Delaware | 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) |
Registrant’s telephone number, including area code:(631) (631) 694-9800 Securities registered pursuant to Section 12(b) of the Act: | | | | | Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered | Class A common stock, $1.00 par value | | PFIN | | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx☒ No¨☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx☒ No¨ ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨☐ | Accelerated filer ¨☐ | Non-accelerated filer ¨☒ | Smaller reporting company x☒ | | | (Do not check if a smaller reporting
company) | | | | | Emerging growth company ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for the complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨☐ Nox ☒ As of November 7, 20176, 2023, there were 3,603,8723,194,699 shares of the registrant’s Class A Common Stockcommon stock outstanding. Table of Contents P&F INDUSTRIES, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20172023 TABLE OF CONTENTS 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 | |
| | | | | | | | | September 30, 2023 | | December 31, 2022 | | | (unaudited) | | (See Note 1) | ASSETS | | | | | | | CURRENT ASSETS | | | | | | | | | | | | | | Cash | | $ | 338,000 | | $ | 667,000 | Accounts receivable — net | | | 8,734,000 | | | 7,370,000 | Inventories | | | 20,517,000 | | | 24,491,000 | Prepaid expenses and other current assets | | | 908,000 | | | 2,753,000 | TOTAL CURRENT ASSETS | | | 30,497,000 | | | 35,281,000 | | | | | | | | PROPERTY AND EQUIPMENT | | | | | | | Land | | | 507,000 | | | 507,000 | Buildings and improvements | | | 4,330,000 | | | 4,087,000 | Machinery and equipment | | | 29,345,000 | | | 28,057,000 | | | | 34,182,000 | | | 32,651,000 | Less accumulated depreciation and amortization | | | 24,403,000 | | | 23,288,000 | NET PROPERTY AND EQUIPMENT | | | 9,779,000 | | | 9,363,000 | | | | | | | | GOODWILL | | | 4,823,000 | | | 4,822,000 | | | | | | | | OTHER INTANGIBLE ASSETS — net | | | 4,809,000 | | | 5,326,000 | | | | | | | | DEFERRED INCOME TAXES — net | | | 639,000 | | | 629,000 | | | | | | | | RIGHT-OF-USE ASSETS | | | 4,745,000 | | | 5,521,000 | | | | | | | | OTHER ASSETS — net | | | 161,000 | | | 62,000 | | | | | | | | TOTAL ASSETS | | $ | 55,453,000 | | $ | 61,004,000 |
See accompanying notes to consolidated financial statements (unaudited). 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 | |
| | | | | | | | | September 30, 2023 | | December 31, 2022 | | | (unaudited) | | (See Note 1) | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | | | | | | Short-term borrowings | | $ | 2,664,000 | | $ | 7,570,000 | Accounts payable | | | 2,767,000 | | | 3,094,000 | Accrued compensation and benefits | | | 2,078,000 | | | 1,757,000 | Accrued other liabilities | | | 1,706,000 | | | 1,002,000 | Current leased liabilities – operating leases | | | 860,000 | | | 1,020,000 | TOTAL CURRENT LIABILITIES | | | 10,075,000 | | | 14,443,000 | | | | | | | | Noncurrent leased liabilities – operating leases | | | 3,991,000 | | | 4,535,000 | Other liabilities | | | 47,000 | | | 70,000 | | | | | | | | TOTAL LIABILITIES | | | 14,113,000 | | | 19,048,000 | | | | | | | | 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 – 4,467,000 at September 30, 2023, and December 31, 2022 | | | 4,467,000 | | | 4,467,000 | Class B - $1 par; authorized - 2,000,000 shares; no shares issued | | | — | | | — | Additional paid-in capital | | | 14,284,000 | | | 14,246,000 | Retained earnings | | | 33,625,000 | | | 34,251,000 | Treasury stock, at cost – 1,273,000 shares at September 30, 2023, and December 31, 2022 | | | (10,213,000) | | | (10,213,000) | Accumulated other comprehensive loss | | | (823,000) | | | (795,000) | | | | | | | | TOTAL SHAREHOLDERS’ EQUITY | | | 41,340,000 | | | 41,956,000 | | | | | | | | TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 55,453,000 | | $ | 61,004,000 |
See accompanying notes to consolidated financial statements (unaudited). 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 | | Nine months | | | ended September 30, | | ended September 30, | | | 2023 | | 2022 | | 2023 | | 2022 | Net revenue | | $ | 14,404,000 | | $ | 14,516,000 | | $ | 46,309,000 | | $ | 46,347,000 | Cost of sales | | | 9,511,000 | | | 9,669,000 | | | 29,839,000 | | | 31,353,000 | Gross profit | | | 4,893,000 | | | 4,847,000 | | | 16,470,000 | | | 14,994,000 | Selling, general and administrative expenses | | | 5,785,000 | | | 5,084,000 | | | 16,327,000 | | | 15,736,000 | Operating (loss) income | | | (892,000) | | | (237,000) | | | 143,000 | | | (742,000) | Other (expense) income | | | — | | | (3,000) | | | 15,000 | | | (24,000) | Gain on sale of property and equipment | | | 23,000 | | | — | | | 40,000 | | | 5,000 | Interest expense | | | (110,000) | | | (106,000) | | | (326,000) | | | (244,000) | Loss before income tax | | | (979,000) | | | (346,000) | | | (128,000) | | | (1,005,000) | Income tax benefit (expense) | | | 258,000 | | | 109,000 | | | (18,000) | | | 129,000 | Net loss | | $ | (721,000) | | $ | (237,000) | | $ | (146,000) | | $ | (876,000) | | | | | | | | | | | | | | Basic and diluted loss per share | | $ | (0.23) | | $ | (0.08) | | $ | (0.05) | | $ | (0.28) | | | | | | | | | | | | | | Weighted average common shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | Basic and diluted | | | 3,195,000 | | | 3,195,000 | | | 3,195,000 | | | 3,183,000 | | | | | | | | | | | | | | Net loss | | $ | (721,000) | | $ | (237,000) | | $ | (146,000) | | $ | (876,000) | Other comprehensive loss - foreign currency translation adjustment | | | (97,000) | | | (160,000) | | | (28,000) | | | (356,000) | Total comprehensive loss | | $ | (818,000) | | $ | (397,000) | | $ | (174,000) | | $ | (1,232,000) |
See accompanying notes to consolidated financial statements (unaudited). P&F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTSTATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited) Three months ended September 30, 2023 | | | | | 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, July 1, 2023 | | $ | 42,309,000 | | 4,467,000 | | $ | 4,467,000 | | $ | 14,276,000 | | $ | 34,505,000 | | (1,273,000) | | $ | (10,213,000) | | $ | (726,000) | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | (721,000) | | — | | | — | | | — | | | (721,000) | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Restricted common stock compensation | | | 8,000 | | — | | | — | | | 8,000 | | | — | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | (159,000) | | — | | | — | | | — | | | (159,000) | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | (97,000) | | — | | | — | | | — | | | — | | — | | | — | | | (97,000) | | | | | | | | | | | | | | | | | | | | | | | | Balance, September 30, 2023 | | $ | 41,340,000 | | 4,467,000 | | $ | 4,467,000 | | $ | 14,284,000 | | $ | 33,625,000 | | (1,273,000) | | $ | (10,213,000) | | $ | (823,000) |
Three months ended September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | Class A common | | Additional | | | | | | | | | | other | | | | | | stock, $1 par | | paid-in | | Retained | | Treasury stock | | comprehensive | | | Total | | Shares | | Amount | | capital | | earnings | | Shares | | Amount | | loss | Balance, July 1, 2022 | | $ | 43,066,000 | | 4,467,000 | | $ | 4,467,000 | | $ | 14,214,000 | | $ | 35,407,000 | | (1,273,000) | | $ | (10,213,000) | | $ | (809,000) | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | (237,000) | | — | | | — | | | — | | | (237,000) | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Restricted common stock compensation | | | 16,000 | | — | | | — | | | 16,000 | | | — | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | (160,000) | | — | | | — | | | — | | | (160,000) | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | (160,000) | | — | | | — | | | — | | | — | | — | | | — | | | (160,000) | | | | | | | | | | | | | | | | | | | | | | | | Balance, September 30, 2022 | | $ | 42,525,000 | | 4,467,000 | | $ | 4,467,000 | | $ | 14,230,000 | | $ | 35,010,000 | | (1,273,000) | | $ | (10,213,000) | | $ | (969,000) |
See accompanying notes to consolidated financial statements (unaudited). P&F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’ EQUITY (unaudited) Nine months ended September 30, 2023 | | 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, 2023 | | $ | 41,956,000 | | 4,467,000 | | $ | 4,467,000 | | $ | 14,246,000 | | $ | 34,251,000 | | (1,273,000) | | $ | (10,213,000) | | $ | (795,000) | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | (146,000) | | — | | | — | | | — | | | (146,000) | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Restricted common stock compensation | | | 14,000 | | — | | | — | | | 14,000 | | | — | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation | | | 24,000 | | — | | | — | | | 24,000 | | | — | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | (480,000) | | — | | | — | | | — | | | (480,000) | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | (28,000) | | — | | | — | | | — | | | — | | — | | | — | | | (28,000) | | | | | | | | | | | | | | | | | | | | | | | | Balance, September 30, 2023 | | $ | 41,340,000 | | 4,467,000 | | $ | 4,467,000 | | $ | 14,284,000 | | $ | 33,625,000 | | (1,273,000) | | $ | (10,213,000) | | $ | (823,000) |
Nine months ended September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | (876,000) | | — | | | — | | | — | | | (876,000) | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Exercise of stock options | | | 40,000 | | 7,000 | | | 7,000 | | | 33,000 | | | — | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Restricted common stock compensation | | | 36,000 | | 7,000 | | | 7,000 | | | 29,000 | | | — | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation | | | 1,000 | | — | | | — | | | 1,000 | | | — | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | (160,000) | | — | | | — | | | — | | | (160,000) | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | (356,000) | | — | | | — | | | — | | | — | | — | | | — | | | (356,000) | | | | | | | | | | | | | | | | | | | | | | | | Balance, September 30, 2022 | | $ | 42,525,000 | | 4,467,000 | | $ | 4,467,000 | | $ | 14,230,000 | | $ | 35,010,000 | | (1,273,000) | | $ | (10,213,000) | | $ | (969,000) |
See accompanying notes to consolidated financial statements (unaudited). 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 | | | $ | — | |
| | | | | | | | | Nine months | | | ended September 30, | | | 2023 | | 2022 | Cash Flows from Operating Activities: | | | | | | | Net loss | | $ | (146,000) | | $ | (876,000) | | | | | | | | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | | | Non-cash and other charges: | | | | | | | Depreciation | | | 1,476,000 | | | 1,271,000 | Amortization of other intangible assets | | | 519,000 | | | 514,000 | Amortization of operating lease assets | | | 697,000 | | | 710,000 | Amortization of debt issue costs | | | 34,000 | | | 12,000 | Amortization of consideration payable to a customer | | | — | | | 157,000 | Provision for losses on accounts receivable | | | (1,000) | | | (33,000) | Stock-based compensation | | | 24,000 | | | 1,000 | Stock-based compensation-options exercised | | | — | | | 38,000 | Restricted stock-based compensation | | | 14,000 | | | 35,000 | Deferred income taxes | | | 19,000 | | | (129,000) | Gain on disposal of fixed assets | | | (40,000) | | | (5,000) | Gain on early termination of a lease | | | — | | | (19,000) | Changes in operating assets and liabilities: | | | | | | | Accounts receivable | | | (1,361,000) | | | (1,262,000) | Inventories | | | 3,984,000 | | | (554,000) | Prepaid expenses and other current assets | | | 1,844,000 | | | 1,608,000 | Other assets | | | (50,000) | | | — | Accounts payable | | | (327,000) | | | (45,000) | Accrued compensation and benefits | | | 320,000 | | | 28,000 | Accrued other liabilities and other current liabilities | | | 701,000 | | | 582,000 | Operating lease liabilities | | | (625,000) | | | (703,000) | Other liabilities | | | (21,000) | | | (25,000) | Total adjustments | | | 7,207,000 | | | 2,181,000 | Net cash provided by operating activities | | | 7,061,000 | | | 1,305,000 |
See accompanying notes to consolidated financial statements (unaudited). P&F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | | | | | | | | | Nine months | | | ended September 30, | | | 2023 | | 2022 | Cash Flows from Investing Activities: | | | | | | | Capital expenditures | | $ | (1,909,000) | | $ | (1,222,000) | Proceeds from the sale of fixed assets | | | 57,000 | | | — | Purchase of net assets of the Jackson Gear Company business | | | — | | | (2,300,000) | Net cash used in investing activities | | | (1,852,000) | | | (3,522,000) | | | | | | | | Cash Flows from Financing Activities: | | | | | | | Dividend payments | | | (480,000) | | | (160,000) | Net (repayments on) proceeds from short-term borrowings | | | (4,906,000) | | | 2,323,000 | Proceeds from exercise of stock options | | | — | | | 2,000 | Bank financing costs | | | (84,000) | | | — | Net cash (used in) provided by financing activities | | | (5,470,000) | | | 2,165,000 | | | | | | | | Effect of exchange rate changes on cash | | | (68,000) | | | (77,000) | Net decrease in cash | | | (329,000) | | | (129,000) | Cash at beginning of period | | | 667,000 | | | 539,000 | Cash at end of period | | $ | 338,000 | | $ | 410,000 | | | | | | | | Supplemental disclosures of cash flow information: | | | | | | | | | | | | | | Cash paid for: | | | | | | | Taxes | | $ | 31,000 | | $ | 126,000 | Interest | | $ | 331,000 | | $ | 213,000 | | | | | | | | Non-cash information: | | | | | | | Right of Use (“ROU”) assets recognized for new operating lease liabilities | | $ | — | | $ | 987,000 | ROU adjustment due to early termination | | $ | 160,000 | | $ | 359,000 |
See accompanying notes to consolidated financial statements (unaudited). Table of Contents 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, 20162022, 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, 20162022 (“20162022 Form 10-K”). The interimunaudited consolidated financial statements contained herein should be read in conjunction with the 20162022 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. P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES – (Continued)
Tools
The Company1963, 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 and related products of its own design, primarily to the retail, industrial, automotive and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. Pneumatic 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 throughtools, as they are more commonly referred to generally offer a wholly-owned subsidiary of Hy-Tech. better power-to-weight ratio than their electrical counterparts. Florida Pneumatic is engaged in the importation and saleimports and/or manufactures approximately 75 types of pneumatic hand tools, primarily formost of which are sold at prices ranging from $50 to $1,000, under the retail, industrialnames “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 pipein-house sales personnel and bolt dies, pipe taps, wrenches, visesmanufacturers’ representatives. The AIRCAT and stands, pipe and tubing cutting equipment, hydrostatic test pumps, and replacement electrical components for a widely-used brandNITROCAT brands of pipe cutting and threading machines. Lastly as the result of the Jiffy acquisition, Florida Pneumatic now manufactures pneumatic tools marketedare sold primarily to the automotive service and repair market (“automotive market”). Users of Florida Pneumatic’s hand tools include industrial maintenance and production personnel, 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 sellsmarkets industrial tools, systems, gearing, accessories, and a wide rangevariety of industrial productsreplacement parts under thevarious brands including ATP, ATSCO, Ozat, Numatx, ThaxtonNUMATX, and Quality Gear. These products, including heavy dutyThaxton. 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 motorsimpact sockets and custom gears, with prices ranging from $300 to $62,000. Hy-Tech’s “Engineered Solutions” products are all sold directdirectly to major end users as well asOriginal Equipment Manufacturers (“OEMs”), and industrial branded products are sold through a broad network of Industrial and Fluid Power Distributors. Industries served includespecialized industrial distributors serving the power generation, petrochemical, aerospace, construction, railroad, mining, ship building and fabricated metals.metals industries, among others. Hy-Tech also manufacturesworks directly with its industrial customers, designing and manufacturing products from finished components assemblies and finished product for various Original Equipment Manufacturersto 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 directly to OEMs, end-users and gearbox repair companies. PTG works directly with its customers’ engineering departments to design or redesign gears or gearboxes to optimize a solution for functionality and manufacturability. Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, we acquired substantially all the non-real estate assets comprising the business of Jackson Gear Company (“JGC”), a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. This business was consolidated into PTG and provides added market exposure into the larger gears market. Nearly all 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 Asia. COVID-19 Hardware
Prior toDuring the Nationwide Closing Date,three-and nine-month periods ended September 30, 2023, the Company conductedhas encountered minimal effects from the COVID-19 pandemic. The Company, however, continues to encounter intermittent inventory supply-chain delays from its Hardware business through its wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). Countrywide conducted its business operations through its wholly-owned subsidiary, Nationwide. NationwideAsian suppliers, which cause shortages of inventory. While the negative effects that the Company was an importerencountering during the COVID-19 pandemic in general have eased, it is difficult for the Company to be certain that the inventory issue discussed above is in fact COVID-19 related.
Going Concern Assessment Management assesses going concern uncertainty to determine whether there is sufficient cash on hand and manufacturerworking 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 ofat least one year from the Nationwide Closing Date, Countrywide sold Nationwide to an unrelated third party for approximately $22,200,000. See Note 2 todate 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. 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 - Continued As of September 30, 2023, the Company had borrowing availability on its bank facility of $10,580,000. The Company is not in default on any bank covenant and believes its relationship with the bank is good. See Note 8 – Debt, for further discussion. 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 21.0% and 24.3% of its consolidated accounts receivable at September 30, 2023, and December 31, 2022, respectively. Further, this customer accounted for 19.6% and 17.9% of the Company’s consolidated revenue during the three and nine-month periods ended September 30, 2023, respectively, and 19.1% and 22.9% for the same periods in the prior year. There was no other customer that accounted for more than 10% of our consolidated revenue during these periods. 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, 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 20162022 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 adjustmentsadjusts 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 P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES – (Continued)
NewThe Company’s significant accounting policies are described in “Note 1: Summary of Significant Accounting Pronouncements
Recently Adopted
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 materialPolicies” to the Company’s consolidated financial statements.2022 Form 10-K.
Lease Accounting 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 materialCompany adheres 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”No. 842, Leases (“ASC Topic 842”). ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leasesleases’ guidance. The ASU
As permitted under ASC Topic 842, if the rate implicit in the lease is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. Innot readily determinable, the financial statements in whichCompany uses its incremental borrowing rate as 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.discount rate. The Company uses its best judgement when determining the incremental borrowing rate, which is currently evaluating the impactrate of interest that the adoptionCompany would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency. The Company’s operating leases include vehicles, office space and the use of this guidance on its consolidated financial statements. real property. The Company has not identified any new material finance leases during the three-month period ended September 30, 2023. The Company considers any options to extend the term of a lease when measuring the right-of-use lease asset. Table of Contents 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 AdoptedLease Accounting - Continued
For the three and nine-month periods ended September 30, 2023, the Company had $223,000 and $697,000, respectively, in operating lease expense, and $239,000 and $710,000, respectively, for the same three and nine-month periods in 2022. In May 2014,The following is a maturity analysis of the FASB issued ASU No. 2014-09,annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities:
| | | | | | | | | 2023 (excluding the nine months ended September 30, 2023) | | $ | 215,000 | | 2024 | | | 846,000 | | 2025 | | | 696,000 | | 2026 | | | 691,000 | | 2027 | | | 719,000 | | Thereafter | | | 2,727,000 | | Total operating lease payments | | | 5,894,000 | | Less imputed interest | | | (1,043,000) | | Total operating lease liabilities | | $ | 4,851,000 | | | | | | | Weighted average remaining lease term | | | 7.7 | years | Weighted average discount rate | | | 5.17 | % |
Revenue Recognition The Company’s revenue recognition policies are detailed in its 2022 Form 10-K. The following tables present the Company’s revenues recognized under ASC Topic 606, “Revenue from Contracts with CustomersCustomers”, for the three and nine-month periods ended September 30, 2023, and 2022. Florida Pneumatic Florida Pneumatic markets its products to four primary sectors within the pneumatic tool market: Retail, Automotive, Industrial and Aerospace. It also generates revenue from 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 for revenue recognition and creates a single framework. Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:are reported as Other. · | 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. |
| | | | | | | | | | | | | | | | | | | Three months ended September 30, | | | | 2023 | | 2022 | | Increase (decrease) | | | | | | | Percent of | | | | | Percent of | | | | | | | | | Revenue | | revenue | | Revenue | | revenue | | $ | | % | | Automotive | | $ | 2,613,000 | | 27.0 | % | $ | 3,110,000 | | 31.4 | % | $ | (497,000) | | (16.0) | % | Retail | | | 2,825,000 | | 29.2 | | | 2,779,000 | | 28.0 | | | 46,000 | | 1.7 | | Industrial | | | 1,261,000 | | 13.0 | | | 1,305,000 | | 13.2 | | | (44,000) | | (3.4) | | Aerospace | | | 2,864,000 | | 29.6 | | | 2,538,000 | | 25.6 | | | 326,000 | | 12.8 | | Other | | | 119,000 | | 1.2 | | | 174,000 | | 1.8 | | | (55,000) | | (31.6) | | Total | | $ | 9,682,000 | | 100.0 | % | $ | 9,906,000 | | 100.0 | % | $ | (224,000) | | (2.3) | % |
The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. The Company is in the final assessment phaseof what impact, if any, the new revenue standard 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.The standard update, as amended, will be effective for annual periods beginning after December 15, 2017.
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.
Table of Contents 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 OPERATIONSFlorida Pneumatic - Continued
| | | | | | | | | | | | | | | | | | | Nine months ended September 30, | | | | 2023 | | 2022 | | Increase (decrease) | | | | | | | Percent of | | | | | Percent of | | | | | | | | Revenue | | revenue | | Revenue | | revenue | | $ | | % | | Automotive | | $ | 9,375,000 | | 30.8 | % | $ | 10,845,000 | | 33.0 | % | $ | (1,470,000) | | (13.6) | % | Retail | | | 8,295,000 | | 27.2 | | | 10,625,000 | | 32.3 | | | (2,330,000) | | (21.9) | | Industrial | | | 4,175,000 | | 13.7 | | | 4,416,000 | | 13.5 | | | (241,000) | | (5.5) | | Aerospace | | | 8,238,000 | | 27.1 | | | 6,531,000 | | 19.9 | | | 1,707,000 | | 26.1 | | Other | | | 368,000 | | 1.2 | | | 436,000 | | 1.3 | | | (68,000) | | (15.6) | | Total | | $ | 30,451,000 | | 100.0 | % | $ | 32,853,000 | | 100.0 | % | $ | (2,402,000) | | (7.3) | % |
SaleHy-Tech
Hy-Tech designs, manufactures, and sells a wide range of Nationwide Industries, Inc. The Company,industrial products which are categorized as part of its strategic planATP for reporting purposes. In addition to focus on expanding its positionEngineered Solutions, products and components manufactured for other companies under their brands are included in 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 acquiredOEM category 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-month period ended June 30, 2016, the $250,000 portion of the escrow funds was released to the Company, and the final working capital adjustment amount of $75,000 was paid to the Company by the Buyer. 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 into the escrow funds. In November 2016, the Premises were sold, 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),table below. PTG revenue is comprised of the following:products manufactured and sold by Hy-Tech’s gear business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.
| | 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 | |
| | | | | | | | | | | | | | | | | | | Three months ended September 30, | | | | 2023 | | 2022 | | Increase (decrease) | | | | | | Percent of | | | | | Percent of | | | | | | | | | Revenue | | revenue | | Revenue | | revenue | | $ | | % | | OEM | | $ | 2,616,000 | | 55.4 | % | $ | 2,187,000 | | 47.4 | % | $ | 429,000 | | 19.6 | % | ATP | | | 671,000 | | 14.2 | | | 490,000 | | 10.6 | | | 181,000 | | 36.9 | | PTG | | | 1,296,000 | | 27.5 | | | 1,693,000 | | 36.8 | | | (397,000) | | (23.4) | | Other | | | 139,000 | | 2.9 | | | 240,000 | | 5.2 | | | (101,000) | | (42.1) | | Total | | $ | 4,722,000 | | 100.0 | % | $ | 4,610,000 | | 100.0 | % | $ | 112,000 | | 2.4 | % |
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.
| | | | | | | | | | | | | | | | | | | Nine months ended September 30, | | | | 2023 | | 2022 | | Increase (decrease) | | | | | | | Percent of | | | | | Percent of | | | | | | | | Revenue | | revenue | | Revenue | | revenue | | $ | | % | | OEM | | $ | 8,364,000 | | 52.8 | % | $ | 6,693,000 | | 49.6 | % | $ | 1,671,000 | | 25.0 | % | ATP | | | 2,176,000 | | 13.7 | | | 2,178,000 | | 16.1 | | | (2,000) | | (0.1) | | PTG | | | 4,970,000 | | 31.3 | | | 4,216,000 | | 31.3 | | | 754,000 | | 17.9 | | Other | | | 348,000 | | 2.2 | | | 407,000 | | 3.0 | | | (59,000) | | (14.5) | | Total | | $ | 15,858,000 | | 100.0 | % | $ | 13,494,000 | | 100.0 | % | $ | 2,364,000 | | 17.5 | % |
Table of Contents P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued) Recently Adopted Accounting Pronouncements During the three-and nine-month period ended September 30, 2023, there were no accounting pronouncements or other authoritative guidance issued or that became effective, that had, or is expected to have, a material impact on the Company’s consolidated financial statements. NOTE 3 – ACQUISITION On April 5, 2017 (the “Jiffy Closing Date”), 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 Agreement (defined below), less certain amounts escrowed pursuant to, among others, the terms of the Agreements.
| | 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 | |
The following table presents preliminary 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 | |
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 goodwill. Goodwill will be amortized over 15 years for tax purposes, but not deductible for financial reporting purposes. The intangible assets subject to amortization will be amortized over 15 years for tax purposes. For financial reporting purposes, useful lives have been assigned as follows:
Customer relationships | | 15 years | | Trademarks and trade names | | Indefinite | | Non-compete agreements | | 4 years | |
The following unaudited pro-forma combined financial information gives effect to the Jiffy Acquisition as if the Jiffy Acquisition was consummated January 1, 2016. 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 (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 | ) |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 4 – EARNINGS (LOSS)2 - 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.periods presented. 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 | |
| | | | | | | | | | | | | | | Three months ended | | Nine months ended | | | September 30, | | September 30, | | | 2023 | | 2022 | | 2023 | | 2022 | Numerator for basic and diluted loss per common share: | | | | | | | | | | | | | Net loss | | $ | (721,000) | | $ | (237,000) | | $ | (146,000) | | $ | (876,000) | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | Denominator for basic loss per share - weighted average common shares outstanding | | | 3,195,000 | | | 3,195,000 | | | 3,195,000 | | | 3,183,000 | Dilutive securities (1) | | | — | | | — | | | — | | | — | Denominator for diluted loss per share - weighted average common shares outstanding | | | 3,195,000 | | | 3,195,000 | | | 3,195,000 | | | 3,183,000 |
| (1) | Dilutive securities consist of the “in the money” stock options. There were no “in the money” stock options at September 30, 2023. In the event of a loss, options are considered anti-dilutive and would therefore not be included in the calculation of diluted loss per share. |
At September 30, 2017 and 2016, 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 | | | | | | | | | | | | | | | | | | |
NOTE 5 – EQUITY – COMMON STOCK REPURCHASE PLAN
On August 9, 2017, the Company’s Board 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.
Table of Contents P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 53 – EQUITY – COMMON STOCK REPURCHASE PLAN – (Continued)STOCK-BASED COMPENSATION Stock option compensation
The Company accounts for stock-based compensation, includingThere were no options and non-vestedor shares according to the provisions of FASB ASC 718,Share Based Payment.
On September 5, 2017 (“Grant Date”), the compensation committee of Company’s Board of Directors authorized the issuance of 89,000 options to purchase shares of the Company’s Class A Common Stock under the Company’s 2012 Stock Incentive Plan. 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 the closing price of the Company’s common stock on the Grant Date.
Stock option compensation expense is attributable to the granting of, and the remaining requisite service periods of, stock options. Compensation expense attributable to stock-options was approximately $20,000 and $0granted or issued during the three-monththree and nine 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-monthmonth 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 | |
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 | |
2023. The number of shares of Common Stock availabletable below presents stock options for issuance under the P&F Industries, Inc. 2012 Stock Incentive Plan (the “2012 Plan”) as ofnine-month period ending 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.2023. | | | | | | | | | | | | | | | Weighted | | Weighted average | | | | | | | | average | | remaining | | Aggregate | | | | | exercise | | contractual life | | Intrinsic | | | Option shares | | price | | (years) | | Value | Outstanding, January 1, 2023 | | 127,600 | | $ | 7.41 | | 3.3 | | $ | — | Forfeited | | (5,000) | | | — | | — | | | — | Expired | | (43,850) | | | — | | — | | | — | Outstanding, September 30, 2023 | | 78,750 | | | 7.15 | | 4.0 | | $ | — | Vested, September 30, 2023 | | 78,750 | | | 7.15 | | 4.0 | | $ | — |
Restricted Stock TheOn May 25, 2022, the Company in May 2017, granted 1,0001,250 restricted shares of its Common Stock to each non-employee member of its Board of Directors, totaling 5,0006,250 restricted shares. The Company determined that the fair value of these shares was $6.17 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 Company is ratably amortizing the total non-cash compensation expense of approximately $30,000 in its selling, general and administrative expenses through May 2018.
The Company, in May 2016, granted 1,000 restricted shares of its Common Stock to each non-employee member of its Board of Directors, totaling 5,000 restricted shares. The Company determined that the fair value of these shares was $8.72$5.50 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, theThe Company ratably amortized the total non-cash compensation expense of approximately $44,000 in its$34,000 to selling, general and administrative expenses during the period beginning May 2022 through May 2017.2023.
NOTE 64 – 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'smanagement’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrumentsinstrument’s valuation. The guidance requires the use of observable market data if such data is available without undue cost and effort. As of September 30, 20172023, and December 31, 2016,2022, the carrying amounts reflected in the accompanying Consolidated Balance Sheetsconsolidated 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.
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). Table of Contents P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 75 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Accounts receivable - net consists of: | | September 30, 2017 | | | December 31, 2016 | | | | | | | | | | | | | | September 30, 2023 | | December 31, 2022 | Accounts receivable | | $ | 11,067,000 | | | $ | 7,991,000 | | | $ | 9,046,000 | | $ | 7,683,000 | Allowance for doubtful accounts | | | (73,000 | ) | | | (85,000 | ) | | | | $ | 10,994,000 | | | $ | 7,906,000 | | | Allowance for doubtful accounts, sales discounts and chargebacks | | | | (312,000) | | | (313,000) | | | | $ | 8,734,000 | | $ | 7,370,000 |
Net accounts receivable at January 1, 2022, was $ 7,550,000. NOTE 86 – INVENTORIES Inventories consist of: | | September 30, 2017 | | | December 31, 2016 | | | | | | | | | | | | | | September 30, 2023 | | December 31, 2022 | Raw material | | $ | 1,681,000 | | | $ | 1,918,000 | | | $ | 1,600,000 | | $ | 2,000,000 | Work in process | | | 1,642,000 | | | | 658,000 | | | | 2,235,000 | | | 2,242,000 | Finished goods | | | 16,767,000 | | | | 17,325,000 | | | | 16,682,000 | | | 20,249,000 | | | $ | 20,090,000 | | | $ | 19,901,000 | | | | | | $ | 20,517,000 | | $ | 24,491,000 |
NOTE 97 – 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, 2023 | | $ | 4,822,000 | Currency translation adjustment | | | 1,000 | Balance, September 30, 2023 | | $ | 4,823,000 |
Table of Contents P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS – (Continued) 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 | |
| | | | | | | | | | | | | | | | | | | | | September 30, 2023 | | December 31, 2022 | | | | | | Accumulated | | Net book | | | | | Accumulated | | Net book | | | Cost | | amortization | | value | | Cost | | amortization | | value | Other intangible assets: | | | | | | | | | | | | | | | | | | | Customer relationships (1) | | $ | 6,923,000 | | $ | 4,532,000 | | $ | 2,391,000 | | $ | 6,921,000 | | $ | 4,099,000 | | $ | 2,822,000 | Trademarks and trade names (1) | | | 2,167,000 | | | — | | | 2,167,000 | | | 2,166,000 | | | — | | | 2,166,000 | Trademarks and trade names | | | 200,000 | | | 96,000 | | | 104,000 | | | 200,000 | | | 86,000 | | | 114,000 | Engineering drawings | | | 330,000 | | | 279,000 | | | 51,000 | | | 330,000 | | | 268,000 | | | 62,000 | Non-compete agreements (1) | | | 323,000 | | | 321,000 | | | 2,000 | | | 322,000 | | | 303,000 | | | 19,000 | Patents | | | 1,286,000 | | | 1,191,000 | | | 95,000 | | | 1,286,000 | | | 1,143,000 | | | 143,000 | Totals | | $ | 11,229,000 | | $ | 6,419,000 | | $ | 4,810,000 | | $ | 11,225,000 | | $ | 5,899,000 | | $ | 5,326,000 |
| (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. |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS – (Continued)
Amortization expense of intangible assets from continuing operations subject to amortization was as follows: | | | | | | | | | | | | Three months ended September 30, | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, | 2017 | | 2016 | | 2017 | | 2016 | | | 2023 | | 2023 | | 2022 | | 2023 | | 2022 | $ | 181,000 | | $ | 217,000 | | $ | 620,000 | | $ | 803,000 | | 160,000 | | $ | 151,000 | | $ | 519,000 | | $ | 469,000 |
Amortization expense for the balance of 2023, and for each of the next four years and thereafter is estimated to be as follows: | | | | October 1 through December 31, 2023 | | $ | 169,000 | 2024 | | | 639,000 | 2025 | | | 610,000 | 2026 | | | 411,000 | 2027 | | | 199,000 | Thereafter | | | 615,000 | | | $ | 2,643,000 |
The weighted average amortization period for intangible assets was as follows: | | September 30, 2017 | | | December 31, 2016 | | | | | | | | | | | | September 30, 2023 | | December 31, 2022 | Customer relationships | | | 10.4 | | | | 9.3 | | | 5.4 | | 5.9 | Trademarks and trade names (see note 2 to the table above) | | | 13.8 | | | | 14.5 | | | Trademarks and trade names | | | 7.8 | | 8.5 | Engineering drawings | | | 8.3 | | | | 8.8 | | | 3.4 | | 4.1 | Non-compete agreements | | | 1.9 | | | | 1.2 | | | 0.3 | | 1.0 | Patents | | | 9.0 | | | | 6.1 | | | 4.4 | | 4.1 |
Amortization expense for each
Table of the next five years and thereafter is estimated to be as follows:Contents P&F INDUSTRIES, INC. AND SUBSIDIARIES 2018 | | $ | 709,000 | | 2019 | | | 686,000 | | 2020 | | | 653,000 | | 2021 | | | 638,000 | | 2022 | | | 635,000 | | Thereafter | | | 3,062,000 | | | | $ | 6,383,000 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 108 – 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 forthe ability to borrow funds under a Revolver Loan$16,000,000 revolver line (“Revolver”), subject to certain borrowing base criteria. Revolver borrowings under which are secured by the Company’s accounts receivable, mortgages on itsinventory, 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-guaranteedcross guaranteed by certain other subsidiaries. Revolver borrowings will bear interest at either London InterBank Offered Rate On March 24, 2023, the Company and the Bank entered into Amendment No. 11 (“LIBOR”Amendment 11”) or the Base Rate, as defined into the Credit Agreement, which among other things: | ● | extended the expiration date to February 8, 2027; and |
●eliminated a $1,600,000 Capex Loan line of credit. Under the terms of Amendment No. 10, to the Credit Agreement, dated April 12, 2022, the Company began applying Secured Overnight Financing Rate, (“SOFR”) SOFR rates instead of the London Inter-Bank Offered Rate, (LIBOR). The Company will continue to be subject to the number of SOFR borrowings. The change from LIBOR to SOFR did not have a significant effect on the Company’s consolidated financial statements. Most of the Company’s borrowings are at SOFR plus theApplicable Margin. The Applicable Margin, as defined in the Credit Agreement. Further,Agreement, during the interest rate, either LIBOR orthree-month period ended September 30, 2023, was 2.10% applied to all SOFR borrowings and 1.10% applied to Base Rate which is(Prime Rate) borrowings. The Applicable Margins that were added to SOFR and Base Rate borrowings during the Applicable Margin, isthree-month period ended September 30, 2022, were 1.50% and 0.50%, respectively. During the three-month period ended September 30, 2023, SOFR ranged from 7.17% to 7.44%, compared to 3.15% to 4.91% during the third quarter of 2022. The Base Rate during the three-month period ended September 30, 2023, ranged from 8.25% to 8.50%, compared to a range of 4.75% to 6.25%, during the same period a year ago. At September 30, 2023, short-term or Revolver borrowing was $2,664,000, compared to $7,570,000 at December 31, 2022. The average balance of short-term borrowings during the option ofthree and nine-month periods ended September 30, 2023, were $4,439,000, and $6,252,000, respectively, compared to $9,499,000 and $10,403,000, for the Company. The Company is limited as to the number of LIBOR borrowings. Contemporaneously with the Jiffy Acquisition, the Company entered into 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 definedsame periods 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 as financial and other covenants.
prior year. 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 complycertificates of compliance with certainvarious financial covenants. TheShould an event of default occur the interest rate would increase by two percent per annum during the period of default, in addition to other remedies provided to Capital One. Additionally, at September 30, 2023, and December 31, 2022, there was approximately $10,580,000 and $7,678,000, respectively, available to the Company believes it is in compliance with all covenants under the Credit Agreement.its Revolver arrangement. Table of Contents P&F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 109 – DEBT – (Continued) SUBSEQUENT EVENTS 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.
Common Stock dividend 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,November 8, 2023, the Company’s Board of Directors in accordance with their dividend policy, declared a quarterly cash dividend ofin the amount equal to $0.05 per common share, which was paidwill be payable on August 25, 2017,November 29, 2023, to all shareholders of record atas of the close of business on AugustNovember 21, 2017.2023. The Company estimates the total cash outlay to be approximately $160,000. Agreement related to the sale of the Company. On October 13, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tools Acquisition Co, LLC, a limited liability company organized under the Laws of the State of Delaware (“Parent”) and Tools MergerSub, Inc., a Delaware corporation (“Acquisition Sub”). Parent and MergerSub are both affiliates of ShoreView Industries. The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Acquisition Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Upon the consummation of the transactions contemplated by the Merger Agreement (the “Effective Time”), each share of Common Stock of the Company issued and outstanding immediately prior to the Effective Time, including restricted shares, will be canceled and converted into the right to receive $13.00 in cash, without interest and subject to any applicable withholding taxes. The Merger Agreement generally provides that, as of the Effective Time, each option to purchase shares of Common Stock that is outstanding immediately prior to the Effective Time, whether vested or unvested, will be canceled and terminated in exchange for the right to receive an amount in cash, without interest, equal to the product of (x) the total number of shares of Common Stock subject to, and outstanding under, such Company Option and (y) the excess of the $13.00 per-share amount over the applicable per share exercise price, subject to any applicable withholding or other taxes or other amounts required by applicable law to be withheld Consummation of the Merger is subject to certain customary conditions, including the approval by a majority of the votes entitled to be cast by the Company’s stockholders at a stockholders’ meeting to be held by the Company and the affirmative vote of a majority of the votes cast at such stockholders’ meeting by stockholders other than Richard A. Horowitz, the Chairman of the Company’s Board of Directors, its President and Chief Executive Officer. Certain further conditions include consent to the merger by a major customer of one of the Company’s Subsidiaries, and the absence of any “material adverse effect” (as customarily defined) on the Company. The Merger Agreement also contains customary representations, warranties and covenants (for a transaction 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. The Company currently intends to continue its quarterly dividend payment; however, it will review its policy on a quarterly basis. size and nature). 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 20172023 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 to fluctuations in energy prices;Risks associated with the Company’s announced agreement and plan of merger; |
| ·● | 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; |
| ● | Unforeseen inventory adjustments or changes in purchasing patterns; |
| ● | Market acceptance of products; |
| ● | Exposure to fluctuations in energy prices; |
| ● | The strength of the retail economy in the United States and abroad; |
| ·● | Supply chain disruptions; | | · | Customer concentration; | | · | Adverse changes in currency exchange rates; |
| ● | Debt and debt service requirements; |
| ● | Borrowing and compliance with covenants under our credit facility; |
| ● | Impairment of long-lived assets and goodwill; |
| ·● | 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; |
| ● | Risks related to the global outbreak of COVID-19 and other public health crises; |
| ● | 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 onthe 2022 Form 10-K, for the year ended December 31, 2016 (“2016 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued OVERVIEW P&F INDUSTRIES, INC. AND SUBSIDIARIES
During and subsequent to the three-month period ended September 30, 2023, significant factors that impacted our results of operations and other significant events were: Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations● | We entered into a merger agreement for the Company to be acquired in an all-cash transaction for $13.00 per share. |
| ● | Third quarter 2023 revenue flat to same quarter in 2022 |
| ● | Gross margins increased slightly |
| ● | Higher professional fees incurred in connection with entering into the merger agreement. |
BusinessOUR BUSINESS
Florida Pneumatic P&FFlorida 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 and related products of its own design, primarily to the retail, industrial, automotive, and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. Pneumatic 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 personnel, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.
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 $62,000. Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEM”), and industrial branded products are sold through a wholly-owned subsidiary (“Jiffy”). See Note 3broad 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 statementscomplete 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 located in Punxsutawney, PA. In addition to manufacturing a broad range of standard and custom gears for further discussion. The businessmanufacturers in a wide variety of Air Tool Service Company (“ATSCO”) operatesindustries, 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 inHy-Tech, we acquired substantially all the importation and salenon-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 divisionJackson 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-TechPennsylvania-based corporation that manufactures and distributes its own linecustom gears and power transmission gear products. This business was consolidated into PTG and provides added market exposure into the larger gears market.
Management’s Discussion and markets impact wrenches, grinders, drills,Analysis of Financial Condition 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 lineResults of pneumatic tool replacement parts 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, gears, sprockets, splines and racks. Additionally, the Company develops highly engineered product solutions to specific customer requirements in the pneumatic tool market. HardwareOperations - Continued
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 hadcan have an impact on ourthe 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, which is a key factor in our sales into the oil and gas exploration and extraction sector.transportation costs, specifically ocean freight rates. TheLastly, 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. 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; daysdays’ 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 20162022 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,revenue recognition, 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. The Company’s significant accounting policies are described in “Note 1: Summary of Significant Accounting Policies” to the Company’s 2022 Form 10-K. OVERVIEW
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued TRENDS AND UNCERTAINTIES Key factors or events impactingINTERNATIONAL SUPPLY CHAIN
Although much less than during the three and nine-month periods ended September 30, 2022, we continue to encounter delays in receiving inventory from our third quarter 2017Asian suppliers, which leads to intermittent shortages of inventory. IMPACT OF INFLATION/GEOPOLITICAL ISSUES We believe that the current and projected levels of inflation, as well as a possible economic recession will likely continue to have an effect on our manufacturing and operating costs. At the present time, we are unable to reasonably estimate the impact inflation and geo-political issues will have on our results of operations were:for the foreseeable future. | ● | Decline in Florida Pneumatic’s Automotive and Retail revenue |
| ● | Improvement in Hy-Tech’s gross margin |
| ● | Addition of Jiffy’s operations |
We believe that our results of operations and financial condition during the three and nine-month periods ended September 30, 2023, have not been impacted by the Russia-Ukraine conflict; however, we cannot predict what impact this conflict may have on our results in the future. BOEING RESULTS OF OPERATIONSSales of aircraft by Boeing, a Jiffy customer, have been depressed since the two 737 MAX crashes in 2018 and 2019. Further, the Federal Aviation Administration grounded all 737 MAX aircraft for several quarters. These events, coupled with the COVID-19 pandemic, reduced Boeing’s aircraft production levels to well below those prior to the pandemic and the grounding. In 2019, Boeing produced 52 737 MAX aircraft per month. It is currently still producing below that level. Per Boeing, it plans to return to those levels in 2025 and expects to add a fourth 737 MAX production line in 2024. We believe that these stated plans along with the return of the Boeing 787 aircraft shipments, which has also had production delays to full production, will be beneficial to P&F’s aerospace sales in the next several years.
TECHNOLOGIES ContinuingWe believe that over time, several newer technologies and features will have a greater effect on the market for our traditional pneumatic tool offerings. So far, the greatest impact has been on the automotive aftermarket with the advent of advanced cordless operated tools. Currently, we do not offer a cordless tool to the automotive aftermarket. However, with respect to the industrial market, we have developed for one of our largest OEM customers a tool mechanism that is incorporated into a major line of their cordless power tools. These tools have been in full production with our supplied system for several years and our sales of these products have continued to grow over that time. We continue to analyze the practicality of developing or incorporating newer technologies in our tool platforms for other markets as well. This includes adding our internally developed mechanisms to existing cordless power sources as well as producing complete cordless tool systems. In addition, we have recently developed a cordless installation tool for the aerospace market. We have begun taking orders for this product and we expect to introduce an additional version in early 2024.
OTHER MATTERS Other than the trends and uncertainties mentioned above, or matters that may be discussed below, there are no major trends or uncertainties that had, or we could reasonably expect to have a material impact on our revenue and operations, nor was there any unusual or infrequent event, transaction or any significant economic change that materially affected our results of operations. Unless otherwise discussed elsewhere in the Management’s Discussion and Analysis, we believe that our relationships with our key customers and suppliers remain satisfactory. Global oil Management’s Discussion and gas explorationAnalysis of Financial Condition and extraction have been the primary marketResults of Hy-Tech, which until recently has begun to show signs of improving. Further, there remains a persistent weakness in the other markets that Hy-Tech serves most notably power generation and construction. We elected not to renew our supply agreement with Sears, which expired on September 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, we believe that all accounts receivable attributable to Sears, which approximates $1,100,000 at September 30, 2017, should be collected by December 31, 2017. However, at the present time, there can be no assurance that we will fully recover this.
We believe that over time several newer technologies and features will begin to have an impact on the market for the Company’s traditional pneumatic tool offerings. This evolution has been felt initially by the advent of some cordless operated hand tools in the automotive aftermarket. We are currently evaluating the development of more advanced technologies in our tool platforms.
Operations – Continued RESULTS OF OPERATIONS Continuing operations - (Continued)REVENUE
Other than the aforementioned, there are no major trends or uncertainties that had, or we could reasonably expect could 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 the first quarter 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.
REVENUE
The tables below provide an analysis of our net revenue from continuing operations for the three and nine-monththree-month periods ended September 30, 20172023, and 2016:2022: | | 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 | % |
| | 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 | )% |
Consolidated | | | | | | | | | | | | | | | Three months ended September 30, | | | | | | | | Increase (Decrease) | | | | 2023 | | 2022 | | $ | | % | | Florida Pneumatic | | $ | 9,682,000 | | $ | 9,906,000 | | $ | (224,000) | | (2.3) | % | Hy-Tech | | | 4,722,000 | | | 4,610,000 | | | 112,000 | | 2.4 | | Consolidated | | $ | 14,404,000 | | $ | 14,516,000 | | $ | (112,000) | | (0.8) | % |
| | | | | | | | | | | | | | | Nine months ended September 30, | | | | | | | | Increase (Decrease) | | | | 2023 | | 2022 | | $ | | % | | Florida Pneumatic | | $ | 30,451,000 | | $ | 32,853,000 | | $ | (2,402,000) | | (7.3) | % | Hy-Tech | | | 15,858,000 | | | 13,494,000 | | | 2,364,000 | | 17.5 | | Consolidated | | $ | 46,309,000 | | $ | 46,347,000 | | $ | (38,000) | | (0.1) | % |
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, | | | | 2023 | | 2022 | | Increase (decrease) | | | | | | | Percent of | | | | Percent of | | | | | | | | Revenue | | revenue | | Revenue | | revenue | | $ | | % | | Automotive | | $ | 2,613,000 | | 27.0 | % | $ | 3,110,000 | | 31.4 | % | $ | (497,000) | | (16.0) | % | Retail | | | 2,825,000 | | 29.2 | | | 2,779,000 | | 28.0 | | | 46,000 | | 1.7 | | Industrial | | | 1,261,000 | | 13.0 | | | 1,305,000 | | 13.2 | | | (44,000) | | (3.4) | | Aerospace | | | 2,864,000 | | 29.6 | | | 2,538,000 | | 25.6 | | | 326,000 | | 12.8 | | Other | | | 119,000 | | 1.2 | | | 174,000 | | 1.8 | | | (55,000) | | (31.6) | | Total | | $ | 9,682,000 | | 100.0 | % | $ | 9,906,000 | | 100.0 | % | $ | (224,000) | | (2.3) | % |
| | 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 | )% | | | | | | | | | | | | | | | | | | | | | | | Nine months ended September 30, | | | | | 2023 | | 2022 | | Increase (decrease) | | | | | | | | Percent of | | | | Percent of | | | | | | | | | Revenue | | revenue | | Revenue | | revenue | | $ | | % | | Automotive | | | 3,021,000 | | | | 24.6 | | | | 3,723,000 | | | | 31.8 | | | | (702,000 | ) | | | (18.9 | ) | | $ | 9,375,000 | | 30.8 | % | $ | 10,845,000 | | 33.0 | % | $ | (1,470,000) | | (13.6) | % | Industrial/catalog | | | 1,228,000 | | | | 10.0 | | | | 1,026,000 | | | | 8.7 | | | | 202,000 | | | | 19.7 | | | Retail | | | | 8,295,000 | | 27.2 | | | 10,625,000 | | 32.3 | | | (2,330,000) | | (21.9) | | Industrial | | | | 4,175,000 | | 13.7 | | | 4,416,000 | | 13.5 | | | (241,000) | | (5.5) | | Aerospace | | | 2,564,000 | | | | 20.8 | | | | 89,000 | | | | 0.8 | | | | 2,475,000 | | | | 2,780.9 | | | | 8,238,000 | | 27.1 | | | 6,531,000 | | 19.9 | | | 1,707,000 | | 26.1 | | Other | | | 270,000 | | | | 2.2 | | | | 233,000 | | | | 2.0 | | | | 37,000 | | | | 15.9 | | | | 368,000 | | 1.2 | | | 436,000 | | 1.3 | | | (68,000) | | (15.6) | | Total | | $ | 12,295,000 | | | | 100.0 | % | | $ | 11,702,000 | | | | 100.0 | % | | $ | 593,000 | | | | 5.1 | % | | $ | 30,451,000 | | 100.0 | % | $ | 32,853,000 | | 100.0 | % | $ | (2,402,000) | | (7.3) | % |
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 the decline in Florida Pneumatic’s third quarter 2017 RetailAutomotive revenue was due to the reduction in shipments to Searsdeclined this quarter, compared to the same period in 2016. As discussed above, we elected not2022, due primarily to renew an agreement with Sears, which expired on September 30, 2017. Also impacting our Retail revenue this quarter wasacross-the-board price increase in all distribution channels in order to address rising input costs. This change in pricing strategy led to 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 portionunit sales and thus overall revenue in this category. However, Automotive gross margin improved as a result of the United States, was a contributing factor to the decline in ourthis change. Florida Pneumatic’s third quarter 2023 Retail revenue this quarter, compared to the third quarter of 2016. A major factor contributing 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 revenue from our UAT division headquartered in the United Kingdom. OurIndustrial/catalog revenue increased slightly compared to the same periodimproved a year ago. We believe that activity in this sector has begun to improve; however, no assurance can be given that this trend will continue. Lastly, the Jiffy acquisition 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 the decline in our Retail revenue was due primarily to the reduction in shipments to Sears, compared to the same nine-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%modest 1.7%, when compared to the same period ain the prior year, ago. Our Industrial/catalogdespite The Home Depot’s (“THD”) continued efforts that began earlier this year of reducing the number of individual stock keeping units offered, as well as the quantity of each, and reducing the display area of their pneumatic tools. We believe that THD is facing increased pressure from on-line distributors, as well as other “brick and mortar” retailers that are expanding their presence in this product line. Aerospace revenue while sluggish duringimproved 12.8% when comparing the first three monthsthird quarter of 2017, has2023 to the same period in 2022. This improvement was driven by, among other factors, increased demand for new consumable parts, that Jiffy had begun to seemarket earlier this year, and improved market conditions in both the commercial and military aviation. In addition, Jiffy has increased its sales in Europe significantly and is also seeing initial sales of recently introduced products. Lastly, the slight improvement duringdecline in Industrial revenue was due primarily to supply chain issues and by economic uncertainty in the second and third quarters of 2017. Lastly, aerospace revenue, driven by the Jiffy acquisition, added more than $4.1 million to sector.
Florida Pneumatic’s yearnine-month revenue analysis is quite similar to date 2017that of its third quarter 2023 results. When compared to the nine-month period ended September 30, 2022, Florida Pneumatic’s third quarter 2023 Automotive revenue declined due primarily to our revised pricing and marketing changes put into effect mid-2022. However, as will be discussed later in this discussion and analysis, this change contributed to an overall improvement in Florida Pneumatic’s gross margin. The significant factors causing the decline in our Retail revenue for the nine-month periods ended September 30, 2023, compared to the same period a year ago.in 2022 was the product rollout that occurred in the second quarter of 2022 with no such event occurring during 2023. This year-over-year decline was also driven by THD’s decision to lower its inventory of floor display space this year. During the nine-month period ended September 30, 2023, Aerospace revenue increased 26.1%, when compared to the same period in the prior year. The improvement was driven by resurgence in both the commercial and military components of the Aerospace sector, and increased demand for the new, consumable parts that Jiffy has begun to market. In addition, Jiffy has increased its sales in Europe, and is also seeing initial sales of recently introduced products. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued Hy-TechRESULTS OF OPERATIONS - (Continued)
REVENUE – Continued 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 purposespurposes. In addition to Engineered Solutions, products and include heavy duty air tools, industrial grinderscomponents 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” and include the hydro-pneumatic riveters, hydrostatic test plugs, air motors and custom gears.Other. | | | | | | | | | | | | | | | | | | | Three months ended September 30, | | | | 2023 | | 2022 | | Increase (decrease) | | | | | | | Percent of | | | | | Percent of | | | | | | | | | Revenue | | revenue | | Revenue | | revenue | | $ | | % | | OEM | | $ | 2,616,000 | | 55.4 | % | $ | 2,187,000 | | 47.4 | % | $ | 429,000 | | 19.6 | % | ATP | | | 671,000 | | 14.2 | | | 490,000 | | 10.6 | | | 181,000 | | 36.9 | | PTG | | | 1,296,000 | | 27.5 | | | 1,693,000 | | 36.8 | | | (397,000) | | (23.4) | | Other | | | 139,000 | | 2.9 | | | 240,000 | | 5.2 | | | (101,000) | | (42.1) | | Total | | $ | 4,722,000 | | 100.0 | % | $ | 4,610,000 | | 100.0 | % | $ | 112,000 | | 2.4 | % |
| | | | | | | | | | | | | | | | | | | Nine months ended September 30, | | | | 2023 | | 2022 | | Increase (decrease) | | | | | | | Percent of | | | | | Percent of | | | | | | | | | Revenue | | revenue | | Revenue | | revenue | | $ | | % | | OEM | | $ | 8,364,000 | | 52.7 | % | $ | 6,693,000 | | 49.6 | % | $ | 1,671,000 | | 25.0 | % | ATP | | | 2,176,000 | | 13.7 | | | 2,178,000 | | 16.1 | | | (2,000) | | (0.1) | | PTG | | | 4,970,000 | | 31.3 | | | 4,216,000 | | 31.3 | | | 754,000 | | 17.9 | | Other | | | 348,000 | | 2.2 | | | 407,000 | | 3.0 | | | (59,000) | | (14.5) | | Total | | $ | 15,858,000 | | 100.0 | % | $ | 13,494,000 | | 100.0 | % | $ | 2,364,000 | | 17.5 | % |
| | 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 | % |
RESULTS OF OPERATIONS
Continuing operations - (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 | )% |
Significant components contributingThe net improvement in Hy-Tech’s revenue this quarter, compared to the increasesame three-month period in 2022, was driven by the 19.6% growth of OEM revenue. It should be noted that Hy-Tech’s thirdrevenue by product line fluctuates throughout the year. This fluctuation is caused by, among other factors, timing of orders, production scheduling and reliance on outside vendors and suppliers. The improvement this quarter, 2017 ATP revenue, compared to the same period in 2016, include the resurgence2022 is due primarily to an increase in activityorders during 2023, from a largemajor OEM customer, acquiredalong with an overall market improvement in this sector. The 36.9% increase in HY-Tech’s ATP revenue is primarily due to weak third quarter 2022 orders and shipments. The above increases were partially offset by a decline in PTG revenue. This decline was due to i) product/customer mix, ii) the implementation of new planning and production processes and procedures, which in turn caused delays in the ATSCO acquisition that had reduced its orders until the secondmanufacturing process, iii) associated training related thereto, and iv) delays in receipt of product being returned from third-party vendors. The decline in Hy-Tech’s Other revenue, which is driven by general machining, was due to Hy-Tech’s decision to focus on OEM and ATP product lines. Thaxton revenue was softer 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 partssame three-month period 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.
2022. The fluctuation17.5% year-over-year increase in Hy-Tech’s yeartotal revenue was primarily driven by its ongoing growth in OEM and to datea lesser degree PTG revenue. The increase in OEM revenue was driven by growth in certain markets that are served by a number of Hy-Tech’s OEM customers. The markets served by our customers include multiple industrial applications, as well as the tool rental market. PTG revenue for the nine-month period ended September 30, 2017,2023, increased 17.9% when compared to the same period in 2016the prior year. This improvement was primarilydriven by the acquisition of the Jackson Gear Company business in January 2022. The decrease in Hy-Tech’s Other revenue as discussed above, was due to a number of factors. Aweaker NUMATX and general machining revenue during the third quarter 2023. The modest year to date decline in ATP revenue from a large customer that was acquired in the ATSCO acquisition that had greatly reduced its purchases in the first quarteris attributable to our decision to focus our marketing efforts on OEM and PTG product offerings. Management’s Discussion and Analysis of 2016. By mid-2016 this customer ceased placing orders. However, as discussed above, this customer began placing orders during the second quarterFinancial Condition and Results 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. Operations – Continued RESULTS OF OPERATIONS - (Continued) GROSS MARGIN/PROFIT | | | | | | | | | | | | | | | | Three months ended September 30, | | Increase (decrease) | | | | 2023 | | 2022 | | Amount | | | % | | Florida Pneumatic | | $ | 4,051,000 | | $ | 4,113,000 | | $ | (62,000) | | | (1.5) | % | As percent of respective revenue | | | 41.8 | % | | 41.5 | % | | 0.3 | % | pts | | | Hy-Tech | | $ | 842,000 | | $ | 734,000 | | $ | 108,000 | | | 14.7 | | As percent of respective revenue | | | 17.8 | % | | 15.9 | % | | 1.9 | % | pts | | | Total | | $ | 4,893,000 | | $ | 4,847,000 | | $ | 46,000 | | | 0.9 | % | As percent of respective revenue | | | 34.0 | % | | 33.4 | % | | 0.6 | % | pts | | |
| | | | | | | | | | | | | | | | Nine months ended September 30, | | Increase (decrease) | | | | 2023 | | 2022 | | Amount | | | % | | Florida Pneumatic | | $ | 12,837,000 | | $ | 12,834,000 | | $ | 3,000 | | | — | % | As percent of respective revenue | | | 42.2 | % | | 39.1 | % | | 3.1 | % | pts | | | Hy-Tech | | $ | 3,633,000 | | $ | 2,160,000 | | $ | 1,473,000 | | | 68.2 | | As percent of respective revenue | | | 22.9 | % | | 16.0 | % | | 6.9 | % | pts | | | Total | | $ | 16,470,000 | | $ | 14,994,000 | | $ | 1,476,000 | | | 9.8 | % | As percent of respective revenue | | | 35.6 | % | | 32.4 | % | | 3.2 | % | pts | | |
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 for the three-month period ended September 30, 2023, improved by 0.3 percentage points compared to the same period in the prior year principally due to a year ago. Of note, Jiffy’sshift away from their lower margin Retail and Automotive product lines to the higher margin, Industrial and Aerospace categories.
During the third quarter of 2023 Hy-Tech’s gross margin approximates thatincreased 1.9 percentage points, when compared to the same period in 2022. This improvement was due primarily to product/customer mix. Hy-Tech continued to pursue cost and expense reductions, and coupled with revisions in pricing structure, it has been able to improve its blended gross margin, thus contributing to the overall gross margin improvement. Partially offsetting the above improvements, during the third quarter Hy-Tech recorded an additional charge to its Obsolete and Slow-Moving Inventory of Florida Pneumatic’s non-retail$80,000. Lastly, during the third quarter of 2023, Hy-Tech’s PTG product lines. As such,line’s gross margin was negatively affected due primarily to the gross profit associated with the Aerospace revenue this quarter exceeded the gross profits lost as the resultimplementation of the decline in Retail revenue. There were no significant changes to our cost structure or selling price during this quarter. new planning and production procedures and processes and delays caused by outside vendors, both of which negatively impacted its overhead absorption. Florida Pneumatic’s overall gross margin for the nine-month period ended September 30, 2017 is essentially the same as the gross margin for2023, improved compared to the same period in 2016. Hy-Tech’s 2017 third quarterthe prior year principally due to a shift away from their lower margin product lines to the higher margin categories. Further, during the latter half of 2022, we raised prices in all product categories, which contributed to the improved gross margin increased 19.0margin. This change in marketing strategy and pricing adjustments led to a 3.1 percentage points, a more than 250%point year-to-date improvement over the same period a year ago. Factors contributing 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 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, during the second and third quarters of 2017, shipments of these low gross margin tools declined compared to the prior year. Additional 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, and (c) the sale of the low margin tools has been lower this year compared to the prior year.
The improvement in Hy-Tech’s nine-month gross margin foris due primarily to product/customer mix. Further, during the nine-month period ended September 30, 2017,2023, Hy-Tech was able to reduce manufacturing costs and expenses, primarily at its Cranberry PA facility. Also as noted above, beginning in 2022, Hy-Tech modified its pricing structure, which effectively improved 9.8 percentage points, when comparedits overall gross margin. Hy-Tech continues to the same period a year ago. Offsetting the primary factors to this improvement discussed above, gross marginfocus on the products being sold underimproving manufacturing overhead absorption, particularly at its new marketing initiative are below Hy-Tech’s historical range. In addition to margins on these products increasing as the resultPTG facility in Punxsutawney PA. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued Selling and general and administrative expensesRESULTS OF OPERATIONS - (Continued)
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 quarter of 2017,2023, our SG&A was $5,352,000,$5,785,000 compared to $4,915,000 for$5,084,000 incurred during the same three-month period in 2016. The2022. Significant components to the net increase was due in large part to the acquisition of the Jiffy business in April 2017, with 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. | ● | Compensation expenses increased $215,000. Compensation expenses are comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits. |
| ● | Professional fees and expenses (i.e., accounting, legal, consulting, etc.) increased $471,000 primarily due to $515,000 of legal and consulting costs incurred in connection to the transaction announced on October 13, 2023. |
| ● | Expenses of $110,000 incurred in connection with the relocation of Florida Pneumatic’s warehouse and administrative offices. |
| ● | Variable expenses declined $58,000. Variable expenses include among other items, commissions, freight out, travel, advertising, shipping supplies and warranty costs. |
| ● | A reduction in bank fees of $30,000. |
Our SG&A for the nine-month period ended September 30, 20172023, was $15,765,000,$16,327,000, compared to $15,088,000$15,736,000 for the same nine-month period in 2016. As noted above, the most significant component to theprior year. Key components of this net increase was the addition of Jiffy, with year to date 2017 SG&A of approximately $1,025,000. Other significant components include reductions in: (i) non-Jiffy compensation expenses 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.include: | ● | Increased compensation expenses of $327,000. |
| ● | Professional fees and expenses increased $571,000 primarily due to $729,000 of legal and consulting costs incurred in connection to the transaction announced on October 13, 2023. |
| ● | Expenses of $110,000 incurred in connection with the relocation of Florida Pneumatic’s warehouse and administrative offices. |
| ● | Variable expenses declined $368,000 Driving this decline was lower advertising and shipping costs at Florida Pneumatic, caused primarily by lower Retail revenue this quarter and a reduction in discretionary Automotive advertising expenses, compared to the same period a year ago. |
| ● | Stock-based compensation and bank fees declined $39,000 and $40,000, respectively. |
Impairment of goodwill and other intangible assets - 2016OTHER (INCOME) EXPENSE- net
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 primarily2023, we recognized a gain on sale of an adjustment to the fair valueequipment of the contingent consideration obligation to the Jiffy Seller. During the same period in 2016, the most significant factor contributing to the net Other income was rental income of real property that was sold in November of 2016. There is no income of a similar nature for 2017.$23,000.
ForDuring the nine-month period ended September 30, 2017, our2023, Other expense (income), net, is primarilyIncome included the fair value adjustmentgain on sale of equipment during the current quarter discussed above partially offsettingabove. Additionally, during the receiptsecond quarter of the balance2023 we incurred a loss of an escrow related to$9,000, and a gain of $5,000 on transactions involving the sale of equipment. During the real property that was located in Tampa, Florida and used by Nationwide Industries Inc. See Note 2 to our consolidated financial statements for further discussion. The amount forthree-month period ended March 31, 2023, we recognized a gain of $21,000 from the same period in 2016 was the net rental income on the real property that was sold in Novembersale 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 theequipment. Lastly, as a result of the salefinal resolution of Nationwideour Employee Retention Tax Credit (“ERTC”) filings, we recorded an additional $15,000 as Other Income. The ERTC income is subject to federal 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 assetslocal tax.
In accordance with 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 expense of debt issue costs”. See Note 2 to our consolidated financial statements for further discussion on the sale of Nationwide. See Liquidity and Capital Resources elsewhere in this Management’s Discussion and Analysis section for further information regardingof Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - (Continued) INTEREST – NET | | | | | | | | | | | | | | | Three months ended September 30, | | (Increase) decrease | | | | 2023 | | 2022 | | Amount | | % | | Interest expense attributable to: | | | | | | | | | | | | | Short-term borrowings | | $ | 98,000 | | $ | 102,000 | | $ | 4,000 | | 3.9 | % | Amortization expense of debt issue costs | | | 12,000 | | | 4,000 | | | (8,000) | | (200.0) | | Total | | $ | 110,000 | | $ | 106,000 | | $ | (4,000) | | (3.8) | % |
| | | | | | | | | | | | | | | Nine months ended September 30, | | (Increase) decrease | | | | 2023 | | 2022 | | Amount | | % | | Interest expense attributable to: | | | | | | | | | | | | | Short-term borrowings | | $ | 334,000 | | $ | 239,000 | | $ | (95,000) | | (39.7) | % | Amortization expense of debt issue costs | | | 34,000 | | | 12,000 | | | (22,000) | | (183.3) | | Other | | | (42,000) | | | (7,000) | | | 35,000 | | 500.0 | | Total | | $ | 326,000 | | $ | 244,000 | | $ | (82,000) | | (33.6) | % |
Most of our bank loans.borrowings are Secured Overnight Financing Rate, (“SOFR”) plus Applicable Margin. The Applicable Margin, as defined in our Credit Agreement, during the three-month period ended September 30, 2023, was 2.10% applied to all SOFR borrowings and 1.10% applied to Base Rate (Prime Rate) borrowings. The Applicable Margins that were added to SOFR and Base Rate borrowings during the three-month period ended September 30, 2022, were 1.50% and 0.50%, respectively. During the three-month period ended September 30, 2023, SOFR ranged from 7.17% to 7.44%, compared to 3.15% to 4.91% during the third quarter of 2022. The Base Rate during the three-month period ended September 30, 2023, ranged from 8.25% to 8.50%, compared to a range of 4.75% to 6.25%, during the same period a year ago. OurThe average balance of short-term borrowings during the three and nine-month periods ended September 30, 2017 was $3,635,0002023, were $4,439,000, and $3,263,000,$6,252,000, respectively, compared to $2,585,000$9,499,000 and $3,593,000, respectively, during$10,403,000, for the same periods in 2016.the prior year.
As discussed in Note 8 to our consolidated financial statements, in late March 2023, we and the Bank amended the Credit Agreement, and as a result, we wrote off the balance of the unamortized debt issue cost as of the date of Amendment No.11 during the first quarter of 2023. The Debt issue costs incurred in connection with the above-referenced Amendment No. 11, are being amortized through the expiration date of credit Agreement, which is February 2027. Other interest refers to interest or adjustments to ERTC refunds. Other interest during the nine-month period in the prior year was interest income recorded in connection with Federal income tax refunds received during the second quarter of 2022. Income taxesINCOME TAXES
At the end of each interim reporting period, we estimatecompute an effective tax rate expected to be applied for thebased 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, inAccordingly, 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 periods ended September 30, 2017 was 97.1%2023, were approximately 26.3% and 136.5%14.1%, respectively. Forrespectively, and for the same periods in 2016 our effective tax rate applicable to continuing operations was 27.2% and 33.9%, respectively. The Company’s2022, the effective tax rates were also affectedan income tax benefit of 31.5%, and 12.8%, respectively. The effective tax rates for all periods presented were impacted primarily by state taxes and non-deductible expenses and foreign tax rate differentials.expenses. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued 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 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 sale of the Tampa, Florida real property, which was treated as a capital gain transaction for 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.
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. OurAs we utilize a full lock-box arrangement with our Bank, our primary sourcessource of funds are operating cash flows andis our Revolver Loan (“Revolver”) with our Bank. loan. We gauge our liquidity and financial stability by various measurements, some of which are shown in the following table: | | | | | | | | | September 30, 2023 | | December 31, 2022 | Working capital | | $ | 20,422,000 | | $ | 20,838,000 | Current ratio | | | 3.03 to 1 | | | 2.44 to 1 | Shareholders’ equity | | $ | 41,340,000 | | $ | 41,956,000 |
| | 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 facilityAgreement In October 2010, we entered into a Loan and Security Agreement (as amended from time to time, “Credit Agreement”) with an affiliate of Capital One. TheOur Credit Agreement provides for Revolver borrowings, which are secured by the Company’s accounts receivable, mortgages on its real property (“Real Property”), inventory and equipment. P&F and certain of its subsidiaries are borrowers under the Credit Agreement, 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 in the Credit Agreement. The interest rate, either LIBOR or Base Rate, which is added 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 38 to theour consolidated financial statements,statements. As discussed therein, we and the Bank 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 and restated the previousan amendment to the Credit Agreement.
The Second Amended and Restated Loan Agreement,Facility that, among other things, amendedextended the Credit Agreement by: (1) increasing the maximum amount we can borrowexpiration date to February 8, 2027.
At September 30, 2023, there was approximately $10,580,000 available to us 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.arrangement. Cash Flows LIQUIDITY AND CAPITAL RESOURCES – (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
DuringFor the nine-month period ended September 30, 2017, our2023, cash decreasedprovided by operating activities was $7,061,000, compared to $1,205,000 from $3,699,000 atcash provided by in operating activities for the nine-month period ended September 30, 2022, of $1,305,000. At September 30, 2023, and December 31, 2016. Our total bank debt at September 30, 2017, primarily driven by2022, our consolidated cash balance was $338,000, and $667,000, respectively. We operate under the Jiffy acquisition, which was discussed in Note 3terms and conditions of the Credit Agreement. As a result, all domestic cash receipts are remitted to the accompanying consolidated financial statements, was $2,434,000, comparedCapital One lockboxes. Thus, nearly all cash on hand represents funds to $100,000 at December 31, 2016. Thecover checks issued but not yet presented for payment.
Our total debt to total book capitalization (total debt divided by total debt plus equity) at September 30, 20172023, was 4.9%6.1%, compared to 0.2%15.3% at 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.
2022. During the nine-month period ended September 30, 2017,2023, we used $444,000$1,909,000 for capital expenditures, compared to $894,000$1,222,000 during the same period in the prior year. Capital expenditures currently planned for the balanceremainder of 20172023 are expected to be approximately $500,000, some of$600,000, which maywe expect will be financed through our credit facilities or financed through independent third party financial institutions. the Credit Facility. The remaining 2017major portion of these planned capital expenditures will likely be for machinery andnew metal cutting equipment, tooling and computerinformation technology hardware and software. We believe that net cash flowsOur liquidity and capital are primarily sourced from operations and available borrowings under ourthe Credit Facility should provide sufficient cashAgreement, described in Note 8 – Debt, to fund our consolidated cost structure for at leastfinancial statements, and cash from operations.
Should the next 12 months fromneed arise whereby the date of this filing. LIQUIDITY AND CAPITAL RESOURCES – (Continued)
Customer concentration
Florida Pneumatic has two customers, Sears and The Home Depot that, incurrent Credit Agreement is insufficient, we believe we could obtain additional funds based on the aggregate, at September 30, 2017, and December 31, 2016, accounted for 39.6% and 53.5%, respectivelyvalue of our accounts receivable. To date, these customers remain at or close to complying with their payment terms. Additionally, these two customers in the aggregate, accounted for 31.3%real property 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.
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. borrowing under the current Agreement could be increased.
NEW ACCOUNTING PRONOUNCEMENTS
Customer concentration Refer to Note 1 – Business and summary of accounting policies – Customer Concentration to our consolidated financial statements, for a discussiondetailed discussion. Management’s Discussion and pronouncements.Analysis of Financial Condition and Results of Operations - Continued IMPACT OF INFLATION During the nine-month period ended September 30, 2023, with respect to our cost of inventory, we encountered price increases in raw materials, and labor. Additionally, our operating costs continue to encounter cost/price increases. It is difficult to accurately determine what portion of the above referenced increases are attributable to inflation. We are currently evaluatinghave been able to pass through most of the above-mentioned price increases, however we cannot predict our ability to continue this practice, nor to what degree. We intend to continue to actively manage the impact of inflation on our results of operations; however, we cannot reasonably estimate possible future impacts at this time. NEW ACCOUNTING PRONOUNCEMENTS There were no new accounting standards or pronouncements that became effective during the adoption of ASU No. 2016-02,Leases,three-month and nine-month period ended September 30, 2023, that had a material impact 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.statements. 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, weWe 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 AndItem 3. Quantitative and Qualitative Disclosures About Market Risk |
Not required. Item 4. | Item 4. Controls and Procedures |
Disclosure Controls and Procedures The Company'sCompany’s management, with the participation of the Company'sCompany’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated, as of September 30, 2017,2023, the effectiveness of the Company'sCompany’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'sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company'sCompany’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company'sCompany’s disclosure controls and procedures as of September 30, 2017,2023, the Company’s management, including its CEO and CFO, concluded that the Company'sCompany’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 September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION Item 1. | Item 1. Legal Proceedings |
There have been no material changes to the legal proceedingsproceedings’ disclosure described in our 20162022 Form 10-K. Item 1A. | Item 1A. Risk Factors |
ThereExcept as follows, we believe that there have been no material changes to thein our risk factors as previously disclosed in our 2016Annual Report on Form 10-K for the year ended December 31, 2022.
The proposed acquisition of the Company may disrupt or could adversely affect our business, prospects, financial condition and subsequent Quarterly reportsresults of operations. On October 13, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tools Acquisition Co, LLC (“Parent”) and Tools MergerSub, Inc., a wholly owned subsidiary of Parent (“Acquisition Sub”). The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Acquisition Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Upon the consummation of the transactions contemplated by the Merger Agreement (the “Effective Time”), each share of Common Stock of the Company issued and outstanding immediately prior to the Effective Time will be canceled and converted into the right to receive $13.00 in cash, without interest and subject to any applicable withholding taxes. Consummation of the Merger is subject to certain customary conditions, including the approval by a majority of the votes entitled to be cast by the Company’s stockholders at a stockholders’ meeting to be held by the Company and the affirmative vote of a majority of the votes cast at such stockholders’ meeting by stockholders other than Richard A. Horowitz, the Chairman of the Company’s Board of Directors, its President and Chief Executive Officer. Certain further conditions include consent to the merger by a major customer of one of the Company’s subsidiaries, and the absence of any “material adverse effect” (as customarily defined) on Form 10-Q.the Company. The Merger Agreement also contains customary representations, warranties and covenants (for a transaction of this size and nature). The announcement and pendency of the Merger could cause disruptions in and create uncertainty surrounding our business, which could have an adverse effect on our business, prospects, financial condition and results of operations, regardless of whether the Merger is completed. The Merger Agreement generally requires us to use our reasonable best efforts to operate our business in the ordinary course of business pending consummation of the Merger and restricts us without Parent’s consent, from taking certain specified actions until the Merger is completed. These restrictions may affect our ability to execute our business strategies, respond effectively to competitive pressures and industry developments and attain our financial and other goals, and these restrictions may impact our financial condition, results of operations and cash flows. Employee retention and recruitment may be challenging before the completion of the Merger, as employees and prospective employees may experience uncertainty about their future roles at the Company. Furthermore, the announcement and pendency of the Merger could also cause disruptions to our business or business relationships. Each of the foregoing factors could have an adverse impact on our business, financial condition, and results of operations. The pursuit of the Merger and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns could adversely affect the Company’s business, financial condition and results of operations. The Company could also be subject to litigation related to the Merger, which could prevent or delay the consummation of the Merger or result in significant costs and expenses. We cannot assure you as to the outcome of such lawsuits, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger on the agreed-upon terms, such an injunction may delay the consummation of the Merger in the expected timeframe, or may prevent the Merger from being consummated altogether. We have incurred and will continue to incur substantial transaction fees and costs in connection with the Merger. We have incurred and expect to continue to incur significant costs, expenses and fees for professional services, such as legal, financial and accounting fees, and other transaction costs in connection with the Merger. A material portion of these expenses are payable by us whether or not the Merger is completed and may relate to activities that we would not have undertaken other than to complete the Merger. If the Merger is not completed, we will have received little or no benefit from such expenses. Further, although we have assumed that a certain amount of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These costs could adversely affect our business, financial condition and results of operations. The Merger may not be completed within the expected timeframe, or at all, and significant delay or the failure to complete the Merger could adversely affect our business and the market price of our common stock. The consummation of the Merger is subject to certain closing conditions, including, without limitation, including the approval by a majority of the votes entitled to be cast by the Company’s stockholders at a stockholders’ meeting to be held by the Company and the affirmative vote of a majority of the votes cast at such stockholders’ meeting by stockholders other than Richard A. Horowitz, the Chairman of the Company’s Board of Directors, its President and Chief Executive Officer. Certain further conditions include consent to the merger by a major customer of one of the Company’s Subsidiaries, and the absence of any “material adverse effect” (as customarily defined) on the Company. Many of the conditions to consummation of the Merger are not within our control or the control of Parent or Acquisition Sub, and we cannot predict when or if these conditions will be satisfied. Failure to complete the Merger within the expected timeframe, or at all, could adversely affect our business and the market price of our common stock in a number of ways, including the following: | ● | if the Merger is not completed within the expected timeframe, or at all, the share price of our common stock will change to the extent that the current market price of our stock reflects assumptions regarding the completion of the Merger; |
| ● | we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other costs in connection with the Merger, for which we may receive little or no benefit if the Merger is not completed. Many of these fees and costs will be payable by us even if the Merger is not completed and may relate to activities that we would not have undertaken other than to complete the Merger; |
| ● | failure to complete the Merger within the expected timeframe, or at all, may result in negative publicity and a negative impression of us in the investment community and may lead to subsequent offers to acquire the Company at a lower price or otherwise on less favorable terms to us and our stockholders than contemplated by the Merger; |
| ● | the impairment of our ability to attract, retain and motivate personnel, including our senior management; |
| ● | difficulties maintaining relationships with customers, distributors, suppliers and other business partners; and |
| ● | upon termination of the Merger Agreement under specified circumstances, we would be required to pay a termination fee of approximately $2.1 million and a reimbursement amount of up to an addition $300 thousand. |
The Merger Agreement contains provisions that could discourage a potential competing acquirer of the Company or could result in a competing proposal being at a lower price than it might otherwise be. We are subject to certain restrictions on our ability to solicit alternative acquisition proposals from third parties, to provide information to third parties and to enter into or continue discussions or negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions. In addition, we may be required to pay Parent a termination fee of approximately $2.1 million and an additional reimbursement amount of up to $300 thousand in specified circumstances, including if the Merger Agreement is terminated in specified circumstances following our receipt of a Competing Proposal (as defined in the Merger Agreement). These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing such an acquisition, including, if the Merger Agreement is terminated prior to the consummation of the Merger, after such termination of the Merger Agreement, even if it were prepared to pay a price per share higher than the price per share proposed to be paid in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances under the Merger Agreement, including, in certain circumstances, after a valid termination of the Merger Agreement in accordance with the terms thereof. If the Merger Agreement is terminated and we decide to seek another similar transaction, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement. 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. See “Exhibit Index” immediately following the signature page. 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, 20179, 2023 | | (Principal Financial and Chief Accounting Officer) |
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. 1 to Second Amended and Restated Loan and Security Agreement dated as of August 9, 2017, (executed on September 20, 2017) by and among the Company, Florida Pneumatic Manufacturing Corporation and Hy-Tech Machine, Inc. as Borrowers, ATSCO Holdings 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, Inc., WILP Holdings, Inc. and Woodmark International, L.P. as Guarantors and Capital One, National Association as Agent and Lender (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated September 20, 2017). | 31.1 | | | 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 Inline Extensible Business Reporting Language (“XBRL”iXBRL”): (i)(I) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income (Loss);Loss, (iii) Consolidated StatementStatements of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements. 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. |