10-Q

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 September 30, 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) before

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 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 November 6, 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 SEPTEMBER 30, 2023

TABLE OF CONTENTS

		PAGE
PART I — FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Operations and Comprehensive Loss for the three and nine-month periods ended September 30, 2023, and 2022 (unaudited)	5
	Consolidated Statements of Shareholders’ Equity for the three and nine-month periods ended September 30, 2023, and 2022 (unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023, and 2022 (unaudited)	8
	Notes to Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II — OTHER INFORMATION		33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
Signature		36
Exhibit Index		37

2

PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2023		December 31, 2022
	(unaudited)		(See Note 1)
ASSETS
CURRENT ASSETS
Cash	$	338,000	$	667,000
Accounts receivable — net		8,734,000		7,370,000
Inventories		20,517,000		24,491,000
Prepaid expenses and other current assets		908,000		2,753,000
TOTAL CURRENT ASSETS		30,497,000		35,281,000
PROPERTY AND EQUIPMENT
Land		507,000		507,000
Buildings and improvements		4,330,000		4,087,000
Machinery and equipment		29,345,000		28,057,000
		34,182,000		32,651,000
Less accumulated depreciation and amortization		24,403,000		23,288,000
NET PROPERTY AND EQUIPMENT		9,779,000		9,363,000
GOODWILL		4,823,000		4,822,000
OTHER INTANGIBLE ASSETS — net		4,809,000		5,326,000
DEFERRED INCOME TAXES — net		639,000		629,000
RIGHT-OF-USE ASSETS		4,745,000		5,521,000
OTHER ASSETS — net		161,000		62,000
TOTAL ASSETS	$	55,453,000	$	61,004,000

See accompanying notes to consolidated financial statements (unaudited).

3

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2023		December 31, 2022
	(unaudited)		(See Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term borrowings	$	2,664,000	$	7,570,000
Accounts payable		2,767,000		3,094,000
Accrued compensation and benefits		2,078,000		1,757,000
Accrued other liabilities		1,706,000		1,002,000
Current leased liabilities – operating leases		860,000		1,020,000
TOTAL CURRENT LIABILITIES		10,075,000		14,443,000
Noncurrent leased liabilities – operating leases		3,991,000		4,535,000
Other liabilities		47,000		70,000
TOTAL LIABILITIES		14,113,000		19,048,000
SHAREHOLDERS’ EQUITY
Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued		—		—
Common stock
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,467,000 at September 30, 2023, and December 31, 2022		4,467,000		4,467,000
Class B - $1 par; authorized - 2,000,000 shares; no shares issued		—		—
Additional paid-in capital		14,284,000		14,246,000
Retained earnings		33,625,000		34,251,000
Treasury stock, at cost – 1,273,000 shares at September 30, 2023, and December 31, 2022		(10,213,000)		(10,213,000)
Accumulated other comprehensive loss		(823,000)		(795,000)
TOTAL SHAREHOLDERS’ EQUITY		41,340,000		41,956,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	55,453,000	$	61,004,000

See accompanying notes to consolidated financial statements (unaudited).

4

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

	Three months				Nine months
	ended September 30,				ended September 30,
	2023		2022		2023		2022
Net revenue	$	14,404,000	$	14,516,000	$	46,309,000	$	46,347,000
Cost of sales		9,511,000		9,669,000		29,839,000		31,353,000
Gross profit		4,893,000		4,847,000		16,470,000		14,994,000
Selling, general and administrative expenses		5,785,000		5,084,000		16,327,000		15,736,000
Operating (loss) income		(892,000)		(237,000)		143,000		(742,000)
Other (expense) income		—		(3,000)		15,000		(24,000)
Gain on sale of property and equipment		23,000		—		40,000		5,000
Interest expense		(110,000)		(106,000)		(326,000)		(244,000)
Loss before income tax		(979,000)		(346,000)		(128,000)		(1,005,000)
Income tax benefit (expense)		258,000		109,000		(18,000)		129,000
Net loss	$	(721,000)	$	(237,000)	$	(146,000)	$	(876,000)
Basic and diluted loss per share	$	(0.23)	$	(0.08)	$	(0.05)	$	(0.28)
Weighted average common shares outstanding:
Basic and diluted		3,195,000		3,195,000		3,195,000		3,183,000
Net loss	$	(721,000)	$	(237,000)	$	(146,000)	$	(876,000)
Other comprehensive loss - foreign currency translation adjustment		(97,000)		(160,000)		(28,000)		(356,000)
Total comprehensive loss	$	(818,000)	$	(397,000)	$	(174,000)	$	(1,232,000)

See accompanying notes to consolidated financial statements (unaudited).

5

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

Three months ended September 30, 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, July 1, 2023	$	42,309,000	4,467,000	$	4,467,000	$	14,276,000	$	34,505,000	(1,273,000)	$	(10,213,000)	$	(726,000)
Net loss		(721,000)	—		—		—		(721,000)	—		—		—
Restricted common stock compensation		8,000	—		—		8,000		—	—		—		—
Dividends		(159,000)	—		—		—		(159,000)	—		—		—
Foreign currency translation adjustment		(97,000)	—		—		—		—	—		—		(97,000)
Balance, September 30, 2023	$	41,340,000	4,467,000	$	4,467,000	$	14,284,000	$	33,625,000	(1,273,000)	$	(10,213,000)	$	(823,000)

Three months ended September 30, 2022

													Accumulated
			Class A common			Additional							other
			stock, $1 par			paid-in		Retained		Treasury stock			comprehensive
	Total		Shares	Amount		capital		earnings		Shares	Amount		loss
Balance, July 1, 2022	$	43,066,000	4,467,000	$	4,467,000	$	14,214,000	$	35,407,000	(1,273,000)	$	(10,213,000)	$	(809,000)
Net loss		(237,000)	—		—		—		(237,000)	—		—		—
Restricted common stock compensation		16,000	—		—		16,000		—	—		—		—
Dividends		(160,000)	—		—		—		(160,000)	—		—		—
Foreign currency translation adjustment		(160,000)	—		—		—		—	—		—		(160,000)
Balance, September 30, 2022	$	42,525,000	4,467,000	$	4,467,000	$	14,230,000	$	35,010,000	(1,273,000)	$	(10,213,000)	$	(969,000)

See accompanying notes to consolidated financial statements (unaudited).

6

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

Nine months ended September 30, 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 loss		(146,000)	—		—		—		(146,000)	—		—		—
Restricted common stock compensation		14,000	—		—		14,000		—	—		—		—
Stock-based compensation		24,000	—		—		24,000		—	—		—		—
Dividends		(480,000)	—		—		—		(480,000)	—		—		—
Foreign currency translation adjustment		(28,000)	—		—		—		—	—		—		(28,000)
Balance, September 30, 2023	$	41,340,000	4,467,000	$	4,467,000	$	14,284,000	$	33,625,000	(1,273,000)	$	(10,213,000)	$	(823,000)

Nine months ended September 30, 2022

													Accumulated
			Class A common			Additional							other
			stock, $1 par			paid-in		Retained		Treasury stock			comprehensive
	Total		Shares	Amount		capital		earnings		Shares	Amount		loss
Balance, January 1, 2022	$	43,840,000	4,453,000	$	4,453,000	$	14,167,000	$	36,046,000	(1,273,000)	$	(10,213,000)	$	(613,000)
Net loss		(876,000)	—		—		—		(876,000)	—		—		—
Exercise of stock options		40,000	7,000		7,000		33,000		—	—		—		—
Restricted common stock compensation		36,000	7,000		7,000		29,000		—	—		—		—
Stock-based compensation		1,000	—		—		1,000		—	—		—		—
Dividends		(160,000)	—		—		—		(160,000)	—		—		—
Foreign currency translation adjustment		(356,000)	—		—		—		—	—		—		(356,000)
Balance, September 30, 2022	$	42,525,000	4,467,000	$	4,467,000	$	14,230,000	$	35,010,000	(1,273,000)	$	(10,213,000)	$	(969,000)

See accompanying notes to consolidated financial statements (unaudited).

7

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Nine months
	ended September 30,
	2023		2022
Cash Flows from Operating Activities:
Net loss	$	(146,000)	$	(876,000)
Adjustments to reconcile net loss to net cash provided by operating activities:
Non-cash and other charges:
Depreciation		1,476,000		1,271,000
Amortization of other intangible assets		519,000		514,000
Amortization of operating lease assets		697,000		710,000
Amortization of debt issue costs		34,000		12,000
Amortization of consideration payable to a customer		—		157,000
Provision for losses on accounts receivable		(1,000)		(33,000)
Stock-based compensation		24,000		1,000
Stock-based compensation-options exercised		—		38,000
Restricted stock-based compensation		14,000		35,000
Deferred income taxes		19,000		(129,000)
Gain on disposal of fixed assets		(40,000)		(5,000)
Gain on early termination of a lease		—		(19,000)
Changes in operating assets and liabilities:
Accounts receivable		(1,361,000)		(1,262,000)
Inventories		3,984,000		(554,000)
Prepaid expenses and other current assets		1,844,000		1,608,000
Other assets		(50,000)		—
Accounts payable		(327,000)		(45,000)
Accrued compensation and benefits		320,000		28,000
Accrued other liabilities and other current liabilities		701,000		582,000
Operating lease liabilities		(625,000)		(703,000)
Other liabilities		(21,000)		(25,000)
Total adjustments		7,207,000		2,181,000
Net cash provided by operating activities		7,061,000		1,305,000

See accompanying notes to consolidated financial statements (unaudited).

8

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Nine months
	ended September 30,
	2023		2022
Cash Flows from Investing Activities:
Capital expenditures	$	(1,909,000)	$	(1,222,000)
Proceeds from the sale of fixed assets		57,000		—
Purchase of net assets of the Jackson Gear Company business		—		(2,300,000)
Net cash used in investing activities		(1,852,000)		(3,522,000)
Cash Flows from Financing Activities:
Dividend payments		(480,000)		(160,000)
Net (repayments on) proceeds from short-term borrowings		(4,906,000)		2,323,000
Proceeds from exercise of stock options		—		2,000
Bank financing costs		(84,000)		—
Net cash (used in) provided by financing activities		(5,470,000)		2,165,000
Effect of exchange rate changes on cash		(68,000)		(77,000)
Net decrease in cash		(329,000)		(129,000)
Cash at beginning of period		667,000		539,000
Cash at end of period	$	338,000	$	410,000
Supplemental disclosures of cash flow information:
Cash paid for:
Taxes	$	31,000	$	126,000
Interest	$	331,000	$	213,000
Non-cash information:
Right of Use (“ROU”) assets recognized for new operating lease liabilities	$	—	$	987,000
ROU adjustment due to early termination	$	160,000	$	359,000

See accompanying notes to consolidated financial statements (unaudited).

9

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, 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, 2022 (“2022 Form 10-K”). The unaudited consolidated financial statements contained herein should be read in conjunction with the 2022 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 and related products of its own design, primarily to the retail, industrial, automotive and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. Pneumatic tools are similar in appearance and function to electric hand tools, but are powered by compressed air, rather than by electricity or a battery. Air tools, as they are more commonly referred to generally offer a better power-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,” “Universal Tool”, “Jiffy Air Tool”, AIRCAT, NITROCAT, as well as under the trade names or trademarks of several private label customers. These products are sold to retailers, distributors, manufacturers and private label customers through in-house sales personnel and manufacturers’ representatives. The AIRCAT and NITROCAT brands of pneumatic tools are sold primarily to the automotive service and repair market (“automotive market”). Users of Florida Pneumatic’s hand tools include industrial maintenance and production personnel, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.

10

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 $62,000.

Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEMs”), 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 directly to OEMs, end-users and gearbox repair companies. PTG works directly with its customers’ engineering departments to design or redesign gears or gearboxes to optimize a solution for functionality and manufacturability.

Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, we acquired substantially all the non-real estate assets comprising the business of Jackson Gear Company (“JGC”), a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. This business was consolidated into PTG and provides added market exposure into the larger gears market.

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

COVID-19

During the three-and nine-month periods ended September 30, 2023, the Company has encountered minimal effects from the COVID-19 pandemic. The Company, however, continues to encounter intermittent inventory supply-chain delays from its Asian suppliers, which cause shortages of inventory. While the negative effects that the Company was encountering during the COVID-19 pandemic in general have eased, it is difficult for the Company to be certain that the inventory issue discussed above is in fact COVID-19 related.

Going Concern Assessment

Management assesses going concern uncertainty to determine whether there is sufficient cash on hand and 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.

11

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Going Concern Assessment - Continued

As of September 30, 2023, the Company had borrowing availability on its bank facility of $10,580,000. The Company is not in default on any bank covenant and believes its relationship with the bank is good. See Note 8 – Debt, for further discussion.

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

Customer Concentration

The Company had one customer that accounted for 21.0% and 24.3% of its consolidated accounts receivable at September 30, 2023, and December 31, 2022, respectively. Further, this customer accounted for 19.6% and 17.9% of the Company’s consolidated revenue during the three and nine-month periods ended September 30, 2023, respectively, and 19.1% and 22.9% for the same periods in the prior year. There was no other customer that accounted for more than 10% of our consolidated revenue during these periods.

Management Estimates

The preparation of financial statements and related disclosures in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, goodwill, intangible assets and other long-lived assets, income taxes, deferred taxes. Descriptions of these policies are discussed in the Company’s 2022 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” to the Company’s 2022 Form 10-K.

Lease Accounting

The Company adheres to the standards set forth in Accounting Standards Codification No. 842, Leases (“ASC Topic 842”). ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases’ guidance.

As 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 September 30, 2023.

The Company considers any options to extend the term of a lease when measuring the right-of-use lease asset.

12

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Lease Accounting - Continued

For the three and nine-month periods ended September 30, 2023, the Company had $223,000 and $697,000, respectively, in operating lease expense, and $239,000 and $710,000, respectively, for the same three and nine-month periods in 2022.

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities:

2023 (excluding the nine months ended September 30, 2023)	$	215,000
2024		846,000
2025		696,000
2026		691,000
2027		719,000
Thereafter		2,727,000
Total operating lease payments		5,894,000
Less imputed interest		(1,043,000)
Total operating lease liabilities	$	4,851,000
Weighted average remaining lease term		7.7	years
Weighted average discount rate		5.17	%

Revenue Recognition

The Company’s revenue recognition policies are detailed in its 2022 Form 10-K. The following tables present the Company’s revenues recognized under ASC Topic 606, “Revenue from Contracts with Customers”, for the three and nine-month periods ended September 30, 2023, and 2022.

Florida Pneumatic

Florida Pneumatic markets its products to four primary sectors within the pneumatic tool market: Retail, Automotive, Industrial and Aerospace. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts, which are reported as Other.

	Three months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	2,613,000	27.0	%	$	3,110,000	31.4	%	$	(497,000)	(16.0)	%
Retail		2,825,000	29.2			2,779,000	28.0			46,000	1.7
Industrial		1,261,000	13.0			1,305,000	13.2			(44,000)	(3.4)
Aerospace		2,864,000	29.6			2,538,000	25.6			326,000	12.8
Other		119,000	1.2			174,000	1.8			(55,000)	(31.6)
Total	$	9,682,000	100.0	%	$	9,906,000	100.0	%	$	(224,000)	(2.3)	%

13

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 - Continued

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	9,375,000	30.8	%	$	10,845,000	33.0	%	$	(1,470,000)	(13.6)	%
Retail		8,295,000	27.2			10,625,000	32.3			(2,330,000)	(21.9)
Industrial		4,175,000	13.7			4,416,000	13.5			(241,000)	(5.5)
Aerospace		8,238,000	27.1			6,531,000	19.9			1,707,000	26.1
Other		368,000	1.2			436,000	1.3			(68,000)	(15.6)
Total	$	30,451,000	100.0	%	$	32,853,000	100.0	%	$	(2,402,000)	(7.3)	%

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 September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	2,616,000	55.4	%	$	2,187,000	47.4	%	$	429,000	19.6	%
ATP		671,000	14.2			490,000	10.6			181,000	36.9
PTG		1,296,000	27.5			1,693,000	36.8			(397,000)	(23.4)
Other		139,000	2.9			240,000	5.2			(101,000)	(42.1)
Total	$	4,722,000	100.0	%	$	4,610,000	100.0	%	$	112,000	2.4	%

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	8,364,000	52.8	%	$	6,693,000	49.6	%	$	1,671,000	25.0	%
ATP		2,176,000	13.7			2,178,000	16.1			(2,000)	(0.1)
PTG		4,970,000	31.3			4,216,000	31.3			754,000	17.9
Other		348,000	2.2			407,000	3.0			(59,000)	(14.5)
Total	$	15,858,000	100.0	%	$	13,494,000	100.0	%	$	2,364,000	17.5	%

14

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Recently Adopted Accounting Pronouncements

During the three-and nine-month period ended September 30, 2023, there were no accounting pronouncements or other authoritative guidance issued or that became effective, that had, or is expected to have, a material impact on the Company’s consolidated financial statements.

NOTE 2 - LOSS PER SHARE

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

Diluted loss per common share is computed using the treasury stock method. Under this method, the aggregate number of shares of Common Stock outstanding reflects the assumed use of proceeds from the hypothetical exercise of any outstanding options to purchase shares of Common Stock. The average market value for the period is used as the assumed purchase price.

The following table sets forth the elements of basic and diluted loss per common share:

	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Numerator for basic and diluted loss per common share:
Net loss	$	(721,000)	$	(237,000)	$	(146,000)	$	(876,000)
Denominator:
Denominator for basic loss per share - weighted average common shares outstanding		3,195,000		3,195,000		3,195,000		3,183,000
Dilutive securities (1)		—		—		—		—
Denominator for diluted loss per share - weighted average common shares outstanding		3,195,000		3,195,000		3,195,000		3,183,000

(1) Dilutive securities consist of the “in the money” stock options. There were no “in the money” stock options at September 30, 2023. In the event of a loss, options are considered anti-dilutive and would therefore not be included in the calculation of diluted loss per share.

15

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 3 – STOCK-BASED COMPENSATION

There were no options or shares of the Company’s common stock granted or issued during the three and nine month periods month period ended September 30, 2023.

The table below presents stock options for the nine-month period ending September 30, 2023.

		Weighted		Weighted average
		average		remaining	Aggregate
		exercise		contractual life	Intrinsic
	Option shares	price		(years)	Value
Outstanding, January 1, 2023	127,600	$	7.41	3.3	$	—
Forfeited	(5,000)		—	—		—
Expired	(43,850)		—	—		—
Outstanding, September 30, 2023	78,750		7.15	4.0	$	—
Vested, September 30, 2023	78,750		7.15	4.0	$	—

Restricted Stock

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 could not have been traded earlier than the first anniversary of the grant date. The Company ratably amortized 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.

NOTE 4 – FAIR VALUE MEASUREMENTS

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

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

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

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

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

As of September 30, 2023, and December 31, 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).

16

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 5 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable - net consists of:

	September 30, 2023		December 31, 2022
Accounts receivable	$	9,046,000	$	7,683,000
Allowance for doubtful accounts, sales discounts and chargebacks		(312,000)		(313,000)
	$	8,734,000	$	7,370,000

Net accounts receivable at January 1, 2022, was $ 7,550,000.

NOTE 6 – INVENTORIES

Inventories consist of:

	September 30, 2023		December 31, 2022
Raw material	$	1,600,000	$	2,000,000
Work in process		2,235,000		2,242,000
Finished goods		16,682,000		20,249,000
	$	20,517,000	$	24,491,000

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill are as follows:

Balance, January 1, 2023	$	4,822,000
Currency translation adjustment		1,000
Balance, September 30, 2023	$	4,823,000

17

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS – (Continued)

Other intangible assets

	September 30, 2023						December 31, 2022
			Accumulated		Net book				Accumulated		Net book
	Cost		amortization		value		Cost		amortization		value
Other intangible assets:
Customer relationships (1)	$	6,923,000	$	4,532,000	$	2,391,000	$	6,921,000	$	4,099,000	$	2,822,000
Trademarks and trade names (1)		2,167,000		—		2,167,000		2,166,000		—		2,166,000
Trademarks and trade names		200,000		96,000		104,000		200,000		86,000		114,000
Engineering drawings		330,000		279,000		51,000		330,000		268,000		62,000
Non-compete agreements (1)		323,000		321,000		2,000		322,000		303,000		19,000
Patents		1,286,000		1,191,000		95,000		1,286,000		1,143,000		143,000
Totals	$	11,229,000	$	6,419,000	$	4,810,000	$	11,225,000	$	5,899,000	$	5,326,000

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

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

Three months ended September 30,				Nine months ended September 30,
2023		2022		2023		2022
$	160,000	$	151,000	$	519,000	$	469,000

Amortization expense for the balance of 2023, and for each of the next four years and thereafter is estimated to be as follows:

October 1 through December 31, 2023	$	169,000
2024		639,000
2025		610,000
2026		411,000
2027		199,000
Thereafter		615,000
	$	2,643,000

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

	September 30, 2023	December 31, 2022
Customer relationships	5.4	5.9
Trademarks and trade names	7.8	8.5
Engineering drawings	3.4	4.1
Non-compete agreements	0.3	1.0
Patents	4.4	4.1

18

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 8 – 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. Revolver 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.

On March 24, 2023, the Company and the Bank entered into Amendment No. 11 (“Amendment 11”) to the Credit Agreement, which among other things:

● extended the expiration date to February 8, 2027; and

●eliminated a $1,600,000 Capex Loan line of credit.

Under the terms of Amendment No. 10, to the Credit Agreement, dated April 12, 2022, the Company began applying Secured Overnight Financing Rate, (“SOFR”) SOFR rates instead of the London Inter-Bank Offered Rate, (LIBOR). The Company will continue to be subject to the number of SOFR borrowings. The change from LIBOR to SOFR did not have a significant effect on the Company’s consolidated financial statements.

Most of the Company’s borrowings are at SOFR plus Applicable Margin. The Applicable Margin, as defined in the Credit Agreement, during the three-month period ended September 30, 2023, was 2.10% applied to all SOFR borrowings and 1.10% applied to Base Rate (Prime Rate) borrowings. The Applicable Margins that were added to SOFR and Base Rate borrowings during the three-month period ended September 30, 2022, were 1.50% and 0.50%, respectively. During the three-month period ended September 30, 2023, SOFR ranged from 7.17% to 7.44%, compared to 3.15% to 4.91% during the third quarter of 2022. The Base Rate during the three-month period ended September 30, 2023, ranged from 8.25% to 8.50%, compared to a range of 4.75% to 6.25%, during the same period a year ago.

At September 30, 2023, short-term or Revolver borrowing was $2,664,000, compared to $7,570,000 at December 31, 2022. The average balance of short-term borrowings during the three and nine-month periods ended September 30, 2023, were $4,439,000, and $6,252,000, respectively, compared to $9,499,000 and $10,403,000, for the same periods in the prior year.

The Company provides Capital One with monthly borrowing base certificates, and in certain circumstances, it is required to deliver monthly financial statements and certificates of compliance with various financial covenants. Should an event of default occur the interest rate would increase by two percent per annum during the period of default, in addition to other remedies provided to Capital One.

Additionally, at September 30, 2023, and December 31, 2022, there was approximately $10,580,000 and $7,678,000, respectively, available to the Company under its Revolver arrangement.

19

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 9 – SUBSEQUENT EVENTS

Common Stock dividend

On November 8, 2023, the Company’s Board of Directors declared a quarterly cash dividend in the amount equal to $0.05 per share, which will be payable on November 29, 2023, to all shareholders of record as of the close of business on November 21, 2023. The Company estimates the total cash outlay to be approximately $160,000.

Agreement related to the sale of the Company.

On October 13, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tools Acquisition Co, LLC, a limited liability company organized under the Laws of the State of Delaware (“Parent”) and Tools MergerSub, Inc., a Delaware corporation (“Acquisition Sub”). Parent and MergerSub are both affiliates of ShoreView Industries. The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Acquisition Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent.

Upon the consummation of the transactions contemplated by the Merger Agreement (the “Effective Time”), each share of Common Stock of the Company issued and outstanding immediately prior to the Effective Time, including restricted shares, will be canceled and converted into the right to receive $13.00 in cash, without interest and subject to any applicable withholding taxes. The Merger Agreement generally provides that, as of the Effective Time, each option to purchase shares of Common Stock that is outstanding immediately prior to the Effective Time, whether vested or unvested, will be canceled and terminated in exchange for the right to receive an amount in cash, without interest, equal to the product of (x) the total number of shares of Common Stock subject to, and outstanding under, such Company Option and (y) the excess of the $13.00 per-share amount over the applicable per share exercise price, subject to any applicable withholding or other taxes or other amounts required by applicable law to be withheld

Consummation of the Merger is subject to certain customary conditions, including the approval by a majority of the votes entitled to be cast by the Company’s stockholders at a stockholders’ meeting to be held by the Company and the affirmative vote of a majority of the votes cast at such stockholders’ meeting by stockholders other than Richard A. Horowitz, the Chairman of the Company’s Board of Directors, its President and Chief Executive Officer. Certain further conditions include consent to the merger by a major customer of one of the Company’s Subsidiaries, and the absence of any “material adverse effect” (as customarily defined) on the Company. The Merger Agreement also contains customary representations, warranties and covenants (for a transaction of this size and nature).

20

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 2023 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 associated with the Company’s announced agreement and plan of merger;

● 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;

● Adverse changes in currency exchange rates;

● Interest rates;

● Debt and debt service requirements;

● Borrowing and compliance with covenants under our credit facility;

● Impairment of long-lived assets and goodwill;

● Retention of key personnel;

● Acquisition of businesses;

● Regulatory environment;

● Litigation and insurance;

● Risks related to the global outbreak of COVID-19 and other public health crises;

● The threat of terrorism and related political instability and economic uncertainty;

● 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 the 2022 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.

21

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

OVERVIEW

During and subsequent to the three-month period ended September 30, 2023, significant factors that impacted our results of operations and other significant events were:

● We entered into a merger agreement for the Company to be acquired in an all-cash transaction for $13.00 per share.

● Third quarter 2023 revenue flat to same quarter in 2022

● Gross margins increased slightly

● Higher professional fees incurred in connection with entering into the merger agreement.

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

Hy-Tech

Hy-Tech designs, manufactures, and markets industrial tools, systems, gearing, accessories and a wide variety of replacement parts under various brands including ATP, NUMATX, and Thaxton. Hy-Tech produces and sells heavy-duty pneumatic impact tools, grinders, air motors, hydro-pneumatic riveters, hydrostatic test plugs, impact sockets and custom gears, with prices ranging from $300 to $62,000.

Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEM”), and industrial branded products are sold through a 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 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. This business was consolidated into PTG and provides added market exposure into the larger gears market.

22

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.

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

OPERATING MEASURES

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

FINANCIAL MEASURES

Key financial measures we use to evaluate the results of our business include various revenue metrics; gross margin; selling, general and administrative expenses; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; operating cash flows and capital expenditures; return on sales; return on assets; days’ sales outstanding and inventory turns. These measures are reviewed at monthly, quarterly and annual intervals and compared to historical periods as well as to established objectives. To the extent that these measures are relevant, they are discussed in detail below.

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 2022 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. On an ongoing basis, we evaluate estimates, including, but not limited to those related to revenue recognition, inventory reserves, goodwill and intangible assets, taxes, and deferred taxes. We base our estimates on historical data and experience, when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

The Company’s significant accounting policies are described in “Note 1: Summary of Significant Accounting Policies” to the Company’s 2022 Form 10-K.

23

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

TRENDS AND UNCERTAINTIES

INTERNATIONAL SUPPLY CHAIN

Although much less than during the three and nine-month periods ended September 30, 2022, we continue to encounter delays in receiving inventory from our Asian suppliers, which leads to intermittent shortages of inventory.

IMPACT OF INFLATION/GEOPOLITICAL ISSUES

We believe that the current and projected levels of inflation, as well as a possible economic recession will likely continue to have an effect on our manufacturing and operating costs. At the present time, we are unable to reasonably estimate the impact inflation and geo-political issues will have on our results of operations for the foreseeable future.

We believe that our results of operations and financial condition during the three and nine-month periods ended September 30, 2023, have not been impacted by the Russia-Ukraine conflict; however, we cannot predict what impact this conflict may have on our results in the future.

BOEING

Sales of aircraft by Boeing, a Jiffy customer, have been depressed since the two 737 MAX crashes in 2018 and 2019. Further, the Federal Aviation Administration grounded all 737 MAX aircraft for several quarters. These events, coupled with the COVID-19 pandemic, reduced Boeing’s aircraft production levels to well below those prior to the pandemic and the grounding. In 2019, Boeing produced 52 737 MAX aircraft per month. It is currently still producing below that level. Per Boeing, it plans to return to those levels in 2025 and expects to add a fourth 737 MAX production line in 2024. We believe that these stated plans along with the return of the Boeing 787 aircraft shipments, which has also had production delays to full production, will be beneficial to P&F’s aerospace sales in the next several years.

TECHNOLOGIES

We believe that over time, several newer technologies and features will have a greater effect on the market for our traditional pneumatic tool offerings. So far, the greatest impact has been on the automotive aftermarket with the advent of advanced cordless operated tools. Currently, we do not offer a cordless tool to the automotive aftermarket. However, with respect to the industrial market, we have developed for one of our largest OEM customers a tool mechanism that is incorporated into a major line of their cordless power tools. These tools have been in full production with our supplied system for several years and our sales of these products have continued to grow over that time. We continue to analyze the practicality of developing or incorporating newer technologies in our tool platforms for other markets as well. This includes adding our internally developed mechanisms to existing cordless power sources as well as producing complete cordless tool systems. In addition, we have recently developed a cordless installation tool for the aerospace market. We have begun taking orders for this product and we expect to introduce an additional version in early 2024.

OTHER MATTERS

Other than the trends and uncertainties mentioned above, or matters that may be discussed below, there are no major trends or uncertainties that had, or we could reasonably expect to have a material impact on our revenue and operations, nor was there any unusual or infrequent event, transaction or any significant economic change that materially affected our results of operations.

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

24

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

RESULTS OF OPERATIONS

REVENUE

The tables below provide an analysis of our net revenue for the three-month periods ended September 30, 2023, and 2022:

Consolidated

	Three months ended September 30,
					Increase (Decrease)
	2023		2022		$		%
Florida Pneumatic	$	9,682,000	$	9,906,000	$	(224,000)	(2.3)	%
Hy-Tech		4,722,000		4,610,000		112,000	2.4
Consolidated	$	14,404,000	$	14,516,000	$	(112,000)	(0.8)	%

	Nine months ended September 30,
					Increase (Decrease)
	2023		2022		$		%
Florida Pneumatic	$	30,451,000	$	32,853,000	$	(2,402,000)	(7.3)	%
Hy-Tech		15,858,000		13,494,000		2,364,000	17.5
Consolidated	$	46,309,000	$	46,347,000	$	(38,000)	(0.1)	%

Florida Pneumatic

Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool market; Automotive, Retail, Aerospace and Industrial. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts (“Other”).

	Three months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	2,613,000	27.0	%	$	3,110,000	31.4	%	$	(497,000)	(16.0)	%
Retail		2,825,000	29.2			2,779,000	28.0			46,000	1.7
Industrial		1,261,000	13.0			1,305,000	13.2			(44,000)	(3.4)
Aerospace		2,864,000	29.6			2,538,000	25.6			326,000	12.8
Other		119,000	1.2			174,000	1.8			(55,000)	(31.6)
Total	$	9,682,000	100.0	%	$	9,906,000	100.0	%	$	(224,000)	(2.3)	%

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	9,375,000	30.8	%	$	10,845,000	33.0	%	$	(1,470,000)	(13.6)	%
Retail		8,295,000	27.2			10,625,000	32.3			(2,330,000)	(21.9)
Industrial		4,175,000	13.7			4,416,000	13.5			(241,000)	(5.5)
Aerospace		8,238,000	27.1			6,531,000	19.9			1,707,000	26.1
Other		368,000	1.2			436,000	1.3			(68,000)	(15.6)
Total	$	30,451,000	100.0	%	$	32,853,000	100.0	%	$	(2,402,000)	(7.3)	%

25

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

RESULTS OF OPERATIONS - (Continued)

REVENUE – Continued

Florida Pneumatic - Continued

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 the number of unit sales and thus overall revenue in this category. However, Automotive gross margin improved as a result of this change. Florida Pneumatic’s third quarter 2023 Retail revenue improved a modest 1.7%, when compared to the same period in the prior year, despite The Home Depot’s (“THD”) continued efforts that began earlier this year of reducing the number of individual stock keeping units offered, as well as the quantity of each, and reducing the display area of their pneumatic tools. We believe that THD is facing increased pressure from on-line distributors, as well as other “brick and mortar” retailers that are expanding their presence in this product line. Aerospace revenue improved 12.8% when comparing the third quarter of 2023 to the same period in 2022. This improvement was driven by, among other factors, increased demand for new consumable parts, that Jiffy had begun to market earlier this year, and improved market conditions in both the commercial and military aviation. In addition, Jiffy has increased its sales in Europe significantly and is also seeing initial sales of recently introduced products. Lastly, the slight decline in Industrial revenue was due primarily to supply chain issues and by economic uncertainty in the sector.

Florida Pneumatic’s nine-month revenue analysis is quite similar to that of its third quarter 2023 results. When compared to the nine-month period ended September 30, 2022, Florida Pneumatic’s third quarter 2023 Automotive revenue declined due primarily to our revised pricing and marketing changes put into effect mid-2022. However, as will be discussed later in this discussion and analysis, this change contributed to an overall improvement in Florida Pneumatic’s gross margin. The significant factors causing the decline in our Retail revenue for the nine-month periods ended September 30, 2023, compared to the same period in 2022 was the product rollout that occurred in the second quarter of 2022 with no such event occurring during 2023. This year-over-year decline was also driven by THD’s decision to lower its inventory of floor display space this year. During the nine-month period ended September 30, 2023, Aerospace revenue increased 26.1%, when compared to the same period in the prior year. The improvement was driven by resurgence in both the commercial and military components of the Aerospace sector, and increased demand for the new, consumable parts that Jiffy has begun to market. In addition, Jiffy has increased its sales in Europe, and is also seeing initial sales of recently introduced products.

26

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

RESULTS OF OPERATIONS - (Continued)

REVENUE – Continued

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 September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	2,616,000	55.4	%	$	2,187,000	47.4	%	$	429,000	19.6	%
ATP		671,000	14.2			490,000	10.6			181,000	36.9
PTG		1,296,000	27.5			1,693,000	36.8			(397,000)	(23.4)
Other		139,000	2.9			240,000	5.2			(101,000)	(42.1)
Total	$	4,722,000	100.0	%	$	4,610,000	100.0	%	$	112,000	2.4	%

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	8,364,000	52.7	%	$	6,693,000	49.6	%	$	1,671,000	25.0	%
ATP		2,176,000	13.7			2,178,000	16.1			(2,000)	(0.1)
PTG		4,970,000	31.3			4,216,000	31.3			754,000	17.9
Other		348,000	2.2			407,000	3.0			(59,000)	(14.5)
Total	$	15,858,000	100.0	%	$	13,494,000	100.0	%	$	2,364,000	17.5	%

The net improvement in Hy-Tech’s revenue this quarter, compared to the same three-month period in 2022, was driven by the 19.6% growth of OEM revenue. It should be noted that Hy-Tech’s revenue by product line fluctuates throughout the year. This fluctuation is caused by, among other factors, timing of orders, production scheduling and reliance on outside vendors and suppliers. The improvement this quarter, compared to the same period in 2022 is due primarily to an increase in orders during 2023, from a major OEM customer, along with an overall market improvement in this sector. The 36.9% increase in HY-Tech’s ATP revenue is primarily due to weak third quarter 2022 orders and shipments. The above increases were partially offset by a decline in PTG revenue. This decline was due to i) product/customer mix, ii) the implementation of new planning and production processes and procedures, which in turn caused delays in the manufacturing process, iii) associated training related thereto, and iv) delays in receipt of product being returned from third-party vendors. The decline in Hy-Tech’s Other revenue, which is driven by general machining, was due to Hy-Tech’s decision to focus on OEM and ATP product lines. Thaxton revenue was softer this quarter, compared to the same three-month period in 2022.

The 17.5% year-over-year increase in Hy-Tech’s total revenue was primarily driven by its ongoing growth in OEM and to a lesser degree PTG revenue. The increase in OEM revenue was driven by growth in certain markets that are served by a number of Hy-Tech’s OEM customers. The markets served by our customers include multiple industrial applications, as well as the tool rental market. PTG revenue for the nine-month period ended September 30, 2023, increased 17.9% when compared to the same period in the prior year. This improvement was driven by the acquisition of the Jackson Gear Company business in January 2022. The decrease in Hy-Tech’s Other revenue as discussed above, was due to weaker NUMATX and general machining revenue during the third quarter 2023. The modest year to date decline in ATP revenue is attributable to our decision to focus our marketing efforts on OEM and PTG product offerings.

27

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

RESULTS OF OPERATIONS - (Continued)

GROSS MARGIN/PROFIT

	Three months ended September 30,						Increase (decrease)
	2023			2022			Amount				%
Florida Pneumatic	$	4,051,000		$	4,113,000		$	(62,000)			(1.5)	%
As percent of respective revenue		41.8	%		41.5	%		0.3	%	pts
Hy-Tech	$	842,000		$	734,000		$	108,000			14.7
As percent of respective revenue		17.8	%		15.9	%		1.9	%	pts
Total	$	4,893,000		$	4,847,000		$	46,000			0.9	%
As percent of respective revenue		34.0	%		33.4	%		0.6	%	pts

	Nine months ended September 30,						Increase (decrease)
	2023			2022			Amount				%
Florida Pneumatic	$	12,837,000		$	12,834,000		$	3,000			—	%
As percent of respective revenue		42.2	%		39.1	%		3.1	%	pts
Hy-Tech	$	3,633,000		$	2,160,000		$	1,473,000			68.2
As percent of respective revenue		22.9	%		16.0	%		6.9	%	pts
Total	$	16,470,000		$	14,994,000		$	1,476,000			9.8	%
As percent of respective revenue		35.6	%		32.4	%		3.2	%	pts

Florida Pneumatic’s gross margin for the three-month period ended September 30, 2023, improved by 0.3 percentage points compared to the same period in the prior year principally due to a shift away from their lower margin Retail and Automotive product lines to the higher margin, Industrial and Aerospace categories.

During the third quarter of 2023 Hy-Tech’s gross margin increased 1.9 percentage points, when compared to the same period in 2022. This improvement was due primarily to product/customer mix. Hy-Tech continued to pursue cost and expense reductions, and coupled with revisions in pricing structure, it has been able to improve its blended gross margin, thus contributing to the overall gross margin improvement. Partially offsetting the above improvements, during the third quarter Hy-Tech recorded an additional charge to its Obsolete and Slow-Moving Inventory of $80,000. Lastly, during the third quarter of 2023, Hy-Tech’s PTG product line’s gross margin was negatively affected due primarily to the implementation of new planning and production procedures and processes and delays caused by outside vendors, both of which negatively impacted its overhead absorption.

Florida Pneumatic’s gross margin for the nine-month period ended September 30, 2023, improved compared to the same period in the prior year principally due to a shift away from their lower margin product lines to the higher margin categories. Further, during the latter half of 2022, we raised prices in all product categories, which contributed to the improved gross margin. This change in marketing strategy and pricing adjustments led to a 3.1 percentage point year-to-date improvement over the same period in the prior year.

The improvement in Hy-Tech’s nine-month gross margin is due primarily to product/customer mix. Further, during the nine-month period ended September 30, 2023, Hy-Tech was able to reduce manufacturing costs and expenses, primarily at its Cranberry PA facility. Also as noted above, beginning in 2022, Hy-Tech modified its pricing structure, which effectively improved its overall gross margin. Hy-Tech continues to focus on improving manufacturing overhead absorption, particularly at its PTG facility in Punxsutawney PA.

28

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

RESULTS OF OPERATIONS - (Continued)

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 third quarter of 2023, our SG&A was $5,785,000 compared to $5,084,000 incurred during the same three-month period in 2022. Significant components to the net increase include:

● Compensation expenses increased $215,000. Compensation expenses are comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits.

● Professional fees and expenses (i.e., accounting, legal, consulting, etc.) increased $471,000 primarily due to $515,000 of legal and consulting costs incurred in connection to the transaction announced on October 13, 2023.

● Expenses of $110,000 incurred in connection with the relocation of Florida Pneumatic’s warehouse and administrative offices.

● Variable expenses declined $58,000. Variable expenses include among other items, commissions, freight out, travel, advertising, shipping supplies and warranty costs.

● A reduction in bank fees of $30,000.

Our SG&A for the nine-month period ended September 30, 2023, was $16,327,000, compared to $15,736,000 for the same nine-month period in the prior year. Key components of this net increase include:

● Increased compensation expenses of $327,000.

● Professional fees and expenses increased $571,000 primarily due to $729,000 of legal and consulting costs incurred in connection to the transaction announced on October 13, 2023.

● Expenses of $110,000 incurred in connection with the relocation of Florida Pneumatic’s warehouse and administrative offices.

● Variable expenses declined $368,000 Driving this decline was lower advertising and shipping costs at Florida Pneumatic, caused primarily by lower Retail revenue this quarter and a reduction in discretionary Automotive advertising expenses, compared to the same period a year ago.

● Stock-based compensation and bank fees declined $39,000 and $40,000, respectively.

OTHER (INCOME) EXPENSE- net

During the three-month period ended September 30, 2023, we recognized a gain on sale of equipment of $23,000.

During the nine-month period ended September 30, 2023, Other Income included the gain on sale of equipment during the current quarter discussed above. Additionally, during the second quarter of 2023 we incurred a loss of $9,000, and a gain of $5,000 on transactions involving the sale of equipment. During the three-month period ended March 31, 2023, we recognized a gain of $21,000 from the sale of equipment. Lastly, as a result of the final resolution of our Employee Retention Tax Credit (“ERTC”) filings, we recorded an additional $15,000 as Other Income. The ERTC income is subject to federal and local tax.

29

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

RESULTS OF OPERATIONS - (Continued)

INTEREST – NET

	Three months ended September 30,				(Increase) decrease
	2023		2022		Amount		%
Interest expense attributable to:
Short-term borrowings	$	98,000	$	102,000	$	4,000	3.9	%
Amortization expense of debt issue costs		12,000		4,000		(8,000)	(200.0)
Total	$	110,000	$	106,000	$	(4,000)	(3.8)	%

	Nine months ended September 30,				(Increase) decrease
	2023		2022		Amount		%
Interest expense attributable to:
Short-term borrowings	$	334,000	$	239,000	$	(95,000)	(39.7)	%
Amortization expense of debt issue costs		34,000		12,000		(22,000)	(183.3)
Other		(42,000)		(7,000)		35,000	500.0
Total	$	326,000	$	244,000	$	(82,000)	(33.6)	%

Most of our borrowings are Secured Overnight Financing Rate, (“SOFR”) plus Applicable Margin. The Applicable Margin, as defined in our Credit Agreement, during the three-month period ended September 30, 2023, was 2.10% applied to all SOFR borrowings and 1.10% applied to Base Rate (Prime Rate) borrowings. The Applicable Margins that were added to SOFR and Base Rate borrowings during the three-month period ended September 30, 2022, were 1.50% and 0.50%, respectively. During the three-month period ended September 30, 2023, SOFR ranged from 7.17% to 7.44%, compared to 3.15% to 4.91% during the third quarter of 2022. The Base Rate during the three-month period ended September 30, 2023, ranged from 8.25% to 8.50%, compared to a range of 4.75% to 6.25%, during the same period a year ago.

The average balance of short-term borrowings during the three and nine-month periods ended September 30, 2023, were $4,439,000, and $6,252,000, respectively, compared to $9,499,000 and $10,403,000, for the same periods in the prior year.

As discussed in Note 8 to our consolidated financial statements, in late March 2023, we and the Bank amended the Credit Agreement, and as a result, we wrote off the balance of the unamortized debt issue cost as of the date of Amendment No.11 during the first quarter of 2023. The Debt issue costs incurred in connection with the above-referenced Amendment No. 11, are being amortized through the expiration date of credit Agreement, which is February 2027.

Other interest refers to interest or adjustments to ERTC refunds. Other interest during the nine-month period in the prior year was interest income recorded in connection with Federal income tax refunds received during the second quarter of 2022.

INCOME 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 nine-month periods ended September 30, 2023, were approximately 26.3% and 14.1%, respectively, and for the same periods in 2022, the effective tax rates were an income tax benefit of 31.5%, and 12.8%, respectively. The effective tax rates for all periods presented were impacted primarily by state taxes and non-deductible expenses.

30

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

LIQUIDITY AND CAPITAL RESOURCES

We monitor such metrics as days’ sales outstanding, inventory requirements, inventory turns, estimated future purchasing requirements and capital expenditures to project liquidity needs, as well as evaluate return on assets. As we utilize a full lock-box arrangement with our Bank, our primary source of funds is our Revolver loan.

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

	September 30, 2023		December 31, 2022
Working capital	$	20,422,000	$	20,838,000
Current ratio		3.03 to 1		2.44 to 1
Shareholders’ equity	$	41,340,000	$	41,956,000

Credit Agreement

Our Credit Agreement is discussed in Note 8 to our consolidated financial statements. As discussed therein, we and the Bank entered into an amendment to the Credit Facility that, among other things, extended the expiration date to February 8, 2027.

At September 30, 2023, there was approximately $10,580,000 available to us under the Revolver arrangement.

Cash Flows

For the nine-month period ended September 30, 2023, cash provided by operating activities was $7,061,000, compared to cash provided by in operating activities for the nine-month period ended September 30, 2022, of $1,305,000. At September 30, 2023, and December 31, 2022, our consolidated cash balance was $338,000, and $667,000, 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. Thus, nearly all cash on 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 September 30, 2023, was 6.1%, compared to 15.3% at December 31, 2022.

During the nine-month period ended September 30, 2023, we used $1,909,000 for capital expenditures, compared to $1,222,000 during the same period in the prior year. Capital expenditures currently planned for the remainder of 2023 are approximately $600,000, which we expect will be financed through the Credit Facility.

The major portion of these planned capital expenditures will be for new metal cutting equipment, tooling and information technology hardware and software.

Our liquidity and capital are primarily sourced from the Credit Agreement, described in Note 8 – Debt, to our consolidated financial statements, and cash from operations.

Should the need arise whereby the current Credit Agreement is insufficient, we believe we could obtain additional funds based on the value of our real property and believe the borrowing under the current Agreement could be increased.

Customer concentration

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

31

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

IMPACT OF INFLATION

During the nine-month period ended September 30, 2023, with respect to our cost of inventory, we encountered price increases in raw materials, and labor. Additionally, our operating costs continue to encounter cost/price increases. It is difficult to accurately determine what portion of the above referenced increases are attributable to inflation. We 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 that became effective during the three-month and nine-month period ended September 30, 2023, that 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.

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 September 30, 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 September 30, 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 September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32

PART II - OTHER INFORMATION

Item 1.         Legal Proceedings

There have been no material changes to the legal proceedings’ disclosure described in our 2022 Form 10-K.

Item 1A.       Risk Factors

Except as follows, we believe that there have been no material changes in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

The proposed acquisition of the Company may disrupt or could adversely affect our business, prospects, financial condition and results of operations.

On October 13, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tools Acquisition Co, LLC (“Parent”) and Tools MergerSub, Inc., a wholly owned subsidiary of Parent (“Acquisition Sub”). The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Acquisition Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Upon the consummation of the transactions contemplated by the Merger Agreement (the “Effective Time”), each share of Common Stock of the Company issued and outstanding immediately prior to the Effective Time will be canceled and converted into the right to receive $13.00 in cash, without interest and subject to any applicable withholding taxes.  Consummation of the Merger is subject to certain customary conditions, including the approval by a majority of the votes entitled to be cast by the Company’s stockholders at a stockholders’ meeting to be held by the Company and the affirmative vote of a majority of the votes cast at such stockholders’ meeting by stockholders other than Richard A. Horowitz, the Chairman of the Company’s Board of Directors, its President and Chief Executive Officer. Certain further conditions include consent to the merger by a major customer of one of the Company’s subsidiaries, and the absence of any “material adverse effect” (as customarily defined) on the Company. The Merger Agreement also contains customary representations, warranties and covenants (for a transaction of this size and nature).

The announcement and pendency of the Merger could cause disruptions in and create uncertainty surrounding our business, which could have an adverse effect on our business, prospects, financial condition and results of operations, regardless of whether the Merger is completed. The Merger Agreement generally requires us to use our reasonable best efforts to operate our business in the ordinary course of business pending consummation of the Merger and restricts us without Parent’s consent, from taking certain specified actions until the Merger is completed. These restrictions may affect our ability to execute our business strategies, respond effectively to competitive pressures and industry developments and attain our financial and other goals, and these restrictions may impact our financial condition, results of operations and cash flows.

Employee retention and recruitment may be challenging before the completion of the Merger, as employees and prospective employees may experience uncertainty about their future roles at the Company. Furthermore, the announcement and pendency of the Merger could also cause disruptions to our business or business relationships. Each of the foregoing factors could have an adverse impact on our business, financial condition, and results of operations. The pursuit of the Merger and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns could adversely affect the Company’s business, financial condition and results of operations.

The Company could also be subject to litigation related to the Merger, which could prevent or delay the consummation of the Merger or result in significant costs and expenses. We cannot assure you as to the outcome of such lawsuits, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger on the agreed-upon terms, such an injunction may delay the consummation of the Merger in the expected timeframe, or may prevent the Merger from being consummated altogether.

We have incurred and will continue to incur substantial transaction fees and costs in connection with the Merger.

We have incurred and expect to continue to incur significant costs, expenses and fees for professional services, such as legal, financial and accounting fees, and other transaction costs in connection with the Merger. A material portion of these expenses are payable

33

by us whether or not the Merger is completed and may relate to activities that we would not have undertaken other than to complete the Merger. If the Merger is not completed, we will have received little or no benefit from such expenses. Further, although we have assumed that a certain amount of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These costs could adversely affect our business, financial condition and results of operations.

The Merger may not be completed within the expected timeframe, or at all, and significant delay or the failure to complete the Merger could adversely affect our business and the market price of our common stock.

The consummation of the Merger is subject to certain closing conditions, including, without limitation, including the approval by a majority of the votes entitled to be cast by the Company’s stockholders at a stockholders’ meeting to be held by the Company and the affirmative vote of a majority of the votes cast at such stockholders’ meeting by stockholders other than Richard A. Horowitz, the Chairman of the Company’s Board of Directors, its President and Chief Executive Officer. Certain further conditions include consent to the merger by a major customer of one of the Company’s Subsidiaries, and the absence of any “material adverse effect” (as customarily defined) on the Company. Many of the conditions to consummation of the Merger are not within our control or the control of Parent or Acquisition Sub, and we cannot predict when or if these conditions will be satisfied.

Failure to complete the Merger within the expected timeframe, or at all, could adversely affect our business and the market price of our common stock in a number of ways, including the following:

● if the Merger is not completed within the expected timeframe, or at all, the share price of our common stock will change to the extent that the current market price of our stock reflects assumptions regarding the completion of the Merger;

● we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other costs in connection with the Merger, for which we may receive little or no benefit if the Merger is not completed. Many of these fees and costs will be payable by us even if the Merger is not completed and may relate to activities that we would not have undertaken other than to complete the Merger;

● failure to complete the Merger within the expected timeframe, or at all, may result in negative publicity and a negative impression of us in the investment community and may lead to subsequent offers to acquire the Company at a lower price or otherwise on less favorable terms to us and our stockholders than contemplated by the Merger;

● the impairment of our ability to attract, retain and motivate personnel, including our senior management;

● difficulties maintaining relationships with customers, distributors, suppliers and other business partners; and

● upon termination of the Merger Agreement under specified circumstances, we would be required to pay a termination fee of approximately $2.1 million and a reimbursement amount of up to an addition $300 thousand.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of the Company or could result in a competing proposal being at a lower price than it might otherwise be.

We are subject to certain restrictions on our ability to solicit alternative acquisition proposals from third parties, to provide information to third parties and to enter into or continue discussions or negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions. In addition, we may be required to pay Parent a termination fee of approximately $2.1 million and an additional reimbursement amount of up to $300 thousand in specified circumstances, including if the Merger Agreement is terminated in specified circumstances following our receipt of a Competing Proposal (as defined in the Merger Agreement). These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing such an acquisition, including, if the Merger Agreement is terminated prior to the consummation of the Merger, after such termination of the Merger Agreement, even if it were prepared to pay a price per share higher than the price per share proposed to be paid in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances under the Merger Agreement, including, in certain circumstances, after a valid termination of the Merger Agreement in accordance with the terms thereof. If the Merger Agreement is terminated and we decide to seek another similar transaction, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

34

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.

35

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: November 9, 2023	(Principal Financial and Chief Accounting Officer)

36

EXHIBIT INDEX

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

Exhibit Number	Description of Exhibit
31.1	Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	*  Inline Interactive Data
104	Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit)

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

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

37

EX-31.1

EXHIBIT 31.1

P&F INDUSTRIES, INC.

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard A. Horowitz, certify that:

1. I have reviewed this quarterly report on Form 10-Q of P&F Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter, in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ RICHARD A. HOROWITZ
	Richard A. Horowitz
Date: November 9, 2023	Principal Executive Officer

EX-31.2

EXHIBIT 31.2

P&F INDUSTRIES, INC.

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph A. Molino, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of P&F Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter, in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ JOSEPH A. MOLINO, JR.
	Joseph A. Molino, Jr.
Date: November 9, 2023	Principal Financial Officer

EX-32.1

EXHIBIT 32.1

P&F INDUSTRIES, INC.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of P&F Industries, Inc. (the “Company”) for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Richard A. Horowitz, Principal Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ RICHARD A. HOROWITZ
	Richard A. Horowitz
Date: November 9, 2023	Principal Executive Officer

EX-32.2

EXHIBIT 32.2

P&F INDUSTRIES, INC.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of P&F Industries, Inc. (the “Company”) for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Joseph A. Molino, Jr., Principal Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ JOSEPH A. MOLINO, JR.
	Joseph A. Molino, Jr.
Date: November 9, 2023	Principal Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2023	Nov. 06, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity File Number	1-5332
Entity Registrant Name	P&F INDUSTRIES, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	22-1657413
Entity Address, Address Line One	445 Broadhollow Road, Suite 100
Entity Address, City or Town	Melville
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	11747
City Area Code	631
Local Phone Number	694-9800
Title of 12(b) Security	Class A common stock, $1.00 par value
Trading Symbol	PFIN
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		3,194,699
Entity Central Index Key	0000075340
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2023	Dec. 31, 2022
CURRENT ASSETS
Cash	$ 338,000	$ 667,000
Accounts receivable - net	8,734,000	7,370,000
Inventories	20,517,000	24,491,000
Prepaid expenses and other current assets	908,000	2,753,000
TOTAL CURRENT ASSETS	30,497,000	35,281,000
PROPERTY AND EQUIPMENT
Land	507,000	507,000
Buildings and improvements	4,330,000	4,087,000
Machinery and equipment	29,345,000	28,057,000
Property and Equipment, Gross	34,182,000	32,651,000
Less accumulated depreciation and amortization	24,403,000	23,288,000
NET PROPERTY AND EQUIPMENT	9,779,000	9,363,000
GOODWILL	4,823,000	4,822,000
OTHER INTANGIBLE ASSETS - net	4,809,000	5,326,000
DEFERRED INCOME TAXES - net	639,000	629,000
RIGHT-OF-USE ASSETS	4,745,000	5,521,000
OTHER ASSETS - net	161,000	62,000
TOTAL ASSETS	55,453,000	61,004,000
CURRENT LIABILITIES
Short-term borrowings	2,664,000	7,570,000
Accounts payable	2,767,000	3,094,000
Accrued compensation and benefits	2,078,000	1,757,000
Accrued other liabilities	1,706,000	1,002,000
Current leased liabilities - operating leases	860,000	1,020,000
TOTAL CURRENT LIABILITIES	10,075,000	14,443,000
Noncurrent leased liabilities - operating leases	3,991,000	4,535,000
Other liabilities	47,000	70,000
TOTAL LIABILITIES	14,113,000	19,048,000
SHAREHOLDERS' EQUITY
Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued
Additional paid-in capital	14,284,000	14,246,000
Retained earnings	33,625,000	34,251,000
Treasury stock, at cost - 1,273,000 shares at September 30, 2023, and December 31, 2022	(10,213,000)	(10,213,000)
Accumulated other comprehensive loss	(823,000)	(795,000)
TOTAL SHAREHOLDERS' EQUITY	41,340,000	41,956,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	55,453,000	61,004,000
Class A Common Stock
SHAREHOLDERS' EQUITY
Common stock	$ 4,467,000	$ 4,467,000

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2023	Dec. 31, 2022
Preferred stock, par value (in dollars per share)	$ 10	$ 10
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Treasury stock, shares	1,273,000	1,273,000
Class A Common Stock
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	7,000,000	7,000,000
Common stock, shares issued	4,467,000	4,467,000
Class B Common Stock
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	2,000,000	2,000,000
Common stock, shares issued	0	0

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)
Net revenue	$ 14,404,000	$ 14,516,000	$ 46,309,000	$ 46,347,000
Cost of sales	9,511,000	9,669,000	29,839,000	31,353,000
Gross profit	4,893,000	4,847,000	16,470,000	14,994,000
Selling, general and administrative expenses	5,785,000	5,084,000	16,327,000	15,736,000
Operating (loss) income	(892,000)	(237,000)	143,000	(742,000)
Other (expense) income	0	(3,000)	15,000	(24,000)
Gain on sale of property and equipment	23,000		40,000	5,000
Interest expense	(110,000)	(106,000)	(326,000)	(244,000)
Loss before income tax	(979,000)	(346,000)	(128,000)	(1,005,000)
Income tax benefit (expense)	258,000	109,000	(18,000)	129,000
Net loss	$ (721,000)	$ (237,000)	$ (146,000)	$ (876,000)
Basic loss per share	$ (0.23)	$ (0.08)	$ (0.05)	$ (0.28)
Diluted loss per share	$ (0.23)	$ (0.08)	$ (0.05)	$ (0.28)
Weighted average common shares outstanding:
Basic	3,195,000	3,195,000	3,195,000	3,183,000
Diluted	3,195,000	3,195,000	3,195,000	3,183,000
Net loss	$ (721,000)	$ (237,000)	$ (146,000)	$ (876,000)
Other comprehensive loss - foreign currency translation adjustment	(97,000)	(160,000)	(28,000)	(356,000)
Total comprehensive loss	$ (818,000)	$ (397,000)	$ (174,000)	$ (1,232,000)

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited) - USD ($)	Class A Common Stock Common Stock	Additional paid-in capital	Retained earnings	Treasury stock	Accumulated other comprehensive loss	Total
Beginning balance at Dec. 31, 2021	$ 4,453,000	$ 14,167,000	$ 36,046,000	$ (10,213,000)	$ (613,000)	$ 43,840,000
Beginning balance (in shares) at Dec. 31, 2021	4,453,000
Treasury stock (in shares) at Dec. 31, 2021				(1,273,000)
Increase (Decrease) in Stockholders' Equity
Net loss			(876,000)			(876,000)
Restricted common stock compensation	$ 7,000	29,000				36,000
Restricted common stock compensation (in shares)	7,000
Exercise of stock options	$ 7,000	33,000				40,000
Exercise of stock options (in shares)	7,000
Stock - based compensation		1,000				1,000
Dividends			(160,000)			(160,000)
Foreign currency translation adjustment					(356,000)	(356,000)
Treasury stock (in shares) at Sep. 30, 2022				(1,273,000)
Ending balance at Sep. 30, 2022	$ 4,467,000	14,230,000	35,010,000	$ (10,213,000)	(969,000)	42,525,000
Ending balance (in shares) at Sep. 30, 2022	4,467,000
Beginning balance at Jun. 30, 2022	$ 4,467,000	14,214,000	35,407,000	$ (10,213,000)	(809,000)	43,066,000
Beginning balance (in shares) at Jun. 30, 2022	4,467,000
Treasury stock (in shares) at Jun. 30, 2022				(1,273,000)
Increase (Decrease) in Stockholders' Equity
Net loss			(237,000)			(237,000)
Restricted common stock compensation		16,000				16,000
Dividends			(160,000)			(160,000)
Foreign currency translation adjustment					(160,000)	(160,000)
Treasury stock (in shares) at Sep. 30, 2022				(1,273,000)
Ending balance at Sep. 30, 2022	$ 4,467,000	14,230,000	35,010,000	$ (10,213,000)	(969,000)	42,525,000
Ending balance (in shares) at Sep. 30, 2022	4,467,000
Beginning balance at Dec. 31, 2022	$ 4,467,000	14,246,000	34,251,000	$ (10,213,000)	(795,000)	$ 41,956,000
Beginning balance (in shares) at Dec. 31, 2022	4,467,000
Treasury stock (in shares) at Dec. 31, 2022				(1,273,000)		1,273,000
Increase (Decrease) in Stockholders' Equity
Net loss			(146,000)			$ (146,000)
Restricted common stock compensation		14,000				14,000
Stock - based compensation		24,000				24,000
Dividends			(480,000)			(480,000)
Foreign currency translation adjustment					(28,000)	$ (28,000)
Treasury stock (in shares) at Sep. 30, 2023				(1,273,000)		1,273,000
Ending balance at Sep. 30, 2023	$ 4,467,000	14,284,000	33,625,000	$ (10,213,000)	(823,000)	$ 41,340,000
Ending balance (in shares) at Sep. 30, 2023	4,467,000
Beginning balance at Jun. 30, 2023	$ 4,467,000	14,276,000	34,505,000	$ (10,213,000)	(726,000)	42,309,000
Beginning balance (in shares) at Jun. 30, 2023	4,467,000
Treasury stock (in shares) at Jun. 30, 2023				(1,273,000)
Increase (Decrease) in Stockholders' Equity
Net loss			(721,000)			(721,000)
Restricted common stock compensation		8,000				8,000
Dividends			(159,000)			(159,000)
Foreign currency translation adjustment					(97,000)	$ (97,000)
Treasury stock (in shares) at Sep. 30, 2023				(1,273,000)		1,273,000
Ending balance at Sep. 30, 2023	$ 4,467,000	$ 14,284,000	$ 33,625,000	$ (10,213,000)	$ (823,000)	$ 41,340,000
Ending balance (in shares) at Sep. 30, 2023	4,467,000

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash Flows from Operating Activities:
Net loss	$ (146,000)	$ (876,000)
Non-cash and other charges:
Depreciation	1,476,000	1,271,000
Amortization of other intangible assets	519,000
Amortization of operating lease assets	697,000	710,000
Amortization of debt issue costs	34,000	12,000
Amortization of consideration payable to a customer		157,000
Provision for losses on accounts receivable	(1,000)	(33,000)
Stock-based compensation	24,000	1,000
Stock-based compensation-options exercised		38,000
Restricted stock-based compensation	14,000	35,000
Deferred income taxes	19,000	(129,000)
Gain on disposal of fixed assets	(40,000)	(5,000)
Gain on early termination of a lease		(19,000)
Changes in operating assets and liabilities:
Accounts receivable	(1,361,000)	(1,262,000)
Inventories	3,984,000	(554,000)
Prepaid expenses and other current assets	1,844,000	1,608,000
Other assets	(50,000)
Accounts payable	(327,000)	(45,000)
Accrued compensation and benefits	320,000	28,000
Accrued other liabilities and other current liabilities	701,000	582,000
Operating lease liabilities	(625,000)	(703,000)
Other liabilities	(21,000)	(25,000)
Total adjustments	7,207,000	2,181,000
Net cash provided by operating activities	7,061,000	1,305,000
Cash Flows from Investing Activities:
Capital expenditures	(1,909,000)	(1,222,000)
Proceeds from the sale of fixed assets	57,000
Purchase of net assets of the Jackson Gear Company business		(2,300,000)
Net cash used in investing activities	(1,852,000)	(3,522,000)
Cash Flows from Financing Activities:
Dividend payments	(480,000)	(160,000)
Net (repayments on) proceeds from short-term borrowings	(4,906,000)	2,323,000
Proceeds from exercise of stock options		2,000
Bank financing costs	(84,000)
Net cash (used in) provided by financing activities	(5,470,000)	2,165,000
Effect of exchange rate changes on cash	(68,000)	(77,000)
Net decrease in cash	(329,000)	(129,000)
Cash at beginning of period	667,000	539,000
Cash at end of period	338,000	410,000
Cash paid for:
Taxes	31,000	126,000
Interest	331,000	213,000
Non-cash information:
Right of Use ("ROU") assets recognized for new operating lease liabilities		987,000
ROU adjustment due to early termination	$ 160,000	$ 359,000

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2023

BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

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, 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, 2022 (“2022 Form 10-K”). The unaudited consolidated financial statements contained herein should be read in conjunction with the 2022 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 and related products of its own design, primarily to the retail, industrial, automotive and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. Pneumatic tools are similar in appearance and function to electric hand tools, but are powered by compressed air, rather than by electricity or a battery. Air tools, as they are more commonly referred to generally offer a better power-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,” “Universal Tool”, “Jiffy Air Tool”, AIRCAT, NITROCAT, as well as under the trade names or trademarks of several private label customers. These products are sold to retailers, distributors, manufacturers and private label customers through in-house sales personnel and manufacturers’ representatives. The AIRCAT and NITROCAT brands of pneumatic tools are sold primarily to the automotive service and repair market (“automotive market”). Users of Florida Pneumatic’s hand tools include industrial maintenance and production personnel, do-it-yourself mechanics, professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace manufacturers.

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 $62,000.

Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEMs”), 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 directly to OEMs, end-users and gearbox repair companies. PTG works directly with its customers’ engineering departments to design or redesign gears or gearboxes to optimize a solution for functionality and manufacturability.

Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, we acquired substantially all the non-real estate assets comprising the business of Jackson Gear Company (“JGC”), a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. This business was consolidated into PTG and provides added market exposure into the larger gears market.

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

COVID-19

During the three-and nine-month periods ended September 30, 2023, the Company has encountered minimal effects from the COVID-19 pandemic. The Company, however, continues to encounter intermittent inventory supply-chain delays from its Asian suppliers, which cause shortages of inventory. While the negative effects that the Company was encountering during the COVID-19 pandemic in general have eased, it is difficult for the Company to be certain that the inventory issue discussed above is in fact COVID-19 related.

Going Concern Assessment

Management assesses going concern uncertainty to determine whether there is sufficient cash on hand and 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.

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

Going Concern Assessment - Continued

As of September 30, 2023, the Company had borrowing availability on its bank facility of $10,580,000. The Company is not in default on any bank covenant and believes its relationship with the bank is good. See Note 8 – Debt, for further discussion.

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

Customer Concentration

The Company had one customer that accounted for 21.0% and 24.3% of its consolidated accounts receivable at September 30, 2023, and December 31, 2022, respectively. Further, this customer accounted for 19.6% and 17.9% of the Company’s consolidated revenue during the three and nine-month periods ended September 30, 2023, respectively, and 19.1% and 22.9% for the same periods in the prior year. There was no other customer that accounted for more than 10% of our consolidated revenue during these periods.

Management Estimates

The preparation of financial statements and related disclosures in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, goodwill, intangible assets and other long-lived assets, income taxes, deferred taxes. Descriptions of these policies are discussed in the Company’s 2022 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” to the Company’s 2022 Form 10-K.

Lease Accounting

The Company adheres to the standards set forth in Accounting Standards Codification No. 842, Leases (“ASC Topic 842”). ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases’ guidance.

As 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 September 30, 2023.

The Company considers any options to extend the term of a lease when measuring the right-of-use lease asset.

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

Lease Accounting - Continued

For the three and nine-month periods ended September 30, 2023, the Company had $223,000 and $697,000, respectively, in operating lease expense, and $239,000 and $710,000, respectively, for the same three and nine-month periods in 2022.

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities:

2023 (excluding the nine months ended September 30, 2023)	$	215,000
2024		846,000
2025		696,000
2026		691,000
2027		719,000
Thereafter		2,727,000
Total operating lease payments		5,894,000
Less imputed interest		(1,043,000)
Total operating lease liabilities	$	4,851,000
Weighted average remaining lease term		7.7	years
Weighted average discount rate		5.17	%

Revenue Recognition

The Company’s revenue recognition policies are detailed in its 2022 Form 10-K. The following tables present the Company’s revenues recognized under ASC Topic 606, “Revenue from Contracts with Customers”, for the three and nine-month periods ended September 30, 2023, and 2022.

Florida Pneumatic

Florida Pneumatic markets its products to four primary sectors within the pneumatic tool market: Retail, Automotive, Industrial and Aerospace. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts, which are reported as Other.

	Three months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	2,613,000	27.0	%	$	3,110,000	31.4	%	$	(497,000)	(16.0)	%
Retail		2,825,000	29.2			2,779,000	28.0			46,000	1.7
Industrial		1,261,000	13.0			1,305,000	13.2			(44,000)	(3.4)
Aerospace		2,864,000	29.6			2,538,000	25.6			326,000	12.8
Other		119,000	1.2			174,000	1.8			(55,000)	(31.6)
Total	$	9,682,000	100.0	%	$	9,906,000	100.0	%	$	(224,000)	(2.3)	%

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

Revenue Recognition - Continued

Florida Pneumatic - Continued

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	9,375,000	30.8	%	$	10,845,000	33.0	%	$	(1,470,000)	(13.6)	%
Retail		8,295,000	27.2			10,625,000	32.3			(2,330,000)	(21.9)
Industrial		4,175,000	13.7			4,416,000	13.5			(241,000)	(5.5)
Aerospace		8,238,000	27.1			6,531,000	19.9			1,707,000	26.1
Other		368,000	1.2			436,000	1.3			(68,000)	(15.6)
Total	$	30,451,000	100.0	%	$	32,853,000	100.0	%	$	(2,402,000)	(7.3)	%

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 September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	2,616,000	55.4	%	$	2,187,000	47.4	%	$	429,000	19.6	%
ATP		671,000	14.2			490,000	10.6			181,000	36.9
PTG		1,296,000	27.5			1,693,000	36.8			(397,000)	(23.4)
Other		139,000	2.9			240,000	5.2			(101,000)	(42.1)
Total	$	4,722,000	100.0	%	$	4,610,000	100.0	%	$	112,000	2.4	%

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	8,364,000	52.8	%	$	6,693,000	49.6	%	$	1,671,000	25.0	%
ATP		2,176,000	13.7			2,178,000	16.1			(2,000)	(0.1)
PTG		4,970,000	31.3			4,216,000	31.3			754,000	17.9
Other		348,000	2.2			407,000	3.0			(59,000)	(14.5)
Total	$	15,858,000	100.0	%	$	13,494,000	100.0	%	$	2,364,000	17.5	%

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

Recently Adopted Accounting Pronouncements

During the three-and nine-month period ended September 30, 2023, there were no accounting pronouncements or other authoritative guidance issued or that became effective, that had, or is expected to have, a material impact on the Company’s consolidated financial statements.

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LOSS PER SHARE

9 Months Ended

Sep. 30, 2023

LOSS PER SHARE

LOSS PER SHARE

NOTE 2 - LOSS PER SHARE

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

Diluted loss per common share is computed using the treasury stock method. Under this method, the aggregate number of shares of Common Stock outstanding reflects the assumed use of proceeds from the hypothetical exercise of any outstanding options to purchase shares of Common Stock. The average market value for the period is used as the assumed purchase price.

The following table sets forth the elements of basic and diluted loss per common share:

	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Numerator for basic and diluted loss per common share:
Net loss	$	(721,000)	$	(237,000)	$	(146,000)	$	(876,000)
Denominator:
Denominator for basic loss per share - weighted average common shares outstanding		3,195,000		3,195,000		3,195,000		3,183,000
Dilutive securities (1)		—		—		—		—
Denominator for diluted loss per share - weighted average common shares outstanding		3,195,000		3,195,000		3,195,000		3,183,000

(1) Dilutive securities consist of the “in the money” stock options. There were no “in the money” stock options at September 30, 2023. In the event of a loss, options are considered anti-dilutive and would therefore not be included in the calculation of diluted loss per share.

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2023

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 3 – STOCK-BASED COMPENSATION

There were no options or shares of the Company’s common stock granted or issued during the three and nine month periods month period ended September 30, 2023.

The table below presents stock options for the nine-month period ending September 30, 2023.

		Weighted		Weighted average
		average		remaining	Aggregate
		exercise		contractual life	Intrinsic
	Option shares	price		(years)	Value
Outstanding, January 1, 2023	127,600	$	7.41	3.3	$	—
Forfeited	(5,000)		—	—		—
Expired	(43,850)		—	—		—
Outstanding, September 30, 2023	78,750		7.15	4.0	$	—
Vested, September 30, 2023	78,750		7.15	4.0	$	—

Restricted Stock

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 could not have been traded earlier than the first anniversary of the grant date. The Company ratably amortized 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.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2023

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 4 – FAIR VALUE MEASUREMENTS

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

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

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

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

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

As of September 30, 2023, and December 31, 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).

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

9 Months Ended

Sep. 30, 2023

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

NOTE 5 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable - net consists of:

	September 30, 2023		December 31, 2022
Accounts receivable	$	9,046,000	$	7,683,000
Allowance for doubtful accounts, sales discounts and chargebacks		(312,000)		(313,000)
	$	8,734,000	$	7,370,000

Net accounts receivable at January 1, 2022, was $ 7,550,000.

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INVENTORIES

9 Months Ended

Sep. 30, 2023

INVENTORIES

INVENTORIES

NOTE 6 – INVENTORIES

Inventories consist of:

	September 30, 2023		December 31, 2022
Raw material	$	1,600,000	$	2,000,000
Work in process		2,235,000		2,242,000
Finished goods		16,682,000		20,249,000
	$	20,517,000	$	24,491,000

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2023

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill are as follows:

Balance, January 1, 2023	$	4,822,000
Currency translation adjustment		1,000
Balance, September 30, 2023	$	4,823,000

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS – (Continued)

Other intangible assets

	September 30, 2023						December 31, 2022
			Accumulated		Net book				Accumulated		Net book
	Cost		amortization		value		Cost		amortization		value
Other intangible assets:
Customer relationships (1)	$	6,923,000	$	4,532,000	$	2,391,000	$	6,921,000	$	4,099,000	$	2,822,000
Trademarks and trade names (1)		2,167,000		—		2,167,000		2,166,000		—		2,166,000
Trademarks and trade names		200,000		96,000		104,000		200,000		86,000		114,000
Engineering drawings		330,000		279,000		51,000		330,000		268,000		62,000
Non-compete agreements (1)		323,000		321,000		2,000		322,000		303,000		19,000
Patents		1,286,000		1,191,000		95,000		1,286,000		1,143,000		143,000
Totals	$	11,229,000	$	6,419,000	$	4,810,000	$	11,225,000	$	5,899,000	$	5,326,000

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

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

Three months ended September 30,				Nine months ended September 30,
2023		2022		2023		2022
$	160,000	$	151,000	$	519,000	$	469,000

Amortization expense for the balance of 2023, and for each of the next four years and thereafter is estimated to be as follows:

October 1 through December 31, 2023	$	169,000
2024		639,000
2025		610,000
2026		411,000
2027		199,000
Thereafter		615,000
	$	2,643,000

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

	September 30, 2023	December 31, 2022
Customer relationships	5.4	5.9
Trademarks and trade names	7.8	8.5
Engineering drawings	3.4	4.1
Non-compete agreements	0.3	1.0
Patents	4.4	4.1

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DEBT

9 Months Ended

Sep. 30, 2023

DEBT

DEBT

NOTE 8 – 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. Revolver 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.

On March 24, 2023, the Company and the Bank entered into Amendment No. 11 (“Amendment 11”) to the Credit Agreement, which among other things:

● extended the expiration date to February 8, 2027; and

●eliminated a $1,600,000 Capex Loan line of credit.

Under the terms of Amendment No. 10, to the Credit Agreement, dated April 12, 2022, the Company began applying Secured Overnight Financing Rate, (“SOFR”) SOFR rates instead of the London Inter-Bank Offered Rate, (LIBOR). The Company will continue to be subject to the number of SOFR borrowings. The change from LIBOR to SOFR did not have a significant effect on the Company’s consolidated financial statements.

Most of the Company’s borrowings are at SOFR plus Applicable Margin. The Applicable Margin, as defined in the Credit Agreement, during the three-month period ended September 30, 2023, was 2.10% applied to all SOFR borrowings and 1.10% applied to Base Rate (Prime Rate) borrowings. The Applicable Margins that were added to SOFR and Base Rate borrowings during the three-month period ended September 30, 2022, were 1.50% and 0.50%, respectively. During the three-month period ended September 30, 2023, SOFR ranged from 7.17% to 7.44%, compared to 3.15% to 4.91% during the third quarter of 2022. The Base Rate during the three-month period ended September 30, 2023, ranged from 8.25% to 8.50%, compared to a range of 4.75% to 6.25%, during the same period a year ago.

At September 30, 2023, short-term or Revolver borrowing was $2,664,000, compared to $7,570,000 at December 31, 2022. The average balance of short-term borrowings during the three and nine-month periods ended September 30, 2023, were $4,439,000, and $6,252,000, respectively, compared to $9,499,000 and $10,403,000, for the same periods in the prior year.

The Company provides Capital One with monthly borrowing base certificates, and in certain circumstances, it is required to deliver monthly financial statements and certificates of compliance with various financial covenants. Should an event of default occur the interest rate would increase by two percent per annum during the period of default, in addition to other remedies provided to Capital One.

Additionally, at September 30, 2023, and December 31, 2022, there was approximately $10,580,000 and $7,678,000, respectively, available to the Company under its Revolver arrangement.

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2023

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 9 – SUBSEQUENT EVENTS

Common Stock dividend

On November 8, 2023, the Company’s Board of Directors declared a quarterly cash dividend in the amount equal to $0.05 per share, which will be payable on November 29, 2023, to all shareholders of record as of the close of business on November 21, 2023. The Company estimates the total cash outlay to be approximately $160,000.

Agreement related to the sale of the Company.

On October 13, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tools Acquisition Co, LLC, a limited liability company organized under the Laws of the State of Delaware (“Parent”) and Tools MergerSub, Inc., a Delaware corporation (“Acquisition Sub”). Parent and MergerSub are both affiliates of ShoreView Industries. The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Acquisition Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent.

Upon the consummation of the transactions contemplated by the Merger Agreement (the “Effective Time”), each share of Common Stock of the Company issued and outstanding immediately prior to the Effective Time, including restricted shares, will be canceled and converted into the right to receive $13.00 in cash, without interest and subject to any applicable withholding taxes. The Merger Agreement generally provides that, as of the Effective Time, each option to purchase shares of Common Stock that is outstanding immediately prior to the Effective Time, whether vested or unvested, will be canceled and terminated in exchange for the right to receive an amount in cash, without interest, equal to the product of (x) the total number of shares of Common Stock subject to, and outstanding under, such Company Option and (y) the excess of the $13.00 per-share amount over the applicable per share exercise price, subject to any applicable withholding or other taxes or other amounts required by applicable law to be withheld

Consummation of the Merger is subject to certain customary conditions, including the approval by a majority of the votes entitled to be cast by the Company’s stockholders at a stockholders’ meeting to be held by the Company and the affirmative vote of a majority of the votes cast at such stockholders’ meeting by stockholders other than Richard A. Horowitz, the Chairman of the Company’s Board of Directors, its President and Chief Executive Officer. Certain further conditions include consent to the merger by a major customer of one of the Company’s Subsidiaries, and the absence of any “material adverse effect” (as customarily defined) on the Company. The Merger Agreement also contains customary representations, warranties and covenants (for a transaction of this size and nature).

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2023

BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Basis of Financial Statement Presentation

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, 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, 2022 (“2022 Form 10-K”). The unaudited consolidated financial statements contained herein should be read in conjunction with the 2022 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

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

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

Hy-Tech

Hy-Tech designs, manufactures, and markets industrial tools, systems, gearing, accessories, and a wide variety of replacement parts under various brands including ATP, NUMATX, and Thaxton. Hy-Tech produces and sells heavy-duty pneumatic impact tools, grinders, air motors, hydro-pneumatic riveters, hydrostatic test plugs, impact sockets and custom gears, with prices ranging from $300 to $62,000.

Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEMs”), 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 directly to OEMs, end-users and gearbox repair companies. PTG works directly with its customers’ engineering departments to design or redesign gears or gearboxes to optimize a solution for functionality and manufacturability.

Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, we acquired substantially all the non-real estate assets comprising the business of Jackson Gear Company (“JGC”), a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. This business was consolidated into PTG and provides added market exposure into the larger gears market.

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

COVID-19

During the three-and nine-month periods ended September 30, 2023, the Company has encountered minimal effects from the COVID-19 pandemic. The Company, however, continues to encounter intermittent inventory supply-chain delays from its Asian suppliers, which cause shortages of inventory. While the negative effects that the Company was encountering during the COVID-19 pandemic in general have eased, it is difficult for the Company to be certain that the inventory issue discussed above is in fact COVID-19 related.

Going Concern Assessment

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.

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

Going Concern Assessment - Continued

As of September 30, 2023, the Company had borrowing availability on its bank facility of $10,580,000. The Company is not in default on any bank covenant and believes its relationship with the bank is good. See Note 8 – Debt, for further discussion.

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

Customer Concentration

Customer Concentration

The Company had one customer that accounted for 21.0% and 24.3% of its consolidated accounts receivable at September 30, 2023, and December 31, 2022, respectively. Further, this customer accounted for 19.6% and 17.9% of the Company’s consolidated revenue during the three and nine-month periods ended September 30, 2023, respectively, and 19.1% and 22.9% for the same periods in the prior year. There was no other customer that accounted for more than 10% of our consolidated revenue during these periods.

Management Estimates

Management Estimates

The preparation of financial statements and related disclosures in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, goodwill, intangible assets and other long-lived assets, income taxes, deferred taxes. Descriptions of these policies are discussed in the Company’s 2022 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” to the Company’s 2022 Form 10-K.

Lease Accounting

Lease Accounting

The Company adheres to the standards set forth in Accounting Standards Codification No. 842, Leases (“ASC Topic 842”). ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases’ guidance.

As 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 September 30, 2023.

The Company considers any options to extend the term of a lease when measuring the right-of-use lease asset.

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

Lease Accounting - Continued

For the three and nine-month periods ended September 30, 2023, the Company had $223,000 and $697,000, respectively, in operating lease expense, and $239,000 and $710,000, respectively, for the same three and nine-month periods in 2022.

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities:

2023 (excluding the nine months ended September 30, 2023)	$	215,000
2024		846,000
2025		696,000
2026		691,000
2027		719,000
Thereafter		2,727,000
Total operating lease payments		5,894,000
Less imputed interest		(1,043,000)
Total operating lease liabilities	$	4,851,000
Weighted average remaining lease term		7.7	years
Weighted average discount rate		5.17	%

Revenue Recognition

Revenue Recognition

The Company’s revenue recognition policies are detailed in its 2022 Form 10-K. The following tables present the Company’s revenues recognized under ASC Topic 606, “Revenue from Contracts with Customers”, for the three and nine-month periods ended September 30, 2023, and 2022.

Florida Pneumatic

Florida Pneumatic markets its products to four primary sectors within the pneumatic tool market: Retail, Automotive, Industrial and Aerospace. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts, which are reported as Other.

	Three months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	2,613,000	27.0	%	$	3,110,000	31.4	%	$	(497,000)	(16.0)	%
Retail		2,825,000	29.2			2,779,000	28.0			46,000	1.7
Industrial		1,261,000	13.0			1,305,000	13.2			(44,000)	(3.4)
Aerospace		2,864,000	29.6			2,538,000	25.6			326,000	12.8
Other		119,000	1.2			174,000	1.8			(55,000)	(31.6)
Total	$	9,682,000	100.0	%	$	9,906,000	100.0	%	$	(224,000)	(2.3)	%

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

Revenue Recognition - Continued

Florida Pneumatic - Continued

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	9,375,000	30.8	%	$	10,845,000	33.0	%	$	(1,470,000)	(13.6)	%
Retail		8,295,000	27.2			10,625,000	32.3			(2,330,000)	(21.9)
Industrial		4,175,000	13.7			4,416,000	13.5			(241,000)	(5.5)
Aerospace		8,238,000	27.1			6,531,000	19.9			1,707,000	26.1
Other		368,000	1.2			436,000	1.3			(68,000)	(15.6)
Total	$	30,451,000	100.0	%	$	32,853,000	100.0	%	$	(2,402,000)	(7.3)	%

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 September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	2,616,000	55.4	%	$	2,187,000	47.4	%	$	429,000	19.6	%
ATP		671,000	14.2			490,000	10.6			181,000	36.9
PTG		1,296,000	27.5			1,693,000	36.8			(397,000)	(23.4)
Other		139,000	2.9			240,000	5.2			(101,000)	(42.1)
Total	$	4,722,000	100.0	%	$	4,610,000	100.0	%	$	112,000	2.4	%

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	8,364,000	52.8	%	$	6,693,000	49.6	%	$	1,671,000	25.0	%
ATP		2,176,000	13.7			2,178,000	16.1			(2,000)	(0.1)
PTG		4,970,000	31.3			4,216,000	31.3			754,000	17.9
Other		348,000	2.2			407,000	3.0			(59,000)	(14.5)
Total	$	15,858,000	100.0	%	$	13,494,000	100.0	%	$	2,364,000	17.5	%

Recently Adopted Accounting Pronouncements

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

Recently Adopted Accounting Pronouncements

During the three-and nine-month period ended September 30, 2023, there were no accounting pronouncements or other authoritative guidance issued or that became effective, that had, or is expected to have, a material impact on the Company’s consolidated financial statements.

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2023

BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Schedule of operating lease liabilities

2023 (excluding the nine months ended September 30, 2023)	$	215,000
2024		846,000
2025		696,000
2026		691,000
2027		719,000
Thereafter		2,727,000
Total operating lease payments		5,894,000
Less imputed interest		(1,043,000)
Total operating lease liabilities	$	4,851,000
Weighted average remaining lease term		7.7	years
Weighted average discount rate		5.17	%

Schedule of revenue

	Three months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	2,613,000	27.0	%	$	3,110,000	31.4	%	$	(497,000)	(16.0)	%
Retail		2,825,000	29.2			2,779,000	28.0			46,000	1.7
Industrial		1,261,000	13.0			1,305,000	13.2			(44,000)	(3.4)
Aerospace		2,864,000	29.6			2,538,000	25.6			326,000	12.8
Other		119,000	1.2			174,000	1.8			(55,000)	(31.6)
Total	$	9,682,000	100.0	%	$	9,906,000	100.0	%	$	(224,000)	(2.3)	%

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

Revenue Recognition - Continued

Florida Pneumatic - Continued

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
Automotive	$	9,375,000	30.8	%	$	10,845,000	33.0	%	$	(1,470,000)	(13.6)	%
Retail		8,295,000	27.2			10,625,000	32.3			(2,330,000)	(21.9)
Industrial		4,175,000	13.7			4,416,000	13.5			(241,000)	(5.5)
Aerospace		8,238,000	27.1			6,531,000	19.9			1,707,000	26.1
Other		368,000	1.2			436,000	1.3			(68,000)	(15.6)
Total	$	30,451,000	100.0	%	$	32,853,000	100.0	%	$	(2,402,000)	(7.3)	%

	Three months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	2,616,000	55.4	%	$	2,187,000	47.4	%	$	429,000	19.6	%
ATP		671,000	14.2			490,000	10.6			181,000	36.9
PTG		1,296,000	27.5			1,693,000	36.8			(397,000)	(23.4)
Other		139,000	2.9			240,000	5.2			(101,000)	(42.1)
Total	$	4,722,000	100.0	%	$	4,610,000	100.0	%	$	112,000	2.4	%

	Nine months ended September 30,
	2023				2022				Increase (decrease)
			Percent of				Percent of
	Revenue		revenue		Revenue		revenue		$		%
OEM	$	8,364,000	52.8	%	$	6,693,000	49.6	%	$	1,671,000	25.0	%
ATP		2,176,000	13.7			2,178,000	16.1			(2,000)	(0.1)
PTG		4,970,000	31.3			4,216,000	31.3			754,000	17.9
Other		348,000	2.2			407,000	3.0			(59,000)	(14.5)
Total	$	15,858,000	100.0	%	$	13,494,000	100.0	%	$	2,364,000	17.5	%

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LOSS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2023

LOSS PER SHARE

Schedule of computation of basic and diluted loss income per common share

	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Numerator for basic and diluted loss per common share:
Net loss	$	(721,000)	$	(237,000)	$	(146,000)	$	(876,000)
Denominator:
Denominator for basic loss per share - weighted average common shares outstanding		3,195,000		3,195,000		3,195,000		3,183,000
Dilutive securities (1)		—		—		—		—
Denominator for diluted loss per share - weighted average common shares outstanding		3,195,000		3,195,000		3,195,000		3,183,000

(1) Dilutive securities consist of the “in the money” stock options. There were no “in the money” stock options at September 30, 2023. In the event of a loss, options are considered anti-dilutive and would therefore not be included in the calculation of diluted loss per share.

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STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2023

STOCK-BASED COMPENSATION

Schedule of share-based compensation stock options

		Weighted		Weighted average
		average		remaining	Aggregate
		exercise		contractual life	Intrinsic
	Option shares	price		(years)	Value
Outstanding, January 1, 2023	127,600	$	7.41	3.3	$	—
Forfeited	(5,000)		—	—		—
Expired	(43,850)		—	—		—
Outstanding, September 30, 2023	78,750		7.15	4.0	$	—
Vested, September 30, 2023	78,750		7.15	4.0	$	—

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS (Tables)

9 Months Ended

Sep. 30, 2023

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Schedule of accounts receivable - net

	September 30, 2023		December 31, 2022
Accounts receivable	$	9,046,000	$	7,683,000
Allowance for doubtful accounts, sales discounts and chargebacks		(312,000)		(313,000)
	$	8,734,000	$	7,370,000

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INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2023

INVENTORIES

Schedule of inventories

	September 30, 2023		December 31, 2022
Raw material	$	1,600,000	$	2,000,000
Work in process		2,235,000		2,242,000
Finished goods		16,682,000		20,249,000
	$	20,517,000	$	24,491,000

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2023

GOODWILL AND OTHER INTANGIBLE ASSETS

Schedule of changes in the carrying amount of goodwill

Balance, January 1, 2023	$	4,822,000
Currency translation adjustment		1,000
Balance, September 30, 2023	$	4,823,000

Schedule of other intangible assets

	September 30, 2023						December 31, 2022
			Accumulated		Net book				Accumulated		Net book
	Cost		amortization		value		Cost		amortization		value
Other intangible assets:
Customer relationships (1)	$	6,923,000	$	4,532,000	$	2,391,000	$	6,921,000	$	4,099,000	$	2,822,000
Trademarks and trade names (1)		2,167,000		—		2,167,000		2,166,000		—		2,166,000
Trademarks and trade names		200,000		96,000		104,000		200,000		86,000		114,000
Engineering drawings		330,000		279,000		51,000		330,000		268,000		62,000
Non-compete agreements (1)		323,000		321,000		2,000		322,000		303,000		19,000
Patents		1,286,000		1,191,000		95,000		1,286,000		1,143,000		143,000
Totals	$	11,229,000	$	6,419,000	$	4,810,000	$	11,225,000	$	5,899,000	$	5,326,000

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

	September 30, 2023	December 31, 2022
Customer relationships	5.4	5.9
Trademarks and trade names	7.8	8.5
Engineering drawings	3.4	4.1
Non-compete agreements	0.3	1.0
Patents	4.4	4.1

Schedule of amortization expense of intangible assets

Three months ended September 30,				Nine months ended September 30,
2023		2022		2023		2022
$	160,000	$	151,000	$	519,000	$	469,000

October 1 through December 31, 2023	$	169,000
2024		639,000
2025		610,000
2026		411,000
2027		199,000
Thereafter		615,000
	$	2,643,000

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - Maturity analysis of the annual undiscounted cash flows (Details)	Sep. 30, 2023 USD ($)
Operating lease liabilities
2023 (excluding the nine months ended September 30, 2023)	$ 215,000
2024	846,000
2025	696,000
2026	691,000
2027	719,000
Thereafter	2,727,000
Total operating lease payments	5,894,000
Less imputed interest	(1,043,000)
Total operating lease liabilities	$ 4,851,000
Weighted average remaining lease term	7 years 8 months 12 days
Weighted average discount rate	5.17%

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - Retail automotive industrial and aerospace (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 14,404,000	$ 14,516,000	$ 46,309,000	$ 46,347,000
Florida Pneumatic
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 9,682,000	$ 9,906,000	$ 30,451,000	$ 32,853,000
Percentage of revenue	100.00%	100.00%	100.00%	100.00%
Increase (decrease)		$ (224,000)		$ (2,402,000)
Percentage of Increase (decrease)		(2.30%)		(7.30%)
Florida Pneumatic | Automotive
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 2,613,000	$ 3,110,000	$ 9,375,000	$ 10,845,000
Percentage of revenue	27.00%	31.40%	30.80%	33.00%
Increase (decrease)		$ (497,000)		$ (1,470,000)
Percentage of Increase (decrease)		(16.00%)		(13.60%)
Florida Pneumatic | Retail
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 2,825,000	$ 2,779,000	$ 8,295,000	$ 10,625,000
Percentage of revenue	29.20%	28.00%	27.20%	32.30%
Increase (decrease)		$ 46,000		$ (2,330,000)
Percentage of Increase (decrease)		1.70%		(21.90%)
Florida Pneumatic | Industrial
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 1,261,000	$ 1,305,000	$ 4,175,000	$ 4,416,000
Percentage of revenue	13.00%	13.20%	13.70%	13.50%
Increase (decrease)		$ (44,000)		$ (241,000)
Percentage of Increase (decrease)		(3.40%)		(5.50%)
Florida Pneumatic | Aerospace
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 2,864,000	$ 2,538,000	$ 8,238,000	$ 6,531,000
Percentage of revenue	29.60%	25.60%	27.10%	19.90%
Increase (decrease)		$ 326,000		$ 1,707,000
Percentage of Increase (decrease)		12.80%		26.10%
Florida Pneumatic | Other
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 119,000	$ 174,000	$ 368,000	$ 436,000
Percentage of revenue	1.20%	1.80%	1.20%	1.30%
Increase (decrease)		$ (55,000)		$ (68,000)
Percentage of Increase (decrease)		(31.60%)		(15.60%)
Hy-Tech
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 4,722,000	$ 4,610,000	$ 15,858,000	$ 13,494,000
Percentage of revenue	100.00%	100.00%	100.00%	100.00%
Increase (decrease)		$ 112,000		$ 2,364,000
Percentage of Increase (decrease)		2.40%		17.50%
Hy-Tech | Other
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 139,000	$ 240,000	$ 348,000	$ 407,000
Percentage of revenue	2.90%	5.20%	2.20%	3.00%
Increase (decrease)		$ (101,000)		$ (59,000)
Percentage of Increase (decrease)		(42.10%)		(14.50%)
Hy-Tech | OEM
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 2,616,000	$ 2,187,000	$ 8,364,000	$ 6,693,000
Percentage of revenue	55.40%	47.40%	52.80%	49.60%
Increase (decrease)		$ 429,000		$ 1,671,000
Percentage of Increase (decrease)		19.60%		25.00%
Hy-Tech | PTG
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 1,296,000	$ 1,693,000	$ 4,970,000	$ 4,216,000
Percentage of revenue	27.50%	36.80%	31.30%	31.30%
Increase (decrease)		$ (397,000)		$ 754,000
Percentage of Increase (decrease)		(23.40%)		17.90%
Hy-Tech | ATP
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Revenues	$ 671,000	$ 490,000	$ 2,176,000	$ 2,178,000
Percentage of revenue	14.20%	10.60%	13.70%	16.10%
Increase (decrease)		$ 181,000		$ (2,000)
Percentage of Increase (decrease)		36.90%		(0.10%)

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - Customer Concentration (Details) - Accounts Receivable - Customer Concentration Risk	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Home depot
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk, percentage			21.00%		24.30%
Amazon.com
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk, percentage	19.60%	17.90%	19.10%	22.90%

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - Additional information (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Sep. 30, 2023 USD ($) item $ / product	Sep. 30, 2022 USD ($)	Dec. 31, 2022 USD ($)
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Operating lease expense | $	$ 223,000	$ 239,000	$ 697,000	$ 710,000
Short-term Debt
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Remaining borrowing capacity | $	$ 10,580,000		$ 10,580,000		$ 7,678,000
Florida Pneumatic
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Number of types of pneumatic hand tools imported or manufactured | item			75
Florida Pneumatic | Minimum
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Sale price per product			50
Florida Pneumatic | Maximum
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Sale price per product			1,000
Hy-Tech | Minimum
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Sale price per product			300
Hy-Tech | Maximum
BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Sale price per product			62,000

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LOSS PER SHARE- Loss per share basic and diluted (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Numerator for basic and diluted (loss) income per common share:
Net loss	$ (721,000)	$ (237,000)	$ (146,000)	$ (876,000)
Denominator:
Denominator for basic earnings (loss) per share - weighted average common shares outstanding	3,195,000	3,195,000	3,195,000	3,183,000
Denominator for diluted earnings (loss) per share - weighted average common shares outstanding	3,195,000	3,195,000	3,195,000	3,183,000

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STOCK-BASED COMPENSATION - Outstanding options (Details) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
STOCK-BASED COMPENSATION
Number of Shares, Outstanding	127,600
Number of Shares, Forfeited	(5,000)
Number of Shares, Expired	(43,850)
Number of Shares, Outstanding	78,750	127,600
Number of Shares, Vested	78,750
Weighted Average Exercise Price per share, Outstanding (in dollars per share)	$ 7.41
Weighted Average Exercise Price per share, Outstanding (in dollars per share)	7.15	$ 7.41
Weighted Average Exercise Price per share, Vested (in dollars per share)	$ 7.15
Weighted Average Remaining Contractual Life, Vested (Years)	4 years
Weighted Average Remaining Contractual Life, Outstanding (Years)	4 years	3 years 3 months 18 days

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STOCK-BASED COMPENSATION - Restricted Stock (Details) - USD ($)	May 25, 2022	Sep. 30, 2023	Dec. 31, 2022
STOCK-BASED COMPENSATION
Share-based compensation arrangement by share-based payment award, options, outstanding, number, beginning balance		78,750	127,600
Restricted Stock
STOCK-BASED COMPENSATION
Share-based compensation arrangement by share-based payment award, number of shares available for grant	1,250
Share-based compensation arrangement by share-based payment award, options, outstanding, number, beginning balance	6,250
Weighted average fair value of options granted	$ 5.50
Restricted stock-based compensation	$ 34,000

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022	Jan. 01, 2022
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable	$ 9,046,000	$ 7,683,000
Allowance for doubtful accounts, sales discounts and chargebacks	(312,000)	(313,000)
Accounts receivable - net	$ 8,734,000	$ 7,370,000	$ 7,550,000

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INVENTORIES (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
INVENTORIES
Raw material	$ 1,600,000	$ 2,000,000
Work in process	2,235,000	2,242,000
Finished goods	16,682,000	20,249,000
INVENTORIES	$ 20,517,000	$ 24,491,000

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GOODWILL AND OTHER INTANGIBLE ASSETS - Carrying amount of goodwill (Details)	9 Months Ended
	Sep. 30, 2023 USD ($)
GOODWILL AND OTHER INTANGIBLE ASSETS
Balance, beginning	$ 4,822,000
Currency translation adjustment	1,000
Balance, ending	$ 4,823,000

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GOODWILL AND OTHER INTANGIBLE ASSETS - Other intangible assets - (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Other intangible assets:
Cost	$ 11,229,000	$ 11,225,000
Accumulated amortization	6,419,000	5,899,000
Net book value	4,810,000	5,326,000
Customer relationships
Other intangible assets:
Cost	6,923,000	6,921,000
Accumulated amortization	4,532,000	4,099,000
Net book value	$ 2,391,000	$ 2,822,000
Acquired finite-lived intangible assets, weighted average useful life	5 years 4 months 24 days	5 years 10 months 24 days
Trademarks and trade names
Other intangible assets:
Cost	$ 2,167,000	$ 2,166,000
Accumulated amortization	0	0
Net book value	$ 2,167,000	$ 2,166,000
Acquired finite-lived intangible assets, weighted average useful life	7 years 9 months 18 days	8 years 6 months
Trademarks and trade names
Other intangible assets:
Cost	$ 200,000	$ 200,000
Accumulated amortization	96,000	86,000
Net book value	104,000	114,000
Engineering drawings
Other intangible assets:
Cost	330,000	330,000
Accumulated amortization	279,000	268,000
Net book value	$ 51,000	$ 62,000
Acquired finite-lived intangible assets, weighted average useful life	3 years 4 months 24 days	4 years 1 month 6 days
Non-compete agreements
Other intangible assets:
Cost	$ 323,000	$ 322,000
Accumulated amortization	321,000	303,000
Net book value	$ 2,000	$ 19,000
Acquired finite-lived intangible assets, weighted average useful life	3 months 18 days	1 year
Patents
Other intangible assets:
Cost	$ 1,286,000	$ 1,286,000
Accumulated amortization	1,191,000	1,143,000
Net book value	$ 95,000	$ 143,000
Acquired finite-lived intangible assets, weighted average useful life	4 years 4 months 24 days	4 years 1 month 6 days

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GOODWILL AND OTHER INTANGIBLE ASSETS - Amortization expense of intangible assets - (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023
GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization expense of intangible assets	$ 160,000	$ 151,000	$ 519,000

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GOODWILL AND OTHER INTANGIBLE ASSETS - Estimated amortization expense (Details)	Sep. 30, 2023 USD ($)
GOODWILL AND OTHER INTANGIBLE ASSETS
October 1 through December 31, 2023	$ 169,000
2024	639,000
2025	610,000
2026	411,000
2027	199,000
Thereafter	615,000
Total	$ 2,643,000

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DEBT (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Mar. 24, 2023	Dec. 31, 2022	Apr. 30, 2017
DEBT
Short-term or Revolver borrowings	$ 2,664,000		$ 2,664,000			$ 7,570,000
Increase in interest rate			2.00%
Base Rate
DEBT
Spread on variable rate	1.10%	0.50%
Base Rate | Minimum
DEBT
Interest rate	8.25%	4.75%
Base Rate | Maximum
DEBT
Interest rate	8.50%	6.25%
SOFR
DEBT
Spread on variable rate	2.10%	1.50%
SOFR | Minimum
DEBT
Interest rate	7.17%	3.15%
SOFR | Maximum
DEBT
Interest rate	7.44%	4.91%
Short-term Debt
DEBT
Average balances of short-term borrowings	$ 4,439,000	$ 9,499,000	$ 6,252,000	$ 10,403,000
Remaining borrowing capacity	10,580,000		10,580,000			7,678,000
Revolving Credit Facility
DEBT
Maximum borrowing capacity							$ 16,000,000
Short-term or Revolver borrowings	$ 2,664,000		$ 2,664,000			$ 7,570,000
Capex Borrowing
DEBT
Eliminated loan					$ 1,600,000

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SUBSEQUENT EVENTS (Details) - Subsequent event - USD ($)	Nov. 08, 2023	Oct. 13, 2023
SUBSEQUENT EVENTS
Quarterly cash dividend	$ 0.05
Dividend cash outlays	$ 160,000
P&F Industries, Inc | Tools Acquisition Co, LLC
SUBSEQUENT EVENTS
Right to receive cash per share		$ 13.00