10-Q 1 tmb-20230930x10q.htm 10-Q
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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

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Basis of Financial Statement Presentation

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

The consolidated balance sheet information as of December 31, 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

Table of Contents

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The Company - Continued

Hy-Tech

Hy-Tech designs, manufactures, and markets industrial tools, systems, gearing, accessories, and a wide variety of replacement parts under various brands including ATP, NUMATX, 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

Table of Contents

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

Table of Contents

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