P&F INDUSTRIES INC [PFIN] Filings

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended September 30, 2023


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

For the transition period from to

Commission File Number 1-5332

P&F INDUSTRIES, INC.

(Exact name of registrant as specified in its charter) before

Delaware		22-1657413
(State or other jurisdiction of		(I.R.S. Employer Identification Number)
incorporation or organization)

445 Broadhollow Road, Suite 100, Melville, New York		11747
(Address of principal executive offices)		(Zip Code)

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

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


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

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

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

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

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒

			Emerging growth company ☐

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

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

As of November 6, 2023, there were 3,194,699 shares of the registrant’s Class A common stock outstanding.

Table of Contents

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

Table of Contents

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).

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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).

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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).

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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).

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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).

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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).

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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).

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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.

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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.

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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.

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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