UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

 

For the Quarterly Period Ended March 31, 2021

 

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

 

For the transition period from                   to

 

Commission File Number 1 - 5332

 

P&F INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware	22-1657413
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)
445 Broadhollow Road, Suite 100, Melville, New York	11747
(Address of principal executive offices)	(Zip Code)

 

Registrant’s telephone number, including area code: (631) 694-9800

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A common stock, $1.00 par value		PFIN		NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company  x
			Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for the complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  x

 

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

 

 

 

P&F INDUSTRIES, INC.

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

 

TABLE OF CONTENTS

 

’		PAGE
PART I — FINANCIAL INFORMATION		2
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020	2
	Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2021 and 2020 (unaudited)	5
	Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II — OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signature		31
Exhibit Index		32

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2021				December 31, 2020
		(unaudited)				(See Note 1)
ASSETS
CURRENT ASSETS
Cash		$	1,047,000			$	904,000
Accounts receivable — net			9,538,000				7,468,000
Inventories			18,631,000				18,362,000
Prepaid expenses and other current assets			2,471,000				2,806,000
TOTAL CURRENT ASSETS			31,687,000				29,540,000
PROPERTY AND EQUIPMENT
Land			507,000				507,000
Buildings and improvements			3,544,000				3,544,000
Machinery and equipment			25,617,000				25,673,000
			29,668,000				29,724,000
Less accumulated depreciation and amortization			20,659,000				20,329,000
NET PROPERTY AND EQUIPMENT			9,009,000				9,395,000
GOODWILL			4,451,000				4,449,000
OTHER INTANGIBLE ASSETS — net			6,070,000				6,226,000
DEFERRED INCOME TAXES — net			298,000				226,000
RIGHT-OF-USE ASSETS – OPERATING LEASES			3,118,000				3,281,000
OTHER ASSETS — net			178,000				250,000
TOTAL ASSETS		$	54,811,000			$	53,367,000

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2021				December 31, 2020
		(unaudited)				(See Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term borrowings		$	3,481,000			$	1,374,000
Accounts payable			1,715,000				2,199,000
Accrued compensation and benefits			897,000				525,000
Accrued other liabilities			1,247,000				1,354,000
Current leased liabilities – operating leases			847,000				847,000
Current maturities of long-term debt (PPP loan)			2,727,000				1,983,000
TOTAL CURRENT LIABILITIES			10,914,000				8,282,000
Noncurrent leased liabilities – operating leases			2,315,000				2,474,000
Long-term debt, less current maturities (PPP loan)			202,000				946,000
Other liabilities			119,000				127,000
TOTAL LIABILITIES			13,550,000				11,829,000
SHAREHOLDERS’ EQUITY
Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued			—				—
Common stock
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,453,000 at March 31, 2021 and 4,428,000 at December 31, 2020			4,453,000				4,428,000
Class B - $1 par; authorized - 2,000,000 shares; no shares issued			—				—
Additional paid-in capital			14,134,000				14,144,000
Retained earnings			33,449,000				33,756,000
Treasury stock, at cost – 1,273,000 shares at March 31, 2021 and at December 31, 2020			(10,213,000	)			(10,213,000	)
Accumulated other comprehensive loss			(562,000	)			(577,000	)
TOTAL SHAREHOLDERS’ EQUITY			41,261,000				41,538,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	54,811,000			$	53,367,000

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

 

		Three months
		ended March 31,
		2021				2020
Net revenue		$	13,945,000			$	13,350,000
Cost of sales			9,309,000				8,868,000
Gross profit			4,636,000				4,482,000
Selling, general and administrative expenses			4,991,000				5,690,000
Operating loss			(355,000	)			(1,208,000	)
Interest expense			22,000				55,000
Loss before income tax			(377,000	)			(1,263,000	)
Income tax benefit			70,000				505,000
Net loss		$	(307,000	)		$	(758,000	)
Basic and diluted loss per share		$	(0.10	)		$	(0.24	)
Weighted average common shares outstanding:
Basic and diluted			3,169,000				3,144,000
Net loss		$	(307,000	)		$	(758,000	)
Other comprehensive income (loss) - foreign currency translation adjustment			15,000				(125,000	)
Total comprehensive loss		$	(292,000	)		$	(883,000	)

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

 

Three months ended March 31, 2021

 

						Class A common stock, $1 par								Additional paid-in				Retained				Treasury stock								Accumulated other comprehensive
		Total				Shares				Amount				capital				earnings				Shares				Amount				loss
Balance, January 1, 2021		$	41,538,000				4,428,000			$	4,428,000			$	14,144,000			$	33,756,000				(1,273,000	)		$	(10,213,000	)		$	(577,000	)
Net loss			(307,000	)			—				—				—				(307,000	)			—				—				—
Restricted common stock compensation			13,000				25,000				25,000				(12,000	)			—				—				—				—
Stock-based compensation			2,000				—				—				2,000				—				—				—				—
Foreign currency translation adjustment			15,000				—				—				—				—				—				—				15,000
Balance, March 31, 2021		$	41,261,000				4,453,000			$	4,453,000			$	14,134,000			$	33,449,000				(1,273,000	)		$	(10,213,000	)		$	(562,000	)

 

Three months ended March 31, 2020

 

						Class A common stock, $1 par								Additional paid-in				Retained				Treasury stock								Accumulated other comprehensive
		Total				Shares				Amount				capital				earnings				Shares				Amount				loss
Balance, January 1, 2020		$	46,506,000				4,416,000			$	4,416,000			$	14,056,000			$	38,867,000				(1,273,000	)		$	(10,213,000	)		$	(620,000	)
Net loss			(758,000	)			—				—				—				(758,000	)			—				—				—
Exercise of stock options			3,000				1,000				1,000				2,000
Restricted common stock compensation			13,000				—				—				13,000				—				—				—				—
Stock-based compensation			16,000				—				—				16,000				—				—				—				—
Dividends			(157,000	)															(157,000	)
Foreign currency translation adjustment			(125,000	)			—				—				—				—				—				—				(125,000	)
Balance, March 31, 2020		$	45,498,000				4,417,000			$	4,417,000			$	14,087,000			$	37,952,000				(1,273,000	)		$	(10,213,000	)		$	(745,000	)

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

		Three months
		ended March 31,
		2021				2020
Cash Flows from Operating Activities:
Net loss		$	(307,000	)		$	(758,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash and other charges:
Depreciation and amortization			451,000				433,000
Amortization of other intangible assets			159,000				195,000
Amortization of operating lease assets			224,000				234,000
Amortization of debt issue costs			4,000				4,000
Amortization of consideration payable to a customer			67,000				67,000
Provision for losses on accounts receivable			47,000				15,000
Stock-based compensation			2,000				16,000
Restricted stock-based compensation			13,000				13,000
Deferred income taxes			(70,000	)			(47,000	)
Loss on disposal of fixed assets			2,000				—
Changes in operating assets and liabilities:
Accounts receivable			(2,113,000	)			720,000
Inventories			(263,000	)			524,000
Prepaid expenses and other current assets			335,000				(528,000	)
Accounts payable			(483,000	)			482,000
Accrued compensation and benefits			372,000				(894,000	)
Accrued other liabilities and other current liabilities			(97,000	)			(556,000	)
Operating lease liabilities			(219,000	)			(230,000	)
Other liabilities			(20,000	)			(6,000	)
Total adjustments			(1,589,000	)			442,000
Net cash used in operating activities			(1,896,000	)			(316,000	)

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

		Three months
		ended March 31,
		2021				2020
Cash Flows from Investing Activities:
Capital expenditures		$	(68,000	)		$	(658,000	)
Net cash used in investing activities			(68,000	)			(658,000	)
Cash Flows from Financing Activities:
Dividend payments			—				(157,000	)
Proceeds from exercise of stock options			—				3,000
Net proceeds from short-term borrowings			2,107,000				1,284,000
Net cash provided by financing activities			2,107,000				1,130,000
Effect of exchange rate changes on cash			—				(5,000	)
Net increase in cash			143,000				151,000
Cash at beginning of period			904,000				380,000
Cash at end of period		$	1,047,000			$	531,000
Supplemental disclosures of cash flow information:
Cash paid for:
Interest		$	8,000			$	53,000
Cash paid for amounts included in the measurement of operating lease liabilities		$	2,000			$	—
Non-cash information:
Right of Use (“ROU”) assets recognized for new operating lease liabilities		$	23,000			$	—

 

See accompanying notes to consolidated financial statements (unaudited).

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

 

Basis of Financial Statement Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these interim consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of the management of the Company, as defined below, these unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth therein. Results for interim periods are not necessarily indicative of results to be expected for a full year.

 

The consolidated balance sheet information as of December 31, 2020 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). The interim consolidated financial statements contained herein should be read in conjunction with the 2020 Form 10-K.

 

The consolidated financial statements have been reported in U.S. dollars by translating asset and liability amounts of a foreign wholly-owned subsidiary at the closing exchange rate, equity amounts at historical rates and the results of operations and cash flow at the average of the prevailing exchange rates during the periods reported. As a result, the Company is exposed to foreign currency translation gains or losses. These gains or losses are presented in the Company’s consolidated financial statements as “Other comprehensive income (loss) - 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”).

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

The Company - Continued

 

Florida Pneumatic

 

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

 

Hy-Tech

 

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

 

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

 

Hy-Tech’s Power Transmission Group, or PTG, combined three separate gear companies: its Quality Gear division, Blaz-man Gear, Inc., and Gear Products and Manufacturing, Inc. PTG is a custom gear, gearbox and power transmission system manufacturer located in Punxsutawney, PA In addition to manufacturing a broad range of standard and custom gears for manufacturers in a wide variety of industries, PTG reverse engineers existing gears as well as designs new gears, utilizing state-of-the-art technologies, including 3D imaging and Gleason Gear modeling software.

 

COVID-19

 

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

 

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

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

Going Concern Assessment

 

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

 

The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or when the Company believes a return to more normal operations may occur. Further, as part of the business incentives offered in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company, on April 20, 2020, received a $2.9 million Payroll Protection Program (“PPP”) loan from the United States Small Business Administration (“SBA”). See Note 9 – CARES Act to the Company’s consolidated financial statements for further discussion.

 

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

 

Customer Concentration

 

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

 

Management Estimates

 

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements.  Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, goodwill, intangible assets and other long-lived assets, contingent consideration, income taxes and deferred taxes.  Descriptions of these policies are discussed in the Company’s 2020 Form 10-K.  Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and adjusts when facts and circumstances dictate.  As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions.  Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

Significant Accounting Policies

 

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

 

Lease Accounting

 

The Company adheres to the standards set forth in Accounting Standards Codification (“ASC”) 842 “Leases”. ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases’ guidance.

 

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

 

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

 

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

 

For the three-month periods ended March 31, 2021 and 2020, the Company had $224,000 and $234,000, respectively, in operating lease expense.

 

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

 

		As of March 31,2021
2021 (excluding the three months ended March 31, 2021)		$	654,000
2022			783,000
2023			670,000
2024			391,000
2025			182,000
Thereafter			867,000
Total operating lease payments			3,547,000
Less imputed interest			(385,000	)
Total operating lease liabilities		$	3,162,000
Weighted average remaining lease term			5.9 years
Weighted average discount rate			4.3	%

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

Revenue Recognition

 

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

 

Florida Pneumatic

 

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

 

		Three months ended March 31,
		2021								2020								Increase (decrease)
		Revenue				Percent of revenue				Revenue				Percent of revenue				$				%
Automotive		$	4,102,000				37.6	%		$	3,232,000				32.2	%		$	870,000				26.9	%
Retail			3,790,000				34.8				2,990,000				29.8				800,000				26.8
Industrial			1,359,000				12.5				1,062,000				10.6				297,000				28.0
Aerospace			1,528,000				14.0				2,599,000				25.9				(1,071,000	)			(41.2	)
Other			122,000				1.1				147,000				1.5				(25,000	)			(17.0	)
Total		$	10,901,000				100.0	%		$	10,030,000				100.0	%		$	871,000				8.7	%

 

Hy-Tech

 

Hy-Tech designs, manufactures, and sells a wide range of industrial products under the brands ATP and ATSCO which are categorized as ATP for reporting purposes. In addition to Engineered Solutions, products and components manufactured for other companies under their brands are included in the OEM category in the table below. PTG revenue is comprised of products manufactured and sold by Hy-tech’s gear business. NUMATX, Thaxton and other peripheral product lines, such as general machining, are reported as Other.

 

		Three months ended March 31,
		2021								2020								Increase (decrease)
		Revenue				Percent of revenue				Revenue				Percent of revenue				$				%
OEM		$	1,611,000				52.9	%		$	1,439,000				43.3	%		$	172,000				12.0	%
ATP			713,000				23.4				1,061,000				32.0				(348,000	)			(32.8	)
PTG			646,000				21.2				735,000				22.1				(89,000	)			(12.1	)
Other			74,000				2.5				85,000				2.6				(11,000	)			(12.9	)
Total		$	3,044,000				100.0	%		$	3,320,000				100.0	%		$	(276,000	)			(8.3	)%

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

Recently Adopted Accounting Pronouncements

 

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

 

NOTE 2 – LOSS PER SHARE

 

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

 

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

 

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

 

		Three months ended
		March 31,
		2021				2020
Numerator for basic and diluted loss per common share:
Net loss		$	(307,000	)		$	(758,000	)
Denominator for basic and diluted loss per share - weighted average common shares outstanding			3,169,000				3,144,000

 

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

 

		Three months ended
		March 31,
		2021				2020
Weighted average anti-dilutive stock options outstanding			141,000				146,000

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

NOTE 3 – STOCK-BASED COMPENSATION

 

There were no options granted or issued during the three-month period ended March 31, 2021.

 

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

 

		Option shares				Weighted average exercise price				Weighted average remaining contractual life (years)				Aggregate intrinsic value
Outstanding, January 1, 2021			200,878			$	6.59				4.1			$	85,663
Granted			—
Exercised			—
Forfeited			—
Expired			—
Outstanding, March 31, 2021			200,878			$	6.59				3.8			$	118,716
Vested, March 31, 2021			198,210			$	6.56				3.8			$	118,716

 

		Option shares				Weighted average grant- date fair value
Non-vested options, January 1, 2021			5,334			$	4.60
Granted
Vested			(2,666	)			4.60
Forfeited			—
Non-vested options, March 31, 2021			2,668			$	4.60

 

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

 

Restricted Stock

 

On February 16, 2021, the Company granted 25,000 restricted shares of its Common Stock to its Chief Financial Officer. The Company determined that the fair value of these shares was $6.36 per share, which was the closing price of the Company’s Common Stock on the date of the grant. The Company will ratably amortize over a five-year vesting period, the total non-cash compensation expense of approximately $159,000, or $32,000 per annum, to selling, general and administrative expenses.

 

On May 20, 2020, the Company granted 1,250 restricted shares of its Common Stock to each non-employee member of its Board of Directors, totaling 6,250 restricted shares. The Company determined that the fair value of these shares was $5.14 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares cannot be traded earlier than the first anniversary of the grant date. The Company will ratably amortize the total non-cash compensation expense of approximately $32,000 to selling, general and administrative expenses through May 2021.

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

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

 

NOTE 5 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Accounts receivable - net consists of:

 

		March 31, 2021				December 31, 2020
Accounts receivable		$	9,842,000			$	7,726,000
Allowance for doubtful accounts, sales discounts and chargebacks			(304,000	)			(258,000	)
		$	9,538,000			$	7,468,000

 

NOTE 6 – INVENTORIES

 

Inventories consist of:

 

		March 31, 2021				December 31, 2020
Raw material		$	2,063,000			$	2,077,000
Work in process			1,336,000				1,127,000
Finished goods			15,232,000				15,158,000
		$	18,631,000			$	18,362,000

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill

 

Changes in the carrying amount of goodwill are as follows:

 

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

 

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

 

Other intangible assets

 

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

 

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

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

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

 

		March 31, 2021				December 31, 2020
Customer relationships			7.4				7.6
Trademarks and trade names			10.3				10.5
Engineering drawings			5.9				6.1
Non-compete agreements			2.8				3.0
Patents			5.0				5.2

 

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

 

Three months ended March 31,
2021				2020
$	159,000			$	195,000

 

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

 

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

 

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. Additionally, there is a $2,000,000 line for capital expenditures (“Capex Loan”), with $1,600,000 available for future borrowings. Revolver and Capex Loan borrowings are secured by the Company’s accounts receivable, inventory, equipment, and real property, among other things. P&F and certain of its subsidiaries are borrowers under the Credit Agreement, and their obligations are cross guaranteed by certain other subsidiaries. The Credit Agreement expires on February 8, 2024.

 

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

 

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

 

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

 

The average balance of short-term borrowings from our Bank during the three-month period ended March 31, 2021 was $2,167,000, compared to $6,281,000, for the same three-month period in 2020.

 

 

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

NOTE 9 – CARES Act

 

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

 

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

 

As of March 31, 2021, the current maturities of long-term debt pursuant to the PPP Loan, was $2,727,000 and the long-term debt, less current maturities pursuant to the PPP Loan was $202,000. At December 31, 2020, the current portion of the PPP Loan debt was $1,983,000, with $946,000 accounted for as long-term debt.

 

NOTE 10 – DIVIDEND PAYMENTS

 

The Company’s Board of Directors has not issued dividends in 2021.

 

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

 

Note 11 – Subsequent Event

 

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

 

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

 

 

Item 2.

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

 

Forward Looking Statement

 

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of P&F Industries, Inc. and subsidiaries (“P&F”, or the “Company”). P&F and its representatives may, from time-to-time, make written or verbal forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission and in its reports to shareholders. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “would,” “could,” “should,” and their opposites and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. Any forward-looking statements contained herein, including those related to the Company’s future performance, are based upon the Company’s historical performance and on current plans, estimates and expectations. All forward-looking statements involve risks and uncertainties. These risks and uncertainties could cause the Company’s actual results for all or part the 2021 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company for a number of reasons including, but not limited to:

 

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

 

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

 

 

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

 

OVERVIEW

 

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

 

•

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

 

•

Ongoing production slow-down by Boeing of its 737 MAX aircraft, as well as significant reductions in activity at other commercial and military aerospace manufacturing facilities; and

 

•

Continued weakness in oil and gas exploration and drilling.

 

OUR BUSINESS

 

Florida Pneumatic

 

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

 

Hy-Tech

 

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

 

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

 

Hy-Tech’s Power Transmission Group, or PTG, combined three separate gear companies: its Quality Gear division, Blaz-man Gear, Inc., and Gear Products and Manufacturing, Inc. PTG is a custom gear, gearbox and power transmission system manufacturer located in Punxsutawney, PA In addition to manufacturing a broad range of standard and custom gears for manufacturers in a wide variety of industries, PTG reverse engineers existing gears as well as designs new gears, utilizing state-of-the-art technologies, including 3D imaging and Gleason Gear modeling software.

 

 

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

 

ECONOMIC MEASURES

 

Much of our business is driven by the ebbs and flows of the general economic conditions in both the United States and, to a lesser extent, abroad. We focus on a wide array of customer types including but not limited to large retailers, aerospace manufacturers, large and small resellers of pneumatic tools and parts, and automotive related customers. We tend to track the general economic conditions of the United States, industrial production, and general retail sales.

 

A key economic measure relevant to us is the cost of the raw materials in our products. Key materials include metals, especially various types of steel and aluminum. Also important is the value of the United States Dollar (“USD”) in relation to the Taiwanese dollar (“TWD”), as we purchase a significant portion of our products from Taiwan. Purchases from Chinese sources are made in USD; however, if the Chinese currency, the Renminbi (“RMB”), were to be revalued against the USD, there could be a negative impact on the cost of our products. Additionally, we closely monitor the fluctuation in the Great British Pound (“GBP”) to the USD, and the GBP to TWD, both of which can have an impact on the consolidated results. In addition, we monitor the number of operating rotary drilling rigs in the United States, as a means of gauging oil production, which is a key factor in our sales into the oil and gas exploration and extraction sector.

 

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

 

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 (“GAAP”). Descriptions of these policies are discussed in the 2020 Form 10-K, and in the notes to these consolidated financial statements. Certain of these accounting policies require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities, revenues and expenses. On an ongoing basis, we evaluate estimates, including, but not limited to those related to bad debts, inventory reserves, goodwill and intangible assets, warranty reserves, taxes and deferred taxes. We base our estimates on historical data and experience, when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions.  Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

 

 

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

 

TRENDS AND UNCERTAINTIES

 

COVID-19 PANDEMIC

 

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

 

The impact of the COVID-19 virus and the resultant global economic down-turn has had a material impact on our results in the first quarter of 2021. There are delays in receiving containers from Asia due to a significant increase in international shipping traffic, which has caused intermittent shortages of inventory. In addition, the COVID-19 pandemic has caused many of our customers and potential customers to refuse on-site visits which is critical to generating revenue. We believe that until this pandemic subsides, these two issues will continue to affect our operations.

 

BOEING/AEROSPACE

 

The Federal Aviation Administration (“FAA”) and the European Union Aviation Safety Agency (“EASA”) have lifted the grounding of the 737 MAX. However, production is still very limited due to the inventory at Boeing and the reluctance of airlines to accept deliveries due to weak air travel demand. This will likely continue to have an adverse effect on our revenue. In addition, production of military and other commercial aircraft throughout the industry has slowed as well due to the ongoing global COVID-19 pandemic. However, we believe when all other commercial and military production lines throughout the United States come back online, an increase in our revenue should follow.

 

OIL AND GAS

 

We believe the primary factor contributing to the significant decline occurring in our oil and gas revenue is due to a decline in the price for oil and gas that began in 2020 related to the COVD-19 pandemic. The profitability of crude oil production generally declines as prices fall. As a result, as prices dropped in 2020, production slowed worldwide.  This activity is most easily measured by analyzing the number of active rotary rigs, which is discussed further below. Until these counts return to pre-pandemic levels, we will continue to be impacted negatively.

 

TECHNOLOGIES

 

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

 

OTHER MATTERS

 

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

 

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

 

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

 

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

 

 

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

 

RESULTS OF OPERATIONS

 

REVENUE

 

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

 

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

 

Consolidated

 

		Three months ended March 31,
										Increase (decrease)
		2021				2020				$				%
Florida Pneumatic		$	10,901,000			$	10,030,000			$	871,000				8.7	%
Hy-Tech			3,044,000				3,320,000				(276,000	)			(8.3	)
Consolidated		$	13,945,000			$	13,350,000			$	595,000				4.5	%

 

Florida Pneumatic

 

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

 

		Three months ended March 31,
		2021								2020								Increase (decrease)
		Revenue				Percent of revenue				Revenue				Percent of revenue				$				%
Automotive		$	4,102,000				37.6	%		$	3,232,000				32.2	%		$	870,000				26.9	%
Retail			3,790,000				34.8				2,990,000				29.8				800,000				26.8
Industrial			1,359,000				12.5				1,062,000				10.6				297,000				28.0
Aerospace			1,528,000				14.0				2,599,000				25.9				(1,071,000	)			(41.2	)
Other			122,000				1.1				147,000				1.5				(25,000	)			(17.0	)
Total		$	10,901,000				100.0	%		$	10,030,000				100.0	%		$	871,000				8.7	%

 

Despite the ongoing negative effects on the US and global economies, total fiscal first quarter 2021 revenue at Florida Pneumatic increased 8.7% over the same three-month period in 2020. This improvement was driven by revenue gains in its Automotive, Retail and Industrials sectors. A decline in Aerospace revenue partially offset the above improvements. Stronger consumer demand for its AIRCAT products and, to a lesser degree, modest increased sales at our United Kingdom (“U.K.”) operations, were the primary factors for the increase in Automotive revenue. We believe that as the result of the ongoing battle to disinfect and sanitize homes and businesses alike, Florida Pneumatic encountered an increase in demand, compared to the first quarter of 2020, for various “spray gun” tools and accessories which are sold into the retail channel. Stronger Industrial revenue this quarter than in the same period in the prior year, was driven primarily by increased industrial production. The Boeing Corporation is a major customer of Jiffy. The Boeing 737 MAX aircraft was grounded by the FAA and the EASA in March 2019. Although both agencies have lifted the “No Fly” ruling it imposed on all Boeing 737 MAX aircraft, allowing it to begin flights in the United States, we believe it will take several years for the Boeing Corporation to increase its manufacturing of its 737 MAX aircraft to a volume that would be comparable to pre COVID-19 levels, and thus require our Jiffy tools. Further, the travel restrictions that developed as the result of the COVID-19 pandemic, caused most commercial airlines to curtail orders for other aircraft, which also negatively impacted Florida Pneumatic’s Aerospace revenue. Lastly, orders relating to military aircraft declined, we believe due to COVID-19 constraints placed in manufacturing facilities.

 

 

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

 

RESULTS OF OPERATIONS - (Continued)

 

Hy-Tech

 

Hy-Tech designs, manufactures, and sells a wide range of industrial products under the brands ATP and ATSCO which are categorized as ATP for reporting purposes. In addition to Engineered Solutions, products and components manufactured for other companies under their brands are included in the OEM category in the table below. 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 March 31,
		2021								2020								Increase (decrease)
		Revenue				Percent of revenue				Revenue				Percent of revenue				$				%
OEM		$	1,611,000				52.9	%		$	1,439,000				43.3	%		$	172,000				12.0	%
ATP			713,000				23.4				1,061,000				32.0				(348,000	)			(32.8	)
PTG			646,000				21.2				735,000				22.1				(89,000	)			(12.1	)
Other			74,000				2.5				85,000				2.6				(11,000	)			(12.9	)
Total		$	3,044,000				100.0	%		$	3,320,000				100.0	%		$	(276,000	)			(8.3	)%

 

The decline in Hy-Tech’s fiscal first quarter 2021 total revenue, compared to the same period in 2020, was primarily due to the following key factors: i) the ongoing negative effects on the US economy caused by the global COVID-19 pandemic; and ii) the severe downturn of the oil and gas market. We believe that our ATP products offering is likely to continue to struggle due to among other things, the ongoing sluggishness of the price of oil and natural gas, which in turn inhibits exploration and drilling. The oil and gas sector in the US has been hindered by the downward pricing pressure caused by among other things, excess supply, and ripple effects from the pandemic. This is evidenced by the significant decline in drilling rigs, which is a metric that we monitor. According to Baker Hughes Inc., the average number of oil rotary rigs in operation during fiscal first quarter 2021 were 302, compared to 671 during the same three-month period in 2020. Similarly, the average number of active gas rotary rigs during the three-month period ended March 31, 2021 was 90, compared to 112, during the same period in the prior year. In the aggregate, the average rotary rigs in operation during the first quarter of 2021 is down by 392, or 50%, when compared to the same three-month period in 2020. As such, early in 2020 we made a decision to focus a greater portion of our product development and marketing efforts on our OEM and PTG products offering. We believe the development of these lines of business should provide Hy-Tech an opportunity to generate new, additional sources of revenue in the future. Further, we are optimistic that as travel restrictions and on-site visitation controls begin to ease, Hy-Tech’s revenue could increase.

 

 

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

 

RESULTS OF OPERATIONS - (Continued)

 

GROSS MARGIN/PROFIT

 

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

 

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

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

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

 

During the first quarter of 2021, our SG&A declined to $4,991,000, from $5,690,000 incurred during the same three-month period in 2020. The most significant factor contributing to the net decrease was a reduction of professional fees of $493,000. During the first quarter of 2020, we incurred more than $480,000 of expenses related to the relocation and set up the two gear businesses that were acquired in late 2019. Additionally, we reduced our compensation expenses by $246,000. Compensation expense is comprised of base salaries and wages, accrued performance-based bonus incentives and associated payroll taxes and employee benefits. A reduction in accrued performance-based bonus incentives was the bulk of the savings. Further, depreciation expense decline by $40,000. Partially offsetting the above reductions of operating expenses was an increase in variable expenses of $103,000, driven by improved revenue this quarter in certain sectors, compared to revenue in the same three-month period in the prior year. Variable expenses include among other things, commissions, freight out, travel, advertising, shipping supplies and warranty costs.

 

 

 

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

 

RESULTS OF OPERATIONS - (Continued)

 

INTEREST

 

		Three months ended March 31,								Increase (decrease)
		2021				2020				Amount				%
Interest expense attributable to:
Short-term borrowings		$	10,000			$	51,000			$	(41,000	)			(80.4	)%
PPP loan			8,000				—				8,000				100.0
Amortization expense of debt issue costs			4,000				4,000				—				—
Total		$	22,000			$	55,000			$	(33,000	)			(60.0	)%

 

The Applicable Margin, as defined in our Credit Agreement was the same during the three-month periods ended March 31, 2021 and 2020. The average balance of short-term borrowings during the three-month periods ended March 31, 2021 and 2020, were $2,167,000 and $6,281,000, respectively. As the average balance of our short-term borrowings was significantly lower during the first three months of 2021, compared to the same three-month period in 2020, our short-term interest expense (revolver borrowings) declined.

 

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

 

Lastly, we and our bank amended the Credit Agreement in February 2019. The debt issue costs are associated with such amendment.

 

INCOME TAXES

 

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

 

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

 

 

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

 

LIQUIDITY AND CAPITAL RESOURCES

 

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

 

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

 

		March 31, 2021				December 31, 2020
Working capital		$	20,773,000			$	21,258,000
Current ratio			2.90 to 1				3.57 to 1
Shareholders’ equity		$	41,261,000			$	41,538,000

 

Credit facility

 

Our Credit Facility is discussed in Note 8 to the consolidated financial statements.

 

Payroll Protection Program Loan

 

On April 20, 2020, we received a $2.9 million PPP Loan, as provided pursuant to the CARES Act. This loan obtained from BNB Bank is unsecured and is guaranteed by the SBA. See Note 9 to the consolidated financial statements for further discussion.

 

Cash flows

 

During the three-month period ended March 31, 2021, our net cash increased to $1,047,000 from $904,000 on December 31, 2020. Our total bank debt, which includes borrowings under the CARES Act, at March 31, 2021 was $6,410,000 compared to $4,303,000 at December 31, 2020. The total debt to total book capitalization (total debt divided by total debt plus equity) at March 31, 2021 was 13.4% compared to 9.4% at December 31, 2020.

 

At March 31, 2021, our short-term or Revolver borrowing was $3,481,000 compared to $1,374,000, at December 31, 2020. Additionally, at March 31, 2021 and December 31, 2020, there was approximately $12,011,000 and $11,971,000, respectively, available to us under the Revolver arrangement.

 

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

 

Customer concentration

 

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

 

NEW ACCOUNTING PRONOUNCEMENTS

 

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

 

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

 

 

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

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

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

 

Item 1A.

Risk Factors

 

There have been no material changes to the risk factors disclosed under Part I, Item 1A “Risk Factors” in the 2020 Form 10-K, other than the following, which replaces the final risk factor in such Part I, Item 1A in its entirety, the current effects of which are discussed in more detail in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q:

 

Business disruptions or other costs associated with information technology, cyber-attacks, system implementations, data privacy, or catastrophic losses. We rely heavily on computer systems to manage and operate our businesses, and record and process transactions. Computer systems are important to production planning, customer service and order fulfillment among other business-critical processes. Consistent and efficient operation of the computer hardware and software systems is imperative to the successful sales and earnings performance. Despite efforts to prevent such situations, and loss control and risk management practices that partially mitigate these risks, our systems may be affected by damage or interruption from, among other causes, fire, natural disasters, power outages, system failures or computer viruses. Computer hardware and storage equipment that is integral to efficient operations, such as e-mail, telephone, and other functionality, is concentrated in certain physical locations in which we operate. Additionally, we rely on software applications and enterprise cloud storage systems and cloud computing services provided by third-party vendors, and our business may be adversely affected by service disruptions or security breaches in such third-party systems. Security threats and sophisticated computer crime pose a potential risk to the security of our information technology systems, cloud storage systems, networks, services, and assets, as well as the confidentiality and integrity of some of our customers’ data. If we suffer a loss or disclosure of business or stakeholder information due to security breaches, including as a result of human error and technological failures, and business continuity plans do not effectively address these issues on a timely basis, we may suffer interruptions in our ability to manage operations as well as reputational, competitive, or business harm, which may adversely impact our results of operations and financial condition.

 

As described in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Trends and Uncertainties,” of this Quarterly Report on Form 10-Q, on May 13, 2021, the Company’s Florida Pneumatic subsidiary detected a ransomware attack on its information technology systems that caused data to be encrypted.

 

 

PART II - OTHER INFORMATION

 

Item 2.

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.

 

 

SIGNATURE

 

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

 

		P&F INDUSTRIES, INC.
		(Registrant)
		/s/ JOSEPH A. MOLINO, Jr.
		Joseph A. Molino, Jr.
		Chief Financial Officer
Dated: May 17, 2021		(Principal Financial and Chief Accounting Officer)

 

 

 

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		*  Interactive Data

 

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