   See Note 1 Performance obligations underlying our core revenue sources remain substantially unchanged. Our revenue is generated through the sale of finished products and is recognized at the point in time when merchandise is transferred to the customer with a fixed payment due generally within 30 to 90 days, and in an amount that considers the impacts of estimated allowances. Further, we have made a policy election to account for shipping and handling activities that occur after the customer has obtained control of the products as fulfillment costs rather than as an additional promised service. This election is consistent with our Consolidated Financial Statements for discussionprior policy, and therefore the adoption of ASC 606 relating to shipping and handling activities did not have any impact on Topic 606 – Revenue Recognition.our financial results. There are no remaining performance obligations as of December 31, 2019.   Accounts Receivable and Allowance for Doubtful Accounts   Accounts receivable are customer obligations due under normal trade terms. We sell our products to retailers, distributors and OEMs involved in a variety of industries. We perform continuing credit evaluations of our customers’ financial condition, and although we generally do not require collateral, letters of credit may be required from customers in certain circumstances. Management reviews accounts receivable to determine if any receivables will potentially be uncollectible. Factors considered in the determination include, among other factors, number of days an invoice is past due, customer historical trends, available credit ratings information, other financial data and the overall economic environment. Collection agencies may also be utilized if management so determines.   We record an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. We also may record as an additional allowance a certain percentage of aged accounts receivable, based on historical experience and our assessment of the general financial conditions affecting our customer base. If actual collection experience changes, revisions to the allowance may be required. We have a limited number of customers with individually large amounts due at any given consolidated balance sheet date. AnyFurther, any unanticipated change in the creditworthiness of any of theseour customers could have a material effect on our results of operations in the period in which such changes or events occur. After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. Based on the information available, we believe that our allowance for doubtful accounts as of December 31, 20162019 and 20152018 were adequate. However, actual write-offs in future periods could exceed the recorded allowance.   13 Inventories   Inventories are valued at the lower of cost or market.net realizable value. Cost is determined by the first-in, first-out method or the weighted average method.first-out. Inventory, which includes materials, labor, and manufacturing overhead costs, is recorded net of an allowance for obsolete or slow movingslow-moving inventory (“OSMI”), as well as unmarketable inventory. Such allowance is based upon historical experience and management’s understanding of market conditions and forecasts of future product demand. Specifically, at Florida Pneumatic and Jiffy we generally place a 100% reserve on inventory that has not had any sales or usage in more than two years. Hy-Tech’s methodology is primarily based on inventory turns, with inventory items that turn less frequently, receiving a greater allowance. Changes in our OSMI impact the Company’s cost of goods sold,our balance sheet, gross profit, and net earnings. 13   Goodwill and Indefinite-Lived Intangible Assets   In accordance and compliance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”), we test goodwill for impairment on an annual basisbasis. This test is performed as of the last day in November, or more frequently if we believe indicators of impairment might exist. Goodwill is tested at a level of reporting referred to as "the reporting unit." The Company'sOur reporting units are Hy-Tech and Florida Pneumatic. We have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The first step used to identify potential impairment compares the calculated fair value of a reporting unit with its carrying amount. If the carrying amount of the reporting unit is less than its fair value, no impairment exists, and the second stepno further action is not performed.required. If the carrying amount of a reporting unit exceeds its fair value, the entity is required to performwill record an impairment charge based on the second stepexcess of the goodwill impairment test to measure the amount of the impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of thea reporting unit goodwill with theunit's carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the impliedover its fair value of that goodwill, an impairment loss is recognized for the excess. The Companyvalue. We also teststest indefinite-lived intangible assets consisting of acquired trade names, for impairment at least annually as of the last day of November. The evaluation of goodwill and indefinite-lived intangible assets requires that management prepare estimates of future operating results for each of the operating units. These estimates are made with respect to future business conditions and estimated expected future cash flows to determine estimated fair value. However, if, in the future, key drivers in our assumptions or estimates such as (i) a material decline in general economic conditions; (ii) competitive pressures on our revenue, or our ability to maintain margins; (iii) significant price increases from our vendors that cannot be passed through to our customers; and (iv) breakdowns in supply chain, or other possible factors beyond our control occur, an impairment charge against our intangible assets may be required.   Impairment of Long-Lived Assets   We review long-lived assets, including property, plant, and equipment and identifiable intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference.   Factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or market trends, a significant underperformance relative to historical or projected future operating results, or a likely sale or disposal of the asset before the end of its estimated useful life. If any of these factors exist, we are required to test the long-lived asset for recoverability and may be required to recognize an impairment charge for all or a portion of the asset's carrying value.   14 Income Taxes   We account for income taxes using the asset and liability approach. This approach requires the recognition of current tax assets or liabilities for the amounts refundable or payable on tax returns for the current year, as well as the recognition of deferred tax assets or liabilities for the expected future tax consequences of temporary differences that can arise between (a) the amount of taxable income and pretax financial income for a year, such as from net operating loss carryforwards and other tax credits, and (b) the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates. The impact on deferred tax assets and liabilities of changes in tax rates and laws, if any, is reflected in the consolidated financial statementsConsolidated Financial Statements in the period enacted. Further, we evaluate the likelihood of realizing benefit from our deferred tax assets by estimating future sources of taxable income and the impact of tax planning strategies. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.   We file a consolidated Federal tax return. P&F and certain of its subsidiaries file combined tax returns in New York, California, Illinois and Texas. All subsidiaries, other than UAT, file other state and local tax returns on a stand-alone basis. UAT files an income tax return with the taxing authorities in the United Kingdom.   When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while other positions are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are classified as income taxes in the consolidated statements of income and comprehensive income. The authoritative guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) such assets will not be realized. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in estimates, due to unanticipated events or otherwise, could have a material effect on our financial condition and results of operations. We continually evaluate our deferred tax assets to determine if a valuation allowance is required. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance allows companies to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which they are subject to the rules (the period cost method), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the deferred method). After completing the analysis of the GILTI provisions, we elected to account for GILTI using the period cost method.     1415     RESULTS OF OPERATIONS 2016 compared to 2015MANAGEMENT OVERVIEW   Continuing operationsOverview   Unless otherwise discussed elsewhereDuring 2019, significant factors that impacted our results of operations were: · In June we sold the Jupiter Facility resulting in a $7.8 million gain; · A major roll-out of a then refreshed line of pneumatic tools to The Home Depot in 2018, which did not reoccur in 2019; · The slow down and eventual suspension of production  of Boeing’s “737 Max” jet in 2019; · Lower gross margin at Hy-tech, due in part to product/customer mix, under absorption, costs associated with the implementation of an enterprise-wide information technologies system conversion and increased obsolescence; · Acquisition by Hy-Tech in October 2019 of two gears businesses. In mid-2018, the Office of the United States Trade Representative (“USTR”) began imposing additional tariffs on certain Chinese-made products. These additional tariffs raised the cost of a significant number of products that we sell, primarily to The Home Depot (“THD”). We were able to mitigate the impact of these tariffs through price negotiations with our overseas manufacturer and/or our customer. During 2019, in an effort to further minimize or eliminate the Management’s Discussion and Analysis,effects of the additional tariffs, we arranged to have the manufacturing of many of the high tariff products relocated from China to other Asian nations. Lastly, we believe that over time, several newer technologies and features will have a greater impact on the market for our relationships with our key customers and suppliers, given current economic conditions, remain satisfactory.traditional pneumatic tool offerings. The impact of this evolution has been felt initially by the advent of advanced cordless operated hand tools in the automotive aftermarket. We believe economic uncertainty, both domestically and abroad, continue to impact the overall U.S. general economy. Further, we also believe that the domestic and global oil and gas exploration and extraction markets continue to be adversely impacted by these uncertainties and other factors, allperform a cost-benefit analysis of which continue to negatively affect certain markets that both Hy-Tech, and to a lesser degree, Florida Pneumatic service. Additionally, we continue to encounter weaknessdeveloping or incorporating more advanced technologies in other markets that Hy-Tech serves, such as power generation and construction. Lastly, it should be noted that Hy-Tech is encountering growing pressure from Asian–sourced pneumatic tools.our tool platforms.   Other than the aforementioned, or matters that may be discussed in more detail below, there wereare no major trends or uncertainties that had, or we could have reasonably expect couldexpected to have a material impact on our revenue, nor was there any unusual or infrequent event, transaction or any significant economic change that materially affected our results of operations.   During Unless otherwise discussed elsewhere in the first quarter of 2016,Management’s Discussion and Analysis, we sold Nationwidebelieve that our relationships with our key customers and suppliers remain satisfactory. RESULTS OF OPERATIONS 2019 compared to an unrelated third party for approximately $22.2 million. As a result of this transaction, Nationwide’s results are reported under discontinued operations, and are therefore excluded from continuing operations for all periods presented. Please see Note 2 - Discontinued Operations, to our Consolidated Financial Statements for additional information.2018   REVENUE   The tables set forth below provide an analysis of our revenue for the three months and years ended December 31, 20162019 and 2015.2018.   Consolidated     Three months ended December 31,                   2016     2015     Variance     Variance                   $     %   Tools                                 Florida Pneumatic   $ 10,012,000     $ 10,090,000     $ (78,000 )     (0.8 )% Hy-Tech     2,495,000       3,681,000       (1,186,000 )     (32.2 ) Tools Total   $ 12,507,000     $ 13,771,000     $ (1,264,000 )     (9.2 )%                                       Year ended December 31,                   2016     2015     Variance     Variance                   $     %   Tools                                 Florida Pneumatic   $ 45,282,000     $ 44,076,000     $ 1,206,000       2.7 % Hy-Tech     11,994,000       16,236,000       (4,242,000 )     (26.1 ) Tools Total   $ 57,276,000     $ 60,312,000     $ (3,036,000 )     (5.0 )%       Year Ended December 31,       2019     2018     Increase (decrease)       Revenue     Percent of revenue     Revenue     Percent of revenue     $     %   Florida Pneumatic   $ 43,357,000       73.9 %   $ 50,720,000       78.0 %   $ (7,363,000 )     (14.5 )% Hy-Tech     15,317,000       26.1       14,275,000       22.0       1,042,000       7.3   Total   $ 58,674,000       100.0 %   $ 64,995,000       100.0 %   $ (6,321,000 )     (9.7 )%   1516     Florida Pneumatic During the third quarter of 2018, Florida Pneumatic commenced the shipment to THD of an improved line of pneumatic tools, which replaced much of THD’s previous product offering. Gross margin for the new product line is projected to be approximately 2% less than recent historic levels. Further, in an effort to assist THD in promoting the roll out, Florida Pneumatic agreed to contribute approximately $1,088,000 to THD. This contribution is being ratably amortized over a four-year period commencing August 2018 and will be tested for impairment during said period.   Florida Pneumatic markets its air tool products to threefour primary sectors within the pneumatic tool market; Retail, Industrial/catalogAutomotive, Industrial and the AutomotiveAerospace market. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts (“Other”).       Three months ended December 31,       2016     2015     Increase (decrease)       Revenue     Percent of revenue     Revenue     Percent of revenue     $     %   Retail customers   $ 5,435,000       54.3 %   $ 4,865,000       48.2 %   $ 570,000       11.7 % Automotive     3,240,000       32.4       3,682,000       36.5       (442,000 )     (12.0 ) Industrial/catalog     1,093,000       10.9       1,325,000       13.1       (232,000 )     (17.5 ) Other     244,000       2.4       218,000       2.2       26,000       11.9   Total   $ 10,012,000       100.0 %   $ 10,090,000       100.0 %   $ (78,000 )     (0.8 )%   Year Ended December 31,     Year Ended December 31,     2016   2015   Increase (decrease)     2019     2018     Increase (decrease)     Revenue   Percent of revenue   Revenue   Percent of revenue   $   %     Revenue     Percent of revenue     Revenue     Percent of revenue     $     %   Automotive   $ 14,800,000       34.1 %   $ 14,430,000       28.5 %   $ 370,000       2.6 % Retail customers   $ 24,847,000       54.9 %   $ 24,217,000       54.9 %   $ 630,000       2.6 %   12,467,000       28.8     18,234,000       35.9   (5,767,000 )     (31.6 ) Automotive     14,576,000       32.2       12,805,000       29.1       1,771,000       13.8   Industrial/catalog     4,936,000       10.9       6,000,000       13.6       (1,064,000 )     (17.7 ) Aerospace     10,513,000       24.2       12,244,000       24.1       (1,731,000 )     (14.1 ) Industrial     4,969,000       11.5       5,151,000       10.2       (182,000 )     (3.5 ) Other     923,000       2.0       1,054,000       2.4       (131,000 )     (12.4 )     608,000       1.4       661,000       1.3       (53,000 )     (8.0 ) Total   $ 45,282,000       100.0 %   $ 44,076,000       100.0 %   $ 1,206,000       2.7 %   $ 43,357,000       100.0 %   $ 50,720,000       100.0 %   $ (7,363,000 )     (14.5 )%   A primary factor forThe most significant component to the increasedecline in Florida Pneumatic’s Retailfull-year 2019 revenue, this quarter, compared to the fourth quarter of 2015,full-year 2018 was a delay in receiving certain orders from Searslower sales to THD. It should be noted that during the third quarter of 2016,2018, Florida Pneumatic shipped approximately $3.6 million of a then new, refreshed line of pneumatic tools and accessories to THD, whereas during 2019 there were no similar special or promotional orders. Additionally, we believe the reduction in our Retail revenue was partially due to THD being in an overstocked position at the end of 2018, which were received and fulfilledcaused a reduction in orders during the early part of 2019. The decline in year-over-year Aerospace revenue was due primarily to significant orders being shipped to a customer in the fourthfirst quarter of 2016. Revenue attributable2018 not repeating in 2019, and to The Home Depot improved approximately 1%, whena lesser degree, the decision by Boeing to reduce/suspend production of its 737 Max aircraft. When comparing the fourth quarter of 20162019 Industrial revenue to 2015. The cause ofthat generated in 2018, the decline was due primarily to overall sluggishness in the sector and reduced orders from certain customers that service the aircraft industry that have been negatively affected by the reduction in production by Boeing of civilian aircraft. Automotive revenue this quarter,for the year 2019 improved compared to the same periodfull year revenue in 2015, was2018 primarily due to two AIRCAT major customers/distributors during the fourth quarter putting in place an internal inventory reduction plan, and a decline in revenue at our UAT subsidiary located in the United Kingdom. A portion of UAT’s revenue is derived from the sale of pneumatic air tools to customers that are located in the North Sea region of Scotland, and whose businesses are primarily in the oil and gas sector. This region continues to feel the effects of the ongoing weakness in global oil and gas exploration. Lastly as relates to UAT, we are currently in the process of developing a marketing strategy that we believe should enable UAT to expand its presence into other Western European countries; however, no specific timetable has been established for the launch of this program. We continuea new line of tools. This new line features enhanced vibration reduction technology and longer life of the internal mechanism. The reduction in revenue from our Other product lines was due to encounter weaknesses in the Industrial/catalog market, with the decline thisquarter comparedpart to the same period a year ago, occurring most notably intheaerospaceand oil and gas exploration/production channels. Additionally, during the fourth quarter of 2015, we shipped special orders of approximately $124,000, while only shipping $43,000 during the fourth quarter of 2016. When comparing Florida Pneumatic’s full-year 2016 revenuedecision to 2015, the most significant factor contributingadjust its focus away from its smaller lines to the increase is the growth in its Automotive toolsmore profitable product line, which increased 13.8% over the prior year. This increase was primarily driven by new and improved tools, as well as an expanded customer base. The average exchange rate after Brexit was 10.9% lower than the average exchange rate before Brexit. This decline effectively increased the price of all imported products into the UK, which in turn created a slowdown in consumer spending. It is difficult to ascertain the impact on UAT’s revenue as a result of Brexit, however we believe that when UAT’s second half of 2016 revenue was converted to USD, lost revenue during 2016 was approximately $154,000. Florida Pneumatic’s Retail revenue improved when comparing full-year 2016 to 2015, due to higher sales from Sears in 2016, with 2016 revenue from The Home Depot effectively flat to that reported in 2015. The aforementioned increases were partially offset by the decline in revenue of its Industrial/catalog lines where the on-going oil and gas exploration and extraction, particularly in the Gulf of Mexico region, slowdown continues. Additionally, during 2015, we shipped approximately $767,000 of special orders, while shipping only $454,000 during 2016, which contributed to the decline in our Industrial/catalog revenue. 16 We have elected not to renew our supply agreement with Sears, which will expire on September 30, 2017. While Sears remains at or close to complying with its payment terms to Florida Pneumatic, this difficult decision was based on a number of factors including Sears’ continuing financial difficulties, the sale of the Craftsman brand to Stanley Black & Decker and our level of working capital exposure in relation to our return on that investment with Sears. It is anticipated that our Sears inventory exposure should be eliminated by September 30, 2017 and that all accounts receivable should be collected by December 2017. However, at the present time, there can be no assurance that events may occur that would prevent our recovery of our working capital exposure.lines.   Hy-Tech   Hy-Tech focusesdesigns, manufactures and sells a wide range of industrial products under the brands ATP and ATSCO which are categorized as “ATP” for reporting purposes. Products manufactured for other companies under their brands are included in the OEM category in the table below. NUMATX, Thaxton and other peripheral product lines, such as general machining and gears, are reported as “Other” below:     Year Ended December 31,       2019     2018     Increase (decrease)       Revenue     Percent of revenue     Revenue     Percent of revenue     $     %   OEM   $ 7,321,000       47.8 %   $ 5,447,000       38.2 %   $ 1,874,000       34.4 % ATP   6,290,000       41.1   7,253,000       50.8   (963,000 )     (13.3 ) Other     1,706,000       11.1       1,575,000       11.0       131,000       8.3   Total   $ 15,317,000       100.0 %   $ 14,275,000       100.0 %   $ 1,042,000       7.3 % Hy-Tech’s revenue overall increased in 2019, compared to 2018 by 7.3%. The 34.4% net increase in Hy-Tech’s OEM revenue was driven primarily onby Hy-Tech’s Engineered Solutions products offering, which is designed to exploit Hy-Tech’s expertise in engineering and manufacturing and enable it to pursue alternate, non-traditional markets and develop different applications for its tools, motors and related accessories. We believe the industrial sectordevelopment of the Engineered Solutions offering will continue to provide Hy-Tech an opportunity to generate additional sources of revenue in the future. Hy-Tech continues to see a decline in the marketplace for pneumatic tools market.  Hy-Tech manufactures and markets its own value-added linereplacement parts, the primary factor for the 13.3% decline in ATP revenue. Historically, a major component of air toolsHy-Tech’s revenue was derived from the oil and parts, including the ATSCO product line, as well as distributes a complementary line of sockets,gas sector, which weakened in the aggregate are referredsecond half of 2019. As a result, it intends to as “ATP”.emphasize its Engineered Solutions product offering, and other newer technologies. As such, it is likely that Hy-Tech Machine also manufactures non-pneumatic products primarily marketed tomay encounter reduced ATP revenue in the mining, constructionfuture. Lastly, it believes the acquisition in October 2019 of the operating assets of Blaz-Man Gear, Inc. and industrial manufacturing sectors. Hy-Tech Machine data below also includes sales of gears, and hydraulic stoppers.Gear Products & Manufacturing, Inc. (the “Gears Acquisition”) should contribute strong gross margin gear related revenue in 2020.        Three months ended December 31,       2016     2015     Increase (decrease)       Revenue     Percent of revenue     Revenue     Percent of revenue     $     %   ATP   $ 2,188,000       87.7 %   $ 3,310,000       89.9 %   $ (1,122,000 )     (33.9 )% Hy-Tech Machine     307,000       12.3       371,000       10.1       (64,000 )     (17.3 ) Total   $ 2,495,000       100.0 %   $ 3,681,000       100.0 %   $ (1,186,000 )     (32.2 )%     Year Ended December 31,       2016     2015     Increase (decrease)       Revenue     Percent of revenue     Revenue     Percent of revenue     $     %   ATP   $ 10,598,000       88.4 %   $ 13,990,000       86.2 %   $ (3,392,000 )     (24.2 )% Hy-Tech Machine     1,396,000       11.6       2,246,000       13.8       (850,000 )     (37.8 ) Total   $ 11,994,000       100.0 %   $ 16,236,000       100.0 %   $ (4,242,000 )     (26.1 )% There are three primary factors that contributed to the decline in this year’s ATP fourth quarter revenue, compared to the same period a year ago. These factors are: · Approximately $684,000 of the decline this quarter of ATP revenue is due to a large customer that was acquired in the ATSCO acquisition dramatically reducing its purchases. We believe this decline in orders from this customer is due primarily to excess inventory they acquired in 2015, and a slow recovery of the oil and gas exploration sector, which is its most significant sector. · The decision by a former major customer of Hy-Tech to source internally, certain impact wrenches and other products that it had formerly purchased from Hy-Tech. This action contributed to $309,000 of the decline in ATP revenue. We continue to sell to this customer; however the loss of the impact wrenches has negatively impacted gross margin as well as revenue. · Lower current pricing of domestic oil and gas compared to prior years continues to negatively impact ATP product revenue. Additionally, Hy-Tech is encountering pricing competition from Asian-sourced parts and tools. As a result, revenue from the sale of ATP parts and tools, as well as from the complimentary line of sockets, has declined approximately $130,000 this quarter, compared to the same period in 2015. We believe that should the oil and gas sector remain at or near current levels of exploration and extraction, it is likely that future periods may not reflect an increase over comparable prior periods for some time, even if trending upwards, chronologically. According to Baker Hughes Incorporated, the total United States rig count has increased to 658 as of December 30, 2016, from 522 as of September 30, 2016. However, a significant portion of Hy-Tech’s oil and gas sector revenue is driven by activity from rigs that operate off-shore, primarily in the Gulf of Mexico, where the rig count has remained relatively constant during the fourth quarter of 2016, ranging from 21 rigs to 24 rigs, whereas during the same period in 2015 the rig count in the Gulf of Mexico ranged from 23 to 34. Additionally, we believe that there has not been a meaningful increase or growth in the number of “turn-arounds” or plant maintenance activities, which tend to require the tools and parts that Hy-Tech manufactures and sells. Until such time as when major plant turn-arounds increase, and related activity levels return to recent historic levels, it is difficult to predict when this sector of the ATP category will improve. To combat this decline in revenue, in early 2016 we began to pursue alternate markets where we can exploit our manufacturing expertise, and develop different applications for our tools, motors and accessories. We believe the development of this new marketing strategy should provide Hy-Tech the ability to generate revenue from new markets in the foreseeable future that should complement its current markets such as oil and gas extraction and power generation. Revenue from new sources during the fourth quarter of 2016 was approximately $173,000, and is included in the ATP grouping.   17     When analyzing Hy-Tech’s full year 2016 revenue compared to full year 2015, the primary causes were consistent with those occurring during the fourth quarter, namely:GROSS MARGIN   · The decline throughout 2016 in shipments to a large ATSCO customer accounted for more than $1,204,000 of the shortfall in ATP revenue. We believe this decline in orders from this customer is due primarily to excess inventory they acquired in 2015, and a slow recovery of the oil and gas exploration sector, which is its most significant sector. · The decision by a former major customer to replace most of the products previously manufactured by Hy-Tech with products manufactured internally. This decision resulted in a decline in 2016 ATP revenue of approximately $950,000, compared to the prior year. · Revenue from ATP parts, tools and motors, as well as from the complimentary line of sockets, declined approximately $1,239,000 this year, compared to 2015. As noted above, Hy-Tech began recognizing revenue from its initiative to market its products and to new alternate markets. Revenue from these new sources during 2016 was approximately $274,000, and is included in the ATP grouping.     Year Ended December 31,     Increase (decrease)       2019     2018     Amount     %   Florida Pneumatic   $ 17,058,000     $ 18,554,000     $ (1,496,000 )     (8.1 )% As percent of respective revenue     39.3 %     36.6 %     2.7 % pts         Hy-Tech   $ 3,900,000     $ 4,633,000     $ (733,000 )     (15.8 )% As percent of respective revenue     25.5 %     32.5 %     (7.0 )% pts         Total Tools   $ 20,958,000     $ 23,187,000     $ (2,229,000 )     (9.6 )% As percent of respective revenue     35.7 %     35.7 %     0.0 % pts           GROSS MARGIN     Three months ended December 31,     Increase (decrease)       2016     2015     Amount     %   Florida Pneumatic   $ 3,604,000     $ 3,616,000     $ (12,000 )     (0.3 )% As percent of respective revenue     36.0 %     35.8 %     0.2 % pts         Hy-Tech   $ 301,000     $ 1,106,000     $ (805,000 )     (72.8 ) As percent of respective revenue     12.1 %     30.0 %     (17.9 )% pts         Total Tools   $ 3,905,000     $ 4,722,000     $ (817,000 )     (17.3 ) As percent of respective revenue     31.2 %     34.3 %     (3.1 )% pts                                               Year Ended December 31,     Increase (decrease)       2016     2015     Amount     %   Florida Pneumatic   $ 16,674,000     $ 15,675,000     $ 999,000       6.4 % As percent of respective revenue     36.8 %     35.6 %     1.2 % pts         Hy-Tech   $ 2,257,000     $ 6,007,000     $ (3,750,000 )     (62.4 ) As percent of respective revenue     18.8 %     37.0 %     (18.2 )% pts         Total Tools   $ 18,931,000     $ 21,682,000     $ (2,751,000 )     (12.7 ) As percent of respective revenue     33.1 %     35.9 %     (2.8 )% pts         Florida Pneumatic’s Gross margin for the fourth quarter 2016 was essentially the same as the fourth quarter of 2015, improving 0.2 percentage point, or twenty basis points. We determine fair value of Hy-Tech’s inventory based on turnover ratio. Primarily the result of weak market conditions The improvement in key sectors serviced by Hy-Tech, such as oil and gas exploration and extraction and power generation, we determined that it was necessary to lower the carrying value of certain components of its inventory. This additional increase in Hy-Tech’s obsolete and slow moving inventory (“OSMI”) allowance this quarter of approximately $257,000 negatively impacted its fourth quarter of 2016’s gross profit and gross margins. Further, Hy-Tech’s gross margin this quarter is lower,at Florida Pneumatic in 2019, compared to the same period in 2015, due in part to lower overhead absorption, whichprior year, was due primarily to lowera) its decision to greatly reduce AIRCAT promotional programs in 2019 that were offered during much of 2018, b) during 2019, Jiffy was able to phase in various price increases, c) Jiffy improved its manufacturing activity, driven by the ongoing weakness in several key sectors as well asefficiencies, d) overall Florida Pneumatic strengthened its product / customer mix, and e) a large reduction in activity with key customers.sales to our low margin retail customer compared to 2018.    The primary factors contributing to the increase in Florida Pneumatic’s gross margin for 2016, compared to 2015, include more favorable product mix, favorable foreign currency exchange rates, improved overhead absorption and slightly lower cost of product. Hy-Tech’s gross margin during 2016 has been adversely affected by the effects of the ongoing weakness in several of the sectors in which it markets its products and services such as the oil and gas sector, power generation and manufacturing, sectors critical to Hy-Tech’s revenue. This on-going weakness has caused Hy-Tech to significantly increase its OSMI. The additional increase7.0 percentage point decline in Hy-Tech’s OSMI during 2016 was $1,001,000. Additionally, contributing to the decline of Hy-Tech’s 20162019 gross margin was due to a number of factors: a) unusually high overhead and manufacturing costs incurred during the fact thatthree-month period ended March 31, 2019, in areas such as repairs and maintenance and sample costs; b) under absorption of manufacturing overhead, a significant portion occurring in the first quarter of 2019, primarily due to an enterprise-wide information technologies system conversion during 2016 Hy-Tech manufacturedthe first quarter, which caused the facility to halt production for several days, c) increased charges in obsolete and sold an extremely lowslow-moving inventory, d) weaker gross margin product linemix of items sold in 2019, compared to a key customer it acquiredthose sold in the ATSCO acquisition. We do not intend2018; and e) increased material and labor costs. In an effort to continue to manufacture this product line; however, it is likely there will be a residual effect onimprove its gross margin in 2017, as2020, Hy-Tech sells its remaining related inventory. Lastly, until such time whenintends to increase the marketsselling price of several high-volume items, source less expensive parts imported from overseas and expand a cost reduction program that Hy-Tech services improves, and associated revenue strengthens, it is possible that Hy-Tech could encounter additional OSMI charges.was put in place in late 2019.   18   SELLING, GENERAL AND ADMINISTRATIVE EXPENSES   Selling, general and administrative expenses (“SG&A”) include salaries and related costs, commissions, travel, administrative facilities, communications costs and promotional expenses for our direct sales and marketing staff, administrative and executive salaries and related benefits, legal, accounting and other professional fees as well as general corporate overhead and certain engineering expenses.    During the fourth quarter of 2016, ourOur SG&A during 2019 was $4,522,000,$21,869,000, compared to $4,323,000 during$21,705,000 in 2018. Significant components to the same three-month period in 2015. Significant items contributing to thisnet increase include: (i) variablea) professional fees and services increased $392,000, due primarily to costs and expenses incurred in connection with the Gears Acquisition in October 2019 (see Note 2 to our Consolidated Financial Statements); b) governance costs increased $133,000, due primarily from additional costs incurred in 2019 in connection with an expanded examination of our internal controls; c) non-cash impairment charges during 2019 of approximately $99,000 related to a reduction of our Right-of-Use asset, which include such things as commissions, warranty costs, freight out and advertising/promotional fees, increasedresulted from a decision by $118,000 during the fourth quarter of 2016, comparedHy-Tech to vacate a facility in Punxsutawney, PA prior to the same periodlease expiration and an adjustment to the fair value of certain machinery and equipment of approximately $95,000. The above increases were partially offset by a) a decrease of $221,000 in the prior year, driven primarily by the increase in our AIRCAT sales, and (ii) compensation expenses, which is comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits increased $244,000, when comparing the fourth quarterbenefits; b) a decrease of 2016$189,000 in variable expenses, due primarily to lower Retail revenue. Variable expenses include such expenses as, commissions, freight out, advertising and promotion expenses and travel and entertainment; c) 2019 stock-based compensation declined $91,000, compared to the same periodamount in the prior year. During the fourth quarter of 2016, cash compensation paid to employees was relatively unchanged compared to the same period in the prior year. However, in connection with our reporting of the sale of Nationwide, we allocated a portion of our corporate overhead, which was attributable to Nationwide being accounted for as Discontinued operations, thus resulting in a lower expense in the fourth quarter of 2015. Partially offsetting the above increases was a reduction in amortization expense of $96,000, due primarily to the impairment of certain Hy-Tech intangible assets, lower professional fees and stock-based compensation of $21,000 and $12,000, respectively. Our SG&A incurred for the full year 2016 was $19,610,000, compared to $19,157,000 incurred during the full-year 2015. For the year ended December 31, 2016, total variable costs and expenses increased over the prior year by $503,000. Variable costs include such expenses as advertising, freight-out, commissions and warranty. This increase was driven primarily by the $1,771,000 increase in Automotive sales, and to a lesser degree the $630,000 increase in Retail revenue. Additionally, compensation costs, as defined earlier, increased $321,000. Actual total compensation paid to employees was essentially unchanged from the prior period. However, $403,000 of 2015 total compensation costs was allocated to discontinued operations related to the sale of Nationwide. In 2016, we owned Nationwide for approximately a month and a half, and did not allocate any of the same compensation items. The above increases in our SG&A were partially offset by reductions in our amortization of intangible assets of $222,000 due primarily to the impairment charges recorded during the second and fourth quarter of this year, professional fees of $96,000, and stock-based compensation of $57,000.   IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETSEXPENSE - NET   During 2018 we adjusted the second quarter of 2016, we determined that an interim impairment analysisfair value of the goodwill recorded in connection with Hy-Tech and ATSCO was necessary based uponcontingent consideration of a number of factors, which included: i) continued weakness in oil and gas exploration and extraction; ii)obligation to the recent loss of a major portion of revenue from one of its larger customers; and iii) recent significant reductions/guidance of forecasted purchases from the largest customer acquired in the ATSCO acquisition. As a result of the aforementioned it was determined that Hy-Tech’s short and long-term projections indicated an inability to generate sufficient discounted future cash flows to support the recorded amounts of goodwill, other intangible assets and other long-lived assets necessitating the impairment charge. As a result, in accordance with current accounting literature, we recorded an impairment charge of $8,311,000 relating to goodwill and other intangible assets during the second quarter of 2016.Jiffy Seller by $150,000.   18 During our annual testing for impairment of our goodwill and other intangible assets, we determined that, primarily the result of further degradation in Hy-Tech’s revenue, which in turn produced lower results of operations than had been previously re-forecast in May 2016, Hy-Tech’s goodwill and other intangibles were impaired. The unforeseen further decline in their revenue began in October 2016 and continues into 2017.As a result, we re-examined Hy-Tech’sprojections and determined that it would not have the ability to generate sufficient discounted future cash flows to support the recorded amounts of goodwill and other intangible assets, thus necessitating an impairment charge. As a result, in accordance with current accounting literature, we recorded an impairment charge of $880,000 relating to goodwill and $390,000 to other intangible assets. We believe that while we continue to make positive modifications within Hy-Tech, which includes among other actions, changes in personnel and “go-to-market” strategies, should market conditions in the sectors in which Hy-Tech operates worsen, we could incur additional impairment charges in future periods.  See Note 6 to our consolidated financial statements for further discussion.   GAIN ON SALE OF REAL PROPERTY   Effective November 1, 2016, weJune 18, 2019, Florida Pneumatic completed a transaction in which we soldthe sale of real property located in Tampa,Jupiter, Florida in which it conducts its principal operations. This facility was purchased by an unrelated third party for $3.75 million, resulting in a gainpurchase price of approximately $1.7$9.2 million. This property is the headquarters of Nationwide, which we sold February 11, 2016. After deductingbroker fees and other expenses relating to the sale, we received approximately $3.5$8.7 million cash, which was used to pay down bank borrowings, with the balance remaining inand recorded a cash account. 19 OTHER INCOME - NET The table below provides an analysisgain as a result of our Other income-net from continuing operations for the three months and years ended December 31, 2016 and 2015:     Three months ended December 31,     Year ended December 31,       2016     2015     2016     2015   Lease income-net   $ 25,000     $ 38,000     $ 100,000     $ 146,000   Fair value adjustment to contingent consideration - UAT     —       —       —       126,000   Total   $ 25,000     $ 38,000     $ 100,000     $ 272,000   Lease income-net is income net of related expenses incurred in connection with the lease discussed in Gain on Sale of Real Property, above and in Note 2 to our Consolidated Financial Statements. The fair value adjustment to contingent consideration – UAT reflects the adjustments relating to the carrying value of the additional consideration due to the sellers of UAT settled in 2015. INTEREST EXPENSE     Three months ended December 31,     Increase (Decrease)   Interest expense attributable to:   2016     2015     Amount     %   Short-term borrowings   $ 4,000     $ —     $ 4,000       NA % Term loans, including Capital Expenditure Term Loans     3,000       2,000       1,000       50.0   Amortization expense of debt issue costs     10,000       28,000       (18,000 )     (64.3 )                                   Total   $ 17,000     $ 30,000     $ (13,000 )     (43.3 )%     Year Ended December 31,     Increase (Decrease)   Interest expense attributable to:   2016     2015     Amount     %   Short-term borrowings   $ 45,000     $ —     $ 45,000       NA % Term loans, including Capital Expenditure Term Loans     8,000       5,000       3,000       60.0   Amortization expense of debt issue costs     128,000       111,000       17,000       15.3                                     Total   $ 181,000     $ 116,000     $ 65,000       56.0 % We received approximately $18.7 million cash from thethis sale of Nationwide, which eliminated our revolving loan balance and greatly reduced our term loans. In accordance with current accounting guidance we have included the short-term interest expense incurred in connection with the bank borrowings, and term loan interest expense incurred during the three months and year ended December 31, 2015real property of $120,000 and $600,000, respectively, and for the period Januaryapproximately $7.8 million. See Note 1 2016 through the Closing Date of $60,000, which was the effective date of sale of Nationwide, in Discontinued operations. Additionally, we wrote down the debt issue costs associated with the repayment of those term loans. Further, $128,000 is included in amortization expense of debt issue costs in our interest expense for the full year ended December 31, 2016. See Notes 2 and 7 to our Consolidated Financial Statements for further discussion on the sale of Nationwide and the Amendment to our Credit Agreement. See Liquidity and Capital Resources elsewhere in this Management’s Discussion and Analysis section for further information regarding our bank loans.details.   PrimarilyINTEREST EXPENSE - NET     Year Ended December 31,   Interest expense – net attributable to:   2019     2018   Short-term borrowings   $ 167,000     $ 118,000   Term loans, including Capital Expenditure Term Loans     9,000       15,000   Amortization expense of debt issue costs     22,000       95,000   Interest income     —       (5,000 )                   Total   $ 198,000     $ 223,000   The increase on short-term borrowing interest expense was due to higher average borrowings during 2019, compared to the average short-term borrowing in the prior year. Term Loan interest declined as the result of paying off the cash received fromloan in its entirety in 2019. We and our bank amended the sale of Nationwide and cash received from the sale of the real propertyCredit Agreement in Tampa, Florida, our average balance of short-term borrowings during the three-month period ended December 31, 2016 was $685,000,February 2019. The debt issue costs associated with such amendment, are significantly lower than $10,883,000, which was the averagecosts associated with the expiring Credit Agreement. As such, the amortization of debt issue costs during the three-month period ended December 31, 2015. The average balance of our short-term borrowings during the year ended December 31, 2016 was $2,862,000,2019 declined compared to $13,818,000 during the year of 2015.prior year. See Liquidity and Capital Resources elsewhere in this Management’s Discussion and Analysis section for further information regarding our bank loans. 20   INCOME TAX EXPENSE   The effective tax rates from continuing operationsprovision for the years ended December 31, 2016 and 2015 were (34.2%) and 30.8%, respectively.  Primaryincome taxes in 2019 was $1,797,000, compared to $253,000, in 2018. Significant factors affecting our 2016impacting 2019’s net effective tax rate of 26.8%, were nondeductible expensesnon-deductible permanent differences and state incomeand local taxes. The primary factors affecting the 2015net effective tax rate were nondeductible expenses, reversal of liability for contingent purchase price, and state income taxes.2018 was 22.8%. See Note 10 – Income Taxes to Consolidated Financial Statements for further discussion and analysis. DISCONTINUED OPERATIONS Net income from Discontinued Operations as reported on our Consolidated Financial Statements represents Nationwide’s results of operations for the period January 1, 2016 through the Closing Date, and for the twelve months ended December 31, 2015. The SG&A incurred during the period January 1, 2016 through the Closing Date, includes that of Nationwide plus $19,000 of expenses incurred at the corporate level that is specifically attributable to Nationwide. Nationwide’s SG&A for the three months and year ended December 31, 2015, includes all of Nationwide plus approximately $163,000 and $461,000, respectively, of corporate expenses directly attributable to Nationwide. Further, in accordance with current accounting guidance, we have included, as part of discontinued operations, all interest expense incurred attributable to our Bank borrowings during the year ended December 31, 2015, and for the period January 1, 2016 through the Closing Date. We recognized a gain of $12,512,000 on the sale of Nationwide which represents the difference between the adjusted net purchase price and the carrying book value of Nationwide. For income tax purposes, our tax basis in Nationwide was greater than the net proceeds resulting in a tax loss and thus recorded a tax benefit of $482,000. This tax loss can only be applied against future capital gain transactions. In November 2016, Countrywide completed the sale of the Tampa, Florida real property, which, for tax purposes is treated as a capital gain transaction and utilized the $482,000 tax benefit generated from the sale of Nationwide. See Note 2 in our Consolidated Financial Statements for further discussion.   21 On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. Among other things this Act reduced the U.S. federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, created new provisions related to foreign sourced earnings, eliminated the domestic manufacturing deduction and moved to a hybrid territorial system. In accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin 118, income tax effects of the Act were refined upon obtaining, preparing, and analyzing additional information during the measurement period. At December 31, 2018, the Company had completed its accounting for the tax effects of the Act.   LIQUIDITY AND CAPITAL RESOURCES   Our cash flows from operations can be somewhat cyclical, with the greatest demand for cash typically in the first and third quarters. We monitor such metrics as days’ sales outstanding, inventory requirements, accounts payable and capital expenditures to project liquidity needs, as well as evaluate return on assets. Our primary sources of funds are operating cash flows and our Revolver Loan (“Revolver”) with our bank.   We gauge our liquidity and financial stability by various measurements, some of which are shown in the following table:     December 31,     December 31,     2016   2015     2019     2018   Working capital   $ 28,373,000     $ 21,023,000     $ 22,115,000     $ 22,323,000   Current ratio     5.60 to 1       2.19 to 1       2.92 to 1       3.26 to 1   Shareholders’ equity   $ 47,590,000     $ 43,642,000     $ 46,506,000     $ 45,535,000     19 Credit Facilityfacility   In October 2010, we entered into a Loan and Security Agreement (“Our Credit Agreement”) with an affiliateFacility is discussed in detail in Note 7 to our consolidated financial statements. The average balance of Capital One, National Association (“Capital One”, orshort-term borrowings during the “Bank”). The Credit Agreement, among other things, provides the ability to borrow funds under the Revolver arrangement. Revolver borrowings atyears ended December 31, 2016 are secured by the Company’s accounts receivable, inventory, equipment2019 and mortgages on real property located in Cranberry, PA2018, were $4,253,000 and Jupiter, FL (“Real Property”). P&F and certain of its subsidiaries are borrowers under the Credit Agreement, and their obligations are cross-guaranteed by certain other subsidiaries.$3,113,000, respectively.   At our option, Revolver borrowings bear interest at either LIBOR (“London InterBank Offered Rate”) or the Base Rate, as the term is defined in the Credit Agreement, plus an Applicable Margin, as defined in the Credit Agreement. We are subject to limitations on the number of LIBOR borrowings. In August 2014, we entered into an Amended and Restated Loan and Security Agreement (the “Restated Loan Agreement”) with Capital One. The Restated Loan Agreement, among other things, amended the Credit Agreement by: (1) increasing the total amount of the credit facility from $29,423,000 to $33,657,000, (2) increasing the Revolver from $20,000,000 to $22,000,000, (3) creating a new Term Loan, as defined in the Restated Loan Agreement (“Term Loan B”), and (4) re-designating as “Term Loan A”, the previously existing outstanding Term Loan, which relates primarily to the Company’s Real Property. In addition, the Restated Loan Agreement also reset certain financial covenants. Contemporaneously with the sale of Nationwide in February 2016, we entered into the Consent and Second Amendment to the Restated Loan Agreement (the “Amendment”) with Capital One. The Amendment, among other things; provided the Bank’s consent to the transactions contained in the Stock Purchase Agreement and the repurchase of certain shares and options discussed in Note 2 and 8 to the Consolidated Financial Statements, and amended the Restated Loan Agreement by: (a) reducing the aggregate Commitment (as defined in the Restated Loan Agreement) to $11,600,000; (b) reducing the Term Loan A to $100,000; (c) reducing the Revolver Commitment to $10,000,000 (less the new Term Loan A balance of $100,000); (d) reducing the Capex Loan Commitment to $1,600,000; (e) modifying certain financial covenants, (f) lowering interest rate margins and fee obligations; and (g) extending the expiration of the Credit Agreement to February 11, 2019. Additionally, the bank released the mortgage on our Tampa, FL Real Property. We believe that despite the reduction in the overall facility, our cash requirements to operate our business will be funded by operations and the Revolver. Further, we believe that should a need arise whereby the current credit facility is insufficient,insufficient; we can borrow additional amounts against our Real Propertyreal property or other assets.   The net funds provided bySale of Real Property Effective June 18, 2019 (the “Jupiter Closing Date”), Florida Pneumatic completed the sale of Nationwidereal property located in Jupiter, Florida in which it conducts its principal operations (the “Jupiter Facility”). The Jupiter Facility was purchased by an unrelated third party for purchase price of approximately $18.7 million were used to pay down the Revolver, the Cap-Ex loans$9.2 million. After broker fees and the Term Loan A; however, the Amendment provided for $100,000 to remain outstanding under the Term Loan A. Leaving this balance will simplify potential future increasesother expenses relating to the term loan, shouldsale, the Company require and should Capital One be willingreceived approximately $8.7 million. See Note 1 to provide such funding.our Consolidated Financial Statements for further discussion. 22   Short–Term BorrowingsCash Flows   At December 31, 2016, the Company did not have any borrowings against its Revolver line, whereas at December 31, 2015, it had borrowings of $9,623,000. Applicable Margin rates at December 31, 2016 for LIBOR and Base Rates were 1.50% and 0.50%, respectively, and at December 31, 2015, Applicable Margin Rates were 2.00% and 1.00%, respectively, for LIBOR and Base Rate. LIBOR Base Rate % % Range of Applicable Margins added to Revolver borrowings during: 2016 1.50 points to 2.0 points 0.50 points to 1.00 points 2015 2.00 points to 2.50 points 1.00 points to 1.50 points We purchase vehicles for use by our UAT salesforce. The current portion of the balance due on these loans applicable to these purchased vehicles was $13,000 at December 31, 2016 and $31,000 at December 31, 2015. We provide to Capital One among other things, monthly financial statements, monthly borrowing base certificates and quarterly certificates of compliance with various financial covenants. We believe we are in compliance with all financial and non-financial covenants. As part of the Restated Loan Agreement, if an event of default occurs, the interest rate would increase by two percent per annum during the period of default, in addition to other remedies provided to Capital One. At December 31, 2016, we had $9,836,000 of open order commitments, compared to $10,224,000 at December 31, 2015. On March 8, 2016, our Board of Directors announced that it approved the initiation of a dividend policy under which we intend to declare a cash dividend to our stockholders in the amount of $0.20 per share per annum, payable in equal quarterly installments. Based upon the current number of shares of our Class A Common Stock outstanding at December 31, 2016, each quarterly cash dividend will require approximately $180,000. The Company continues to maintain the dividend policy; however, the declaration of dividends under this policy going forward is dependent upon the Company’s financial condition, results of operations, capital requirements and other factors deemed relevant by the Company’s board of directors.   Cash Flows At December 31, 2016,2019, cash used in operating activities for the year was $1,158,000,$2,514,000, compared to cash provided by operating activities for the year ended December 31, 20152018 of $6,573,000.$2,966,000. At December 31, 2016,2019, our net cash balance was $3,699,000,$380,000, compared to $927,000$999,000 at December 31, 2015. As discussed above, with respect to daily cash flows, we2018. Cash at our UAT subsidiary at December 31, 2019 and 2018 was $85,000 and $227,000, respectively. We operate under the terms and conditions of the Revolver.Credit Agreement. As a result, all domestic cash receipts are remitted to Capital One lock-boxes. At December 31, 2016, cash on hand consisted of a portion of the funds from the sale of the real property in Tampa, Florida, cash disbursements that have not yet cleared our operating accounts at Capital One, and funds residing in lock-boxes which have not yet been applied. As the result of the sale of Nationwide in February and the sale of the real property in Tampa, Florida and cash flows from operations, we were able to reduce our total bank debt to $100,000 at December 31, 2016 from $16,066,000 at December 31, 2015, which resulted in ourlockboxes. Our total debt to total book capitalization (total debt divided by total debt plus equity), percentage falling to 0.2% at December 31, 2016 from 26.9%2019 was 10.8%, compared to 5.3% at December 31, 2015.2018. We anticipate being able to generate cash from operations during 2017.2020.   Capital spending during the year ended December 31, 20162019 was $1,066,000,$1,524,000, compared to $1,261,000$1,878,000 in 2015.2018. Capital expenditures currently planned for 2017 is2020 are approximately $723,000,$1,300,000, which we expect will be financed through our Restated Loan Agreement and with repayments being made through cash flows.the Credit Facility. The major portion of these planned capital expenditures will be for new metal cutting equipment, tooling and information technology hardware and software. In October 2019, we completed the Gears Acquisition for approximately $3.5 million, which was funded from Revolver borrowings. See Note 2 – to our Consolidated Financial Statements, for further information relating to this transaction.   During 2019 our Board of Directors approved the payment of dividends of $0.05 per common share to the shareholders of record in March 2019, May 2019, August 2019, and November 2019. During 2018, our Board of Directors voted to approve the payment of four quarterly dividends. As such, in February 2018, May 2018, August 2018, and November 2018, the Company paid a $0.05 per share dividend to the shareholders of record. The aggregate of such dividend payments was approximately $632,000 and $723,000 for the year ended December 31, 2019 and 2018, respectively. Our Board of Directors intends to maintain this dividend policy; however, the future declaration of dividends under this policy is dependent upon several factors, which includes such things as our overall financial condition, results of operations, capital requirements and other capital requirements at Hy-Tech, with the balance for capital requirements, such as tooling, etc., required for new product development at Florida Pneumatic.factors our board may deem relevant.     Customer concentration At Florida Pneumatic we have two retail customers thatOn February 14, 2019, the Company entered into an agreement to repurchase 389,909 shares of its Common Stock from certain funds and accounts advised or sub-advised by Fidelity Management & Research Company or one of its affiliates in a privately negotiated transaction at December 31, 2016 accountedapproximately $7.62 per share for 14.2% and 39.3%, respectively,a total purchase price of our consolidated accounts receivable compared$2,971,000. The agreed upon purchase price per share of $7.62 was computed as the value equal to 11.4% and 35.6%, at December 31, 2015. To date, these customers, with minor exceptions, are current in their payments. Further, these two customers accounted97% of the volume weighted average price of the Company’s common stock for 13.6% and 29.8%, respectively, of our 2016 consolidated revenue, compared to 11.7% and 28.5%, respectively, in 2015.the 20 trading days ended on February 7, 2019.     2320     On September 12, 2018, following the expiration of a prior repurchase program, our Board of Directors authorized us to repurchase up to 100,000 additional shares of our Common Stock (the “2018 Repurchase Program”) from time to time over the next 12 months through a 10b5-1 trading plan, and potentially through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. On September 14, 2018, we announced that, pursuant to the 2018 Repurchase Program, we adopted a written trading plan in accordance with the guidelines specified under Rule 10b5-1 under the Securities Exchange Act of 1934. Repurchases made under the plan, that commenced on September 17, 2018, were subject to the SEC’s regulations, as well as certain price, market, volume, and timing constraints specified in the plan. Under the 2018 Repurchase Program, we repurchased 100,000 shares of our Common Stock, 66,602 during 2019 and 33,398 during 2018, at an aggregate cost of approximately $547,000 and $272,000, respectively. Included in the change in Other current liabilities was the payment of $1,000,000, the contingent consideration, payable to the seller of Jiffy. At December 31, 2019, we had $4,871,000 of open purchase order commitments, compared to $6,700,000 at December 31, 2018. Customer concentration At December 31, 2019, THD accounted for 20.7% of our consolidated revenue, compared to 26.5% of 2018’s revenue. Further, accounts receivable at December 31, 2019 and 2018 from THD were 27.2% and 32.6%, respectively. There was no other customer that accounted for more than 10% of revenue or accounts receivable in 2019 or 2018.   IMPACT OF INFLATION   We believe that the effects of changing prices and inflation on our consolidated financial position and our results of operations are immaterial. ENVIRONMENTAL MATTERS Although it is difficult to identify precisely the portion of capital expenditures or other costs attributable to be in compliance with environmental laws and regulations, we do not expect such expenditures or other costs to have a material adverse effect on our consolidated financial position and results of operations.been minimal.   NEW ACCOUNTING PRONOUNCEMENTS   Refer to Note 1, "Summary of Accounting Policies",Policies," to our consolidated financial statementsConsolidated Financial Statements for aadditional discussion of recent accounting standards and pronouncements.   We are currently evaluating the impact of the adoption of ASU 2016-02,Leases, on its consolidated financial condition, results of operations and cash flows. Other than the aforementioned, we do not believe that any other recently issued, but not yet effective accounting standard, if adopted, will have a material effect on our consolidated financial statements. ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk   Not Required     2421     ITEM 8.  Financial Statements and Supplementary Data ITEM 8. Financial Statements and Supplementary Data   P&F INDUSTRIES, INC. AND SUBSIDIARIES   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS     Page Report of Independent Registered Public Accounting Firm 26 23 Consolidated Balance Sheets as of December 31, 20162019 and 20152018 27 - 28 24 Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 20162019 and 20152018 29 26 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 20162019 and 20152018 30 27 Consolidated Statements of Cash Flows for the years ended December 31, 20162019 and 20152018 31 - 32 28 Notes to Consolidated Financial Statements 33 30     2522     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    To the Board of Directors and ShareholdersStockholders of P&F Industries, Inc. and Subsidiaries Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of P&F Industries, Inc. and Subsidiaries (the “Company”) as of December 31, 20162019 and 2015,2018, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related consolidated notes (collectively referred to as the consolidated financial statements). In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years then ended. P&F Industries, Inc. and Subsidiaries’ management is responsiblein the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Basis for these consolidated financial statements.Opinion These Consolidated Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statementsthe Company’s Consolidated Financial Statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsConsolidated Financial Statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationAs part of our audits, we are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.   In our opinion,Adoption of New Accounting Standard As discussed in Note 1 to the consolidated financial statements, referred to above present fairly, inthe Company adopted Accounting Standards Codification ASC 842, beginning January 1, 2019 and applied the practical expedients consistently for all material respects, the financial position of P&F Industries, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.its leases.   /s/ CohnReznick LLP We have served as the Company’s auditor since 2008. Jericho, New York March 29, 201730, 2020      2623     P&F INDUSTRIES, INC. AND SUBSIDIARIES   CONSOLIDATED BALANCE SHEETS     December 31, 2016   December 31, 2015     December 31, 2019     December 31, 2018                       ASSETS                                 CURRENT ASSETS                                                                 Cash   $ 3,699,000     $ 927,000     $ 380,000     $ 999,000   Accounts receivable — net     7,906,000       8,477,000       9,313,000       9,574,000   Inventories     19,901,000       19,783,000       22,882,000       20,496,000   Prepaid expenses and other current assets     3,030,000       1,032,000       1,497,000       1,137,000   Assets of discontinued operations     —       8,435,000   TOTAL CURRENT ASSETS     34,536,000       38,654,000       34,072,000       32,206,000                                   PROPERTY AND EQUIPMENT                                 Land     1,150,000       1,550,000       507,000       1,281,000   Buildings and improvements     5,209,000       7,677,000       3,303,000 ��     6,262,000   Machinery and equipment     19,401,000       18,736,000       25,059,000       22,612,000       25,760,000       27,963,000       28,869,000       30,155,000   Less accumulated depreciation and amortization     18,671,000       18,491,000       18,760,000       20,380,000   NET PROPERTY AND EQUIPMENT     7,089,000       9,472,000       10,109,000       9,775,000                                   GOODWILL     3,897,000       10,154,000       4,726,000       4,436,000                                   OTHER INTANGIBLE ASSETS — net     6,606,000       11,098,000       8,259,000       7,800,000                                   DEFERRED INCOME TAXES — net     1,793,000       —       216,000       628,000                                   RIGHT-OF-USE ASSETS – OPERATING LEASES     3,859,000       —                   OTHER ASSETS — net     130,000       234,000       502,000       741,000                                   TOTAL ASSETS   $ 54,051,000     $ 69,612,000     $ 61,743,000     $ 55,586,000     The accompanying notes are an integral part of these consolidated financial statements.     2724     P&F INDUSTRIES, INC. AND SUBSIDIARIES   CONSOLIDATED BALANCE SHEETS       December 31, 2016     December 31, 2015                 LIABILITIES AND SHAREHOLDERS’ EQUITY                 CURRENT LIABILITIES                                   Short-term borrowings   $ —     $ 9,623,000   Accounts payable     2,398,000       2,791,000   Accrued compensation and benefits     1,733,000       1,718,000   Accrued other liabilities     2,019,000       1,666,000   Current maturities of long-term debt     13,000       491,000   Liabilities of discontinued operations     —       1,342,000   TOTAL CURRENT LIABILITIES     6,163,000       17,631,000                     Long-term debt, less current maturities     88,000       5,936,000   Deferred tax liabilities – net     —       2,175,000   Other liabilities     210,000       228,000                     TOTAL LIABILITIES     6,461,000       25,970,000                     COMMITMENTS AND CONTINGENCIES                                   SHAREHOLDERS’ EQUITY                 Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued     —       —   Common stock:                 Class A - $1 par; authorized - 7,000,000 shares; issued - 4,181,000 at December 31, 2016 and 4,170,000 at December 31, 2015     4,181,000       4,170,000   Class B - $1 par; authorized - 2,000,000 shares; no shares issued     —       —   Additional paid-in capital     12,906,000       12,884,000   Retained earnings     36,061,000       31,495,000   Treasury stock, at cost - 584,000 shares at December 31, 2016 and 554,000 shares at December 31, 2015     (4,821,000 )     (4,566,000 ) Accumulated other comprehensive loss     (737,000 )     (341,000 )                   TOTAL SHAREHOLDERS’ EQUITY     47,590,000       43,642,000                     TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 54,051,000     $ 69,612,000       December 31, 2019     December 31, 2018                 LIABILITIES AND SHAREHOLDERS’ EQUITY                 CURRENT LIABILITIES                                   Short-term borrowings   $ 5,648,000     $ 2,096,000   Accounts payable     1,843,000       2,755,000   Accrued compensation and benefits     2,019,000       2,336,000   Accrued other liabilities     1,568,000       1,243,000   Current maturities of long-term debt     —       453,000   Current leased liabilities – operating leases     879,000       —   Contingent consideration payable     —       1,000,000   TOTAL CURRENT LIABILITIES     11,957,000       9,883,000                     Non-current leased liabilities – operating leases     3,070,000       —   Other liabilities     210,000       168,000                     TOTAL LIABILITIES     15,237,000       10,051,000                      COMMITMENTS AND CONTINGENCIES                                   SHAREHOLDERS’ EQUITY                 Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued     —       —   Common Stock :                 Class A - $1 par; authorized - 7,000,000 shares; issued – 4,416,000 at December 31, 2019 and 4,410,000 at December 31, 2018     4,416,000       4,410,000   Class B - $1 par; authorized - 2,000,000 shares; no shares issued     —       —   Additional paid-in capital     14,056,000       13,904,000   Retained earnings     38,867,000       34,588,000   Treasury stock, at cost – 1,273,000 shares at December 31, 2019 and 816,000 shares at December 31, 2018     (10,213,000 )     (6,695,000 ) Accumulated other comprehensive loss     (620,000 )     (672,000 )                   TOTAL SHAREHOLDERS’ EQUITY     46,506,000       45,535,000                     TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 61,743,000     $ 55,586,000   The accompanying notes are an integral part of these consolidated financial statements. 25 P&F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME     Years ended December 31,       2019     2018   Net revenue   $ 58,674,000     $ 64,995,000   Cost of sales     37,716,000       41,808,000   Gross profit     20,958,000       23,187,000   Selling, general and administrative expenses     21,869,000       21,705,000   Operating (loss) income     (911,000 )     1,482,000   Other expense - net     —       (150,000 ) Gain on sale of building     7,817,000       —   Interest expense - net     (198,000 )     (223,000 ) Income before income taxes     6,708,000       1,109,000   Income tax expense - net     (1,797,000 )     (253,000 ) Net income   $ 4,911,000     $ 856,000                     Basic earnings per share   $ 1.53     $ 0.24   Diluted earnings per share   $ 1.51     $ 0.23                     Weighted average common shares outstanding:                 Basic     3,207,000       3,628,000   Diluted     3,262,000       3,728,000                     Net income   $ 4,911,000     $ 856,000   Other comprehensive income (loss) - foreign currency translation adjustment     52,000       (142,000 ) Total comprehensive income   $ 4,963,000     $ 714,000   The accompanying notes are an integral part of these consolidated financial statements. 26 P&F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY           Class A Common Stock, $1 Par     Additional paid-in     Retained     Treasury stock     Accumulated other comprehensive       Total     Shares     Amount     capital     earnings     Shares     Amount     loss                                                     Balance, January 1, 2018   $ 46,013,000       4,203,000     $ 4,203,000     $ 13,064,000     $ 34,455,000       (631,000 )   $ (5,179,000 )   $ (530,000 )                                                                   Net income     856,000       —       —       —       856,000       —       —       —                                                                     Exercise of stock options     806,000       200,000       200,000       606,000       —       —       —       —                                                                     Restricted Common Stock  compensation     45,000       7,000       7,000       38,000       —       —       —       —                                                                     Stock - based compensation     196,000       —       —       196,000       —       —       —       —                                                                     Purchase of Class A Common Stock     (1,516,000 )     —       —       —       —       (185,000 )     (1,516,000 )     —                                                                     Dividends     (723,000 )     —       —       —       (723,000 )     —       —       —                                                                     Foreign currency translation adjustment     (142,000 )     —       —       —       —       —       —       (142,000 )                                                                   Balance December 31, 2018   $ 45,535,000       4,410,000     $ 4,410,000     $ 13,904,000     $ 34,588,000       (816,000 )   $ (6,695,000 )   $ (672,000 )                                                                             Class A Common Stock, $1 Par     Additional paid-in     Retained     Treasury stock     Accumulated other comprehensive       Total     Shares     Amount     capital     earnings     Shares     Amount     (loss) income                                                     Balance, January 1, 2019   $ 45,535,000       4,410,000     $ 4,410,000     $ 13,904,000     $ 34,588,000       (816,000 )   $ (6,695,000 )   $ (672,000 )                                                                   Net income     4,911,000       —       —       —       4,911,000       —       —       —                                                                     Restricted Common Stock  compensation     52,000       6,000       6,000       46,000       —       —       —       —                                                                     Stock - based compensation     106,000       —       —       106,000       —       —       —       —                                                                     Purchase of Class A Common Stock     (3,518,000 )     —       —       —       —       (457,000 )     (3,518,000 )     —                                                                     Dividends     (632,000 )     —       —       —       (632,000 )     —       —       —                                                                     Foreign currency translation adjustment     52,000       —       —       —       —       —       —       52,000                                                                     Balance December 31, 2019   $ 46,506,000       4,416,000     $ 4,416,000     $ 14,056,000     $ 38,867,000       (1,273,000 )   $ (10,213,000 )   $ (620,000 ) The accompanying notes are an integral part of these consolidated financial statements. 27 P&F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS     Years ended December 31,       2019     2018   Cash Flows from Operating Activities                 Net income from operations   $ 4,911,000     $ 856,000                     Adjustments to reconcile net income from operations to net cash (used in) provided by operating activities:                 Non-cash charges:                 Depreciation and amortization     1,566,000       1,383,000   Amortization of other intangible assets     703,000       702,000   Amortization of operating lease assets     582,000       —   Amortization of debt issue costs     23,000       95,000   Amortization of consideration payable to customer     270,000       122,000   (Recovery) provision for doubtful accounts     (38,000 )     121,000   Stock-based compensation     106,000       196,000   Restricted stock-based compensation     52,000       45,000   Gain on sale of fixed assets     (7,817,000 )     (1,000 ) Deferred income taxes     409,000       253,000   Impairment of assets     194,000       —   Fair value increase in contingent consideration     —       150,000   Changes in operating assets and liabilities:                 Accounts receivable     529,000       482,000   Inventories     (1,714,000 )     (901,000 ) Prepaid expenses and other current assets     (339,000 )     83,000   Other assets     (1,000 )     (988,000 ) Accounts payable     (1,025,000 )     317,000   Accrued compensation and benefits     (318,000 )     395,000   Accrued other liabilities     255,000       (324,000 ) Operating lease liabilities     (597,000 )     —   Other liabilities     (265,000 )     (20,000 ) Total adjustments     (7,425,000 )     2,110,000   Net cash (used in) provided by operating activities     (2,514,000 )     2,966,000     The accompanying notes are an integral part of these consolidated financial statements.     28     P&F INDUSTRIES, INC. AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMECASH FLOWS       Years ended December 31,       2016     2015   Net revenue   $ 57,276,000     $ 60,312,000   Cost of sales     38,345,000       38,630,000   Gross profit     18,931,000       21,682,000   Selling, general and administrative expenses     19,610,000       19,157,000   Impairment of goodwill and other intangible assets     9,581,000       —   Operating (loss) income     (10,260,000 )     2,525,000   Other income - net     100,000       272,000   Gain on sale of building     1,703,000       —   Interest expense     (181,000 )     (116,000 ) (Loss) income before income taxes     (8,638,000 )     2,681,000   Income tax (benefit) expense     (2,955,000 )     825,000   Net (loss) income from continuing operations     (5,683,000 )     1,856,000                     Discontinued operations (Note 2)                                   Net income from discontinued operations, net of tax of $38,000 and $1,001,000 for the years ended December 31, 2016 and 2015, respectively     72,000       1,688,000   Gain on sale of discontinued operations, net of tax benefit of $482,000     12,512,000       —   Net income from discontinued operations, net of tax     12,584,000       1,688,000   Net income   $ 6,901,000     $ 3,544,000                     Basic (loss) earnings per share                 Continuing operations   $ (1.58 )   $ 0.51   Discontinued operations     3.50       0.47   Net income   $ 1.92     $ 0.98                     Diluted (loss) earnings per share                 Continuing operations   $ (1.58 )   $ 0.49   Discontinued operations     3.50       0.45   Net income   $ 1.92     $ 0.94                     Weighted average common shares outstanding:                 Basic     3,598,000       3,607,000   Diluted     3,598,000       3,771,000                     Net income   $ 6,901,000     $ 3,544,000   Other comprehensive loss - foreign currency translation adjustment     (396,000 )     (113,000 ) Total comprehensive income   $ 6,505,000     $ 3,431,000       Years ended December 31,       2019     2018   Cash Flows from Investing Activities:                 Capital expenditures   $ (1,524,000 )   $ (1,878,000 ) Proceeds from sale real property and other assets     8,766,000       26,000   Purchase of net assets of gear businesses     (3,518,000 )     —   Net cash provided by (used in) investing activities     3,724,000       (1,852,000 )                   Cash Flows from Financing Activities:                 Dividend payments     (632,000 )     (723,000 ) Proceeds from exercise of stock options     —       806,000   Purchase of Class A Common Stock     (3,518,000 )     (1,516,000 ) Net proceeds from short-term borrowings     3,552,000       168,000   Payment of contingent consideration     (692,000 )     —   Repayments of notes payable     (453,000 )     (47,000 ) Payments of debt issue costs     (72,000 )     (3,000 ) Net cash used in financing activities     (1,815,000 )     (1,315,000 ) Effect of exchange rate changes on cash     (14,000 )     (41,000 ) Net decrease in cash     (619,000 )     (242,000 ) Cash at beginning of year     999,000       1,241,000   Cash at end of year   $ 380,000     $ 999,000                     Supplemental disclosures of cash flow information:                                   Cash paid for:                 Interest   $ 171,000     $ 130,000                     Income taxes   $ 1,809,000     $ 86,000                     Amounts included in the measurement of operating lease liabilities   $ 30,000     $ —                     Supplemental disclosures of non-cash investing and financing activities:                 Contingent consideration on acquisition of gear businesses   $ 64,000     $ —                     Capital expenditures financed   $ —     $ 400,000                     Right of Use (“ROU”) assets recognized for new operating lease liabilities     4,032,000       —   Operating lease liability related to ROU assets recognized upon adoption of ASC 842     418,000       —      The accompanying notes are an integral part of these consolidated financial statements.     29     P&F INDUSTRIES, INC. AND SUBSIDIARIES   CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY           Class A Common Stock, $1 Par     Additional paid-in     Retained     Treasury stock     Accumulated other comprehensive       Total     Shares     Amount     capital     earnings     Shares     Amount     loss                                                     Balance, January 1, 2015   $ 39,991,000       4,139,000     $ 4,139,000     $ 12,695,000     $ 27,951,000       (554,000 )   $ (4,566,000 )   $ (228,000 )                                                                   Net income     3,544,000       —       —       —       3,544,000       —       —       —                                                                     Exercise of stock options     73,500       23,500       23,500       50,000       —       —       —       —                                                                     Issuance of restricted common stock     42,500       7,500       7,500       35,000       —       —       —       —                                                                     Stock-based compensation     86,000       —       —       86,000       —       —       —       —                                                                     Tax benefit on stock-based compensation     18,000       —       —       18,000       —       —       —       —                                                                     Foreign currency translation adjustment     (113,000 )     —       —       —       —       —       —       (113,000 )                                                                   Balance, December 31, 2015     43,642,000       4,170,000       4,170,000       12,884,000       31,495,000       (554,000 )     (4,566,000 )     (341,000 )                                                                   Net income     6,901,000       —       —       —       6,901,000       —       —       —                                                                     Exercise of stock options     23,000       6,000       6,000       17,000       —       —       —       —                                                                     Issuance of restricted common stock     50,000       5,000       5,000       45,000       —       —       —       —                                                                     Stock-based compensation     (22,000 )     —       —       (22,000 )     —       —       —       —                                                                     Purchase of Class A common stock     (255,000 )     —       —       —       —       (30,000 )     (255,000 )     —                                                                     Tax benefit on stock-based compensation     (18,000 )     —       —       (18,000 )     —       —       —       —                                                                     Dividends     (2,335,000 )     —       —       —       (2,335,000 )     —       —       —                                                                     Foreign currency translation adjustment     (396,000 )     —       —       —       —       —       —       (396,000 )                                                                   Balance, December 31, 2016   $ 47,590,000       4,181,000     $ 4,181,000     $ 12,906,000     $ 36,061,000       (584,000 )   $ (4,821,000 )   $ (737,000 ) The accompanying notes are an integral part of these consolidated financial statements. 30 P&F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS     Years ended December 31,       2016     2015   Cash Flows from Operating Activities                 Net (loss) income from continuing operations   $ (5,683,000 )   $ 1,856,000   Net income from discontinued operations     12,584,000       1,688,000                     Adjustments to reconcile net (loss) income from operations to net cash (used in) provided by operating activities:                 Non-cash charges:                 Depreciation and amortization     1,620,000       1,555,000   Amortization of other intangible assets     1,016,000       1,237,000   Amortization of debt issue costs     128,000       111,000   Provision for doubtful accounts     4,000       8,000   Stock-based compensation     13,000       86,000   Restricted stock-based compensation     50,000       43,000   Gain on sale of fixed assets     (1,700,000 )     (2,000 ) Deferred income taxes     (3,946,000 )     339,000   Fair value reduction in contingent consideration     —       (126,000 ) Impairment of goodwill and other intangible assets     9,581,000       —   Changes in operating assets and liabilities:                 Accounts receivable     498,000       (69,000 ) Inventories     (316,000 )     (435,000 ) Prepaid expenses and other current assets     (2,006,000 )     386,000   Other assets     58,000       101,000   Accounts payable     (372,000 )     89,000   Accrued compensation and benefits     24,000       (270,000 ) Accrued other liabilities     390,000       (830,000 ) Other liabilities     (18,000 )     (17,000 ) Total adjustments     5,024,000       2,206,000   Net cash (used in) provided by operating activities – continuing operations     (659,000 )     4,062,000   Net cash (used in) provided by operating activities – discontinued operations     (499,000 )     2,511,000   Net cash (used in) provided by operating activities     (1,158,000 )     6,573,000   The accompanying notes are an integral part of these consolidated financial statements. 31 P&F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS     Years ended December 31,       2016     2015   Cash Flows from Investing Activities:                 Capital expenditures   $ (1,066,000 )   $ (1,261,000 ) Proceeds from disposal of assets     3,512,000       48,000   Net cash provided by (used in) investing activities – continuing operations     2,446,000       (1,213,000 ) Net cash provided by (used in) investing activities – discontinued operations     20,149,000       (161,000 ) Net cash provided by (used in) investing activities     22,595,000       (1,374,000 )                   Cash Flows from Financing Activities:                 Dividend payments     (2,335,000 )     —   Proceeds from exercise of stock options     23,000       73,000   Purchase of Class A common stock     (255,000 )     —   Proceeds from short-term borrowings     56,446,000       72,347,000   Repayments of short-term borrowings     (47,359,000 )     (74,541,000 ) Repayments of term loans     (6,343,000 )     (3,127,000 ) Repayments of notes payable     (29,000 )     (39,000 ) Excess tax benefit on stock-based compensation     (18,000 )     18,000   Payments of bank financing costs     (30,000 )     —   Net cash provided by (used in) financing activities – continuing operations     100,000       (5,269,000 ) Net cash used in financing activities – discontinued operations     (18,716,000 )     —   Net cash used in financing activities     (18,616,000 )     (5,269,000 ) Effect of exchange rate changes on cash     (49,000 )     (14,000 ) Net increase (decrease) in cash     2,772,000       (84,000 ) Cash at beginning of year     927,000       1,011,000   Cash at end of year   $ 3,699,000     $ 927,000                     Supplemental disclosures of cash flow information:                                   Cash paid for:                 Interest   $ 133,000     $ 615,000                     Income taxes   $ 112,000     $ 1,626,000                     Supplemental disclosures of non-cash investing and financing activities:                 Exchange of property and equipment   $ —     $ 64,000   The accompanying notes are an integral part of these consolidated financial statements. 32 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 20162019 and 20152018   NOTE 1—SUMMARY OF ACCOUNTING POLICIES   Principles of Consolidation   The consolidated financial statementsConsolidated Financial Statements contained herein include the accounts of P&F Industries, Inc. and its subsidiaries (“P&F” or the “Company”). All significant intercompany balances and transactions have been eliminated.  Certain amounts in the financial statements have been reclassified to conform to classifications used in the current year.   The Company   Prior to February 11, 2016, the effective date of the sale of its Nationwide Industries, Inc. (“Nationwide”) subsidiary, P&F operated in two primary lines of business or segments: (i) tools and other products (“Tools”) and (ii) hardware and accessories (“Hardware”). Asis a result of the sale of Nationwide, which had been reported in the Hardware segment, the Company only operates in the Tools business. See Note 2 to Consolidated Financial Statements for further discussion. Tools Delaware corporation incorporated on April 19, 1963. The Company conducts its Tools business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn currently operates through its wholly-owned subsidiaries, Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”). During the third quarter of 2014, the Company acquired Exhaust Technologies Inc. (“ETI”), a developer and distributor of pneumatic tools, through a merger between a newly formed, wholly-owned subsidiary of Florida Pneumatic and ETI. Further, in July 2014, Florida Pneumatic acquired all of the outstanding shares of Universal Air Tool Company Limited (“UAT”) and Jiffy Air Tool, Inc. (“Jiffy”), a distributor of pneumatic tools located in High Wycombe, England. UAT markets pneumatic tools to the automotive market sector primarily in the United Kingdom and Ireland. This acquisition provides the Company with direct entry into the European pneumatic tool market for the Company’s entire suite of air tool products. Both ETI and UAT are all wholly-owned subsidiaries of Florida Pneumatic, and unless otherwise indicated, the operations and resultsPneumatic. The business of operations of Florida Pneumatic herein include ETI and UAT as of the respective dates such companies were acquired. Additionally, during the third quarter of 2014, theAir Tool Service Company acquired substantially all the assets of ATSCO Holdings Corp. (“ATSCO”), operates through a wholly-owned subsidiary of Hy-Tech, and unless otherwise indicated,Hy-Tech. Effective October 25, 2019, the operations and results of operationsCompany through a wholly owned subsidiary of Hy-Tech, herein include ATSCO asacquired substantially all the operating assets comprising the businesses of the date the business was acquired.Blaz-Man Gear, Inc. and Gear Products & Manufacturing, Inc., each an Illinois-based corporation that manufactures and distributes custom gears. See Note 2 – Acquisition, for further discussion   Florida Pneumatic is engagedimports and sells pneumatic hand tools, most of which are of its own design, primarily to the retail, industrial, automotive and aerospace markets. Its products include sanders, grinders, drills, saws and impact wrenches. These tools are similar in the importationappearance and salefunction to electric hand tools, but are powered by compressed air, rather than by electricity or battery. Air tools, as they are more commonly referred to, generally offer better performance and weigh less than their electrical counterparts. Florida Pneumatic imports and/or manufactures approximately 75 types of pneumatic hand tools, most of which are sold at prices ranging from $50 to $1,000, under the names “Florida Pneumatic,” “Universal Tool”, “Jiffy Air Tool”, AIRCAT, NITROCAT, as well as under the trade names or trademarks of several private label customers. These products are sold to retailers, distributors, manufacturers and private label customers through in-house sales personnel and manufacturers’ representatives. The AIRCAT and NITROCAT brands of pneumatic tools are sold primarily forto the retail, industrial and automotive service and repair markets,market (“automotive market”). Users of Florida Pneumatics’ hand tools include industrial maintenance and the importationproduction staffs, do-it-yourself mechanics, professional automobile mechanics and sale of compressor air filters.  Florida Pneumatic also markets, through its Berkley Tool division (“Berkley”), a product line which includes pipeauto body personnel. Jiffy manufactures and bolt dies, pipe taps, wrenches, visesdistributes pneumatic tools and stands, pipe and tubing cutting equipment, hydrostatic test pumps, and replacement electrical components for a widely-used brand of pipe cutting and threading machines.primarily to aerospace manufacturers.    Hy-Tech designs, manufactures and distributes its own lineindustrial tools, systems, gearing, accessories and a wide variety of replacement parts under various brands including ATP, Numatx, Thaxton and Quality Gear.  Hy-Tech produces and sells heavy-duty pneumatic impact tools, grinders, air motors, hydro-pneumatic riveters, hydrostatic test plugs, impact sockets and custom gears, with prices ranging from $300 to $42,000. Hy-Tech’s ”Engineered Solutions” products are sold direct to Original Equipment Manufacturers (“OEM’s”), and industrial pneumatic tools, such as impact wrenches, grinders, drills, and motors. Further, it also manufactures tools to customer specifications. Its customers include refineries, chemical plants,branded products are sold through a broad network of specialized industrial distributors serving power generation, facilities, heavypetrochemical, aerospace, construction, enterprises,railroad, mining, ship building and oilfabricated metals. Hy-Tech works directly with their industrial customers, designing and mining companies. In addition,manufacturing products from finished components to complete turnkey systems to be sold under their own brand names. Nearly all of Hy-Tech manufactures an extensive linebrands are manufactured in the United States of pneumatic tool replacement parts thatAmerica. Hy-Tech does distribute ATP branded impact sockets, striking wrenches and accessories imported from Italy and Asia. The sales of Hy-Tech products through various channel and direct customers are managed by both direct sales personnel and a network of specialized manufacturer representatives. Further, its products are sold as standard off-the-shelf and also produced to original equipment manufacturers (“OEMs”), and competitively. It also manufactures and distributes high pressure stoppersbe sold for hydrostatic testing fabricated pipe, gears, sprockets, splines and racks and produces a line of siphons.customer specific specifications. Hardware Prior to the sale of Nationwide, which was effective February 11, 2016 (the “Closing Date”), the Company conducted its Hardware business through its wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). Countrywide conducted its business operations through its wholly-owned subsidiary, Nationwide. As of the Closing Date, Nationwide was an importer and manufacturer of door, window and fencing hardware and accessories, including rollers, hinges, window operators, sash locks, custom zinc castings and door closers. See Note 2 to Consolidated Financial Statements for further discussion relating to the sale of Nationwide. 33   Basis of Financial Statement Presentation   The Company prepares its consolidated financial statementsConsolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“US GAAP”).   Revenue Recognition   The Company recognizesrecords revenue when persuasive evidence of an arrangement exists, delivery is completed,based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606,Revenue from Contracts with Customers ("ASC 606"), which occurs either upon shipment by us, or upon receipt by customer at the location specified in the terms of sale, or title has passed to our customer or services have been provided, the sale price is fixed or determinable, and collectability is reasonably assured.it adopted effective January 1, 2018. The Company sells its goods on terms which transfer title and risk of loss at a specified location, typically shipping point,which may be our warehouse, destination designated by our customer, port of loading or port of discharge, depending on the final destination of the goods. Other than standard product warranty provisions, the Company’sour sales arrangements provide for no other post-shipment obligations. The Company offers rebates and other sales incentives, promotional allowances or discounts from time to time and for certain customers that are typically related to customer purchase volume, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale.sale, using the most likely amount approach. The Company periodically evaluates whether an allowance for sales returns is necessary. Historically, the Company haswe have experienced minimal sales returns. If the Company believes there are material potential sales returns, the Companyit would provide the necessary provision against sales. 30 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued The Company's performance obligations underlying its core revenue sources remain substantially unchanged. Its revenue is generated through the sale of finished products and is generally recognized at the point in time when merchandise is transferred to the customer with a fixed payment due generally within 30 to 90 days, and in an amount that considers the impacts of estimated allowances. Further, the Company has made a policy election to account for shipping and handling activities that occur after the customer has obtained control of the products as fulfillment costs rather than as an additional promised service. This election is consistent with the Company’s prior policy, and therefore the adoption of ASC 606 relating to shipping and handling activities did not have any impact on its financial results. There are no remaining performance obligations as of December 31, 2019. The Company analyzes its revenue as follows: Revenue generated at Florida Pneumatic.     Year Ended December 31,       2019     2018     Increase (decrease)       Revenue     Percent of revenue     Revenue     Percent of revenue     $     %   Automotive   $ 14,800,000       34.1 %   $ 14,430,000       28.5 %   $ 370,000       2.6 % Retail customers   12,467,000       28.8     18,234,000       35.9   (5,767,000 )     (31.6 ) Aerospace     10,513,000       24.2       12,244,000       24.1       (1,731,000 )     (14.1 ) Industrial     4,969,000       11.5       5,151,000       10.2       (182,000 )     (3.5 ) Other     608,000       1.4       661,000       1.3       (53,000 )     (8.0 ) Total   $ 43,357,000       100.0 %   $ 50,720,000       100.0 %   $ (7,363,000 )     (14.5 )% Revenue generated at Hy-Tech.     Year Ended December 31,       2019     2018     Increase (decrease)       Revenue     Percent of revenue     Revenue     Percent of revenue     $     %   OEM   $ 7,321,000       47.8 %   $ 5,447,000       38.2 %   $ 1,874,000       34.4 % ATP   6,290,000       41.1   7,253,000       50.8   (963,000 )     (13.3 ) Other     1,706,000       11.1       1,575,000       11.0       131,000       8.3   Total   $ 15,317,000       100.0 %   $ 14,275,000       100.0 %   $ 1,042,000       7.3 %   Shipping and Handling Costs   Expenses for shipping and handling costs are included in selling, general and administrative expenses, and totaled approximately $2,013,000$1,883,000 and $1,950,000,$2,370,000, respectively, for the years ended December 31, 20162019 and 2015.2018. 31 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued   Cash and Cash Equivalents   Cash and cash equivalents consist of cash held in bank demand deposits. The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. There were no cash equivalents at December 31, 20162019 and 2015.2018.    Financial Instruments   The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts payable and short-term debt approximate fair value as of December 31, 20162019 and 20152018 because of the relatively short-term maturity of these financial instruments. The carrying amounts reported for long-term debt approximate fair value as of December 31, 20162019 and 20152018 because, in general, the interest rates underlying the instruments fluctuate with market rates.    Accounts Receivable and Allowance for Doubtful Accounts   Accounts receivable are customer obligations due under normal trade terms. The Company sells its products to retailers, distributors and original equipment manufacturers involved in a variety of industries. The Company performs continuing credit evaluations of its customers’ financial condition, and although the Company generally does not require collateral, letters of credit may be required from customers in certain circumstances.   Management reviews accounts receivable to determine if any receivables will potentially be uncollectible. Factors considered in the determination include, among other factors, number of days an invoice is past due, customer historical trends, available credit ratings information, other financial data and the overall economic environment. Collection agencies may also be utilized if management so determines.   The Company records an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. The Company also records as an additional allowance a certain percentage of aged accounts receivable, based on historical experience and the Company’s assessment of the general financial conditions affecting its customer base. If actual collection experience changes, revisions to the allowance may be required. The Company has a limited number of customers with individually large amounts due at any given balance sheet date. Any unanticipated change in the creditworthiness of any of these customers could have a material effect on the Company’s results of operations in the period in which such changes or events occur. After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. Based on the information available, the Company believes that its allowance for doubtful accounts as of December 31, 20162019 is adequate. However, actual write-offs might exceed the recorded allowance. 34   Concentrations of Credit Risk   The Company places the majority of its cash with its primary bank, Capital One Bank, National Association (“Capital One”), which is insured by the Federal Deposit Insurance Corporation (“FDIC”). Significant concentrations of credit risk may arise from the Company’s cash maintained at Capital One, as from time to time cash balances may exceed the FDIC limits.   Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable. We have two customersThe Company had one customer that in the aggregate, asaccounted for 27.2% and 32.6% of its consolidated accounts receivable at December 31, 20162019 and 2015,December 31, 2018, respectively. Further, this customer accounted for 53.5%20.7% and 47.0%, respectively,26.5% of the Company’s consolidated revenue in 2019 and 2018, respectively. There was no other customer that accounted for more than 10% of our consolidated accounts receivable. To date, these customers remain atrevenue in 2019 or close to complying with their payment terms. 2018. 32 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018   Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, possible disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis P&F evaluates its estimates, including those related to collectability of accounts receivable, valuation of inventories, recoverability of goodwill and intangible assets and income taxes.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.  NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued   Inventories   Inventories are valued at the lower of cost or market.net realizable value. Cost is determined by the first-in, first-out method or the weighted average method. The inventory balance, which includes raw materials, labor, and manufacturing overhead costs, is recorded net of an allowance for obsolete or unmarketable inventory. Such allowance is based upon both historical experience and management’s understanding of market conditions and forecasts of future product demand. If the actual amount of obsolete or unmarketable inventory significantly exceeds the estimated allowance, the Company’s cost of sales, gross profit and net earnings would be significantly affected.   Property and Equipment and Depreciation and Amortization   Property and equipment are stated at cost less accumulated depreciation and amortization. Generally, the Company capitalizes items in excess of $1,000. Minor replacements and maintenance and repair items are charged to expense as incurred. Upon disposal or retirement of assets, the cost and related accumulated depreciation are removed from the Company’s consolidated balance sheets.   Depreciation of buildings and machinery and equipment is computed by using the straight-line method over the estimated useful lives of the assets. Buildings are depreciated over periods ranging from 27.5 to 31 years, and machinery and equipment is depreciated over periods ranging from 3 to 10 years. Leasehold improvements are amortized over the life of the lease or the useful life of the related asset, whichever is shorter.   Long-Lived Assets   In accordance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”), pertaining to the accounting for the impairment or disposal of long-lived assets, property and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assessment of recoverability of property and equipment is performed on an entity level. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of such asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of such asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.   Acquisitions   The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired, liabilities assumed, and contingent consideration, if any, are recorded as of the date of the acquisition at their respective fair values. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred and that restructuring costs be expensed in periods subsequent to the acquisition date. Generally, the Company engages third party valuation appraisal firms to assist it in determining the fair values and useful lives of the assets acquired and liabilities assumed. The Company records a preliminary purchase price allocation for its acquisitions and finalizes purchase price allocations as additional information relative to the fair values of the assets acquired become known.     3533     P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued   Goodwill, Intangible and Long-Lived Assets   Goodwill is carried at cost less any impairment charges. Goodwill and intangible assets with indefinite lives are not amortized but are subject to an annual test for impairment at the entity unit level (operating segment or one level below an operating segment) and between annual tests in certain circumstances. In accordance with authoritative guidance issued by the FASB,Financial Accounting Standards Board, (“FASB”), the Company tests goodwill for impairment on an annual basis. This test occurs in the fourth quarter or more frequently if the Company believes indicators of impairment exist. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If after assessing the totalitycarrying amount of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value, of the Company’s reporting units with the reporting unit’s carrying amount, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the expected present value of future cash flowsno impairment exists, and the market valuation approach.no further action is required. If the carrying amount of a reporting unit exceeds the reporting unit’sits fair value, the Company performsentitywill record an impairment charge based on the second stepexcess of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of thea reporting unit’s goodwill with theunit's carrying amount of that goodwill. The measurement of goodwill subsequent toover its initial recognition complies with the authoritative guidance issued by the FASB.fair value.   Intangible assets other than goodwill and intangible assets with indefinite lives, are carried at cost less accumulated amortization. Intangible assets are generally amortized on a straight-line basis over their respective useful lives, generally 3 to 20 years.   Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold, and use is based on the amount by which the carrying value exceeds the fair value of the asset.   Warranty Liability   The Company offers certain warranties against product defects for periods ranging from one to three years. Certain products carry limited lifetime warranties. The Company’s typical warranties require it to repair or replace the defective products during the warranty period at no cost to the customer. At the time the product revenue is recognized, the Company records a liability for estimated costs under its warranties.costs. The costs are estimated based on revenue and historical experience. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. While the Company believes that its estimated liability for product warranties is adequate and that the judgment applied is appropriate, the estimated liability for the product warranties could differ materially from future actual warranty costs.in the future.   Income Taxes   The Company accounts for income taxes using the asset and liability approach. This approach requires the recognition of current tax assets or liabilities for the amounts refundable or payable on tax returns for the current year, as well as the recognition of deferred tax assets or liabilities for the expected future tax consequences of temporary differences that can arise between (a) the amount of taxable income and pretax financial income for a year, such as from net operating loss carryforwards and other tax credits, and (b) the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates. The impact on deferred tax assets and liabilities of changes in tax rates and laws, if any, is reflected in the consolidated financial statementsConsolidated Financial Statements in the period enacted. Further, we evaluatethe Company evaluates the likelihood of realizing benefit from our deferred tax assets by estimating future sources of taxable income and the impact of tax planning strategies. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.    The Company files a consolidated Federal tax return. P&F and certain of its subsidiaries file combined tax returns in New York, California, Illinois and Texas. All subsidiaries, other than UAT, file other state and local tax returns on a stand-alone basis. UAT files an income tax return to the taxing authorities in the United Kingdom.     3634     When tax returnsP&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued Income Taxes - Continued Tax benefits are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while other positions are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of arecognized for an uncertain tax position is recognizedwhen, in the financial statements in the period during which, based on all available evidence, management believesCompany’s judgment, it is more likely than not that the position will be sustained upon examination includingby a taxing authority. For a tax position that meets the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. For tax positions that meet the more-likely-than-notmore likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with the applicablea taxing authority. The portion of the benefitsliability associated with unrecognized tax positions taken that exceedsbenefits is adjusted periodically due to changing circumstances and when new information becomes available. Such adjustments are recognized entirely in the amount measured as described above, is reflected as aperiod in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits inand subsequent adjustments as considered appropriate by the consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.Company. Interest and penalties associated withrecognized on the liability for unrecognized tax benefits are classifiedrecorded as income tax expense. The authoritative guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) such assets will not be realized. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the consolidatedCompany's financial statements or tax returns and future profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company's estimates, due to unanticipated events or otherwise, could have a material effect on its financial condition and results of operations. The Company continually evaluates its deferred tax assets to determine if a valuation allowance is required. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. Among other things this Act reduced the U.S. federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, created new provisions related to foreign sourced earnings, eliminated the domestic manufacturing deduction and comprehensive income.moves to a hybrid territorial system. In accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin 118 (“SAB 118”), income tax effects of the Act were refined upon obtaining, preparing, and analyzing additional information during the measurement period. At December 31, 2018, the Company had completed its accounting for the tax effects of the Act. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance allows companies to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which they are subject to the rules (the period cost method), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the deferred method). After completing the analysis of the GILTI provisions, the Company elected to account for GILTI using the period cost method. Sale of real property Effective June 18, 2019 (the “Jupiter Closing Date”), Florida Pneumatic completed the sale of real property located in Jupiter, Florida in which it conducts its principal operations (the “Jupiter Facility”). The Jupiter Facility was purchased by an unrelated third party for purchase price of $9.2 million. After broker fees and other expenses relating to the sale, the Company received approximately $8.7 million. Selling price   $ 9,200,000   Selling expenses     451,000   Net proceeds     8,749,000                       Land     774,000   Building and improvements     2,956,000   Accumulated depreciation     (2,798,000 ) Net book value     932,000   Gain on sale of the Jupiter Facility   $ 7,817,000   35 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued Effective as of the Jupiter Closing Date, Florida Pneumatic, entered into a lease with respect to an approximately 42,000 square foot portion of the Jupiter Facility. The lease is for a term of five years, with either party able to terminate after four years. The initial monthly base rent under the lease is $32,345 with annual escalations of 3%. Florida Pneumatic will also be responsible for certain other payments of “additional rent” as set forth in the lease, including certain taxes, assessments and operating expenses. The Company considered the guidance in the current accounting literature relating to the recognition of the gain and determined that the full amount of $7,817,000 should be recognized as of the date of the transaction. Lease Accounting On January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) ASC 842“Leases” using the initial date of adoption method, whereby the adoption does not impact any periods prior to 2019. ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases’ guidance. The Company recorded an operating Right of Use (“ROU”) asset of $394,000, and an operating lease liability of $418,000 as of January 1, 2019. The difference between the initial operating ROU asset and operating lease liability of $24,000 is accrued rent previously recorded under ASC 840. The Company elected to adopt the package of practical expedients and, accordingly, did not reassess any previously expired or existing arrangements and related classifications under ASC 840. If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as the discount rate. The Company uses its best judgement when determining the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency. The Company’s operating leases include vehicles, office space and the use of real property. The Company has not identified any material finance leases as of December 31, 2019. For the year ended December 31, 2019, the Company had $582,000 in Operating lease expense. See Note 2 for information related to a new 5 year lease. The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of December 31, 2019:     As of December 31, 2019           2020   $ 900,000   2021     828,000   2022     739,000   2023     637,000   2024     369,000   Thereafter     1,042,000   Total operating lease payments     4,515,000   Less imputed interest     (566,000 ) Total operating lease liabilities   $ 3,949,000             Weighted-average remaining lease term     6.7 years   Weighted-average discount rate     4.4 % 36 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, possible disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis P&F evaluates its estimates, including those related to collectability of accounts receivable, valuation of inventories, recoverability of goodwill and intangible assets, consideration payable to customer and income taxes.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.     Advertising   The Company expenses its costs of advertising in the period in which they are incurred. Advertising costs for the years ended December 31, 20162019 and 20152018 were $1,441,000$1,690,000 and $1,132,000,$1,375,000, respectively.   Earnings Per Common Share   Basic earnings per common share exclude any dilution. It is based upon the weighted average number of shares of common stockCommon Stock outstanding during the year. Diluted earnings per common share reflect the effect of shares of common stockCommon Stock issuable upon the exercise of stock options, unless the effect on earnings is anti-dilutive.   Diluted earnings per common share is computed using the treasury stock method. Under this method, the aggregate number of shares of common stockCommon Stock outstanding reflects the assumed use of proceeds from the hypothetical exercise of any outstanding options to purchase shares of the Company’s Class A Common Stock. The average market value for the period is used as the assumed purchase price.   The following table sets forth the computation of basic and diluted (loss) earnings per common share:       Years Ended December 31,       2016     2015   Numerator for basic and diluted (loss) earnings per common share:                 Net (loss) income from continuing operations   $ (5,683,000 )   $ 1,856,000   Net income from discontinued operations     12,584,000       1,688,000   Net income   $ 6,901,000     $ 3,544,000   Denominator:                 Denominator for basic (loss) income per share—weighted average common shares outstanding     3,598,000       3,607,000   Effect of dilutive securities:                 Stock options     —       164,000   Denominator for diluted (loss) income per share—adjusted weighted average common shares and assumed conversions     3,598,000       3,771,000       Years Ended December 31,       2019     2018   Numerator for basic and diluted earnings per common share:                 Net income   $ 4,911,000     $ 856,000   Denominator:                 Denominator for basic income per share—weighted average common shares outstanding     3,207,000       3,628,000   Denominator for diluted income per share—adjusted weighted average common shares and assumed conversions     3,262,000       3,728,000     At December 31, 2016 and 2015 and during the years then ended, there were outstanding stock options whose exercise prices were higher than the average market values for the respective periods. These options are anti-dilutive and were excluded from the computation of diluted earnings per share during the year ended December 31, 2015. For the year ended December 31, 2016, we experienced a net loss from continuing operations, as such, these options were not included in the computation of diluted (loss) earnings per share. The average anti-dilutive options outstanding for the yearsyear ended December 31, 20162019 and 20152018 were 76,00055,000 and 134,000,12,000, respectively.     37     P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued   Share-Based Compensation   In accordance with US GAAP, the Company measures and recognizes compensation expense for all share-based payment awards based on estimated fair values. Share-based compensation expense is included in selling, general and administrative expense on the accompanying consolidated statements of income and comprehensive income.   With respect to stock options, US GAAP requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of income and comprehensive income. The Company records compensation expense ratably over the vesting periods. The Company estimates forfeitures at the time of grant and revises this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses the Black-Scholes option-pricing model as its method of valuation for share-based awards granted. As such, the Company’s determination of fair value of share-based payment awards is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include but are not limited to the Company’s expected stock price volatility over the term of the awards, relevant interest rates, and the expected term of the awards.   With respect to any issuance of its common stock,Common Stock, the Company determines fair value per share as the closing price of its common stockCommon Stock on the date of the grant of said shares.   Foreign Currency Translation   The assets and liabilities of international operations are translated at the exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated at the monthly average exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the Company's international operations are reported as a component of "Accumulated other comprehensive loss" in the Company's consolidated balance sheets.   For foreign currency remeasurement from each local currency into the appropriate functional currency, monetary assets and liabilities are remeasured to functional currencies using current exchange rates in effect at the balance sheet date. Gains or losses from these remeasurements were not significant and have been included in the Company’s consolidated statements of income and comprehensive income. Non-monetary assets and liabilities are recorded at historical exchange rates, and the related remeasurement gains or losses are reported as a component of "Accumulated other comprehensive loss" in the Company's consolidated balance sheets.   Going concern assessment     WithIn accordance with current accounting literature, the implementation of FASB's new standard on going concern, beginning with year ended December 31, 2016, and all annual and interim periods thereafter, we will assessCompany assesses going concern uncertainty in ourits financial statements to determine if weit will have sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in the current accounting guidance. As part of this assessment, based on conditions that are known and reasonably knowable to us, wethe Company, it will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and its ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, wethe Company will make certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deemthe Company deems probable those implementations can be achieved and weit will have the proper authority to execute them within the look-forward period. Our assessment determined the Company is a going concern.     38     P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued   New Accounting Pronouncements   Recently Issued Accounting Pronouncements Not Yet Adopted In March 2016, the FASB issued Accounting Standard Update (“ASU”) ASU 2016-09,Improvements to Employee Share-Based Payment Accounting. The standard reduces complexity in several aspects of the accounting for employee share-based compensation, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company believes that when adopted, this ASU will have minimal impact on its consolidated financial statements and related disclosures.   In February 2016, the FASB issued ASU 2016-02,Leases. This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous US GAAP. ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leasesleases’ guidance. This ASU became effective January 1, 2019. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statementsoffers two transition methods: (1) a modified retrospective approach, in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election asequity in the financial statements in which the ASU is first applied or (2) a package and if applied consistentlyprospective approach, in which a company is allowed to all leases.initially apply the new lease standard at the adoption date. The Company is currently evaluatingelected the impact of theprospective approach. The adoption of this guidancestandard had a minimal effect on the Company’s Consolidated Statement of Income and Comprehensive Income. However, does require the Company to include on its consolidated financial condition, results of operationsConsolidate Balance Sheet Right-of-Use assets and cash flows. related liabilities incurred in connection with certain operating leases, which at December 31, 2019, were $3,859,000 and $3,949,000, respectively.   In May 2014,February 2018, the FASB issued No. ASU No. 2014-09,2018-02,RevenueIncome Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Contracts with CustomersAccumulated Other Comprehensive Income, as a new Topic, Accounting Standards Codification ("ASC" (“ASU 2018-02”) Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updates. Under ASU 2018-02, an entity may elect to Topic 606 issued byreclassify the FASB in 2015 and 2016 include the following: · ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of the new guidance such that the new provisions will now be required for fiscal years, and interim periods within those years, beginning after December 15, 2017. · ASU No. 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations (reporting revenue gross versus net). · ASU No. 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and classifying licensing arrangements. · ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies the implementation guidance in a number of other areas. The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. The Company intends to use the modified retrospective approach. The Company iscurrently in the process of completing its assessment of any significant contract and assessing the impact the adoptionincome tax effects of the new revenue standard will haveTax Reform Act on its consolidated financial statements and related disclosures. Thus far the company does not believe the adoption of this standards update will have a material effect on its consolidated financial statements and related disclosures. However, the Company will continue its evaluation of the standards update through the date of adoption. The standard update, as amended, will be effective for annual periods beginning after December 15, 2017. In July 2015, the FASB issueditems within accumulated other comprehensive income to retained earnings. ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”).  The standard simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value for entities using the first-in-first out method of valuing inventory.  ASU 2015-11 eliminates other measures required by current guidance to determine net realizable value.  ASU 2015-112018-02 is effective for fiscal years beginning after December 15, 20162018, and interim periods within those fiscal years and earlyyears. Early adoption is permitted.permitted in any interim period. The Company hasadoption of this standard did not early adopted ASU 2015-11 and does not expect the new guidance to have a material effect on its consolidated financial statements whenthe Company’s Consolidated Financial Statements. Other than the aforementioned, the Company does not believe that any other recently issued, but not yet effective accounting standard, if adopted, for fiscal 2017 and beyond.will have a material effect on our Consolidated Financial Statements. Not yet Adopted    In January 2017,December 2019, the FinancialFASB issued Accounting Standards Board (“FASB”Update ("ASU") issued ASU No. 2017-04, “Intangibles – Goodwill and Other2019-12, “Income Taxes (Topic 350)740): Simplifying the TestAccounting for Goodwill Impairment,Income Taxes.” which simplified the testing of goodwillThe ASU is intended to simplify various aspects related to accounting for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04income taxes. This guidance is effective for public companies for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are2020, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effects that the adoption of ASU 2017-04 willimpact this guidance may have on ourits consolidated financial statements.   In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e. as early as the first quarter 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have completed. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date. NOTE 2—ACQUISITION  Effective October 25, 2019 (the “Gears Closing Date”), the Company, through a wholly owned subsidiary of Hy-Tech, acquired substantially all the assets comprising the businesses of Blaz-Man Gear, Inc. and Gear Products & Manufacturing, Inc., (the “Gears Acquisition”), each an Illinois-based corporation that manufactures and distributes custom gears. The Company believes that the acquisition of these two businesses will provide added expertise and market exposure into the customized/specialty gears market. The purchase price consisted of an aggregate of approximately $3.5 million in cash, which was funded by Revolver borrowings and the assumption of certain payables and contractual obligations. In addition, the sellers may be entitled to additional contingent consideration based upon sale of certain categories of acquired inventory during the two-year period following the Gears Closing Date. In connection with the Gears Acquisition, the Company entered into Consent, Joinder and Amendment No. 8 (“Amendment No. 8”) to Second Amended and Restated Loan and Security Agreement (the “Credit Agreement”), with Capital One, National Association. Amendment No. 8, among other things, provided consent to the Gears Acquisition. Amendment No. 8 also modified the Credit Agreement to suspend the requirement pertaining to compliance with the covenant relating to a Fixed Charge Coverage Ratio, unless a Default or Event of Default occurs, or availability is less than 17.5% of the aggregate amount of the Revolver Commitments, as each such term is defined, at any time. Further, it granted permission to the Company to continue its issuance of dividends and allow the Company to repurchase shares of its own Common Stock, provided that no Default or Event of Default has occurred, subject to Revolver availability limitations, among other things.   39     There are currently no other accounting standards that have been issued but not yet adopted that will have a significant impact on the Company’s financial position, results of operations or cash flows upon adoption.P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recently Adopted In November 2015, the FASB issued ASU 2015-17,Balance Sheet Classification of Deferred Taxes. ASU 2015-17 is aimed at reducing complexity in accounting standards. Currently, GAAP requires the deferred taxes for each jurisdiction to be presented as a net current asset or liabilityDecember 31, 2019 and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction; companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective in fiscal years beginning after December 15, 2016, including interim periods within those years, with early adoption permitted. The Company early adopted and applied the new standard retrospectively to the prior period presented in the consolidated balance sheets. The Company reported Deferred income taxes-net in its 2015 Form 10-K as Current assets of $1,131,000. After adoption of this ASU, and giving effect to the sale of Nationwide, discussed in Note 2, the Company now presents $229,000 of deferred tax assets being included in the Current assets from discontinued operations, and the balance of $902,000 included net against the long-term deferred income tax liability. In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). The update requires that deferred debt issuance costs be reported as a reduction to long-term debt (previously reported in other noncurrent assets). The Company adopted ASU 2015-03 in the first quarter of 2016 and for all retrospective periods, as required. The impact of the adoption was not material to our consolidated financial statements, and is discussed further in Note 7.  In August 2014, the FASB issued ASU 2014-15,Presentation of Financial Statements – Going Concern, which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. This accounting standard update applies to all entities and was effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, with early adoption permitted. The Company adopted this standard during fiscal year 2016. The adoption of this accounting standard update did not have a material impact on its consolidated results of operations, financial position or cash flows. The Company does not believe that any recently issued accounting standards, in addition to those referenced above, would have a material effect on its consolidated financial statements.2018    NOTE 2—DISCONTINUED OPERATIONS2 —ACQUISITION - Continued   Sale of Nationwide Industries, Inc. The Company, as part of its strategic plan to focusAdditionally, on expanding its position in the power-tool and accessories market, sold Nationwide on February 11, 2106, (the “Closing Date”). On theGears Closing Date, P&F, Countrywide, Nationwide and Argosy NWI Holdings, LLC, a Delaware limited liability company (“Buyer”),the Company entered into a Stock Purchase and Redemption Agreement (the “Stock Purchase Agreement”), pursuantnew five-year lease with the ultimate intention of combining all gear manufacturing operations into one location. The new leased premises, located in Punxsutawney, PA is approximately 42,000 square feet, with annual lease payments of $165,800. The Company has two three-year options to which, among other things, after giving effect to certain contributions and redemptions of Nationwide’s common shares (“Nationwide Shares”),renew the Buyer acquired alllease. As the result of the outstanding Nationwide Shares from Countrywide (the “Acquisition”). The purchase price forCompany’s decision to vacate leased space in Punxsutawney, which housed Hy-Tech’s gear operations prior to the Nationwide Shares acquiredGears Acquisition, it wrote off the fair value of the vacated old lease by a reduction in the Acquisition was approximately $22,200,000, before giving effect to an estimated working capital adjustment, as defined inRight of Use Assets and leasehold improvements on the Stock Purchase Agreement,Balance Sheet of approximately $802,000$99,000 and included a like amount in favorSelling, general and administrative expenses on its Consolidated Statement of Income and Comprehensive Income. The Company will continue to make monthly lease payments toward the Buyer. Further, in accordance with the Stock Purchase Agreement, the Company placed into escrow $1,955,000 (“escrow funds”), of which $250,000 related to the final working capital adjustment. Pursuant to the terms of the Stock Purchase Agreement, the final working capital amount was determined to be approximately $75,000 in the Company’s favor. As a result, during the three-month period ended June 30, 2016, the $250,000 portion of the escrow funds was released toold vacated lease through February 2021 unless the Company and the final working capital adjustment amountlandlord agree to other terms. Additionally, the Sellers of $75,000 was paidthe Gear Businesses may be entitled to additional consideration (“contingent consideration”), should the Company bysell within a two-year period from the Buyer. In connection withdate of acquisition, certain portions of acquired inventories, which had no fair value at the Acquisition, Countrywide agreedtime of the acquisition. Accordingly, the Company, determined that, should it sellbased upon historical sales history provided or otherwise, the real property it ownedmost likely scenario could result in Tampa, Florida, (the “Premises”) it will contribute an additional $400,000 intoa payment of contingent consideration of approximately $64,000.     Total   Cash paid at closing   $ 3,518,000   Fair value of contingent consideration     64,000   Total estimated purchase price   $ 3,582,000   The following table presents purchase price allocation: Accounts receivable   $ 218,000   Inventories     630,000             Machinery, equipment and vehicle     1,437,000   Identifiable intangible assets:         Customer relationships     995,000   Trademarks and trade names     54,000   Non-compete agreements     95,000   Liabilities assumed     (131,000 ) Goodwill     284,000   Total estimated purchase price   $ 3,582,000   The excess of the escrow funds. As discussed below, in November 2016,total purchase price over the Premises were sold and as a result Countrywide contributed the additional $400,000 into the aforementioned escrow funds. After paying closing costs,fair value of the net cash received fromassets acquired, including the Buyer was approximately $18.7 million.value of the identifiable intangible assets, has been allocated to goodwill. Goodwill will be amortized over 15 years for tax purposes, but not deductible for financial reporting purposes. The intangible assets subject to amortization will be amortized over 15 years for tax purposes. For financial reporting purposes their respective useful lives have been determined as follows:   Customer relationships 10 years Non-Compete agreements 4 years Trademarks and trade names indefinite   40     P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018  NOTE 2—ACQUISITION - Continued   The escrow funds are classifiedfollowing unaudited pro-forma combined financial information gives effect to the Acquisitions as Prepaid expenses and other current assets onif the Company’s Consolidated Balance Sheet,transactions were consummated January 1, 2018. This unaudited pro-forma financial information is presented for information purposes only and is not intended to be released eighteen months frompresent actual results that would have been attained had the Closing Date, which is on or about August 11, 2017, less any claims made against these escrow funds, in accordance with the Stock Purchase Agreement. The Company believes that these escrow funds are highly collectible, and that it is more likely than not that with respect to any or all such potential claims made against the Company, these claims will not exceed the minimum dollar threshold amountAcquisition been completed as of $150,000 required under the Stock Purchase Agreement. As a result, the Company has included the balanceJanuary 1, 2018 (the beginning of the original escrow fundsearliest period presented) or to project potential operating results as of $1,705,000 in its gain on sale of Nationwide. Should claims made against the Company pursuant to the Stock Purchase Agreement exceed the minimum threshold, then to the extent such claims are resolved in favor of the Buyer under the terms of the Stock Purchase Agreement, the total amount of such claims will be recorded as a loss on sale of Nationwide inany future date or for any future periods.       For the Year Ended December 31, 2019     For the Year Ended December 31, 2018   Revenue   $ 61,087,000     $ 68,523,000   Net income   $ 5,356,000     $ 1,028,000   Earnings per share – basic   $ 1.67     $ 0.28   Earnings per share – diluted   $ 1.64     $ 0.28   As Nationwide was a substantial and unique business unit of the Company, its sale was a strategic shift. Accordingly, in accordance with Accounting Standard Code Topic 360, the Company has classified Nationwide as discontinued operations for all periods presented. Net income from discontinued operations, net of taxes in the accompanying Consolidated Statements of Income and Comprehensive Income, is comprised of the following:     January 1, 2016 through the Closing Date     Year ended  December 31, 2015                 Revenue   $ 1,830,000     $ 21,390,000   Cost of goods sold     1,177,000       13,144,000   Gross profit     653,000       8,246,000   Selling and general and administrative expenses     483,000       4,957,000   Interest expense-net     60,000       600,000   Income before income taxes     110,000       2,689,000   Income taxes     38,000       1,001,000                     Net income   $ 72,000     $ 1,688,000   The components of discontinued operations in the accompanying Consolidated Balance Sheet are as follows:     December 31, 2015           Accounts receivable-net   $ 1,245,000   Inventories     4,211,000   Prepaid expenses and other current assets     92,000   Net property and equipment     768,000   Goodwill     1,873,000   Other intangible assets-net     12,000   Other assets- net     5,000   Deferred taxes - net     229,000   Assets of discontinued operations   $ 8,435,000             Accounts payable   $ 765,000   Accrued compensation and benefits     247,000   Accrued other liabilities     330,000   Liabilities of discontinued operations   $ 1,342,000   On the Closing Date, the Company and the president of Nationwide, entered into a purchase agreement pursuant to which, among other things the Company acquired 30,000 shares of the Company’s Class A Common Stock (“Common Stock”) at the aggregate purchase price of $254,940 and options to acquire 6,667 shares of the Company’s Common Stock at an aggregate price of $16,597. Effective as of the Closing Date, Countrywide, as landlord, and Nationwide, as tenant, entered into a new lease relating to the Premises. The lease provided for, among other things, a seven-year term commencing on the Closing Date and an annual base rent of approximately $252,000 with annual escalations. The lease also provided that the tenant will pay certain taxes and operating expenses associated with the Premises. The rental income from this new lease is included in Other income– net on the Company’s Consolidated Statement of income and comprehensive income. 41  The Company recognized a gain of $12,512,000, on the sale of Nationwide which represents the difference between the adjusted net purchase price and the carrying book value of Nationwide. For income tax purposes, our tax basis in Nationwide was greater than the net proceeds resulting in a tax loss and thus recorded a tax benefit of $482,000. This tax loss can only be applied against future capital gain transactions. In November 2016, Countrywide completed the sale of the premises to an unrelated third party for $3,750,000. After fees and other expenses, the net proceeds to the Company were $3,500,000. The Company used these net proceeds to pay down its revolving credit loan and reduce its terms loans to $100,000. As a result of this transaction, the Company, during the fourth quarter of 2016, recognized a gain on sale of $1,703,000. For tax purposes this sale is treated as a capital gain transaction and the Company utilized the $482,000 tax benefit generated from the sale of Nationwide.   NOTE 3—FAIR VALUE MEASUREMENTS   Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following hierarchy:   Level 1:Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.   Level 2: Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.   Level 3: Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrumentsinstrument’s valuation.   The guidance requires the use of observable market data if such data is available without undue cost and effort.   As of December 31, 20162019, and 2015,2018, the carrying amounts reflected in the accompanying consolidated balance sheets for current assets and current liabilities approximated fair value due to the short-term nature of these accounts. The fair value of the Prepaid expenses and other current assets, which consists primarily of escrowed funds from the sale of Nationwide, which was estimated to be the same as its carrying value, based on Level 3 inputs. The escrow will be released to the Company in August 2017, in accordance with the terms and conditions set forth in the Stock Purchase Agreement.   Assets and liabilities measured at fair value on a non-recurring basis include goodwill and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (Level 3).   NOTE 4—ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS   Accounts receivable—receivable - net consists of:     December 31, 2016   December 31, 2015     December 31, 2019     December 31, 2018   Accounts receivable   $ 7,991,000     $ 8,559,000     $ 9,547,000     $ 9,847,000   Allowance for doubtful accounts     (85,000 )     (82,000 ) Allowance for doubtful accounts, sales discounts and chargebacks     (234,000 )     (273,000 )   $ 7,906,000     $ 8,477,000     $ 9,313,000     $ 9,574,000     41 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 5—INVENTORIES   Inventories consist of:       December 31, 2016     December 31, 2015   Raw materials   $ 1,918,000     $ 2,070,000   Work in process     658,000       1,366,000   Finished goods     17,325,000       16,347,000       $ 19,901,000     $ 19,783,000   42     December 31, 2019     December 31, 2018   Raw materials   $ 2,178,000     $ 1,963,000   Work in process     2,302,000       1,924,000   Finished goods     18,402,000       16,609,000       $ 22,882,000     $ 20,496,000     NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS   Goodwill and other intangible assets with indefinite lives are tested for impairment annually or whenever events or circumstances indicate the carrying value of these assets may not be recoverable. The impairment testing is performed in two steps: (i) The Company compares  In accordance with authoritative guidance issued by the fair value of a reporting unit with its carrying value, and (ii) if there is impairment,FASB, the Company measures the amount ofperformed an annual impairment loss by comparing the implied fair valuetest of goodwill and indefinite-lived intangible assets during the fourth quarter based on conditions as of November 30, 2019. For both 2019 and 2018, with respect to Florida Pneumatic and Hy-Tech, the carrying amount of that goodwill. The Company determines thedetermined their fair value using the income approach methodology of valuation, which considers the expected present value of future cash flows. As an integral part of the valuation process the Company utilizes its latest cash flows forecasts for the remainder of the current fiscal year, if applicable, the next four fiscal years, and then applies projected minimal growth for all remaining years, based upon available statistical data and management’s estimates.     DuringThe result of the second quarter of 2016, the CompanyCompany’s impairment test for Florida Pneumatic and Hy-Tech determined that an interim impairment analysis of the goodwill recorded in connection with its Hy-Tech reporting unit was necessary based on consideration of a number of factors or assumptions, which included: · Negative changes in revenue, which was driven primarily by continued weakness in the oil and gas exploration and extraction industries; · the recent loss of a major portion of revenue from one of its larger customers; · recent significant reductions/guidance of forecasted purchases from the largest customer acquired in the ATSCO acquisition; and · changes in gross margin, driven primary by product mix and customer mix. The combination of these factors was considered to be a triggering event requiring an interim impairment test. Certain of the factors considered by management in the performance of the impairment test included: · Cash flows was determined to be a key assumption primarily due to reductions in future revenue and gross margins; and · Discount rates. The discount rates applied to internally developed cash flow projections were 14.5% for the previous annual impairment test as of November 30, 2015 and 13.8% at May 31, 2016, which was the date of the interim impairment test. The discount rate represents the weighted average cost of capital consistent with our views of the rate that an expected market participant would utilize for valuation, including the risk inherent in future cash flows, taking into account the capital structure, debt ratings and current debt yields of comparable public companies as well as an estimate of return on equity that reflects historical market returns. Based on step one of the impairment analysis, it was determined that the fair value of the reporting unit was less than the carrying value. Step two of the goodwill impairment test resets the implied fair value of goodwill through a reallocation of the assets. That is, an entity shall allocate the fair value of a reporting unit, in this case, Hy-Tech to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. Accordingly, after resetting the carrying values of its intangible assets, other than Goodwill, which resulted in a $2,968,000 impairment of intangible assets the Company adjustedexceeded the carrying value ofand, as such, no impairment to Goodwill by recording an impairment charge of $5,343,000 in the second quarter of 2016. The carrying value of Hy-Tech exceeded its estimated fair value by approximately 15.7% at November 30, 2015. The fair value of Hy-Tech was estimated using 100% value based on internally developed cash flow projections. The internally developed cash flow projections reflect annual estimates through a terminal year calculated using a terminal year EBITDA multiple approach. Trademarks and tradenames were previously considered an indefinite-lived intangible asset. However, as a result of the testing for impairment as of May 31, 2016, which determined the carrying value of Hy-Tech’s trademarks and tradenames exceeded the fair value, and an impairment charge of $229,000 was recorded at June 30, 2016. The Company commenced amortizing this intangible asset in July 2016 over a 15 year useful life. Further, future amortization is included in the estimated future amortization expense table below. Based on step one of the November 30, 2016 annual testing for impairment of our goodwill and other intangible assets it was determined that the fair value of the reporting unit was less than the carrying value. As noted above, an entity shall allocate the fair value of a reporting unit,recorded in this case, Hy-Tech to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. Accordingly, the Company, after resetting the carrying values of its intangible assets, other than Goodwill, the result was a $390,000 impairment of intangible assets and adjusted the carrying value of Goodwill by recording an impairment charge of $880,000, effective November 30, 2016.2019.   The primary factors contributing to this further impairment include: · Further erosion of Hy-Tech’s revenue, which began in October 2016 and is now expected to continue; · further decline in gross margins, driven primarily by a worsening of absorption of fixed manufacturing overhead, product mix and customer mix; · lowering of expectations with respect to orders from a large customer. 43 Certain factors considered by management in the performance of the impairment test include: · Cash flows was determined to be a key assumption primarily due to reductions in future revenue and gross margins; and · Discount rates. The discount rates applied to internally developed cash flow projections were 14.5% for the previous annual impairment test as of November 30, 2015, 13.8% at May 31, 2016 and 15.2% at November 30, 2016. The impairment determinations involved significant assumptions and judgments. The calculations supporting the estimates of the fair value of Hy-Tech and the fair values of its assets and liabilities utilized models that take into consideration multiple inputs other than those discussed above. Assumptions regarding each of these inputs could have a significant effect on the related valuations. In performing these calculations, we also take into consideration assumptions on how current market participants would value Hy-Tech and its operating assets and liabilities. Changes to assumptions that reflect the views of current market participants can also have a significant effect on the related valuations. The fair value measurements resulting from these models are classified as non-recurring Level 3 measurements consistent with accounting standards related to the determination of fair value. Because of the volatility of these factors, we cannot predict the likelihood of any future impairment.  As of December 31, 2015, the Company has no accumulated impairment losses. The changes in the carrying amount of goodwill for 2016 are as follows:       Florida Pneumatic     Hy-Tech     Total   Balance, January 1, 2016   $ 3,931,000     $ 6,223,000     $ 10,154,000   Impairment of goodwill     —       (6,223,000 )     (6,223,000 ) Currency translation adjustment     (34,000 )     —       (34,000 ) Balance, December 31, 2016   $ 3,897,000     $ —     $ 3,897,000   As of December 31, 2015, the Company has no accumulated impairment losses. The changes in the carrying amount of other intangible assets occurring during 2016 are as follows:     Cost     Accumulated Amortization     Net Book Value   Balance, January 1, 2016   $ 15,277,000     $ 4,179,000     $ 11,098,000   Impairment of other intangible assets     (6,541,000 )     (3,183,000 )     (3,358,000 ) Amortization     —       1,016,000       (1,016,000 ) Currency translation adjustment     (139,000 )     (21,000 )     (118,000 ) Balance, December 31, 2016   $ 8,597,000     $ 1,991,000     $ 6,606,000   Balance, January 1, 2019   $ 4,436,000   Currency translation adjustment     6,000   Acquisition of Hy-Tech Illinois     284,000   Balance, December 31, 2019   $ 4,726,000     Other intangible assets were as follows:       December 31, 2016     December 31, 2015       Cost     Accumulated amortization     Net book value     Cost     Accumulated amortization     Net book value   Other intangible assets:                                                 Customer relationships (1)   $ 5,143,000     $ 1,022,000     $ 4,121,000     $ 11,285,000     $ 3,486,000     $ 7,799,000   Trademarks and trade names (1)     1,507,000       —       1,507,000       1,576,000       —       1,576,000   Trademarks and trade names (2)     200,000       5,000       195,000       439,000       —       439,000   Engineering drawings     330,000       148,000       182,000       410,000       159,000       251,000   Non-compete agreements (1)     212,000       150,000       62,000       362,000       134,000       228,000   Patents     1,205,000       666,000       539,000       1,205,000       400,000       805,000   Totals   $ 8,597,000     $ 1,991,000     $ 6,606,000     $ 15,277,000     $ 4,179,000     $ 11,098,000   44 Included in the table above is the following impairment charge recorded during 2016: Customer relationships   $ 3,001,000   Trademarks and trade names (2)     237,000   Engineering drawings     37,000   Non-compete agreements     83,000                 $ 3,358,000       December 31, 2019     December 31, 2018       Cost     Accumulated amortization     Net book value     Cost     Accumulated amortization     Net book value   Other intangible assets:                                     Customer relationships (1)   $ 7,825,000     $ 2,724,000     $ 5,101,000     $ 6,821,000     $ 2,135,000     $ 4,686,000   Trademarks and trade names (1)     2,375,000       —       2,375,000       2,308,000       —       2,308,000   Trademarks and trade names     200,000       45,000       155,000       200,000       32,000       168,000   Engineering drawings     330,000       225,000       105,000       330,000       202,000       128,000   Non-compete agreements (1)     331,000       235,000       96,000       233,000       223,000       10,000   Patents     1,405,000       978,000       427,000       1,405,000       905,000       500,000   Totals   $ 12,466,000     $ 4,207,000     $ 8,259,000     $ 11,297,000     $ 3,497,000     $ 7,800,000     (1) A portion of these intangibles are maintained in a foreign currency and are therefore subject to foreign exchange rate fluctuations. (2) These were previously considered an indefinite lived intangible asset of Hy-Tech; however as the result of the testing for impairment the Company began amortizing these intangible assets over a fifteen year useful life.   Amortization expense 42 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS - Continued Changes in the carrying amount of intangible assets from continuing operations subject to amortization wasother intangibles are as follows:       Cost     Accumulated amortization     Net book value   Balance, January 1, 2019   $ 11,297,000     $ 3,497,000     $ 7,800,000   Amortization     —       703,000       (703,000 ) Acquisition of Hy-Tech Illinois     1,144,000       —       1,144,000   Currency translation adjustment     25,000       7,000       18,000   Balance, December 31, 2019   $ 12,466,000     $ 4,207,000     $ 8,259,000         Year ended December 31,       2016     2015       $ 1,016,000     $ 1,237,000     The weighted average amortization period for intangible assets was as follows:     December 31, 2016   December 31, 2015     December 31,  2019     December 31,  2018   Customer relationships     9.3       10.0       8.7       9.3   Trademarks and trade names (2)     14.5       —       11.5       12.5   Engineering drawings     8.8       8.5       7.1       7.7   Non-compete agreements     1.2       2.7       3.7       2.3   Patents     6.1       5.8       7.1       7.9   Amortization expense of intangible assets subject to amortization was as follows:     Year ended December 31,       2019     2018     $ 703,000     $ 702,000     Amortization expense for each of the next five years and thereafter is estimated to be as follows:   2017   $ 708,000   2018     570,000   2019     551,000   2020     512,000   2021     508,000   Thereafter     2,250,000       $ 5,099,000     2020     $ 767,000     2021       759,000     2022       758,000     2023       754,000     2024       706,000     Thereafter       2,140,000           $ 5,884,000   43 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018   NOTE 7—DEBT   In October 2010, the Company entered into a Loan and Security Agreement (“Credit Agreement”) with an affiliate of Capital One, National Association (“Capital One”, or the “Bank”). The Credit Agreement, as amended and restated in April 2017 and further amended from time-to-time, among other things, provides forthe ability to borrow funds under a Revolver Loan$16,000,000 revolver line (“Revolver”), subject to certain borrowing base criteria. Additionally, there is a $2,000,000 line for capital expenditures (“Capex Loan”), with $1,600,000 available for future borrowings. Revolver and Capex Loan borrowings under which are secured by the Company’s accounts receivable, mortgages on itsinventory, equipment, and real property, located in Cranberry, PA, Tampa, FL and Jupiter, FL (“Real Property”),  inventory and equipment.among other things. P&F and certain of its subsidiaries are borrowers under the Credit Agreement, and their obligations are cross-guaranteedcross guaranteed by certain other subsidiaries. The Credit Agreement was amended effective February 8, 2019, which among other things set the expiration date to February 8, 2024. Additionally, see Note 2 to the Company’s Consolidated Financial Statements for further discussion relating to Amendment No. 8. At the Company’s option, Revolver borrowings will bear interest at either LIBOR (“London InterBankinterbank Offered Rate”) or the Base Rate, as the term is defined in the Credit Agreement, plus thean Applicable Margin, as defined in the Credit Agreement. Further, the interest rate, either LIBOR or Base Rate, which is added to the Applicable Margin, is at the option of the Company. The Company is limited assubject to limitations on the number of LIBOR borrowings.   The Company provides Capital One with monthly borrowing base certificates, and in August 2014, entered intocertain circumstances, it is required to deliver monthly financial statements and certificates of compliance with various financial covenants. Should an Amended and Restated Loan and Security Agreement (the “Restated Loan Agreement”) withevent of default occur the interest rate would increase by 2% per annum during the period of default, in addition to other remedies provided to Capital One. The Restated Loan Agreement, among other things, amended the Credit Agreement by: (1) increasing the total amount of the credit facility from $29,423,000 to $33,657,000, (2) increasing the Revolver from $20,000,000 to $22,000,000, (3) creating a new Term Loan, as defined in the Restated Loan Agreement (“Term Loan B”), and (4) re-designating as “Term Loan A”, the previously existing outstanding Term Loan, which relates primarily to the Company’s Real Property. In addition, the Restated Loan Agreement also reset certain financial covenants. 45 Contemporaneously with the sale of Nationwide, as discussed in Note 2, the Company entered into the Consent and Second Amendment to the Restated Loan Agreement (the “Amendment”) with Capital One. The Amendment, among other things; (a) provided the Bank’s consent to the transactions contained in the Stock Purchase Agreement and the repurchase of certain shares and options discussed in Note 2 and 8 to the Consolidated Financial Statements; (b) amended the Restated Loan Agreement by: (i) reducing the aggregate Commitment (as defined in the Restated Loan Agreement) to $11,600,000; (ii) reducing the Term Loan A to $100,000; (iii) reducing the Revolver Commitment to $10,000,000 (less the new Term Loan A balance of $100,000); (iv) reducing the Capex Loan Commitment to $1,600,000; (v) modifying certain financial covenants, (vi) lowering interest rate margins and fee obligations; and (vii) extending the expiration of the Credit Agreement to February 11, 2019. Additionally, the Bank released the mortgage on the Company’s Real Property located in Tampa, Florida.   The Company provides Capital One with, among other things, monthly financial statements, and monthly borrowing base certificates. The Company is required to comply with certain financial covenants. Under certain circumstances the Company would be required to submit certificates of compliance. The Company believes it is in compliance with all covenants underthat should a need arise whereby the current Credit Facility. The net proceeds provided by the sale of Nationwide of approximately $18.7 million were used to pay down the Revolver and the Capex Term Loans in their entirety and paid the Company approximately $6 millioncredit facility is insufficient it can borrow additional amounts against the Term Loan A, discussed below. SHORT–TERM BORROWINGSits real property or other assets.   At December 31, 2016, the Company did not have any borrowings against2019, its short-term or Revolver line, whereasborrowing was $5,648,000 compared to $2,096,000 at December 31, 2015, it had borrowings of $9,623,000.2018. Applicable Margin ratesRates, at December 31, 20162019 and 2018 for LIBOR and Base Rates were 1.50% and 0.50%, respectively, andrespectively. Additionally, at December 31, 2015, Applicable Margin Rates were 2.00%2019 and 1.00%,2018, there was approximately $9,200,000 and $12,024,000, respectively, for LIBOR and Base Rate. LIBOR Base Rate % % Range of Applicable Margins added to Revolver borrowings during: 2016 1.50 points to 2.0 points 0.50 points to 1.00 points 2015 2.00 points to 2.50 points 1.00 points to 1.50 points LONG –TERM BORROWINGSavailable to the Company under its Revolver arrangement.   The Restated Loan Agreement provides foraverage balance of short-term borrowings during the years ended December 31, 2019 and 2018, were $4,253,000 and $3,113,000, respectively. There was a $100,000 Term Loan A, which isthat was secured by mortgages on the Real Property,real property, accounts receivable, inventory and equipment. At December 31, 2018 borrowing of this Term Loan A borrowings can bewas at either LIBOR, or at the Base Rate, or a combination of the two plus the Applicable Margins. LIBOR borrowings at December 31, 2016 and 2015 were 1.5% and 3.0%, respectively.LIBOR. The Applicable Margin for borrowings at the Base Rate for the same timeframes were 0.5% and 2.0%, respectively. A portion of the net proceeds from the sale of Nationwide repaid all but $100,000 of this Term Loan A and, accordingly, such remaining balance is being borrowed at the Base Rate, and is included in Long-term debt, less current maturities on the Company’s Consolidated Balance SheetLIBOR at December 31, 2016.2018 was 1.5%. In June 2019, the Company repaid the principal amount of $100,000.   During 2012,In April 2018, the Company borrowed $380,000 and $519,000,$400,000 against the Capex line. This borrowing was to be repaid in equal principle installments of approximately $6,700, payable monthly, with the balance due at its Maturity Date as loans to purchase machinery and equipment (“Capex Term Loans”). These loans were fully repaid with funds fromdefined in the sale of Nationwide. The long-term portion ofCredit Agreement. At December 31, 2018, the balance due on the purchased vehicles used by the UAT salesforce is $0 at December 31, 2016Capex loan was $353,000 and was $16,000 at December 31, 2015. included in Current Liabilities on the Company’s 2018 Consolidated Financial Statement. In accordance with ASU 2015-03,June 2019, the Company reduced its long-term debt by $12,000 and $64,000, respectively, relating to deferred financing fees aspaid the bank the balance of December 31, 2016 and 2015.this Capex loan. LONG-TERM DEBT:   December 31, 2016     December 31, 2015   Term Loan A - $23,000 payable monthly January 2013 through February 2016, balance due December 19, 2019.   $ 100,000     $ 6,160,000   Capex Term Loan - $6,000 payable monthly May 2012 through February 2016.     —       101,000   Capex Term Loan - $9,000 payable monthly October 2012 through February 2016.     —       182,000   Other     13,000       48,000   Deferred financing fees     (12,000 )     (64,000 )       101,000       6,427,000   Less current maturities     13,000       491,000       $ 88,000     $ 5,936,000       4644     P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 8—STOCK OPTIONS – STOCK COMPENSATION   The Company’s stockholders approved the P&F Industries, Inc. 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan authorizes the issuance to employees, consultants and non-employee directors of nonqualified stock options, stock appreciation rights, restricted stock, performance shares, performance units, and other stock-based awards. In addition, employees are eligible to be granted incentive stock options under the 2012 Plan. The 2012 Plan is currently administered by the compensation committee of the Company’s Board of Directors (the “Committee”). The aggregate number of shares of the Company’s Class A Common Stock (“Common Stock”) that may be issued under the 2012 Plan may not exceed 325,000 shares; provided, however, that any shares of Common Stock that are subject to a stock option, stock appreciation right or other stock-based award that is based on the appreciation in value of a share of Common Stock in excess of an amount equal to at least the fair market value of the Common Stock on the date such other stock-based award is granted (each an “Appreciation Award”) will be counted against this limit as one share for every share granted. Any shares of restricted stock or shares of Common Stock that are subject to any other award other than Appreciation Award will be counted against this limit as 1.5 shares for every share granted.   The maximum number of shares of Common Stock with respect to which any award of stock options, stock appreciation rights or other Appreciation Award that may be granted under the 2012 Plan during any fiscal year to any eligible employee or consultant will be 100,000 shares per type of award. The maximum number of shares of Common Stock subject to any award of performance shares for any performance period, other stock-based awards that are not Appreciation Awards, or shares of restricted stock for which the grant of such award or the lapse of the relevant restriction period is subject to the attainment of specified performance goals that may be granted under the 2012 Plan during any fiscal year to any eligible employee or consultant will be 65,000 shares per type of award. The maximum number of shares of Common Stock for all such types of awards to any eligible employee or consultant will be 165,000 shares during any fiscal year. There are no annual limits on the number of shares of Common Stock with respect to an award of restricted stock that is not subject to the attainment of specified performance goals to eligible employees or consultants. The maximum value at grant of performance units which may be granted under the 2012 Plan during any fiscal year will be $1,000,000. The maximum number of shares of Common Stock subject to any award which may be granted under the 2012 Plan during any fiscal year of the Company to any non-employee director will be 35,000 shares.   With respect to stock options, the Committee will determinedetermines the number of shares of Common Stock subject to each option, the term of each option, which may not exceed ten10 years (or five years in the case of an incentive stock option granted to a 10% stockholder), the exercise price, the vesting schedule (if any), and the other material terms of each option. No stock option may have an exercise price less than the fair market value of the Common Stock at the time of grant (or, in the case of an incentive stock option granted to a 10% stockholder, 110% of fair market value). With respect to all other permissible grants under the 2012 Plan, the Committee will determine their terms and conditions, subject to the terms and conditions of the 2012 Plan.   The 2012 Plan, which terminates in May 2022, is the successor to the Company’s 2002 Stock Incentive Plan (“Previous Plan”) – see below. Stock option awards made under the Previous Plan will continue in effect and remain governed by the provisions of that plan.   45 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 8—STOCK OPTIONS – STOCK COMPENSATION - Continued The Company’s Previous Plan authorized the issuance to employees and directors of options to purchase a maximum of 1,100,000 shares of Common Stock. These options had to be issued within ten10 years of the effective date of the Previous Plan and are exercisable for a ten year10-year period from the date of grant, at prices not less than 100% of the closing market value of the Common Stock on the date the option is granted. In the event options granted contained a vesting schedule over a period of years, the Company recognized compensation cost for these awards ratably over the service period.   On February 28, 2019, the Committee authorized the issuance of options to purchase 8,000 shares of the Company’s Common Stock. This grant was issued to non-executive employees. All options within this grant have an exercise price of $8.55. The options granted vest as to one third on each of the anniversary dates in 2020, 2021 and 2022. All the options granted have a 10-year life. The volatility is determined using historical volatilities based on historical stock prices. The Company estimated the fair value of its Common Stock options using the following assumptions:   47 For the years ended December 31, 2019 Risk-free interest rate 2.73 % Expected term 10 years Volatility 62.08 % Dividend yield 2.34 % Fair value of options granted $4.60     In connection with an equity restructuring event, which occurred during the three-month period ended March 31, 2016 relating to a special dividend granted by the Company, the Company modified all previously issued outstanding options to purchase its Common Stock. This modification resulted in an aggregate increase of 19,174 options. The Company did not recordissue any compensation expense in connection with the issuanceoptions to purchase shares of these options, as the issuance was made as the result of an equity restructuring event. Other than the aforementioned issuance, there were no other options granted or issuedits Common Stock during 2016 or 2015.2018.   The following table contains information on the status of the Company’s stock options:       Number of Shares     Weighted Average Exercise Price per share     Aggregate Intrinsic Value   Outstanding, January 1, 2015     505,000     $ 6.51           Granted     —       —           Exercised     (23,500 )     3.11           Expired     (24,500 )     16.50           Outstanding, December 31, 2015     457,000                   Granted     19,174       5.89           Exercised     (6,000 )     3.81           Forfeited and repurchased     (29,634 )     5.86           Expired     (16,723 )     10.72           Outstanding and vested, December 31, 2016     423,817     $ 5.68     $ 1,271,704   Included in the forfeited options in the table above for 2016 are 20,998 options the Company purchased from Nationwide employees for $50,000 in connection with the sale of Nationwide.  In 2016, 27,500 options that expired and forfeited were issued under the Previous Plan and 18,857 were issued under the 2012 Plan. All options that expired in 2015 were issued under the Previous Plan.     Number of Shares     Weighted Average Exercise Price per share     Aggregate Intrinsic Value   Outstanding, January 1, 2018     418,233     $ 5.17           Granted     —       ---           Exercised     (200,158 )     4.02           Forfeited     —       —           Expired     —       —           Outstanding, December 31, 2018     218,075       6.22           Granted     8,000       8.55           Exercised     —       —           Forfeited     —       —           Expired     —       —           Outstanding, December 31, 2019     226,075     $ 6.30     $ 219,983   Vested, December 31, 2019     188,409     $ 6.08     $ 219,983       4846     P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 8—STOCK OPTIONS – STOCK COMPENSATION - Continued   The following is a summary of changes in non-vested shares, all of which are expected to vest:     December 31,     December 31,     2016   2015     2019     2018     Option Shares   Weighted Average Grant-Date Fair Value   Option Shares   Weighted Average Grant-Date Fair Value     Option Shares     Weighted Average Grant-Date Fair Value     Option Shares     Weighted Average Grant-Date Fair Value   Non-vested shares, beginning of year     23,840     $ 6.72       61,006     $ 6.14       59,333     $ 4.41       89,000     $ 4.41   Granted     829       6.45       —               8,000       4.60       —       —   Vested     (19,167 )     6.71       (37,166 )     5.76       (29,667 )     4.41       (29,667 )     4.41   Forfeited     (5,502 )     6.72       —               —       —       —       —   Non-vested shares, end of year     —     $ —       23,840     $ 6.72       37,666     $ 4.45       59,333     $ 4.41     Stock-based compensation expense recognized for the years ended December 31, 20162019 and 20152018 was approximately $13,000$106,000 and $86,000,$196,000, respectively. The Company recognizes stock-based compensation cost over the requisite service period. However, the exercisability of the respective non-vested options, which are at predetermined dates, does not necessarily correspond to the periods in which straight-line amortization of compensation expenses is recorded. As of December 31, 2019, the Company had approximately $55,000 of total unrecognized compensation costs related to non-vested awards granted under its stock based plans, which it expects to recognize over a weighted average period of 0.8 years.    The following table summarizes information about stock options outstanding and exercisable at December 31, 2016:2019:   Options Outstanding and exercisable   Number outstanding and exercisable     Weighted Average Remaining Contractual Life (Years)     Weighted Average Exercise Price     71,069       0.5     $ 10.72     177,687       1.5     $ 3.98     25,605       4.0     $ 2.92     49,644       4.4     $ 4.37     2,090       5.4     $ 4.29     41,809       5.5     $ 4.74     55,913       6.3     $ 7.86     423,817       2.9     $ 5.68   Options Outstanding     Options Exercisable   Number outstanding     Weighted Average Remaining Contractual Life (Years)     Weighted Average Exercise Price     Number exercisable     Weighted Average Remaining Contractual Life (Years)     Weighted Average Exercise Price     17,244       1.0     $ 2.92       17,244       1.0     $ 2.92     18,812       1.4     $ 4.37       18,812       1.4     $ 4.37     2,090       2.4     $ 4.29       2,090       2.4     $ 4.29     41,809       2.5     $ 4.74       41,809       2.5     $ 4.74     49,120       3.3     $ 7.86       49,120       3.3     $ 7.86     89,000       7.7     $ 7.09       59,334       7.7     $ 7.09     8,000       9.2     $ 8.55       —       —       —     226,075       4.7     $ 6.30       188,409       4.1     $ 6.08   Other Information   At December 31, 20162019 and 2015,2018, there were 175,45062,062 and 183,26779,437 shares available for issuance under the 2012 Plan. At December 31, 2016,2019, there were 191,575 options outstanding 113,817 options issued under the 2012 Plan and 310,00034,500 options outstanding issued under the Previous Plan. 47 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 8—STOCK OPTIONS – STOCK COMPENSATION - Continued Restricted Stock   The Company, in May 2016,2019, granted 1,0001,250 restricted shares of its common stockCommon Stock to each non-employee member of its Board of Directors, totaling 5,0006,250 restricted shares. The Company determined that the fair value of these shares was $8.72$8.31 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares cannot be traded earlier than the first anniversary of the grant date. As such, theThe Company iswill ratably amortizingamortize the total non-cash compensation expense of approximately $44,000$52,000, which is included in its selling, general and administrative expenses through May 2017.2020.   The Company, in May 2015,2018, granted 1,0001,250 restricted shares of its common stockCommon Stock to each non-employee member of its Board of Directors, totaling 5,0006,250 restricted shares. The Company determined that the fair value of these shares was $8.63$8.43 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares cannotcould not be traded earlier than the first anniversary of the grant date. As such, theThe Company ratably amortized the total non-cash compensation expense of approximately $43,000$53,000, which is included in its selling, general and administrative expenses through May 2016. 49 The Company issued 2,500 restricted shares of its common stock to Joseph A. Molino, Jr., the Company’s Chief Financial Officer, in accordance with an Employment Agreement dated April 2, 2015. The Company determined the fair value of these shares to be $6.86 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares shall vest as to 833 shares on April 2, 2016, 833 shares on April 2, 2017, and 834 shares on April 2, 2018; provided, however, that 100% of the then unvested portion of the shares shall vest in the event of Mr. Molino’s death or termination due to disability or upon a Change in Control (as defined in the 2012 Plan). The Company will ratably amortize the total non-cash value of approximately $17,000 as compensation expense in its selling, general and administrative expenses through April 2018.2019.   Treasury Stock   On September 12, 2018, subsequent to the Closing Date,expiration of a previous repurchase program adopted in 2017 (the “2017 Repurchase Program”), the Company’s Board of Directors authorized the Company to repurchase up to 100,000 additional shares of its Common Stock (the “2018 Repurchase Program”) from time to time over the next 12 months through a 10b5-1 trading plan, and potentially through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the presidentSecurities Exchange Act of Nationwide, entered into a purchase agreement1934. On September 14, 2018, the Company announced that, pursuant to which, among other thingsthe 2018 Repurchase Program, it had adopted a written trading plan in accordance with the guidelines specified under Rule 10b5-1 under the Securities Exchange Act of 1934. Repurchases made under the plan, that commenced on September 17, 2018, are subject to the SEC’s regulations, as well as certain price, market, volume, and timing constraints specified in the plan. Since the inception of the 2018 Repurchase Program through December 31, 2018, the Company acquired 30,000repurchased 33,398 shares of the Company’s Class A Common Stock at the aggregate purchase price of $254,940 and options to acquire 6,667 shares of the Company’sits Common Stock at an aggregate pricecost of $16,597.approximately $272,000. The Company repurchased 66,602 shares of its Common Stock at an aggregate cost of approximately $547,000 during 2019 to complete the 2018 Repurchase Program.   NOTE 9—DIVIDENDS PAYABLE – OPTIONS ADJUSTMENTS (EQUITY RESTRUCTURING EVENT) On March 8, 2016,In June 2018 and November 2018, the Company purchased 18,140 shares and 85,791 shares of its Common Stock in two separate privately negotiated transactions. These transactions were outside of the 2018 Repurchase Program and the 2017 Repurchase Program, pursuant to additional authorization of the Company’s Board of Directors declaredat a special cash dividendtotal cost of $0.50$150,000 and $698,000, respectively. The June 2018 purchase price per common share which was paidequal to 5% below the average of the closing price of its Common Stock for the three days prior to the transaction, with the November 2018 purchase price based on April 4, 2016,the average closing price over the three days prior to shareholdersthe date of recordtransaction. On February 14, 2019, the Company entered into an agreement to repurchase 389,909 shares of its Common Stock from certain funds and accounts advised or sub-advised by Fidelity Management & Research Company or one of its affiliates in a privately negotiated transaction at approximately $7.62 per share for a total purchase price of $2,971,000. The agreed upon purchase price per share of $7.62 was computed as the closevalue equal to 97% of business on March 21, 2016. The total amountthe volume weighted average price of this special dividend payment was approximately $1.8 million. Further, the Company’s common stock for the 20 trading days ended on February 7, 2019. On February 15, 2019, the Company completed this transaction. On February 14, 2019, the Company entered into Amendment No. 6 to the Second Amended and Restated Loan and Security Agreement with Capital One, which permitted the Company to complete the above transaction. 48 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 9—DIVIDENDS In 2016, our Board of Directors also announced that it approved the initiation of a dividend policy under which the Company intends to declare aquarterly cash dividenddividends to the Company’s shareholdersits stockholders in the amount of $0.20$0.05 per share per annum, payable in equal quarterly installments.quarter. In conjunction therewith, the Company’smonths of February, May, August and November of 2019 and 2018, our Board of Directors declared a quarterly cash dividendapproved the payment of dividends of $0.05 per common share to the shareholders of record. Accordingly, the Company paid a $0.05 per share dividend to the shareholders of record atin each of the closeaforementioned months. The aggregate of business on Marchsuch dividend payments was approximately $632,000 and $723,000 for the years ended December 31, 2016. This dividend of approximately $180,000 was paid on April 14, 2016. Further, the Company’s2019 and 2018, respectively. Our Board of Directors declared quarterly cashexpects to maintain this dividend policy; however, the future declaration of dividends on July 18, 2016under this policy is dependent upon several factors, which include such things as our overall financial condition, results of operations, capital requirements and October 28, 2016.other factors our board may deem relevant.     The Compensation Committee of the Board of Directors of the Company serves as administrator of the 2012 Plan, and the P&F Industries, Inc. 2002 Stock Incentive Plan (“2002 Plan”). The 2012 Plan requires that options granted under the 2012 Plan be equitably adjusted when an equity restructuring transaction or event occurs. Additionally, the 2002 Plan allows the Compensation Committee to equitably adjust any outstanding options granted under the 2002 Plan in the event of an equity restructuring event. The Compensation Committee determined that the special dividend met the applicable criteria under both the 2012 Plan and the 2002 Plan and authorized an equitable adjustment be made to all outstanding options under both plans. The equitable adjustment lowered the exercise price of all outstanding options, and added, in the aggregate, 19,174 options to purchase Common Stock relating to options held by all Company option holders. The reduction in the exercise price ranged from $0.13 to $0.48. The Company determined that, in accordance with ASC 718-20-20, the special dividend described above was an equity restructuring event and, as such, there was no impact on the Company’s consolidated statements of income and comprehensive income as the result of adjustments to the exercise price or the issuance of the additional stock options that resulted from the aforementioned modification. 50 NOTE 10—INCOME TAXES   Income tax (benefit) expense from continuing operations(benefit) in the consolidated statements of income and comprehensive income consists of:     Years Ended December 31,     Years Ended December 31,     2016   2015     2019     2018   Current:                           Federal   $ 766,000     $ 559,000     $ 1,078,000     $ (39,000 ) State and local     208,000       137,000       312,000       24,000   Foreign     41,000       14,000       3,000       19,000   Total current     1,015,000       710,000       1,393,000       4,000   Deferred:                                 Federal     (3,638,000 )     161,000       513,000       268,000   State and local     (308,000 )     (33,000 )     (105,000 )     (15,000 ) Foreign     (24,000 )     (13,000 )     (4,000 )     (4,000 ) Total deferred     (3,970,000 )     115,000       404,000       249,000   Totals   $ (2,955,000 )   $ 825,000     $ 1,797,000     $ 253,000     TheAt December 31, 2019, the Company has ahad state net operating loss carryforwardcarryforwards of $791,000,approximately $4,112,000, which expiresexpire through 2039. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes included, but are not limited to, a corporate tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of US GAAP in 2036.situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. During 2018, the Company finalized its computation of the impact of the Act which resulted in a 3.4% reduction in its effective tax rate.   In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance allows companies to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which they are subject to the rules (the period cost method), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the deferred method). After completing the analysis of the GILTI provisions, the Company elected to account for GILTI using the period cost method.  49 P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 NOTE 10—INCOME TAXES – Continued   Deferred tax assets (liabilities) consist of:     December 31,     December 31,     2016   2015     2019     2018   Deferred tax assets:                                 Bad debt reserves   $ 28,000     $ 54,000     $ 17,000     $ 17,000   Inventory reserves     1,185,000       1,058,000       653,000       615,000   Warranty and other reserves     255,000       179,000       77,000       78,000   Stock-based compensation     485,000       531,000       212,000       184,000   Goodwill     1,962,000       —       866,000       940,000   Acquisition costs     223,000       170,000   Net operating losses - federal     —       340,000   Net operating losses - state     77,000       91,000   Other     11,000       34,000       20,000       18,000       3,926,000       1,856,000       2,145,000       2,453,000   Deferred tax (liabilities):                                 Prepaid expenses     (177,000 )     (190,000 )     (79,000 )     (373,000 ) Depreciation     (720,000 )     (987,000 )     (1,154,000 )     (732,000 ) Intangibles     (1,236,000 )     (2,676,000 )     (696,000 )     (720,000 ) Goodwill     —       (178,000 ) Net deferred tax assets (liabilities)   $ 1,793,000     $ (2,175,000 ) Net deferred tax assets   $ 216,000     $ 628,000     The components of (loss) income from continuing operations before income taxes consisted of the following:       Years ended December 31,       2016     2015   United States operations   $ (8,790,000 )   $ 2,531,000   International operations     152,000       150,000   Income before tax   $ (8,638,000 )   $ 2,681,000   51 U.S. federal income taxes have not been provided on approximately $302,000 of undistributed earnings at the Company’s foreign subsidiary at December 31, 2016, because it is the Company’s intent to keep the earnings permanently reinvested.     Years ended December 31,       2019     2018   United States operations   $ 6,715,000     $ 1,004,000   International operations     (7,000 )     105,000   Income before tax   $ 6,708,000     $ 1,109,000     A reconciliation of the Federal statutory rate to the total effective tax rate applicable to (loss) income from continuing operations is as follows:       Years ended December 31,       2016     2015   Federal income tax computed at statutory rates     (34.0 )%     34.0 % (Decrease) increase in taxes resulting from:                 State and local taxes, net of Federal tax benefit     (0.8 )     2.2   Permanent differences - net     0.3       (2.1 ) Foreign rate differential     (0.4 )     (1.6 ) Other     0.7       (1.7 ) Income tax (benefit) expense     (34.2 )%     30.8   The Company follows the authoritative guidance issued by the FASB that pertains to the accounting for uncertain tax matters. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: Balance January 1, 2015   $ 880,000   Lapse of statute of limitations     (469,000 ) Interest accrual     21,000   Balance at January 1, 2016     432,000   Lapse of statute of limitations     (143,000 ) Interest accrual     22,000             Balance December 31, 2016   $ 311,000   In connection with one of the acquisitions that occurred in 2014, the Company, in accordance with the ASC 740-10, recorded in Accrued liabilities an uncertain tax position of $311,000 as of December 31, 2016.  The parties to such transaction entered into a tax exposure-related escrow agreement, which together with the indemnity obligations of the seller, the Company believes adequately covers the entire potential exposure related to the uncertain tax position. As a result, such liability was offset by an indemnification asset recorded in Prepaid expenses and other current assets in the consolidated balance sheet.     Years ended December 31,       2019     2018   Federal income tax computed at statutory rates     21.0 %     21.0 % (Decrease) increase in taxes resulting from:                 State and local taxes, net of Federal tax benefit     2.4       0.6   Permanent differences - net     3.1       5.2   Foreign rate differential     —       (0.7 ) Tax Cuts and Jobs Act of 2017     —       (3.4 ) Other     0.3       0.1   Income tax expense     26.8 %     22.8 %   The Company files a consolidated Federal tax return. The Company and certain of its subsidiaries file tax returns in various U.S. state jurisdictions. Its foreign subsidiary, UAT, files in the United Kingdom. With few exceptions, the years that remain subject to examination are the years ended December 31, 20132016 through December 31, 2015. During the current year, the Internal Revenue Service completed the examination of the Company’s tax return for the year ended December 31, 2013 which resulted in the tax return being accepted as filed. 2019.   Interest and penalties, if any, related to income tax liabilities are included in income tax expense. As of December 31, 2019, the Company does not have a liability for uncertain tax positions.     5250      P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018   NOTE 11—COMMITMENTS AND CONTINGENCIES   (a) The Company maintains a contributory defined contribution plan that covers all eligible employees. All contributions to this plan are discretionary. Amounts recognized as expense for contributions to this plan were $298,000$438,000 and $397,000$380,000 for the years ended December 31, 20162019 and 2015,2018, respectively.   (b) At December 31, 20162019 and 2015,2018, the Company had open purchase order commitments totaling approximately $9,836,000$4,871,000 and $10,224,000,$6,700,000, respectively.   (c) From time to time, the Company may be a defendant or co-defendant in actions brought about in the ordinary course of conducting our business.   (d) NOTE 12—SUBSEQUENT EVENT On March 11, 2020 the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. As a result, the Company expects operations at all of its locations to be affected in some capacity, as the COVID-19 virus continues to proliferate and the federal, state and local governments under which we operate continue to adopt new rules. The Company leases certainhas put in place enhanced procedures at all locations, such as restricting international and domestic travel, adopting a variety of steps designed to ensure social distancing in our facilities, including working remotely where available and equipment through 2021. Generally,modifying our shifts, and increasing our cleaning and sanitizing procedures in our facilities, in an effort to protect its employees while still striving to meet its customers’ needs. The Company cannot reasonably estimate the facility leases carry renewal provisionslength or severity of this pandemic, or the extent to which the disruption may materially impact its consolidated financial position, results of operations, and require the Company to pay maintenance costs. Rental payments may be adjusted for increasescash flows in taxes and insurance above specified amounts. Operating lease expense for 2016 and 2015 was $371,000 and $418,000, respectively. Future minimum payments under non-cancelable operating leases with initial or remaining terms of more than one year as of December 31, 2016 were as follows:fiscal 2020. 2017   $ 324,000   2018     160,000   2019     116,000   2020     80,000   2021     14,000                 $ 694,000   NOTE 12—RELATED PARTY TRANSACTIONS The President of one of the Company’s subsidiaries is part owner of one of that subsidiary’s vendors. During the years ended December 31, 2016 and 2015, the Company purchased approximately $469,000 and $690,000, respectively, of product from this vendor. At December 31, 2016 and 2015, the Company had trade payables to this vendor of $0 and $63,000, respectively. Additionally, during 2016 and 2015, the Company recorded sales to this vendor of $9,000 and $7,000, respectively. Additionally, this same individual is part owner of the facility located in Punxsutawney, Pennsylvania, which one of the Company’s subsidiaries leases. This lease expires in 2021, with rent of approximately $76,000 per annum. Subsequent to year end, this President left the employment of the Company, to pursue other interests.     5351     Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures   None. Item 9A.  Controls and Procedures ITEM 9A. Controls and Procedures   Evaluation of disclosure controls and procedures   The Company's management, with the participation of the Company's CEO and CFO, evaluated, as of December 31, 2016,2019, the effectiveness of the Company's disclosure controls and procedures, which were designed to be effective at the reasonable assurance level. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company'sCompany's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company's disclosure controls and procedures as of December 31, 2016,2019, the Company’s management, including its CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level at that date.   Management’s Report on Internal Control over Financial Reporting   The Company’s Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). This system is designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statementsConsolidated Financial Statements for external purposes in accordance with generally accepted accounting principles.   The Company’s internal control over financial reporting includes those policies and procedures that:   Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the Company’s transactions and dispositions of its assets;   Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statementsConsolidated Financial Statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with the authorizations of its management and directors; and   Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.   The Company carried out an evaluation, under the supervision and with the participation of its Management, including its CEO and CFO, of the effectiveness of the design and operation of its internal control over financial reporting, as of December 31, 2016.2019. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework 2013” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Company’s Management, including its CEO and CFO concluded that its internal control over financial reporting was effective at December 31, 2016.2019.   Because of its inherent limitations, internal controls may not prevent or detect misstatements. A control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the control system’s objectives will be met. Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.   52 This annual report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.   54 Changes in Internal Control over Financial Reporting   There have been no changes in our internal control over financial reporting during the most recently completed quarter ended December 31, 20162019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B.  Other Information ITEM 9B. Other Information   None     5553     PART III Item 10.  Directors, Executive Officers and Corporate Governance ITEM 10. Directors, Executive Officers and Corporate Governance   The information required by Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K is incorporated by reference to the Company’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in May 2017,2020, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s year ended December 31, 2016.2019. Item 11.  Executive Compensation ITEM 11. Executive Compensation   See Item 10. Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   See Item 10. Item 13.  Certain Relationships and Related Transactions, and Director Independence ITEM 13. Certain Relationships and Related Transactions, and Director Independence   See Item 10. Item 14.  Principal Accounting Fees and Services ITEM 14. Principal Accounting Fees and Services   See Item 10.     5654      PART IV ITEM 15. Exhibits and Financial Statement Schedules   Item 15.  Exhibits and Financial Statement Schedules     Page a) List of Financial Statements, Financial Statement Schedules, and Exhibits     (1) List of Financial Statements     The consolidated financial statements of the Company and its subsidiaries are included in Item 8 of Part II of this report. 25   (2) All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.     (3) List of Exhibits 57     Page a) List of Financial Statements, Financial Statement Schedules, and Exhibits     (1) List of Financial Statements       The Consolidated Financial Statements of the Company and its subsidiaries are included in Item 8 of Part II of this report. 22   (2) All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.     (3) List of Exhibits 55   The following exhibits are either included in this report or incorporated herein by reference as indicated below:   Exhibit     Number   Description of Exhibit       2.1   Asset Purchase Agreement, and Plan of Merger, dated as of July 1, 2014,April 5, 2017, by and among Florida Pneumatic Manufacturing Corporation, Flying Tiger AcquisitionBonanza Holdings Corp. (now known as Jiffy Air Tool, Inc.), Exhaust Technologies,Jack E. Pettit, Jiffy Air Tool, Inc. (now known as Jack E. Pettit Enterprises, Inc.) and the Shareholders and Shareholders’ Representatives as named thereinThe Jack E. Pettit—1996 Trust. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated July 1, 2014)April 5, 2017).       2.2   Purchase and Sale Agreement and Joint Escrow Instructions, dated as of April 5, 2017, by and among Jiffy Air Tool, Inc. (now known as Jack E. Pettit Enterprises, Inc.) and Bonanza Properties Corp. (Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K dated April 5, 2017). 2.3 Asset Purchase Agreement, dated as of July 29, 2014,October 25, 2019, by and among Florida Pneumatic Manufacturing Corporation, the Shareholders as named therein,DaVinci Purchase Corp., Blaz-Man Gear, Inc. and Universal Air Tool Company LimitedEdward Blaszynski (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated July 29, 2014)October 25, 2019).       2.32.4   Asset Purchase Agreement, dated as of August 13, 2014,October 25, 2019, by and among ATSCO HoldingsDaVinci Purchase Corp., Hy-Tech Machine,Gear Products & Manufacturing, Inc., Air Tool Service CompanyPaul Michaud and the Shareholder named thereinEdward Blaszynski (Incorporated by reference to Exhibit 2.12.2 to the Registrant’s Current Report on Form 8-K dated August 13, 2014)October 25, 2019).       2.43.1   Stock Purchase and Redemption Agreement, dated as of February 11, 2016, by and among Countrywide Hardware, Inc., Argosy NWI Holdings, LLC, the Registrant and Nationwide Industries, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated February 11, 2016). 3.1 Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004).       3.2   By-laws of the Registrant (as amended on September 19, 2016) (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated September 19, 2016). 4.1 Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (Filed herein).     5755     Exhibit     Number   Description of Exhibit       10.1   Second Amended and Restated Loan and Security Agreement dated as of August 13, 2014,April 5, 2017, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc., ATSCO Holdings Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P., and Capital One Business Credit Corporation, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated August 13, 2014). 10.2 Second Amended and Restated Revolver Note dated as of August 13, 2014 by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc. and ATSCO Holdings Corp., in favor of and Capital One Business Credit Corporation (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated August 13, 2014). 10.3 Tranche A Term Loan Note dated as of August 13, 2014 by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc. and ATSCO Holdings Corp, in favor of and Capital One Business Credit Corporation (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated August 13, 2014). 10.4 Tranche B Term Loan Note datedJiffy Air Tool, Inc. (formerly known as of August 13, 2014 by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc.Bonanza Holdings Corp.), Nationwide Industries, Inc. and ATSCO Holdings Corp in favor of and Capital One Business Credit Corporation (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated August 13, 2014). 10.5 Amended and Restated Capex Loan Note dated as of August 13, 2014 by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc.Bonanza Properties Corp., Nationwide Industries, Inc. and ATSCO Holdings Corp in favor of and Capital One Business Credit Corporation. (Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K dated August 13, 2014). 10.6 Purchase Agreement, dated as of October 14, 2014, by and between the Registrant and Timothy J. Stabosz (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 14, 2014).  10.7 Waiver and Amendment No. 1 to the Amended and Restated Loan and Security Agreement, dated as of October 14, 2014, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc., ATSCO Holdings Corp, Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P., and Capital One Business Credit Corporation, as lender and agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated October 14, 2014). 58 Exhibit Number Description of Exhibit 10.8 Purchase Agreement, dated as of February 11, 2016, by and between the Registrant and Christopher J. Kliefoth (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 11, 2016). 10.9 Consent and Second Amendment to Amended and Restated Loan and Security Agreement, dated as of February 11, 2016, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc., ATSCO Holdings Corp, Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated February 11, 2016). 10.10 Third Amendment to Amended and Restated Loan and Security Agreement, dated as of March 31, 2016, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc., ATSCO Holdings Corp, Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 31, 2016)April 5, 2017).       10.1110.2   Lease,Third Amended and Restated Revolver Note dated as of February 11, 2016, betweenApril 5, 2017, by the Registrant, Florida Pneumatic Manufacturing Corporation and Nationwide Industries,Hy-Tech Machine, Inc. in favor of Capital One, National Association (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated April 5, 2017). 10.3 Amended and Restated Tranche A Term Loan Note dated as of April 5, 2017 by the Registrant, Florida Pneumatic Manufacturing Corporation and Hy-Tech Machine, Inc. in favor of Capital One, National Association (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated February 11, 2016)April 5, 2017).       10.1210.4   OptionSecond Amended and Right of First Refusal Agreement,Restated Capex Loan Note dated as of February 11, 2016, betweenApril 5, 2017 by the Registrant, Florida Pneumatic Manufacturing Corporation and Nationwide Industries,Hy-Tech Machine, Inc. in favor of Capital One, National Association (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated February 11, 2016)April 5, 2017). 10.5 Amendment No. 1 to Second Amended and Restated Loan and Security Agreement, dated as of August 9, 2017, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc. (formerly known as Bonanza Holdings Corp.), Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated September 20, 2017). 10.6 Amendment No. 2 to Second Amended and Restated Loan and Security Agreement, dated as of June 21, 2018, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated June 27, 2018). 10.7 Amendment No. 3 to Second Amended and Restated Loan and Security Agreement, dated as of October 1, 2018, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 1, 2018).     5956     Exhibit     Number   Description of Exhibit       10.1310.8 Amendment No. 4 to Second Amended and Restated Loan and Security Agreement, dated as of November 16, 2018, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated November 16, 2018). 10.9 Amendment No. 5 to Second Amended and Restated Loan and Security Agreement, dated as of February 8, 2019, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc. and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 8, 2019). 10.10 Third Amended and Restated Capex Loan Note dated as of February 8, 2019 by the Registrant, Florida Pneumatic Manufacturing Corporation and Hy-Tech Machine, Inc. in favor of Capital One, National Association (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated February 8, 2019). 10.11 Purchase Agreement, dated as of February 14, 2019, by and among the Registrant and the Fidelity Puritan Trust: Fidelity Low-Priced Stock Fund, Fidelity Low Priced Stock Commingled Pool and Fidelity Puritan Trust: Fidelity Low-Priced Stock K6 Fund (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 14, 2019). 10.12   Amendment No. 6 to Second Amended and Restated Loan and Security Agreement, dated as of February 14, 2019, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc. and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated February 14, 2019). 10.13 Consent and Amendment No. 7 to Second Amended and Restated Loan and Security Agreement, dated as of April 19, 2019, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc. and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated April 19, 2019). 10.14 Purchase and Sale Agreement, dated as of April 19, 2019, by and between Florida Pneumatic Manufacturing Corporation and Jupiter Warehouse Holdings LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 19, 2019). 10.15 Consent, Joinder and Amendment No. 8 to Second Amended and Restated Loan and Security Agreement, dated as of October 25, 2019, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., DaVinci Purchase Corp. and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 25, 2019). 10.16 *Agreement, dated February 14, 2019, between Richard A. Horowitz and the Board of Directors of the Registrant (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated February 14, 2019). 10.17 *Executive Employment Agreement, dated as of January 1, 2015,2019, between the Registrant and Richard A. Horowitz (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated January 5, 2015)October 24, 2018). 57 Exhibit Number Description of Exhibit       10.1410.18   *2002 Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit 4.710.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).       10.1510.19   *2012 Stock Incentive Plan of the Registrant (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement with respect to the Registrant’s 2012 Annual Meeting of Stockholders).       10.1610.20   *Amended and Restated Executive 162(m) Bonus Plan of the Registrant effective as of May 25, 2011 (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement with respect to the Registrant’s 2011 Annual Meeting of Stockholders).  10.17 *Amended and Restated Executive 162(m) Bonus Plan of the Registrant effective as of May 20, 2015 (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement with respect to the Registrant’s 2015 Annual Meeting of Stockholders).       10.1810.21   *Executive Employment Agreement, dated as of January 1, 2015,2018, between the Registrant and Joseph A. Molino, Jr. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 2, 2015)January 30, 2018).       2110.22   Subsidiaries*Amendment No. 1 to Executive Employment Agreement, dated as of March 5, 2019, between the Registrant (Filed herein)Company and Joseph A. Molino, Jr. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 5, 2019).       23.121   Subsidiaries of the Registrant (Filed herein). 23.1 Consent of Independent Registered Public Accounting Firm (Filed herein).       31.1   Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herein).       31.2   Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herein).       32.1   Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herein).       32.2   Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herein).       101   ** XBRL Interactive Data           Certain instruments defining the rights of holders of the long-term debt securities of the Registrant may be omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant agrees to furnish supplemental copies of these instruments to the Commission upon request.   *             Management contract or a compensatory plan or arrangement required to be filed as an exhibit.   **          Attached as Exhibit 101 to this Annual Report on Form 10-K are the following, each formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.   A copy of any of the foregoing exhibits to this Annual Report on Form 10-K may be obtained, upon payment of the Registrant’s reasonable expenses in furnishing such exhibit, by writing to P&F Industries, Inc., 445 Broadhollow Road, Suite 100, Melville New York 11747, Attention: Corporate Secretary.     6058     SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) 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.   P&F INDUSTRIES, INC. (Registrant)   By:    /s/  Richard A. Horowitz   By:    /s/  Joseph A. Molino, Jr.   Richard A. Horowitz     Joseph A. Molino, Jr.   Chairman of the Board     Vice President   President     Principal Financial and   Principal Executive Officer     Accounting Officer   Date: March 29, 201730, 2020     Date: March 29, 201730, 2020   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.   Name   Title   Date           /s/  Richard A. Horowitz   Director   March 29, 201730, 2020 Richard A. Horowitz                   /s/Jeffrey D. Franklin   Director   March 29, 201730, 2020 Jeffrey D. Franklin                   /s/Howard Brod Brownstein   Director   March 29, 201730, 2020 Howard Brod Brownstein                   /s/Kenneth M. Scheriff   Director   March 29, 201730, 2020 Kenneth M. Scheriff                   /s/  Mitchell A. Solomon   Director   March 29, 20172020 Mitchell A. Solomon                   /s/Richard Randall   Director   March 29, 201730, 2020 Richard Randall             6159