DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

NOTE 2 – DISCONTINUED OPERATIONS

The Company, as part of its strategic plan, which is to focus on expanding its position in the power-tool and accessories market, sold Nationwide. On the Closing Date, P&F, Countrywide, Nationwide and Argosy NWI Holdings, LLC, a Delaware limited liability company (“Buyer”), entered into a Stock Purchase and Redemption Agreement (the “Stock Purchase Agreement”), pursuant to which, among other things, after giving effect to certain contributions and redemptions of Nationwide’s common shares (“Nationwide Shares”), the Buyer acquired all of the outstanding Nationwide Shares from Countrywide (the “Acquisition”). The purchase price for the Nationwide Shares acquired in the Acquisition was approximately $22,200,000, before giving effect to an estimated working capital adjustment, as defined in the Stock Purchase Agreement, of approximately $802,000. Further, in accordance with the Stock Purchase Agreement, the Company placed into escrow $1,955,000 (“escrow funds”), of which $250,000 related to the final working capital adjustment. Pursuant to the terms of the Stock Purchase Agreement, the final working capital amount was determined to be approximately $75,000 in the Company’s favor. As a result, during the three-month period ended June 30, 2016, the $250,000 portion of the escrow funds was released to the Company, and the final working capital adjustment amount of $75,000 was paid to the Company by the Buyer. The Stock Purchase Agreement also requires Countrywide, under certain circumstances, to contribute an additional $400,000 into escrow. After paying closing costs, the net cash received from the Buyer was approximately $18.7 million.

  

The remaining $1,705,000 of the escrow funds, which is classified as Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheet, is intended to be released eighteen months from the Closing Date, which is August 2017, less any claims made against these escrow funds, in accordance with the Stock Purchase Agreement. The Company believes that these escrow funds are highly collectible, and that it is more likely than not that with respect to any or all such potential claims made against the Company, these claims will not exceed the minimum dollar threshold amount of $150,000 required under the Stock Purchase Agreement. The Company has therefore included the full amount of the $1,705,000 portion of the escrow funds in its gain on sale of Nationwide. Should claims made against the Company pursuant to the Stock Purchase Agreement exceed the minimum threshold, then to the extent such claims are resolved in favor of the Buyer under the terms of the Stock Purchase Agreement, the total amount of such claims will be recorded as a loss on sale of Nationwide in future periods.

 

As Nationwide was a substantial and unique business unit of the Company, its sale was a strategic shift. Accordingly, in accordance with Accounting Standard Code Topic 360, the Company has classified Nationwide as discontinued operations for all periods presented.

Net income from discontinued operations, net of taxes in the accompanying Consolidated Statements of Operations and Comprehensive (Loss) Income, is comprised of the following:

	January 1, 2016 through the Closing Date		Three months ended September 30, 2015		Nine months ended September 30, 2015
Revenue	$	1,830,000	$	5,754,000	$	17,523,000
Cost of goods sold		1,177,000		3,519,000		10,681,000
Gross margin		653,000		2,235,000		6,842,000
Selling and general and administrative expenses		483,000		1,212,000		3,784,000
Interest expense-net		60,000		144,000		479,000
Income before income taxes		110,000		879,000		2,579,000
Income taxes		38,000		334,000		946,000
Net income	$	72,000	$	545,000	$	1,633,000

The components of discontinued operations in the accompanying Consolidated Balance Sheet are as follows:

	December 31, 2015
Accounts receivable-net	$	1,245,000
Inventories		4,211,000
Prepaid expenses and other current assets		92,000
Net property and equipment		768,000
Goodwill		1,873,000
Other intangible assets-net		12,000
Other assets- net		5,000
Deferred taxes - net		229,000
Assets of discontinued operations	$	8,435,000
Accounts payable	$	765,000
Accrued compensation and benefits		247,000
Accrued other liabilities		330,000
Liabilities of discontinued operations	$	1,342,000

On the Closing Date, the Company and the president of Nationwide, entered into a purchase agreement pursuant to which, among other things the Company acquired 30,000 shares of the Company’s Class A Common Stock (“Common Stock”) at the aggregate purchase price of $254,940 and options to acquire 6,667 shares of the Company’s Common Stock at an aggregate price of $16,597.

Effective as of the Closing Date, Countrywide, as landlord, and Nationwide, as tenant, entered into a new lease relating to the Tampa, Florida real property (the “Premises”). The lease provides for, among other things, a seven-year term commencing on the Closing Date and an annual base rent of approximately $252,000 with annual escalations. The lease also provides that the tenant will pay certain taxes and operating expenses associated with the Premises. The lease replaces the previous lease between Countrywide and Nationwide.

Lastly, effective as of the Closing Date, Countrywide and Nationwide entered into an Option and Right of First Refusal Agreement relating to the Premises, pursuant to which Countrywide granted a purchase option to Nationwide relating to the Premises if such option is initiated within 60 days following the Closing Date, which has since lapsed. In addition, Countrywide granted to Nationwide a right of first refusal relating to certain offers made by third parties during the five-year period following the Closing Date.

The Company recognized a gain of $12,185,000, on the sale of Nationwide during the three-month period ended March 31, 2016, which represents the difference between the adjusted net purchase price and the carrying book value of Nationwide. During the three-month period ended June 30, 2016 the Company incurred an additional $14,000 in expenses related to the sale. For income tax purposes, the Company’s tax basis in Nationwide was greater than the net proceeds, thus resulting in a tax loss. This tax loss may only be applied against future capital gain transactions. During the three-month period ended March 31, 2016, the Company recorded a tax benefit of $141,000, net of a valuation allowance against the gain on sale. Subsequent to September 30, 2016, Countrywide completed the sale of the Premises, which is treated as a capital gain transaction for tax purposes.  As a result, during the three-month period ended September 30, 2016, the Company removed the valuation allowance initially recorded against the tax loss, resulting in an additional $187,000 tax benefit recorded against the gain on sale. See Note 12-Subsequent Events, for further discussion.