UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended ~~June 30, 2020~~March 31, 2021

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

For the transition period from to

Commission File Number 1 - 5332

P&F INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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) 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. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x 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 x	Smaller reporting company x

			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 ¨No x

As of ~~August 6, 2020,~~May 5, 2021, there were ~~3,151,060~~3,181,286 shares of the registrant’s Class A common stock outstanding.

P&F INDUSTRIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~JUNE 30, 2020~~MARCH 31, 2021

TABLE OF CONTENTS

’		PAGE
PART I — FINANCIAL INFORMATION		2

Item 1.	Financial Statements	2

	Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020	2

	Consolidated Statements of Operations and Comprehensive ~~(Loss) Income~~Loss for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	4

	Consolidated Statements of Shareholders’ Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	5

	Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	76

	Notes to Consolidated Financial Statements (unaudited)	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2419

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3528

Item 4.	Controls and Procedures	3528

PART II — OTHER INFORMATION		3629

Item 1.	Legal Proceedings	3629

Item 1A.	Risk Factors	3629

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3730

Item 3.	Defaults Upon Senior Securities	3730

Item 4.	Mine Safety Disclosures	3730

Item 5.	Other Information	3730

Item 6.	Exhibits	3730

Signature			3831

Exhibit Index		3932

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
	(unaudited)		(See Note 1)		(unaudited)		(See Note 1)
ASSETS
CURRENT ASSETS

Cash	$	368,000	$	380,000	$	1,047,000	$	904,000
Accounts receivable — net		7,419,000		9,313,000		9,538,000		7,468,000
Inventories		21,597,000		22,882,000		18,631,000		18,362,000
Prepaid expenses and other current assets		2,226,000		1,497,000		2,471,000		2,806,000
TOTAL CURRENT ASSETS		31,610,000		34,072,000		31,687,000		29,540,000

PROPERTY AND EQUIPMENT
Land		507,000		507,000		507,000		507,000
Buildings and improvements		3,527,000		3,303,000		3,544,000		3,544,000
Machinery and equipment		25,742,000		25,059,000		25,617,000		25,673,000
		29,776,000		28,869,000		29,668,000		29,724,000
Less accumulated depreciation and amortization		19,637,000		18,760,000		20,659,000		20,329,000
NET PROPERTY AND EQUIPMENT		10,139,000		10,109,000		9,009,000		9,395,000

GOODWILL		4,431,000		4,726,000		4,451,000		4,449,000

OTHER INTANGIBLE ASSETS — net		6,512,000		8,259,000		6,070,000		6,226,000

DEFERRED INCOME TAXES — net		878,000		216,000		298,000		226,000

RIGHT-OF-USE ASSETS – OPERATING LEASES		3,636,000		3,859,000		3,118,000		3,281,000

OTHER ASSETS — net		360,000		502,000		178,000		250,000

TOTAL ASSETS	$	57,566,000	$	61,743,000	$	54,811,000	$	53,367,000

See accompanying notes to consolidated financial statements (unaudited).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
		(unaudited)			(See Note 1)		(unaudited)			(See Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Short-term borrowings	$	2,573,000		$	5,648,000		$	3,481,000		$	1,374,000
Accounts payable		3,170,000			1,843,000			1,715,000			2,199,000
Accrued compensation and benefits		802,000			2,019,000			897,000			525,000
Accrued other liabilities		1,154,000			1,568,000			1,247,000			1,354,000
Current leased liabilities – operating leases		843,000			879,000			847,000			847,000
Current maturities of long-term debt (PPP loan)		1,312,000			—			2,727,000			1,983,000
TOTAL CURRENT LIABILITIES		9,854,000			11,957,000			10,914,000			8,282,000

Noncurrent leased liabilities – operating leases		2,821,000			3,070,000			2,315,000			2,474,000
Long-term debt, less current maturities (PPP loan)		1,618,000			—			202,000			946,000
Other liabilities		143,000			210,000			119,000			127,000

TOTAL LIABILITIES		14,436,000			15,237,000			13,550,000			11,829,000

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 – 4,423,000 at June 30, 2020 and 4,416,000 at December 31, 2019		4,423,000			4,416,000
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,453,000 at March 31, 2021 and 4,428,000 at December 31, 2020								4,453,000			4,428,000
Class B - $1 par; authorized - 2,000,000 shares; no shares issued		—			—			—			—
Additional paid-in capital		14,106,000			14,056,000			14,134,000			14,144,000
Retained earnings		35,571,000			38,867,000			33,449,000			33,756,000
Treasury stock, at cost – 1,273,000 shares at June 30, 2020 and at December 31, 2019		(10,213,000	)		(10,213,000	)
Treasury stock, at cost – 1,273,000 shares at March 31, 2021 and at December 31, 2020								(10,213,000	)		(10,213,000	)
Accumulated other comprehensive loss		(757,000	)		(620,000	)		(562,000	)		(577,000	)

TOTAL SHAREHOLDERS’ EQUITY		43,130,000			46,506,000			41,261,000			41,538,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	57,566,000		$	61,743,000		$	54,811,000		$	53,367,000

See accompanying notes to consolidated financial statements (unaudited).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

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

(unaudited)

Three months Six months
ended June 30, ended June 30,
2020 2019 2020 2019

Net revenue $ 11,520,000 $ 14,798,000 $ 24,870,000 $ 29,120,000
Cost of sales 8,472,000 9,290,000 17,339,000 18,331,000
Gross profit 3,048,000 5,508,000 7,531,000 10,789,000
Selling, general and administrative expenses 4,620,000 5,460,000 10,310,000 10,722,000
Impairment of goodwill and other intangible assets 1,612,000 — 1,612,000 —
Operating (loss) income (3,184,000 ) 48,000 (4,391,000 ) 67,000
Loss (gain) on sale of property and equipment 1,000 (7,824,000 ) 1,000 (7,817,000 )
Other income (31,000 ) — (31,000 ) —
Interest expense 41,000 68,000 97,000 131,000
(Loss) income (3,195,000 ) 7,804,000 (4,458,000 ) 7,753,000
Income tax (benefit) expense (814,000 ) 2,116,000 (1,319,000 ) 2,091,000
Net (loss) income $ (2,381,000 ) $ 5,688,000 $ (3,139,000 ) $ 5,662,000

Basic (loss) earnings per share $ (0.76 ) $ 1.74 $ (1.00 ) $ 1.73
Diluted (loss) earnings per share $ (0.76 ) $ 1.71 $ (1.00 ) $ 1.70

Weighted average common shares outstanding:

Basic 3,148,000 3,163,000 3,146,000 3,271,000
Diluted 3,148,000 3,230,000 3,146,000 3,337,000

Net (loss) income $ (2,381,000 ) $ 5,688,000 $ (3,139,000 ) $ 5,662,000
Other comprehensive loss - foreign currency translation adjustment (12,000 ) (51,000 ) (137,000 ) (7,000 )
Total comprehensive (loss) income $ (2,393,000 ) $ 5,637,000 $ (3,276,000 ) $ 5,655,000
Three months
ended March 31,
2021 2020
Net revenue $ 13,945,000 $ 13,350,000
Cost of sales 9,309,000 8,868,000
Gross profit 4,636,000 4,482,000
Selling, general and administrative expenses 4,991,000 5,690,000
Operating loss (355,000 ) (1,208,000 )
Interest expense 22,000 55,000
Loss before income tax (377,000 ) (1,263,000 )
Income tax benefit 70,000 505,000
Net loss $ (307,000 ) $ (758,000 )

Basic and diluted loss per share $ (0.10 ) $ (0.24 )

Weighted average common shares outstanding:

Basic and diluted 3,169,000 3,144,000

Net loss $ (307,000 ) $ (758,000 )
Other comprehensive income (loss) - foreign currency translation adjustment 15,000 (125,000 )
Total comprehensive loss $ (292,000 ) $ (883,000 )

See accompanying notes to consolidated financial statements (unaudited).

4

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

Three months ended ~~June 30, 2020~~March 31, 2021

Class A common
stock, $1 par Additional
paid-in Retained Treasury stock Accumulated
other
comprehensive Class A common
stock, $1 par Additional
paid-in Retained Treasury stock Accumulated
other
comprehensive
Total Shares Amount capital earnings Shares Amount loss Total Shares Amount capital earnings Shares Amount loss

Balance, April 1, 2020 $ 45,498,000 4,417,000 $ 4,417,000 $ 14,087,000 $ 37,952,000 (1,273,000 ) $ (10,213,000 ) $ (745,000 )
Balance, January 1, 2021 $ 41,538,000 4,428,000 $ 4,428,000 $ 14,144,000 $ 33,756,000 (1,273,000 ) $ (10,213,000 ) $ (577,000 )

Net loss (2,381,000 ) — — — (2,381,000 ) — — — (307,000 ) — — — (307,000 ) — — —

Restricted common stock compensation 12,000 6,000 6,000 6,000 — — — — 13,000 25,000 25,000 (12,000 ) — — — —

Stock-based compensation 13,000 — — 13,000 — — — — 2,000 — — 2,000 — — — —

Foreign currency translation adjustment (12,000 ) — — — — — — (12,000 ) 15,000 — — — — — — 15,000

Balance, June 30, 2020 $ 43,130,000 4,423,000 $ 4,423,000 $ 14,106,000 $ 35,571,000 (1,273,000 ) $ (10,213,000 ) $ (757,000 )
Balance, March 31, 2021 $ 41,261,000 4,453,000 $ 4,453,000 $ 14,134,000 $ 33,449,000 (1,273,000 ) $ (10,213,000 ) $ (562,000 )

Three months ended ~~June 30, 2019~~March 31, 2020

Class A common
stock, $1 par Additional
paid-in Retained Treasury stock Accumulated
other
comprehensive
Total Shares Amount capital earnings Shares Amount loss

Balance, April 1, 2019 $ 42,235,000 4,410,000 $ 4,410,000 $ 13,946,000 $ 34,404,000 (1,234,000 ) $ (9,897,000 ) $ (628,000 )

Net income 5,688,000 — — — 5,688,000 — — —

Restricted common stock compensation 13,000 6,000 6,000 7,000 — — — —

Purchase of Class A common stock (265,000 ) — — — — (32,000 ) (265,000 ) —

Stock-based compensation 33,000 — — 33,000 — — — —

Dividends (159,000 ) — — — (159,000 ) — — —

Foreign currency translation adjustment (51,000 ) — — — — — — (51,000 )

Balance, June 30, 2019 $ 47,494,000 4,416,000 $ 4,416,000 $ 13,986,000 $ 39,933,000 (1,266,000 ) $ (10,162,000 ) $ (679,000 )
Class A common
stock, $1 par Additional
paid-in Retained Treasury stock Accumulated
other
comprehensive
Total Shares Amount capital earnings Shares Amount loss
Balance, January 1, 2020 $ 46,506,000 4,416,000 $ 4,416,000 $ 14,056,000 $ 38,867,000 (1,273,000 ) $ (10,213,000 ) $ (620,000 )

Net loss (758,000 ) — — — (758,000 ) — — —

Exercise of stock options 3,000 1,000 1,000 2,000

Restricted common stock compensation 13,000 — — 13,000 — — — —

Stock-based compensation 16,000 — — 16,000 — — — —

Dividends (157,000 ) (157,000 )

Foreign currency translation adjustment (125,000 ) — — — — — — (125,000 )

Balance, March 31, 2020 $ 45,498,000 4,417,000 $ 4,417,000 $ 14,087,000 $ 37,952,000 (1,273,000 ) $ (10,213,000 ) $ (745,000 )

See accompanying notes to consolidated financial statements (unaudited).

5

P&F INDUSTRIES, INC. AND SUBSIDIARIES

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

~~Six months ended June 30, 2020~~
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, 2020 $ 46,506,000 4,416,000 $ 4,416,000 $ 14,056,000 $ 38,867,000 (1,273,000 ) $ (10,213,000 ) $ (620,000 )

Net loss (3,139,000 ) — — — (3,139,000 ) — — —

Exercise of stock options 3,000 1,000 1,000 2,000

Restricted common stock compensation 25,000 6,000 6,000 19,000 — — — —

Stock-based compensation 29,000 — — 29,000 — — — —

Dividends (157,000 ) — — — (157,000 ) — — —

Foreign currency translation adjustment (137,000 ) — — — — — — (137,000 )

Balance, June 30, 2020 $ 43,130,000 4,423,000 $ 4,423,000 $ 14,106,000 $ 35,571,000 (1,273,000 ) $ (10,213,000 ) $ (757,000 )
~~Six months ended June 30, 2019~~
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, 2019 $ 45,535,000 4,410,000 $ 4,410,000 $ 13,904,000 $ 34,588,000 (816,000 ) $ (6,695,000 ) $ (672,000 )

Net income 5,662,000 — — — 5,662,000 — — —

Restricted common stock compensation 26,000 6,000 6,000 20,000 — — — —

Purchase of Class A common stock (3,467,000 ) — — — — (450,000 ) (3,467,000 ) —

Stock-based compensation 62,000 — — 62,000 — — — —

Dividends (317,000 ) — — — (317,000 ) — — —

Foreign currency translation adjustment (7,000 ) — — — — — — (7,000 )

Balance, June 30, 2019 $ 47,494,000 4,416,000 $ 4,416,000 $ 13,986,000 $ 39,933,000 (1,266,000 ) $ (10,162,000 ) $ (679,000 )
Three months
ended March 31,
2021 2020
Cash Flows from Operating Activities:
Net loss $ (307,000 ) $ (758,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

Non-cash and other charges:
Depreciation and amortization 451,000 433,000
Amortization of other intangible assets 159,000 195,000
Amortization of operating lease assets 224,000 234,000
Amortization of debt issue costs 4,000 4,000
Amortization of consideration payable to a customer 67,000 67,000
Provision for losses on accounts receivable 47,000 15,000
Stock-based compensation 2,000 16,000
Restricted stock-based compensation 13,000 13,000
Deferred income taxes (70,000 ) (47,000 )
Loss on disposal of fixed assets 2,000 —
Changes in operating assets and liabilities:
Accounts receivable (2,113,000 ) 720,000
Inventories (263,000 ) 524,000
Prepaid expenses and other current assets 335,000 (528,000 )
Accounts payable (483,000 ) 482,000
Accrued compensation and benefits 372,000 (894,000 )
Accrued other liabilities and other current liabilities (97,000 ) (556,000 )
Operating lease liabilities (219,000 ) (230,000 )
Other liabilities (20,000 ) (6,000 )
Total adjustments (1,589,000 ) 442,000
Net cash used in operating activities (1,896,000 ) (316,000 )

See accompanying notes to consolidated financial statements (unaudited).

6

~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)~~
Six months
ended June 30,
2020 2019
Cash Flows from Operating Activities:
Net (loss) income $ (3,139,000 ) $ 5,662,000

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

Non-cash and other charges:
Depreciation and amortization 881,000 774,000
Amortization of other intangible assets 386,000 344,000
Rent expense from lease obligations 452,000 159,000
Amortization of debt issue costs 8,000 17,000
Amortization of consideration payable to a customer 135,000 135,000
Recovery of losses on accounts receivable (7,000 ) (61,000 )
Stock-based compensation 29,000 62,000
Loss on sale of fixed assets 1,000 5,000
Gain on sale of property and equipment — (7,817,000 )
Restricted stock-based compensation 25,000 26,000
Deferred income taxes (656,000 ) 364,000
Gain on lease obligation settlement (31,000 ) —
Impairment of goodwill and other intangible assets 1,612,000 —
Changes in operating assets and liabilities:
Accounts receivable 1,882,000 48,000
Inventories 1,206,000 (1,255,000 )
Prepaid expenses and other current assets (732,000 ) (214,000 )
Other assets — (5,000 )
Accounts payable 1,332,000 149,000
Accrued compensation and benefits (1,215,000 ) (1,040,000 )
Accrued other liabilities and other current liabilities (477,000 ) 1,832,000
Payments on lease liabilities (482,000 ) (167,000 )
Other liabilities 6,000 (8,000 )
Total adjustments 4,355,000 (6,652,000 )
Net cash provided by (used in) operating activities 1,216,000 (990,000 )
~~See accompanying notes to consolidated financial statements (unaudited).~~
7
P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Six months Three months
ended June 30, ended March 31,
2020 2019 2021 2020
Cash Flows from Investing Activities:
Capital expenditures $ (915,000 ) $ (920,000 ) $ (68,000 ) $ (658,000 )
Proceeds from disposal of property and equipment 1,000 8,760,000
Net cash (used in) provided by investing activities (914,000 ) 7,840,000
Net cash used in investing activities (68,000 ) (658,000 )

Cash Flows from Financing Activities:
Dividend payments (157,000 ) (317,000 ) — (157,000 )
Proceeds from exercise of stock options 3,000 — — 3,000
Purchase of Class A common stock — (3,467,000 )
Net payments relating to short-term borrowings (3,074,000 ) (1,915,000 )
Repayments of long-term debt — (453,000 )
Bank finance costs — (25,000 )
Proceeds from PPP loan 2,929,000 —
Net cash used in financing activities (299,000 ) (6,177,000 )
Net proceeds from short-term borrowings 2,107,000 1,284,000
Net cash provided by financing activities 2,107,000 1,130,000

Effect of exchange rate changes on cash (15,000 ) — — (5,000 )
Net (decrease) increase in cash (12,000 ) 673,000
Net increase in cash 143,000 151,000
Cash at beginning of period 380,000 999,000 904,000 380,000
Cash at end of period $ 368,000 $ 1,672,000 $ 1,047,000 $ 531,000

Supplemental disclosures of cash flow information:

Cash paid for:
Interest $ 97,000 $ 112,000 $ 8,000 $ 53,000
Cash paid for amounts included in the measurement of operating lease liabilities $ 5,000 $ 21,000 $ 2,000 $ —

Non-cash information:
Right of Use (“ROU”) assets recognized for new operating lease liabilities $ 140,000 $ 2,074,000 $ 23,000 $ —
Operating lease liability related to ROU assets recognized upon adoption of ASC 842 $ — $ 418,000

See accompanying notes to consolidated financial statements (unaudited).

8

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 (“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 the information and footnotes required by GAAP for complete financial statements. In the opinion of the management of the Company, as defined below, these unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth therein. 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, ~~2019~~2020 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, ~~2019~~2020 (“~~2019~~2020 Form 10-K”). The interim consolidated financial statements contained herein should be read in conjunction with the ~~2019~~2020 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) ~~income~~ - foreign currency translation 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.
The Company

P&F, a Delaware corporation incorporated ~~on April 19,~~in 1963, conducts its 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”), Universal Air Tool Company Limited (“UAT”), and Jiffy Air Tool, Inc. (“Jiffy”) are wholly owned subsidiaries of Florida Pneumatic. The business of Air Tool Service Company (“ATSCO”) operates through a wholly-owned subsidiary of Hy-Tech. Effective October 25, 2019, the Company through a wholly owned subsidiary of Hy-Tech, acquired substantially all the operating assets comprising the businesses of Blaz-Man Gear, Inc. and Gear Products & Manufacturing, Inc., each an Illinois-based corporation that manufactures and distributes custom gears. See Note 2 – Acquisition to the Company’s consolidated financial statements for further discussion.

9

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The Company - Continued

Florida Pneumatic
Florida Pneumatic directly, and through its wholly-owned subsidiaries Exhaust Technologies Inc. (“ETI”), Universal Air Tool Company Limited (“UAT”), and Jiffy Air Tool, Inc. (“Jiffy”) imports, manufactures, and ~~sells~~markets pneumatic hand tools ~~most of which are~~ of its own design, primarily to the retail, industrial, automotive and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. These tools are similar in 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 Pneumatics’ hand tools include industrial maintenance and production staffs, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.

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

Hy-Tech’s “Engineered Solutions” products are sold ~~direct~~directly to Original Equipment Manufacturers (“OEM’s”), and industrial branded products are sold through a broad network of specialized industrial distributors serving the power generation, petrochemical, aerospace, construction, railroad, mining, ship building and fabricated metals industries. Hy-Tech works directly with its industrial customers, designing and manufacturing products from finished components to complete turnkey systems to be sold under their own brand names.

Hy-Tech’s Power Transmission Group, or PTG, combined three separate gear companies: its Quality Gear division, Blaz-man Gear, Inc., and Gear Products and Manufacturing, Inc. 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 manufacturers in a wide variety of industries, PTG reverse engineers existing gears as well as designs new gears, utilizing state-of-the-art technologies, including 3D imaging and Gleason Gear modeling software.
COVID-19

On March 11, 2020, the World Health Organization designated the ~~recent~~ novel coronavirus (“COVID-19”) as a global pandemic. The Company continues to actively monitor COVID-19 and its continued impact on its operations and financial results. To date, there has been minimal disruption to the Company’s supply chain network, and all its manufacturing plants are ~~currently~~ open. The ~~Company is also working closely with its~~Company’s corporate office and business units are continuing to work alongside their external business partners and customers to minimize the continued ~~impact~~business constraints caused by COVID-19 on its business.

Due in large part to shelter-in-place restrictions that were implemented in late ~~March~~first quarter of 2020, which for many has been lifted during the latter portion of 2020 and early ~~April,~~2021, as well as significant decreases in travel and customer consumption behavior, the Company experienced a reduction in its ~~net sales~~revenue and earnings per share during 2020 and for the ~~second~~first quarter of ~~2020.~~2021. It is too early to determine what the financial impacts from COVID-19 will be on the Company’s businesses in the future.

10

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Going Concern Assessment

Management assesses going concern uncertainty in the Company’s consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued, which is referred to as the ~~"look-forward period"~~“look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, it considers various scenarios, forecasts, projections, estimates and makes certain key assumptions, including the timing and nature of projected cash expenditures, its ability to reduce, delay or curtail cash outflows and its ability to raise additional capital, if necessary, among other factors. Management has prepared estimates of operations covering the look-forward period and believes that sufficient funds will be generated from operations, working capital, and its existing credit facility to fund its operations. The Company has contingency plans in which it would further reduce or defer additional expenses and cash outlays, should operations weaken beyond current forecasts.

The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or ~~its timing~~ when the Company believes a return to more normal operations may occur. Further, as part of the business incentives offered in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company, on April 20, 2020, received a $2.9 million Payroll Protection Program (“PPP”) loan from the United States Small Business Administration (“SBA”). See Note 109 – CARES Act to the Company’s consolidated financial statements for further discussion.
For the three and six-month periods ended June 30, 2020, the Company incurred net losses of $2,381,000, and $3,139,000, respectively. The Company, at June 30, 2020 has working capital of $21,756,000 and availably on its bank facility of $12,249,000.

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

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, accounts receivable from The Home Depot (“THD”) was ~~34.9%~~36.8% and ~~27.2%~~38.0%, respectively, of total accounts receivable. ~~Additionally, revenue~~Revenue from ~~The Home Depot~~THD during the ~~three and six-month~~three-month periods ended ~~June 30,~~March 31, 2021 and 2020 was 27.2% and ~~2019 were 24.8% and 23.5%, and 23.0% and 20.3%~~22.4%, respectively, of total revenue. Additionally, during the three-month periods ended March 31, 2021 and 2020, revenue attributable to Amazon.Com, Inc (“Amazon”) was 12.1% and 8.6%, respectively, of the Company’s total net revenue. Accounts receivable attributable to Amazon at March 31, 2021 and December 31, 2020 was 12.3% and 15.8%, respectively, of total net accounts receivable. There were no other customers that accounted for more than 10% of consolidated revenue or accounts receivable during the ~~three and six-month~~three-month periods ended ~~June 30, 2020 and 2019.~~March 31, 2021 or 2020.

Management Estimates

The preparation of financial statements and related disclosures in conformity with 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 ~~2019~~2020 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 adjusts when facts and circumstances dictate.  As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions.  Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

11

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Significant Accounting Policies

The Company’s significant accounting policies are described in ~~"Note~~“Note 1: Summary of Significant Accounting ~~Policies"~~Policies” of our ~~2019~~2020 Form 10-K.

Lease Accounting

~~On January 1, 2019,~~The Company adheres to the ~~Company adopted~~standards set forth in Accounting Standards Codification (“ASC”) ~~ASC~~ 842 “Leases” ~~using the initial date of adoption method, whereby the adoption does not impact any periods prior to 2019.~~. ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases’ guidance. When adopted, the Company elected to adopt the package of practical expedients and, accordingly, did not reassess any previously expired or existing arrangements and related classifications under ASC 840 (previous standard).

If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as the discount rate. The Company uses its best judgement when determining the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency.

The Company’s operating leases include vehicles, office space and the use of real property. The Company has not identified any new material finance leases for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

The Company considers any options to extend the term of a lease when measuring the Right of Use lease asset.

For the ~~six-month~~three-month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company had ~~$452,000~~$224,000 and ~~$159,000,~~$234,000, respectively, in ~~Operating~~operating lease expense.

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of ~~June 30, 2020:~~March 31, 2021:

As of June 30, 2020 As of
March 31,2021
2020 (excluding the six months ended June 30, 2020) $ 432,000
2021 859,000
2021 (excluding the three months ended March 31, 2021) $ 654,000
2022 769,000 783,000
2023 657,000 670,000
2024 388,000 391,000
2025 182,000
Thereafter 1,049,000 867,000
Total operating lease payments 4,154,000 3,547,000
Less imputed interest (490,000 ) (385,000 )
Total operating lease liabilities $ 3,664,000 $ 3,162,000

Weighted average remaining lease term 6.3 years 5.9 years
Weighted average discount rate 4.3 % 4.3 %

12

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Revenue Recognition

The Company’s revenue recognition policies are detailed in its ~~2019~~2020 Form 10-K. The following tables present the Company’s revenues recognized under ASC Topic 606, “Revenue from Contracts with Customers”, for the ~~three and six-month~~three-month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

Florida Pneumatic

Three months ended June 30,
2020 2019 Decrease
Revenue
Percent of
revenue
Revenue
Percent of
revenue
$ %
Retail $ 2,860,000 33.1 % $ 3,427,000 31.8 % $ (567,000 ) (16.5 )%
Automotive 2,928,000 33.9 3,759,000 34.8 (831,000 ) (22.1 )
Industrial 817,000 9.4 1,223,000 11.3 (406,000 ) (33.2 )
Aerospace 1,934,000 22.4 2,231,000 20.7 (297,000 ) (13.3 )
Other 101,000 1.2 146,000 1.4 (45,000 ) (30.8 )
Total $ 8,640,000 100.0 % $ 10,786,000 100.0 % $ (2,146,000 ) (19.9 )%
Florida Pneumatic markets its air tool 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 line of air filters and other OEM parts (“Other”).

Six months ended June 30, Three months ended March 31,
2020 2019 Decrease 2021 2020 Increase (decrease)
Percent of Percent of Revenue
Percent of
revenue
Revenue
Percent of
revenue
$ %
Revenue revenue Revenue revenue $ %
Automotive $ 4,102,000 37.6 % $ 3,232,000 32.2 % $ 870,000 26.9 %
Retail $ 5,851,000 31.3 % $ 6,139,000 28.9 % $ (288,000 ) (4.7 )% 3,790,000 34.8 2,990,000 29.8 800,000 26.8
Automotive 6,160,000 33.0 7,624,000 35.9 (1,464,000 ) (19.2 )
Industrial 1,879,000 10.1 2,547,000 12.0 (668,000 ) (26.2 ) 1,359,000 12.5 1,062,000 10.6 297,000 28.0
Aerospace 4,533,000 24.3 4,591,000 21.6 (58,000 ) (1.3 ) 1,528,000 14.0 2,599,000 25.9 (1,071,000 ) (41.2 )
Other 247,000 1.3 325,000 1.6 (78,000 ) (24.0 ) 122,000 1.1 147,000 1.5 (25,000 ) (17.0 )
Total $ 18,670,000 100.0 % $ 21,226,000 100.0 % $ (2,556,000 ) (12.0 )% $ 10,901,000 100.0 % $ 10,030,000 100.0 % $ 871,000 8.7 %

Hy-Tech

Three months ended June 30,
2020 2019 (Decrease) increase
Revenue
Percent of
revenue
Revenue
Percent of
revenue
$ %
ATP $ 569,000 19.8 % $ 1,912,000 47.7 % $ (1,343,000 ) (70.2 )%
OEM 1,202,000 41.7 1,622,000 40.4 (420,000 ) (25.9 )
PTG 1,021,000 35.5 242,000 6.0 779,000 321.9
Other 88,000 3.0 236,000 5.9 (148,000 ) (62.7 )
Total $ 2,880,000 100.0 % $ 4,012,000 100.0 % $ (1,132,000 ) (28.2 )%
Hy-Tech designs, manufactures, and sells a wide range of industrial products under the brands ATP and ATSCO which are categorized as ATP for reporting purposes. In addition to Engineered Solutions, products and components manufactured for other companies under their brands are included in the OEM category in the table below. PTG revenue is comprised of products manufactured and sold by Hy-tech’s gear business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.

Six months ended June 30, Three months ended March 31,
2020 2019 (Decrease) increase 2021 2020 Increase (decrease)
Revenue
Percent of
revenue
Revenue
Percent of
revenue
$ % Revenue Percent of
revenue Revenue Percent of
revenue $ %
OEM $ 1,611,000 52.9 % $ 1,439,000 43.3 % $ 172,000 12.0 %
ATP $ 1,629,000 26.3 % $ 3,898,000 49.4 % $ (2,269,000 ) (58.2 )% 713,000 23.4 1,061,000 32.0 (348,000 ) (32.8 )
OEM 2,641,000 42.6 2,959,000 37.5 (318,000 ) (10.7 )
PTG 1,757,000 28.3 597,000 7.6 1,160,000 194.3 646,000 21.2 735,000 22.1 (89,000 ) (12.1 )
Other 173,000 2.8 440,000 5.5 (267,000 ) (60.7 ) 74,000 2.5 85,000 2.6 (11,000 ) (12.9 )
Total $ 6,200,000 100.0 % $ 7,894,000 100.0 % $ (1,694,000 ) (21.5 )% $ 3,044,000 100.0 % $ 3,320,000 100.0 % $ (276,000 ) (8.3 )%

13

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

~~In December 2019,~~During the ~~Financial Accounting Standards Board (“FASB”)~~three-month period ended March 31, 2021, there were no accounting pronouncements or other authoritative guidance issued ~~Accounting Standards Update (“ASU”) 2019-12, “~~~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.~~” The ASU is intended to simplify various aspects related to accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years, with early adoption permitted. The Company elected to early adopt this standard effective January 1, 2020. The adoption of this standard did not have a material effect on its consolidated financial statements.
~~In March 2020, the FASB issued ASU No. 2020-04, “~~~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”~~ ~~The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions~~ that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This new guidance became effective upon issuance of this ASU for contract modifications and hedging relationships on a prospective basis. While the Company ~~is currently assessing the impact of the new guidance, it is not expected to have a material impact on the Company’s consolidated financial statements.~~
adopted. No other new accounting pronouncement issued or effective during the fiscal ~~year had~~quarter ended March 31, 2021 has or is expected to have a material impact on our consolidated financial statements or disclosures.

14
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
NOTE 2 – ~~ACQUISITION~~
Effective October 25, 2019 (the “Gears Closing Date”) the Company, through a wholly owned subsidiary of Hy-Tech, acquired substantially all the assets comprising the businesses of Blaz-Man Gear, Inc. and Gear Products & Manufacturing, Inc. (the “Gears Acquisition”), each an Illinois-based corporation that manufactured and distributed custom gears. The purchase price consisted of an aggregate of approximately $3.5 million in cash, which was funded by Revolver borrowings and the assumption of certain payables and contractual obligations. In addition, the sellers may be entitled to additional consideration based upon sale of certain categories of acquired inventory, which had no fair value at the time of the acquisition, during the two-year period following the Gears Closing Date. Accordingly, the Company, determined that, based primarily upon historical sales information provided, the most likely scenario could result in a payment of contingent consideration of approximately $64,000 and recorded such contingent consideration liability. This liability will be adjusted as needed with changes being recorded in the Company’s consolidated statements of operations and comprehensive (loss) income.
On the Gears Closing Date, Hy-Tech entered into a new five-year lease. This new leased facility, located in Punxsutawney, PA, is approximately 42,000 square feet, with annual lease payments of $165,800. Additionally, Hy-Tech elected to vacate a then existing leased space in Punxsutawney, which housed Hy-Tech’s gear operations prior to the Gears Acquisition. In April 2020, Hy-Tech and the landlord of the vacated facility agreed to terms which released Hy-Tech from the lease in exchange for a payment of $30,000. As a result, during the second quarter of 2020, Hy-Tech recorded a gain of approximately $31,000 on the early settlement of this lease obligation.
Total
Cash paid at closing $ 3,518,000
Fair value of contingent consideration 64,000
Total estimated purchase price $ 3,582,000
~~The following table presents purchase price allocation:~~
Accounts receivable $ 218,000
Inventories 630,000
Machinery, equipment and vehicle 1,437,000
Customer relationships 995,000
Trademarks and trade names 54,000
Non-compete agreements 95,000
Liabilities assumed (131,000 )
Goodwill 284,000
Total estimated purchase price $ 3,582,000
The excess of the 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. This goodwill is part of the Hy-Tech reporting unit. See Note 8 regarding impairment of goodwill during the three months ended June 30, 2020. The intangible assets subject to amortization will be amortized over 15 years for tax purposes. For financial reporting purposes their respective useful lives have been determined as follows:
~~Customer relationships~~ ~~10 years~~
~~Non-compete agreements~~ ~~4 years~~
~~Trademarks and trade names~~ ~~Indefinite~~
15
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 2 – ACQUISITION – (Continued)~~
The following unaudited pro-forma combined financial information gives effect to the Gears Acquisition as if the transactions were consummated January 1, 2019. 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 Gears Acquisition been completed as of January 1, 2019 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

For the
three-month
period ended June 30, 2019

For the
six-month
period ended June 30, 2019

Revenue $ 15,586,000 $ 30,649,000
Net income $ 5,842,000 $ 5,951,000
Earnings per share – basic $ 1.79 $ 1.82
Earnings per share – diluted $ 1.76 $ 1.78
~~NOTE 3 – (LOSS) INCOME~~LOSS PER SHARE

Basic ~~(loss) income~~loss per common share is based only on the average number of shares of Common Stock outstanding for the periods. Diluted ~~(loss) income~~loss per common share reflects the effect of shares of Common Stock issuable upon the exercise of options unless the effect on earnings is anti-dilutive.

Diluted ~~(loss) income~~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 ~~(loss) income~~loss per common share:

Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Numerator for basic and diluted loss per common share:
Net (loss) income $ (2,381,000 ) $ 5,688,000 $ (3,139,000 ) $ 5,662,000
Denominator:
Denominator for basic (loss) earnings per share - weighted average common shares outstanding 3,148,000 3,163,000 3,146,000 3,271,000
Dilutive securities (1) — 67,000 — 66,000
Denominator for diluted (loss) income per share - weighted average common shares outstanding 3,148,000 3,230,000 3,146,000 3,337,000
~~(1)~~ ~~Dilutive securities consist of “in the money” stock options. In the event of a loss, options are considered anti-dilutive and therefore not included in the calculation of diluted loss per share.~~
16
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 3 – (LOSS) INCOME PER SHARE – (Continued)~~
Three months ended
March 31,
2021 2020
Numerator for basic and diluted loss per common share:
Net loss $ (307,000 ) $ (758,000 )

Denominator for basic and diluted loss per share - weighted average common shares outstanding 3,169,000 3,144,000

At ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ there were outstanding stock options whose exercise prices were higher than the average market values of the underlying Common Stock for the period. The weighted average of anti-dilutive stock options outstanding was as follows:

Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Weighted average anti-dilutive stock options outstanding 186,000 8,000 166,000 8,000
Three months ended
March 31,
2021 2020
Weighted average anti-dilutive stock options outstanding 141,000 146,000

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 43 – STOCK-BASED COMPENSATION

There were no options granted or issued during the ~~six-month~~three-month period ended ~~June 30, 2020.~~March 31, 2021.

The following is a summary of the changes in outstanding options during the ~~six-month~~three-month period ended ~~June 30, 2020:~~March 31, 2021:

Option shares
Weighted
average
exercise
price

Weighted average
remaining
contractual life
(years)

Aggregate
intrinsic
value
Option shares Weighted
average
exercise
price Weighted average
remaining
contractual life
(years) Aggregate
intrinsic
value
Outstanding, January 1, 2020 226,075 $ 6.30 4.7 $ 219,983
Outstanding, January 1, 2021 200,878 $ 6.59 4.1 $ 85,663
Granted — —
Exercised (1,000 ) 2.92 —
Forfeited (4,158 ) 5.34 —
Expired — — —
Outstanding, June 30, 2020 220,917 $ 6.34 4.3 53,965
Vested, June 30, 2020 186,415 $ 6.16 3.7 53,965
Outstanding, March 31, 2021 200,878 $ 6.59 3.8 $ 118,716
Vested, March 31, 2021 198,210 $ 6.56 3.8 $ 118,716

Option shares
Weighted
average grant-
date fair value
Option shares Weighted
average
grant-
date fair
value
Non-vested options, January 1, 2020 37,666 $ 4.45
Non-vested options, January 1, 2021 5,334 $ 4.60
Granted
Vested (2,666 ) 4.60 (2,666 ) 4.60
Forfeited (498 ) 4.41 —
Non-vested options, June 30, 2020 34,502 $ 4.44
Non-vested options, March 31, 2021 2,668 $ 4.60

The remaining number of shares of Common Stock available for issuance under the P&F Industries, Inc. 2012 Stock Incentive Plan (the “2012 Plan”) as of ~~June 30, 2020~~March 31, 2021 was ~~54,345.~~21,158. At ~~June 30, 2020,~~March 31, 2021, there were ~~189,917~~185,378 options outstanding issued under the 2012 Plan and ~~31,000~~15,500 options outstanding issued under the 2002 Stock Incentive Plan.

17
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 4 – STOCK-BASED COMPENSATION - (Continued)~~
Restricted Stock
On February 16, 2021, the Company granted 25,000 restricted shares of its Common Stock to its Chief Financial Officer. The Company determined that the fair value of these shares was $6.36 per share, which was the closing price of the Company’s Common Stock on the date of the grant. The Company will ratably amortize over a five-year vesting period, the total non-cash compensation expense of approximately $159,000, or $32,000 per annum, to selling, general and administrative expenses.

On May 20, 2020, the Company granted 1,250 restricted shares of its Common Stock to each non-employee member of its Board of Directors, totaling 6,250 restricted shares. The Company determined that the fair value of these shares was $5.14 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. The Company will ratably amortize the total non-cash compensation expense of approximately $32,000 to selling, general and administrative expenses through May 2021.

On May 22, 2019, the Company granted 1,250 restricted shares of its Common Stock to each non-employee member of its Board of Directors, totaling 6,250 restricted shares. The Company determined that the fair value of these shares was $8.31 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares could not be traded earlier than the first anniversary of the grant date. The Company ratably amortized the total non-cash compensation expense of approximately $52,000 to selling, general and administrative expenses through May 2020.
~~Treasury Stock~~
On February 14, 2019, the Company entered into an agreement to repurchase 389,909 shares of its common stock from certain funds and accounts advised or sub-advised by Fidelity Management & Research Company or one of its affiliates in a privately negotiated transaction at approximately $7.62 per share for a total purchase price of $2,971,000. On February 15, 2019, the Company completed this transaction. On February 14, 2019, the Company entered into Amendment No. 6 to the Second Amended and Restated Loan and Security Agreement with Capital One, which permitted the Company to complete the above transaction.

18

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 54 – FAIR VALUE MEASUREMENTS

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following hierarchy:

Level 1:   Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.

Level 2:   Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:   Inputs reflect ~~management's~~management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The guidance requires the use of observable market data if such data is available without undue cost and effort.

As of ~~June 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, the carrying amounts reflected in the accompanying consolidated balance sheets for current assets and current liabilities approximated fair value due to the short-term nature of these accounts.

Assets and liabilities measured at fair value on a non-recurring basis include goodwill and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (Level 3).

NOTE 65 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable - net consists of:

June 30, 2020 December 31, 2019 March 31, 2021 December 31, 2020
Accounts receivable $ 7,646,000 $ 9,547,000 $ 9,842,000 $ 7,726,000
Allowance for doubtful accounts, sales discounts and chargebacks (227,000 ) (234,000 ) (304,000 ) (258,000 )
$ 7,419,000 $ 9,313,000 $ 9,538,000 $ 7,468,000

NOTE 76 – INVENTORIES

Inventories consist of:

June 30, 2020 December 31, 2019 March 31, 2021 December 31, 2020
Raw material $ 2,398,000 $ 2,178,000 $ 2,063,000 $ 2,077,000
Work in process 1,214,000 2,302,000 1,336,000 1,127,000
Finished goods 17,985,000 18,402,000 15,232,000 15,158,000
$ 21,597,000 $ 22,882,000 $ 18,631,000 $ 18,362,000

19

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 87 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill are as follows:

Balance, January 1, 2020 $ 4,726,000
Currency translation adjustment (11,000 )
Impairment of goodwill (284,000 )
Balance, June 30, 2020 $ 4,431,000
Balance, January 1, 2021 $ 4,449,000
Currency translation adjustment 2,000
Balance, March 31, 2021 $ 4,451,000

Goodwill is evaluated for impairment at least annually. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. During the second quarter of 2020, theThe Company determined that ano triggering event occurred ~~as it concluded that~~during the ~~impact~~first quarter fiscal of COVID-19 on its sales, profitability and cash flows resulted in a reduction to its operating forecasts reflecting the uncertainty of the current environment. As a result, the Company performed an interim goodwill impairment test.
After completion of the interim goodwill impairment test, the Company concluded that Hy-Tech’s goodwill was fully impaired and recorded a non-cash goodwill impairment charge of $284,000 this quarter. Consistent with the procedures followed in the Company’s annual impairment test, it estimated the fair values of each of its reporting units using the income approach. The income approach uses projected future cash flows ~~that are discounted using a weighted average cost of capital analysis that reflects current market conditions.~~2021.

Other intangible assets

June 30, 2020 December 31, 2019 March 31, 2021 December 31, 2020
Cost Accumulated
amortization Net book
value Cost Accumulated
amortization Net book
value Cost Accumulated
amortization Net book
value Cost Accumulated
amortization Net book
value
Other intangible assets:
Customer relationships (1) $ 6,475,000 $ 2,763,000 $ 3,712,000 $ 7,825,000 $ 2,724,000 $ 5,101,000 $ 6,504,000 $ 3,163,000 $ 3,341,000 $ 6,502,000 $ 3,034,000 $ 3,468,000
Trademarks and trade names (1) 2,169,000 — 2,169,000 2,375,000 — 2,375,000 2,188,000 — 2,188,000 2,187,000 — 2,187,000
Trademarks and trade names 200,000 52,000 148,000 200,000 45,000 155,000 200,000 62,000 138,000 200,000 59,000 141,000
Engineering drawings 330,000 232,000 98,000 330,000 225,000 105,000 330,000 243,000 87,000 330,000 239,000 91,000
Non-compete agreements (1) 324,000 242,000 82,000 331,000 235,000 96,000 336,000 274,000 62,000 335,000 266,000 69,000
Patents 1,286,000 983,000 303,000 1,405,000 978,000 427,000 1,286,000 1,032,000 254,000 1,286,000 1,016,000 270,000
Totals $ 10,784,000 $ 4,272,000 $ 6,512,000 $ 12,466,000 $ 4,207,000 $ 8,259,000 $ 10,844,000 $ 4,774,000 $ 6,070,000 $ 10,840,000 $ 4,614,000 $ 6,226,000

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

20

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 87 – GOODWILL AND OTHER INTANGIBLE ASSETS - (Continued)

At June 30, 2020, based primarily on the impact of COVID-19 on the Company’s financial results, the Company determined that a triggering event occurred. As a result, the Company completed an interim impairment test, which resulted in non-cash impairment charges of $183,000 against the Universal Air Tool trade name; $88,000 against the NUMATX patent; and $1,057,000 against Hy-Tech’s customer relationships.The weighted average amortization period for intangible assets was as follows:

If events or circumstances change that would more likely than not further reduce the fair value of the remaining intangible assets, we may be required to record additional impairment charges, which could have a material effect on future results of operations and financial condition.
The Company estimated the fair value of the NUMATX patent, and its Universal Air Tool (“UAT”) trade name based on an income approach using the relief-from-royalty method. This approach is dependent upon a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables. For the interim impairment test, its estimates of future revenue and profitability associated with NUMATX and UAT were significantly reduced, primarily reflecting the impact of COVID-19. The Company reduced the royalty rate used to estimate the fair value, reflecting the impact of the uncertain environment resulting from COVID-19. Additionally, the weighted average cost of capital used to discount the cash flows for the interim goodwill impairment test was slightly higher than the last annual test, also reflecting the increasing uncertainty resulting from COVID-19. Additionally, the Company estimated the fair value of Hy-Tech’s customer relationships based on the discounted value of future cash flows and determined that, primarily for the same reasons noted above related to impairment of the NUMATX patent and the UAT trade name, Hy-Tech’s customer relationships were fully impaired.
March 31, 2021 December 31, 2020
Customer relationships 7.4 7.6
Trademarks and trade names 10.3 10.5
Engineering drawings 5.9 6.1
Non-compete agreements 2.8 3.0
Patents 5.0 5.2

Amortization expense of intangible assets subject to amortization was as follows:

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
$ 191,000 $ 172,000 $ 386,000 $ 344,000
~~The weighted average amortization period for intangible assets was as follows:~~
June 30, 2020 December 31, 2019
Customer relationships 8.0 8.7
Trademarks and trade names 11.0 11.5
Engineering drawings 6.6 7.1
Non-compete agreements 3.4 3.7
Patents 5.6 7.1
Three months ended March 31,
2021 2020
$ 159,000 $ 195,000

Amortization expense for the balance of ~~2020,~~2021, and for each of the next five years and thereafter is estimated to be as follows:

2020 $ 316,000
2021 629,000
2022 627,000
2023 624,000
2024 575,000
2025 546,000
Thereafter 1,026,000
$ 4,343,000
21
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
2021 $ 472,000
2022 630,000
2023 626,000
2024 577,000
2025 548,000
Thereafter 1,029,000
$ 3,882,000

NOTE 98 – DEBT

In October 2010, the Company entered into a Loan and Security Agreement (“Credit Agreement”) with an affiliate of Capital One, National Association (“Capital One” or the “Bank”). The Credit Agreement, as amended and restated in April 2017 and further amended from time-to-time, among other things, provides the ability to borrow funds under a $16,000,000 revolver line (“Revolver”), subject to certain borrowing base criteria. Additionally, there is a $2,000,000 line for capital expenditures (“Capex Loan”), with $1,600,000 available for future borrowings. Revolver and Capex Loan borrowings are secured by the Company’s accounts receivable, inventory, equipment, and real property, among other things. P&F and certain of its subsidiaries are borrowers under the Credit Agreement, and their obligations are cross guaranteed by certain other subsidiaries. The Credit Agreement expires on February 8, 2024.

At the Company’s option, Revolver borrowings bear interest at either London Interbank Offered Rate (“LIBOR”) or the Base Rate, as the term is defined in the Credit Agreement, plus an Applicable Margin, as defined in the Credit Agreement. The Company is subject to limitations on the number of LIBOR borrowings.

The Company provides Capital One with monthly borrowing base certificates, and in certain circumstances, it is required to deliver monthly financial statements and certificates of compliance with various financial covenants. Should 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.

At ~~June 30, 2020,~~March 31, 2021, short-term or Revolver borrowing was ~~$2,573,000,~~$3,481,000, compared to ~~$5,648,000,~~$1,374,000, at December 31, ~~2019.~~2020. Applicable Margin Rates at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 for LIBOR and Base Rates were 1.50% and 0.50%, respectively. Additionally, at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, there was approximately ~~$12,249,000~~$12,011,000 and ~~$9,200,000,~~$11,971,000, respectively, available to the Company under its Revolver arrangement.

The average balance of short-term borrowings from our Bank during the ~~three and six-month periods~~three-month period ended ~~June 30, 2020 and 2019 were $5,347,000 and $5,812,000, and $6,083,000 and $5,085,000, respectively.~~March 31, 2021 was $2,167,000, compared to $6,281,000, for the same three-month period in 2020.

P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 109 – CARES Act

On April 20, 2020, the Company received a $2.9 million PPP loan, as provided pursuant to the CARES Act and administered by the SBA. The PPP Loan, which is unsecured and guaranteed by the SBA, was designed to create economic stimulus by providing additional operating capital to small businesses in the U.S., such as P&F. To facilitate the PPP Loan, the Company ~~entered\~~entered into a Promissory Note dated April 17, 2020, with BNB Bank as the lender (the “Lender”) (the “PPP Promissory Note”).

Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”), the Company is eligible to apply for and receive forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of the loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”) incurred during the 24 weeks subsequent to funding, and on the maintenance of employee ~~and~~ compensation levels, as defined, following the funding of the PPP Loan. The Company believes it has used the proceeds of the PPP Loan for Qualifying Expenses. The Company has filed an application for forgiveness with the Lender in February 2021, who has approved this submission and has submitted it to the SBA. However, there is no assurance ~~is provided~~ that the Company will be able to obtain forgiveness of the PPP Loan in whole or in ~~part.~~part from the SBA. Any amounts that are not forgiven incur interest at 1.0% per annum and monthly repayments of principal and interest are deferred until the SBA makes a determination on forgiveness. ~~While the PPP Loan currently has a two-year maturity, pursuant to the Flexibility Act, the Company may request a five-year maturity from BNB Bank.~~

As of ~~June 30, 2020,~~March 31, 2021, the current maturities of long-term debt pursuant to the PPP Loan, was ~~$1,312,000~~$2,727,000 and the long-term debt, less current maturities pursuant to the PPP Loan was ~~$1,618,000.~~$202,000. At December 31, 2020, the current portion of the PPP Loan debt was $1,983,000, with $946,000 accounted for as long-term debt.
22
~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~

NOTE 1110 – DIVIDEND PAYMENTS

The Company’s Board of Directors ~~elected~~has not ~~to issue a quarterly dividend during the three-month period ended June 30, 2020.~~issued dividends in 2021.

On February 11, 2020, the Company’s Board of Directors, in accordance with its dividend policy, declared a quarterly cash dividend of $0.05 per common share, which was paid on February 28, 2020, to shareholders of record at the close of business on February 24, 2020. The total amount of this dividend payment was approximately $157,000. The Company’s Board of Directors did not issue any additional dividends in 2020.

Note 11 – Subsequent Event
23

~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~On May 13, 2021, the Company’s Florida Pneumatic subsidiary detected a ransomware attack on its information technology systems that caused data to be encrypted. The threat actor is demanding a ransom payment for the release of a decryption key. Florida Pneumatic promptly launched an investigation and notified law enforcement, and legal counsel, who in turn engaged independent third-party incident response professionals to assist in, among other areas, determining the extent of this cyber incident, remediation and restoration. Additionally, Florida Pneumatic implemented a series of containment measure. At the present time, the Company believes that its corporate offices and its other subsidiaries, all of which operate on separate, independent networks, have not been affected by this incident. Florida Pneumatic is assessing the potential effect on its operations and financial results, while managing the situation to mitigate its impact.

The Company does not believe the incident had an impact on its consolidated financial data that was used in the preparation of its Quarterly Report filed on Form 10-Q for the three-month period ended March 31, 2021.

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, 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,” 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 ~~2020~~2021 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:

·• Risks related to the global outbreak of COVID-19 and other public health crises;
·• ~~Exposure to fluctuations in energy prices;~~Risks associated with sourcing from overseas;
· ~~Debt and debt service requirements;~~
· ~~Borrowing and compliance with covenants under our credit facility;~~
·• Disruption in the global capital and credit markets;
·• Importation delays;
• Customer concentration;
• Unforeseen inventory adjustments or changes in purchasing patterns;
• Market acceptance of products;
• Competition;
• Price reductions;
• Exposure to fluctuations in energy prices;
• The strength of the retail economy in the United States and abroad;
· ~~Risks associated with sourcing from overseas;~~
· ~~Importation delays;~~
·• Risks associated with Brexit;
· ~~Customer concentration;~~
·• Adverse changes in currency exchange rates;
·• Interest rates;
• Debt and debt service requirements;
• Borrowing and compliance with covenants under our credit facility;
• Impairment of long-lived assets and goodwill;
· ~~Unforeseen inventory adjustments or changes in purchasing patterns;~~
· ~~Market acceptance of products;~~
· ~~Competition;~~
· ~~Price reductions;~~
· ~~Interest rates;~~
· ~~Litigation and insurance;~~
·• Retention of key personnel;
·• Acquisition of businesses;
·• Regulatory environment;
·• Litigation and insurance;
• The threat of terrorism and related political instability and economic uncertainty; and
·• ~~Information~~Business disruptions or other costs associated with information technology, cyber-attacks, system ~~failures and attacks,~~implementations, data privacy or catastrophic losses,

and those other risks and uncertainties described in its Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (“~~2019~~2020 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.

24

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

OVERVIEW
During the first quarter of 2021, significant factors that impacted our results of operations were the:
Ongoing negative impact of the COVID-19 pandemic on revenue and income;
Ongoing production slow-down by Boeing of its 737 MAX aircraft, as well as significant reductions in activity at other commercial and military aerospace manufacturing facilities; and
Continued weakness in oil and gas exploration and drilling.
OUR BUSINESS

P&F Industries, Inc. (“P&F”) is a Delaware corporation incorporated on April 19, 1963. P&F (together with its subsidiaries, the “Company”) conducts its business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn operatesFlorida Pneumatic
Florida Pneumatic directly, and through its wholly-owned subsidiaries ~~Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”).~~ Exhaust Technologies Inc. (“ETI”), Universal Air Tool Company Limited (“UAT”), and Jiffy Air Tool, Inc. (“Jiffy”) are wholly owned subsidiaries of Florida Pneumatic. The business of Air Tool Service Company (“ATSCO”) operates through a wholly-owned subsidiary of Hy-Tech. Effective October 25, 2019, the Company through a wholly owned subsidiary of Hy-Tech, acquired substantially all the operating assets comprising the businesses of Blaz-Man Gear, Inc. and Gear Products & Manufacturing, Inc., each an Illinois-based corporation that manufactures and distributes custom gears. See Note 2 – Acquisition to the Company’s consolidated financial statements for further discussion.
~~Florida Pneumatic~~ imports, manufactures, and ~~sells~~markets pneumatic hand tools ~~and accessories, which are~~ of its own design, primarily to the retail, industrial, automotive, and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. These tools are similar in 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 Pneumatics’ hand tools include industrial maintenance and production staffs, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.
Hy-Tech

Hy-Tech designs, manufactures, and ~~distributes~~markets industrial ~~pneumatic~~ tools, ~~industrial gears, hydrostatic test plugs~~systems, gearing, accessories and a wide variety of replacement parts under ~~the~~various brands including ATP, ~~ATSCO,~~ Numatx, and Thaxton. ~~Industries served include~~Hy-Tech produces and sells heavy-duty pneumatic impact tools, grinders, air motors, hydro-pneumatic riveters, hydrostatic test plugs, impact sockets and custom gears, with prices ranging from $300 to $42,000.
Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEM’s”), and industrial branded products are sold through a broad network of specialized industrial distributors serving the power generation, petrochemical, aerospace, construction, railroad, mining, ship building and fabricated ~~metals.~~metals industries. Hy-Tech ~~also manufactures~~works directly with its industrial customers, designing and manufacturing products from finished components ~~assemblies, finished product and~~to complete turnkey systems ~~for various Original Equipment Manufacturers~~to be sold under their own brand names.
Hy-Tech’s Power Transmission Group, or PTG, combined three separate gear companies: its Quality Gear division, Blaz-man Gear, Inc., and Gear Products and Manufacturing, Inc. 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 manufacturers in a wide variety of industries, PTG reverse engineers existing gears as well as designs new gears, utilizing state-of-the-art technologies, including 3D imaging and Gleason Gear modeling software.

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

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 can have an impact on the consolidated results. In addition, 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.

~~As the result of additional tariffs imposed since mid-2018, specifically those imposed on products imported from China, we~~We now ~~must~~ consider tariffs a key economic measure, as a significant portion of products imported by Florida Pneumatic ~~primarily for our Retail customers,~~and to a lesser degree, Hy-Tech, are subject to these tariffs.

Lastly, the cost and availability of a quality labor pool in the countries where products and components are manufactured, both overseas as well as in the United States, could materially affect our overall results.
25
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued~~

OPERATING MEASURES

Key operating measures we use to manage our operations are orders; shipments; development of new products; customer retention; inventory levels and productivity. These measures are recorded and monitored at various intervals, including daily, weekly and monthly. To the extent these measures are relevant, they are discussed in the detailed sections below.

FINANCIAL MEASURES

Key financial measures we use to evaluate the results of our business ~~include:~~include various revenue metrics; gross margin; selling, general and administrative expenses; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; operating cash flows and capital expenditures; return on sales; return on assets; days’ 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 detail below.

26
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued~~
CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Descriptions of these policies are discussed in the ~~2019~~2020 Form 10-K, and in the notes to these consolidated financial statements. Certain of these accounting policies require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities, revenues and expenses. On an ongoing basis, we evaluate estimates, including, but not limited to those related to bad debts, inventory reserves, goodwill and intangible assets, warranty reserves, 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.

~~OVERVIEW~~
~~Key factors or events impacting our second quarter 2020 results~~Management’s Discussion and Analysis of ~~operations were:~~Financial Condition and Results of Operations – Continued
· ~~Ongoing negative effects of COVID-19 on revenue and income;~~
· ~~Impairment of goodwill and other intangible assets;~~
· ~~Production halt  by Boeing of its 737 MAX and significant reduction in activity at many commercial and military manufacturing facilities;~~
· ~~Weakness in oil and gas exploration.~~

TRENDS AND UNCERTAINTIES

COVID-19 PANDEMIC

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

The impact of the COVID-19 virus onand the resultant global ~~economy, particularly within the U.S.,~~economic down-turn has had a material impact on our results ~~during~~in the first ~~six months~~quarter of ~~2020.~~2021. There are delays in receiving containers from Asia due to a significant increase in international shipping traffic, which has caused intermittent shortages of inventory. In March 2020, nearly all of the United States, United Kingdom and much of Europe, had ordered non-essential businesses to stop physical operations and ordered its residents to remain home or “shelter-in-place”, in order to attempt to control the impact of this pandemic. While we are currently able to continue operations at all of our locations,addition, the COVID-19 pandemic has ~~for the first six months of 2020, significantly impacted orders and revenue. Further, we believe this pandemic could continue to negatively affect our businesses in the future. However, our~~ manufacturing facilities are currently open. Staffing levels remain reduced at all of our locations across the country and in the United Kingdom as we continue to monitor the latest COVID-19 related public health and government guidance. As a result, at some of our locations,caused many of our ~~office-based employees~~customers and potential customers to refuse on-site visits which is critical to generating revenue. We believe that until this pandemic subsides, these two issues will continue to ~~work remotely where possible. We are closely monitoring the situation and taking actions to protect the safety of~~affect our employees and communities. For example, among other things, throughout the organization we have restricted international and domestic travel, taken a variety of steps to ensure social distancing in our facilities, including working remotely where available, and have increased our cleaning and sanitizing procedures in our facilities.
27
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued~~
~~TRENDS AND UNCERTAINTIES~~ ~~- (Continued)~~operations.

BOEING/AEROSPACE

The ~~current halt in~~Federal Aviation Administration (“FAA”) and the European Union Aviation Safety Agency (“EASA”) have lifted the grounding of the 737 MAX. However, production ~~of Boeing’s 737 MAX and a dramatic reduction in staffing levels across all of its facilities~~is still very limited due to the ~~COVID pandemic has reduced production activity dramatically~~inventory at ~~Boeing. In addition, production~~Boeing and the reluctance of ~~military and commercial aircraft has also slowed as well~~airlines to accept deliveries due to ~~COVID concerns. As long as the 737 MAX is grounded, it~~weak air travel demand. This will likely continue to have an adverse effect on our revenue. In addition, production of military and other commercial aircraft throughout the industry has slowed as well due to the ongoing global COVID-19 pandemic. However, aswe believe when all other commercial and military production lines throughout the United States come back online, an increase in our revenue should follow.

~~TARIFFS~~OIL AND GAS

~~Based on arrangements with~~We believe the primary factor contributing to the significant decline occurring in our ~~overseas suppliers~~oil and gas revenue is due to a decline in the price for oil and gas that began in 2020 related to the COVD-19 pandemic. The ~~Home Depot (“THD”),~~profitability of crude oil production generally declines as prices fall. As a result, as prices dropped in 2020, production slowed worldwide. This activity is most easily measured by analyzing the number of active rotary rigs, which is ~~our largest customer that is currently affected by the tariffs imposed since July 2018, we have been able~~discussed further below. Until these counts return to ~~avoid much of the impact of such tariffs. However, there is no guarantee that~~pre-pandemic levels, we will continue to be able to avoid some or all of any new, or additional tariffs. Should we be unable to avoid such additional costs, our gross margin on these products likely would be severely impacted. This could cause us to terminate or alter certain customer/supplier relationships.impacted negatively.

TECHNOLOGIES

We believe that over time, several newer technologies, and features ~~may~~will have a greater impact on the market for our traditional pneumatic tool ~~offerings than currently exists.~~offerings. The impact of this evolution has been felt initially by the advent of advanced cordless ~~or battery-powered~~operated hand tools ~~particularly~~ in the automotive ~~aftermarket or~~aftermarket. For certain non-automotive applications, we have begun to develop cordless models of tools and expect to introduce these products in the ~~retail sector.~~ near future.
OTHER MATTERS
On May 13, 2021 Florida Pneumatic detected a ransomware attack on its information technology systems that caused data to be encrypted. The threat actor is demanding a ransom payment for the release of a decryption key. Florida Pneumatic promptly launched an investigation and notified law enforcement, and legal counsel, who in turn engaged independent third-party incident response professionals to assist in, among other areas, determining the magnitude of this cyber incident, restoration and, remediation. Additionally, Florida Pneumatic implemented a series of containment measures. At the present time, the Company believes that its corporate offices and its other subsidiaries, all of which operate on separate, independent networks, have not been affected by this incident. Florida Pneumatic is assessing the potential effect on its operations and financial results, while managing the situation to mitigate its impact.
We ~~continue~~do not believe the incident had an impact on its consolidated financial data that was used in the preparation of its Quarterly Report filed on Form 10-Q for the three-month period ended March 31, 2021.
Other than the aforementioned, or matters that may be discussed below, there are no major trends or uncertainties that had, or we could have reasonably expected to ~~perform~~have a ~~cost-benefit analysis~~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 ~~developing or incorporating more advanced technologies~~operations.
Unless otherwise discussed elsewhere in the Management’s Discussion and Analysis, we believe that our ~~tool platforms.~~relationships with our key customers and suppliers remain satisfactory.

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

RESULTS OF OPERATIONS

REVENUE

During the ~~second~~first quarter of ~~2020, nearly all~~2021, many of our product lines were adversely affected by the global COVID-19 ~~pandemic. Business closures and travel restrictions in the United States and Europe resulted~~pandemic, which continues to result in greatly reduced orders and ~~revenues~~revenue for the ~~three and six-month periods~~three-month period ended ~~June 30, 2020.~~March 31, 2021.

The tables below provide an analysis of our net revenue for the ~~three and six-month~~three-month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Consolidated

Three months ended June 30,
Decrease
2020 2019 $ %
Florida Pneumatic $ 8,640,000 $ 10,786,000 $ (2,146,000 ) (19.9 )%
Hy-Tech 2,880,000 4,012,000 (1,132,000 ) (28.2 )
Consolidated $ 11,520,000 $ 14,798,000 $ (3,278,000 ) (22.2 )%
Six months ended June 30,
Decrease
2020 2019 $ %
Florida Pneumatic $ 18,670,000 $ 21,226,000 $ (2,556,000 ) (12.0 )%
Hy-Tech 6,200,000 7,894,000 (1,694,000 ) (21.5 )
Consolidated $ 24,870,000 $ 29,120,000 $ (4,250,000 ) (14.6 )%
28
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued~~
~~RESULTS OF OPERATIONS~~ ~~- (Continued)~~
Three months ended March 31,
Increase (decrease)
2021 2020 $ %
Florida Pneumatic $ 10,901,000 $ 10,030,000 $ 871,000 8.7 %
Hy-Tech 3,044,000 3,320,000 (276,000 ) (8.3 )
Consolidated $ 13,945,000 $ 13,350,000 $ 595,000 4.5 %

Florida Pneumatic

Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool market; Automotive, Retail, Aerospace and 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 June 30, Three months ended March 31,
2020 2019 Decrease 2021 2020 Increase (decrease)
Revenue Percent of
revenue Revenue Percent of
revenue $ % Revenue
Percent of
revenue
Revenue
Percent of
revenue
$ %
Automotive $ 4,102,000 37.6 % $ 3,232,000 32.2 % $ 870,000 26.9 %
Retail $ 2,860,000 33.1 % $ 3,427,000 31.8 % $ (567,000 ) (16.5 )% 3,790,000 34.8 2,990,000 29.8 800,000 26.8
Automotive 2,928,000 33.9 3,759,000 34.8 (831,000 ) (22.1 )
Industrial 817,000 9.4 1,223,000 11.3 (406,000 ) (33.2 ) 1,359,000 12.5 1,062,000 10.6 297,000 28.0
Aerospace 1,934,000 22.4 2,231,000 20.7 (297,000 ) (13.3 ) 1,528,000 14.0 2,599,000 25.9 (1,071,000 ) (41.2 )
Other 101,000 1.2 146,000 1.4 (45,000 ) (30.8 ) 122,000 1.1 147,000 1.5 (25,000 ) (17.0 )
Total $ 8,640,000 100.0 % $ 10,786,000 100.0 % $ (2,146,000 ) (19.9 )% $ 10,901,000 100.0 % $ 10,030,000 100.0 % $ 871,000 8.7 %

Stated as a percentage, Industrial incurred the largest decline this quarter compared to the same period a year ago, declining 33.2%, which was driven by several factors, including the COVID-19 pandemic,Despite the ongoing ~~sluggishness in~~negative effects on the ~~oil~~US and ~~gas sector and a reduction in orders from a large customer this~~global economies, total fiscal first quarter ~~compared to second quarter 2019. In addition to the adverse impact caused by the pandemic, Automotive~~2021 revenue ~~declined this quarter, compared to~~at Florida Pneumatic increased 8.7% over the same three-month period in ~~2019, due primarily~~2020. This improvement was driven by revenue gains in its Automotive, Retail and Industrials sectors. A decline in Aerospace revenue partially offset the above improvements. Stronger consumer demand for its AIRCAT products and, to ~~two factors: (a)~~ a ~~decline in~~lesser degree, modest increased sales at our United Kingdom (“~~UK”~~U.K.”) operations, ~~of $508,000, driven by~~were the ~~pandemic, and (b) the loss of a large domestic distributer/customer. The decline in Retail revenue we believe was due to reduced in-store traffic at The Home Depot, again due to COVID-19. The~~ primary ~~cause~~factors for the ~~decline~~increase in Automotive revenue. We believe that as the ~~second quarter Aerospace revenue, compared to the same period in 2019, is the reduction in production by Boeing of certain civilian aircraft.~~
Six months ended June 30,
2020 2019 Decrease
Percent of Percent of
Revenue revenue Revenue revenue $ %
Retail $ 5,851,000 31.3 % $ 6,139,000 28.9 % $ (288,000 ) (4.7 )%
Automotive 6,160,000 33.0 7,624,000 35.9 (1,464,000 ) (19.2 )
Industrial 1,879,000 10.1 2,547,000 12.0 (668,000 ) (26.2 )
Aerospace 4,533,000 24.3 4,591,000 21.6 (58,000 ) (1.3 )
Other 247,000 1.3 325,000 1.6 (78,000 ) (24.0 )
Total $ 18,670,000 100.0 % $ 21,226,000 100.0 % $ (2,556,000 ) (12.0 )%
The decline in Florida Pneumatic’s fiscal 2020 year-to-date revenue of 12%, compared to the same period in 2019, is due to similar factors that drove Florida Pneumatic’s second quarter’s results. The global pandemic was the key factor for the decline in our six-month revenue. Of note, our UK Automotive revenue declined $668,000 or approximately 46%result of the ~~change, the balance occurring domestically, driven by the loss of the large domestic distributor/customer. The major decline in the drilling rigs~~ongoing battle to disinfect and ~~the production of oil~~sanitize homes and ~~gas and sluggish orders from ancillary~~ businesses ~~to the aerospace industry, have significantly impacted our Industrial revenue. After~~alike, Florida Pneumatic encountered an increase in ~~Retail revenue during~~demand, compared to the first quarter of 2020, for various “spray gun” tools and accessories which are sold into the ~~pandemic adversely affected~~retail channel. Stronger Industrial revenue ~~during~~this quarter than in the ~~second quarter. Orders from~~same period in the prior year, was driven primarily by increased industrial production. The Boeing Corporation is a major customer of Jiffy. The Boeing 737 MAX aircraft was grounded by the FAA and the EASA in March 2019. Although both agencies have lifted the “No Fly” ruling it imposed on all Boeing 737 MAX aircraft, allowing it to begin flights in the United States, we believe it will take several years for the Boeing Corporation to increase its manufacturing of its 737 MAX aircraft to a volume that would be comparable to pre COVID-19 levels, and thus require our Jiffy ~~customer began~~tools. Further, the travel restrictions that developed as the result of the COVID-19 pandemic, caused most commercial airlines to ~~slow in late first quarter and has continued to date. The issues at Boeing~~curtail orders for other aircraft, which also negatively impacted Florida Pneumatic’s Aerospace revenue. Lastly, orders relating to ~~the 737 MAX and other civilian~~military aircraft declined, we believe ~~are the cause for decline. Further, we believe that when production of the 737 MAX resumes orders levels should improve.~~due to COVID-19 constraints placed in manufacturing facilities.

29

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

RESULTS OF OPERATIONS - (Continued)

Hy-Tech

Hy-Tech designs, manufactures, and sells a wide range of industrial products under the brands ATP and ATSCO which are categorized as ATP for reporting purposes. In addition to Engineered Solutions, products and components manufactured for other companies under their brands are included in the OEM category in the table below. ~~Power Transition Group (“PTG”)~~PTG revenue is comprised of products manufactured and sold by ~~the~~Hy-tech’s gear ~~businesses that were acquired in October 2019, products sold through Hy-Tech’s legacy gear manufacturing division and products sold to a certain customer whose revenue was included in OEM in 2019.~~business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.

Three months ended June 30,
2020 2019 (Decrease) increase
Revenue Percent of
revenue Revenue Percent of
revenue $ %
ATP $ 569,000 19.8 % $ 1,912,000 47.7 % $ (1,343,000 ) (70.2 )%
OEM 1,202,000 41.7 1,622,000 40.4 (420,000 ) (25.9 )
PTG 1,021,000 35.5 242,000 6.0 779,000 321.9
Other 88,000 3.0 236,000 5.9 (148,000 ) (62.7 )
Total $ 2,880,000 100.0 % $ 4,012,000 100.0 % $ (1,132,000 ) (28.2 )%
In addition to the negative impact on all lines of business at P&F caused by COVID-19, the recent collapse of the oil and gas sector in the United States has severely affected our ATP revenue of tools, parts, sockets and accessories this quarter. According to Baker Hughes Inc. the number of operating drilling rigs were 265 at June 28, 2020, compared to 967 at June 28, 2019. At July 24, 2020 the rig count decreased to 251. Until such time when the market price of oil attains levels where it is profitable for oil and gas producing companies to substantially resume operations, the market will remain suppressed. The growth in PTG revenue was driven by the gear businesses acquired in fourth quarter of 2019.
Six months ended June 30, Three months ended March 31,
2020 2019 (Decrease) increase 2021 2020 Increase (decrease)
Revenue Percent of
revenue Revenue Percent of
revenue $ % Revenue Percent of
revenue Revenue Percent of
revenue $ %
OEM $ 1,611,000 52.9 % $ 1,439,000 43.3 % $ 172,000 12.0 %
ATP $ 1,629,000 26.3 % $ 3,898,000 49.4 % $ (2,269,000 ) (58.2 )% 713,000 23.4 1,061,000 32.0 (348,000 ) (32.8 )
OEM 2,641,000 42.6 2,959,000 37.5 (318,000 ) (10.7 )
PTG 1,757,000 28.3 597,000 7.6 1,160,000 194.3 646,000 21.2 735,000 22.1 (89,000 ) (12.1 )
Other 173,000 2.8 440,000 5.5 (267,000 ) (60.7 ) 74,000 2.5 85,000 2.6 (11,000 ) (12.9 )
Total $ 6,200,000 100.0 % $ 7,894,000 100.0 % $ (1,694,000 ) (21.5 )% $ 3,044,000 100.0 % $ 3,320,000 100.0 % $ (276,000 ) (8.3 )%

The decline in Hy-Tech’s fiscal first quarter 2021 total ~~net~~ revenue, ~~for the six-month period ended June 30, 2020,~~ compared to the same period in ~~2019,~~2020, was primarily due to the ~~result of~~following key factors: i) the ongoing negative effects on the US economy caused by the global ~~pandemic,~~COVID-19 pandemic; and ii) the severe downturn of the oil and gas ~~market,~~market. We believe that our ATP products offering is likely to continue to struggle due to among other things, the ongoing sluggishness of the price of oil and ~~certain key customers currently~~natural gas, which in ~~over-stock positions~~turn inhibits exploration and drilling. The oil and gas sector in the US has been hindered by the downward pricing pressure caused by among other things, excess supply, and ripple effects from the pandemic. This is evidenced by the significant decline in drilling rigs, which is a metric that ~~are hesitant~~we monitor. According to ~~expand their inventory levels. Additionally,~~Baker Hughes Inc., the average number of oil rotary rigs in operation during fiscal first quarter 2021 were 302, compared to 671 during the same three-month period in 2020. Similarly, the average number of active gas rotary rigs during the three-month period ended March 31, 2021 was 90, compared to 112, during the same period in the prior year. In the aggregate, the average rotary rigs in operation during the first quarter of ~~2020, as~~2021 is down by 392, or 50%, when compared to the ~~market for our ATP lines began to encounter the effects of the decline~~same three-month period in ~~demand~~2020. As such, early in ~~the oil and gas exploration sector,~~2020 we made a decision to focus a greater portion of our ~~marketing and~~ product development and marketing efforts toon our ~~Engineered Solutions~~OEM and PTG products offering. We believe the development of ~~the Engineered Solutions offering will continue to~~these lines of business should provide Hy-Tech an opportunity to generate new, additional sources of revenue in the future. Further, the transition and relocation from Illinois to our facilities in Pennsylvania of the gears businesses acquired in late October 2019 continued through April 2020, resulting in lower than projected PTG revenue and profits during the first third of this year. The process of relocation of equipment and the set-up of general operations was completed during the second quarter. As such, we ~~believe~~are optimistic that as travel restrictions and ~~other restriction are removed, PTG~~on-site visitation controls begin to ease, Hy-Tech’s revenue ~~should improve.~~could increase.

30

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

RESULTS OF OPERATIONS - (Continued)
GROSS MARGIN/PROFIT

Three months ended June 30, Decrease Three months ended March 31, Increase (decrease)
2020 2019 Amount % 2021 2020 Amount %
Florida Pneumatic $ 3,208,000 $ 4,185,000 $ (977,000 ) (23.3 )% $ 4,200,000 $ 3,774,000 $ 426,000 11.3 %
As percent of respective revenue 37.1 % 38.8 % (1.7 )% pts 38.5 % 37.6 % 0.9 % pts
Hy-Tech $ (160,000 ) $ 1,323,000 $ (1,483,000 ) (112.1 ) $ 436,000 $ 708,000 $ (272,000 ) (38.4 )
As percent of respective revenue (5.6 )% 33.0 % (38.6 )% pts 14.3 % 21.3 % (7.0 )% pts
Total $ 3,048,000 $ 5,508,000 $ (2,460,000 ) (44.7 )% $ 4,636,000 $ 4,482,000 $ 154,000 3.4 %
As percent of respective revenue 26.5 % 37.2 % (10.7 )% pts 33.2 % 33.6 % (0.4 )% pts

~~Factors contributing to the 1.7 percentage point decline~~The slight improvement in Florida Pneumatic’s gross margin was due primarily to product mix. The improved Automotive, Industrial and Retail revenue this quarter, compared to the same three-month period ~~ended June 30, 2019,~~in 2020, contributed to the overall increase in gross margin. This improvement was ~~due mostly to weak~~partially offset by reduced manufacturing ~~overhead absorption~~ at Jiffy, ~~during~~which in turn resulted in under absorption of its manufacturing overhead. As previously discussed, the ~~second quarter of 2020. The decline in Jiffy~~COVID-19 pandemic continued to have an adverse effect on Hy-Tech, notably reducing revenue ~~as discussed above effectively caused~~causing a reduction in ~~production, which~~volume through both manufacturing facilities. The reduced manufacturing volume resulted in ~~turn has caused~~lower absorption of manufacturing ~~absorption~~costs during the first quarter of 2021, compared to ~~decline. Florida Pneumatic’s gross margin also declined due to overall product mix, as~~ the ~~decline~~same three-month period in 2020. Additionally, Hy-Tech recorded an increase in its obsolete, slow moving inventory charge during the ~~higher gross margin lines~~first quarter of ~~Aerospace and Industrial drove gross margin lower this quarter,~~2021, compared to the same period ~~a year ago.~~in 2020. Lastly, Hy-Tech’s overall product/customer mix negatively impacted its ~~operations in the United Kingdom encountered lower~~ gross margin ~~this quarter, due primarily to mix.~~
~~During~~during the ~~second quarter of 2020 Hy-Tech had negative gross margin. Factors that caused the decline include:~~
· ~~Weak absorption of manufacturing overhead~~
o ~~weak manufacturing overhead absorption, due in part to labor hours being utilized in connection with the relocation of the gear businesses, and~~
o ~~lower than planned manufacturing caused primarily by the COVID-19 global pandemic;~~
· ~~general mix of products sold during the quarter;~~
· ~~physical inventory adjustment;~~
· ~~an increase in charges relating to obsolete, slow moving inventory (“OSMI”).~~
Six months ended June 30, Decrease
2020 2019 Amount %
Florida Pneumatic $ 6,984,000 $ 8,192,000 $ (1,208,000 ) (14.7 )%
As percent of respective revenue 37.4 % 38.6 % (1.2 )% pts
Hy-Tech $ 547,000 $ 2,597,000 $ (2,050,000 ) (78.9 )
As percent of respective revenue 8.8 % 32.9 % (24.1 )% pts
Total $ 7,531,000 $ 10,789,000 $ (3,258,000 ) (30.2 )%
As percent of respective revenue 30.3 % 37.1 % (6.8 )% pts
~~Our gross margin for the six-month~~three-month period ended June 30, 2020 was 6.8 percentage points below the same period a year ago. In addition to the factors discussed above, during the first six-months of fiscal 2020 our consolidated gross margin was impacted by lower than expected gross margin on the sale of PTG products due primarily to start-up issues in the new facility, increases in costs incurred from outside vendors for certain manufacturing processes and increased duty charged on certain imported parts.
31
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued~~March 31, 2021.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses (“SG&A”) include salaries and related costs, commissions, travel, administrative facilities, communications costs and promotional expenses for our direct sales and marketing staff, administrative and executive salaries and related benefits, legal, accounting, and other professional fees as well as general corporate overhead and certain engineering expenses.

During the ~~second~~first quarter of ~~2020,~~2021, our SG&A declined ~~$840,000,~~ to ~~$4,620,000,~~$4,991,000, from ~~$5,460,000 for~~$5,690,000 incurred during the same three-month period in ~~2019.~~2020. The most significant factor ~~driving~~contributing to the net decrease in our SGA was a reduction in variable expenses of $489,000. Variable expenses include among other things, commissions, freight out, travel, advertising, shipping supplies and warranty costs. Additionally, there was a reduction of ~~approximately $444,000~~professional fees of $493,000. During the first quarter of 2020, we incurred more than $480,000 of expenses related to the relocation and set up the two gear businesses that were acquired in late 2019. Additionally, we reduced our compensation expenses ~~which~~by $246,000. Compensation expense is comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits. A reduction in accrued performance-based bonus incentives was the bulk of the savings. Further, depreciation expense decline by $40,000. Partially offsetting the ~~above-mentioned declines in SGA were increases in professional fees~~above reductions of ~~$72,000 and corporate~~operating expenses ~~of $58,000.~~
SG&A for the six-month period ended June 30, 2020 declined $412,000 to $10,310,000 from $10,722,000. Significant items driving this net decrease were a reduction of $423,000 in compensation expenses and variable expenses declined $607,000. The above being partially offset bywas an increase in ~~professional fees~~variable expenses of ~~$532,000 which consisted primarily of costs incurred with~~$103,000, driven by improved revenue this quarter in certain sectors, compared to revenue in the ~~relocation, transition~~same three-month period in the prior year. Variable expenses include among other things, commissions, freight out, travel, advertising, shipping supplies and temporary labor and recruiting costs incurred in connection with the acquisition of the gear businesses in late October 2019. Additionally, rent, and bad debt expenses increased $28,000 and $33,000, respectively.warranty costs.

~~GOODWILL AND INTANGIBLE ASSETS IMPARMENT~~
We recorded goodwill and intangible asset impairment charges totaling $1,612,000, with $284,000 related to goodwill and $1,328,000 related to customer relationships, patents and trade name. See Note 8 – Goodwill and other intangible assets to the consolidated financial statements for additional information.
~~OTHER INCOME~~
~~Other income for the current quarter and year to date consists of a grant received at our United Kingdom operation from Her Majesty’s Government, which is not required to be repaid.~~
~~INTEREST~~
Three months ended June 30, Increase (decrease)
2020 2019 Amount %
Interest expense attributable to:
Short-term borrowings $ 31,000 $ 63,000 $ (32,000 ) (50.8 )%
PPP loan 6,000 --- 6,000 NA
Term loans --- 4,000 (4,000 ) (100.0 )
Amortization expense of debt issue costs 4,000 1,000 3,000 300.0

Total $ 41,000 $ 68,000 $ (27,000 ) (39.7 )%
Six months ended June 30, Increase (decrease)
2020 2019 Amount %
Interest expense attributable to:
Short-term borrowings $ 83,000 $ 105,000 $ (22,000 ) (21.0 )%
PPP loan 6,000 --- 6,000 NA
Term loans --- 9,000 (9,000 ) (100.0 )
Amortization expense of debt issue costs 8,000 17,000 (9,000 ) (52.9 )

Total $ 97,000 $ 131,000 $ (34,000 ) (26.0 )%
32

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

~~INTEREST –~~RESULTS OF OPERATIONS - (Continued)
INTEREST
Three months ended March 31, Increase (decrease)
2021 2020 Amount %
Interest expense attributable to:
Short-term borrowings $ 10,000 $ 51,000 $ (41,000 ) (80.4 )%
PPP loan 8,000 — 8,000 100.0
Amortization expense of debt issue costs 4,000 4,000 — —

Total $ 22,000 $ 55,000 $ (33,000 ) (60.0 )%

The Applicable Margin, as defined in our Credit Agreement was the same during the three-month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019. While our~~2020. The average ~~monthly~~balance of short-term borrowings ~~were slightly higher~~ during the three-month ~~period~~periods ended ~~June 30,~~March 31, 2021 and 2020, were $2,167,000 and $6,281,000, respectively. As the average balance of our short-term borrowings was significantly lower during the first three months of 2021, compared to the same three-month period in ~~2019, that average interest rate on borrowed funds decreased approximately 1.6 %, resulting in the decrease in~~2020, our short-term interest ~~expense.~~expense (revolver borrowings) declined.

As discussed in Note 109 – CARES Act, to the Company’s consolidated financial statements, in late April 2020, we borrowed approximately $2.9 million from BNB Bank as provided under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The PPP Loan, as defined in Note ~~10,~~9, accrues interest at a rate of 1.0% per annum. Pursuant to the Flexibility Act, as defined in Note ~~10,~~9, interest on any unforgiven amount is deferred until the forgiveness determination is made by the SBA. We will continue to accrue interest charges until a final determination is received from the SBA.

~~During~~Lastly, we and our bank amended the ~~three and six-month periods ended June 30, 2019, a term loan existed. This term loan was fully paid off~~Credit Agreement in ~~June~~February 2019. ~~Lastly, Debt~~The debt issue costs ~~incurred in connection with recent bank amendments~~ are ~~being amortized through February 2024, were lower than the costs~~ associated with ~~the previous amendments.~~
~~The average balance of short-term borrowings during the three and six-month periods ended June 30, 2020 and 2019 were $5,347,000 and $5,812,000, and $6,083,000 and $5,085,000, respectively.~~such amendment.

INCOME TAXES

On March 27, 2020, the CARES Act was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitation and technical corrections to tax depreciation methods for qualified improvement property.

At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. Accordingly, our effective tax rate for the ~~three and six-month periods~~three-month period ended ~~June 30, 2020 were~~March 31, 2021 was a tax benefit of ~~25.5% and 29.6%~~18.6%, ~~respectively,~~ compared to tax ~~expense~~benefit of ~~27.1% and 27.0%~~40.0% for the ~~three and six-month periods~~three-month period ended ~~June 30, 2019, respectively.~~March 31, 2020. Included in the three-month period ended ~~June 30,~~March 31, 2020 is ~~also consideration~~a discrete item for net operating loss carrybacks under the CARES Act. The effective tax rates for all periods presented were impacted primarily by state taxes, and non-deductible expenses.

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

LIQUIDITY AND CAPITAL RESOURCES

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

We gauge our liquidity and financial stability by various measurements, some of which are shown in the following table:

June 30, 2020 December 31, 2019
Working capital $ 21,756,000 $ 22,115,000
Current ratio 3.21 to 1 2.85 to 1
Shareholders’ equity $ 43,130,000 $ 46,506,000
33
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued~~
~~LIQUIDITY AND CAPITAL RESOURCES~~ ~~- (Continued)~~
March 31, 2021 December 31, 2020
Working capital $ 20,773,000 $ 21,258,000
Current ratio 2.90 to 1 3.57 to 1
Shareholders’ equity $ 41,261,000 $ 41,538,000

Credit facility

Our Credit Facility is discussed in Note 98 to ~~these~~the consolidated financial statements.

Payroll Protection Program Loan

On April 20, 2020, we received a $2.9 million PPP Loan, as provided pursuant to the CARES Act. This loan obtained from BNB Bank is unsecured and is guaranteed by the SBA. See Note 109 to ~~these~~the consolidated financial statements for further discussion.

Cash flows

During the ~~six-month~~three-month period ended ~~June 30, 2020;~~March 31, 2021, our net cash ~~decreased~~increased to ~~$368,000~~$1,047,000 from ~~$380,000~~$904,000 on December 31, 2020. Our total bank debt, which includes borrowings under the CARES Act, at March 31, 2021 was $6,410,000 compared to $4,303,000 at December 31, ~~2019. Our total Bank debt at June 30, 2020 was $5,503,000 compared to $5,648,000 at December 31, 2019,~~2020. The total debt to total book capitalization (total debt divided by total debt plus equity); at ~~June 30, 2020~~March 31, 2021 was ~~11.3%~~13.4% compared to ~~10.8%~~9.4% at December 31, ~~2019.~~2020.

At ~~June 30, 2020,~~March 31, 2021, our short-term or Revolver borrowing was ~~$2,573,000~~$3,481,000 compared to ~~$5,648,000,~~$1,374,000, at December 31, ~~2019.~~2020. Additionally, at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, there was approximately ~~$12,249,000~~$12,011,000 and ~~$9,200,000,~~$11,971,000, respectively, available to ~~the Company~~us under ~~its~~the Revolver arrangement.

During the ~~six-month~~three-month period ended ~~June 30, 2020,~~March 31, 2021, we used ~~$915,000~~$68,000 for capital expenditures, compared to ~~$920,000~~$658,000 during the same period in the prior year. Capital expenditures for the balance of ~~2020 are~~2021 is expected to be approximately ~~$200,000,~~$800,000, some of which may be financed through our credit facilities with Capital One Bank or financed through independent third-party financial institutions. The remaining ~~2020~~2021 capital expenditures will likely be for machinery and equipment, tooling, and computer hardware and software.

Customer concentration

At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, accounts receivable from The Home Depot (“THD”) was ~~34.9%~~36.8% and ~~27.2%~~38.0%, respectively, of ~~our~~ total accounts receivable. ~~Additionally, revenue~~Revenue from ~~The Home Depot~~THD during the ~~three and six-month~~three-month periods ended ~~June 30,~~March 31, 2021 and 2020 was 27.2% and ~~2019 were 24.8% and 23.5%, and 23.0% and 20.3%~~22.4%, respectively, of ~~our~~ total revenue. Additionally, during the three-month periods ended March 31, 2021 and 2020, revenue attributable to Amazon.Com, Inc (“Amazon”) was 12.1% and 8.6%, respectively, of the Company’s total net revenue. Accounts receivable attributable to Amazon at March 31, 2021 and December 31, 2020 was 12.3% and 15.8%, respectively, of total net accounts receivable. There were no other customers that accounted for more than 10% of ~~our~~ consolidated revenue or accounts receivable during the three-month periods ended ~~June 30, 2020 and 2019.~~March 31, 2021 or 2020.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 1 to our consolidated financial statements for a discussion of recent accounting standards and pronouncements.

We do not believe that any other recently issued, but not yet effective accounting standard, if adopted, will have a material effect on our consolidated financial statements.

34

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The ~~Company's~~Company’s management, with the participation of the ~~Company's~~Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated, as of ~~June 30, 2020,~~March 31, 2021, the effectiveness of the ~~Company's~~Company’s disclosure controls and procedures, which were designed to be effective at the reasonable assurance level. The term ~~"disclosure~~“disclosure controls and procedures,"” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the ~~SEC's~~SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the ~~Company's~~Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the ~~Company's~~Company’s disclosure controls and procedures as of ~~June 30, 2020,~~March 31, 2021, the Company’s management, including its CEO and CFO, concluded that the ~~Company's~~Company’s disclosure controls and procedures were effective 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 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

35

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to the legal proceedings’ disclosure described in our ~~2019~~2020 Form 10-K.

Item 1A. Risk Factors

There ~~were~~have been no material changes to the risk factors ~~previously~~ disclosed under Part I, Item 1A “Risk Factors” in ~~our 2019~~the 2020 Form 10-K, ~~with~~other than the ~~exception of the~~ following, ~~risk factor~~ which replaces the ~~first~~final risk factor in such Part I, Item 1A in its entirety, the current effects of which are discussed in more detail in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q:
Business disruptions or other costs associated with information technology, cyber-attacks, system implementations, data privacy, or catastrophic losses. We rely heavily on computer systems to manage and operate our businesses, and record and process transactions. Computer systems are important to production planning, customer service and order fulfillment among other business-critical processes. Consistent and efficient operation of the computer hardware and software systems is imperative to the successful sales and earnings performance. Despite efforts to prevent such situations, and loss control and risk management practices that partially mitigate these risks, our systems may be affected by damage or interruption from, among other causes, fire, natural disasters, power outages, system failures or computer viruses. Computer hardware and storage equipment that is integral to efficient operations, such as e-mail, telephone, and other functionality, is concentrated in certain physical locations in which we operate. Additionally, we rely on software applications and enterprise cloud storage systems and cloud computing services provided by third-party vendors, and our business may be adversely affected by service disruptions or security breaches in such third-party systems. Security threats and sophisticated computer crime pose a potential risk to the security of our ~~2019 Form 10-K (as amended by~~information technology systems, cloud storage systems, networks, services, and assets, as well as the confidentiality and integrity of some of our customers’ data. If we suffer a loss or disclosure of business or stakeholder information due to security breaches, including as a result of human error and technological failures, and business continuity plans do not effectively address these issues on a timely basis, we may suffer interruptions in our ability to manage operations as well as reputational, competitive, or business harm, which may adversely impact our results of operations and financial condition.
As described in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Trends and Uncertainties,” of this Quarterly Report on Form 10-Q, ~~for the quarterly period ended March 31, 2020) in its entirety,~~
~~Risks related to the global outbreak of COVID-19 and other public health crises.~~
The Company faces risks related to pandemics, epidemics and other public health crises, including the global outbreak of COVID-19, which has reached and disrupted areas in which the Company has operations, suppliers, customers and employees. The COVID-19 pandemic and actions taken by governments and others in response have resulted in, and may continue to cause, the slowdown of the businesses of certain ofon May 13, 2021, the Company’s ~~customers and the closure of certain of the Company’s customers’ facilities which in turn has reduced and may continue~~Florida Pneumatic subsidiary detected a ransomware attack on its information technology systems that caused data to reduce demand for some of the Company’s products. Additionally, certain of the Company’s products and parts are manufactured overseas. The COVID-19 pandemic did delay supply from certain of the Company’s overseas suppliers during the first quarter. These disruptions ceased during the second quarter. However, should these disruptions resume, the Company would be unable to predict the ultimate duration of such disruptions in supply, whether products or parts from other suppliers will also be delayed, whether such disruptions will become material to the Company and whether, if necessary, the Company will be able to secure such products or parts from alternate suppliers on favorable terms or at all. Moreover, the Company may need to close certain of its facilities in response to the COVID-19 pandemic. The COVID-19 pandemic has also impacted the Company’s operations, including by causing many of its employees to work remotely or in shifts designed to minimize exposure. There is also a heightened risk that a significant portion of the Company’s workforce will suffer illness or otherwise not be permitted or be unable to work. The Company cannot predict whether any of these disruptions will continue or whether its operations will experience more significant or frequent disruptions in the future. Any measures the Company implements to mitigate these risks and disruptions may not be successful.
The circumstances surrounding the COVID-19 pandemic continue to evolve and it is not possible to predict the full nature and extent of the impacts of the COVID-19 pandemic. However, the Company expects the continued spread of COVID-19 and reactions by governments and others to continue to cause an economic slowdown that could be significant and, therefore, could extend the duration of the period of reduced demand for the Company’s products and disruption of its supply chain. Additionally, deteriorating economic conditions could result in material impairment charges in the value of certain of the Company’s assets. Moreover, circumstances surrounding the COVID-19 pandemic have negatively impacted global financial markets leading to greater volatility and decreased access to capital. If such conditions continue, the Company’s ability to finance its operations and expenditures may be negatively impacted. Any of the risks set forth in this paragraph and the preceding paragraph could have a material adverse effect on our business, results of operations and financial position.
Additional public health crises could also emerge in the future, including other pandemics or epidemics. Such public health crises could pose further risks to the Company and could also have a material adverse effect on our business, results of operations and financial position.encrypted.

36

PART II - OTHER INFORMATION

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

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

See “Exhibit Index” immediately following the signature page.
37

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.
Joseph A. Molino, Jr.
Chief Financial Officer
Dated: ~~August 13, 2020~~May 17, 2021 (Principal Financial and Chief Accounting Officer)

38

EXHIBIT INDEX

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

Exhibit
Number Description of Exhibit

~~10.1~~ ~~Note, dated April 17, 2020 by the Registrant in favor of BNB Bank (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, dated April 17, 2020).~~
~~10.2~~ Payroll Protection Program Consent, dated as of April 17, 2020 among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Hy-Tech Illinois, Inc. and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated April 17, 2020).
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.

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 *  Interactive Data

* Attached as Exhibit 101 are the following, each formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive ~~(Loss) Income,~~Loss, (iii) Consolidated Statements 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.

39

	Three months						Six months
	ended June 30,						ended June 30,
	2020			2019			2020			2019

Net revenue	$	11,520,000		$	14,798,000		$	24,870,000		$	29,120,000
Cost of sales		8,472,000			9,290,000			17,339,000			18,331,000
Gross profit		3,048,000			5,508,000			7,531,000			10,789,000
Selling, general and administrative expenses		4,620,000			5,460,000			10,310,000			10,722,000
Impairment of goodwill and other intangible assets		1,612,000			—			1,612,000			—
Operating (loss) income		(3,184,000	)		48,000			(4,391,000	)		67,000
Loss (gain) on sale of property and equipment		1,000			(7,824,000	)		1,000			(7,817,000	)
Other income		(31,000	)		—			(31,000	)		—
Interest expense		41,000			68,000			97,000			131,000
(Loss) income		(3,195,000	)		7,804,000			(4,458,000	)		7,753,000
Income tax (benefit) expense		(814,000	)		2,116,000			(1,319,000	)		2,091,000
Net (loss) income	$	(2,381,000	)	$	5,688,000		$	(3,139,000	)	$	5,662,000

Basic (loss) earnings per share	$	(0.76	)	$	1.74		$	(1.00	)	$	1.73
Diluted (loss) earnings per share	$	(0.76	)	$	1.71		$	(1.00	)	$	1.70

Weighted average common shares outstanding:

Basic		3,148,000			3,163,000			3,146,000			3,271,000
Diluted		3,148,000			3,230,000			3,146,000			3,337,000

Net (loss) income	$	(2,381,000	)	$	5,688,000		$	(3,139,000	)	$	5,662,000
Other comprehensive loss - foreign currency translation adjustment		(12,000	)		(51,000	)		(137,000	)		(7,000	)
Total comprehensive (loss) income	$	(2,393,000	)	$	5,637,000		$	(3,276,000	)	$	5,655,000

	Three months
	ended March 31,
	2021			2020
Net revenue	$	13,945,000		$	13,350,000
Cost of sales		9,309,000			8,868,000
Gross profit		4,636,000			4,482,000
Selling, general and administrative expenses		4,991,000			5,690,000
Operating loss		(355,000	)		(1,208,000	)
Interest expense		22,000			55,000
Loss before income tax		(377,000	)		(1,263,000	)
Income tax benefit		70,000			505,000
Net loss	$	(307,000	)	$	(758,000	)

Basic and diluted loss per share	$	(0.10	)	$	(0.24	)

Weighted average common shares outstanding:

Basic and diluted		3,169,000			3,144,000

Net loss	$	(307,000	)	$	(758,000	)
Other comprehensive income (loss) - foreign currency translation adjustment		15,000			(125,000	)
Total comprehensive loss	$	(292,000	)	$	(883,000	)

				Class A common stock, $1 par				Additional paid-in		Retained			Treasury stock						Accumulated other comprehensive						Class A common stock, $1 par				Additional paid-in			Retained			Treasury stock						Accumulated other comprehensive
	Total			Shares		Amount		capital		earnings			Shares			Amount			loss			Total			Shares		Amount		capital			earnings			Shares			Amount			loss

Balance, April 1, 2020	$	45,498,000			4,417,000	$	4,417,000	$	14,087,000	$	37,952,000			(1,273,000	)	$	(10,213,000	)	$	(745,000	)
Balance, January 1, 2021																						$	41,538,000			4,428,000	$	4,428,000	$	14,144,000		$	33,756,000			(1,273,000	)	$	(10,213,000	)	$	(577,000	)

Net loss		(2,381,000	)		—		—		—		(2,381,000	)		—			—			—			(307,000	)		—		—		—			(307,000	)		—			—			—

Restricted common stock compensation		12,000			6,000		6,000		6,000		—			—			—			—			13,000			25,000		25,000		(12,000	)		—			—			—			—

Stock-based compensation		13,000			—		—		13,000		—			—			—			—			2,000			—		—		2,000			—			—			—			—

Foreign currency translation adjustment		(12,000	)		—		—		—		—			—			—			(12,000	)		15,000			—		—		—			—			—			—			15,000

Balance, June 30, 2020	$	43,130,000			4,423,000	$	4,423,000	$	14,106,000	$	35,571,000			(1,273,000	)	$	(10,213,000	)	$	(757,000	)
Balance, March 31, 2021																						$	41,261,000			4,453,000	$	4,453,000	$	14,134,000		$	33,449,000			(1,273,000	)	$	(10,213,000	)	$	(562,000	)

	As of June 30, 2020			As of March 31,2021
2020 (excluding the six months ended June 30, 2020)	$	432,000
2021		859,000
2021 (excluding the three months ended March 31, 2021)				$	654,000
2022		769,000			783,000
2023		657,000			670,000
2024		388,000			391,000
2025					182,000
Thereafter		1,049,000			867,000
Total operating lease payments		4,154,000			3,547,000
Less imputed interest		(490,000	)		(385,000	)
Total operating lease liabilities	$	3,664,000		$	3,162,000

Weighted average remaining lease term		6.3 years			5.9 years
Weighted average discount rate		4.3	%		4.3	%

	Three months ended June 30,
	2020					2019					Decrease
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
Retail	$	2,860,000		33.1	%	$	3,427,000		31.8	%	$	(567,000	)		(16.5	)%
Automotive		2,928,000		33.9			3,759,000		34.8			(831,000	)		(22.1	)
Industrial		817,000		9.4			1,223,000		11.3			(406,000	)		(33.2	)
Aerospace		1,934,000		22.4			2,231,000		20.7			(297,000	)		(13.3	)
Other		101,000		1.2			146,000		1.4			(45,000	)		(30.8	)
Total	$	8,640,000		100.0	%	$	10,786,000		100.0	%	$	(2,146,000	)		(19.9	)%

	Six months ended June 30,																Three months ended March 31,
	2020					2019					Decrease						2021					2020					Increase (decrease)
			Percent of					Percent of									Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
	Revenue		revenue			Revenue		revenue			$			%
Automotive																	$	4,102,000		37.6	%	$	3,232,000		32.2	%	$	870,000			26.9	%
Retail	$	5,851,000		31.3	%	$	6,139,000		28.9	%	$	(288,000	)		(4.7	)%		3,790,000		34.8			2,990,000		29.8			800,000			26.8
Automotive		6,160,000		33.0			7,624,000		35.9			(1,464,000	)		(19.2	)
Industrial		1,879,000		10.1			2,547,000		12.0			(668,000	)		(26.2	)		1,359,000		12.5			1,062,000		10.6			297,000			28.0
Aerospace		4,533,000		24.3			4,591,000		21.6			(58,000	)		(1.3	)		1,528,000		14.0			2,599,000		25.9			(1,071,000	)		(41.2	)
Other		247,000		1.3			325,000		1.6			(78,000	)		(24.0	)		122,000		1.1			147,000		1.5			(25,000	)		(17.0	)
Total	$	18,670,000		100.0	%	$	21,226,000		100.0	%	$	(2,556,000	)		(12.0	)%	$	10,901,000		100.0	%	$	10,030,000		100.0	%	$	871,000			8.7	%

	Total
Cash paid at closing	$	3,518,000
Fair value of contingent consideration		64,000
Total estimated purchase price	$	3,582,000

Accounts receivable	$	218,000
Inventories		630,000
Machinery, equipment and vehicle		1,437,000
Customer relationships		995,000
Trademarks and trade names		54,000
Non-compete agreements		95,000
Liabilities assumed		(131,000	)
Goodwill		284,000
Total estimated purchase price	$	3,582,000

~~Customer relationships~~			~~10 years~~
~~Non-compete agreements~~			~~4 years~~
~~Trademarks and trade names~~			~~Indefinite~~

	For the three-month period ended June 30, 2019		For the six-month period ended June 30, 2019
Revenue	$	15,586,000	$	30,649,000
Net income	$	5,842,000	$	5,951,000
Earnings per share – basic	$	1.79	$	1.82
Earnings per share – diluted	$	1.76	$	1.78

	Three months ended					Six months ended
	June 30,					June 30,
	2020			2019		2020			2019
Numerator for basic and diluted loss per common share:
Net (loss) income	$	(2,381,000	)	$	5,688,000	$	(3,139,000	)	$	5,662,000
Denominator:
Denominator for basic (loss) earnings per share - weighted average common shares outstanding		3,148,000			3,163,000		3,146,000			3,271,000
Dilutive securities (1)		—			67,000		—			66,000
Denominator for diluted (loss) income per share - weighted average common shares outstanding		3,148,000			3,230,000		3,146,000			3,337,000

	Three months ended
	March 31,
	2021			2020
Numerator for basic and diluted loss per common share:
Net loss	$	(307,000	)	$	(758,000	)

Denominator for basic and diluted loss per share - weighted average common shares outstanding		3,169,000			3,144,000

	Option shares			Weighted average exercise price		Weighted average remaining contractual life (years)		Aggregate intrinsic value		Option shares		Weighted average exercise price		Weighted average remaining contractual life (years)		Aggregate intrinsic value
Outstanding, January 1, 2020		226,075		$	6.30		4.7	$	219,983
Outstanding, January 1, 2021											200,878	$	6.59		4.1	$	85,663
Granted		—									—
Exercised		(1,000	)		2.92						—
Forfeited		(4,158	)		5.34						—
Expired		—			—						—
Outstanding, June 30, 2020		220,917		$	6.34		4.3		53,965
Vested, June 30, 2020		186,415		$	6.16		3.7		53,965
Outstanding, March 31, 2021											200,878	$	6.59		3.8	$	118,716
Vested, March 31, 2021											198,210	$	6.56		3.8	$	118,716

	Option shares			Weighted average grant- date fair value		Option shares			Weighted average grant- date fair value
Non-vested options, January 1, 2020		37,666		$	4.45
Non-vested options, January 1, 2021							5,334		$	4.60
Granted
Vested		(2,666	)		4.60		(2,666	)		4.60
Forfeited		(498	)		4.41		—
Non-vested options, June 30, 2020		34,502		$	4.44
Non-vested options, March 31, 2021							2,668		$	4.60

	June 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Accounts receivable	$	7,646,000		$	9,547,000		$	9,842,000		$	7,726,000
Allowance for doubtful accounts, sales discounts and chargebacks		(227,000	)		(234,000	)		(304,000	)		(258,000	)
	$	7,419,000		$	9,313,000		$	9,538,000		$	7,468,000

Balance, January 1, 2020	$	4,726,000
Currency translation adjustment		(11,000	)
Impairment of goodwill		(284,000	)
Balance, June 30, 2020	$	4,431,000

2020	$	316,000
2021		629,000
2022		627,000
2023		624,000
2024		575,000
2025		546,000
Thereafter		1,026,000
	$	4,343,000

2021	$	472,000
2022		630,000
2023		626,000
2024		577,000
2025		548,000
Thereafter		1,029,000
	$	3,882,000

	·•	Risks related to the global outbreak of COVID-19 and other public health crises;
	·•	~~Exposure to fluctuations in energy prices;~~Risks associated with sourcing from overseas;
	·	~~Debt and debt service requirements;~~
	·	~~Borrowing and compliance with covenants under our credit facility;~~
	·•	Disruption in the global capital and credit markets;
	·•	Importation delays;
	•	Customer concentration;
	•	Unforeseen inventory adjustments or changes in purchasing patterns;
	•	Market acceptance of products;
	•	Competition;
	•	Price reductions;
	•	Exposure to fluctuations in energy prices;
	•	The strength of the retail economy in the United States and abroad;
	·	~~Risks associated with sourcing from overseas;~~
	·	~~Importation delays;~~
	·•	Risks associated with Brexit;
	·	~~Customer concentration;~~
	·•	Adverse changes in currency exchange rates;
	·•	Interest rates;
	•	Debt and debt service requirements;
	•	Borrowing and compliance with covenants under our credit facility;
	•	Impairment of long-lived assets and goodwill;
	·	~~Unforeseen inventory adjustments or changes in purchasing patterns;~~
	·	~~Market acceptance of products;~~
	·	~~Competition;~~
	·	~~Price reductions;~~
	·	~~Interest rates;~~
	·	~~Litigation and insurance;~~
	·•	Retention of key personnel;
	·•	Acquisition of businesses;
	·•	Regulatory environment;
	·•	Litigation and insurance;
	•	The threat of terrorism and related political instability and economic uncertainty; and
	·•	~~Information~~Business disruptions or other costs associated with information technology, cyber-attacks, system ~~failures and attacks,~~implementations, data privacy or catastrophic losses,

	June 30, 2020		December 31, 2019
Working capital	$	21,756,000	$	22,115,000
Current ratio		3.21 to 1		2.85 to 1
Shareholders’ equity	$	43,130,000	$	46,506,000

		P&F INDUSTRIES, INC.
		(Registrant)

		/s/ JOSEPH A. MOLINO, Jr.
		Joseph A. Molino, Jr.
		Chief Financial Officer
Dated: ~~August 13, 2020~~May 17, 2021		(Principal Financial and Chief Accounting Officer)

Exhibit Number		Description of Exhibit

~~10.1~~		~~Note, dated April 17, 2020 by the Registrant in favor of BNB Bank (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, dated April 17, 2020).~~

~~10.2~~		Payroll Protection Program Consent, dated as of April 17, 2020 among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Hy-Tech Illinois, Inc. and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated April 17, 2020).

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.

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		* Interactive Data