PART I - FINANCIAL INFORMATION

~~Item 1.~~

Item 1. Financial Statements

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2017 December 31, 2016
(unaudited) (See Note 1)
ASSETS
CURRENT ASSETS

Cash $ 1,205,000 $ 3,699,000
Accounts receivable — net 10,994,000 7,906,000
Inventories 20,090,000 19,901,000
Prepaid expenses and other current assets 925,000 3,030,000
TOTAL CURRENT ASSETS 33,214,000 34,536,000

PROPERTY AND EQUIPMENT
Land 1,281,000 1,150,000
Buildings and improvements 6,136,000 5,209,000
Machinery and equipment 20,160,000 19,401,000
27,577,000 25,760,000
Less accumulated depreciation and amortization 18,770,000 18,671,000
NET PROPERTY AND EQUIPMENT 8,807,000 7,089,000

GOODWILL 4,445,000 3,897,000

OTHER INTANGIBLE ASSETS — net 8,709,000 6,606,000

DEFERRED INCOME TAXES — net 1,643,000 1,793,000

OTHER ASSETS — net 120,000 130,000

TOTAL ASSETS $ 56,938,000 $ 54,051,000


	June 30, 2022		December 31, 2021
	(unaudited)		(See Note 1)
ASSETS
CURRENT ASSETS

Cash	$	431,000	$	539,000
Accounts receivable — net		10,418,000		7,550,000
Inventories		24,610,000		24,021,000
Prepaid expenses and other current assets		2,946,000		4,566,000
TOTAL CURRENT ASSETS		38,405,000		36,676,000

PROPERTY AND EQUIPMENT
Land		507,000		507,000
Buildings and improvements		3,902,000		3,605,000
Machinery and equipment		27,057,000		25,675,000
		31,466,000		29,787,000
Less accumulated depreciation and amortization		22,525,000		21,707,000
NET PROPERTY AND EQUIPMENT		8,941,000		8,080,000

GOODWILL		4,822,000		4,447,000

OTHER INTANGIBLE ASSETS — net		5,673,000		5,592,000

DEFERRED INCOME TAXES — net		374,000		349,000

RIGHT-OF-USE ASSETS – OPERATING LEASES		3,718,000		2,969,000

OTHER ASSETS — net		69,000		77,000

TOTAL ASSETS	$	62,002,000	$	58,190,000

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2017 December 31, 2016
(unaudited) (See Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Short-term borrowings $ 2,334,000 $ —
Accounts payable 3,247,000 2,398,000
Accrued compensation and benefits 1,694,000 1,733,000
Accrued other liabilities 1,449,000 2,019,000
Current maturities of long-term debt — 13,000
TOTAL CURRENT LIABILITIES 8,724,000 6,163,000

Long - term debt, less current maturities 92,000 88,000
Other liabilities 901,000 210,000

TOTAL LIABILITIES 9,717,000 6,461,000

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 – 4,203,000 at
September 30, 2017 and 4,181,000 at December 31, 2016 4,203,000 4,181,000
Class B - $1 par; authorized - 2,000,000 shares; no shares issued — —
Additional paid-in capital 12,996,000 12,906,000
Retained earnings 35,481,000 36,061,000
Treasury stock, at cost – 596,000 shares at September 30, 2017 and
584,000 at December 31, 2016 (4,910,000 ) (4,821,000 )
Accumulated other comprehensive loss (549,000 ) (737,000 )

TOTAL SHAREHOLDERS’ EQUITY 47,221,000 47,590,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 56,938,000 $ 54,051,000


	June 30, 2022		December 31, 2021
	(unaudited)		(See Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Short-term borrowings	$	10,069,000	$	5,765,000
Accounts payable		2,337,000		2,920,000
Accrued compensation and benefits		1,187,000		1,475,000
Accrued other liabilities		1,484,000		1,078,000
Current lease liabilities – operating leases		921,000		840,000
TOTAL CURRENT LIABILITIES		15,998,000		12,078,000

Noncurrent lease liabilities – operating leases		2,855,000		2,176,000
Other liabilities		83,000		96,000

TOTAL LIABILITIES		18,936,000		14,350,000

SHAREHOLDERS’ EQUITY
Preferred stock - $10 par; authorized - 2,000,000 shares; 0 shares issued		—		—
Common stock
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,467,000 at June 30, 2022, and 4,453,000 at December 31, 2021		4,467,000		4,453,000
Class B - $1 par; authorized - 2,000,000 shares; 0 shares issued		0		0
Additional paid-in capital		14,214,000		14,167,000
Retained earnings		35,407,000		36,046,000
Treasury stock, at cost – 1,273,000 shares at June 30, 2022 and December 31, 2021		(10,213,000)		(10,213,000)
Accumulated other comprehensive loss		(809,000)		(613,000)

TOTAL SHAREHOLDERS’ EQUITY		43,066,000		43,840,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	62,002,000	$	58,190,000

See accompanying notes to consolidated financial statements (unaudited).

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

~~(Unaudited)~~(unaudited)

Three months Nine months
ended September 30, ended September 30,
2017 2016 2017 2016

Net revenue $ 15,782,000 $ 14,633,000 $ 44,357,000 $ 44,769,000
Cost of sales 10,198,000 10,128,000 28,377,000 29,743,000
Gross profit 5,584,000 4,505,000 15,980,000 15,026,000
Selling, general and administrative expenses 5,352,000 4,915,000 15,765,000 15,088,000
Impairment of goodwill and other intangible assets — — — 8,311,000
Operating income (loss) 232,000 (410,000 ) 215,000 (8,373,000 )
Other expense (income), net 11,000 (43,000 ) (13,000 ) (75,000 )
Interest expense 50,000 26,000 124,000 164,000
Income (loss) from continuing operations before income taxes 171,000 (393,000 ) 104,000 (8,462,000 )
Income tax expense (benefit) 166,000 (107,000 ) 142,000 (2,872,000 )
Income (loss) from continuing operations 5,000 (286,000 ) (38,000 ) (5,590,000 )

Discontinued operations (Note 2)

Income from discontinued operations, net of tax of $-0- and $38,000 for the three and nine-month periods ended September 30, 2016, respectively. — — — 72,000
Gain on sale of discontinued operations, net of tax benefit of $187,000 and $328,000 for the three and nine-month periods ended September 30, 2016, respectively. — 187,000 — 12,358,000
Income from discontinued operations, net of tax — 187,000 — 12,430,000

Net income (loss) $ 5,000 $ (99,000 ) $ (38,000 ) $ 6,840,000

Basic (loss) earnings per share
Continuing operations $ — $ (0.08 ) $ (0.01 ) $ (1.55 )
Discontinued operations — 0.05 — 3.45
Net (loss) income $ — $ (0.03 ) $ (0.01 ) $ 1.90

Diluted (loss) earnings per share
Continuing operations $ — $ (0.08 ) $ (0.01 ) $ (1.55 )
Discontinued operations — 0.05 — 3.45
Net (loss) income $ — $ (0.03 ) $ (0.01 ) $ 1.90

Weighted average common shares outstanding:

Basic 3,617,000 3,598,000 3,609,000 3,598,000
Diluted 3,777,000 3,598,000 3,609,000 3,598,000

Net income (loss) $ 5,000 $ (99,000 ) $ (38,000 ) $ 6,840,000
Other comprehensive income (loss) - foreign currency translation adjustment 71,000 (63,000 ) 188,000 (299,000 )
Total comprehensive income (loss) $ 76,000 $ (162,000 ) $ 150,000 $ 6,541,000


	Three months				Six months
	ended June 30,				ended June 30,
	2022		2021		2022		2021
Net revenue	$	17,810,000	$	13,589,000	$	31,831,000	$	27,535,000
Cost of sales		12,174,000		8,741,000		21,684,000		18,051,000
Gross profit		5,636,000		4,848,000		10,147,000		9,484,000
Selling, general and administrative expenses		5,479,000		5,458,000		10,652,000		10,449,000
Operating income (loss)		157,000		(610,000)		(505,000)		(965,000)
Other (expense) income		(16,000)		2,929,000		(16,000)		2,929,000
Interest (expense) income		(86,000)		15,000		(138,000)		(7,000)
Income (loss)		55,000		2,334,000		(659,000)		1,957,000
Income tax (expense) benefit		(76,000)		89,000		20,000		159,000
Net income (loss)	$	(21,000)	$	2,423,000	$	(639,000)	$	2,116,000

Basic (loss) earnings per share	$	(0.01)	$	0.76	$	(0.20)	$	0.67
Diluted (loss) earnings per share	$	(0.01)	$	0.76	$	(0.20)	$	0.66

Weighted average common shares outstanding:

Basic		3,185,000		3,181,000		3,177,000		3,175,000
Diluted		3,185,000		3,193,000		3,177,000		3,190,000

Net (loss) income	$	(21,000)	$	2,423,000	$	(639,000)	$	2,116,000
Other comprehensive (loss) income - foreign currency translation adjustment		(146,000)		4,000		(196,000)		19,000
Total comprehensive (loss) income	$	(167,000)	$	2,427,000	$	(835,000)	$	2,135,000

See accompanying notes to consolidated financial statements (unaudited).

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

Three months ended June 30, 2022

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, 2017 $ 47,590,000 4,181,000 $ 4,181,000 $ 12,906,000 $ 36,061,000 (584,000 ) $ (4,821,000 ) $ (737,000 )

Net loss (38,000 ) — — — (38,000 ) — — —

Restricted common stock compensation 30,000 5,000 5,000 25,000 — — — —

Stock - based compensation 20,000 — — 20,000 — — — —

Exercise of stock options 62,000 17,000 17,000 45,000 — — — —

Dividends (542,000 ) — — — (542,000 ) — — —

Purchase of Treasury stock (89,000 ) — — — — (12,000 ) (89,000 ) —

Foreign currency translation adjustment 188,000 — — — — — — 188,000
��
Balance, September 30, 2017 $ 47,221,000 4,203,000 $ 4,203,000 $ 12,996,000 $ 35,481,000 (596,000 ) $ (4,910,000 ) $ (549,000 )


													Accumulated
			Class A common			Additional							other
			stock, $1 par			paid-in		Retained		Treasury stock			comprehensive
	Total		Shares	Amount		capital		earnings		Shares	Amount		loss
Balance, April 1, 2022	$	43,181,000	4,453,000	$	4,453,000	$	14,176,000	$	35,428,000	(1,273,000)	$	(10,213,000)	$	(663,000)

Net loss		(21,000)	0		0		0		(21,000)	0		0		0

Exercise of Stock Options		40,000	7,000		7,000		33,000		0	0		0		0

Restricted common stock compensation		12,000	7,000		7,000		5,000		0	0		0		0

Stock-based compensation		—	0		0		0		0	0		0		0

Foreign currency translation adjustment		(146,000)	0		0		0		0	0		0		(146,000)

Balance, June 30, 2022	$	43,066,000	4,467,000	$	4,467,000	$	14,214,000	$	35,407,000	(1,273,000)	$	(10,213,000)	$	(809,000)

Three months ended June 30, 2021


													Accumulated
			Class A common			Additional							other
			stock, $1 par			paid-in		Retained		Treasury stock			comprehensive
	Total		Shares	Amount		capital		earnings		Shares	Amount		loss
Balance, April 1, 2021	$	41,261,000	4,453,000	$	4,453,000	$	14,134,000	$	33,449,000	(1,273,000)	$	(10,213,000)	$	(562,000)

Net income		2,423,000	0		0		0		2,423,000	0		0		0

Restricted common stock compensation		14,000	0		0		14,000		0	0		0		0

Stock-based compensation		1,000	0		0		1,000		0	0		0		0

Foreign currency translation adjustment		4,000	0		0		0		0	0		0		4,000

Balance, June 30, 2021	$	43,703,000	4,453,000	$	4,453,000	$	14,149,000	$	35,872,000	(1,273,000)	$	(10,213,000)	$	(558,000)

See accompanying notes to consolidated financial statements (unaudited).

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS’ EQUITY (unaudited)

Six months ended June 30, 2022

Nine months
ended September 30,
2017 2016
Cash Flows from Operating Activities:
Net loss from continuing operations $ (38,000 ) $ (5,590,000 )
Net income from discontinued operations — 12,430,000

Adjustments to reconcile net loss from operations to net cash provided by (used in) operating activities:

Non-cash charges:
Depreciation and amortization 975,000 1,227,000
Amortization of other intangible assets 620,000 803,000
Amortization of debt issue costs 42,000 118,000
Recovery for losses on accounts receivable - net (12,000 ) —
Stock-based compensation 20,000 13,000
Restricted stock-based compensation 30,000 39,000
(Gain) loss on sale of fixed assets (8,000 ) 3,000
Deferred income taxes 142,000 (3,163,000 )
Fair value change in contingent consideration 14,000 —
Impairment of goodwill and other intangible assets — 8,311,000
Changes in operating assets and liabilities:
Accounts receivable (2,252,000 ) (2,166,000 )
Inventories 1,468,000 (681,000 )
Prepaid expenses and other current assets 2,154,000 (1,947,000 )
Other assets 45,000 60,000
Accounts payable 842,000 1,304,000
Accrued compensation and benefits (129,000 ) (209,000 )
Accrued other liabilities (623,000 ) 287,000
Other liabilities (14,000 ) (14,000 )
Total adjustments 3,314,000 3,985,000
Net cash provided by (used in) operating activities – continuing operations 3,276,000 (1,605,000 )
Net cash used in operating activities – discontinued operations — (653,000 )

Net cash provided by (used in) operating activities $ 3,276,000 $ (2,258,000 )


													Accumulated
			Class A common			Additional							other
			stock, $1 par			paid-in		Retained		Treasury stock			comprehensive
	Total		Shares	Amount		capital		earnings		Shares	Amount		loss
Balance, January 1, 2022	$	43,840,000	4,453,000	$	4,453,000	$	14,167,000	$	36,046,000	(1,273,000)	$	(10,213,000)	$	(613,000)

Net loss		(639,000)	0		0		0		(639,000)	0		0		0

Exercise of Stock Options		40,000	7,000		7,000		33,000		0	0		0		0

Restricted common stock compensation		20,000	7,000		7,000		13,000		0	0		0		0

Stock-based compensation		1,000	0		0		1,000		0	0		0		0

Foreign currency translation adjustment		(196,000)	0		0		0		0	0		0		(196,000)

Balance, June 30, 2022	$	43,066,000	4,467,000	$	4,467,000	$	14,214,000	$	35,407,000	(1,273,000)	$	(10,213,000)	$	(809,000)

Six months ended June 30, 2021


													Accumulated
			Class A common			Additional							other
			stock, $1 par			paid-in		Retained		Treasury stock			comprehensive
	Total		Shares	Amount		capital		earnings		Shares	Amount		loss
Balance, January 1, 2021	$	41,538,000	4,428,000	$	4,428,000	$	14,144,000	$	33,756,000	(1,273,000)	$	(10,213,000)	$	(577,000)

Net income		2,116,000	0		0		0		2,116,000	0		0		0

Restricted common stock compensation		27,000	25,000		25,000		2,000		0	0		0		0

Stock-based compensation		3,000	0		0		3,000		0	0		0		0

Foreign currency translation adjustment		19,000	0		0		0		0	0		0		19,000

Balance, June 30, 2021	$	43,703,000	4,453,000	$	4,453,000	$	14,149,000	$	35,872,000	(1,273,000)	$	(10,213,000)	$	(558,000)

See accompanying notes to consolidated financial statements (unaudited).

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine months
ended September 30,
2017 2016
Cash Flows from Investing Activities:
Capital expenditures $ (444,000 ) $ (894,000 )
Purchase of net assets of Jiffy Air Tool, Inc. (6,845,000 ) —
Purchase of patents (200,000 ) —
Proceeds from disposal of assets 8,000 30,000
Net cash used in investing activities – continuing operations (7,481,000 ) (864,000 )
Net cash provided by investing activities – discontinued operations — 20,149,000
Net cash (used in) provided by investing activities (7,481,000 ) 19,285,000

Cash Flows from Financing Activities:
Dividend payments (542,000 ) (2,156,000 )
Proceeds from exercise of stock options 62,000 23,000
Purchase of Class A Common Stock (89,000 ) (255,000 )
Net proceeds from short-term borrowings 2,334,000 10,536,000
Repayments of term loans — (6,343,000 )
Repayments of notes payable (14,000 ) (27,000 )
Payments of debt issue costs (74,000 ) (30,000 )
Net cash provided by financing activities – continuing operations 1,677,000 1,748,000
Net cash used in financing activities – discontinued operations — (18,716,000 )
Net cash provided by (used in) financing activities 1,677,000 (16,968,000 )

Effect of exchange rate changes on cash 34,000 (45,000 )
Net (decrease) increase in cash (2,494,000 ) 14,000
Cash at beginning of period 3,699,000 927,000
Cash at end of period $ 1,205,000 $ 941,000

Supplemental disclosures of cash flow information:

Cash paid for:
Interest $ 74,000 $ 123,000
Income taxes $ 342,000 $ 88,000

Supplemental disclosure of non-cash investing and financing activities:
Contingent consideration on acquisition $ 692,000 $ —


	Six months
	ended June 30,
	2022		2021
Cash Flows from Operating Activities:
Net (loss) income	$	(639,000)	$	2,116,000

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Non-cash and other charges:
Depreciation		881,000		902,000
Amortization of other intangible assets		341,000		316,000
Amortization of operating lease assets		471,000		449,000
Amortization of debt issue costs		8,000		8,000
Amortization of consideration payable to a customer		135,000		135,000
Recovery of provision for losses on accounts receivable		42,000		59,000
Stock-based compensation		1,000		3,000
Stock-based compensation-options exercise		38,000		0
Restricted stock-based compensation		19,000		27,000
Deferred income taxes		(20,000)		(159,000)
Gain (loss) on disposal of fixed assets		(5,000)		7,000
Forgiveness of Paycheck Protection Program loan		0		(2,929,000)
Changes in operating assets and liabilities, net of effects of acquisition
Accounts receivable		(2,276,000)		(750,000)
Inventories		(353,000)		(895,000)
Prepaid expenses and other current assets		1,302,000		414,000
Accounts payable		(778,000)		1,482,000
Accrued compensation and benefits		681,000		718,000
Accrued other liabilities and other current liabilities		(524,000)		(64,000)
Operating lease liabilities		(461,000)		(443,000)
Other liabilities		(17,000)		(28,000)
Total adjustments		(515,000)		(748,000)
Net cash (used in) provided by operating activities		(1,154,000)		1,368,000

See accompanying notes to consolidated financial statements (unaudited).

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Six months

ended June 30,


2022

2021
Cash Flows from Investing Activities:




Capital expenditures

$
(923,000)

$
(247,000)
Purchase of net assets of the Jackson Gear Company business

(2,300,000)

0
Net cash used in investing activities

(3,223,000)

(247,000)

Cash Flows from Financing Activities:

Net proceeds (repayments) from short-term borrowings

4,304,000

(1,004,000)
Proceeds from exercise of stock options

2,000

0
Net cash provided by (used in) financing activities

4,306,000

(1,004,000)

Effect of exchange rate changes on cash

(37,000)

(4,000)
Net (decrease) increase in cash

(108,000)

113,000
Cash at beginning of period

539,000

904,000
Cash at end of period

$
431,000

$
1,017,000

Supplemental disclosures of cash flow information:

Cash paid for:

Interest

$
114,000

$
19,000
Taxes

$
124,000

$
12,000
Cash paid for amounts included in the measurement of operating lease liabilities

$
0

$
6,000

Non-cash information:

Right of Use (“ROU”) assets recognized for new operating lease liabilities

$
987,000

$
53,000

See accompanying notes to consolidated financial statements (unaudited).

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these interim consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of the management of the Company, as defined below, these unaudited consolidated financial statements include all normal, recurring adjustments necessary to present fairly the information set forth therein. ~~All such adjustments, except for those adjustments relating to discontinued operations, are of a normal recurring nature.~~ Results for interim periods are not necessarily indicative of results to be expected for a full year.
The consolidated balance sheet information as of December 31, ~~2016~~2021, was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 (“~~2016~~2021 Form 10-K”). The ~~interim~~unaudited consolidated financial statements contained herein should be read in conjunction with the ~~2016~~2021 Form 10-K.
The consolidated financial statements have been reported in U.S. dollars by translating asset and liability amounts of a foreign wholly-owned subsidiary at the closing exchange rate, equity amounts at historical rates and the results of operations and cash flow at the average of the prevailing exchange rates during the periods reported. As a result, the Company is exposed to foreign currency translation gains or losses. These gains or losses are presented in the Company’s consolidated financial statements as “Other comprehensive income (loss) - foreign currency translation ~~adjustment”.~~
adjustment.”
Principles of Consolidation
The unaudited consolidated 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.
~~Reclassification~~
Certain amounts in the consolidated financial statements of the Company have been reclassified to conform to classifications used in the current year. The reclassifications had no effect on previously reported results of operations or retained earnings.
~~Customer Concentration~~
The Company has one retail customer that during the three and nine-month periods ended September 30, 2017 accounted for 23.6% and 27.6%, respectively, of the Company’s revenue. Whereas for the same three and nine-month periods in 2016, the Company had two retail customers that accounted for 45.3% and 43.4%, respectively, of the Company’s revenue. Additionally, the Company has two retail customers that, in the aggregate, at September 30, 2017 and December 31, 2016, accounted for 39.6% and 53.5%, respectively, of the Company’s accounts receivable.
~~Out - of - period Adjustment~~
During the preparation of the Company’s tax provision for the three and nine-month periods ended September 30, 2017, it determined that the effect of forfeitures, expiration and exercise of certain of its common stock options should have been reflected in its second quarter and six-month period ended June 30, 2017’s income tax provision. The Company has concluded that this error was immaterial based upon a qualitative and quantitative analysis. As such, the Company reflected such effect in its three and nine-month period ended September 30, 2017.
The Company
P&F, is a Delaware corporation incorporated ~~on April 19, 1963. Prior to February 11, 2016 (the “Nationwide Closing Date”), 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”). As a result of the sale of Nationwide, which had been reported in the Hardware segment, the Company currently only operates in the Tools business. See Note 2 to consolidated financial statements for further discussion.
7
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES – (Continued)~~
~~Tools~~
~~The Company~~1963, conducts its ~~Tools~~ business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn operates through its wholly-owned subsidiaries, Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”).
Florida Pneumatic
Florida Pneumatic directly, and through its wholly-owned subsidiaries Exhaust Technologies Inc. (“ETI”) ~~and~~, Universal Air Tool Company Limited (“UAT”) are wholly-owned subsidiaries of Florida Pneumatic. Effective April 5, 2017, Florida Pneumatic, through a wholly-owned subsidiary, purchased substantially all of the operating assets, less certain payables of, and Jiffy Air Tool, Inc. ~~See Note 3 for further discussion. The business~~(“Jiffy”) imports, manufactures, and markets pneumatic hand tools 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 appearance and function to electric hand tools, but are powered by compressed air, rather than by electricity or a battery. Air ~~Tool Service Company (“ATSCO”) operates through a wholly-owned subsidiary of Hy-Tech.~~
tools, as they are more commonly referred to, generally offer better performance, and weigh less than their electrical counterparts. Florida Pneumatic ~~is engaged in the importation and sale~~imports and/or manufactures approximately 75 types of pneumatic hand tools, ~~primarily for~~most of which are sold at prices ranging from $50 to $1,000, under the ~~retail, industrial~~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 ~~automotive markets. Florida Pneumatic also markets,~~private label customers through ~~its Berkley Tool division (“Berkley”), a product line which includes pipe~~in-house sales personnel and ~~bolt dies, pipe taps, wrenches, vises~~manufacturers’ representatives. The AIRCAT and ~~stands, pipe and tubing cutting equipment, hydrostatic test pumps, and replacement electrical components for a widely-used brand~~NITROCAT brands of ~~pipe cutting and threading machines. Lastly as the result of the Jiffy acquisition, Florida Pneumatic now manufactures~~ pneumatic tools ~~marketed~~are sold primarily to the automotive service and repair market (“automotive market”). Users of Florida Pneumatic’s hand tools include industrial maintenance and production staffs, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace ~~sector.~~manufacturers.

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)

The Company - Continued

Hy-Tech

Hy-Tech designs, manufactures, and ~~sells~~markets industrial tools, systems, gearing, accessories, and a wide ~~range~~variety of ~~industrial products~~replacement parts under ~~the~~various brands including ATP, ~~ATSCO, Ozat, Numatx, Thaxton~~NUMATX, and ~~Quality Gear. These products, including heavy duty~~Thaxton. Hy-Tech produces and sells heavy-duty pneumatic impact tools, grinders, air ~~tools, industrial grinders, impact sockets,~~motors, hydro-pneumatic riveters, hydrostatic test plugs, ~~air motors~~impact sockets and custom gears, with prices ranging from $300 to $42,000.

Hy-Tech’s “Engineered Solutions” products are ~~all~~ sold ~~direct~~directly to ~~major end users as well as~~Original Equipment Manufacturers (“OEM’s”), and industrial branded products are sold through a broad network of ~~Industrial and Fluid Power Distributors. Industries served include~~specialized industrial distributors serving the power generation, petrochemical, aerospace, construction, railroad, mining, ship building and fabricated ~~metals.~~metals industries, among others. Hy-Tech ~~also manufactures~~works directly with its industrial customers, designing and manufacturing products from finished components ~~assemblies and finished product for various Original Equipment Manufacturers~~to complete turnkey systems to be sold under their own brand names.

Hy-Tech’s “Power Transmission Group”, commonly referred to as “PTG”, produces spiral bevel and straight bevel gears along with a wide variety of other gearing. These products are sold direct to OEMs, end-users and gearbox repair companies. PTG works directly with its customer’s engineering departments to design or redesign gears or gearboxes to optimize a solution for functionality and manufacturability.

~~Hardware~~Nearly all of Hy-Tech brands are manufactured in the United States of America. Hy-Tech markets ATP branded impact sockets, striking wrenches and accessories that are imported from Italy and Asia.

~~Prior~~Please refer to Note 2 for discussion related to the ~~Nationwide Closing Date,~~Company’s acquisition of the Jackson Gear Company business (“JGC”).

COVID-19

On March 11, 2020, the World Health Organization designated the recent novel coronavirus, or COVID-19, as a global pandemic. COVID-19 was first detected in Wuhan City, Hubei Province, China and continued to spread, significantly impacting various markets around the world, including the United States. Various policies and initiatives have been implemented to reduce the global transmission of COVID-19.

The COVID-19 virus and the resultant global economic down-turn had a negative impact on our fiscal 2021 results and continues to negatively impact the Company ~~conducted its Hardware business through its wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). Countrywide conducted~~during the six-month period ended June 30, 2022. Additionally, we believe the on-going supply-chain crisis is related to the pandemic. Commencing in mid-2021 and continuing to date, although easing somewhat during the latter portion of the second quarter of 2022, we encountered severe shipping / receiving delays of inventory from our Asian suppliers, which has caused intermittent shortages of product. Further, the Company believes the COVID-19 global pandemic has been and continues to be the primary factor in the significant increases in the cost of international ocean freight. In addition, the COVID-19 pandemic had since mid-2020, caused many of the Company’s customers and potential customers to refuse or delay on-site visits, which is critical to generating revenue, easing somewhat during the second quarter of 2022. The Company believes that until the above issues subside, its business ~~operations through its wholly-owned subsidiary, Nationwide. Nationwide was an importer~~will likely continue to be adversely affected by COVID-19.

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)

Going Concern Assessment

Management assesses going concern uncertainty to determine whether there is sufficient cash on hand and ~~manufacturer~~working capital, including available borrowings on loans, to operate for a period of ~~door, window and fencing hardware and accessories, including rollers, hinges, window operators, sash locks, custom zinc castings and door closers. Effective as of~~at least one year from the ~~Nationwide Closing Date, Countrywide sold Nationwide to an unrelated third party for approximately $22,200,000. See Note 2 to~~date the consolidated financial statements are issued, which is referred to as the “look-forward period,” as defined in US GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, it considers various scenarios, forecasts, projections, estimates and makes certain key assumptions, including the timing and nature of projected cash expenditures, its ability to reduce, delay or curtail cash outflows and its ability to raise additional capital, if necessary, among other factors. Management has prepared estimates of operations covering the look-forward period and believes that sufficient funds will be generated from operations, working capital, and its existing credit facility to fund its operations. The Company has contingency plans in which it would further reduce or defer additional expenses and cash outlays, should operations weaken beyond current forecasts.

The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is unclear what the full impact of COVID-19 will be in the future or when the Company believes a return to more normal operations may occur.

The accompanying consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.

Customer Concentration

The Company had one customer that accounted for ~~further discussion.~~

36.0% and 35.9% of its consolidated accounts receivable at June 30, 2022, and December 31, 2021, respectively. Further, this customer accounted for 27.1% and 24.6%, respectively, of the Company’s consolidated revenue during the three and six-month periods ended June 30, 2022, and 27.7% and 27.4%, respectively, for the same periods in 2021. There was no other customer that accounted for more than 10% of our consolidated revenue or accounts receivable for all periods presented.

Management Estimates

The preparation of financial statements and related disclosures in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, accounts receivable reserve, inventory, goodwill, intangible assets and other long-lived assets, contingent consideration, income taxes and deferred taxes. Descriptions of these policies are discussed in the Company’s ~~2016~~2021 Form 10-K. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and ~~makes adjustments~~adjusts when facts and circumstances dictate. 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.

Significant Accounting Policies

The Company’s significant accounting policies are described in “Note 1: Summary of Significant Accounting Policies” of our 2021 Form 10-K.

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 –- BUSINESS AND SUMMARY OF ACCOUNTING POLICIES –- (Continued)
~~New Accounting Pronouncements~~
~~Recently Adopted~~
Lease Accounting
~~In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 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 2017. The impact of the adoption was not materialCompany adheres to the ~~Company’s consolidated financial statements.~~
~~In July 2015, the FASB issued 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 2015-11 is effective for fiscal 2017. The impact of the adoption was not material to the Company’s consolidated financial statements.
~~Not Yet Adopted~~
~~In February 2016, the FASB issued ASU No. 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 GAAP.standards set forth in Accounting Standards Codification (“ASC”) 842, “Leases”. 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.
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 ~~guidance.~~include vehicles, office space and the use of real property. The ~~ASU is effective~~Company has not identified any new material finance leases during the three -month period ended June 30, 2022.
The Company considers any options to extend the term of a lease when measuring the Right-of-Use lease asset.
For the three and six-month periods ended June 30, 2022, the Company had $240,000 and $471,000, respectively, in operating lease expense, and $225,000 and $449,000, respectively, for ~~annual~~the same three and six-month periods ~~beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In~~in 2021.
Effective March 1, 2022, the ~~financial statements in which~~Company and the ~~ASU is first applied, leases shall be measured and recognized at the beginning~~landlord of the ~~earliest comparative period presented with an adjustment~~facility located in Punxsutawney, PA. agreed to ~~equity.~~modify the lease related to the approximate 42,000 square foot premises that was leased by Hy-Tech. This lease modification among other things, increased the rented space to approximately 62,000 square feet, extended the lease termination date to February 2027, and provided two three-year options to renew. The ~~Company is currently evaluating~~cost per square foot for the ~~impact~~additional space was equal to that of the ~~adoption~~original lease.
The following is a maturity analysis of ~~this guidance on~~the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of June 30, 2022:

As of June 30, 2022

2022 (excluding the six months ended June 30, 2022)

$
470,000

2023

941,000

2024

668,000

2025

375,000

2026

240,000

Thereafter

1,590,000

Total operating lease payments

4,284,000

Less imputed interest

(508,000)

Total operating lease liabilities

$
3,776,000

Weighted average remaining lease term

7.4
years
Weighted average discount rate

3.69
%

Revenue Recognition
The Company’s revenue recognition policies are detailed in its ~~consolidated financial statements.~~ 2021 Form 10-K. The following tables present the Company’s revenues recognized under ASC Topic 606, “Revenue from Contracts with Customers”, for the three and six-month periods ended June 30, 2022 and 2021.
9
13

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 –- BUSINESS AND SUMMARY OF ACCOUNTING POLICIES –- (Continued)
~~New Accounting Pronouncements~~
~~Not Yet Adopted~~Revenue Recognition - Continued
Florida Pneumatic
~~In May 2014,~~Florida Pneumatic markets its air tool products to four primary sectors within the ~~FASB issued ASU No. 2014-09,~~~~Revenue~~pneumatic tool market: Automotive, Retail, Industrial and Aerospace. It also generates revenue from ~~Contracts with Customers~~,its Berkley products line, as well as a ~~new Topic, ASC Topic 606,~~line of air filters and other OEM parts, which ~~supersedes existing accounting standards~~are reported as Other.

Three months ended June 30,

2022

2021

Increase (decrease)




Percent of



Percent of




Revenue

revenue

Revenue

revenue

$

%

Automotive

$
3,853,000

30.4
%
$
3,782,000

35.3
%
$
71,000

1.9
%
Retail

4,826,000

38.1

3,763,000

35.1

1,063,000

28.2

Industrial

1,705,000

13.5

1,303,000

12.3

402,000

30.9

Aerospace

2,179,000

17.2

1,734,000

16.2

445,000

25.7

Other

103,000

0.8

130,000

1.1

(27,000)

(20.8)

Total

$
12,666,000

100.0
%
$
10,712,000

100.0
%
$
1,954,000

18.2
%

Six months ended June 30,

2022

2021

Increase (decrease)

Percent of

Percent of


Revenue

revenue

Revenue

revenue

$

%

Automotive

$
7,734,000

33.7
%
$
7,884,000

36.5
%
$
(150,000)

(1.9)
%
Retail

7,845,000

34.2

7,553,000

34.9

292,000

3.9

Industrial

3,111,000

13.6

2,662,000

12.3

449,000

16.9

Aerospace

3,994,000

17.4

3,262,000

15.1

732,000

22.4

Other

263,000

1.1

253,000

1.2

10,000

4.0

Total

$
22,947,000

100.0
%
$
21,614,000

100.0
%
$
1,333,000

6.2
%

Hy-Tech
Hy-Tech designs, manufactures, and sells a wide range of industrial products which are categorized as ATP for ~~revenue recognition~~reporting purposes. In addition to Engineered Solutions, products and ~~creates a single framework. Additional updates to Topic 606 issued by 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~~components manufactured for other companies under their brands 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 isincluded in the ~~final assessment phase~~OEM category in the table below. PTG revenue is comprised of ~~what impact, if any, the new revenue standard~~products manufactured and ~~related updates will have on its consolidated financial statements~~sold by Hy-Tech’s gear business. NUMATX, Thaxton and ~~related disclosures, and based on its preliminary assessment,~~ other ~~than additional disclosures in its Notes to its consolidated financial statements, there will be no material impact to its consolidated financial statements.The standard update,~~peripheral product lines, such as ~~amended, will be effective for annual periods beginning after December 15, 2017.~~general machining, are reported as Other.

Three months ended June 30,


2022

2021

Increase (decrease)


Percent of


Percent of




Revenue

revenue

Revenue

revenue

$

%

OEM

$
2,542,000

49.4
%
$
1,408,000

48.9
%
$
1,134,000

80.5
%
ATP

945,000

18.4

779,000

27.1

166,000

21.3

PTG

1,583,000

30.8

604,000

21.0

979,000

162.1

Other

74,000

1.4

86,000

3.0

(12,000)

(14.0)

Total

$
5,144,000

100.0
%
$
2,877,000

100.0
%
$
2,267,000

78.8
%
~~In January 2017, the FASB issued ASU No. 2017-04,~~~~Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”),~~which simplified the testing of goodwill 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 2017-04 is effective for public companies for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating the effects that the adoption of ASU 2017-04 will have on its 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, will have a material effect on its consolidated financial statements.
10
14

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 - BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
Revenue Recognition - Continued
~~NOTE 2 – DISCONTINUED OPERATIONS~~

Six months ended June 30,

2022

2021

Increase

Percent of

Percent of


Revenue

revenue

Revenue

revenue

$

%

OEM

$
4,507,000

50.7
%
$
3,019,000

51.0
%
$
1,488,000

49.3
%
ATP

1,687,000

19.0

1,492,000

25.2

195,000

13.1

PTG

2,522,000

28.4

1,250,000

21.1

1,272,000

101.8

Other

168,000

1.9

160,000

2.7

8,000

5.0

Total

$
8,884,000

100.0
%
$
5,921,000

100.0
%
$
2,963,000

50.0
%

Recently Adopted Accounting Pronouncements
~~Sale of Nationwide Industries, Inc.~~
~~The Company, as part of its strategic plan to focus on expanding its position in~~During the power-tool and accessories market, sold Nationwide in February 2016. On the Nationwide Closing Date, P&F, Countrywide, Nationwide and Argosy NWI Holdings, LLC, a Delaware limited liability company (“Buyer”), entered into a Stock Purchase and Redemption Agreement (the “Stock Purchase Agreement”), pursuant to which, among other things, after giving effect to certain contributions and redemptions of Nationwide’s common shares (“Nationwide Shares”), the Buyer acquired all of the outstanding Nationwide Shares from Countrywide (the “Acquisition”). The purchase price for the Nationwide Shares acquired in the Acquisition was approximately $22,200,000, before giving effect to an estimated working capital adjustment, as defined in the Stock Purchase Agreement, of approximately $802,000 in favor of 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 adjustment amount was determined to be approximately $75,000 in the Company’s favor. As a result, during the three-monthsix-month period ended June 30, ~~2016, the $250,000 portion of the escrow funds was released to~~2022, there were no accounting pronouncements or other authoritative guidance issued that the Company adopted.

NOTE 2 - ACQUISITION
Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, the Company acquired (the “Acquisition”) substantially all the non-real estate assets comprising the business of JGC, a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. The purchase price consisted of an aggregate of approximately $2.3 million in cash, which was funded by Revolver (as defined in Note 9) borrowings, and the ~~final working capital adjustment amount~~assumption of ~~$75,000 was paid to~~certain payables. The Company has incorporated this business into its PTG business and believes that the ~~Company by~~Acquisition will provide added market exposure into the ~~Buyer.~~ market for larger gears.
In connection with the Acquisition, ~~Countrywide agreed that, should it sell~~ the ~~real property it owned in Tampa, Florida (the “Premises”), it will contribute an additional $400,000~~Company entered into the ~~escrow funds. In November 2016, the Premises were sold,~~Consent, Joinder and as a result Countrywide contributed the additional $400,000 into the aforementioned escrow funds which, at that time, aggregated to approximately $2,105,000. In accordance with the Stock Purchase Agreement, in August 2017, as no claims were made against the Escrow funds, the Company received the full amount of the escrow plus interest.
~~At the closing of the Acquisition, after paying closing costs, the net cash received from the Buyer was approximately $18,700,000.~~
As Nationwide was a substantial and unique business unit of the Company, its sale was a strategic shift. Accordingly, in accordance with ASC Topic 360, the Company, in 2016, classified Nationwide as a discontinued operation.
~~The net income from discontinued operations, net of taxes in 2016 presented in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss), is comprised of the following:~~
January 1, 2016
through February
11, 2016

Revenue $ 1,830,000
Cost of goods sold 1,177,000
Gross margin 653,000
Selling and general and administrative expenses 483,000
Interest expense - net 60,000
Income before income taxes 110,000
Income taxes 38,000

Net income $ 72,000
  The Company recognized a gain of $12,185,000, on the sale of Nationwide during the three-month period ended March 31, 2016, which represents the difference between the adjusted net purchase price and the carrying book value of Nationwide. During the three-month period ended June 30, 2016, the Company incurred an additional $14,000 in expenses related to the sale. For income tax purposes, the Company’s tax basis in Nationwide was greater than the net proceeds, thus resulting in a tax loss. This tax loss may only be applied against future capital gain transactions. During the three-month period ended March 31, 2016; the Company recorded a tax benefit of $141,000, net of a valuation allowance against the gain on sale. In November 2016, Countrywide completed the sale of the real property located in Tampa Florida, which was treated as a capital gain transaction for tax purposes. As a result, during the three-month period ended September 30, 2016, the Company removed the valuation allowance initially recorded against the tax loss, resulting in an additional $187,000 tax benefit recorded against the gain on sale.
11
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 3 – ACQUISITION~~
~~On April 5, 2017 (the “Jiffy Closing Date”~~Amendment No. 9 (“Amendment No. 9”), Bonanza Holdings Corp. (now known as Jiffy Air Tool, Inc.), a Delaware corporation and newly formed wholly-owned subsidiary (“Jiffy”) of Florida Pneumatic, Jiffy Air Tool, Inc. a Nevada corporation (“Jiffy Seller”), The Jack E. Pettit—1996 Trust, the sole shareholder of Jiffy Seller and Jack E. Pettit, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which, among other things, Jiffy acquired (the “Jiffy Acquisition”) substantially all of the operating assets of Jiffy Seller for $5,950,000, in addition to the assumption of certain payables and contractual obligations as set forth in the Asset Purchase Agreement. Jiffy manufactures and distributes pneumatic tools and components, primarily sold to aerospace manufacturers. The purchase price was $5,950,000, less a post-closing working capital adjustment of $155,000, which was paid by Jiffy Seller to the Company in June 2017.
Additionally, the Jiffy Seller may be entitled to up to $1,000,000 in additional consideration, which is contingent upon Jiffy achieving certain revenue thresholds and other criteria as set forth in the Asset Purchase Agreement within two defined measurement periods occurring within approximately the first two years following the Jiffy Closing Date.
In connection with the Asset Purchase Agreement, a separate Purchase and Sale Agreement and Joint Escrow Instructions (the “Purchase and Sale Agreement” and together with the Asset Purchase Agreement, the “Agreements”) was entered into between Jiffy Seller and Bonanza Properties Corp. (“Bonanza Properties”), a Delaware corporation and newly formed wholly-owned subsidiary of Florida Pneumatic, pursuant to which Bonanza Properties purchased certain real property of the Jiffy Seller. Pursuant to the Purchase and Sale Agreement, the purchase price for the real property was $1,050,000.
~~The initial total consideration ($5,950,000 plus $1,050,000) was paid by Jiffy to the Jiffy Seller from funds available under the Revolver, as defined in Note 10, pursuant~~ to the Second Amended and Restated Loan and Security Agreement ~~(defined below)~~(the “Credit Agreement”), ~~less certain amounts escrowed pursuant~~with Capital One, National Association. Amendment No. 9, among other things, provided consent to ~~among others,~~ the ~~terms of the Agreements.~~Acquisition.

Total
Cash paid at closing $ 7,000,000
Less working capital adjustment (155,000 )
Fair value of contingent consideration 692,000
Total estimated purchase price $ 7,537,000


Total
Total purchase price

$
2,300,000

The following table presents ~~preliminary~~the purchase price allocation:

Accounts receivable $ 789,000
Inventories 1,571,000
Other current assets 45,000

Land 131,000
Building 919,000
Machinery and equipment 1,196,000
Identifiable intangible assets:
Customer relationships 1,670,000
Trademarks and trade names 790,000
Non-compete agreements 17,000
Liabilities assumed (125,000 )
Goodwill 534,000
Total estimated purchase price $ 7,537,000

Accounts receivable

$
489,000
Inventories

359,000
Machinery and equipment

823,000
Customer relationships

450,000
Goodwill

394,000
Liabilities assumed

(215,000)
Total purchase price

$
2,300,000
12
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 3 – ACQUISITION – (Continued)~~

The excess of the total purchase price over the fair value of the net assets acquired ~~including the value of the identifiable intangible assets, has been allocated to~~is currently being presented as goodwill. Goodwill ~~will be~~is amortized over 15 years for tax purposes, but not deductible for financial reporting purposes. ~~The~~All identifiable intangible assets subject to amortization ~~will be~~are amortized over their useful lives for book purposes, and are amortized over 15 years for tax purposes. ~~For financial reporting purposes, useful lives have been assigned as follows:~~

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

~~Customer relationships~~		~~15 years~~
~~Trademarks and trade names~~		~~Indefinite~~
~~Non-compete agreements~~		~~4 years~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 2 – ACQUISITION - (Continued)
The following unaudited pro-forma combined financial information gives effect to the ~~Jiffy~~ Acquisition as if the ~~Jiffy Acquisition~~transaction was consummated on January 1, ~~2016.~~2021. This unaudited pro-forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the ~~Jiffy~~ Acquisition been completed as of January 1, ~~2016~~2021 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

Three months ended Nine months ended
September 30, September 30,
2016 2017 2016
Revenue $ 16,400,000 $ 45,835,000 $ 50,092,000
Net (loss) income from continuing operations $ (23,000 ) $ 68,000 $ (5,002,000 )
(Loss) earnings per share – basic $ (0.01 ) $ 0.02 $ (1.39 )
(Loss) earnings per share – diluted $ (0.01 ) $ 0.02 $ (1.39 )

For the

For the

three-month

six-month

period ended

period ended


June 30, 2021

June 30,2021
Revenue

$
14,399,000

$
28,855,000
Net income

$
2,398,000

$
2,099,000
Earnings per share – basic

$
0.75

$
0.66
Earnings per share – diluted

$
0.75

$
0.66

13
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
NOTE ~~4 – EARNINGS~~3 -INCOME (LOSS) PER SHARE
Basic ~~earnings (loss)~~loss per common share is based only on the weighted average number of shares of Common Stock outstanding for the periods. Diluted ~~earnings (loss)~~loss per common share reflects the effect of shares of Common Stock issuable upon the exercise of options unless the effect on earnings is ~~antidilutive.~~
anti-dilutive.
Diluted ~~earnings (loss)~~loss per common share is computed using the treasury stock method. Under this method, the aggregate number of shares of Common Stock outstanding reflects the assumed use of proceeds from the hypothetical exercise of any outstanding options to purchase shares of Common Stock. The average market value for the period is used as the assumed purchase price.
The following table sets forth the elements of basic and diluted ~~earnings (loss)~~loss per common share:

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Numerator for basic and diluted earnings (loss) per common share:

Net income (loss) from continuing operations $ 5,000 $ (286,000 ) $ (38,000 ) $ (5,590,000 )
Net income from discontinued operations — 187,000 — 12,430,000
Net income (loss) $ 5,000 $ (99,000 ) $ (38,000 ) $ 6,840,000

Denominator:
For basic earnings (loss) per share - weighted average common shares outstanding 3,617,000 3,598,000 3,609,000 3,598,000
Dilutive securities⁽¹⁾ 160,000 — — —
For diluted earnings (loss) per share - weighted average common shares outstanding 3,777,000 3,598,000 3,609,000 3,598,000
⁽¹⁾ ~~Dilutive securities consist of “in the money” stock options.~~

Three months ended

Six months ended

June 30,

June 30,


2022

2021

2022

2021
Numerator for basic and diluted (loss) income per common share:

Net (loss) income

$
(21,000)

$
2,423,000

$
(639,000)

$
2,116,000

Denominator:

Denominator for basic (loss) income per share - weighted average common shares outstanding

3,185,000

3,181,000

3,177,000

3,175,000
Dilutive securities (1)

0

12,000

0

15,000
Denominator for diluted (loss) income per share - weighted average common shares outstanding

3,185,000

3,193,000

3,177,000

3,190,000
(1)Dilutive securities consist of the “in the money” stock options. In the event of a loss, options are considered anti-dilutive and are therefore not included in the calculation of diluted loss per share.
At ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, there were outstanding stock options whose exercise prices were higher than the average market values of the underlying Common Stock for the period. ~~For all periods presented, other than the three months ended September 30, 2017, these options are considered anti-dilutive and are excluded from the computation of diluted earnings (loss) per share.~~ The weighted average of anti-dilutive stock options outstanding was as follows:

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Weighted average antidilutive stock options outstanding 138,000 73,000 86,000 78,000

Three months ended

Six months ended

June 30,

June 30,


2022

2021

2022

2021
Weighted average anti-dilutive stock options outstanding

135,000

139,000

135,000

140,000

~~NOTE 5 – EQUITY – COMMON STOCK REPURCHASE PLAN~~16

~~On August 9, 2017, the Company’s Board~~Table of ~~Directors authorized the Company to repurchase up to 100,000 shares of its common stock over a period of up to twelve months (the “Repurchase Program”).~~

On August 24, 2017, the Company announced that, pursuant to the 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. A plan under Rule 10b5-1 allows the Company to repurchase shares at times when it might otherwise be prevented from doing so by securities laws or because of self-imposed trading blackout periods. Repurchases made under the plan are subject to the Securities and Exchange Commission's regulations, as well as certain price, market, volume, and timing constraints specified in the plan. Since repurchases under the plan are subject to certain constraints, there is no guarantee as to the exact number of shares that will be repurchased under the plan.

~~As of September 30, 2017, the Company repurchased 12,365 shares of its Common Stock pursuant to the Repurchase Program.~~

Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 54 – ~~EQUITY – COMMON STOCK REPURCHASE PLAN – (Continued)~~STOCK-BASED COMPENSATION
Stock Options
~~Stock option compensation~~

Weighted

Weighted average

average

remaining

Aggregate

exercise

contractual life

Intrinsic


Option shares

price

(years)

Value
Outstanding, January 1, 2022

178,499

$
6.76

3.4

$
60,643
Granted

0

0

—

—
Exercised

41,809

4.74

—

38,046
Forfeited

0

0

—

—
Expired

2,090

4.29

—

—
Outstanding, June 30, 2022

134,600

$
7.42

3.9

$
—
Vested, June 30, 2022

134,600

$
7.42

3.9

$
—
~~The Company accounts for stock-based compensation, including options and non-vested shares, according to the provisions of FASB ASC 718,~~~~Share Based Payment~~.

On ~~September 5, 2017 (“Grant Date”),~~June 21, 2022, the ~~compensation committee~~Chief Financial Officer of ~~Company’s Board of Directors authorized~~ the ~~issuance of 89,000~~Company exercised 41,809 options to purchase ~~shares of~~ the Company’s ~~Class A~~ Common ~~Stock under the Company’s 2012 Stock Incentive Plan.~~Stock. The options expire ten years from the Grant Date. The Company granted an aggregate of 55,000 of these options to its Chief Executive Officer and its Chief Financial Officer, with the balance to non-executive employees of the Company.   All options granted on the Grant Date vest one-third on each of the first three anniversaries of the Grant Date. Further, all options granted on the Grant Date have an exercise price ~~of $7.09, which~~ was $4.74 per share and the closing price of the Company’s ~~common stock on~~Common Stock was $5.65. As permitted by the ~~Grant Date.~~
Company’s 2021 Stock ~~option compensation expense is attributable~~Incentive Plan and approved in advance by the Compensation Committee of the Company’s Board of Directors, this transaction was completed by the executive officer remitting $2,000 to the ~~granting of,~~Company and satisfying the remaining ~~requisite service periods~~portion of ~~stock~~his exercise price and tax withholding and remittance obligations through the net settlement of options. ~~Compensation expense attributable to stock-options was approximately $20,000 and $0 during~~The above resulted in the three-month periods ended September 30, 2017 and 2016, respectively. Compensation expense attributable to stock-options was approximately $20,000 and $13,000 during the nine-month periods ended September 30, 2017 and 2016, respectively.  The compensation expense is recognized in selling, general and administrative expenses on the Company’s Statements of Operations and Comprehensive Income (Loss) on a straight-line basis over the vesting periods.  The exercisability of the respective non-vested options, which are at pre-determined dates on a calendar year, does not necessarily correspond to the period(s) in which straight-line amortization of compensation cost is recorded. As of September 30, 2017, the Company had approximately $373,000 of total unrecognized compensation cost related to non-vested awards granted under its stock-based plans, which it expects to recognize over a weighted average period of 1.9 years. The expected term of stock options is based on historical exercises and terminations. The volatility is determined using historical volatilities based on historical stock prices.
~~The Company estimated the fair value of these options using the following assumption:~~

Risk-free interest rate 2.07 %
Expected term (in years) 10 years
Volatility 87.16 %
Dividend yield 2.82 %
Weighted average fair value of options granted $ 4.41
~~The following is a summary of the changes in outstanding options during the nine-month period ended September 30, 2017:~~
Option Shares Weighted
Average
Exercise
Price Weighted Average
Remaining
Contractual Life
(Years) Aggregate
Intrinsic
Value
Outstanding and vested, January 1, 2017 423,817 $ 5.68 2.9 $ 1,271,704
Granted 89,000 7.09
Exercised (16,722 ) 3.65
Forfeited (6,793 ) 7.86
Expired (71,069 ) 10.72
Outstanding, September 30, 2017 418,233 $ 5.17 4.1 $ 907,347

Vested, September 30, 2017 329,233 $ 4.65 2.5 $ 891,327
15
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 5 – EQUITY – COMMON STOCK REPURCHASE PLAN – (Continued)~~
Option Shares Weighted Average Grant-
Date Fair Value
Non-vested options, January 1, 2017 — $ —
Granted 89,000 4.41
Vested — —
Forfeited — —
Non-vested options, September 30, 2017 89,000 $ 4.41
~~The number of~~executive officer receiving 7,163 shares of Common Stock available for issuance under the P&F Industries, Inc. 2012 Stock Incentive Plan (the “2012 Plan”) as of September 30, 2017 was 88,812. At September 30, 2017, there were 192,233 options outstanding issued under the 2012 Plan and 226,000 options outstanding issued under the 2002 Stock Incentive Plan.
Stock.
Restricted Stock
~~The~~On May 25, 2022, the Company ~~in May 2017,~~ granted ~~1,000~~1,250 restricted shares of its Common Stock to each non-employee member of its Board of Directors, totaling ~~5,000~~6,250 restricted shares. The Company determined that the fair value of these shares was ~~$6.17~~$5.50 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, the~~The Company is ratably ~~amortizing~~amortizes the total non-cash compensation expense of approximately ~~$30,000 in its~~$34,000 to selling, general and administrative expenses through May ~~2018.~~2023.
~~The~~On February 16, 2021, the Company ~~in May 2016,~~ granted ~~1,000~~25,000 restricted shares of its Common Stock to ~~each non-employee member of~~ its ~~Board of Directors, totaling 5,000 restricted shares.~~Chief Financial Officer. The Company determined that the fair value of these shares was ~~$8.72~~$6.36 per share, which was the closing price of the Company’s Common Stock on the date of the grant. ~~These shares could not have been traded earlier than the first anniversary of the grant date. As such, the~~The Company ratably ~~amortized~~amortizes over a five-year vesting period the total non-cash compensation expense of approximately ~~$44,000 in its~~$159,000, or $32,000 per annum, to selling, general and administrative ~~expenses through May 2017.~~expenses.

NOTE 65 – 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~~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 ~~instruments~~instrument’s valuation.

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 5 – FAIR VALUE MEASUREMENTS – (Continued)
The guidance requires the use of observable market data if such data is available without undue cost and effort.
As of ~~September~~June 30, ~~2017~~2022, and December 31, ~~2016,~~2021, the carrying amounts reflected in the accompanying ~~Consolidated Balance Sheets~~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 at December 31, 2016 consisted 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. In August 2017, the Company received the entire $2,105,000, in accordance with the terms and conditions set forth in the Stock Purchase Agreement.
The fair value of the contingent consideration payable to the Jiffy Seller, of $706,000, included in other liabilities was determined applying Level 3 inputs. The fair value of this contingent consideration is being adjusted quarterly.
16
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 6 – FAIR VALUE MEASUREMENTS – (Continued)~~
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 76 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable - net consists of:

September 30, 2017 December 31, 2016


June 30, 2022

December 31, 2021
Accounts receivable $ 11,067,000 $ 7,991,000

$
10,726,000

$
7,817,000
Allowance for doubtful accounts (73,000 ) (85,000 )
$ 10,994,000 $ 7,906,000
Allowance for doubtful accounts, sales discounts and chargebacks

(308,000)

(267,000)

$
10,418,000

$
7,550,000

NOTE 87 – INVENTORIES
Inventories consist of:

September 30, 2017 December 31, 2016


June 30, 2022

December 31, 2021
Raw material $ 1,681,000 $ 1,918,000

$
2,102,000

$
2,166,000
Work in process 1,642,000 658,000

2,177,000

1,360,000
Finished goods 16,767,000 17,325,000

20,331,000

20,495,000
$ 20,090,000 $ 19,901,000

$
24,610,000

$
24,021,000

NOTE 98 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill are as follows:

Balance, January 1, 2017 $ 3,897,000
Acquisition of Jiffy Air Tool, Inc. 534,000
Currency translation adjustment 14,000
Balance, September 30, 2017 $ 4,445,000

Balance, January 1, 2022

$
4,447,000
Goodwill attributable to the acquisition of JGC business (See Note 2)

394,000
Currency translation adjustment

(19,000)
Balance, June 30, 2022

$
4,822,000

~~Other intangible assets were as follows:~~
September 30, 2017 December 31, 2016
Cost Accumulated
amortization Net book
value Cost Accumulated
amortization Net book
value
Other intangible assets:
Customer relationships (1) $ 6,834,000 $ 1,427,000 $ 5,407,000 $ 5,143,000 $ 1,022,000 $ 4,121,000
Trademarks and trade names (1) 2,326,000 — 2,326,000 1,507,000 — 1,507,000
Trademarks and trade names (2) 200,000 15,000 185,000 200,000 5,000 195,000
Engineering drawings 330,000 168,000 162,000 330,000 148,000 182,000
Non-compete agreements (1) 238,000 201,000 37,000 212,000 150,000 62,000
Patents (3) 1,405,000 813,000 592,000 1,205,000 666,000 539,000
Totals $ 11,333,000 $ 2,624,000 $ 8,709,000 $ 8,597,000 $ 1,991,000 $ 6,606,000
~~(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 a prior impairment, the Company began amortizing these intangible assets over a 15 year useful life.
~~(3)~~ ~~The $200,000 increase represents a patent acquired during the third quarter of 2017.~~
17
18

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 98 – GOODWILL AND OTHER INTANGIBLE ASSETS – ~~(Continued)~~(Continued)
Other intangible assets

June 30, 2022

December 31, 2021




Accumulated

Net book



Accumulated

Net book

Cost

amortization

value

Cost

amortization

value
Other intangible assets:

Customer relationships (1)

$
6,921,000

$
3,812,000

$
3,109,000

$
6,495,000

$
3,545,000

$
2,950,000
Trademarks and trade names (1)

2,167,000

0

2,167,000

2,187,000

0

2,187,000
Trademarks and trade names

200,000

79,000

121,000

200,000

73,000

127,000
Engineering drawings

330,000

261,000

69,000

330,000

254,000

76,000
Non-compete agreements (1)

323,000

291,000

32,000

335,000

290,000

45,000
Patents

1,286,000

1,111,000

175,000

1,286,000

1,079,000

207,000
Totals

$
11,227,000

$
5,554,000

$
5,673,000

$
10,833,000

$
5,241,000

$
5,592,000
(1)A portion of these intangibles are maintained in a foreign currency and are therefore subject to foreign exchange rate fluctuations.

The weighted average amortization period in years for intangible assets was as follows:


June 30, 2022

December 31, 2021
Customer relationships

6.3

6.7
Trademarks and trade names

9.0

9.5
Engineering drawings

4.6

5.1
Non-compete agreements

1.5

2.0
Patents

4.3

4.5

Amortization expense of intangible assets ~~from continuing operations~~ subject to amortization was as follows:

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
$ 181,000 $ 217,000 $ 620,000 $ 803,000


Three months ended June 30,

Six months ended June 30,

2022

2021

2022

2021

$
164,000

$
157,000

$
341,000

$
316,000
~~The weighted average amortization period for intangible assets was as follows:~~
September 30, 2017 December 31, 2016
Customer relationships 10.4 9.3
Trademarks and trade names (see note 2 to the table above) 13.8 14.5
Engineering drawings 8.3 8.8
Non-compete agreements 1.9 1.2
Patents 9.0 6.1

Amortization expense for the balance of 2022, and for each of the next five years and thereafter is estimated to be as follows:

2018 $ 709,000
2019 686,000
2020 653,000
2021 638,000
2022 635,000
Thereafter 3,062,000
$ 6,383,000

July 1,2022 through December 31, 2022

$
346,000
2023

688,000
2024

639,000
2025

606,000
2026

400,000
Thereafter

827,000

$
3,506,000

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 109 – DEBT

In October 2010, the Company entered into a Loan and Security Agreement ~~(as amended from time to time, “Credit~~(“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 ~~for~~the 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 of credit 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 its~~inventory, equipment, and real property, ~~(“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-guaranteed~~cross guaranteed by certain other subsidiaries. The Credit Agreement expires on February 8, 2024.

On April 12, 2022, we entered into Amendment No. 10 (“Amendment No. 10”) to the Credit Agreement, which among other things:

●

Increased the Revolving Commitment by $2,000,000, to $18,000,000 through June 30, 2022;

●

Removed a $10,000,000 cap on inventory availability through June 30, 2022;

●

Prohibited any Capex Loans through June 30, 2022; and

●

Implemented Secured Overnight Financing Rate (“SOFR”) as the new benchmark interest rate immediately, in lieu of London Interbank Offered Rate (“LIBOR”).

Until the effective date of Amendment No. 10, at the Company’s option, Revolver borrowings ~~will~~would bear interest at either ~~London InterBank Offered Rate (“LIBOR”)~~LIBOR or the Base Rate, as the terms are defined in the Credit Agreement, plus ~~the~~an Applicable Margin, as defined in the Credit Agreement. ~~Further,~~Additionally, the ~~interest rate, either LIBOR or Base Rate, which is added~~Company was subject to ~~the Applicable Margin, is at the option of the Company. The Company is limited as to~~limitations on the number of LIBOR borrowings.

~~Contemporaneously with the Jiffy Acquisition,~~ As noted above, effective April 12, 2022, the Company ~~entered into~~began applying SOFR rates instead of LIBOR. The Company does not believe that this change from LIBOR to SOFR will have a Second Amended and Restated Loan and Security Agreement, effective as of the Jiffy Closing Date (the “Second Amended and Restated Loan Agreement”), with Capital One. The Second Amended and Restated Loan Agreement amended and restated the Credit Agreement.

The Second Amended and Restated Loan Agreement, among other things, amended the Credit Agreement by: (1) increasing the maximum amount the Company can borrow under the Revolver Commitment (as defined in the Second Amended and Restated Loan Agreement) to $16,000,000, subject to certain borrowing base criteria, and (2) modifying certain borrowing base criteria as well assignificant effect on its consolidated financial ~~and other covenants.~~

statements.

The Company provides Capital One with ~~among other things,~~monthly borrowing base certificates, and in certain circumstances, it is required to deliver monthly financial statements and ~~monthly borrowing base certificates. The Company is required to comply~~certificates of compliance with ~~certain~~various financial covenants. Should an event of default occur the interest rate would increase by 2 percent per annum during the period of default, in addition to other remedies provided to Capital One.

At June 30, 2022, short-term or Revolver borrowing was $10,069,000, compared to $5,765,000 at December 31, 2021. (See Notes 2 and 6 for further discussion related to this increase). Applicable Margin Rates at June 30, 2022, were 2.10% and 1.10%, respectively, for SOFR and Base Rate borrowings. At December 31, 2021, these rates were 1.50% and 0.50%, respectively, for LIBOR and Base Rate borrowings. Additionally, at June 30, 2022, and December 31, 2021, there was $7,000,000 and $9,578,000, respectively, available to the Company under its Revolver arrangement.

The ~~Company believes it is~~average balances of short-term borrowings from our Bank for the three and six-month periods ended June 30, 2022, were $11,544,000 and $10,855,000, respectively, and $1,921,000 and $2,043,000, respectively, for the same periods in ~~compliance with all covenants under the Credit Agreement.~~2021.

~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

NOTE 10 – ~~DEBT – (Continued)~~

SUBSEQUENT EVENT

In connection with the Company’s common stock repurchase plan discussed in Note 5, the Company and the Bank amended the Second Amended and Restated Loan Agreement to permit the Company to implement the plan. Among other things, the amendment also reduced the Fixed Charge Coverage Ratio, as defined in the Credit Agreement.

~~Short-term Borrowings~~

The Company had no revolver borrowings at December 31, 2016, whereas at September 30, 2017, its Revolver borrowings were $2,334,000. During the nine-month period ended September 30, 2017, the primary item impacting the Company’s Revolver borrowings was the acquisition discussed in Note 3. The Applicable Margin added to LIBOR borrowings at September 30, 2017 was 1.75%, compared to 1.50% at December 31, 2016. The Applicable Margin added to the Base Rate (Prime rate) borrowings at September 30, 2017 was 0.75% and 0.50% at December 31, 2016.

~~The Company owns vehicles for use by its UAT salesforce. The current portion of the balance due relating to these vehicles is $0 at September 30, 2017 and $13,000 at December 31, 2016.~~

~~Long-term Borrowings~~

The Credit Agreement, as amended, provides for a Term Loan A, which is secured by mortgages on the Company’s Real Property, accounts receivable, inventory and equipment. Term Loan A borrowings can be at either LIBOR, or at the Base Rate, or a combination of the two plus the Applicable Margins. The Applicable Margin added to LIBOR borrowings at September 30, 2017 was 1.75% and 1.50% at December 31, 2016. Applicable Margin for borrowings at the Base Rate (Prime rate) for the same timeframes was 0.75% and 0.50%, respectively. A portion of the net proceeds from the sale of Nationwide repaid all but $100,000 of Term Loan A. This balance is being borrowed at the LIBOR Rate, and is included in long-term debt, less debt issue costs on the Company’s Consolidated Balance Sheets at September 30, 2017 and December 31, 2016.

~~In accordance with ASU No. 2015-03, the Company reduced its long-term debt by $8,000 and $12,000, respectively, relating to debt issue costs as of September 30, 2017 and December 31, 2016.~~

~~NOTE 11 – DIVIDEND PAYMENTS~~

On August ~~10, 2017,~~9, 2022, the Company’s Board of Directors ~~in accordance with their dividend policy,~~ declared a ~~quarterly cash~~$0.05 special dividend. This special dividend ~~of $0.05 per common share, which was paid~~will be payable on August ~~25, 2017,~~29, 2022, to all shareholders of record atas of the close of business on August ~~21, 2017. The total amount of this dividend payment was approximately $180,000. During the nine-month period ended September 30, 2017, the Company has paid approximately $542,000 in dividends.~~22, 2022. The Company ~~currently intends~~estimates the total cash outlay to ~~continue its quarterly dividend payment; however, it will review its policy on a quarterly basis.~~ be approximately $160,000.

Table of Contents

~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~

~~Item 2.~~
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statement
The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of P&F Industries, Inc. and subsidiaries (“P&F”, or the “Company”). P&F and its representatives may, from ~~time to time,~~time-to-time, make written or verbal forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission and in its reports to shareholders. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “would,” “could,” ~~“should”~~“should,” and their opposites and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. Any forward-looking statements contained herein, including those related to the Company’s future performance, are based upon the Company’s historical performance and on current plans, estimates and expectations. All forward-looking statements involve risks and uncertainties. These risks and uncertainties could cause the Company’s actual results for all or part the ~~2017~~2022 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company for a number of reasons including, but not limited to:
·● ~~Exposure~~Risks related to ~~fluctuations in energy prices;~~the global outbreak of COVID-19 and other public health crises;
·● ~~Debt and debt service requirements;~~Risks associated with sourcing from overseas;
·● ~~Borrowing and compliance with covenants under our credit facility;~~
· Disruption in the global capital and credit markets;
·● Importation delays;
● Customer concentration;
● Unforeseen inventory adjustments or changes in purchasing patterns;
● Market acceptance of products;
● Competition;
● Price reductions;
● Exposure to fluctuations in energy prices;
● Exposure to fluctuations within the cost of raw materials;
● The strength of the retail economy in the United States and abroad;
·● ~~Supply chain disruptions;~~Risks associated with Brexit;
·● ~~Customer concentration;~~
· Adverse changes in currency exchange rates;
·● Interest rates;
● Debt and debt service requirements;
● Borrowing and compliance with covenants under our credit facility;
● Impairment of long-lived assets and goodwill;

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

	·●	~~Unforeseen inventory adjustments or changes in purchasing patterns;~~
	·	~~Market acceptance of products;~~
	·	~~Competition;~~
	·	~~Price reductions;~~
	·	~~Interest rates;~~
	·	~~Litigation and insurance;~~
	·	Retention of key personnel;

·●

Acquisition of businesses;

·●

Regulatory environment;

·●

Litigation and insurance;

	●	The threat of terrorism and related political instability and economic uncertainty; and
	·	~~Information technology system failures and attacks,~~

●

Business disruptions or other costs associated with information technology, cyber-attacks, system implementations, data privacy or catastrophic losses,

and those other risks and uncertainties described in its Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 (“~~2016~~2021 Form 10-K”), its Quarterly Reports on Form 10-Q, and its other reports and statements filed by the Company with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. The Company cautions you against relying on any of these forward-looking statements.

OVERVIEW

~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~

During the second quarter of 2022, significant factors that impacted our results of operations were the:

~~Item 2.~~

~~Management’s Discussion~~●

Ongoing negative impact of the COVID-19 pandemic on revenue, income, and ~~Analysis of Financial Condition and Results of Operations~~supply chain.

●

The acquisition of the Jackson Gear Company business.

●

A stocking rollout to our largest retail customer.

●

Weak customer mix at Hy-Tech.

OUR BUSINESS

~~Business~~Florida Pneumatic

~~P&F~~Florida Pneumatic directly, and each of its subsidiaries are herein referred to collectively as the “Company.” In addition, the words “we”, “our” and “us” refer to the Company. Prior to February 11, 2016, (the “Nationwide Closing Date”) 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”). As a result of the sale of Nationwide, the Company currently only operates in the Tools segment. See Note 2 to the consolidated financial statements for further discussion.

~~Tools~~

~~The Company conducts its Tools business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn operates~~ through its wholly-owned subsidiaries ~~Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”).~~ Exhaust Technologies Inc. (“ETI”) ~~and~~, Universal Air Tool Company Limited (“UAT”) ~~are wholly-owned subsidiaries of Florida Pneumatic. Effective April 5, 2017, we purchased substantially all of the operating assets, less certain payables of~~, and Jiffy Air Tool, Inc. (“Jiffy”) imports, manufactures, and markets pneumatic hand tools 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 appearance and function to electric hand tools, but are powered by compressed air, rather than by electricity or a 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 to the automotive service and repair market (“automotive market”). Users of Florida Pneumatic’s hand tools include industrial maintenance and production staffs, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued

OUR BUSINESS - Continued

Hy-Tech

Hy-Tech designs, manufactures, and markets industrial tools, systems, gearing, accessories and a wide variety of replacement parts under various brands including ATP, NUMATX, and Thaxton. 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 directly to Original Equipment Manufacturers (“OEM’s”), and industrial branded products are sold through a ~~wholly-owned subsidiary (“Jiffy”). See Note 3~~broad network of specialized industrial distributors serving the power generation, petrochemical, aerospace, construction, railroad, mining, ship building and fabricated metals industries. Hy-Tech works directly with its industrial customers, designing and manufacturing products from finished components to ~~our consolidated financial statements~~complete turnkey systems to be sold under their own brand names.

Hy-Tech’s Power Transmission Group, or PTG, is a custom gear, gearbox, and power transmission system manufacturer. In addition to manufacturing a broad range of standard and custom gears for ~~further discussion. The business~~manufacturers in a wide variety of ~~Air Tool Service Company (“ATSCO”) operates~~industries, PTG reverse engineers existing gears as well as designs new gears, utilizing state-of-the-art technologies, including 3D imaging and Gleason Gear modeling software.

Effective January 15, 2022, through a wholly-owned subsidiary of ~~Hy-Tech.~~

~~Florida Pneumatic is engaged in~~Hy-Tech, we acquired substantially all the ~~importation and sale~~non-real estate assets comprising the business of ~~pneumatic hand tools, primarily for the retail, industrial and automotive markets. Florida Pneumatic also markets, through its Berkley Tool division~~Jackson Gear Company (“~~Berkley”~~JGC”), a product line which includes pipe and bolt dies, pipe taps, wrenches, vises 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. Lastly, as the result of the acquisition of Jiffy, Florida Pneumatic now manufactures pneumatic tools marketed primarily to the aerospace sector.

~~Hy-Tech~~Pennsylvania-based corporation that manufactures and distributes ~~its own line of industrial pneumatic tools. Hy-Tech also produces~~custom gears and ~~markets impact wrenches, grinders, drills, and motors. Further, it also manufactures tools to customer specifications. Its customers include refineries, chemical plants,~~ power ~~generation facilities, heavy construction enterprises, oil and gas and mining companies. In addition, Hy-Tech manufactures an extensive line of pneumatic tool replacement parts~~transmission gear products. (See Note -2 for ~~its own tools as well as several other widely-used brands of pneumatic tools. It also manufactures and distributes high pressure stoppers for hydrostatic testing fabricated pipe,~~additional information). This business was consolidated into PTG. We believe this acquisition will provide added market exposure into the larger gears ~~sprockets, splines and racks. Additionally, the Company develops highly engineered product solutions to specific customer requirements in the pneumatic tool~~ market.

~~Hardware~~

Prior to the Nationwide Closing Date, we conducted our Hardware business through our wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). Countrywide conducted its business operations through its wholly-owned subsidiary, Nationwide. 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. On the Nationwide Closing Date, Countrywide sold Nationwide to an unrelated third party for approximately $22,200,000. See Note 2 to consolidated financial statements for further discussion.

~~KEY INDICATORS~~

~~Economic Measures~~

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. We focus on a wide array of customer types including, but not limited to, large retailers, aerospace manufacturers, large and small resellers of pneumatic tools and 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 United States Dollar (“USD”) in relation to the Taiwanese dollar (“TWD”), as we purchase a significant portion of our products from Taiwan. Purchases from Chinese sources are made in USD; however, if the Chinese currency, the Renminbi (“RMB”), were to be revalued against the USD, there could be a negative impact on the cost of our products. Additionally, we closely monitor the fluctuation in the Great British Pound (“GBP”) to the USD, and the GBP to TWD, both of which ~~has had~~can have an impact on ~~our~~the consolidated ~~results in 2017. In addition,~~results.

We consider tariffs a key economic measure, as a significant portion of products imported by Florida Pneumatic and to a lesser degree, Hy-Tech, are subject to these tariffs. Further, we monitor ~~the number of operating rotary drilling rigs in the United States, as a means of gauging oil production,~~transportation costs, specifically ocean freight rates, which issince early 2021 have become a key ~~factor in our sales into~~area.

Lastly, the ~~oil and gas exploration and extraction sector.~~

~~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~~

OPERATING MEASURES

Key operating measures we use to manage our operations ~~are:~~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;~~relevant, they are discussed in the detailed sections below.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued

~~Financial Measures~~

FINANCIAL MEASURES

Key financial measures we use to evaluate the results of our business ~~include:~~include various revenue metrics; gross margin; selling, general and administrative expenses; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; operating cash flows and capital expenditures; return on sales; return on assets; ~~days~~days’ sales outstanding and inventory turns. These measures are reviewed at monthly, quarterly and annual intervals and compared to historical periods as well as to established objectives. To the extent that these measures are relevant, they are discussed in ~~the~~ detail below.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Descriptions of these policies are discussed in the ~~2016~~2021 Form ~~10-K.~~10-K, and in the notes to these consolidated financial statements. 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 estimates, including, but not limited to those related to bad debts, inventory reserves, goodwill and intangible assets, warranty reserves, ~~and~~ taxes and deferred 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.

TRENDS AND UNCERTAINTIES

~~OVERVIEW~~COVID-19 PANDEMIC

The COVID-19 virus and the resultant global economic down-turn had a negative impact on our fiscal 2021 results and continues to negatively impact certain sectors of the Company during 2022. Additionally, we believe that, while easing slightly, the on-going supply-chain crisis is related in large part to the pandemic. Further, we believe the COVID-19 global pandemic has been and continues to be the primary factor in the significant increases in the cost of international ocean freight and related matters. We believe that until the above issues improve, our business will likely continue to be adversely affected by the COVID-19 global pandemic.

~~Key~~BOEING/AEROSPACE

The Federal Aviation Administration (“FAA”) and the European Union Aviation Safety Agency (“EASA”) have lifted the grounding of the 737 MAX, however, China, which is a large market for Boeing, has not lifted the grounding on the 737 MAX aircraft. Boeing is currently holding completed 737 MAX aircraft destined for Chinese carriers. As a result of the aforementioned, and airline companies limiting deliveries of new aircraft, we believe production at Boeing of its 737 MAX aircraft is likely to remain below the production levels that existed prior to the grounding of certain Boeing aircraft and the COVID-19 pandemic.

INTERNATIONAL SUPPLY CHAIN

During the third and fourth quarters of 2021, and early 2022, we encountered severe delays in receiving inventory from our Asian suppliers, which led to intermittent shortages of inventory. It should be noted however that the international supply chain crisis has, as of late, begun to ease somewhat. Lastly, our ocean freight costs, which increased in some cases five-fold during the latter half of 2021 and for much of 2022, have begun to decline, but still well in excess of pre pandemic levels. This trend of higher costs and delayed deliveries has continued for most of 2022. We believe the major factors ~~or events impacting our third quarter 2017 results of operations were:~~

driving the above include:

●

~~Decline in Florida Pneumatic’s Automotive and Retail revenue~~Increased price of fuel;

●

~~Improvement in Hy-Tech’s gross margin~~

Table of Contents

●

~~Addition of Jiffy’s operations~~

~~RESULTS OF OPERATIONS~~

~~Continuing operations~~

~~Unless otherwise discussed elsewhere in the~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued

INTERNATIONAL SUPPLY CHAIN - Continued

●

Shortage of shipping containers;

●

Congestion at the ports in Asia and the United States; and

●

Shortage of truck drivers in the United States.

At the present time, we believe the above-mentioned supply chain disruptions will likely continue during the remainder of 2022. While we believe that ~~our relationships~~most of these related costs associated with ~~our key customers and suppliers remain satisfactory. Global oil and gas exploration and extraction~~the items above have been, ~~the primary market of Hy-Tech, which until recently has begun~~or will be, passed on to ~~show signs of improving. Further,~~our customers throughout 2022, there ~~remains a persistent weakness~~is no assurance that any additional cost increases can be passed on in the ~~other markets that Hy-Tech serves~~future.

DOMESTIC TRANSPORTATION COSTS

Due to the shortage of truckers in the U.S. there has been both difficulty in moving goods from the ports to our facilities as well as arranging for pickups to deliver to our customers. In addition, we have seen an increase in the costs for these transportation services. It is unclear when or if this situation will abate. As such, these issues will affect the Company for the foreseeable future impacting our overall margins and possibly depressing sales.

IMPACT OF INFLATION/GEOPOLITCAL ISSUES

Increasing prices, most notably ~~power generation~~in freight/transportation, the cost of raw materials and ~~construction.~~

~~We elected not to renew~~labor had a material effect on our ~~supply agreement with Sears, which expired on September~~results of operations during the three and six-month periods ended June 30, 2017. This 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 pertaining to Sears. There is no Sear’s inventory exposure at September 30, 2017. Further, we2022. We believe that ~~all accounts receivable attributable~~the current and projected significant levels of inflation will continue to ~~Sears, which approximates $1,100,000 at September 30, 2017, should be collected by December 31, 2017. However,~~adversely impact our operating costs. As such, at the present time, ~~there can be no assurance that~~ we are unable to reasonably estimate the impact these issues will ~~fully recover this.~~have on our results of operations for the remainder of 2022 and beyond.

During the six-month period ended June 30, 2022, we do not believe we were directly materially impacted by current geopolitical global events.

TECHNOLOGIES

We believe that over time, several newer technologies and features will ~~begin to~~ have ana greater impact on the market for ~~the Company’s~~our traditional pneumatic tool offerings. ~~This~~The impact of this evolution has been felt initially by the advent of ~~some~~advanced cordless operated hand tools in the automotive aftermarket. We ~~are currently evaluating~~continue to analyze the ~~development~~practicality of developing or incorporating more advanced technologies in our tool platforms.

~~RESULTS OF OPERATIONS~~

~~Continuing operations - (Continued)~~

Other than the aforementioned, or matters that may be discussed below, there are no major trends or uncertainties that had, or we could have reasonably ~~expect could~~expected 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~~Management’s Discussion and Analysis, we believe that our relationships with our key customers and suppliers remain satisfactory.

Table of 2016, we sold Nationwide to an unrelated third party for approximately $22,200,000. As a result of this transaction, Nationwide’s 2016 results are reported under discontinued operations. Please see Note 2 - Discontinued Operations, to our consolidated financial statements for additional information.Contents

RESULTS OF OPERATIONS

REVENUE

The tables below provide an analysis of our net revenue ~~from continuing operations~~ for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021:

Consolidated

Three months ended September 30,
Increase
2017 2016 $ %
Florida Pneumatic $ 12,295,000 $ 11,702,000 $ 593,000 5.1 %
Hy-Tech 3,487,000 2,931,000 556,000 19.0

Consolidated $ 15,782,000 $ 14,633,000 $ 1,149,000 7.9 %

Three months ended June 30,

Increase


2022

2021

$

%

Florida Pneumatic

$
12,666,000

$
10,712,000

$
1,954,000

18.2
%
Hy-Tech

5,144,000

2,877,000

2,267,000

78.8

Consolidated

$
17,810,000

$
13,589,000

$
4,221,000

31.1
%

Nine months ended September 30,
Decrease
2017 2016 $ %

Florida Pneumatic $ 34,936,000 $ 35,270,000 $ (334,000 ) (0.9 )%
Hy-Tech 9,421,000 9,499,000 (78,000 ) (0.8 )

Consolidated $ 44,357,000 $ 44,769,000 $ (412,000 ) (0.9 )%

Six months ended June 30,

Increase


2022

2021

$

%

Florida Pneumatic

$
22,947,000

$
21,614,000

$
1,333,000

6.2
%
Hy-Tech

8,884,000

5,921,000

2,963,000

50.0

Consolidated

$
31,831,000

$
27,535,000

$
4,296,000

15.6
%

Florida Pneumatic
Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool market; ~~retail, automotive, industrial/catalog,~~Automotive, Retail, Aerospace and ~~aerospace.~~Industrial. 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 September 30,
2017 2016 Increase (decrease)
Revenue Percent of
revenue Revenue Percent of
revenue $ %
Retail customers $ 5,212,000 42.4 % $ 6,631,000 56.7 % $ (1,419,000 ) (21.4 )%
Automotive 3,021,000 24.6 3,723,000 31.8 (702,000 ) (18.9 )
Industrial/catalog 1,228,000 10.0 1,026,000 8.7 202,000 19.7
Aerospace 2,564,000 20.8 89,000 0.8 2,475,000 2,780.9
Other 270,000 2.2 233,000 2.0 37,000 15.9
Total $ 12,295,000 100.0 % $ 11,702,000 100.0 % $ 593,000 5.1 %

Three months ended June 30,

2022

2021

Increase (decrease)




Percent of



Percent of




Revenue

revenue

Revenue

revenue

$

%

Automotive

$
3,853,000

30.4
%
$
3,782,000

35.3
%
$
71,000

1.9
%
Retail

4,826,000

38.1

3,763,000

35.1

1,063,000

28.2

Industrial

1,705,000

13.5

1,303,000

12.3

402,000

30.9

Aerospace

2,179,000

17.2

1,734,000

16.2

445,000

25.7

Other

103,000

0.8

130,000

1.1

(27,000)

(20.8)

Total

$
12,666,000

100.0
%
$
10,712,000

100.0
%
$
1,954,000

18.2
%

Six months ended June 30,

2022

2021

Increase (decrease)




Percent of



Percent of




Revenue

revenue

Revenue

revenue

$

%

Automotive

$
7,734,000

33.7
%
$
7,884,000

36.5
%
$
(150,000)

(1.9)
%
Retail

7,845,000

34.2

7,553,000

34.9

292,000

3.9

Industrial

3,111,000

13.6

2,662,000

12.3

449,000

16.9

Aerospace

3,994,000

17.4

3,262,000

15.1

732,000

22.4

Other

263,000

1.1

253,000

1.2

10,000

4.0

Total

$
22,947,000

100.0
%
$
21,614,000

100.0
%
$
1,333,000

6.2
%

23
26

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

RESULTS OF OPERATIONS - (Continued)

~~Continuing operations - (Continued)~~REVENUE – Continued

Nine months ended September 30,
2017 2016 Increase (decrease)
Percent of Percent of
Revenue revenue Revenue revenue $ %
Retail customers $ 15,976,000 45.7 % $ 19,411,000 55.1 % $ (3,435,000 ) (17.7 )%
Automotive 10,024,000 28.7 11,336,000 32.1 (1,312,000 ) (11.6 )
Industrial/catalog 3,812,000 10.9 3,523,000 10.0 289,000 8.2
Aerospace 4,426,000 12.7 320,000 0.9 4,106,000 1,283.1
Other 698,000 2.0 680,000 1.9 18,000 2.6
Total $ 34,936,000 100.0 % $ 35,270,000 100.0 % $ (334,000 ) (0.9 )%
Florida Pneumatic – Continued
~~The majority of~~When comparing the ~~decline~~three-month periods ended June 30, 2022 and 2021, the most significant change in Florida Pneumatic’s ~~third~~revenue occurred within its Retail sector. The 28.2% increase was driven primarily by a stocking rollout to The Home Depot (“THD”) during the second quarter ~~2017 Retail~~of 2022. These items effectively replaced certain tools that were discontinued. The increase in Industrial revenue was ~~due to the reduction~~driven by among other things, slightly improved supply chain conditions, which in turn increased our in-stock inventory, allowing an increase in shipments, ~~to Sears~~price increases that went into effect during the quarter, and better economic conditions this quarter, compared to the ~~same period in 2016. As discussed above, we elected not~~second quarter of 2021. Aerospace continued to ~~renew an agreement~~show year-over-year improvement with ~~Sears, which expired on September 30, 2017. Also impacting our Retail~~ revenue this quarter was a decline in shipments to The Home Depot, which was due primarily to their decision to reduce the number of items offered for sale at certain locations. Additionally, we believe that the recent hurricanes, which impacted the southern portion of the United States, was a contributing factor to the decline in our Retail revenueincreasing 25.7% this quarter, compared to the ~~third~~second quarter of ~~2016. A major factor contributing~~2021, due primarily to the net decline in our Automotive revenue this quarter compared to the same three-month period in 2016, were two major automotive parts distributors continuing to adjust their inventory levels of pneumatic hand tools. Partially offsetting this decline was an increase in orders from both our commercial aircraft and defense-related customers. Our Automotive revenue ~~from our UAT division headquartered in the United Kingdom. OurIndustrial/catalog revenue increased slightly~~improved a modest 1.9% this quarter, compared to the same period a year ago. WeHowever, due to a previously disclosed change in distribution channel strategy, as well as changes in both economic and competitive factors, we believe that ~~activity~~Automotive revenue could lessen in ~~this sector has begun to improve; however, no assurance can be given that this trend will continue. Lastly,~~ the ~~Jiffy acquisition~~future periods.
The 22.4%, or $732,000 increase in ~~April of this yearhas enabled us to approach the aerospace sector with a much stronger brand. As a result, aerospace sales contributed nearly $2.5 million to~~ Florida Pneumatic’s ~~total third quarter 2017 revenue.~~
~~With respect to our year to date results, seventy-five percent of~~Aerospace revenue during the ~~decline in our Retail revenue was due primarily to the reduction in shipments to Sears, compared to the same nine-month~~six-month period in 2016. During 2016, The Home Depot rolled-out several new tools, which did not occur in 2017, accounting for much of the decline in The Home Depot’s year-to-date revenue. Additionally, year to date revenue was negatively affected by The Home Depot’s decision to reduce the number of items being offered at certain locations. We believe two major automotive distributors have been adjusting their inventory levels. As such, their decision is a primary cause of the year to date decline in our Automotive revenue. It should be noted that we have encountered increased sales to other major Automotive customers and distributors. Additionally, UAT’s 2017 year to date revenue has declined approximately 11%, whenended June 30, 2022, compared to the same period ain the prior year, ~~ago. Our Industrial/catalog~~is the most significant factor in analyzing the overall improvement in Florida Pneumatic’s year-to-date revenue. This improvement is being driven by increased orders from both the commercial and military markets. Its Industrial revenue ~~while sluggish during~~for the ~~first three months of 2017, has begun~~six-month period ended June 30, 2022, grew 16.9% over the same period in 2021, due primarily to ~~see slight improvement~~slightly improved supply chain conditions and price increases, both occurring during the second quarter of this year, and ~~third quarters~~better economic conditions during most of ~~2017. Lastly, aerospace revenue, driven by~~ the ~~Jiffy acquisition, added more than $4.1 million to Florida Pneumatic’s year to date 2017 revenue,~~six-month period ended June 30, 2022, compared to the same period in 2021. Revenue for the Retail sector during the first six months of 2022 is 3.9% higher than the same period in 2021. This year-to-date improvement was driven by a ~~year ago.~~stocking roll-out, which occurred during the second quarter of 2022, partially offset by a decline in the spray gun category.
Hy-Tech
~~Hy-Tech~~
Hy-Tech designs, manufactures, and sells a wide range of industrial products ~~under the brands ATP, ATSCO and Ozat~~ which are categorized as ~~“ATP”~~ATP for reporting ~~purposes~~purposes. In addition to Engineered Solutions, products and ~~include heavy duty air tools, industrial grinders~~components manufactured for other companies under their brands are included in the OEM category in the table below. PTG revenue is comprised of products manufactured and ~~impact sockets.~~sold by Hy-Tech’s gear business. NUMATX, Thaxton and other peripheral product lines, ~~Numatx, Thaxton and Quality Gear,~~such as general machining, are reported as ~~“Other”~~Other.


Three months ended June 30,

2022

2021

Increase (decrease)


Percent of



Percent of




Revenue

revenue

Revenue

revenue

$

%

OEM

$
2,542,000

49.4
%
$
1,408,000

48.9
%
$
1,134,000

80.5
%
ATP

945,000

18.4

779,000

27.1

166,000

21.3

PTG

1,583,000

30.8

604,000

21.0

979,000

162.1

Other

74,000

1.4

86,000

3.0

(12,000)

(14.0)

Total

$
5,144,000

100.0
%
$
2,877,000

100.0
%
$
2,267,000

78.8
%


Six months ended June 30,

2022

2021

Increase


Percent of



Percent of




Revenue

revenue

Revenue

revenue

$

%

OEM

$
4,507,000

50.7
%
$
3,019,000

51.0
%
$
1,488,000

49.3
%
ATP

1,687,000

19.0

1,492,000

25.2

195,000

13.1

PTG

2,522,000

28.4

1,250,000

21.1

1,272,000

101.8

Other

168,000

1.9

160,000

2.7

8,000

5.0

Total

$
8,884,000

100.0
%
$
5,921,000

100.0
%
$
2,963,000

50.0
%

Table of Contents

Management’s Discussion and ~~include the hydro-pneumatic riveters, hydrostatic test plugs, air motors~~Analysis of Financial Condition and ~~custom gears.~~

Three months ended September 30,
2017 2016 Increase (decrease)
Revenue Percent of
revenue Revenue Percent of
revenue $ %
ATP $ 3,092,000 88.7 % $ 2,515,000 85.8 % $ 577,000 22.9 %
Other 395,000 11.3 416,000 14.2 (21,000 ) (5.0 )
Total $ 3,487,000 100.0 % $ 2,931,000 100.0 % $ 556,000 19.0 %
24
Results of Operations - Continued
RESULTS OF OPERATIONS - (Continued)
~~Continuing operations - (Continued)~~REVENUE – Continued
Nine months ended September 30,
2017 2016 Decrease
Percent of Percent of
Revenue revenue Revenue revenue $ %
ATP $ 8,386,000 89.0 % $ 8,411,000 88.5 % $ (25,000 ) (0.3 )%
Other 1,035,000 11.0 1,088,000 11.5 (53,000 ) (4.9 )
Total $ 9,421,000 100.0 % $ 9,499,000 100.0 % $ (78,000 ) (0.8 )%
Hy-Tech - Continued
~~Significant components contributing to~~Key factors driving the ~~increase~~80.5% growth in ~~Hy-Tech’s third~~Hy-tech’s OEM product line revenue this quarter, ~~2017 ATP revenue,~~ compared to the same three-month period in ~~2016, include the resurgence~~2021, were a significant increase in ~~activity~~orders from a ~~large~~major customer, ~~acquired~~the easing of COVID-19 travel and visitation restrictions, and overall improvement in ~~the ATSCO acquisition that had reduced its orders until the second~~economic conditions this quarter of 2017, and continues to place orders during the third quarter of 2017. Additionally, in 2016 we began to pursue alternate markets where we believed we could exploit our engineering and manufacturing expertise, and develop different applications for our tools, motors and accessories. We believe the development of this new marketing strategy provides an opportunity to generate new sources of revenue from new markets in 2017 and beyond. While third quarter 2017 revenue from this new initiative was $156,000, at September 30, 2017 Hy-Tech had future orders just shy of $750,000. Although Hy-Tech’s third quarter 2017 revenue has increased compared to both the first and second quarters of 2017, we believe that there continues to be an excess inventory of tools and spare parts in the distribution channels. Additionally, we believe that the turn-around activities in the oil and gas sector continue to lag, compared to historic levels, further negatively impacting Hy-Tech’s revenue. Recent hurricanes and other major storms have also impacted Hy-Tech’s revenue. Further, we believe lower-priced imported tools and spare parts are adversely impacting Hy-Tech’s position in the marketplace.
The fluctuation in Hy-Tech’s year to date revenue for the nine-month period ended September 30, 2017, compared to the same period in 2016 was primarily due to a number of factors. A decline in ATP revenue from a large customer that was acquired in the ATSCO acquisition that had greatly reduced its purchases in the first quarter of 2017, compared to its purchases during the first quarter of 2016. By mid-2016 this customer ceased placing orders. However, as discussed above, this customer began placing orders during the second quarter of 2017 and continued into the third quarter of this year. A major component of Hy-Tech’s revenue is derived from the oil and gas sector. Currently, we estimate that the oil and gas sector revenue accounts for approximately 30% to 35% of Hy-Tech’s total revenue. This revenue stream is driven by a number of factors, such as, the number of off-shore rigs located in the Gulf of Mexico, “turn-arounds” or plant maintenance activities and, to a lesser extent, land rigs. We believe the lag in turn-around activities, the hurricanes that severely damaged the Gulf of Mexico and many of the oil refineries in the Gulf States, along with the growing presence of lower-priced imported tools and spare parts are impacting the markets in which Hy-Tech operates. However, as discussed earlier, Hy-Tech continues to pursue alternate markets where it believes it can exploit its engineering and manufacturing expertise, and develop different applications for its tools, motors and accessories. Revenue from these new sources during the first nine months of 2017 was approximately $657,000, and is included in the ATP grouping. Lastly, Hy-Tech has recently begun a new marketing strategy that is intended to re-energize its gear and hydraulic stopper business.
25
~~RESULTS OF OPERATIONS~~
~~Continuing operations - (Continued)~~
~~Gross profit / margin~~
Three months ended September 30, Increase
2017 2016 Amount %
Florida Pneumatic $ 4,579,000 $ 4,219,000 $ 360,000 8.5 %
As percent of respective revenue 37.2 % 36.1 % 1.1 % pts
Hy-Tech $ 1,005,000 $ 286,000 $ 719,000 251.4
As percent of respective revenue 28.8 % 9.8 % 19.0 % pts
Total $ 5,584,000 $ 4,505,000 $ 1,079,000 24.0 %
As percent of respective revenue 35.4 % 30.8 % 4.6 % pts
Nine months ended September 30, Increase
2017 2016 Amount %
Florida Pneumatic $ 13,116,000 $ 13,070,000 $ 46,000 0.4 %
As percent of respective revenue 37.5 % 37.1 % 0.4 % pts
Hy-Tech $ 2,864,000 $ 1,956,000 $ 908,000 46.4
As percent of respective revenue 30.4 % 20.6 % 9.8 % pts
Total $ 15,980,000 $ 15,026,000 $ 954,000 6.3 %
As percent of respective revenue 36.0 % 33.6 % 2.4 % pts
~~Customer and product mix were the primary factors that contributed to the increase in Florida Pneumatic’s third quarter 2017 gross margin,~~ compared to the same period a year ago. ~~Of note, Jiffy’s gross margin approximates that~~Revenue generated from the JGC, which was acquired in early 2022, was the major component of ~~Florida Pneumatic’s non-retail~~the $979,000 increase in our PTG product ~~lines. As such, the gross profit associated with the Aerospace~~line revenue. (See Note 2- Acquisition, for further discussion). Our ATP revenue increased 21.3% this quarter ~~exceeded the gross profits lost as the result of the decline in Retail revenue. There were no significant changes to our cost structure or selling price during this quarter.~~
~~Florida Pneumatic’s overall gross margin for the nine-month period ended September 30, 2017 is essentially the same as the gross margin for~~over the same period in ~~2016.~~
the prior year due primarily to improved economic conditions.
Hy-Tech’s ~~2017 third quarter~~six-month, year-over-year growth was mostly accomplished during the three-month period ended June 30, 2022. As such, factors contributing to this growth include increased orders from a major OEM customer, the JGC business acquisition, the easing of COVID-19 restrictions, and slight improvement in the general economic conditions.
GROSS MARGIN/PROFIT


Three months ended June 30,

Increase (decrease)

2022

2021

Amount


%

Florida Pneumatic

$
4,771,000

$
4,165,000

$
606,000

14.6
%
As percent of respective revenue

37.7
%

38.9
%

(1.2)
%
pts

Hy-Tech

$
865,000

$
683,000

$
182,000

26.6

As percent of respective revenue

16.8
%

23.7
%

(6.9)
%
pts

Total

$
5,636,000

$
4,848,000

$
788,000

16.3
%
As percent of respective revenue

31.6
%

35.7
%

(4.1)
%
pts

Although Florida Pneumatic’s gross profit increased 14.6%, its consolidated gross margin ~~increased 19.0~~declined 1.2 percentage points. This net decline was driven primarily due to a higher mix of lower gross margin Retail revenue. Related thereto, Florida Pneumatic continued to encounter higher ocean freight and product costs during the three-month period ended June 30, 2022, compared to the same three-month period in 2021. Partially offsetting the above were better than prior year gross margins in its Industrial, Automotive and Aerospace product lines. Hy-Tech’s gross profit declined 6.9 percentage points ~~a more than 250% improvement over~~this quarter, compared to the same three-month period ~~a year ago. Factors contributing~~in 2021, due primarily to ~~the positive change include, among other things: (a) in the third quarter of 2016, we~~ increased ~~Hy-Tech’s allowance for obsolete / slow moving inventory (“OSMI”). This adjustment in 2016 was compounded by lower overhead absorption, due~~revenue attributable to ~~reduced manufacturing, in turn due to weakness in the oil and gas and power generation sectors and (b) during 2016, we were shipping a line of very~~ low ~~gross~~ margin ~~tools to a major customer. However,~~customers during the second quarter of 2022. Additionally, Hy-Tech’s PTG product line under absorbed its manufacturing overhead costs during the second quarter of 2022, as it is going through the process of integrating the JGC acquisition.


Six months ended June 30,

Increase (decrease)

2022

2021

Amount


%

Florida Pneumatic

$
8,721,000

$
8,365,000

$
356,000

4.3
%
As percent of respective revenue

38.0
%

38.7
%

(0.7)
%
pts

Hy-Tech

$
1,426,000

$
1,119,000

$
307,000

27.4

As percent of respective revenue

16.1
%

18.9
%

(2.8)
%
pts

Total

$
10,147,000

$
9,484,000

$
663,000

7.0
%
As percent of respective revenue

31.9
%

34.4
%

(2.5)
%
pts

Table of Contents

Management’s Discussion and ~~third quarters~~Analysis of ~~2017, shipments~~Financial Condition and Results of ~~these low~~Operations - Continued

RESULTS OF OPERATIONS - Continued

GROSS MARGIN/PROFIT - Continued

Florida Pneumatic’s gross profit improved by 4.3%, when comparing the six-month periods ended June 30, 2022 and 2021. Its gross margin ~~tools~~however, declined ~~compared to the prior year. Additional~~by 0.7 percentage point. Primary factors contributing to the improvement in Hy-Tech’s gross margin include: (a) improved overhead absorption as manufacturing activity has increased; (b) improved inventory turns, which directly impacts fluctuations in Hy-Tech’s OSMI,affecting these results were primarily customer and ~~(c) the sale of the~~product mix, with greater low margin ~~tools has been lower this year compared to the prior year.~~

~~Hy-Tech’s~~Retail revenue, being partially offset by stronger gross margin for all other product lines. As discussed above, under absorption of PTG manufacturing overhead and product mix are the ~~nine-month period ended September 30, 2017, improved 9.8~~primary factors causing the 2.8 percentage points decline in Hy-Tech’s six-month gross margin, when compared to the same period a year ago. ~~Offsetting~~We are in the ~~primary factors~~process of integrating the JGC business acquisition that occurred during the first quarter of this year. We expect to ~~this improvement discussed above,~~make significant progress on integration during the second half of 2022 and thus improve gross margin ~~on the products being sold under its new marketing initiative are below Hy-Tech’s historical range. In addition to margins on these products increasing~~ as ~~the result of manufacturing experience, we also expect average margins in this category to improve as we develop additional product offerings.~~

well.

~~Selling and general and administrative expenses~~SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses (“SG&A” ~~or “operating expenses”~~) include salaries and related costs, commissions, travel, administrative facilities costs, 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.

~~RESULTS OF OPERATIONS~~

~~Continuing operations - (Continued)~~

During the ~~third~~second quarter of ~~2017,~~2022, our SG&A was ~~$5,352,000,~~$5,479,000, compared to ~~$4,915,000 for~~$5,458,000 incurred during the same three-month period in ~~2016. The net increase was due in large part~~2021. Key components to the ~~acquisition of the Jiffy business in April 2017,~~net change are:

During the second quarter of 2021, we incurred approximately $288,000 in costs related to the May 2021 ransomware attack at our Florida Pneumatic subsidiary, where no such costs were incurred during the second quarter of 2022.

ii)

Our compensation expense increased $151,000. Compensation expense is comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits. Several factors contributed to this increase, among them the staffing added in connection with the JGC acquisition, increased wages primarily related to retention incentives and annual wage adjustments and a net increase in companywide bonus/incentive/performance accruals.

iii)

We incurred increases this quarter, compared to the same quarter in 2021 in professional fees, stock-based compensation, and amortization of $47,000, $37,000, and $23,000, respectively.

Our six-month 2022 total SG&A of approximately $575,000 for the third quarter of 2017. Other significant components of the change include: (i) a $17,000 reduction in non-Jiffy compensation expenses, which is comprised of base salaries and wages, accrued performance-based bonus incentives, associated payroll taxes and employee benefits; (ii) a decrease in variable expenses of $78,000, due primarily to lower Retail revenue; (iii) a decrease in professional fees of $56,000 and (iv) a reduction in amortization and depreciation expenses of $60,000. These reductions were partially offset by an increase in corporate related expenses of $24,000.

~~Our SG&A for the nine-month period ended September 30, 2017~~ was ~~$15,765,000,~~$10,652,000, compared to ~~$15,088,000 for~~$10,449,000 incurred during the same period in ~~2016. As noted above,~~ the ~~most significant component~~prior year. Key components to the net ~~increase was the addition~~change are:

Compensation expenses increased $316,000. Compensation expense is comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits. Several factors contributed to this increase, among them the staffing added in connection with the JGC acquisition, increased wages primarily related to retention incentives and annual wage adjustments and increases in companywide bonus/incentive/performance accruals.

ii)

Professional fees and expenses increased $280,000, due primary to legal, accounting, and other fees incurred in connection with the JGC acquisition. Other expenses that contributed to the increase in professional fees were cyber security related costs and recruitment fees.

iii)

Our variable expenses decreased $253,000. Driving this decline were significantly lower advertising costs at Florida Pneumatic, caused by a change in a distribution channel strategy.

Table of ~~Jiffy, with year to date 2017 SG&A~~Contents

Management’s Discussion and Analysis of ~~approximately $1,025,000. Other significant components include reductions in: (i) non-Jiffy compensation expenses~~Financial Condition and Results of $74,000; (ii) variable expenses of $300,000, due primarily to lower Retail revenue; (iii) depreciation and amortization of $236,000, due mostly to the reduction in Hy-Tech’s intangible assets, which were written down in 2016; and (iv) corporate related expenses of $80,000. The reductions were partially offset by an increase in professional fees of $381,000, which include fees and expenses related to the Jiffy Acquisition and recruitment fees for executive positions at Hy-Tech.

Operations - Continued

~~Impairment of goodwill and other intangible assets~~ RESULTS OF OPERATIONS - ~~2016~~Continued

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES – Continued

iv)

Our computer-related expenses declined $248,000, when comparing the six-month periods ended June 30, 2022 and 2021. During the second quarter of 2021 we incurred approximately $288,000 in costs related to the May 2021 ransomware attack at our Florida Pneumatic subsidiary, where no such costs were incurred during the second quarter of 2022.

Lastly, our general corporate expenses declined $61,000 this quarter, compared to the same period in 2021.

OTHER EXPENSE (INCOME)

During the second quarter of 2016, we determined that an interim impairment analysis of the goodwill recorded in connection with Hy-Tech and ATSCO was necessary. As a result of the aforementioned, it was determined that Hy-Tech's short and long-term projections at that time had 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. Accordingly, adhering to 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.

Other expense ~~(income), net~~

~~The three-month period ended September 30, 2017 included $11,000 consisting~~in 2022 consists primarily of ~~an adjustment~~adjustments to the fair value of certain assets.

On April 20, 2020, we received a Paycheck Protection Program (“PPP”) loan, in the ~~contingent consideration obligation~~amount of $2,929,000. Under the terms of the Coronavirus Aid, Relief, and Economic Security Act, (“CARES Act”), as amended, we were eligible to apply for forgiveness for all or a portion of the PPP loan. In February 2021, we filed an application for forgiveness with the lender, who approved this submission and submitted the application for forgiveness to the ~~Jiffy Seller. During~~SBA. On June 9, 2021, we were advised that the ~~same period~~SBA had approved our PPP loan forgiveness application and as such, the PPP loan and interest were forgiven in ~~2016,~~its entirety. Accordingly, the ~~most significant factor contributing to~~lender applied the ~~net Other income was rental income of real property that was sold~~funds and paid off PPP loan principal in ~~November of 2016. There is no income of a similar nature for 2017.~~

For the nine-month period ended September 30, 2017, our Other expense (income), net, is primarily the fair value adjustment discussed above partially offsetting the receipt of the balance of an escrow related to the sale of the real property that was locatedits entirety and interest in Tampa, Florida and used by Nationwide Industries Inc. See Note 2 to our consolidated financial statements for further discussion. The amount for the same period in 2016 was the net rental income on the real property that was sold in November of 2016.

~~RESULTS OF OPERATIONS~~

~~Continuing operations - (Continued)~~

~~Interest~~

Three months ended
September 30, Increase
2017 2016 Amount %
Interest expense attributable to:
Short-term borrowings $ 32,000 $ 15,000 $ 17,000 113.3 %
Term loans, including Capital Expenditure Term Loans 1,000 1,000 - -
Amortization expense of debt issue costs 17,000 10,000 7,000 70.0

Total $ 50,000 $ 26,000 $ 24,000 92.3 %
Nine months ended
September 30, Increase (decrease)
2017 2016 Amount %
Interest expense attributable to:
Short-term borrowings $ 80,000 $ 41,000 $ 39,000 95.1 %
Term loans, including Capital Expenditure Term Loans 2,000 5,000 (3,000 ) (60.0 )
Amortization expense of debt issue costs 42,000 118,000 (76,000 ) (64.4 )

Total $ 124,000 $ 164,000 $ (40,000 ) (24.4 )%
Primarily due to the result of the sale of Nationwide and the real property located in Tampa, Florida, occurring in February and November 2016, respectively, our total bank borrowings have been minimal. However, as discussed in Note 3 - Acquisition, to our consolidated financial statements, on April 5, 2017, we purchased the net assets of the Jiffy business and real property located in Carson City, Nevada. The funding for this transaction was from our Revolver Loan, which is our short-term borrowing.
full. In accordance with current accounting guidance we have reported our short-term and term loan interest expense incurred during the period January 1, 2016 through February 11, 2016, which was the effective date of sale of Nationwide, in Discontinued operations. Further, as the result of the Company and Capital One, National Association (“Capital One”, or the “Bank”) agreeing to significantly modify the Credit Agreement, as defined below in our Liquidity and Capital Resources, we were required to write down and recognize as interest expense the debt issue costs associated with the then existing Credit Agreement. These costs are identified in the table above as “Amortization expensethis forgiveness of debt ~~issue costs”. See Note 2 to our consolidated financial statements~~and related accrued interest was accounted for ~~further discussion on the sale of Nationwide. See Liquidity and Capital Resources elsewhere~~as Other Income in ~~this Management’s Discussion and Analysis section for further information regarding our bank loans.~~2021.
INTEREST EXPENSE (INCOME)


Three months ended June 31,

Increase (decrease)

2022

2021

Amount

%

Interest expense attributable to:









Short-term borrowings

$
89,000

$
8,000

$
81,000

1,012.5
%
PPP loan

—

(27,000)

27,000

100.0

Amortization expense of debt issue costs

4,000

4,000

—

NA

Other

(7,000)

—

(7,000)

NA

Total

$
86,000

$
(15,000)

$
101,000

673.3
%


Six months ended June 30,

Increase (decrease)

2022

2021

Amount

%

Interest expense attributable to:









Short-term borrowings

$
137,000

$
18,000

$
119,000

661.1
%
PPP loan

—

(19,000)

19,000

100.0

Amortization expense of debt issue costs

8,000

8,000

—

NA

Other

(7,000)

—

(7,000)

NA

Total

$
138,000

$
7,000

$
131,000

1,871.4
%

Our average ~~balance of~~ short-term borrowings during the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017 was $3,635,000 and $3,263,000, respectively,~~2022, increased significantly, when compared to ~~$2,585,000 and $3,593,000, respectively, during~~ the same periods in ~~2016.~~2021. This increase was due primarily to our decision to increase safety stock levels of inventory, due primarily to delays and other supply chain issues, increased inventory related to the shipment of the stocking rollout that occurred during the second quarter of 2022, and the purchase and related costs associated with the acquisition in the first quarter of 2022 of the JGC business. Additionally, the Applicable Margins, as defined in the Credit Agreement with Capital One bank, NA, also increased. See Note 9-Debt for further discussion.
As discussed earlier, during the second quarter of 2021, we applied for and received forgiveness of the PPP loan. Accordingly, we recorded the reversal of associated interest expense.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

~~Income taxes~~RESULTS OF OPERATIONS - Continued

INTEREST EXPENSE (INCOME) - Continued

Debt issue costs are associated with an amendment to the Credit Agreement. There were no amortizable debt issue costs incurred with Amendment No. 9, or Amendment No. 10 to the Credit Agreement.

Other interest relates to interest received in connection with federal income tax refunds received.

INCOME TAXES

At the end of each interim reporting period, we ~~estimate~~compute an effective tax rate ~~expected to be applied for the~~based upon our estimated full ~~year.~~year results. This estimate is used to determine the income tax provision or benefit ~~applicable to continuing operations,~~ on a year-to-date basis and may change in subsequent interim periods. ~~Additionally, in~~Accordingly, the year to date computation we included the impact of options that expired, were exercised, or were forfeited. The aggregate net effect of these options reduced our deferred tax asset and increased the tax provision by approximately $116,000. As a result of the aforementioned, our effective tax rate ~~applicable to continuing operations~~ for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017 was 97.1%~~2022, were a tax expense of 138.2%, and ~~136.5%~~a tax benefit of 3.0%, ~~respectively. For~~compared to a tax benefit of 3.8% and 8.1% for the same three and six-month periods in ~~2016 our effective tax rate applicable to continuing operations was 27.2% and 33.9%, respectively.~~2021. The ~~Company’s~~ effective tax rates for all periods presented were ~~also affected~~impacted primarily by state taxes, and non-deductible ~~expenses~~expenses. Impacting 2021’s effective tax benefit was the enactment of the CARES Act. Under the terms of the CARES Act, we applied for and ~~foreign tax rate differentials.~~

~~RESULTS OF OPERATIONS~~

~~Discontinued operations - 2016~~

~~Nationwide’s results of operations in our consolidated financial statements and Note 2, presents their revenue and cost of goods sold for~~were approved to treat the period January 1, 2016 through February 11, 2016. The SG&A incurred during the same period includes that of Nationwide plus $19,000 of expenses incurred at the corporate level that is specifically attributable to Nationwide. In accordance with current accounting guidance, we included, as part of discontinued operations, all interest expense incurred attributable to our Bank borrowings during the period January 1, 2016 through February 11, 2016. Additionally, we initially recognized an after tax gain ~~of $12,171,000,~~ on the sale of Nationwide. For income tax purposes, the Company’s tax basis in Nationwide was greater than the net proceeds, thus resulting in a tax loss. This gain represents the difference between the adjusted net purchase price and the carrying value of Nationwide. Further, in 2016, Countrywide completed the saleforgiveness of the ~~Tampa, Florida real property, which~~PPP loan as non-taxable income. Accordingly, the gain resulting from the forgiveness of the PPP loan was ~~treated as a capital gain transaction for~~not included in the computation of the 2021 effective tax ~~purposes. During the three-month period ended September 30, 2016, the Company removed a valuation allowance initially recorded against the tax loss, resulting in an additional gain on sale $187,000.~~

rate.

LIQUIDITY AND CAPITAL RESOURCES

We monitor such metrics as days’ sales outstanding, inventory requirements, inventory turns, estimated future purchasing requirements and capital expenditures to project liquidity needs, as well as evaluate return on assets. Our primary sources of funds are operating cash flows, existing working capital 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:

June 30, 2022

December 31, 2021
Working capital

$
22,407,000

$
24,598,000
Current ratio

2.40 to 1

3.04 to 1
Shareholders’ equity

$
43,066,000

$
43,840,000
September 30, 2017 December 31, 2016
Working Capital $ 24,490,000 $ 28,373,000
Current Ratio 3.81 to 1 5.60 to 1
Shareholders’ Equity $ 47,221,000 $ 47,590,000

Credit facility
~~In October 2010,~~Our Credit Facility is discussed in detail in Note 9, to our Consolidated Financial Statements. Discussed therein, we and the Bank entered into ~~a Loan and Security Agreement (as amended from time~~an amendment that, among other things, increased the Revolver borrowing commitment by $2,000,000 to ~~time, “Credit Agreement”) with an affiliate of Capital One. The~~$18,000,000 through June 30, 2022. We believe the return to the $16,000,000 maximum Revolver borrowing amount will not impact future operations.
At June 30, 2022, there was $7,000,000 available to us under our Revolver arrangement.
Should the need arise whereby the current Credit Agreement ~~provides for Revolver borrowings, which are secured~~is insufficient; we believe that the current Agreement could be expanded, and/or we could obtain additional funds based on the value of our real property.
Cash flows
For the six-month period ended June 30, 2022, cash used by operating activities was $1,154,000, compared to cash provided by operating activities during the ~~Company’s accounts receivable, mortgages on its real property (“Real Property”), inventory and equipment. P&F and certain~~six-month period ended June 30, 2021, of ~~its subsidiaries are borrowers~~$1,368,000. At June 30, 2022, our consolidated cash balance was $431,000, compared to $539,000 at December 31, 2021. We operate under the ~~Credit Agreement,~~terms and ~~their obligations are cross-guaranteed by certain other subsidiaries.~~
At our option, Revolver borrowings will bear interest at either LIBOR (“London InterBank Offered Rate”) or the Base Rate, as the term is defined in the Credit Agreement, plus the Applicable Margin, as defined inconditions of the Credit Agreement. ~~The interest rate, either LIBOR or Base Rate, which is added~~As a result, all domestic cash receipts are remitted to ~~the Applicable Margin, is at our option. We are limited in the number of LIBOR borrowings.~~
Contemporaneously with the acquisition of the Jiffy business discussed in Note 3 to the consolidated financial statements, we entered into a Second Amended and Restated Loan and Security Agreement, effective as of the April 5, 2017 closing date of the Jiffy Acquisition (the “Second Amended and Restated Loan Agreement”), with Capital One ~~which amended~~lockboxes and ~~restated the previous amendment to the Credit Agreement.~~therefore does not represent cash on hand.
The Second Amended and Restated Loan Agreement, among other things, amended the Credit Agreement by: (1) increasing the maximum amount we can borrow under the Revolver Commitment (as defined) from $10,000,000 to $16,000,000, subject to certain borrowing base criteria, and (2) modifying certain borrowing base criteria as well as financial and other covenants.
29
31

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

RESULTS OF OPERATIONS - Continued

LIQUIDITY AND CAPITAL RESOURCES – ~~(Continued)~~Continued

The net funds of approximately $18,700,000 provided by the sale of Nationwide in 2016 were used to pay down the Revolver, Capex loans and the Term Loan A; however, we and the Bank agreed to have $100,000 remain outstanding under the Term Loan A, rather than pay it off in full, thus providing the Company and Capital One the ability to potentially increase future term loan borrowings more efficiently and at lower costs.

We funded the $7,000,000 Jiffy acquisition from Revolver borrowings. Cash flows from operations thereafter and receipt in August of the $2,100,000 escrow from the sale of Nationwide have reduced our Revolver balance to $2,334,000 at September 30, 2017. Revolver borrowings can be at either LIBOR or at the Base Rate, as defined in the Credit Agreement with Capital One. Applicable LIBOR Margins in effect at September 30, 2017 was 1.75%, compared to 1.50% at December 31, 2016. The Applicable Base Rate Margins in effect as of September 30, 2017 and December 31, 2016 were 0.75% and 0.50%, respectively.

~~Cash flows~~

~~During the nine-month period ended September 30, 2017, our cash decreased to $1,205,000 from $3,699,000 at December 31, 2016.~~ Our total bank debt at September 30, 2017, primarily driven by the Jiffy acquisition, which was discussed in Note 3 to the accompanying consolidated financial statements, was $2,434,000, compared to $100,000 at December 31, 2016. The total debt to total book capitalization (total debt divided by total debt plus equity) ~~at September~~on June 30, ~~2017~~2022, was ~~4.9%~~18.9%, compared to ~~0.2% at~~11.6% on December 31, ~~2016.~~

In March 2016, our Board of Directors approved the initiation of a dividend policy under which the Company intends to declare quarterly cash dividends to its stockholders in the amount of $0.05 per quarter. During the nine-month period ended September 30, 2017, our Board of Directors voted to approve the payment of three quarterly dividends. As such, in February 2017, May 2017, and August 2017, we paid a $0.05 per share dividend to the shareholders of record. The aggregate of such dividend payments was approximately $542,000. Our Board of Directors expects 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 factors our board may deemed relevant.

~~We believe we will be able to fund the repurchase of the remaining shares in accordance with our Repurchase Program, as discussed in Note 5 – Equity – Common Stock Repurchase Plan.~~

2021.

During the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2017,~~2022, we completed the JGC acquisition, with a purchase price of $2,300,000, plus acquisition expenses that included among other things, legal, accounting, and relocation expenses. (See Note 2).

During the six-month period ended June 30, 2022, we used ~~$444,000~~$923,000 for capital expenditures, compared to ~~$894,000~~$247,000 during the same period in the prior year. Capital expenditures currently planned for the ~~balance~~remainder of ~~2017~~2022 are ~~expected to be~~ approximately ~~$500,000, some of~~$700,000, which ~~may~~we expect will be financed through ~~our credit facilities or financed through independent third party financial institutions.~~ the Credit Facility.

The ~~remaining 2017~~major portion of these planned capital expenditures will ~~likely~~ be for ~~machinery and~~new metal cutting equipment, tooling and ~~computer~~information technology hardware and ~~software.~~

~~We believe that net cash flows from operations~~software, and ~~available borrowings under our Credit Facility should provide sufficient cash to fund our consolidated cost structure for at least~~ the ~~next 12 months from the date of this filing.~~

~~LIQUIDITY AND CAPITAL RESOURCES – (Continued)~~

~~Customer concentration~~

~~Florida Pneumatic has two customers, Sears and The Home Depot that, in the aggregate, at September 30, 2017, and December 31, 2016, accounted for 39.6% and 53.5%, respectively~~expansion of our ~~accounts receivable. To date, these customers remain at or close~~Punxsutawney, PA facility as a result of the acquisition of JGC business (See Note 2).

Our liquidity and capital is primarily sourced from our credit facility, described in Note 9 – Debt, to ~~complying with their payment terms. Additionally, these two customers in the aggregate, accounted for 31.3%~~our Consolidated Financial Statements, and ~~35.4%, respectively, of our revenue for the three and nine-month periods ended September 30, 2017, compared to 45.3% and 43.4% for the same periods in 2016.~~cash from operations.

As previously mentioned, we elected not to renew an agreement with Sears, which terminated on September 30, 2017. We believe the loss of Sears’s revenue will have a negative impact on our financial condition, but will not affect our ability to remain a going concern.

~~NEW ACCOUNTING PRONOUNCEMENTS~~

Customer concentration

Refer to Note 1 ~~to our consolidated financial statements~~– Business and summary of accounting policies – Customer Concentration for a ~~discussion of recent~~detailed discussion.

NEW ACCOUNTING PRONOUNCEMENTS

There were no new accounting standards or pronouncements issued during the three and ~~pronouncements.~~

six-month periods ended June 30, 2022 that were applicable to us.

We ~~are currently evaluating the impact of the adoption of ASU No. 2016-02,~~~~Leases~~, on our consolidated financial condition, results of operations and cash flows. In the financial statements 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.

~~The Company is in the final assessment phaseof what impact, if any, the new revenue standard, ASU No. 2014-09,~~~~Revenue from Contracts with Customers~~, and related updates will have on its consolidated financial statements and related disclosures, and based on its preliminary assessment, other than additional disclosures in its Notes to its consolidated financial statements, there will be no material impact to its consolidated financial statements.

~~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 3.~~ ~~Quantitative And~~
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.

Table of Contents

~~Item 4.~~
Item 4.          Controls and Procedures
Disclosure Controls and Procedures
The ~~Company's~~Company’s management, with the participation of the ~~Company's~~Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated, as of ~~September~~June 30, ~~2017,~~2022, the effectiveness of the ~~Company's~~Company’s disclosure controls and procedures, which were designed to be effective at the reasonable assurance level. The term ~~"disclosure~~“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~~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's~~Company’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~~Company’s disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2022, the Company’s management, including its CEO and CFO, concluded that the ~~Company's~~Company’s disclosure controls and procedures were effective at ~~the reasonable assurance level at~~ that date.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting, identified in connection with the evaluation required by Exchange Act Rule 13a-15(d), that occurred during our most recently completed fiscal quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32
PART II - OTHER INFORMATION
~~Item 1.~~
Item 1.         Legal Proceedings
There have been no material changes to the legal ~~proceedings~~proceedings’ disclosure described in our ~~2016~~2021 Form 10-K.

~~Item 1A.~~
Item 1A.       Risk Factors
There have been no material changes to the risk factors ~~previously~~ disclosed under Part I, Item 1A “Risk Factors” in ~~our 2016~~the 2021 Form ~~10-K and subsequent Quarterly reports on Form 10-Q.~~10-K.

Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds
None.

~~Item 2.~~ ~~Unregistered Sales of Equity Securities and Use of Proceeds~~
~~The following table presents our repurchase activity of our Class A Common stock during the three-month period ended September 30, 2017.~~
Maximum
Number
Total Number of of shares
Shares Purchased as that May Yet
Part of Publicly Be Purchased
Total Number of Average Price Announced Plan Under the Plan
Period Shares Purchased Paid per Share or Program or Program (1)

July 1, 2017 - July 31, 2017 - - - -
Aug., 1, 2017 – Aug., 31, 2017 1,505 $ 6.32 1,505 98,495
Sept. 1, 2017 – Sept 30, 2017 10,860 $ 7.26 10,860 87,635
~~(1)~~ On August 24, 2017, the Company announced that it had adopted a written trading plan for the purpose of repurchasing up to 100,000 shares of its common stock. This trading plan expires on August 23, 2018, and was adopted pursuant to an authorization of a stock repurchase program by the Company’s Board which was publicly announced on August 10, 2017.
~~Item 3.~~
Item 3.         Defaults Upon Senior Securities
None.

~~Item 4.~~
Item 4.         Mine Safety Disclosures
None.

~~Item 5.~~
Item 5.         Other Information
None.

~~Item 6.~~
Item 6.         Exhibits
See “Exhibit Index” immediately following the signature page.

33
33

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

P&F INDUSTRIES, INC.

(Registrant)

/s/ JOSEPH A. MOLINO,~~JR.~~ Jr.

Joseph A. Molino, Jr.

Chief Financial Officer
Dated: ~~November 13, 2017~~August 12, 2022

(Principal Financial and Chief Accounting Officer)

34
34

Table of Contents

EXHIBIT INDEX
The following exhibits are either included in this report or incorporated herein by reference as indicated below:

~~Exhibit~~
~~Number~~
Exhibit
Number
Description of Exhibit
10.1

Amendment No. 110 to Second Amended and Restated Loan and Security Agreement, dated as of ~~August 9, 2017, (executed on September 20, 2017)~~April 12, 2022, by and among the ~~Company,~~Registrant, Florida Pneumatic Manufacturing Corporation, ~~and~~ Hy-Tech Machine, Inc. ~~as Borrowers,~~, ATSCO Holdings ~~Corp.~~Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, ~~Inc., Green Manufacturing,~~ Inc., Exhaust Technologies, Inc., ~~Pacific Stair Products,~~Hy-Tech Illinois, Inc., ~~WILP Holdings, Inc. and Woodmark International, L.P. as Guarantors~~Heisman Acquisition Corp., and Capital One, National Association, as ~~Agent~~lender and ~~Lender~~agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated ~~September 20, 2017)~~April 12, 2022).

~~31.1~~
10.2

Fourth Amended and Restated Revolver Note, dated April 12, 2022, 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 April 12, 2022).

31.1
Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
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 .~~2002.
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.
101
* Inline Interactive Data

104

Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit)
* Attached as Exhibit 101 are the following, each formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income (Loss); (iii) Consolidated Statement of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
Attached as Exhibit 101 are the following, each formatted in Inline Extensible Business Reporting Language (“iXBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Loss, (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 Quarterly Report on Form 10-Q 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.

Delaware		22-1657413
(State or other jurisdiction of		(I.R.S. Employer Identification Number)
incorporation or organization)

445 Broadhollow Road, Suite 100, Melville, New York		11747
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $1.00 par value	PFIN	NASDAQ

Large accelerated filer¨☐	Accelerated filer¨☐	Non-accelerated filer¨☒	Smaller reporting company x☒
		~~(Do not check if a smaller reporting~~ ~~company)~~
			Emerging growth company ¨☐

	x
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	¨
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		~~PAGE~~
		PAGE
PART I — FINANCIAL INFORMATION		1 3

Item 1.	Financial Statements	1 3

	Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2022 (unaudited) and December 31, ~~2016~~2021	1 3

	Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss for the three and ~~nine-month~~six–month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)	3 5

	Consolidated ~~Statement~~Statements of Shareholders’ Equity for the ~~nine months~~three and six–month periods ended ~~September~~June 30, ~~2017~~2022 and 2021 (unaudited)	4 6

	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)	5 8

	Notes to Consolidated Financial Statements (unaudited)	7 10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	32 33

PART II — OTHER INFORMATION		33

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

Signature		34

Exhibit Index		35

	September 30, 2017		December 31, 2016
	(unaudited)		(See Note 1)
ASSETS
CURRENT ASSETS

Cash	$	1,205,000	$	3,699,000
Accounts receivable — net		10,994,000		7,906,000
Inventories		20,090,000		19,901,000
Prepaid expenses and other current assets		925,000		3,030,000
TOTAL CURRENT ASSETS		33,214,000		34,536,000

PROPERTY AND EQUIPMENT
Land		1,281,000		1,150,000
Buildings and improvements		6,136,000		5,209,000
Machinery and equipment		20,160,000		19,401,000
		27,577,000		25,760,000
Less accumulated depreciation and amortization		18,770,000		18,671,000
NET PROPERTY AND EQUIPMENT		8,807,000		7,089,000

GOODWILL		4,445,000		3,897,000

OTHER INTANGIBLE ASSETS — net		8,709,000		6,606,000

DEFERRED INCOME TAXES — net		1,643,000		1,793,000

OTHER ASSETS — net		120,000		130,000

TOTAL ASSETS	$	56,938,000	$	54,051,000

	Three months					Nine months
	ended September 30,					ended September 30,
	2017		2016			2017			2016

Net revenue	$	15,782,000	$	14,633,000		$	44,357,000		$	44,769,000
Cost of sales		10,198,000		10,128,000			28,377,000			29,743,000
Gross profit		5,584,000		4,505,000			15,980,000			15,026,000
Selling, general and administrative expenses		5,352,000		4,915,000			15,765,000			15,088,000
Impairment of goodwill and other intangible assets		—		—			—			8,311,000
Operating income (loss)		232,000		(410,000	)		215,000			(8,373,000	)
Other expense (income), net		11,000		(43,000	)		(13,000	)		(75,000	)
Interest expense		50,000		26,000			124,000			164,000
Income (loss) from continuing operations before income taxes		171,000		(393,000	)		104,000			(8,462,000	)
Income tax expense (benefit)		166,000		(107,000	)		142,000			(2,872,000	)
Income (loss) from continuing operations		5,000		(286,000	)		(38,000	)		(5,590,000	)

Discontinued operations (Note 2)

Income from discontinued operations, net of tax of $-0- and $38,000 for the three and nine-month periods ended September 30, 2016, respectively.		—		—			—			72,000
Gain on sale of discontinued operations, net of tax benefit of $187,000 and $328,000 for the three and nine-month periods ended September 30, 2016, respectively.		—		187,000			—			12,358,000
Income from discontinued operations, net of tax		—		187,000			—			12,430,000

Net income (loss)	$	5,000	$	(99,000	)	$	(38,000	)	$	6,840,000

Basic (loss) earnings per share
Continuing operations	$	—	$	(0.08	)	$	(0.01	)	$	(1.55	)
Discontinued operations		—		0.05			—			3.45
Net (loss) income	$	—	$	(0.03	)	$	(0.01	)	$	1.90

Diluted (loss) earnings per share
Continuing operations	$	—	$	(0.08	)	$	(0.01	)	$	(1.55	)
Discontinued operations		—		0.05			—			3.45
Net (loss) income	$	—	$	(0.03	)	$	(0.01	)	$	1.90

Weighted average common shares outstanding:

Basic		3,617,000		3,598,000			3,609,000			3,598,000
Diluted		3,777,000		3,598,000			3,609,000			3,598,000

Net income (loss)	$	5,000	$	(99,000	)	$	(38,000	)	$	6,840,000
Other comprehensive income (loss) - foreign currency translation adjustment		71,000		(63,000	)		188,000			(299,000	)
Total comprehensive income (loss)	$	76,000	$	(162,000	)	$	150,000		$	6,541,000

				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, 2017	$	47,590,000			4,181,000		$	4,181,000	$	12,906,000	$	36,061,000			(584,000	)	$	(4,821,000	)	$	(737,000	)

Net loss		(38,000	)		—			—		—		(38,000	)		—			—			—

Restricted common stock compensation		30,000			5,000			5,000		25,000		—			—			—			—

Stock - based compensation		20,000			—			—		20,000		—			—			—			—

Exercise of stock options		62,000			17,000			17,000		45,000		—			—			—			—

Dividends		(542,000	)		—			—		—		(542,000	)		—			—			—

Purchase of Treasury stock		(89,000	)		—			—		—		—			(12,000	)		(89,000	)		—

Foreign currency translation adjustment		188,000			—			—		—		—			—			—			188,000
						��
Balance, September 30, 2017	$	47,221,000			4,203,000		$	4,203,000	$	12,996,000	$	35,481,000			(596,000	)	$	(4,910,000	)	$	(549,000	)


	As of June 30, 2022
2022 (excluding the six months ended June 30, 2022)	$	470,000
2023		941,000
2024		668,000
2025		375,000
2026		240,000
Thereafter		1,590,000
Total operating lease payments		4,284,000
Less imputed interest		(508,000)
Total operating lease liabilities	$	3,776,000

Weighted average remaining lease term		7.4	years
Weighted average discount rate		3.69	%


	Three months ended June 30,
	2022				2021				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	3,853,000	30.4	%	$	3,782,000	35.3	%	$	71,000	1.9	%
Retail		4,826,000	38.1			3,763,000	35.1			1,063,000	28.2
Industrial		1,705,000	13.5			1,303,000	12.3			402,000	30.9
Aerospace		2,179,000	17.2			1,734,000	16.2			445,000	25.7
Other		103,000	0.8			130,000	1.1			(27,000)	(20.8)
Total	$	12,666,000	100.0	%	$	10,712,000	100.0	%	$	1,954,000	18.2	%


	Six months ended June 30,
	2022				2021				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	7,734,000	33.7	%	$	7,884,000	36.5	%	$	(150,000)	(1.9)	%
Retail		7,845,000	34.2			7,553,000	34.9			292,000	3.9
Industrial		3,111,000	13.6			2,662,000	12.3			449,000	16.9
Aerospace		3,994,000	17.4			3,262,000	15.1			732,000	22.4
Other		263,000	1.1			253,000	1.2			10,000	4.0
Total	$	22,947,000	100.0	%	$	21,614,000	100.0	%	$	1,333,000	6.2	%

·	~~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.~~

	January 1, 2016 through February 11, 2016

Revenue	$	1,830,000
Cost of goods sold		1,177,000
Gross margin		653,000
Selling and general and administrative expenses		483,000
Interest expense - net		60,000
Income before income taxes		110,000
Income taxes		38,000

Net income	$	72,000

	Total
Cash paid at closing	$	7,000,000
Less working capital adjustment		(155,000	)
Fair value of contingent consideration		692,000
Total estimated purchase price	$	7,537,000

Accounts receivable	$	789,000
Inventories		1,571,000
Other current assets		45,000

Land		131,000
Building		919,000
Machinery and equipment		1,196,000
Identifiable intangible assets:
Customer relationships		1,670,000
Trademarks and trade names		790,000
Non-compete agreements		17,000
Liabilities assumed		(125,000	)
Goodwill		534,000
Total estimated purchase price	$	7,537,000


Accounts receivable	$	489,000
Inventories		359,000
Machinery and equipment		823,000
Customer relationships		450,000
Goodwill		394,000
Liabilities assumed		(215,000)
Total purchase price	$	2,300,000

	Three months ended			Nine months ended
	September 30,			September 30,
	2016			2017		2016
Revenue	$	16,400,000		$	45,835,000	$	50,092,000
Net (loss) income from continuing operations	$	(23,000	)	$	68,000	$	(5,002,000	)
(Loss) earnings per share – basic	$	(0.01	)	$	0.02	$	(1.39	)
(Loss) earnings per share – diluted	$	(0.01	)	$	0.02	$	(1.39	)


	For the		For the
	three-month		six-month
	period ended		period ended
	June 30, 2021		June 30,2021
Revenue	$	14,399,000	$	28,855,000
Net income	$	2,398,000	$	2,099,000
Earnings per share – basic	$	0.75	$	0.66
Earnings per share – diluted	$	0.75	$	0.66


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Numerator for basic and diluted (loss) income per common share:
Net (loss) income	$	(21,000)	$	2,423,000	$	(639,000)	$	2,116,000

Denominator:
Denominator for basic (loss) income per share - weighted average common shares outstanding		3,185,000		3,181,000		3,177,000		3,175,000
Dilutive securities (1)		0		12,000		0		15,000
Denominator for diluted (loss) income per share - weighted average common shares outstanding		3,185,000		3,193,000		3,177,000		3,190,000


		Weighted		Weighted average
		average		remaining	Aggregate
		exercise		contractual life	Intrinsic
	Option shares	price		(years)	Value
Outstanding, January 1, 2022	178,499	$	6.76	3.4	$	60,643
Granted	0		0	—		—
Exercised	41,809		4.74	—		38,046
Forfeited	0		0	—		—
Expired	2,090		4.29	—		—
Outstanding, June 30, 2022	134,600	$	7.42	3.9	$	—
Vested, June 30, 2022	134,600	$	7.42	3.9	$	—


Risk-free interest rate		2.07	%
Expected term (in years)		10	years
Volatility		87.16	%
Dividend yield		2.82	%
Weighted average fair value of options granted	$	4.41

	Option Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding and vested, January 1, 2017		423,817		$	5.68		2.9	$	1,271,704
Granted		89,000			7.09
Exercised		(16,722	)		3.65
Forfeited		(6,793	)		7.86
Expired		(71,069	)		10.72
Outstanding, September 30, 2017		418,233		$	5.17		4.1	$	907,347

Vested, September 30, 2017		329,233		$	4.65		2.5	$	891,327

	Option Shares		Weighted Average Grant- Date Fair Value
Non-vested options, January 1, 2017		—	$	—
Granted		89,000		4.41
Vested		—		—
Forfeited		—		—
Non-vested options, September 30, 2017		89,000	$	4.41

Balance, January 1, 2017	$	3,897,000
Acquisition of Jiffy Air Tool, Inc.		534,000
Currency translation adjustment		14,000
Balance, September 30, 2017	$	4,445,000


Balance, January 1, 2022	$	4,447,000
Goodwill attributable to the acquisition of JGC business (See Note 2)		394,000
Currency translation adjustment		(19,000)
Balance, June 30, 2022	$	4,822,000

	September 30, 2017						December 31, 2016
	Cost		Accumulated amortization		Net book value		Cost		Accumulated amortization		Net book value
Other intangible assets:
Customer relationships (1)	$	6,834,000	$	1,427,000	$	5,407,000	$	5,143,000	$	1,022,000	$	4,121,000
Trademarks and trade names (1)		2,326,000		—		2,326,000		1,507,000		—		1,507,000
Trademarks and trade names (2)		200,000		15,000		185,000		200,000		5,000		195,000
Engineering drawings		330,000		168,000		162,000		330,000		148,000		182,000
Non-compete agreements (1)		238,000		201,000		37,000		212,000		150,000		62,000
Patents (3)		1,405,000		813,000		592,000		1,205,000		666,000		539,000
Totals	$	11,333,000	$	2,624,000	$	8,709,000	$	8,597,000	$	1,991,000	$	6,606,000

	~~(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 a prior impairment, the Company began amortizing these intangible assets over a 15 year useful life.
	~~(3)~~	~~The $200,000 increase represents a patent acquired during the third quarter of 2017.~~

Three months ended September 30,				Nine months ended September 30,
2017		2016		2017		2016
$	181,000	$	217,000	$	620,000	$	803,000

2018	$	709,000
2019		686,000
2020		653,000
2021		638,000
2022		635,000
Thereafter		3,062,000
	$	6,383,000


July 1,2022 through December 31, 2022	$	346,000
2023		688,000
2024		639,000
2025		606,000
2026		400,000
Thereafter		827,000
	$	3,506,000

	·●	~~Borrowing and compliance with covenants under our credit facility;~~
	·	Disruption in the global capital and credit markets;

	·●	~~Customer concentration;~~
	·	Adverse changes in currency exchange rates;