UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2022March 31, 2023
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-5332
P&F INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 22-1657413 |
(State or other jurisdiction of |
| (I.R.S. Employer Identification Number) |
incorporation or organization) |
|
|
|
|
|
445 Broadhollow Road, Suite 100, Melville, New York |
| 11747 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (631) 694-9800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Class A common stock, $1.00 par value |
| PFIN |
| NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ |
|
|
|
|
|
|
| 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 ☒
As of AugustMay 5, 2022,2023, there were 3,194,699 shares of the registrant’s Class A common stock outstanding.
P&F INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022MARCH 31, 2023
TABLE OF CONTENTS
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| Consolidated Balance Sheets as of | 3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 | ||||
|
| (unaudited) |
| (See Note 1) |
| (unaudited) |
| (See Note 1) | ||||
ASSETS | | | | | | | | | | | | |
CURRENT ASSETS | | | | | | | | | | | | |
| | | | | | | | | | | | |
Cash | | $ | 431,000 | | $ | 539,000 | | $ | 561,000 | | $ | 667,000 |
Accounts receivable — net | |
| 10,418,000 | |
| 7,550,000 | |
| 9,139,000 | |
| 7,370,000 |
Inventories | |
| 24,610,000 | |
| 24,021,000 | |
| 23,654,000 | |
| 24,491,000 |
Prepaid expenses and other current assets | |
| 2,946,000 | |
| 4,566,000 | |
| 1,112,000 | |
| 2,753,000 |
TOTAL CURRENT ASSETS | |
| 38,405,000 | |
| 36,676,000 | |
| 34,466,000 | |
| 35,281,000 |
| | | | | | | | | | | | |
PROPERTY AND EQUIPMENT | | | | | | | | | | | | |
Land | |
| 507,000 | |
| 507,000 | |
| 507,000 | |
| 507,000 |
Buildings and improvements | |
| 3,902,000 | |
| 3,605,000 | |
| 4,087,000 | |
| 4,087,000 |
Machinery and equipment | |
| 27,057,000 | |
| 25,675,000 | |
| 28,964,000 | |
| 28,057,000 |
| |
| 31,466,000 | |
| 29,787,000 | |
| 33,558,000 | |
| 32,651,000 |
Less accumulated depreciation and amortization | |
| 22,525,000 | |
| 21,707,000 | |
| 23,800,000 | |
| 23,288,000 |
NET PROPERTY AND EQUIPMENT | |
| 8,941,000 | |
| 8,080,000 | |
| 9,758,000 | |
| 9,363,000 |
| | | | | | | | | | | | |
GOODWILL | |
| 4,822,000 | |
| 4,447,000 | |
| 4,825,000 | |
| 4,822,000 |
| | | | | | | | | | | | |
OTHER INTANGIBLE ASSETS — net | |
| 5,673,000 | |
| 5,592,000 | |
| 5,158,000 | |
| 5,326,000 |
| | | | | | | | | | | | |
DEFERRED INCOME TAXES — net | |
| 374,000 | |
| 349,000 | |
| 472,000 | |
| 629,000 |
| | | | | | | | | | | | |
RIGHT-OF-USE ASSETS – OPERATING LEASES | | | 3,718,000 | | | 2,969,000 | | | 5,309,000 | | | 5,521,000 |
| | | | | | | | | | | | |
OTHER ASSETS — net | |
| 69,000 | |
| 77,000 | |
| 78,000 | |
| 62,000 |
| | | | | | | | | | | | |
TOTAL ASSETS | | $ | 62,002,000 | | $ | 58,190,000 | | $ | 60,066,000 | | $ | 61,004,000 |
See accompanying notes to consolidated financial statements (unaudited).
3
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | |
| | June 30, 2022 | | December 31, 2021 | ||
|
| (unaudited) |
| (See Note 1) | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
| | | | | | |
CURRENT LIABILITIES | | | | | | |
| | | | | | |
Short-term borrowings | | $ | 10,069,000 | | $ | 5,765,000 |
Accounts payable | |
| 2,337,000 | |
| 2,920,000 |
Accrued compensation and benefits | |
| 1,187,000 | |
| 1,475,000 |
Accrued other liabilities | |
| 1,484,000 | |
| 1,078,000 |
Current lease liabilities – operating leases | | | 921,000 | | | 840,000 |
TOTAL CURRENT LIABILITIES | |
| 15,998,000 | |
| 12,078,000 |
| | | | | | |
Noncurrent lease liabilities – operating leases | | | 2,855,000 | | | 2,176,000 |
Other liabilities | |
| 83,000 | |
| 96,000 |
| | | | | | |
TOTAL LIABILITIES | |
| 18,936,000 | |
| 14,350,000 |
| | | | | | |
SHAREHOLDERS’ EQUITY | |
| | |
|
|
Preferred stock - $10 par; authorized - 2,000,000 shares; 0 shares issued | |
| — | |
| — |
Common stock | |
| | |
|
|
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,467,000 at June 30, 2022, and 4,453,000 at December 31, 2021 | |
| 4,467,000 | |
| 4,453,000 |
Class B - $1 par; authorized - 2,000,000 shares; 0 shares issued | |
| 0 | |
| 0 |
Additional paid-in capital | |
| 14,214,000 | |
| 14,167,000 |
Retained earnings | |
| 35,407,000 | |
| 36,046,000 |
Treasury stock, at cost – 1,273,000 shares at June 30, 2022 and December 31, 2021 | |
| (10,213,000) | |
| (10,213,000) |
Accumulated other comprehensive loss | |
| (809,000) | |
| (613,000) |
| | | | | | |
TOTAL SHAREHOLDERS’ EQUITY | |
| 43,066,000 | |
| 43,840,000 |
| | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 62,002,000 | | $ | 58,190,000 |
| | | | | | |
| | March 31, 2023 | | December 31, 2022 | ||
|
| (unaudited) |
| (See Note 1) | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
| | | | | | |
CURRENT LIABILITIES | | | | | | |
| | | | | | |
Short-term borrowings | | $ | 7,602,000 | | $ | 7,570,000 |
Accounts payable | |
| 2,219,000 | | | 3,094,000 |
Accrued compensation and benefits | |
| 1,009,000 | | | 1,757,000 |
Accrued other liabilities | |
| 1,647,000 | | | 1,002,000 |
Current leased liabilities – operating leases | | | 916,000 | | | 1,020,000 |
TOTAL CURRENT LIABILITIES | |
| 13,393,000 | |
| 14,443,000 |
| | | | | | |
Noncurrent leased liabilities – operating leases | | | 4,426,000 | | | 4,535,000 |
Other liabilities | |
| 63,000 | |
| 70,000 |
| | | | | | |
TOTAL LIABILITIES | |
| 17,882,000 | | | 19,048,000 |
| | | | | | |
SHAREHOLDERS’ EQUITY | |
| | | | |
Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued | |
| — | | | — |
Common stock | |
| | | | |
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,467,000 at March 31, 2023, and December 31, 2022 | |
| 4,467,000 | | | 4,467,000 |
Class B - $1 par; authorized - 2,000,000 shares; no shares issued | |
| — | | | — |
Additional paid-in capital | |
| 14,263,000 | | | 14,246,000 |
Retained earnings | |
| 34,428,000 | | | 34,251,000 |
Treasury stock, at cost – 1,273,000 shares at March 31, 2023, and December 31, 2022 | |
| (10,213,000) | | | (10,213,000) |
Accumulated other comprehensive loss | |
| (761,000) | | | (795,000) |
| | | | | | |
TOTAL SHAREHOLDERS’ EQUITY | |
| 42,184,000 | | | 41,956,000 |
| | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 60,066,000 | | $ | 61,004,000 |
See accompanying notes to consolidated financial statements (unaudited).
4
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
| | | | | | | | | | | | | | | | | | |
| | Three months | | Six months | | Three months | ||||||||||||
| | ended June 30, | | ended June 30, | | ended March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||||
Net revenue | | $ | 17,810,000 | | $ | 13,589,000 | | $ | 31,831,000 | | $ | 27,535,000 | | $ | 15,742,000 | | $ | 14,021,000 |
Cost of sales | |
| 12,174,000 | | | 8,741,000 | | | 21,684,000 | | | 18,051,000 | |
| 10,000,000 | | | 9,510,000 |
Gross profit | |
| 5,636,000 | | | 4,848,000 | | | 10,147,000 | | | 9,484,000 | |
| 5,742,000 | | | 4,511,000 |
Selling, general and administrative expenses | |
| 5,479,000 | | | 5,458,000 | | | 10,652,000 | | | 10,449,000 | |
| 5,175,000 | | | 5,173,000 |
Operating income (loss) | |
| 157,000 | | | (610,000) | | | (505,000) | | | (965,000) | |
| 567,000 | | | (662,000) |
Other (expense) income | |
| (16,000) | | | 2,929,000 | | | (16,000) | | | 2,929,000 | ||||||
Interest (expense) income | | | (86,000) | | | 15,000 | | | (138,000) | | | (7,000) | ||||||
Income (loss) | | | 55,000 | | | 2,334,000 | | | (659,000) | | | 1,957,000 | ||||||
Other income | |
| 36,000 | | | — | ||||||||||||
Interest expense-net | | | (109,000) | | | (52,000) | ||||||||||||
Income (loss) before income taxes | | | 494,000 | | | (714,000) | ||||||||||||
Income tax (expense) benefit | |
| (76,000) | | | 89,000 | | | 20,000 | | | 159,000 | |
| (157,000) | | | 96,000 |
Net income (loss) | | $ | (21,000) | | $ | 2,423,000 | | $ | (639,000) | | $ | 2,116,000 | | $ | 337,000 | | $ | (618,000) |
| | | | | | | | | | | | | | | | | | |
Basic (loss) earnings per share | | $ | (0.01) | | $ | 0.76 | | $ | (0.20) | | $ | 0.67 | ||||||
Diluted (loss) earnings per share | | $ | (0.01) | | $ | 0.76 | | $ | (0.20) | | $ | 0.66 | ||||||
Basic and diluted income (loss) per share | | $ | 0.11 | | $ | (0.19) | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding: | |
| | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | | | | | | | |
Basic | |
| 3,185,000 | | | 3,181,000 | | | 3,177,000 | | | 3,175,000 | ||||||
Diluted | |
| 3,185,000 | | | 3,193,000 | | | 3,177,000 | | | 3,190,000 | ||||||
Basic and diluted | |
| 3,195,000 | | | 3,169,000 | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (21,000) | | $ | 2,423,000 | | $ | (639,000) | | $ | 2,116,000 | ||||||
Other comprehensive (loss) income - foreign currency translation adjustment | |
| (146,000) | | | 4,000 | | | (196,000) | | | 19,000 | ||||||
Total comprehensive (loss) income | | $ | (167,000) | | $ | 2,427,000 | | $ | (835,000) | | $ | 2,135,000 | ||||||
Net income (loss) | | $ | 337,000 | | $ | (618,000) | ||||||||||||
Other comprehensive income (loss) - foreign currency translation adjustment | |
| 34,000 | | | (50,000) | ||||||||||||
Total comprehensive income (loss) | | $ | 371,000 | | $ | (668,000) |
See accompanying notes to consolidated financial statements (unaudited).
5
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
Three months ended June 30,March 31, 2023
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Accumulated | |
| | | | | Class A common | | Additional | | | | | | | | | | other | |||||
| | | | | stock, $1 par | | paid-in | | Retained | | Treasury stock | | comprehensive | |||||||||
|
| Total |
| Shares |
| Amount |
| capital |
| earnings |
| Shares |
| Amount |
| loss | ||||||
Balance, January 1, 2023 | | $ | 41,956,000 |
| 4,467,000 | | $ | 4,467,000 | | $ | 14,246,000 | | $ | 34,251,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (795,000) |
| |
| | | | | | | | | | | | | | | | | | | | |
Net income | |
| 337,000 |
| — | |
| — | |
| — | |
| 337,000 |
| — | |
| — | |
| — |
| | | | | | | | | | | | | | | | | | | | | | |
Restricted common stock-based compensation | |
| 9,000 |
| — | |
| — | |
| 9,000 | |
| — |
| — | |
| — | |
| — |
| |
| | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | |
| 8,000 |
| — | |
| — | |
| 8,000 | |
| — |
| — | |
| — | |
| — |
| |
| | | | | | | | | | | | | | | | | | | | |
Dividends | |
| (160,000) |
| — | |
| — | |
| — | |
| (160,000) |
| — | |
| — | |
| — |
| |
| | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| 34,000 |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| 34,000 |
| |
| | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2023 | | $ | 42,184,000 |
| 4,467,000 | | $ | 4,467,000 | | $ | 14,263,000 | | $ | 34,428,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (761,000) |
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, April 1, 2022 | | $ | 43,181,000 |
| 4,453,000 | | $ | 4,453,000 | | $ | 14,176,000 | | $ | 35,428,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (663,000) |
| |
| | | | | | | | | | | | | | | | | | | | |
Net loss | |
| (21,000) |
| 0 | |
| 0 | |
| 0 | |
| (21,000) |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | |
Exercise of Stock Options | | | 40,000 | | 7,000 | | | 7,000 | | | 33,000 | | | 0 | | 0 | | | 0 | | | 0 |
| |
| | | | | | | | | | | | | | | | | | | | |
Restricted common stock compensation | |
| 12,000 |
| 7,000 | |
| 7,000 | |
| 5,000 | |
| 0 |
| 0 | |
| 0 | |
| 0 |
| |
| | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | |
| — |
| 0 | |
| 0 | |
| 0 | |
| 0 |
| 0 | |
| 0 | |
| 0 |
| |
| | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| (146,000) |
| 0 | |
| 0 | |
| 0 | |
| 0 |
| 0 | |
| 0 | |
| (146,000) |
| |
| | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2022 | | $ | 43,066,000 |
| 4,467,000 | | $ | 4,467,000 | | $ | 14,214,000 | | $ | 35,407,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (809,000) |
Three months ended June 30, 2021
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Accumulated | |
| | | |
| Class A common |
| Additional | | | | | | | | |
| other | |||||
| | | |
| stock, $1 par |
| paid-in |
| Retained |
| Treasury stock |
| comprehensive | |||||||||
|
| Total |
| Shares |
| Amount |
| capital |
| earnings |
| Shares |
| Amount |
| loss | ||||||
Balance, April 1, 2021 | | $ | 41,261,000 |
| 4,453,000 | | $ | 4,453,000 | | $ | 14,134,000 | | $ | 33,449,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (562,000) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income | |
| 2,423,000 |
| 0 | |
| 0 | |
| 0 | |
| 2,423,000 |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | |
Restricted common stock compensation | |
| 14,000 |
| 0 | |
| 0 | |
| 14,000 | |
| 0 |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | |
| 1,000 |
| 0 | |
| 0 | |
| 1,000 | |
| 0 |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| 4,000 |
| 0 | |
| 0 | |
| 0 | |
| 0 |
| 0 | |
| 0 | |
| 4,000 |
| | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2021 | | $ | 43,703,000 |
| 4,453,000 | | $ | 4,453,000 | | $ | 14,149,000 | | $ | 35,872,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (558,000) |
See accompanying notes to consolidated financial statements (unaudited).
6
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
Six months ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Accumulated | |
| | | | | Class A common | | Additional | | | | | | | | | | other | |||||
| | | | | stock, $1 par | | paid-in | | Retained | | Treasury stock | | comprehensive | |||||||||
|
| Total |
| Shares |
| Amount |
| capital |
| earnings |
| Shares |
| Amount |
| loss | ||||||
Balance, January 1, 2022 | | $ | 43,840,000 |
| 4,453,000 | | $ | 4,453,000 | | $ | 14,167,000 | | $ | 36,046,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (613,000) |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss | |
| (639,000) |
| 0 | |
| 0 | |
| 0 | |
| (639,000) |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | |
Exercise of Stock Options | | | 40,000 | | 7,000 | | | 7,000 | | | 33,000 | | | 0 | | 0 | | | 0 | | | 0 |
| | | | | | | | | | | | | | | | | | | | | | |
Restricted common stock compensation | |
| 20,000 |
| 7,000 | |
| 7,000 | |
| 13,000 | |
| 0 |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | |
| 1,000 |
| 0 | |
| 0 | |
| 1,000 | |
| 0 |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| (196,000) |
| 0 | |
| 0 | |
| 0 | |
| 0 |
| 0 | |
| 0 | |
| (196,000) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2022 | | $ | 43,066,000 |
| 4,467,000 | | $ | 4,467,000 | | $ | 14,214,000 | | $ | 35,407,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (809,000) |
Six months ended June 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | |
| Accumulated | ||
| | | | | Class A common | | Additional | | | | | | | | | | other | | | |
| Class A common |
| Additional | | | | | | | | |
| other | ||||||||||
| | | | | stock, $1 par | | paid-in | | Retained | | Treasury stock | | comprehensive | | | |
| stock, $1 par |
| paid-in |
| Retained |
| Treasury stock |
| comprehensive | ||||||||||||||||||
|
| Total |
| Shares |
| Amount |
| capital |
| earnings |
| Shares |
| Amount |
| loss |
| 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) | ||||||||||||||||||||||
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 income | |
| 2,116,000 |
| 0 | |
| 0 | |
| 0 | |
| 2,116,000 |
| 0 | |
| 0 | |
| 0 | ||||||||||||||||||||||
Net loss | |
| (618,000) |
| — | |
| — | |
| — | |
| (618,000) |
| — | |
| — | |
| — | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restricted common stock compensation | |
| 27,000 |
| 25,000 | |
| 25,000 | |
| 2,000 | |
| 0 |
| 0 | |
| 0 | |
| 0 | ||||||||||||||||||||||
Restricted common stock-based compensation | |
| 8,000 |
| — | |
| — | |
| 8,000 | |
| — |
| — | |
| — | |
| — | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | |
| 3,000 |
| 0 | |
| 0 | |
| 3,000 | |
| 0 |
| 0 | |
| 0 | |
| 0 | |
| 1,000 |
| — | |
| — | |
| 1,000 | |
| — |
| — | |
| — | |
| — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | |
| 19,000 |
| 0 | |
| 0 | |
| 0 | |
| 0 |
| 0 | |
| 0 | |
| 19,000 | |
| (50,000) |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (50,000) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2021 | | $ | 43,703,000 |
| 4,453,000 | | $ | 4,453,000 | | $ | 14,149,000 | | $ | 35,872,000 |
| (1,273,000) | | $ | (10,213,000) | | $ | (558,000) | ||||||||||||||||||||||
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) |
See accompanying notes to consolidated financial statements (unaudited).
76
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| | | | | | |
| | Six months | ||||
| | ended June 30, | ||||
|
| 2022 |
| 2021 | ||
Cash Flows from Operating Activities: | | | | | | |
Net (loss) income | | $ | (639,000) | | $ | 2,116,000 |
| | | | | | |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | | | | | |
| | | | | | |
Non-cash and other charges: | | | | | | |
Depreciation | |
| 881,000 | | | 902,000 |
Amortization of other intangible assets | |
| 341,000 | | | 316,000 |
Amortization of operating lease assets | | | 471,000 | | | 449,000 |
Amortization of debt issue costs | |
| 8,000 | | | 8,000 |
Amortization of consideration payable to a customer | |
| 135,000 | | | 135,000 |
Recovery of provision for losses on accounts receivable | |
| 42,000 | | | 59,000 |
Stock-based compensation | |
| 1,000 | | | 3,000 |
Stock-based compensation-options exercise | | | 38,000 | | | 0 |
Restricted stock-based compensation | |
| 19,000 | | | 27,000 |
Deferred income taxes | |
| (20,000) | | | (159,000) |
Gain (loss) on disposal of fixed assets | | | (5,000) | | | 7,000 |
Forgiveness of Paycheck Protection Program loan | | | 0 | | | (2,929,000) |
Changes in operating assets and liabilities, net of effects of acquisition | |
| | | | |
Accounts receivable | |
| (2,276,000) | | | (750,000) |
Inventories | |
| (353,000) | | | (895,000) |
Prepaid expenses and other current assets | |
| 1,302,000 | | | 414,000 |
Accounts payable | |
| (778,000) | | | 1,482,000 |
Accrued compensation and benefits | |
| 681,000 | | | 718,000 |
Accrued other liabilities and other current liabilities | | | (524,000) | | | (64,000) |
Operating lease liabilities | |
| (461,000) | | | (443,000) |
Other liabilities | |
| (17,000) | | | (28,000) |
Total adjustments | |
| (515,000) | | | (748,000) |
Net cash (used in) provided by operating activities | | | (1,154,000) | | | 1,368,000 |
| | | | | | |
| | Three months | ||||
| | ended March 31, | ||||
|
| 2023 |
| 2022 | ||
Cash Flows from Operating Activities: | | | | | | |
Net income (loss) | | $ | 337,000 | | $ | (618,000) |
| | | | | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | |
| | | | | | |
Non-cash and other charges: | | | | | | |
Depreciation | |
| 511,000 | | | 443,000 |
Amortization of other intangible assets | |
| 173,000 | | | 157,000 |
Amortization of operating lease assets | | | 237,000 | | | 232,000 |
Amortization of debt issue costs | |
| 19,000 | | | 4,000 |
Amortization of consideration payable to a customer | |
| — | | | 67,000 |
Provision for (recovery of) losses on accounts receivable | |
| 23,000 | | | (12,000) |
Stock-based compensation | |
| 8,000 | | | 1,000 |
Restricted stock-based compensation | |
| 9,000 | | | 8,000 |
Deferred income taxes | |
| 168,000 | | | (102,000) |
Gain on disposal of fixed assets | | | (21,000) | | | — |
Dividends declared but not paid | | | (160,000) | | | — |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | |
| (1,783,000) | | | (844,000) |
Inventories | |
| 861,000 | | | (3,243,000) |
Prepaid expenses and other current assets | |
| 1,640,000 | | | (144,000) |
Accounts payable | |
| (876,000) | | | 716,000 |
Accrued compensation and benefits | |
| (749,000) | | | 270,000 |
Accrued other liabilities and other current liabilities | | | 639,000 | | | (672,000) |
Operating lease liabilities | |
| (239,000) | | | (226,000) |
Other liabilities | |
| (7,000) | | | (9,000) |
Total adjustments | |
| 453,000 | | | (3,354,000) |
Net cash provided by (used in) operating activities | | | 790,000 | | | (3,972,000) |
See accompanying notes to consolidated financial statements (unaudited).
87
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| | | | | | | | | | | | |
| | Six months | | Three months | ||||||||
| | ended June 30, | | ended March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Cash Flows from Investing Activities: |
| |
|
| |
|
| |
|
| |
|
Capital expenditures | | $ | (923,000) | | $ | (247,000) | | $ | (905,000) | | $ | (380,000) |
Proceeds from the sale of fixed assets | | | 21,000 | | | — | ||||||
Purchase of net assets of the Jackson Gear Company business | |
| (2,300,000) | | | 0 | |
| — | | | (2,300,000) |
Net cash used in investing activities | |
| (3,223,000) | | | (247,000) | |
| (884,000) | | | (2,680,000) |
| | | | | | | | | | | | |
Cash Flows from Financing Activities: | |
| | | | | |
| | | | |
Net proceeds (repayments) from short-term borrowings | |
| 4,304,000 | | | (1,004,000) | ||||||
Proceeds from exercise of stock options | | | 2,000 | | | 0 | ||||||
Net cash provided by (used in) financing activities | |
| 4,306,000 | | | (1,004,000) | ||||||
Bank financing costs | |
| (35,000) | | | — | ||||||
Net proceeds from short-term borrowings | | | 33,000 | | | 6,757,000 | ||||||
Net cash (used in) provided by financing activities | |
| (2,000) | | | 6,757,000 | ||||||
| | | | | | | | | | | | |
Effect of exchange rate changes on cash | |
| (37,000) | | | (4,000) | |
| (10,000) | | | (2,000) |
Net (decrease) increase in cash | |
| (108,000) | | | 113,000 | |
| (106,000) | | | 103,000 |
Cash at beginning of period | |
| 539,000 | | | 904,000 | |
| 667,000 | | | 539,000 |
Cash at end of period | | $ | 431,000 | | $ | 1,017,000 | | $ | 561,000 | | $ | 642,000 |
| | | | | | | | | | | | |
Supplemental disclosures of cash flow information: | |
| | | | | |
| | | | |
| | | | | | | | | | | | |
Cash paid for: | |
| | | | | |
| | | | |
Interest | | $ | 114,000 | | $ | 19,000 | | $ | 119,000 | | $ | 36,000 |
Taxes | | $ | 124,000 | | $ | 12,000 | ||||||
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 0 | | $ | 6,000 | ||||||
| | | | | | | | | | | | |
Non-cash information: | |
| | | | | |
| | | | |
Right of Use (“ROU”) assets recognized for new operating lease liabilities | | $ | 987,000 | | $ | 53,000 | | $ | — | | $ | 987,000 |
See accompanying notes to consolidated financial statements (unaudited).
98
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, 2021,2022, 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, 20212022 (“20212022 Form 10-K”). The unaudited consolidated financial statements contained herein should be read in conjunction with the 20212022 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.”
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”).
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 a better performance, and weigh lesspower-to-weight ratio 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”,Pneumatic,” “Universal Tool”, “Jiffy Air Tool”, AIRCAT, NITROCAT, as well as under the trade names or trademarks of several private label customers. These products are sold to retailers, distributors, manufacturers and private label customers through in-house sales personnel and manufacturers’ representatives. The AIRCAT and NITROCAT brands of pneumatic tools are sold primarily to the automotive service and repair market (“automotive market”). Users of Florida Pneumatic’s hand tools include industrial maintenance and production staffs,personnel, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.
109
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, 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.$62,000.
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, 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 Transmission Group”, commonly referred to as “PTG”, produces spiral bevel and straight bevel gears along with a wide variety of other gearing. These products are sold direct to OEMs, end-users and gearbox repair companies. PTG works directly with its customer’scustomers’ engineering departments to design or redesign gears or gearboxes to optimize a solution for functionality and manufacturability.
Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, we acquired substantially all the non-real estate assets comprising the business of Jackson Gear Company (“JGC”), a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. This business was consolidated into PTG. and provides added market exposure into the larger gears market.
Nearly all 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 Company business (“JGC”).
COVID-19
OnThe adverse effects of the COVID-19 global pandemic on the Company’s results of operations and financial condition during the three-month period ended March 11, 2020,31, 2023, have decreased significantly, compared to the World Health Organization designatedadverse effects 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 aroundpandemic caused during the world, including the United States. Various policies and initiatives have been implemented to reduce the global transmission of COVID-19.
prior two years. The COVID-19 virus and the resultant global economic down-turn had a negative impact on our fiscal 2021 results andCompany, however, continues to negatively impact the Company during the six-month period ended June 30, 2022. Additionally, we believe the on-goingencounter supply-chain crisis is relatedissues, most notably it continues to the pandemic. Commencing in mid-2021 and continuing to date, although easing somewhat during the latter portion of the second quarter of 2022, we encountered severeencounter some shipping / receiving delays of inventory from ourits Asian suppliers, which has causedin turn causing intermittent shortages of product. Further,inventory. Additionally, while costs associated with international freight have returned to approximately pre-pandemic levels, domestic freight costs remain high. While the negative effects of the COVID-19 pandemic have eased, the Company believes the COVID-19 global pandemic has been and continues to be the primary factor in the significant increases in the costcertain adverse effects of international ocean freight. In addition, the COVID-19 pandemic had since mid-2020, caused manywill continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to the Company’s customers and potential customers to refuse or delay on-site visits, which is critical to generating revenue, easing somewhat during the second quarterresults of 2022. The Company believes that until the above issues subside, its business will likely continue to be adversely affected by COVID-19.operations.
1110
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
Going Concern Assessment
Management assesses going concern uncertainty to determine whether there is sufficient cash on hand and 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,” as defined in US GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, it considers various scenarios, forecasts, projections, estimates and makes certain key assumptions, including the timing and nature of projected cash expenditures, its ability to reduce, delay or curtail cash outflows and its ability to raise additional capital, if necessary, among other factors. Management has prepared estimates of operations covering the look-forward period and believes that sufficient funds will be generated from operations, working capital, and its existing credit facility to fund its operations. The Company has contingency plans in which it would further reduce or defer additional expenses and cash outlays, should operations weaken beyond current forecasts.
The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is unclear what the full impact of COVID-19 will be in the future or when the Company believes a return to more normal operations may occur.
As of March 31, 2023, the Company had borrowing availability on its bank facility of $7,800,000. Lastly, the Company is not in default on any bank covenant and believes its relationship with the bank is good. See Note 8 – Debt, for further discussion.
The accompanying consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Customer Concentration
The Company had one customer that accounted for 36.0%22.9% and 35.9%24.3% of its consolidated accounts receivable at June 30, 2022,March 31, 2023, and December 31, 2021,2022, respectively. Further, this customer accounted for 27.1%16.2% and 24.6%, respectively,21.5% of the Company’s consolidated revenue during the three and six-month-month periods ended June 30,March 31, 2023, and 2022, and 27.7% and 27.4%, respectively, for the same periods in 2021.respectively. There was no other customer that accounted for more than 10% of our consolidated revenue or accounts receivable for all periods presented.during 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, accounts receivable reserve, inventory, goodwill, intangible assets and other long-lived assets, contingent consideration, income taxes, deferred taxes and deferred taxes.lease liabilities. Descriptions of these policies are discussed in the Company’s 20212022 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.
Significant Accounting Policies
The Company’s significant accounting policies are described in “Note 1: Summary of Significant Accounting Policies” of our 2021to the Company’s 2022 Form 10-K.
1211
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”)No. 842, Leases (“Leases”ASC Topic 842”). ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases’ guidance.
IfAs permitted under ASC Topic 842, 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 during the three -month period ended June 30, 2022.March 31, 2023.
The Company considers any options to extend the term of a lease when measuring the Right-of-Use lease asset.
For the three and six-month-month periods ended June 30,March 31, 2023, and 2022, the Company had $240,000$237,000 and $471,000,$232,000, respectively, in operating lease expense, and $225,000 and $449,000, respectively, for the same three and six-month periods in 2021.
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.expense.
The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of June 30, 2022:liabilities:
| | | | | | | | |
|
| As of June 30, 2022 |
|
| As of March 31, 2023 |
| ||
2022 (excluding the six months ended June 30, 2022) | | $ | 470,000 | | ||||
2023 | |
| 941,000 | | ||||
2023 (excluding the three months ended March 31, 2023) | | $ | 602,000 | | ||||
2024 | |
| 668,000 | | |
| 918,000 | |
2025 | |
| 375,000 | | |
| 816,000 | |
2026 | | | 240,000 | | |
| 691,000 | |
2027 | | | 719,000 | | ||||
Thereafter | | | 1,590,000 | | | | 2,728,000 | |
Total operating lease payments | |
| 4,284,000 | | |
| 6,474,000 | |
Less imputed interest | |
| (508,000) | | |
| (1,132,000) | |
Total operating lease liabilities | | $ | 3,776,000 | | | $ | 5,342,000 | |
| | | | | | | | |
Weighted average remaining lease term | | | 7.4 | years | | | 7.7 | years |
Weighted average discount rate | | | 3.69 | % | | | 5.0 | % |
Revenue Recognition
The Company’s revenue recognition policies are detailed in its 20212022 Form 10-K. The following tables present the Company’s revenues recognized under ASC Topic 606, “Revenue from Contracts with Customers”, for the three and six-month-month periods ended June 30, 2022March 31, 2023, and 2021.2022.
1312
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
Revenue Recognition - Continued
Florida Pneumatic
Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool market: Retail, Automotive, Retail, Industrial and Aerospace. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts, which are reported as Other.
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, |
| |||||||||||||
| | 2022 | | 2021 | | Increase (decrease) |
| |||||||||
|
| | |
| Percent of |
| | |
| Percent of |
| | |
| |
|
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| |||
Automotive | | $ | 3,853,000 | | 30.4 | % | $ | 3,782,000 | | 35.3 | % | $ | 71,000 | | 1.9 | % |
Retail | | | 4,826,000 | | 38.1 | | | 3,763,000 | | 35.1 | | | 1,063,000 | | 28.2 | |
Industrial | |
| 1,705,000 | | 13.5 | | | 1,303,000 | | 12.3 | | | 402,000 | | 30.9 | |
Aerospace | |
| 2,179,000 | | 17.2 | | | 1,734,000 | | 16.2 | | | 445,000 | | 25.7 | |
Other | |
| 103,000 | | 0.8 | | | 130,000 | | 1.1 | | | (27,000) | | (20.8) | |
Total | | $ | 12,666,000 | | 100.0 | % | $ | 10,712,000 | | 100.0 | % | $ | 1,954,000 | | 18.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, |
| | Three months ended March 31, |
| ||||||||||||||||||||||||||
| | 2022 | | 2021 | | Increase (decrease) |
| | 2023 | | 2022 | | Increase (decrease) |
| ||||||||||||||||||
| | | | | Percent of | | | | | Percent of | | | | | |
| | |
| Percent of |
| | |
| Percent of |
| | |
| |
| |
|
| Revenue |
| revenue |
| Revenue |
| revenue |
| $ |
| % |
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| ||||||
Automotive | | $ | 7,734,000 | | 33.7 | % | $ | 7,884,000 | | 36.5 | % | $ | (150,000) | | (1.9) | % | | $ | 3,259,000 | | 32.8 | % | $ | 3,881,000 | | 37.7 | % | $ | (622,000) | | (16.0) | % |
Retail | | | 7,845,000 | | 34.2 | | | 7,553,000 | | 34.9 | | | 292,000 | | 3.9 | | | | 2,550,000 | | 25.7 | | | 3,020,000 | | 29.5 | | | (470,000) | | (15.6) | |
Industrial | | | 3,111,000 | | 13.6 | | | 2,662,000 | | 12.3 | | | 449,000 | | 16.9 | | |
| 1,578,000 | | 15.9 | | | 1,444,000 | | 14.0 | | | 134,000 | | 9.3 | |
Aerospace | |
| 3,994,000 | | 17.4 | | | 3,262,000 | | 15.1 | | | 732,000 | | 22.4 | | |
| 2,411,000 | | 24.3 | | | 1,777,000 | | 17.3 | | | 634,000 | | 35.7 | |
Other | |
| 263,000 | | 1.1 | | | 253,000 | | 1.2 | | | 10,000 | | 4.0 | | |
| 126,000 | | 1.3 | | | 159,000 | | 1.5 | | | (33,000) | | (20.8) | |
Total | | $ | 22,947,000 | | 100.0 | % | $ | 21,614,000 | | 100.0 | % | $ | 1,333,000 | | 6.2 | % | | $ | 9,924,000 | | 100.0 | % | $ | 10,281,000 | | 100.0 | % | $ | (357,000) | | (3.5) | % |
Hy-Tech
Hy-Tech designs, manufactures, and sells a wide range of industrial products which are categorized as ATP for reporting purposes. In addition to Engineered Solutions, products and components manufactured for other companies under their brands are included in the OEM category in the table below. PTG revenue is comprised of products manufactured and sold by Hy-Tech’s gear business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, |
| | Three months ended March 31, |
| ||||||||||||||||||||||||||
|
| 2022 |
| 2021 | | Increase (decrease) |
|
| 2023 |
| 2022 | | Increase (decrease) |
| ||||||||||||||||||
| | |
| Percent of | | | |
| Percent of |
| | |
| |
| | |
| Percent of | | | |
| Percent of |
| | |
| |
| ||
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| ||||||
OEM | | $ | 2,542,000 | | 49.4 | % | $ | 1,408,000 | | 48.9 | % | $ | 1,134,000 | | 80.5 | % | | $ | 3,073,000 | | 52.8 | % | $ | 1,965,000 | | 52.6 | % | $ | 1,108,000 | | 56.4 | % |
PTG | | | 1,933,000 | | 33.2 | | | 940,000 | | 25.1 | | | 993,000 | | 105.6 | | ||||||||||||||||
ATP | | | 945,000 | | 18.4 | | | 779,000 | | 27.1 | | | 166,000 | | 21.3 | | | | 697,000 | | 12.0 | | | 742,000 | | 19.8 | | | (45,000) | | (6.1) | |
PTG | | | 1,583,000 | | 30.8 | | | 604,000 | | 21.0 | | | 979,000 | | 162.1 | | ||||||||||||||||
Other | |
| 74,000 | | 1.4 | | | 86,000 | | 3.0 | | | (12,000) | | (14.0) | | |
| 115,000 | | 2.0 | | | 93,000 | | 2.5 | | | 22,000 | | 23.7 | |
Total | | $ | 5,144,000 | | 100.0 | % | $ | 2,877,000 | | 100.0 | % | $ | 2,267,000 | | 78.8 | % | | $ | 5,818,000 | | 100.0 | % | $ | 3,740,000 | | 100.0 | % | $ | 2,078,000 | | 55.6 | % |
Recently Adopted Accounting Pronouncements
During the three-month period ended March 31, 2023, there were no accounting pronouncements or other authoritative guidance issued or that became effective, that had, or is expected to have, a material impact on the Company’s Consolidated financial statements.
1413
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
Revenue Recognition - Continued
| | | | | | | | | | | | | | | | |
| | Six months ended June 30, |
| |||||||||||||
| | 2022 | | 2021 | | Increase |
| |||||||||
| | | | | Percent of | | | | | Percent of | | | | |
| |
|
| Revenue |
| revenue |
| Revenue |
| revenue |
| $ |
| % |
| |||
OEM | | $ | 4,507,000 | | 50.7 | % | $ | 3,019,000 | | 51.0 | % | $ | 1,488,000 | | 49.3 | % |
ATP | |
| 1,687,000 | | 19.0 | | | 1,492,000 | | 25.2 | | | 195,000 | | 13.1 | |
PTG | | | 2,522,000 | | 28.4 | | | 1,250,000 | | 21.1 | | | 1,272,000 | | 101.8 | |
Other | |
| 168,000 | | 1.9 | | | 160,000 | | 2.7 | | | 8,000 | | 5.0 | |
Total | | $ | 8,884,000 | | 100.0 | % | $ | 5,921,000 | | 100.0 | % | $ | 2,963,000 | | 50.0 | % |
Recently Adopted Accounting Pronouncements
During the six-month period ended June 30, 2022, there were no accounting pronouncements or other authoritative guidance issued that the Company adopted.
NOTE 2 - ACQUISITION
Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, the Company acquired (the “Acquisition”) substantially all the non-real estate assets comprising the business of JGC, a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. The purchase price consisted of an aggregate of approximately $2.3 million in cash, which was funded by Revolver (as defined in Note 9) borrowings, and the 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 the purchase price allocation:
| | | |
Accounts receivable |
| $ | 489,000 |
Inventories | |
| 359,000 |
Machinery and equipment | |
| 823,000 |
Customer relationships | | | 450,000 |
Goodwill | |
| 394,000 |
Liabilities assumed | |
| (215,000) |
Total purchase price | | $ | 2,300,000 |
The excess of the total purchase price over the fair value of the net assets acquired is currently being presented as goodwill. Goodwill is amortized over 15 years for tax purposes, but not deductible for financial reporting purposes. All identifiable intangible assets subject to amortization are amortized over their useful lives for book purposes, and are amortized over 15 years for tax purposes.
15
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 2 – ACQUISITION - (Continued)
The following unaudited pro-forma combined financial information gives effect to the 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 |
| For the | ||
| | three-month |
| six-month | ||
| | period ended |
| period ended | ||
|
| June 30, 2021 |
| June 30,2021 | ||
Revenue | | $ | 14,399,000 | | $ | 28,855,000 |
Net income | | $ | 2,398,000 | | $ | 2,099,000 |
Earnings per share – basic | | $ | 0.75 | | $ | 0.66 |
Earnings per share – diluted | | $ | 0.75 | | $ | 0.66 |
NOTE 3 -INCOME (LOSS)EARNINGS /(LOSS) PER SHARE
Basic lossearnings (loss) per common share is based only on the weighted average number of shares of Common Stock outstanding for the periods. Diluted lossearnings (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 lossearnings (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 lossearnings (loss) income per common share:
| | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended | | Three months ended | ||||||||||||
| | June 30, | | June 30, | | March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||||
Numerator for basic and diluted (loss) income per common share: | | | | | | | | | | | | | ||||||
Net (loss) income | | $ | (21,000) | | $ | 2,423,000 | | $ | (639,000) | | $ | 2,116,000 | ||||||
Numerator for basic and diluted earnings (loss) per common share: | | | | | | | ||||||||||||
Net income (loss) | | $ | 337,000 | | $ | (618,000) | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | | | | | | | |
Denominator for basic (loss) income per share - weighted average common shares outstanding | |
| 3,185,000 | | | 3,181,000 | | | 3,177,000 | | | 3,175,000 | ||||||
Denominator for basic earnings (loss) per share - weighted average common shares outstanding | |
| 3,195,000 | | | 3,169,000 | ||||||||||||
Dilutive securities (1) | |
| 0 | | | 12,000 | | | 0 | | | 15,000 | |
| — | | | — |
Denominator for diluted (loss) income per share - weighted average common shares outstanding | |
| 3,185,000 | | | 3,193,000 | | | 3,177,000 | | | 3,190,000 | ||||||
Denominator for diluted earnings (loss) per share - weighted average common shares outstanding | |
| 3,195,000 | | | 3,169,000 |
At June 30, 2022 and 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 | | Six months ended | ||||
| | June 30, | | June 30, | ||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
Weighted average anti-dilutive stock options outstanding |
| 135,000 | | 139,000 | | 135,000 | | 140,000 |
16
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 43 – STOCK-BASED COMPENSATION
Stock OptionsThere were no options or shares of the Company's common stock granted or issued during the three-month period ended March 31, 2023.
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted | | Weighted average | | | | | | | Weighted | | Weighted average | | | | ||
| | | | average | | remaining | | Aggregate | | | | average | | remaining | | Aggregate | ||||
| | | | exercise | | contractual life | | Intrinsic | | | | exercise | | contractual life | | Intrinsic | ||||
|
| Option shares |
| price |
| (years) |
| Value |
| Option shares |
| price |
| (years) |
| Value | ||||
Outstanding, January 1, 2022 |
| 178,499 | | $ | 6.76 |
| 3.4 | | $ | 60,643 | ||||||||||
Outstanding, January 1, 2023 |
| 127,600 | | $ | 7.41 | | 3.3 | | $ | — | ||||||||||
Granted |
| 0 | |
| 0 | | — | | | — |
| — | | | — | | — | | | — |
Exercised |
| 41,809 | |
| 4.74 |
| — | |
| 38,046 |
| — | | | — | | — | |
| — |
Forfeited |
| 0 | |
| 0 |
| — | |
| — |
| (5,000) | | | — | | — | |
| — |
Expired |
| 2,090 | |
| 4.29 |
| — | |
| — |
| — | | | — | | — | |
| — |
Outstanding, June 30, 2022 |
| 134,600 | | $ | 7.42 |
| 3.9 | | $ | — | ||||||||||
Vested, June 30, 2022 |
| 134,600 | | $ | 7.42 |
| 3.9 | | $ | — | ||||||||||
Outstanding, March 31, 2023 |
| 122,600 | | | 7.39 | | 2.9 | | $ | — | ||||||||||
Vested, March 31, 2023 |
| 122,600 | | | 7.39 | | 2.9 | | $ | — |
On June 21, 2022, the Chief Financial Officer of the Company exercised 41,809 options to purchase the Company’s Common Stock. The exercise price was $4.74 per share and the closing price of the Company’s Common Stock was $5.65. As permitted by the Company’s 2021 Stock Incentive Plan and approved in advance by the Compensation Committee of the Company’s Board of Directors, this transaction was completed by the executive officer remitting $2,000 to the Company and satisfying the remaining portion of his exercise price and tax withholding and remittance obligations through the net settlement of options. The above resulted in the executive officer receiving 7,163 shares of Common Stock.
Restricted Stock
On May 25, 2022, 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 $5.50 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares cannot be traded earlier than the first anniversary of the grant date. The Company ratably amortizes the total non-cash compensation expense of approximately $34,000 to selling, general and administrative expenses during the period beginning May 2022 through May 2023.
On February 16, 2021, the Company granted 25,000 restricted shares14
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 54 – FAIR VALUE MEASUREMENTS
Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following hierarchy:
Level 1: Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.
Level 2: Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Inputs reflect management’s 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.
17
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 5 – FAIR VALUE MEASUREMENTS – (Continued)
The guidance requires the use of observable market data if such data is available without undue cost and effort.
As of June 30, 2022,March 31, 2023, and December 31, 2021,2022, the carrying amounts reflected in the accompanying consolidated balance sheets for current assets and current liabilities approximated fair value due to the short-term nature of these accounts.
Assets and liabilities measured at fair value on a non-recurring basis include goodwill and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (Level 3).
NOTE 65 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable - net consists of:
| | | | | | | | | | | | |
|
| June 30, 2022 |
| December 31, 2021 |
| March 31, 2023 |
| December 31, 2022 | ||||
Accounts receivable | | $ | 10,726,000 | | $ | 7,817,000 | | $ | 9,475,000 | | $ | 7,683,000 |
Allowance for doubtful accounts, sales discounts and chargebacks | |
| (308,000) | |
| (267,000) | |
| (336,000) | | | (313,000) |
| | $ | 10,418,000 | | $ | 7,550,000 | | $ | 9,139,000 | | $ | 7,370,000 |
Net accounts receivable at January 1, 2022, was $ 7,550,000.
NOTE 76 – INVENTORIES
Inventories consist of:
| | | | | | | | | | | | |
|
| June 30, 2022 |
| December 31, 2021 |
| March 31, 2023 |
| December 31, 2022 | ||||
Raw material | | $ | 2,102,000 | | $ | 2,166,000 | | $ | 2,058,000 | | $ | 2,000,000 |
Work in process | |
| 2,177,000 | |
| 1,360,000 | |
| 2,487,000 | | | 2,242,000 |
Finished goods | |
| 20,331,000 | |
| 20,495,000 | |
| 19,109,000 | | | 20,249,000 |
| | $ | 24,610,000 | | $ | 24,021,000 | | $ | 23,654,000 | | $ | 24,491,000 |
15
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 87 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill are as follows:
| | | |
Balance, January 1, 2022 |
| $ | 4,447,000 |
Goodwill attributable to the acquisition of JGC business (See Note 2) | | | 394,000 |
Currency translation adjustment | |
| (19,000) |
Balance, June 30, 2022 | | $ | 4,822,000 |
| | | |
Balance, January 1, 2023 |
| $ | 4,822,000 |
Currency translation adjustment | |
| 3,000 |
Balance, March 31, 2023 | | $ | 4,825,000 |
18
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS – (Continued)
Other intangible assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 | ||||||||||||||||||||||||||||
|
| | |
| Accumulated |
| Net book |
| | |
| Accumulated |
| Net book |
| | |
| Accumulated |
| Net book |
| | |
| Accumulated |
| Net book | ||||||||
| | Cost | | amortization | | value | | Cost | | amortization | | value | | Cost | | amortization | | value | | Cost | | amortization | | value | ||||||||||||
Other intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer relationships (1) | | $ | 6,921,000 | | $ | 3,812,000 | | $ | 3,109,000 | | $ | 6,495,000 | | $ | 3,545,000 | | $ | 2,950,000 | | $ | 6,926,000 | | $ | 4,247,000 | | $ | 2,679,000 | | $ | 6,921,000 | | $ | 4,099,000 | | $ | 2,822,000 |
Trademarks and trade names (1) | |
| 2,167,000 | |
| 0 | |
| 2,167,000 | |
| 2,187,000 | |
| 0 | |
| 2,187,000 | |
| 2,170,000 | | | — | | | 2,170,000 | | | 2,166,000 | | | — | | | 2,166,000 |
Trademarks and trade names | |
| 200,000 | |
| 79,000 | |
| 121,000 | |
| 200,000 | |
| 73,000 | |
| 127,000 | |
| 200,000 | | | 89,000 | | | 111,000 | | | 200,000 | | | 86,000 | | | 114,000 |
Engineering drawings | |
| 330,000 | |
| 261,000 | |
| 69,000 | |
| 330,000 | |
| 254,000 | |
| 76,000 | |
| 330,000 | | | 272,000 | | | 58,000 | | | 330,000 | | | 268,000 | | | 62,000 |
Non-compete agreements (1) | |
| 323,000 | |
| 291,000 | |
| 32,000 | |
| 335,000 | |
| 290,000 | |
| 45,000 | |
| 324,000 | | | 311,000 | | | 13,000 | | | 322,000 | | | 303,000 | | | 19,000 |
Patents | |
| 1,286,000 | |
| 1,111,000 | |
| 175,000 | |
| 1,286,000 | |
| 1,079,000 | |
| 207,000 | |
| 1,286,000 | | | 1,159,000 | | | 127,000 | | | 1,286,000 | | | 1,143,000 | | | 143,000 |
Totals | | $ | 11,227,000 | | $ | 5,554,000 | | $ | 5,673,000 | | $ | 10,833,000 | | $ | 5,241,000 | | $ | 5,592,000 | | $ | 11,236,000 | | $ | 6,078,000 | | $ | 5,158,000 | | $ | 11,225,000 | | $ | 5,899,000 | | $ | 5,326,000 |
The weighted average amortization period in years for intangible assets was as follows:
| | | | |
|
| June 30, 2022 |
| December 31, 2021 |
Customer relationships |
| 6.3 |
| 6.7 |
Trademarks and trade names |
| 9.0 |
| 9.5 |
Engineering drawings |
| 4.6 |
| 5.1 |
Non-compete agreements |
| 1.5 |
| 2.0 |
Patents |
| 4.3 |
| 4.5 |
Amortization expense of intangible assets subject to amortization was as follows:
| | | | | | | | | | | | | | | |
| Three months ended June 30, |
| Six months ended June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
| $ | 164,000 | | $ | 157,000 | | $ | 341,000 | | $ | 316,000 | ||||
Three months ended March 31, | Three months ended March 31, | ||||||||||||||
2023 | 2023 |
| 2022 | ||||||||||||
$ | 173,000 | | $ | 157,000 |
Amortization expense for the balance of 2022,2023, and for each of the next fivefour years and thereafter is estimated to be as follows:
| | | | | | |
July 1,2022 through December 31, 2022 |
| $ | 346,000 | |||
2023 | |
| 688,000 | |||
April 1 through December 31, 2023 |
| $ | 514,000 | |||
2024 | |
| 639,000 | |
| 639,000 |
2025 | |
| 606,000 | |
| 610,000 |
2026 | |
| 400,000 | |
| 412,000 |
2027 | |
| 198,000 | |||
Thereafter | |
| 827,000 | |
| 615,000 |
| | $ | 3,506,000 | | $ | 2,988,000 |
The weighted average amortization period for intangible assets was as follows:
| | | | |
|
| March 31, 2023 |
| December 31, 2022 |
Customer relationships |
| 5.8 | | 5.9 |
Trademarks and trade names |
| 8.3 | | 8.5 |
Engineering drawings |
| 3.9 | | 4.1 |
Non-compete agreements |
| 0.8 | | 1.0 |
Patents |
| 4.1 | | 4.1 |
1916
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 98 – DEBT
In October 2010, the Company entered into a Loan and Security Agreement (“Credit Agreement”) with an affiliate of Capital One, National Association (“Capital One” or the “Bank”). The Credit Agreement, as amended and restated in April 2017, and further amended from time-to-time, among other things, provides the ability to borrow funds under a $16,000,000 revolver line (“Revolver”), subject to certain borrowing base criteria. Additionally, there is a $2,000,000 line 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, weMarch 24, 2023, the Company and the Bank entered into Amendment No. 1011 (“Amendment No. 10”11”) to the Credit Agreement, which among other things:
● |
● |
Until the effective date of Amendment No. 10, to the Credit Agreement April 12, 2022, at the Company’s option, Revolver borrowings would bear interest at either LIBOR or the Base Rate, as the terms are defined in the Credit Agreement, plus an Applicable Margin, as defined in the Credit Agreement. Additionally, the Company was subject to limitations on the number of LIBOR borrowings. As noted above, effective April 12, 2022,Under the terms Amendment No. 10, the Company began applying SOFR rates instead of LIBOR. The Company does not believe that thiswill continue to be subject to the number of SOFR borrowings. The change from LIBOR to SOFR willdid not have a significant effect on itsthe Company’s consolidated financial statements.
At March 31, 2023, short-term or Revolver borrowing was $7,602,000, compared to $7,570,000 at December 31, 2022. The average balance of short-term borrowings during the three-month periods ended March 31, 2023, and 2022, were $7,287,000, and $10,157,000, respectively.
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 2two percent per annum during the period of default, in addition to other remedies provided to Capital One.
At June 30, 2022, short-term or Revolver borrowing was $10,069,000, compared to $5,765,000During the three-month periods ended March 31, 2023, and at December 31, 2021. (See Notes 2 and 6 for further discussion related to this increase).2022, Applicable Margin Rates, at June 30, 2022,as defined in the Credit Agreement were 2.10% and 1.10%, respectively for SOFR and Base Rate borrowings. At December 31, 2021, these rates were 1.50% and 0.50%, respectively, for LIBOR and Base Rate borrowings. Additionally, at June 30, 2022,March 31, 2023, and December 31, 2021,2022, there was $7,000,000approximately $7,800,000 and $9,578,000,$7,687,000, respectively, available to the Company under its Revolver arrangement.
The average balances of short-term borrowings from our Bank for the three and six-month periods ended June 30, 2022, were $11,544,000 and $10,855,000, respectively, and $1,921,000 and $2,043,000, respectively, for the same periods in 2021.
NOTE 109 – SUBSEQUENT EVENTDIVIDENDS
On August 9, 2022,March 20, 2023, the Company’s Board of Directors approved a dividend policy under which the Company intends to declare a cash dividend to the Company’s stockholders in the amount of $0.20 per share per annum, payable in equal quarterly installments. In conjunction therewith, the Company’s Board of Directors declared a $0.05 special dividend. This specialquarterly cash dividend will be payable on August 29, 2022,of $0.05 per share to all shareholdersstockholders of record as ofat the close of business on August 22, 2022. The Company estimates the total cash outlay to be approximately $160,000.March 31, 2023. This dividend was paid on April 6, 2023.
2017
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 20222023 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; |
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
● | 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 onthe 2022 Form 10-K, for the year ended December 31, 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.
18
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
OVERVIEW
During the secondfirst quarter of 2022,2023, significant factors that impacted our results of operations were the:
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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”,Pneumatic,” “Universal Tool”, “Jiffy Air Tool”, AIRCAT, NITROCAT, as well as under the trade names or trademarks of several private label customers. These products are sold to retailers, distributors, manufacturers and private label customers through in-house sales personnel and manufacturers’ representatives. The AIRCAT and NITROCAT brands of pneumatic tools are sold primarily to the automotive service and repair market (“automotive market”). Users of Florida Pneumatic’s hand tools include industrial maintenance and production staffs,personnel, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.
22
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
OUR BUSINESS - Continued
Hy-Tech
Hy-Tech designs, manufactures, and markets industrial tools, systems, gearing, accessories and a wide variety of replacement parts under various brands including ATP, NUMATX, and Thaxton. Hy-Tech produces and sells heavy-duty pneumatic impact tools, grinders, air motors, hydro-pneumatic riveters, hydrostatic test plugs, impact sockets and custom gears, with prices ranging from $300 to $42,000.$62,000.
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, is a custom gear, gearbox and power transmission system manufacturer.manufacturer located in Punxsutawney, PA. In addition to manufacturing a broad range of standard and custom gears for manufacturers in a wide variety of industries, PTG reverse engineers existing gears as well as designs new gears, utilizing state-of-the-art technologies, including 3D imaging and Gleason Gear modeling software.
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 providePTG and provides added market exposure into the larger gears market.
19
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.
We consider tariffs a key economic measure, as a significant portion of products imported by Florida Pneumatic and to a lesser degree, Hy-Tech, are subject to these tariffs. Further, we monitor transportation costs, specifically ocean freight rates, which has materially fluctuated since early 2021 have become a key area.the beginning of the COVID-19 pandemic.
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.
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
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.
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 20212022 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.
TRENDS AND UNCERTAINTIES
COVID-19 PANDEMIC
The COVID-19 virus and the resultant global economic down-turn had a negative impact on our fiscal 2021 results and continues to negatively impact certain sectors of the Company during 2022. Additionally, we believe that, while easing slightly, the on-going supply-chain crisis is related in large part to the pandemic. Further, we believe the COVID-19 global pandemic has been and continues to be the primary factor in the significant increases in the cost of international ocean freight and related matters. We believe that until the above issues improve, our business will likely continue to be adversely affected by the COVID-19 global pandemic.
BOEING/AEROSPACE
The Federal Aviation Administration (“FAA”) and the European Union Aviation Safety Agency (“EASA”) have lifted the grounding of the 737 MAX, however, China, which is a large market for Boeing, has not lifted the grounding on the 737 MAX aircraft. Boeing is currently holding completed 737 MAX aircraft destined for Chinese carriers. As a result of the aforementioned, and airline companies limiting deliveries of new aircraft, we believe production at Boeing of its 737 MAX aircraft is likely to remain below the production levels that existed prior to the grounding of certain Boeing aircraft and the COVID-19 pandemic.
INTERNATIONAL SUPPLY CHAIN
During the third and fourth quarters of 2021, and early 2022, we encountered severe delays in receiving inventory from our Asian suppliers, which led to intermittent shortages of inventory. It should be noted however that the international supply chain crisis has, as of late, begun to ease somewhat. Lastly, our ocean freight costs, which increased in some cases five-fold during the latter half of 2021 and for much of 2022, have begun to decline, but still well in excess of pre pandemic levels. This trend of higher costs and delayed deliveries has continued for most of 2022. We believe the major factors driving the above include:
2420
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
TRENDS AND UNCERTAINTIES
INTERNATIONAL SUPPLY CHAIN - Continued
Although much less than during the first quarter of 2022, we continue to encounter delays in receiving inventory from our Asian suppliers, which leads to intermittent shortages of inventory. Our ocean freight costs, which had increased significantly during the COVID-19 pandemic have recently returned to pre-pandemic levels. The above factors continued in the first quarter of 2023 to impact our results. Lastly, we believe the following international supply chain issues have also negatively impacted our 2023 results:
● | Increased price of fuel; |
● | Shortage of shipping containers; |
● | Congestion at the ports in Asia and the United |
At the present time, we believe that some or all of the above-mentioned supply chain disruptions will likely continue during the remainder of 2022.for some time in fiscal 2023. While we believe that most of thesethe related costs associated with the itemsissues discussed above have been or will be, passed on tofactored into our customers throughout 2022,selling price, there is no assurance that we will be able to pass through any future additional cost increases can be passed ondirect costs or costs incurred related to our international supply chain issues in the future.
DOMESTIC TRANSPORTATION COSTS
DueDuring the three-month period ended March 31, 2023, supply chain conditions continued to the shortageimprove yielding lower domestic transportation costs. The availability of truckers in the U.S. thereport to warehouse transportation services has been both difficulty in moving goods from the portsimproved significantly compared to our facilities as well as arranging for pickups2022 and associated domestic freight rates have continued to deliver to our customers. In addition, wemoderate although rising fuel costs (diesel) have seen an increase in the costs for these transportation services. It is unclear when or if this situation will abate. As such, these issues will affect the Company for the foreseeable future impacting our overall margins and possibly depressing sales.tempered rate reductions.
IMPACT OF INFLATION/GEOPOLITCALGEOPOLITICAL ISSUES
Increasing prices, most notably in freight/transportation, the cost of raw materials and labor had a material effect on our results of operations during the three and six-month periods ended June 30, 2022. We believe that the current and projected significant levels of inflation, as well as a possible economic recession will likely continue to adversely impacthave an effect on our manufacturing and operating costs. As such, atAt the present time, we are unable to reasonably estimate the impact theseinflation and geo-political issues will have on our results of operations for the remainderforeseeable future.
We believe that our results of 2022operations and beyond.
During the six-month period ended June 30, 2022, we dofinancial condition during 2023 were not believe we were directly materially impacted by current geopolitical global events.the Russia-Ukraine conflict; however, we cannot predict what impact this conflict may have on our results in the future.
BOEING
Sales of aircraft by Boeing have been depressed since the two 737 MAX crashes in 2018 and 2019. Further, the Federal Aviation Administration grounded all 737 MAX aircraft for several quarters. These events, coupled with the COVID-19 pandemic reduced Boeing’s aircraft production levels to well below those prior to the pandemic and the grounding. In 2019, Boeing produced 52 737 MAX aircraft per month. It is currently still producing significantly below that level. Per Boeing, it plans to return to those levels in 2025 and expects to add a fourth 737 MAX production line in 2024. We believe that these stated plans along with the return of the Boeing 787 aircraft, which has also had production delays to full production, will be beneficial to P&F’s aerospace sales in the next several years.
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
TRENDS AND UNCERTAINTIES –Continued
TECHNOLOGIES
We believe that over time, several newer technologies and features will have a greater impacteffect on the market for our traditional pneumatic tool offerings. TheSo far, the greatest impact of this evolution has been felt initially byon the automotive aftermarket with the advent of advanced cordless operated hand tools intools. Currently, we do not offer a cordless tool to the automotive aftermarket. However, with respect to the industrial market, we have developed for one of our largest OEM customers a tool mechanism that is incorporated into a major line of their cordless power tools. These tools have been in full production with our supplied system for several years and our sales of these products have continued to grow over that time. We continue to analyze the practicality of developing or incorporating more advancednewer technologies in our tool platforms.platforms for other markets as well. This includes adding our internally developed mechanisms to existing cordless power sources as well as producing complete cordless tool systems. In addition, we have recently developed a cordless installation tool for the aerospace market. We have begun taking orders for this product and we expect to introduce other versions later in 2023.
OTHER MATTERS
Other than the aforementioned,trends and uncertainties mentioned above, or matters that may be discussed below, there are no major trends or uncertainties that had, or we could have reasonably expectedexpect to have a material impact on our revenue and operations, nor was there any unusual or infrequent event, transaction or any significant economic change that materially affected our results of operations.
Unless otherwise discussed elsewhere in the Management’s Discussion and Analysis, we believe that our relationships with our key customers and suppliers remain satisfactory.
25
RESULTS OF OPERATIONS
REVENUE
The tables below provide an analysis of our net revenue for the three and six-monththree-month periods ended June 30, 2022March 31, 2023, and 2021:2022:
Consolidated
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | Three months ended March 31, | | ||||||||||||||||||
| | | | | | Increase |
| | | | | | Increase (decrease) |
| ||||||||||
|
| 2022 |
| 2021 |
| $ |
| % |
|
| 2023 |
| 2022 |
| $ |
| % |
| ||||||
Florida Pneumatic | | $ | 12,666,000 | | $ | 10,712,000 | | $ | 1,954,000 | | 18.2 | % | | $ | 9,924,000 | | $ | 10,281,000 | | $ | (357,000) | | (3.5) | % |
Hy-Tech | |
| 5,144,000 | |
| 2,877,000 | |
| 2,267,000 | | 78.8 | | |
| 5,818,000 | | | 3,740,000 | | | 2,078,000 | | 55.6 | |
Consolidated | | $ | 17,810,000 | | $ | 13,589,000 | | $ | 4,221,000 | | 31.1 | % | | $ | 15,742,000 | | $ | 14,021,000 | | $ | 1,721,000 | | 12.3 | % |
22
Table of Contents Six months ended June 30, Increase 2022 2021 $ % Florida Pneumatic $ 22,947,000 $ 21,614,000 $ 1,333,000 6.2 % Hy-Tech 8,884,000 5,921,000 2,963,000 50.0 Consolidated $ 31,831,000 $ 27,535,000 $ 4,296,000 15.6 %
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
RESULTS OF OPERATIONS - (Continued)
REVENUE – Continued
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”).
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| | Three months ended March 31, |
| |||||||||||||
| | 2023 | | 2022 | | Increase (decrease) |
| |||||||||
|
| | |
| Percent of |
| |
| Percent of |
| |
| | | ||
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| |||
Automotive | | $ | 3,259,000 | | 32.8 | % | $ | 3,881,000 | | 37.7 | % | $ | (622,000) | | (16.0) | % |
Retail | |
| 2,550,000 | | 25.7 | | | 3,020,000 | | 29.5 | | | (470,000) | | (15.6) | |
Industrial | |
| 1,578,000 | | 15.9 | | | 1,444,000 | | 14.0 | | | 134,000 | | 9.3 | |
Aerospace | |
| 2,411,000 | | 24.3 | | | 1,777,000 | | 17.3 | | | 634,000 | | 35.7 | |
Other | |
| 126,000 | | 1.3 | | | 159,000 | | 1.5 | | | (33,000) | | (20.8) | |
Total | | $ | 9,924,000 | | 100.0 | % | $ | 10,281,000 | | 100.0 | % | $ | (357,000) | | (3.5) | % |
| | | | | | | | | | | | | | | | |
| | Three months ended June 30, |
| |||||||||||||
| | 2022 | | 2021 | | Increase (decrease) |
| |||||||||
|
| | |
| Percent of |
| |
| Percent of |
| |
| | | ||
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| |||
Automotive | | $ | 3,853,000 |
| 30.4 | % | $ | 3,782,000 |
| 35.3 | % | $ | 71,000 | | 1.9 | % |
Retail | |
| 4,826,000 |
| 38.1 | |
| 3,763,000 |
| 35.1 | |
| 1,063,000 | | 28.2 | |
Industrial | |
| 1,705,000 |
| 13.5 | |
| 1,303,000 |
| 12.3 | |
| 402,000 | | 30.9 | |
Aerospace | |
| 2,179,000 |
| 17.2 | |
| 1,734,000 |
| 16.2 | |
| 445,000 | | 25.7 | |
Other | |
| 103,000 |
| 0.8 | |
| 130,000 |
| 1.1 | |
| (27,000) | | (20.8) | |
Total | | $ | 12,666,000 |
| 100.0 | % | $ | 10,712,000 |
| 100.0 | % | $ | 1,954,000 | | 18.2 | % |
| | | | | | | | | | | | | | | | |
| | Six months ended June 30, |
| |||||||||||||
| | 2022 | | 2021 | | Increase (decrease) |
| |||||||||
|
| | |
| Percent of |
| |
| Percent of |
| |
| | | ||
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| |||
Automotive | | $ | 7,734,000 |
| 33.7 | % | $ | 7,884,000 |
| 36.5 | % | $ | (150,000) | | (1.9) | % |
Retail | |
| 7,845,000 |
| 34.2 | |
| 7,553,000 |
| 34.9 | |
| 292,000 | | 3.9 | |
Industrial | |
| 3,111,000 |
| 13.6 | |
| 2,662,000 |
| 12.3 | |
| 449,000 | | 16.9 | |
Aerospace | |
| 3,994,000 |
| 17.4 | |
| 3,262,000 |
| 15.1 | |
| 732,000 | | 22.4 | |
Other | |
| 263,000 |
| 1.1 | |
| 253,000 |
| 1.2 | |
| 10,000 | | 4.0 | |
Total | | $ | 22,947,000 |
| 100.0 | % | $ | 21,614,000 |
| 100.0 | % | $ | 1,333,000 | | 6.2 | % |
Automotive revenue declined this quarter, compared to the same period in 2022, due primarily to an across-the-board price increase in all distribution channels in order to address rising input costs. This change in pricing strategy led to a decline in number of unit sales and thus overall revenue in this category. However, Automotive gross margin improved as a result of this change. The primary factors contributing to the 15.6% decline in our Retail revenue were: a) a decision by The Home Depot (“THD”) to reduce in-store inventory levels; b) a reduction in display area at THD stores; c) a net reduction in the number of items being offered by THD this quarter compared to the same three-month period in 2022, and d) increased pressure from on-line distributors, as well as and other “brick and mortar” retailers expanding their presence in this product line. Partially offsetting the above-mentioned declines our Aerospace revenue improved 35.7% when comparing the first quarter of 2023 and 2022. This improvement was driven by, among other factors, increased demand for new, limited life parts that JIFFY has begun to market, and an overall increase in demand throughout the sector for standard drilling, installation and torque control tools. Lastly, our Industrial revenue increased primarily due to improved general market conditions.
2623
Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued
RESULTS OF OPERATIONS - (Continued)
REVENUE – Continued
Florida Pneumatic – Continued
When comparing the three-month periods ended June 30, 2022 and 2021, the most significant change in Florida Pneumatic’s revenue occurred within its Retail sector. The 28.2% increase was driven primarily by a stocking rollout to The Home Depot (“THD”) during the second quarter of 2022. These items effectively replaced certain tools that were discontinued. The increase in Industrial revenue was driven by among other things, slightly improved supply chain conditions, which in turn increased our in-stock inventory, allowing an increase in shipments, price increases that went into effect during the quarter, and better economic conditions this quarter, compared to the second quarter of 2021. Aerospace continued to show year-over-year improvement with revenue increasing 25.7% this quarter, compared to the second quarter of 2021, due primarily to an increase in orders from both our commercial aircraft and defense-related customers. Our Automotive revenue improved a modest 1.9% this quarter, compared to the same period a year ago. However, due to a previously disclosed change in distribution channel strategy, as well as changes in both economic and competitive factors, we believe that Automotive revenue could lessen in the future periods.
The 22.4%, or $732,000 increase in Florida Pneumatic’s Aerospace revenue during the six-month period ended June 30, 2022, compared to the same period in the prior year, is the most significant factor in analyzing the overall improvement in Florida Pneumatic’s year-to-date revenue. This improvement is being driven by increased orders from both the commercial and military markets. Its Industrial revenue for the six-month period ended June 30, 2022, grew 16.9% over the same period in 2021, due primarily to slightly improved supply chain conditions and price increases, both occurring during the second quarter of this year, and better economic conditions during most of the six-month period ended June 30, 2022, compared to the same period in 2021. Revenue for the Retail sector during the first six months of 2022 is 3.9% higher than the same period in 2021. This year-to-date improvement was driven by a stocking roll-out, which occurred during the second quarter of 2022, partially offset by a decline in the spray gun category.
Hy-Tech
Hy-Tech designs, manufactures, and sells a wide range of industrial products which are categorized as ATP for reporting purposes. In addition to Engineered Solutions, products and components manufactured for other companies under their brands are included in the OEM category in the table below. PTG revenue is comprised of products manufactured and sold by Hy-Tech’s gear business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.
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| Three months ended March 31, |
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| | 2023 | | 2022 | | Increase (decrease) |
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| Percent of |
| | |
| Percent of |
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| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| |||
OEM | | $ | 3,073,000 | | 52.8 | % | $ | 1,965,000 | | 52.6 | % | $ | 1,108,000 | | 56.4 | % |
PTG | |
| 1,933,000 | | 33.2 | | | 940,000 | | 25.1 | | | 993,000 | | 105.6 | |
ATP | |
| 697,000 | | 12.0 | | | 742,000 | | 19.8 | | | (45,000) | | (6.1) | |
Other | |
| 115,000 | | 2.0 | | | 93,000 | | 2.5 | | | 22,000 | | 23.7 | |
Total | | $ | 5,818,000 | | 100.0 | % | $ | 3,740,000 | | 100.0 | % | $ | 2,078,000 | | 55.6 | % |
| | | | | | | | | | | | | | | | |
|
| Three months ended June 30, |
| |||||||||||||
| | 2022 | | 2021 | | Increase (decrease) |
| |||||||||
| | | |
| Percent of |
| | |
| Percent of |
| | |
| |
|
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| |||
OEM | | $ | 2,542,000 |
| 49.4 | % | $ | 1,408,000 |
| 48.9 | % | $ | 1,134,000 | | 80.5 | % |
ATP | |
| 945,000 |
| 18.4 | |
| 779,000 |
| 27.1 | |
| 166,000 | | 21.3 | |
PTG | |
| 1,583,000 |
| 30.8 | |
| 604,000 |
| 21.0 | |
| 979,000 | | 162.1 | |
Other | |
| 74,000 |
| 1.4 | |
| 86,000 |
| 3.0 | |
| (12,000) | | (14.0) | |
Total | | $ | 5,144,000 |
| 100.0 | % | $ | 2,877,000 |
| 100.0 | % | $ | 2,267,000 | | 78.8 | % |
| | | | | | | | | | | | | | | | |
|
| Six months ended June 30, |
| |||||||||||||
| | 2022 | | 2021 | | Increase |
| |||||||||
| | | |
| Percent of |
| | |
| Percent of |
| | |
| |
|
| | Revenue | | revenue | | Revenue | | revenue | | $ | | % |
| |||
OEM | | $ | 4,507,000 | | 50.7 | % | $ | 3,019,000 | | 51.0 | % | $ | 1,488,000 | | 49.3 | % |
ATP | | | 1,687,000 | | 19.0 | | | 1,492,000 | | 25.2 | | | 195,000 | | 13.1 | |
PTG | | | 2,522,000 | | 28.4 | | | 1,250,000 | | 21.1 | | | 1,272,000 | | 101.8 | |
Other | | | 168,000 | | 1.9 | | | 160,000 | | 2.7 | | | 8,000 | | 5.0 | |
Total | | $ | 8,884,000 | | 100.0 | % | $ | 5,921,000 | | 100.0 | % | $ | 2,963,000 | | 50.0 | % |
27
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - (Continued)
REVENUE – Continued
Hy-Tech - Continued
Key factors driving the 80.5%2022, was driven by growth in Hy-tech’scertain markets that are served by a number of Hy-Tech’s OEM product linecustomers. The markets served by our customers include multiple industrial applications, as well as the tool rental market. PTG revenue for the first three months of 2023 more than doubled its revenue reported for the same period a year ago. This improvement was driven by the acquisition of the Jackson Gear Company business that we acquired in January 2022. The increase in Hy-Tech’s Other revenue was due to stronger NUMATX and general machining revenue growth this quarter, compared to the same three-month period in 2021, were a significant increase2022. The modest decline in orders from a major customer, the easing of COVID-19 travelATP revenue is attributable to our decision to focus our marketing efforts on OEM and visitation restrictions, and overall improvement in economic conditions this quarter compared to the same period a year ago. Revenue generated from the JGC, which was acquired in early 2022, was the major component of the $979,000 increase in our PTG product line revenue. (See Note 2- Acquisition, for further discussion). Our ATP revenue increased 21.3% thisofferings.
GROSS MARGIN/PROFIT
| | | | | | | | | | | | | |
|
| Three months ended March 31, |
| Increase |
| ||||||||
| | 2023 |
| 2022 | | Amount |
|
| % |
| |||
Florida Pneumatic | | $ | 4,276,000 | | $ | 3,949,000 | | $ | 327,000 | | | 8.3 | % |
As percent of respective revenue | |
| 43.1 | % | | 38.4 | % | | 4.7 | % | pts | | |
Hy-Tech | | $ | 1,466,000 | | $ | 562,000 | | $ | 904,000 | | | 160.9 | |
As percent of respective revenue | |
| 25.2 | % | | 15.0 | % | | 10.2 | % | pts | | |
Total | | $ | 5,742,000 | | $ | 4,511,000 | | $ | 1,231,000 | | | 27.3 | % |
As percent of respective revenue | |
| 36.5 | % | | 32.2 | % | | 4.3 | % | pts | | |
During the first quarter overof 2023, Florida Pneumatic’s gross margin improved compared to the same period in the prior year principally due to a shift away from the lower margin product lines, Retail and Automotive, to the higher margin, industrial and aerospace categories. Additionally, during 2022, we raised prices in all product categories.
The improvement in Hy-Tech’s gross margin is due primarily to improved economic conditions.
Hy-Tech’s six-month, year-over-year growth was mostly accomplished during the three-month period ended June 30, 2022. As such, factorsits overall product/customer mix. Additionally, cost and expense reductions, coupled with revisions in pricing structure, enabled Hy-Tech to improve its blended gross margin, thus contributing to this growth include increased orders from a major OEM customer, the JGC business acquisition, the easing of COVID-19 restrictions, and slight improvement in the general economic conditions.
GROSS MARGIN/PROFIT
| | | | | | | | | | | | | |
|
| Three months ended June 30, |
| Increase (decrease) |
| ||||||||
| | 2022 |
| 2021 | | Amount |
|
| % |
| |||
Florida Pneumatic | | $ | 4,771,000 | | $ | 4,165,000 | | $ | 606,000 |
| | 14.6 | % |
As percent of respective revenue | |
| 37.7 | % |
| 38.9 | % |
| (1.2) | % | pts | | |
Hy-Tech | | $ | 865,000 | | $ | 683,000 | | $ | 182,000 |
| | 26.6 | |
As percent of respective revenue | |
| 16.8 | % |
| 23.7 | % |
| (6.9) | % | pts | | |
Total | | $ | 5,636,000 | | $ | 4,848,000 | | $ | 788,000 |
| | 16.3 | % |
As percent of respective revenue | |
| 31.6 | % |
| 35.7 | % |
| (4.1) | % | pts | | |
Although Florida Pneumatic’s gross profit increased 14.6%, its consolidatedoverall gross margin declined 1.2 percentage points. This net decline was driven primarily dueimprovement. We continue to a higher mix of lower gross margin Retail revenue. Related thereto, Florida Pneumatic continued to encounter higher ocean freight and product costs during the three-month period ended June 30, 2022, compared to the same three-month period in 2021. Partially offsetting the above were better than prior year gross margins in its Industrial, Automotive and Aerospace product lines. Hy-Tech’s gross profit declined 6.9 percentage points this quarter, compared to the same three-month period in 2021, due primarily to increased revenue attributable to low margin customers during the second quarter of 2022. Additionally, Hy-Tech’s PTG product line under absorbed itsfocus on improving manufacturing overhead costs during the second quarter of 2022, as it is going throughabsorption, particularly at our PTG facility. While always ongoing, we expect the process of integrating the JGC acquisition.
| | | | | | | | | | | | | |
|
| Six months ended June 30, |
| Increase (decrease) |
| ||||||||
| | 2022 |
| 2021 | | Amount |
|
| % |
| |||
Florida Pneumatic | | $ | 8,721,000 | | $ | 8,365,000 | | $ | 356,000 |
| | 4.3 | % |
As percent of respective revenue | |
| 38.0 | % |
| 38.7 | % |
| (0.7) | % | pts | | |
Hy-Tech | | $ | 1,426,000 | | $ | 1,119,000 | | $ | 307,000 |
| | 27.4 | |
As percent of respective revenue | |
| 16.1 | % |
| 18.9 | % |
| (2.8) | % | pts | | |
Total | | $ | 10,147,000 | | $ | 9,484,000 | | $ | 663,000 |
| | 7.0 | % |
As percent of respective revenue | |
| 31.9 | % |
| 34.4 | % |
| (2.5) | % | pts | | |
Jackson Gear Company acquisition to be effectively complete by approximately mid-2023.
2824
Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Continued
RESULTS OF OPERATIONS - Continued
GROSS MARGIN/PROFIT - Continued
Florida Pneumatic’s gross profit improved by 4.3%, when comparing the six-month periods ended June 30, 2022 and 2021. Its gross margin however, declined by 0.7 percentage point. Primary factors affecting these results were primarily customer and product mix, with greater low margin Retail revenue, being partially offset by stronger gross margin for all other product lines. As discussed above, under absorption of PTG manufacturing overhead and product mix are the primary factors causing the 2.8 percentage points decline in Hy-Tech’s six-month gross margin, when compared to the same period a year ago. We are in the process of integrating the JGC business acquisition that occurred during the first quarter of this year. We expect to make significant progress on integration during the second half of 2022 and thus improve gross margin as well.
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 secondfirst quarter of 2022,2023, our SG&A was $5,479,000,$5,175,000 compared to $5,458,000$5,173,000, incurred during the same three-month period in 2021. Key2022. Significant components to the net change are:
Our six-month 2022 total SG&Ainclude: a) compensation expenses increased $223,000, due to several factors, among them being the additional staffing added throughout the Company, increased wages primarily related to retention incentives and annual wage adjustments and increases in company-wide bonus/incentive/performance accruals; b) increased depreciation and amortization of $51,000; c) professional fees and expenses decreased $140,000, due primary to legal, accounting and other fees incurred in connection with the JGC acquisition during the first quarter of 2023 not recurring in the first quarter of 2023; and d) variable expenses declined $131,000. Variable expenses include among other items, commissions, freight out, travel, advertising, shipping supplies and warranty costs. Driving this decline was $10,652,000,lower advertising and shipping costs at Florida Pneumatic, caused primarily by lower Retail revenue this quarter and a reduction in discretionary Automotive advertising expenses, compared to $10,449,000the same period a year ago.
OTHER INCOME
During the three-month period ended March 31, 2023, we recognized a gain of $21,000 from the sale of fully depreciated equipment. Additionally, as a result of final resolution of our Employee Retention Tax Credit (“ERTC”) filing, we recorded an additional $15,000 as Other Income. This income is subject to federal and local tax.
INTEREST - NET
| | | | | | | | | | | | |
|
| Three months ended March 31, |
| (Increase) decrease |
| |||||||
| | 2023 |
| 2022 | | Amount |
| % |
| |||
Interest expense attributable to: | | |
| | |
| | |
| |
| |
Short-term borrowings | | $ | 124,000 | | $ | 48,000 | | $ | (76,000) | | (158.3) | % |
Amortization expense of debt issue costs | |
| 19,000 | | | 4,000 | | | (15,000) | | (375.0) | |
Interest income on ERTC refunds | | | (34,000) | | | — | | | 34,000 | | 100.0 | |
| | | | | | | | | | | | |
Total | | $ | 109,000 | | $ | 52,000 | | $ | (57,000) | | (109.6) | % |
The most significant factor causing the increase in our short-term borrowings interest expense was the growth in the SOFR and prime rates. Most of our borrowings are SOFR plus Applicable Margin. The Applicable Margin, as defined in our Credit Agreement, during the three-month period ended March 31, 2023, was 2.10% applied to all SOFR borrowings and 1.60% applied to Base Rate borrowings. The Applicable Margins that was added to LIBOR and Base Rate borrowings during the three-month period ended March 31, 2022, were 1.50% and 0.50%, respectively. During the three-month period ended March 31, 2023, the SOFR rates ranged from 4.43% to 4.86%, compared to LIBOR rates, which we were used during the first quarter of 2022, that ranged from 0.10% to 0.47%. Further, the prime rate, which is the interest rate used for Base Rate borrowings before the Applicable Margin, during the first three months of 2023 ranged from 7.5% to 8.0%, compared to prime rates ranging from 3.25% to 3.50% during the same three-month period in 2022.
The amortization expense incurred during the samethree-month period in the prior year. Key componentsended March 31, 2023 is related to the net change are:debt issue costs associated with Amendment 11 to our Credit Agreement.
The average balance of short-term borrowings during the three-month periods ended March 31, 2023 and 2022, were $7,287,000, and $10,157,000, respectively.
2925
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - Continued
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES – Continued
OTHER EXPENSE (INCOME)
Other expense in 2022 consists primarily of adjustments to the fair value of certain assets.
On April 20, 2020, we received a Paycheck Protection Program (“PPP”) loan, in the amount of $2,929,000. Under the terms of the Coronavirus Aid, Relief, and Economic Security Act, (“CARES Act”), as amended, we were eligible to apply for forgiveness for all or a portion of the PPP loan. In February 2021, we filed an application for forgiveness with the lender, who approved this submission and submitted the application for forgiveness to the SBA. On June 9, 2021, we were advised that the SBA had approved our PPP loan forgiveness application and as such, the PPP loan and interest were forgiven in its entirety. Accordingly, the lender applied the funds and paid off PPP loan principal in its entirety and interest in full. In accordance with current accounting guidance this forgiveness of debt and related accrued interest was accounted for as Other Income in 2021.
INTEREST EXPENSE (INCOME)
| | | | | | | | | | | | |
|
| Three months ended June 31, |
| Increase (decrease) |
| |||||||
| | 2022 |
| 2021 | | Amount |
| % |
| |||
Interest expense attributable to: | | |
| | |
| | |
| |
| |
Short-term borrowings | | $ | 89,000 | | $ | 8,000 | | $ | 81,000 |
| 1,012.5 | % |
PPP loan | |
| — | |
| (27,000) | |
| 27,000 |
| 100.0 | |
Amortization expense of debt issue costs | |
| 4,000 | |
| 4,000 | |
| — |
| NA | |
Other | | | (7,000) | | | — | | | (7,000) | | NA | |
Total | | $ | 86,000 | | $ | (15,000) | | $ | 101,000 |
| 673.3 | % |
| | | | | | | | | | | | |
|
| Six months ended June 30, |
| Increase (decrease) |
| |||||||
| | 2022 |
| 2021 |
| Amount |
| % |
| |||
Interest expense attributable to: | | |
| | |
| | |
| |
| |
Short-term borrowings | | $ | 137,000 | | $ | 18,000 | | $ | 119,000 |
| 661.1 | % |
PPP loan | |
| — | |
| (19,000) | |
| 19,000 |
| 100.0 | |
Amortization expense of debt issue costs | |
| 8,000 | |
| 8,000 | |
| — |
| NA | |
Other | | | (7,000) | | | — | | | (7,000) | | NA | |
Total | | $ | 138,000 | | $ | 7,000 | | $ | 131,000 |
| 1,871.4 | % |
Our average short-term borrowings during the three and six-month periods ended June 30, 2022, increased significantly, when compared to the same periods in 2021. This increase was due primarily to our decision to increase safety stock levels of inventory, due primarily to delays and other supply chain issues, increased inventory related to the shipment of the stocking rollout that occurred during the second quarter of 2022, and the purchase and related costs associated with the acquisition in the first quarter of 2022 of the JGC business. Additionally, the Applicable Margins, as defined in the Credit Agreement with Capital One bank, NA, also increased. See Note 9-Debt for further discussion.
As discussed earlier, during the second quarter of 2021, we applied for and received forgiveness of the PPP loan. Accordingly, we recorded the reversal of associated interest expense.
30
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - Continued
INTEREST EXPENSE (INCOME) - Continued
Debt issue costs are associated with an amendment to the Credit Agreement. There were no amortizable debt issue costs incurred with Amendment No. 9, or Amendment No. 10 to the Credit Agreement.
Other interest relates to interest received in connection with federal income tax refunds received.
INCOME TAXES
At the end of each interim reporting period, we compute an effective tax rate based upon our estimated full 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, the effective tax rate for the three and six-monththree-month periods ended June 30,March 31, 2023, and 2022, were approximately a tax expenseprovision rate of 138.2%,31.8% and a tax benefit of 3.0%rate 13.4%, compared to a tax benefit of 3.8% and 8.1% for the same three and six-month periods in 2021.respectively. The effective tax rates for all periods presented were impacted primarily by state taxes, and non-deductible expenses. Impacting 2021’s effective tax benefit was the enactment of the CARES Act. Under the terms of the CARES Act, we applied for and were approved to treat the gain on the forgiveness of the PPP loan as non-taxable income. Accordingly, the gain resulting from the forgiveness of the PPP loan was not included in the computation of the 2021 effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
We monitor such metrics as days’ sales outstanding, inventory requirements, inventory turns, estimated future purchasing requirements and capital expenditures to project liquidity needs, as well as evaluate return on assets. Our primary sources of funds are operating cash flows, existing working capital and our Revolver Loan (“Revolver”) with our Bank.
We gauge our liquidity and financial stability by various measurements, some of which are shown in the following table:
| | | | | | | | | | | | |
|
| June 30, 2022 |
| December 31, 2021 |
| March 31, 2023 |
| December 31, 2022 | ||||
Working capital | | $ | 22,407,000 | | $ | 24,598,000 | | $ | 21,073,000 | | $ | 20,838,000 |
Current ratio | |
| 2.40 to 1 | |
| 3.04 to 1 | |
| 2.57 to 1 | | | 2.44 to 1 |
Shareholders’ equity | | $ | 43,066,000 | | $ | 43,840,000 | | $ | 42,184,000 | | $ | 41,956,000 |
Credit facilityAgreement
Our Credit FacilityAgreement is discussed in detail in Note 9,Note-8 to our Consolidated Financial Statements. Discussedconsolidated financial statements. As discussed therein, we and the Bank entered into an amendment to the Credit Facility that, among other things, increasedextended the Revolver borrowing commitment by $2,000,000expiration date to $18,000,000 through June 30, 2022. We believe the return to the $16,000,000 maximum Revolver borrowing amount will not impact future operations.February 8, 2027.
At June 30, 2022,March 31, 2023, there was $7,000,000approximately $7,800,000 available to us under ourthe 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
For the six-monththree-month period ended June 30, 2022, cash used by operating activities was $1,154,000, compared toMarch 31, 2023, cash provided by operating activities duringwas $790,000, compared to cash used in operating activities for the six-monththree-month period ended June 30, 2021,March 31, 2022, of $1,368,000.$3,972,000. At June 30,March 31, 2023, and 2022, our consolidated cash balance was $431,000, compared to $539,000 at December 31, 2021.$561,000, and $642,000, 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 and therefore does not representlockboxes. Thus, nearly all cash on hand.hand represents funds to cover checks issued but not yet presented for payment.
Our total debt to total book capitalization (total debt divided by total debt plus equity) at both March 31, 2023, and December 31, 2022, was 15.3%.
During the three-month period ended March 31, 2023, we used $905,000 for capital expenditures, compared to $380,000 during the same period in the prior year. Capital expenditures currently planned for the remainder of 2023 are approximately $2,400,000, which we expect will be financed through the Credit Facility.
3126
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - Continued
LIQUIDITY AND CAPITAL RESOURCES – - Continued
Our total debt to total book capitalization (total debt divided by total debt plus equity) on June 30, 2022, was 18.9%, compared to 11.6% on December 31, 2021.
During the six-month period ended June 30, 2022, we completed the JGC acquisition, with a purchase price of $2,300,000, plus acquisition expenses that included among other things, legal, accounting, and relocation expenses. (See Note 2).
During the six-month period ended June 30, 2022, we used $923,000 for capital expenditures, compared to $247,000 during the same period in the prior year. Capital expenditures currently planned for the remainder of 2022 are approximately $700,000, which we expect will be financed through the Credit Facility.Cash Flows - Continued
The major portion of these planned capital expenditures will be for new metal cutting equipment, tooling and information technology hardware and software, and the expansion of our Punxsutawney, PA facility as a result of the acquisition of JGC business (See Note 2).software.
Our liquidity and capital isare primarily sourced from our credit facility,the Credit Agreement, described in Note 98 – Debt, to our Consolidated Financial Statements,consolidated financial statements, and cash from operations.
Should the need arise whereby the current Credit Agreement is insufficient, we could obtain additional funds based on the value of our real property, and we believe the borrowing under the current Agreement could be increased.
Customer concentration
Refer to Note 1 – Business and summary of accounting policies – Customer Concentration for a detailed discussion.
IMPACT OF INFLATION
During the three-month period ended March 31, 2023, with respect to our cost of inventory, we encountered price increases in raw materials, imported parts and tools, ocean freight and labor. Additionally, our operating costs continue to encounter cost/price increases. It is difficult to accurately determine what portion of the above referenced increases are attributable to inflation. We have been able to pass through most of the above-mentioned price increases, however we cannot predict our ability to continue this practice, nor to what degree. We intend to continue to actively manage the impact of inflation on our results of operations; however, we cannot reasonably estimate possible future impacts at this time.
NEW ACCOUNTING PRONOUNCEMENTS
There were no new accounting standards or pronouncements issuedthat became effective during the three and six-month periodsthree-month period ended June 30, 2022March 31, 2023, that were applicable to us.had a material impact on our Consolidated financial statements.
We do not believe that any recently issued, but not yet effective accounting standard, if adopted, will have a material effect on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
3227
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 June 30, 2022,March 31, 2023, 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 June 30, 2022,March 31, 2023, 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 June 30, 2022March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes to the legal proceedings’ disclosure described in our 20212022 Form 10-K.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed under Part I, Item 1A “Risk Factors” in the 20212022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
See “Exhibit Index” immediately following the signature page.
3329
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: | | (Principal Financial and Chief Accounting Officer) |
3430
EXHIBIT INDEX
The following exhibits are either included in this report or incorporated herein by reference as indicated below:
Exhibit |
| Description of Exhibit |
| | |
3.1 | | |
| | |
10.1 | | |
|
|
|
|
| |
| | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
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 (“iXBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income (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.
3531