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 March 31, ~~2021~~2022

¨
☐	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~~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~~

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 May 5, ~~2021,~~2022, there were 3,181,286 shares of the registrant’s Class A common stock outstanding.

Table of Contents

P&F INDUSTRIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2021~~2022

TABLE OF CONTENTS

’		~~PAGE~~
		PAGE
PART I — FINANCIAL INFORMATION		2 3

Item 1.	Financial Statements	2 3

	Consolidated Balance Sheets as of March 31, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021	2 3

	Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022, and 2021 ~~and 2020~~ (unaudited)	4 5

	Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2022, and 2021 ~~and 2020~~ (unaudited)	5 6

	Consolidated Statements of Cash Flows for the three months ended March 31, 2022, and 2021 ~~and 2020~~ (unaudited)	6 7

	Notes to Consolidated Financial Statements (unaudited)	8 9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28 29

PART II — OTHER INFORMATION		29 30

Item 1.	Legal Proceedings	29 30

Item 1A.	Risk Factors	29 30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	30

Signature		31

Exhibit Index		32

Table of Contents

PART I - FINANCIAL INFORMATION

~~Item 1.~~

Item 1. Financial Statements

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

Cash $ 1,047,000 $ 904,000
Accounts receivable — net 9,538,000 7,468,000
Inventories 18,631,000 18,362,000
Prepaid expenses and other current assets 2,471,000 2,806,000
TOTAL CURRENT ASSETS 31,687,000 29,540,000

PROPERTY AND EQUIPMENT
Land 507,000 507,000
Buildings and improvements 3,544,000 3,544,000
Machinery and equipment 25,617,000 25,673,000
29,668,000 29,724,000
Less accumulated depreciation and amortization 20,659,000 20,329,000
NET PROPERTY AND EQUIPMENT 9,009,000 9,395,000

GOODWILL 4,451,000 4,449,000

OTHER INTANGIBLE ASSETS — net 6,070,000 6,226,000

DEFERRED INCOME TAXES — net 298,000 226,000

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

OTHER ASSETS — net 178,000 250,000

TOTAL ASSETS $ 54,811,000 $ 53,367,000


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

Cash	$	642,000	$	539,000
Accounts receivable — net		9,043,000		7,550,000
Inventories		27,548,000		24,021,000
Prepaid expenses and other current assets		4,558,000		4,566,000
TOTAL CURRENT ASSETS		41,791,000		36,676,000

PROPERTY AND EQUIPMENT
Land		507,000		507,000
Buildings and improvements		3,767,000		3,605,000
Machinery and equipment		26,665,000		25,675,000
		30,939,000		29,787,000
Less accumulated depreciation and amortization		22,121,000		21,707,000
NET PROPERTY AND EQUIPMENT		8,818,000		8,080,000

GOODWILL		5,275,000		4,447,000

OTHER INTANGIBLE ASSETS — net		5,427,000		5,592,000

DEFERRED INCOME TAXES — net		446,000		349,000

RIGHT-OF-USE ASSETS – OPERATING LEASES		3,771,000		2,969,000

OTHER ASSETS — net		73,000		77,000

TOTAL ASSETS	$	65,601,000	$	58,190,000

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

CURRENT LIABILITIES

Short-term borrowings $ 3,481,000 $ 1,374,000
Accounts payable 1,715,000 2,199,000
Accrued compensation and benefits 897,000 525,000
Accrued other liabilities 1,247,000 1,354,000
Current leased liabilities – operating leases 847,000 847,000
Current maturities of long-term debt (PPP loan) 2,727,000 1,983,000
TOTAL CURRENT LIABILITIES 10,914,000 8,282,000

Noncurrent leased liabilities – operating leases 2,315,000 2,474,000
Long-term debt, less current maturities (PPP loan) 202,000 946,000
Other liabilities 119,000 127,000

TOTAL LIABILITIES 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 – 4,453,000 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 14,134,000 14,144,000
Retained earnings 33,449,000 33,756,000
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 (562,000 ) (577,000 )

TOTAL SHAREHOLDERS’ EQUITY 41,261,000 41,538,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 54,811,000 $ 53,367,000


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

CURRENT LIABILITIES

Short-term borrowings	$	12,522,000	$	5,765,000
Accounts payable		3,845,000		2,920,000
Accrued compensation and benefits		790,000		1,475,000
Accrued other liabilities		1,350,000		1,078,000
Current lease liabilities – operating leases		909,000		840,000
TOTAL CURRENT LIABILITIES		19,416,000		12,078,000

Noncurrent lease liabilities – operating leases		2,915,000		2,176,000
Other liabilities		89,000		96,000

TOTAL LIABILITIES		22,420,000		14,350,000

SHAREHOLDERS’ EQUITY
Preferred stock - $10 par; authorized - 2,000,000 shares; 0 shares issued		—		—
Common stock
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,453,000 at March 31, 2022, and December 31, 2021		4,453,000		4,453,000
Class B - $1 par; authorized - 2,000,000 shares; 0 shares issued		0		0
Additional paid-in capital		14,176,000		14,167,000
Retained earnings		35,428,000		36,046,000
Treasury stock, at cost – 1,273,000 shares at March 31, 2022 and December 31, 2021		(10,213,000)		(10,213,000)
Accumulated other comprehensive loss		(663,000)		(613,000)

TOTAL SHAREHOLDERS’ EQUITY		43,181,000		43,840,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	65,601,000	$	58,190,000

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

~~(unaudited)~~

Three months

ended March 31,

2022

2021
Net revenue

$
14,021,000

$
13,945,000
Cost of sales

9,510,000

9,309,000
Gross profit

4,511,000

4,636,000
Selling, general and administrative expenses

5,173,000

4,991,000
Operating loss

(662,000)

(355,000)
Interest expense

(52,000)

(22,000)
Loss income before income taxes

(714,000)

(377,000)
Income tax benefit

96,000

70,000
Net loss

$
(618,000)

$
(307,000)

Basic and diluted loss per share

$
(0.19)

$
(0.10)

Weighted average common shares outstanding:

Basic and diluted

3,169,000

3,169,000

Net loss

$
(618,000)

$
(307,000)
Other comprehensive (loss) income - foreign currency translation adjustment

(50,000)

15,000
Total comprehensive loss

$
(668,000)

$
(292,000)
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).

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
Three months ended March 31, 2022

Accumulated

Class A common

Additional

other

stock, $1 par

paid-in

Retained

Treasury stock

comprehensive


Total

Shares

Amount

capital

earnings

Shares

Amount

loss
Balance, January 1, 2022

$
43,840,000

4,453,000

$
4,453,000

$
14,167,000

$
36,046,000

(1,273,000)

$
(10,213,000)

$
(613,000)

Net loss

(618,000)

0

0

0

(618,000)

0

0

0

Restricted common stock based compensation

8,000

0

0

8,000

0

0

0

0

Stock-based compensation

1,000

0

0

1,000

0

0

0

0

Foreign currency translation adjustment

(50,000)

0

0

0

0

0

0

(50,000)

Balance, March 31, 2022

$
43,181,000

4,453,000

$
4,453,000

$
14,176,000

$
35,428,000

(1,273,000)

$
(10,213,000)

$
(663,000)

Three months ended March 31, 2021

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, 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 (307,000 ) — — — (307,000 ) — — —

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

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

Foreign currency translation adjustment 15,000 — — — — — — 15,000

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 )

Accumulated

Class A common

Additional

other

stock, $1 par

paid-in

Retained

Treasury stock

comprehensive


Total

Shares

Amount

capital

earnings

Shares

Amount

loss
Balance, January 1, 2021

$
41,538,000

4,428,000

$
4,428,000

$
14,144,000

$
33,756,000

(1,273,000)

$
(10,213,000)

$
(577,000)

Net loss

(307,000)

0

0

0

(307,000)

0

0

0

Restricted common stock based compensation

13,000

25,000

25,000

(12,000)

0

0

0

0

Stock-based compensation

2,000

0

0

2,000

0

0

0

0

Foreign currency translation adjustment

15,000

0

0

0

0

0

0

15,000

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 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, 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).

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

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 )

Three months

ended March 31,

2022

2021
Cash Flows from Operating Activities:

Net loss

$
(618,000)

$
(307,000)

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

Non-cash and other charges:

Depreciation

443,000

451,000
Amortization of other intangible assets

157,000

159,000
Amortization of operating lease assets

232,000

224,000
Amortization of debt issue costs

4,000

4,000
Amortization of consideration payable to a customer

67,000

67,000
(Recovery of) provision for losses on accounts receivable

(12,000)

47,000
Stock-based compensation

1,000

2,000
Restricted stock-based compensation

8,000

13,000
Deferred income taxes

(102,000)

(70,000)
Loss on disposal of fixed assets

0

2,000
Changes in operating assets and liabilities, net of effects of acquisition

Accounts receivable

(844,000)

(2,113,000)
Inventories

(3,243,000)

(263,000)
Prepaid expenses and other current assets

(144,000)

335,000
Accounts payable

716,000

(483,000)
Accrued compensation and benefits

270,000

372,000
Accrued other liabilities and other current liabilities

(672,000)

(97,000)
Operating lease liabilities

(226,000)

(219,000)
Other liabilities

(9,000)

(20,000)
Total adjustments

(3,354,000)

(1,589,000)
Net cash used in operating activities

(3,972,000)

(1,896,000)

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Three months
ended March 31,
2021 2020
Cash Flows from Investing Activities:
Capital expenditures $ (68,000 ) $ (658,000 )
Net cash used in investing activities (68,000 ) (658,000 )

Cash Flows from Financing Activities:
Dividend payments — (157,000 )
Proceeds from exercise of stock options — 3,000
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 — (5,000 )
Net increase in cash 143,000 151,000
Cash at beginning of period 904,000 380,000
Cash at end of period $ 1,047,000 $ 531,000

Supplemental disclosures of cash flow information:

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

Non-cash information:
Right of Use (“ROU”) assets recognized for new operating lease liabilities $ 23,000 $ —

Three months

ended March 31,


2022

2021
Cash Flows from Investing Activities:




Capital expenditures

$
(380,000)

$
(68,000)
Purchase of net assets of the Jackson Gear Company business

(2,300,000)

Net cash used in investing activities

(2,680,000)

(68,000)

Cash Flows from Financing Activities:

Net proceeds from short-term borrowings

6,757,000

2,107,000
Net cash provided by financing activities

6,757,000

2,107,000

Effect of exchange rate changes on cash

(2,000)

0
Net increase in cash

103,000

143,000
Cash at beginning of period

539,000

904,000
Cash at end of period

$
642,000

$
1,047,000

Supplemental disclosures of cash flow information:

Cash paid for:

Interest

$
36,000

$
8,000
Cash paid for amounts included in the measurement of operating lease liabilities

$
0

$
2,000

Non-cash information:

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

$
987,000

$
23,000

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these interim consolidated financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. In the opinion of the management of the Company, as defined below, these unaudited consolidated financial statements include all normal, recurring adjustments necessary to present fairly the information set forth therein. 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, ~~2020~~2021, was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020 (“2020~~2021 ("2021 Form 10-K”). The ~~interim~~unaudited consolidated financial statements contained herein should be read in conjunction with the ~~2020~~2021 Form 10-K.
The consolidated financial statements have been reported in U.S. dollars by translating asset and liability amounts of a foreign wholly-owned subsidiary at the closing exchange rate, equity amounts at historical rates and the results of operations and cash flow at the average of the prevailing exchange rates during the periods reported. As a result, the Company is exposed to foreign currency translation gains or losses. These gains or losses are presented in the Company’s consolidated financial statements as “Other comprehensive income (loss) - foreign currency translation ~~adjustment”.~~
adjustment.”
Principles of Consolidation
The unaudited consolidated financial statements contained herein include the accounts of P&F Industries, Inc., and its subsidiaries (“P&F” or the “Company”). All significant intercompany balances and transactions have been eliminated.
The Company
P&F, a Delaware corporation incorporated 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”).

~~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 markets pneumatic hand tools of its own design, primarily to the retail, industrial, automotive and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. These tools are similar in appearance and function to electric hand tools, but are powered by compressed air, rather than by electricity or a battery. Air tools, as they are more commonly referred to, generally offer better performance, and weigh less than their electrical counterparts. Florida Pneumatic imports and/or manufactures approximately 75 types of pneumatic hand tools, most of which are sold at prices ranging from $50 to $1,000, under the names “Florida Pneumatic,” “Universal Tool”, “Jiffy Air Tool”, AIRCAT, NITROCAT, as well as under the trade names or trademarks of several private label customers. These products are sold to retailers, distributors, manufacturers and private label customers through in-house sales personnel and manufacturers’ representatives. The AIRCAT and NITROCAT brands of pneumatic tools are sold primarily to the automotive service and repair market (“automotive market”). Users of Florida ~~Pneumatics’~~Pneumatic’s hand tools include industrial maintenance and production staffs, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The Company - Continued

Hy-Tech

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

Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEM’s”), and industrial branded products are sold through a broad network of specialized industrial distributors serving the power generation, petrochemical, aerospace, construction, railroad, mining, ship building and fabricated metals ~~industries.~~industries, among others. 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~~“Power Transmission ~~Group, or PTG, combined three separate gear companies: its Quality Gear division, Blaz-man Gear, Inc.~~Group", commonly referred to as "PTG", produces spiral bevel 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 customstraight bevel gears ~~for manufacturers in~~along with a wide variety of ~~industries,~~other gearing. These products are sold direct to OEMs, end-users and gearbox repair companies. PTG ~~reverse engineers existing~~works directly with its customer's engineering departments to design or redesign gears ~~as well as designs new gears, utilizing state-of-the-art technologies, including 3D imaging~~or gearboxes to optimize a solution for functionality and ~~Gleason~~manufacturability.

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

Please refer to Note 2 for discussion related to the Company’s acquisition of the Jackson Gear ~~modeling software.~~Company business

COVID-19

On March 11, 2020, the World Health Organization designated the recent novel coronavirus, ~~(“COVID-19”)~~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 ~~Company~~COVID-19 virus and the resultant global economic down-turn had a negative impact on our fiscal 2021 results and continues to ~~actively monitor COVID-19 and its continued~~negatively 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 open. The Company’s corporate office and business units are continuing to work alongside their external business partners and customers to minimize the continued business constraints caused by COVID-19 on its business.

Due in large part to shelter-in-place restrictions that were implemented in late first quarter of 2020, which for many has been lifted during the latter portion of 2020 and early 2021, as well as significant decreases in travel and customer consumption behavior, the Company ~~experienced a reduction in its revenue and earnings per share~~ during ~~2020 and for~~ the first quarter of ~~2021. It~~2022. Additionally, we believe the on-going supply-chain crisis is ~~too~~related to a large degree to the pandemic. Beginning in early 2021, and worsening during the latter half of 2021, we encountered severe shipping / receiving delays of inventory / containers from our Asian suppliers, which has caused intermittent shortages of inventory. Further, the Company believes the COVID-19 global pandemic has been and continues to ~~determine what~~be the ~~financial impacts from COVID-19 will be on the Company’s businesses~~primary factor in the ~~future.~~exorbitant increases in the cost of international ocean freight. In addition, the COVID-19 pandemic has caused many of the Company's customers and potential customers to refuse or delay on-site visits, which is critical to generating revenue. The Company believes that until the above issues subside, its business will likely continue to be adversely affected.

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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”,~~period,” as defined in US GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, it considers various scenarios, forecasts, projections, estimates and makes certain key assumptions, including the timing and nature of projected cash expenditures, its ability to reduce, delay or curtail cash outflows and its ability to raise additional capital, if necessary, among other factors. Management has prepared estimates of operations covering the look-forward period and believes that sufficient funds will be generated from operations, working capital, and its existing credit facility to fund its operations. The Company has contingency plans in which it would further reduce or defer additional expenses and cash outlays, should operations weaken beyond current forecasts.

The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is ~~too early to know~~unclear what the full impact of COVID-19 will be in the future or when the Company believes a return to more normal operations may occur. 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 9 – CARES Act to the Company’s consolidated financial statements for further discussion.

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

Customer Concentration

AtThe Company had one customer that accounted for 30.6% and 36.8% of its consolidated accounts receivable at March 31, ~~2021~~2022 and December 31, ~~2020, accounts receivable from The Home Depot (“THD”) was 36.8%~~2021, respectively. Further, this customer accounted for 21.5% and ~~38.0%, respectively,~~27.2% of ~~total accounts receivable. Revenue from THD~~the Company’s consolidated revenue during the three-month periods ended March 31, 2022 and 2021, ~~and 2020~~respectively. There was 27.2% and 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~~customer that accounted for more than 10% of our consolidated revenue ~~or accounts receivable~~ during ~~the three-month periods ended March 31, 2021 or 2020.~~

these three -month periods.

Management Estimates

The preparation of financial statements and related disclosures in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, goodwill, intangible assets and other long-lived assets, contingent consideration, income taxes and deferred taxes. Descriptions of these policies are discussed in the Company’s ~~2020~~2021 Form 10-K. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and 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.

~~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 1: Summary of Significant Accounting Policies” of our ~~2020~~2021 Form 10-K.

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 - BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
Lease Accounting
The Company adheres to the standards set forth in Accounting Standards Codification (“ASC”) 842, “Leases”. ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases’ guidance.
If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as the discount rate. The Company uses its best judgement when determining the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency.
The Company’s operating leases include vehicles, office space and the use of real property. The Company has not identified any new material finance leases ~~for~~during the three ~~months~~-month period ended March 31, ~~2021.~~
2022.
The Company considers any options to extend the term of a lease when measuring the ~~Right of Use~~Right-of-Use lease asset.
For the ~~three-month~~three -month periods ended March 31, ~~2021~~2022, and ~~2020,~~2021, the Company had ~~$224,000~~$232,000 and ~~$234,000,~~$224,000, respectively, in operating lease expense.
Effective March 1, 2022, the Company and the landlord of the facility located in Punxsutawney, PA. agreed to modify the lease related to the approximate 42,000 square foot premises that was leased by Hy-Tech. This lease modification among other things, increased the rented space to approximately 62,000 square feet, extended the lease termination date to February 2027, and provided two three-year options to renew. The cost per square foot for the additional space was equal to that of the original lease.
The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of March 31, ~~2021:~~2022:

As of
March 31,2021
2021 (excluding the three months ended March 31, 2021) $ 654,000
2022 783,000

As of March 31, 2022

2022 (excluding the three months ended March 31, 2022)

$
709,000

2023 670,000

945,000

2024 391,000

670,000

2025 182,000

375,000

2026

240,000

Thereafter 867,000

1,590,000

Total operating lease payments 3,547,000

4,529,000

Less imputed interest (385,000 )

(705,000)

Total operating lease liabilities $ 3,162,000

$
3,824,000

Weighted average remaining lease term 5.9 years

7.6
years
Weighted average discount rate 4.3 %

5.96
%

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 –- BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
Revenue Recognition
The Company’s revenue recognition policies are detailed in its ~~2020~~2021 Form 10-K. The following tables present the Company’s revenues recognized under ASC Topic 606, “~~Revenue~~“Revenue from Contracts with Customers”, for the ~~three-month~~three -month periods ended March 31, ~~2021~~2022, and ~~2020.~~2021.
Florida Pneumatic
Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool ~~market;~~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”).~~, which are reported as Other.

Three months ended March 31,
2021 2020 Increase (decrease)
Revenue
Percent of
revenue
Revenue
Percent of
revenue
$ %

Three months ended March 31,

2022

2021

Increase (decrease)




Percent of



Percent of




Revenue

revenue

Revenue

revenue

$

%

Automotive $ 4,102,000 37.6 % $ 3,232,000 32.2 % $ 870,000 26.9 %

$
3,881,000

37.7
%
$
4,102,000

37.6
%
$
(221,000)

(5.4)
%
Retail 3,790,000 34.8 2,990,000 29.8 800,000 26.8

3,020,000

29.5

3,790,000

34.8

(770,000)

(20.2)

Industrial 1,359,000 12.5 1,062,000 10.6 297,000 28.0

1,444,000

14.0

1,359,000

12.5

85,000

6.3

Aerospace 1,528,000 14.0 2,599,000 25.9 (1,071,000 ) (41.2 )

1,777,000

17.3

1,528,000

14.0

249,000

16.3

Other 122,000 1.1 147,000 1.5 (25,000 ) (17.0 )

159,000

1.5

122,000

1.1

37,000

30.3

Total $ 10,901,000 100.0 % $ 10,030,000 100.0 % $ 871,000 8.7 %

$
10,281,000

100.0
%
$
10,901,000

100.0
%
$
(620,000)

(5.7)
%

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. PTG revenue is comprised of products manufactured and sold by ~~Hy-tech’s~~Hy-Tech’s gear business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.

Three months ended March 31,
2021 2020 Increase (decrease)
Revenue Percent of
revenue Revenue Percent of
revenue $ %

Three months ended March 31,


2022

2021

Increase (decrease)


Percent of


Percent of




Revenue

revenue

Revenue

revenue

$

%

OEM $ 1,611,000 52.9 % $ 1,439,000 43.3 % $ 172,000 12.0 %

$
1,965,000

52.6
%
$
1,611,000

52.9
%
$
354,000

22.0
%
ATP 713,000 23.4 1,061,000 32.0 (348,000 ) (32.8 )

742,000

19.8

713,000

23.4

29,000

4.1

PTG 646,000 21.2 735,000 22.1 (89,000 ) (12.1 )

940,000

25.1

646,000

21.2

294,000

45.5

Other 74,000 2.5 85,000 2.6 (11,000 ) (12.9 )

93,000

2.5

74,000

2.5

19,000

25.7

Total $ 3,044,000 100.0 % $ 3,320,000 100.0 % $ (276,000 ) (8.3 )%

$
3,740,000

100.0
%
$
3,044,000

100.0
%
$
696,000

22.9
%

~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)~~

Recently Adopted Accounting Pronouncements
During the three-month period ended March 31, ~~2021,~~2022, there were no accounting pronouncements or other authoritative guidance issued that the Company adopted. No other new accounting pronouncement issued or effective during the fiscal quarter ended March 31, 2021 has or is expected to have a material impact on our consolidated financial statements or disclosures.

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 2 –- ACQUISITION
Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, the Company acquired (the "Acquisition") substantially all the non-real estate assets comprising the business of Jackson Gear Company ("JGC"), a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. The purchase price consisted of an aggregate of approximately $2.3 million in cash, which was funded by Revolver (as defined in Note 8) borrowings, and the assumption of certain payables. The Company has incorporated this business into its PTG business and believes that the Acquisition will provide added market exposure into the market for larger gears.
In connection with the Acquisition, the Company entered into the Consent, Joinder and Amendment No. 9 ("Amendment No. 9") to the Second Amended and Restated Loan and Security Agreement (the "Credit Agreement"), with Capital One, National Association. Amendment No. 9, among other things, provided consent to the Acquisition.


Total
Total purchase price

$
2,300,000

The following table presents preliminary purchase price allocation:

Accounts receivable

$
490,000
Inventories

369,000
Machinery and equipment

823,000
Goodwill

833,000
Liabilities assumed

(215,000)
Total estimated purchase price

$
2,300,000

The excess of the total purchase price over the fair value of the net assets acquired is currently being presented as goodwill. The Company has not yet determined the fair value of the identifiable intangible assets. When finalized, any goodwill will be amortized over 15 years for tax purposes, but not deductible for financial reporting purposes. Any identifiable intangible assets subject to amortization will be amortized over 15 years for tax purposes.
The following unaudited pro-forma combined financial information gives effect to the Acquisition as if the transaction was consummated on January 1, 2021. This unaudited pro-forma financial information is presented for information purposes only and is not intended to present actual results that would have been attained had the Acquisition been completed as of January 1, 2021 (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

March 31, 2021
Revenue

$
14,455,000
Net loss

$
(363,000)
Loss per share – basic and diluted

$
(0.11)

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P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 3 - LOSS PER SHARE
Basic loss per common share is based only on the weighted average number of shares of Common Stock outstanding for the periods. Diluted 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 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 per common share:

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

Three months ended

March 31,


2022

2021

Numerator for basic and diluted loss per common share:

Net loss

$
(618,000)

$
(307,000)

Denominator:

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

3,169,000

3,169,000

Dilutive securities (1)

0

0

Denominator for diluted loss per share - weighted average common shares outstanding

3,169,000

3,169,000

(1)Dilutive securities consist of the “in the money” stock options. In the event of a loss, options are considered anti-dilutive and are therefore not included in the calculation of diluted loss per share.
At March 31, ~~2021~~2022, and ~~2020,~~2021, 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
March 31,
2021 2020
Weighted average anti-dilutive stock options outstanding 141,000 146,000

Three months ended

March 31,


2022

2021
Weighted average anti-dilutive stock options outstanding

135,000

141,000

~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
NOTE 34 – STOCK-BASED COMPENSATION
There were no options or shares of the Company's Common Stock granted or issued during the three-month period ended March 31, ~~2021.~~2022.

Weighted

Weighted average

average

remaining

Aggregate

exercise

contractual life

Intrinsic


Option shares

price

(years)

Value
Outstanding, January 1, 2022

178,499

$
6.76

3.4

$
60,643
Granted

0

0

—

—
Exercised

0

0

—

—
Forfeited

0

0

—

—
Expired

0

0

—

—
Outstanding, March 31, 2022

178,499

$
6.76

3.2

$
56,692
Vested, March 31, 2022

175,831

$
6.73

3.1

$
56,692
~~The following is a summary~~

Table of ~~the changes in outstanding options during the three-month period ended March 31, 2021:~~

Option shares Weighted
average
exercise
price Weighted average
remaining
contractual life
(years) Aggregate
intrinsic
value
Outstanding, January 1, 2021 200,878 $ 6.59 4.1 $ 85,663
Granted —
Exercised —
Forfeited —
Expired —
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
Non-vested options, January 1, 2021 5,334 $ 4.60
Granted
Vested (2,666 ) 4.60
Forfeited —
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 March 31, 2021 was 21,158. At March 31, 2021, there were 185,378 options outstanding issued under the 2012 Plan and 15,500 options outstanding issued under the 2002 Stock Incentive Plan.
~~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.

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

NOTE 45 – FAIR VALUE MEASUREMENTS
Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following hierarchy:
Level 1:   Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.
Level 2:   Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3:   Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.
The guidance requires the use of observable market data if such data is available without undue cost and effort.
As of March 31, ~~2021,~~2022, and December 31, ~~2020,~~2021, 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 56 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable - net consists of:

March 31, 2021 December 31, 2020


March 31, 2022

December 31, 2021
Accounts receivable $ 9,842,000 $ 7,726,000

$
9,293,000

$
7,817,000
Allowance for doubtful accounts, sales discounts and chargebacks (304,000 ) (258,000 )

(250,000)

(267,000)
$ 9,538,000 $ 7,468,000

$
9,043,000

$
7,550,000

NOTE 67 – INVENTORIES
Inventories consist of:

March 31, 2021 December 31, 2020


March 31, 2022

December 31, 2021
Raw material $ 2,063,000 $ 2,077,000

$
2,163,000

$
2,166,000
Work in process 1,336,000 1,127,000

2,181,000

1,360,000
Finished goods 15,232,000 15,158,000

23,204,000

20,495,000
$ 18,631,000 $ 18,362,000

$
27,548,000

$
24,021,000

Inventory increased to $27,548,000 at March 31, 2022, from $24,021,000 at December 31, 2021. This increase, most of which took place at Florida Pneumatic, was due primarily to two factors; to increase safety stock levels, and to fulfill a large retail order that was received in late 2021 that is scheduled to ship during the second quarter of 2022.

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 78 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill are as follows:

Balance, January 1, 2021 $ 4,449,000
Currency translation adjustment 2,000
Balance, March 31, 2021 $ 4,451,000

Balance, January 1, 2022

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

833,000
Currency translation adjustment

(5,000)
Balance, March 31, 2022

$
5,275,000

~~The Company determined that no triggering event occurred during the first quarter fiscal of 2021.~~
Other intangible assets

March 31, 2021 December 31, 2020
Cost Accumulated
amortization Net book
value Cost Accumulated
amortization Net book
value
Other intangible assets:
Customer relationships (1) $ 6,504,000 $ 3,163,000 $ 3,341,000 $ 6,502,000 $ 3,034,000 $ 3,468,000
Trademarks and trade names (1) 2,188,000 — 2,188,000 2,187,000 — 2,187,000
Trademarks and trade names 200,000 62,000 138,000 200,000 59,000 141,000
Engineering drawings 330,000 243,000 87,000 330,000 239,000 91,000
Non-compete agreements (1) 336,000 274,000 62,000 335,000 266,000 69,000
Patents 1,286,000 1,032,000 254,000 1,286,000 1,016,000 270,000
Totals $ 10,844,000 $ 4,774,000 $ 6,070,000 $ 10,840,000 $ 4,614,000 $ 6,226,000
~~(1)~~

March 31, 2022

December 31, 2021




Accumulated

Net book



Accumulated

Net book

Cost

amortization

value

Cost

amortization

value
Other intangible assets:

Customer relationships (1)

$
6,490,000

$
3,669,000

$
2,821,000

$
6,495,000

$
3,545,000

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

2,180,000

0

2,180,000

2,187,000

0

2,187,000
Trademarks and trade names

200,000

76,000

124,000

200,000

73,000

127,000
Engineering drawings

330,000

257,000

73,000

330,000

254,000

76,000
Non-compete agreements (1)

331,000

293,000

38,000

335,000

290,000

45,000
Patents

1,286,000

1,095,000

191,000

1,286,000

1,079,000

207,000
Totals

$
10,817,000

$
5,390,000

$
5,427,000

$
10,833,000

$
5,241,000

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

~~P&F INDUSTRIES, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)~~
~~NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS - (Continued)~~

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

March 31, 2021 December 31, 2020


March 31, 2022

December 31, 2021
Customer relationships 7.4 7.6

6.5

6.7
Trademarks and trade names 10.3 10.5

9.3

9.5
Engineering drawings 5.9 6.1

4.9

5.1
Non-compete agreements 2.8 3.0

1.8

2.0
Patents 5.0 5.2

4.4

4.5

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

Three months ended March 31, Three months ended March 31,
Three months ended March 31,
2021 2020
2022
2022

2021
$ 159,000 $ 195,000
157,000

$
159,000

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS - (Continued)
Amortization expense for the balance of ~~2021,~~2022, and for each of the next five years and thereafter is estimated to be as follows:

2021 $ 472,000
2022 630,000

April 1 through December 31, 2022

$
472,000
2023 626,000

625,000
2024 577,000

576,000
2025 548,000

546,000
2026

348,000
Thereafter 1,029,000

680,000
$ 3,882,000

$
3,247,000

NOTE 89 – 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 of credit 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.
On April 12, 2022, we entered into Amendment No. 10 ("Amendment No. 10") to the Credit Agreement.
AtThe substantive matters included in Amendment No. 10 include:
● Increasing the Revolving Commitment by $2,000,000, to $18,000,000 until June 30, 2022.
● Removing a $10,000,000 cap on inventory availability through June 30, 2022.
● Prohibiting any Capex Loans through June 30, 2022.
● Implementing Secured Overnight Financing Rate ("SOFR") as the new benchmark interest rate immediately, in lieu of LIBOR.
Until the effective date of Amendment No. 10, at the Company’s option, Revolver borrowings would bear interest at either ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR or the Base Rate, as the ~~term is~~terms are defined in the Credit Agreement, plus an Applicable Margin, as defined in the Credit Agreement. ~~The~~Additionally, the Company iswas subject to limitations on the number of LIBOR borrowings.
As noted above, Amendment No. 10, the Company would be required to use SOFR rates instead of LIBOR. The Company will continue to be subject to the number of SOFR borrowings. The Company does not believe that this change from LIBOR to SOFR will have a significant effect on its consolidated financial statements.
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~~2 percent per annum during the period of default, in addition to other remedies provided to Capital One.
At March 31, ~~2021,~~2022, short-term or Revolver borrowing was ~~$3,481,000,~~$12,522,000, compared to ~~$1,374,000,~~$5,765,000 at December 31, ~~2020.~~2021. (See Note 2, for further discussion related to this increase. Applicable Margin Rates at March 31, ~~2021~~2022 were 1.50% and ~~December 31, 2020~~0.50%, respectively for LIBOR and Base ~~Rates~~Rate borrowings. At December 31, 2021, these rates were 1.50% and 0.50%, ~~respectively.~~respectively for LIBOR and Base Rate borrowings. Additionally, at March 31, ~~2021~~2022, and December 31, ~~2020,~~2021, there was approximately ~~$12,011,000~~$3,360,000 and ~~$11,971,000,~~$9,578,000, respectively, available to the Company under its Revolver arrangement.
The average ~~balance~~balances of short-term borrowings from our Bank ~~during~~for the ~~three-month period~~three -month periods ended March 31, 2022 and 2021, ~~was~~were $10,157,000 and $2,167,000, ~~compared to $6,281,000, for the same three-month period in 2020.~~respectively.

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

~~NOTE 9 – 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 into a Promissory Note dated April 17, 2020, with BNB Bank as the lender (the “Lender”) (the “PPP Promissory Note”).

~~Under the terms~~Table 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 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 that the Company will be able to obtain forgiveness of the PPP Loan in whole or in 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.Contents

As of March 31, 2021, the current maturities of long-term debt pursuant to the PPP Loan, was $2,727,000 and the long-term debt, less current maturities pursuant to the PPP Loan was $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.

~~NOTE 10 – DIVIDEND PAYMENTS~~

~~The Company’s Board of Directors has not 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~~

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 ~~2021~~2022 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company for a number of reasons including, but not limited to:
•● Risks related to the global outbreak of COVID-19 and other public health crises;
•● Risks associated with sourcing from overseas;
•● 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 Brexit;
•● 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;
•● Retention of key personnel;
•● Acquisition of businesses;
•● Regulatory environment;
•● Litigation and insurance;
•● The threat of terrorism and related political instability and economic uncertainty; and
•● Business disruptions or other costs associated with information technology, cyber-attacks, system implementations, data privacy or catastrophic losses,
and those other risks and uncertainties described in its Annual Report on Form 10-K for the year ended December 31, ~~2020 (“2020~~2021 ("2021 Form 10-K”), its Quarterly Reports on Form 10-Q, and its other reports and statements filed by the Company with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. The Company cautions you against relying on any of these forward-looking statements.

Table of Contents

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

OVERVIEW

During the first quarter of ~~2021,~~2022, significant factors that impacted our results of operations were the:

●

Ongoing negative impact of the COVID-19 pandemic on revenue, income, and supply chain;

●

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

●

The acquisition of the Jackson Gear Company business.

~~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

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 markets pneumatic hand tools of its own design, primarily to the retail, industrial, automotive, and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. These tools are similar in appearance and function to electric hand tools, but are powered by compressed air, rather than by electricity or a battery. Air tools, as they are more commonly referred to, generally offer better performance, and weigh less than their electrical counterparts. Florida Pneumatic imports and/or manufactures approximately 75 types of pneumatic hand tools, most of which are sold at prices ranging from $50 to $1,000, under the names “Florida Pneumatic,” “Universal Tool”, “Jiffy Air Tool”, AIRCAT, NITROCAT, as well as under the trade names or trademarks of several private label customers. These products are sold to retailers, distributors, manufacturers and private label customers through in-house sales personnel and manufacturers’ representatives. The AIRCAT and NITROCAT brands of pneumatic tools are sold primarily to the automotive service and repair market (“automotive market”). Users of Florida ~~Pneumatics’~~Pneumatic’s hand tools include industrial maintenance and production staffs, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.

Hy-Tech

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

Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEM’s”), and industrial branded products are sold through a 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, PAPA. 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.

Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, we acquired substantially all the non-real estate assets comprising the business of Jackson Gear Company ("JGC"), a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. (See Note -2 for additional information). This business was consolidated into PTG. We believe this acquisition will provide added market exposure into the larger gears market.

Table of Contents

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.

We ~~now~~ consider tariffs a key economic measure, as a significant portion of products imported by Florida Pneumatic and to a lesser degree, Hy-Tech, are subject to these tariffs.

Further, we monitor transportation costs, specifically ocean freight rates, which since early 2021 have become a key area.

Lastly, the cost and availability of a quality labor pool in the countries where products and components are manufactured, both overseas as well as in the United States, could materially affect our overall results.

OPERATING MEASURES

Key operating measures we use to manage our 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 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.

Table of Contents

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 (“US GAAP”). Descriptions of these policies are discussed in the ~~2020~~2021 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.

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

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 and the resultant global economic down-turn ~~has~~ had a ~~material~~negative impact on our fiscal 2021 results inand continues to negatively impact the Company during the first quarter of ~~2021. There are~~2022. Additionally, we believe the on-going supply-chain crisis is related to a large degree to the pandemic. Beginning in early 2021, and worsening during the latter half of 2021, we encountered severe shipping / receiving delays ~~in receiving~~of inventory / containers from ~~Asia due to a significant increase in international shipping traffic,~~our Asian suppliers, which has caused intermittent shortages of inventory. Further, we believe the COVID-19 global pandemic has been and continues to be the primary factor in the exorbitant increases in the cost of international ocean freight. In addition, the COVID-19 pandemic has caused many of our customers and potential customers to refuse on-site visits, which is critical to generating revenue. We believe that until ~~this pandemic subsides, these two~~the above issues subside, our business will likely continue to ~~affect our operations.~~be adversely affected.

BOEING/AEROSPACE

~~BOEING/AEROSPACE~~

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

Although the 787 Dreamliner is still ~~very limited due~~in production, albeit at a reduced rate, we believe that Boeing has not been able to deliver a new aircraft to a customer for over 1 year. The FAA is in process of evaluating the ~~inventory at~~manufacturing flaws and subsequent corrective actions put forth by Boeing, ~~and the reluctance~~but a firm timeline for customer deliveries of ~~airlines to accept deliveries due to weak air travel demand. This~~new aircraft has not been announced.

Until these issues are fully resolved, we will likely continue to ~~have~~experience an adverse effect on our ~~revenue. In addition,~~revenue for the foreseeable future. Additionally, production of military and other commercial aircraft throughout the industry has slowed as well, which we believe much is due to the ongoing global COVID-19 pandemic. However, we believe when all other commercial and military production lines throughout the United States come back online, an increase in our revenue should follow.

Table of Contents

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

TRENDS AND UNCERTAINTIES - (Continued)

~~OIL AND GAS~~INTERNATIONAL SUPPLY CHAIN

Beginning in 2021, but magnified during the third and fourth quarters, we encountered severe delays in receiving inventory from our Asian suppliers, which led to intermittent shortages of inventory. Further, during this same period and continuing into 2022, ocean freight costs have greatly increased. This trend of higher costs and delayed deliveries has continued into 2022. We believe the major reasons for these issues include the following:

●

Increased price of fuel;

●

Shortage of shipping containers;

●

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

●

Shortage of truck drivers in the United States.

At the present time, we believe the above-mentioned supply chain disruptions, along with increased freight and general domestic transportation costs will likely continue during the remainder of 2022. While we believe that most of these costs have been, or will be, passed on to our customers after the first quarter of 2022, there is no assurance that any additional cost increases can be passed on in the future.

INVENTORY GROWTH

Our inventory increased to $27,548,000 at March 31, 2022, from $24,021,000 at December 31, 2021. This increase, most of which took place at Florida Pneumatic, was due primarily to two factors; to increase safety stock levels, and inventory required to fulfill a large retail order that was received in late 2021 that is scheduled to ship during the second quarter of 2022.

We believe ~~the primary factor contributing~~it was strategic to bolster our safety stock levels of imported products due to the significant ~~decline occurring~~delays we encountered during the latter portion of 2021 and early 2022, which in turn had resulted in “out of stock” positions on several key items. Lastly, it should be noted that inventory levels during fiscal 2020, were suppressed due primarily to supply chain issues and production levels being hampered by the pandemic. As such, a portion of the inventory increase was designed to raise our ~~oil and gas revenue is due~~inventory at all locations to a decline in the price for oil and gas that began in 2020 related to the COVD-19 pandemic. The 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 discussed further below. Until these counts return tosafer, pre-pandemic levels, ~~we will continue~~in order to ~~be impacted negatively.~~provide necessary inventory for growth.

TECHNOLOGIES

We believe that over time, several newer technologies and features will have a greater impact on the market for our traditional pneumatic tool offerings. The impact of this evolution has been felt initially by the advent of advanced cordless operated hand tools in the automotive aftermarket. ~~For certain non-automotive applications, we have begun~~We continue to ~~develop cordless models~~analyze the practicality of ~~tools and expect to introduce these products~~developing or incorporating more advanced technologies in ~~the 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 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.

our tool platforms.

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 have a material impact on our revenue, nor was there any unusual or infrequent event, transaction or any significant economic change that materially affected our results of operations.

Unless otherwise discussed elsewhere in the Management’s Discussion and Analysis, we believe that our relationships with our key customers and suppliers remain satisfactory.

Table of Contents

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

- Continued

RESULTS OF OPERATIONS

REVENUE

During the first quarter of 2021, many of our product lines were adversely affected by the global COVID-19 pandemic, which continues to result in greatly reduced orders and revenue for the three-month period ended March 31, 2021.

The tables below provide an analysis of our net revenue for the three-month periods ended March 31, ~~2021~~2022, and ~~2020:~~2021:

Consolidated

Three months ended March 31,

Increase (decrease)


2022

2021

$

%

Florida Pneumatic

$
10,281,000

$
10,901,000

$
(620,000)

(5.7)
%
Hy-Tech

3,740,000

3,044,000

696,000

22.9

Consolidated

$
14,021,000

$
13,945,000

$
76,000

0.5
%

~~Consolidated~~
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 March 31,
2021 2020 Increase (decrease)
Revenue
Percent of
revenue
Revenue
Percent of
revenue
$ %

Three months ended March 31,

2022

2021

Increase (decrease)




Percent of



Percent of




Revenue

revenue

Revenue

revenue

$

%

Automotive $ 4,102,000 37.6 % $ 3,232,000 32.2 % $ 870,000 26.9 %

$
3,881,000

37.7
%
$
4,102,000

37.6
%
$
(221,000)

(5.4)
%
Retail 3,790,000 34.8 2,990,000 29.8 800,000 26.8

3,020,000

29.5

3,790,000

34.8

(770,000)

(20.2)

Industrial 1,359,000 12.5 1,062,000 10.6 297,000 28.0

1,444,000

14.0

1,359,000

12.5

85,000

6.3

Aerospace 1,528,000 14.0 2,599,000 25.9 (1,071,000 ) (41.2 )

1,777,000

17.3

1,528,000

14.0

249,000

16.3

Other 122,000 1.1 147,000 1.5 (25,000 ) (17.0 )

159,000

1.5

122,000

1.1

37,000

30.3

Total $ 10,901,000 100.0 % $ 10,030,000 100.0 % $ 871,000 8.7 %

$
10,281,000

100.0
%
$
10,901,000

100.0
%
$
(620,000)

(5.7)
%

~~Despite~~When comparing the ~~ongoing negative effects on~~three-month periods ended March 31, 2022, and 2021, the ~~US and global economies, total fiscal~~most significant change in Florida Pneumatic's revenue occurred within its Retail sector. The fall-off was due primarily to reduced volume in the sale of "spray guns" during the first quarter ~~2021 revenue at Florida Pneumatic increased 8.7% over~~of 2022, compared to the same ~~three-month~~ period in ~~2020.~~2021. We believe that The Home Depot's ("THD"s) purchase level of spray guns during the COVID-19 pandemic (2020 and 2021) were likely used by their customers to sanitize large areas. Accordingly, as the pandemic appears to have subsided somewhat, the need for this tool used to combat the virus has diminished. Additionally, THD discontinued eight items, which contributed to the decline in revenue. It should be noted that many of the discontinued items will be replaced with a "roll-out" scheduled to ship during the second quarter of 2022, consisting of six new items. Further, we believe revenue from the new six items should greatly offset the decline from the discontinued items. Although our Automotive revenue declined this quarter, compared to the same period in 2021, as the result in a change in a distribution channel strategy, the gross margin related to our Automotive revenue has increased. Aerospace revenue improved 16.3%, when comparing the first quarter of 2022 and 2021. 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 a lesser degree, modest increased sales at our United Kingdom (“U.K.”) operations, were the primary factors for the increase in Automotive revenue. We believe that as the result of the ongoing battle to disinfect and sanitize homes and businesses alike, Florida Pneumatic encountered an overall increase in demand ~~compared to~~throughout the ~~first quarter~~sector.

Table of 2020, for various “spray gun” tools and accessories which are sold into the retail channel. Stronger Industrial revenue this quarter than in the 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 tools. Further, the travel restrictions that developed as the result of the COVID-19 pandemic, caused most commercial airlines to curtail orders for other aircraft, which also negatively impacted Florida Pneumatic’s Aerospace revenue. Lastly, orders relating to military aircraft declined, we believe due to COVID-19 constraints placed in manufacturing facilities.Contents

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

RESULTS OF OPERATIONS - (Continued)

~~Hy-Tech~~REVENUE – 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. PTG revenue is comprised of products manufactured and sold by ~~Hy-tech’s~~Hy-Tech’s gear business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.

	Three months ended March 31,
	2021					2020					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%

																	Three months ended March 31,
																	2022				2021				Increase (decrease)
																			Percent of				Percent of
																	Revenue		revenue		Revenue		revenue		$		%
OEM	$	1,611,000		52.9	%	$	1,439,000		43.3	%	$	172,000			12.0	%	$	1,965,000	52.6	%	$	1,611,000	52.9	%	$	354,000	22.0	%
PTG																		940,000	25.1			646,000	21.2			294,000	45.5
ATP		713,000		23.4			1,061,000		32.0			(348,000	)		(32.8	)		742,000	19.8			713,000	23.4			29,000	4.1
PTG		646,000		21.2			735,000		22.1			(89,000	)		(12.1	)
Other		74,000		2.5			85,000		2.6			(11,000	)		(12.9	)		93,000	2.5			74,000	2.5			19,000	25.7
Total	$	3,044,000		100.0	%	$	3,320,000		100.0	%	$	(276,000	)		(8.3	)%	$	3,740,000	100.0	%	$	3,044,000	100.0	%	$	696,000	22.9	%

The decline in Hy-Tech’s fiscal first quarter 2021 total revenue, compared to the same period in 2020, was primarily due to the following key factors: i) the ongoing negative effects on the US economy caused by the global COVID-19 pandemic; and ii) the severe downturn of the oil and gas 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 natural gas, which in 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 we monitor. According to 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 duringDuring the first quarter of ~~2021 is down by 392, or 50%,~~2022, Hy-Tech continued to see signs that the ill effects of the pandemic were beginning to ease. Customer orders for all of its major product lines improved when compared to the same three-month period a year ago. Its OEM product line growth was due in ~~2020. As such, early~~large part to a general rebound in ~~2020~~the pneumatic tool sector, with increased shipments to two large customers. The growth in PTG revenue was due to the acquisition of the Jackson Gear Company business (“JGC”). (See Note – 2 for further discussion). Its added revenue was partially offset by a decline in orders from a large customer. The increase in Hy-Tech’s Other revenue was due to NUMATX growth.

GROSS MARGIN/PROFIT

Three months ended March 31,

Increase

2022

2021

Amount


%

Florida Pneumatic

$
3,949,000

$
4,200,000

$
(251,000)

(6.0)
%
As percent of respective revenue

38.4
%

38.5
%

(0.1)
%
pts

Hy-Tech

$
562,000

$
436,000

$
126,000

28.9

As percent of respective revenue

15.0
%

14.3
%

0.7
%
pts

Total

$
4,511,000

$
4,636,000

$
(125,000)

(2.7)
%
As percent of respective revenue

32.2
%

33.2
%

(1.0)
%
pts

The minimal decline in Florida Pneumatic’s gross margin this quarter, compared to the same three-month period in the prior year was due primarily to product mix. Ocean freight costs continue to adversely affect our gross margin, particularly at Florida Pneumatic where we ~~made~~are still encountering container costs that are four to five times greater than a ~~decision~~year ago. We are attempting to ~~focus a greater portion of our product development and marketing efforts on our OEM and PTG products offering. We believe the development~~pass through most if not all of these ~~lines of business should provide Hy-Tech an opportunity~~increases; however, we may not be able to ~~generate new, additional sources of revenue~~fully neutralize the negative effects.
The improvement in Hy-Tech’s gross margin is due primarily to its overall product/customer mix. However, its manufacturing overhead absorption at PTG suffered during the quarter, as we are in the ~~future. Further, we are optimistic~~process of integrating the Jackson Gear Company acquisition. We expect that the major integration items should be resolved during the second half of 2022 and thus improve gross margin as ~~travel restrictions and on-site visitation controls begin to ease, Hy-Tech’s revenue could increase.~~well.

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

RESULTS OF OPERATIONS -(Continued)

~~GROSS MARGIN/PROFIT~~

Three months ended March 31, Increase (decrease)
2021 2020 Amount %
Florida Pneumatic $ 4,200,000 $ 3,774,000 $ 426,000 11.3 %
As percent of respective revenue 38.5 % 37.6 % 0.9 % pts
Hy-Tech $ 436,000 $ 708,000 $ (272,000 ) (38.4 )
As percent of respective revenue 14.3 % 21.3 % (7.0 )% pts
Total $ 4,636,000 $ 4,482,000 $ 154,000 3.4 %
As percent of respective revenue 33.2 % 33.6 % (0.4 )% pts

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 in 2020, contributed to the overall increase in gross margin. This improvement was partially offset by reduced manufacturing at Jiffy, which in turn resulted in under absorption of its manufacturing overhead. As previously discussed, the COVID-19 pandemic continued to have an adverse effect on Hy-Tech, notably reducing revenue causing a reduction in volume through both manufacturing facilities. The reduced manufacturing volume resulted in lower absorption of manufacturing costs during the first quarter of 2021, compared to the same three-month period in 2020. Additionally, Hy-Tech recorded an increase in its obsolete, slow moving inventory charge during the first quarter of 2021, compared to the same period in 2020. Lastly, Hy-Tech’s overall product/customer mix negatively impacted its gross margin during the three-month period ended March 31, 2021.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

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

During the first quarter of ~~2021,~~2022, our SG&A ~~declined~~was $5,173,000, compared to $4,991,000 ~~from $5,690,000~~ incurred during the same three-month period in ~~2020. The most~~2021. There were three significant ~~factor~~factors contributing to the net decrease was a reduction of 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 ourincrease. First, compensation ~~expenses by $246,000.~~expense increased $188,000. Compensation expense is comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits. ~~A reduction~~Several factors contributed to this increase, among them the staffing added in ~~accrued performance-based bonus~~connection with the JGC acquisition, increased wages primarily related to retention incentives ~~was~~and annual wage adjustments and increases in companywide bonus/incentive/performance accruals. Secondly, professional fees and expenses increased $233,000, due primary to legal, accounting and other fees incurred in connection with the ~~bulk of the savings. Further, depreciation expense decline by $40,000. Partially~~JGC acquisition. Other expenses that contributed to this $233,000 increase were cyber security related costs and recruitment fees. Lastly, partially offsetting the above ~~reductions~~increases was a reduction of ~~operating expenses was an increase~~$273,000 in our variable ~~expenses of $103,000, driven by improved revenue this quarter in certain sectors, compared to revenue in the same three-month period in the prior year.~~expenses. Variable expenses include among other ~~things,~~items, commissions, freight out, travel, advertising, shipping supplies and warranty costs.

~~Management’s Discussion~~ Driving this decline were significantly lower advertising and ~~Analysis of Financial Condition and Results of Operations – Continued~~

shipping costs at Florida Pneumatic, caused by a change in a distribution channel strategy.

~~RESULTS OF OPERATIONS~~ ~~- (Continued)~~INTEREST


	Three months ended March 31,				Increase (decrease)
	2022		2021		Amount		%
Interest expense attributable to:
Short-term borrowings	$	48,000	$	10,000	$	38,000	380.0	%
PPP loan		—		8,000		(8,000)	(100.0)
Amortization expense of debt issue costs		4,000		4,000		—	—

Total	$	52,000	$	22,000	$	30,000	136.4	%

~~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~~Our borrowings increased during the three-month ~~periods~~period ended March 31, ~~2021~~2022, compared to the same period in the prior year. This increase was driven primarily by the decision to increase safety stock levels on inventory and ~~2020.~~ the acquisition in 2022 of the Jackson Gear Company business.

The average balance of short-term borrowings during the three-month periods ended March 31, 2022, and 2021, were $10,157,000 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 2020, our short-term interest expense (revolver borrowings) declined.

As discussed in Note 9 – 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 9, accrues interest at a rate of 1.0% per annum. Pursuant to the Flexibility Act, as defined in Note 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.

~~Lastly, we and our bank amended the Credit Agreement in February 2019. The debt~~Debt issue costs are associated with ~~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, modificationsan amendment to the ~~net interest deduction limitation and technical corrections~~Credit Agreement. There were no amortizable debt issue costs incurred with Amendment No. 9, to ~~tax depreciation methods for qualified improvement property.~~the Credit Agreement.

INCOME TAXES

At the end of each interim reporting period, ~~the Company estimates its~~we compute an effective tax rate ~~expected to be applied for the~~based upon our estimated full ~~year.~~year results. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods. Accordingly, ~~our~~the effective tax rate for the three-month ~~period~~periods ended March 31, 2022, and 2021, ~~was~~were approximately a tax benefit of 13.4 %, and 18.6%, compared to tax benefit of 40.0% for the three-month period ended March 31, 2020. Included in the three-month period ended March 31, 2020 is a discrete item for net operating loss carrybacks under the CARES Act.respectively. The effective tax rates for all periods presented were impacted primarily by state taxes, and non-deductible expenses. Additionally, impacting 2021’s net effective tax benefit was the enactment of the Coronavirus Aid, Relief, and Economic Security Act.

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

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:

	March 31, 2021		December 31, 2020

					March 31, 2022		December 31, 2021
Working capital	$	20,773,000	$	21,258,000	$	22,375,000	$	24,598,000
Current ratio		2.90 to 1		3.57 to 1		2.15 to 1		3.04 to 1
Shareholders’ equity	$	41,261,000	$	41,538,000	$	43,181,000	$	43,840,000

Credit facility

Our Credit Facility is discussed in ~~Note 8 to 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~~detail in Note 9, to our Consolidated Financial Statements. Discussed therein, we and the ~~consolidated financial statements for further discussion.~~Bank entered into an amendment that, among other things, increased the Revolver borrowing commitment by $2,000,000 to $18,000,000 through June 30, 2022.

At March 31, 2022, there was approximately $3,360,000 available to us under its Revolver arrangement.

Should the need arise whereby the current Credit Agreement is insufficient; we believe that the current Agreement could be expanded, and/or we could obtain additional funds based on the value of our real property.

Cash flows

~~During~~For the three-month period ended March 31, ~~2021, our net~~2022, cash ~~increased~~used by operating activities was $3,972,000, compared to ~~$1,047,000 from $904,000 on~~cash used by operating activities for the year ended December 31, ~~2020. Our total bank debt, which includes borrowings under the CARES Act,~~2021, of $4,149,000. At March 31, 2022, our consolidated cash balance was $642,000, compared to $539,000 at December 31, 2021. Cash at our UAT subsidiary was $190,000 at March 31, ~~2021 was $6,410,000 compared to $4,303,000 at~~2022 and December 31, ~~2020. The~~2021, respectively. We operate under the terms and conditions of the Credit Agreement. As a result, all domestic cash receipts are remitted to Capital One lockboxes.

Our total debt to total book capitalization (total debt divided by total debt plus equity) aton March 31, ~~2021~~2022, was ~~13.4%~~22.5%, compared to ~~9.4% at~~11.6% on December 31, ~~2020.~~2021.

~~At March 31, 2021,~~Our working capital needs will increase due to anticipated growth, and a roll-out of a new tools program to our ~~short-term or~~Retail customer. As a result, our Revolver ~~borrowing was $3,481,000 compared to $1,374,000, at December 31, 2020. Additionally, at March 31, 2021~~borrowings will likely increase in the first half of 2022 and ~~December 31, 2020, there was approximately $12,011,000 and $11,971,000, respectively, available to us under~~should then decline throughout the ~~Revolver arrangement.~~

remainder of 2022.

During the three-month period ended March 31, ~~2021,~~2022, we completed the JGC acquisition, with a purchase price of $2,300,000, plus acquisition expenses that included among other things, legal, accounting, and relocation expenses. (See Note 2).

During the three-month period ended March 31, 2022, we used ~~$68,000~~$380,000 for capital expenditures, compared to ~~$658,000~~$68,000 during the same period in the prior year. Capital expenditures currently planned for the ~~balance~~remainder of ~~2021 is expected to be~~2022 are approximately $800,000, ~~some of~~ which ~~may~~we expect will be financed through ~~our credit facilities with Capital One Bank or financed through independent third-party financial institutions.~~ the Credit Facility.

Table of Contents

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

LIQUIDITY AND CAPITAL RESOURCES - Continued

Cash Flows- Continued

The ~~remaining 2021~~major portion of these planned capital expenditures will ~~likely~~ be for ~~machinery and~~new metal cutting equipment, tooling and ~~computer~~information technology hardware and ~~software.~~

~~Customer concentration~~

~~At March 31, 2021~~software, and ~~December 31, 2020, accounts receivable from The Home Depot (“THD”) was 36.8% and 38.0%, respectively,~~the expansion of total accounts receivable. Revenue from THD during the three-month periods ended March 31, 2021 and 2020 was 27.2% and 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,our Punxsutawney, PA facility as a result of the ~~Company’s total net revenue. Accounts receivable attributable~~acquisition of Jackson Gear (See Note 2).

Our liquidity and capital is primarily sourced from our credit facility, described in Note 9 – Debt, to ~~Amazon at March 31, 2021~~our Consolidated Financial Statements, 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-month periods ended March 31, 2021 or 2020.cash from operations.

~~NEW ACCOUNTING PRONOUNCEMENTS~~

Customer concentration

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

IMPACT OF INFLATION

Increasing prices, most notably in freight/transportation and, to a lesser extent, the cost of raw materials and labor had a material effect on our results of operations during the three-month period ended March 31, 2022. We believe that the current and projected significant increases of inflation, the on-going volatility of freight/transportation costs, and recent geopolitical unrest will have an impact on our results of operations during 2022. At the present time we are unable to reasonably estimate said impact on our results of operations for the remainder of 2022 and beyond.

NEW ACCOUNTING PRONOUNCEMENTS

There were no new accounting standards ~~and pronouncements.~~

or pronouncements issued during the three-month period ended March 31, 2022 that were applicable to us.

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.~~statements

~~Item 3.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Table of Contents

~~Item 4.~~

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated, as of March 31, ~~2021,~~2022, the effectiveness of the Company’s disclosure controls and procedures, which were designed to be effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of March 31, ~~2021,~~2022, the Company’s management, including its CEO and CFO, concluded that the 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 ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II - OTHER INFORMATION

~~Item 1.~~

Item 1. Legal Proceedings

There have been no material changes to the legal proceedings’ disclosure described in our ~~2020~~2021 Form 10-K.

~~Item 1A.~~

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under Part I, Item 1A “Risk Factors” in the ~~2020~~2021 Form 10-K, other than the following, which replaces the 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:10-K.

~~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 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, 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.

~~PART II - OTHER INFORMATION~~

~~Item 2.~~

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

None

~~Item 3.~~

Item 3. Defaults Upon Senior Securities

None.

~~Item 4.~~

Item 4. Mine Safety Disclosures

None.

~~Item 5.~~

Item 5. Other Information

None.

~~Item 6.~~

Item 6. Exhibits

See “Exhibit Index” immediately following the signature page.

Table of Contents

SIGNATURE

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


		P&F INDUSTRIES, INC.
		(Registrant)

		/s/ JOSEPH A. MOLINO, Jr.
		Joseph A. Molino, Jr.
		Chief Financial Officer
Dated: May ~~17, 2021~~13, 2022		(Principal Financial and Chief Accounting Officer)

Table of Contents

EXHIBIT INDEX

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


Exhibit Number		Description of Exhibit

2.1		Asset Purchase Agreement, dated as of January 14, 2022, by and among Heisman Acquisition Corp., Jackson Gear Company, Robert Jackson and Scott Jackson (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated January 14, 2022).

10.1		Consent, Joinder and Amendment No. 9 to Second Amended and Restated Loan and Security Agreement, dated as of January 14, 2022, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Hy-Tech Illinois, Inc., Heisman Acquisition Corp., and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated January 14, 2022).

10.2		Amendment No. 10 to Second Amended and Restated Loan and Security Agreement, dated as of April 12, 2022, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Hy-Tech Illinois, Inc., Heisman Acquisition Corp., and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 12, 2022).

10.3		Fourth Amended and Restated Revolver Note, dated April 12, 2022, by the Registrant, Florida Pneumatic Manufacturing Corporation and Hy-Tech Machine, Inc in favor of Capital One, National Association (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated April 12, 2022).

31.1		Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		* Inline Interactive Data

104		Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit)

*Attached as Exhibit 101 are the following, each formatted in Inline Extensible Business Reporting Language (“~~XBRL”~~iXBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to consolidated financial statements.

A copy of any of the foregoing exhibits to this Quarterly Report on Form 10-Q may be obtained, upon payment of the Registrant’s reasonable expenses in furnishing such exhibit, by writing to P&F Industries, Inc., 445 Broadhollow Road, Suite 100, Melville New York 11747, Attention: Corporate Secretary.

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

Cash	$	1,047,000	$	904,000
Accounts receivable — net		9,538,000		7,468,000
Inventories		18,631,000		18,362,000
Prepaid expenses and other current assets		2,471,000		2,806,000
TOTAL CURRENT ASSETS		31,687,000		29,540,000

PROPERTY AND EQUIPMENT
Land		507,000		507,000
Buildings and improvements		3,544,000		3,544,000
Machinery and equipment		25,617,000		25,673,000
		29,668,000		29,724,000
Less accumulated depreciation and amortization		20,659,000		20,329,000
NET PROPERTY AND EQUIPMENT		9,009,000		9,395,000

GOODWILL		4,451,000		4,449,000

OTHER INTANGIBLE ASSETS — net		6,070,000		6,226,000

DEFERRED INCOME TAXES — net		298,000		226,000

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

OTHER ASSETS — net		178,000		250,000

TOTAL ASSETS	$	54,811,000	$	53,367,000


	Three months
	ended March 31,
	2022		2021
Net revenue	$	14,021,000	$	13,945,000
Cost of sales		9,510,000		9,309,000
Gross profit		4,511,000		4,636,000
Selling, general and administrative expenses		5,173,000		4,991,000
Operating loss		(662,000)		(355,000)
Interest expense		(52,000)		(22,000)
Loss income before income taxes		(714,000)		(377,000)
Income tax benefit		96,000		70,000
Net loss	$	(618,000)	$	(307,000)

Basic and diluted loss per share	$	(0.19)	$	(0.10)

Weighted average common shares outstanding:

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

Net loss	$	(618,000)	$	(307,000)
Other comprehensive (loss) income - foreign currency translation adjustment		(50,000)		15,000
Total comprehensive loss	$	(668,000)	$	(292,000)

	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	)


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

Net loss		(618,000)	0		0		0		(618,000)	0		0		0

Restricted common stock based compensation		8,000	0		0		8,000		0	0		0		0

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

Foreign currency translation adjustment		(50,000)	0		0		0		0	0		0		(50,000)

Balance, March 31, 2022	$	43,181,000	4,453,000	$	4,453,000	$	14,176,000	$	35,428,000	(1,273,000)	$	(10,213,000)	$	(663,000)

				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, 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		(307,000	)		—		—		—			(307,000	)		—			—			—

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

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

Foreign currency translation adjustment		15,000			—		—		—			—			—			—			15,000

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 March 31,2021
2021 (excluding the three months ended March 31, 2021)	$	654,000
2022		783,000

				As of March 31, 2022
2022 (excluding the three months ended March 31, 2022)				$	709,000
2023		670,000			945,000
2024		391,000			670,000
2025		182,000			375,000
2026					240,000
Thereafter		867,000			1,590,000
Total operating lease payments		3,547,000			4,529,000
Less imputed interest		(385,000	)		(705,000)
Total operating lease liabilities	$	3,162,000		$	3,824,000


Weighted average remaining lease term		5.9 years			7.6	years
Weighted average discount rate		4.3	%		5.96	%


Accounts receivable	$	490,000
Inventories		369,000
Machinery and equipment		823,000
Goodwill		833,000
Liabilities assumed		(215,000)
Total estimated purchase price	$	2,300,000


	For the
	Three-Month
	Period Ended
	March 31, 2021
Revenue	$	14,455,000
Net loss	$	(363,000)
Loss per share – basic and diluted	$	(0.11)

	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


	Three months ended
	March 31,
	2022		2021
Numerator for basic and diluted loss per common share:
Net loss	$	(618,000)	$	(307,000)

Denominator:
Denominator for basic loss per share - weighted average common shares outstanding		3,169,000		3,169,000
Dilutive securities (1)		0		0
Denominator for diluted loss per share - weighted average common shares outstanding		3,169,000		3,169,000


		Weighted		Weighted average
		average		remaining	Aggregate
		exercise		contractual life	Intrinsic
	Option shares	price		(years)	Value
Outstanding, January 1, 2022	178,499	$	6.76	3.4	$	60,643
Granted	0		0	—		—
Exercised	0		0	—		—
Forfeited	0		0	—		—
Expired	0		0	—		—
Outstanding, March 31, 2022	178,499	$	6.76	3.2	$	56,692
Vested, March 31, 2022	175,831	$	6.73	3.1	$	56,692

	Option shares		Weighted average exercise price		Weighted average remaining contractual life (years)		Aggregate intrinsic value
Outstanding, January 1, 2021		200,878	$	6.59		4.1	$	85,663
Granted		—
Exercised		—
Forfeited		—
Expired		—
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
Non-vested options, January 1, 2021		5,334		$	4.60
Granted
Vested		(2,666	)		4.60
Forfeited		—
Non-vested options, March 31, 2021		2,668		$	4.60

Balance, January 1, 2021	$	4,449,000
Currency translation adjustment		2,000
Balance, March 31, 2021	$	4,451,000


Balance, January 1, 2022	$	4,447,000
Goodwill attributable to the acquisition of Jackson Gear Company business (See Note 2)		833,000
Currency translation adjustment		(5,000)
Balance, March 31, 2022	$	5,275,000

	March 31, 2021						December 31, 2020
	Cost		Accumulated amortization		Net book value		Cost		Accumulated amortization		Net book value
Other intangible assets:
Customer relationships (1)	$	6,504,000	$	3,163,000	$	3,341,000	$	6,502,000	$	3,034,000	$	3,468,000
Trademarks and trade names (1)		2,188,000		—		2,188,000		2,187,000		—		2,187,000
Trademarks and trade names		200,000		62,000		138,000		200,000		59,000		141,000
Engineering drawings		330,000		243,000		87,000		330,000		239,000		91,000
Non-compete agreements (1)		336,000		274,000		62,000		335,000		266,000		69,000
Patents		1,286,000		1,032,000		254,000		1,286,000		1,016,000		270,000
Totals	$	10,844,000	$	4,774,000	$	6,070,000	$	10,840,000	$	4,614,000	$	6,226,000

2021	$	472,000
2022		630,000

April 1 through December 31, 2022			$	472,000
2023		626,000		625,000
2024		577,000		576,000
2025		548,000		546,000
2026				348,000
Thereafter		1,029,000		680,000
	$	3,882,000
			$	3,247,000


	Three months ended March 31,						Increase
	2022			2021			Amount				%
Florida Pneumatic	$	3,949,000		$	4,200,000		$	(251,000)			(6.0)	%
As percent of respective revenue		38.4	%		38.5	%		(0.1)	%	pts
Hy-Tech	$	562,000		$	436,000		$	126,000			28.9
As percent of respective revenue		15.0	%		14.3	%		0.7	%	pts
Total	$	4,511,000		$	4,636,000		$	(125,000)			(2.7)	%
As percent of respective revenue		32.2	%		33.2	%		(1.0)	%	pts