P&F INDUSTRIES INC - Quarter Report: 2019 June (Form 10-Q)

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 June 30, 2019

¨	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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting 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 August 5, 2019, there were 3,143,810 shares of the registrant’s Class A Common Stock outstanding.

P&F INDUSTRIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

TABLE OF CONTENTS

		PAGE

PART I — FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018	3

	Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2019 and 2018 (unaudited)	5

	Consolidated Statements of Shareholders’ Equity for the three and six-month periods ended June 30, 2019 and 2018 (unaudited)	6

	Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)	8

	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	30

PART II — OTHER INFORMATION		31

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	31

Signature		32

Exhibit Index		33

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2019		December 31, 2018
	(unaudited)		(See Note 1)
ASSETS
CURRENT ASSETS

Cash	$	1,672,000	$	999,000
Accounts receivable — net		9,583,000		9,574,000
Inventories		21,746,000		20,496,000
Prepaid expenses and other current assets		1,369,000		1,137,000
TOTAL CURRENT ASSETS		34,370,000		32,206,000

PROPERTY AND EQUIPMENT
Land		507,000		1,281,000
Buildings and improvements		3,151,000		6,262,000
Machinery and equipment		23,555,000		22,612,000
		27,213,000		30,155,000
Less accumulated depreciation and amortization		18,240,000		20,380,000
NET PROPERTY AND EQUIPMENT		8,973,000		9,775,000

GOODWILL		4,436,000		4,436,000

OTHER INTANGIBLE ASSETS — net		7,455,000		7,800,000

DEFERRED INCOME TAXES — net		265,000		628,000

OTHER ASSETS — net		2,922,000		741,000

TOTAL ASSETS	$	58,421,000	$	55,586,000

See accompanying notes to consolidated financial statements (unaudited).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2019			December 31, 2018
	(unaudited)			(See Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Short-term borrowings	$	181,000		$	2,096,000
Accounts payable		2,902,000			2,755,000
Accrued compensation and benefits		1,296,000			2,336,000
Accrued other liabilities		3,048,000			1,243,000
Current maturities of long-term debt		—			453,000
Other current liabilities		1,671,000			1,000,000
TOTAL CURRENT LIABILITIES		9,098,000			9,883,000

Other liabilities		1,829,000			168,000

TOTAL LIABILITIES		10,927,000			10,051,000

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 – 4,416,000 at June 30, 2019 and 4,410,000 at December 31, 2018		4,416,000			4,410,000
Class B - $1 par; authorized - 2,000,000 shares; no shares issued		—			—
Additional paid-in capital		13,986,000			13,904,000
Retained earnings		39,933,000			34,588,000
Treasury stock, at cost – 1,266,000 shares at June 30, 2019 and 816,000 shares at December 31, 2018		(10,162,000	)		(6,695,000	)
Accumulated other comprehensive loss		(679,000	)		(672,000	)

TOTAL SHAREHOLDERS’ EQUITY		47,494,000			45,535,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	58,421,000		$	55,586,000

See accompanying notes to consolidated financial statements (unaudited).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(unaudited)

	Three months						Six months
	ended June 30,						ended June 30,
	2019			2018			2019			2018

Net revenue	$	14,798,000		$	16,188,000		$	29,120,000		$	31,930,000
Cost of sales		9,290,000			10,317,000			18,331,000			20,630,000
Gross profit		5,508,000			5,871,000			10,789,000			11,300,000
Selling, general and administrative expenses		5,453,000			5,355,000			10,722,000			10,630,000
Operating income		55,000			516,000			67,000			670,000
Gain on sale of property and equipment		7,817,000			—			7,817,000			—
Other expense		—			28,000			—			57,000
Interest expense		68,000			55,000			131,000			92,000
Income		7,804,000			433,000			7,753,000			521,000
Income tax expense		2,116,000			128,000			2,091,000			151,000
Net income	$	5,688,000		$	305,000		$	5,662,000		$	370,000

Basic earnings per share	$	1.74		$	0.08		$	1.73		$	0.10
Diluted earnings per share	$	1.71		$	0.08		$	1.70		$	0.10

Weighted average common shares outstanding:

Basic		3,163,000			3,592,000			3,271,000			3,588,000
Diluted		3,230,000			3,682,000			3,337,000			3,714,000

Net income	$	5,688,000		$	305,000		$	5,662,000		$	370,000
Other comprehensive loss - foreign currency translation adjustment		(51,000	)		(155,000	)		(7,000	)		(59,000	)
Total comprehensive income	$	5,637,000		$	150,000		$	5,655,000		$	311,000

See accompanying notes to consolidated financial statements (unaudited).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (unaudited)

				Class A common stock, $1 par				Additional paid-in		Retained			Treasury stock						Accumulated other comprehensive
	Total			Shares		Amount		capital		earnings			Shares			Amount			loss

Balance, April 1, 2019	$	42,235,000			4,410,000	$	4,410,000	$	13,946,000	$	34,404,000			(1,234,000	)	$	(9,897,000	)	$	(628,000	)

Net income		5,688,000			—		—		—		5,688,000			—			—			—

Restricted common stock compensation		13,000			6,000		6,000		7,000		—			—			—			—

Purchase of Class A common stock		(265,000	)		—		—		—		—			(32,000	)		(265,000	)		—

Stock-based compensation		33,000			—		—		33,000		—			—			—			—

Dividends		(159,000	)		—		—		—		(159,000	)		—			—			—

Foreign currency translation adjustment		(51,000	)		—		—		—		—			—			—			(51,000	)

Balance, June 30, 2019	$	47,494,000			4,416,000	$	4,416,000	$	13,986,000	$	39,933,000			(1,266,000	)	$	(10,162,000	)	$	(679,000	)

				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, 2019	$	45,535,000			4,410,000	$	4,410,000	$	13,904,000	$	34,588,000			(816,000	)	$	(6,695,000	)	$	(672,000	)

Net income		5,662,000			—		—		—		5,662,000			—			—			—

Restricted common stock compensation		26,000			6,000		6,000		20,000		—			—			—			—

Purchase of Class A common stock		(3,467,000	)		—		—		—		—			(450,000	)		(3,467,000	)		—

Stock-based compensation		62,000			—		—		62,000		—			—			—			—

Dividends		(317,000	)		—		—		—		(317,000	)		—			—			—

Foreign currency translation adjustment		(7,000	)		—		—		—		—			—			—			(7,000	)

Balance, June 30, 2019	$	47,494,000			4,416,000	$	4,416,000	$	13,986,000	$	39,933,000			(1,266,000	)	$	(10,162,000	)	$	(679,000	)

See accompanying notes to consolidated financial statements (unaudited).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (unaudited)

				Class A common stock, $1 par				Additional paid-in		Retained			Treasury stock						Accumulated other comprehensive
	Total			Shares		Amount		capital		earnings			Shares			Amount			loss

Balance, April 1, 2018	$	46,084,000			4,229,000	$	4,229,000	$	13,210,000	$	34,340,000			(641,000	)	$	(5,261,000	)	$	(434,000	)

Net income		305,000			—		—		—		305,000			—			—			—

Exercise of stock options		632,000			158,000		158,000		474,000		—			—			—			—

Restricted common stock compensation		11,000			7,000		7,000		4,000		—			—			—			—

Purchase of Class A common stock		(348,000	)		—		—		—		—			(42,000	)		(348,000	)		—

Stock-based compensation		60,000			—		—		60,000		—			—			—			—

Dividends		(179,000	)		—		—		—		(179,000	)		—			—			—

Foreign currency translation adjustment		(155,000	)		—		—		—		—			—			—			(155,000	)

Balance, June 30, 2018	$	46,410,000			4,394,000	$	4,394,000	$	13,748,000	$	34,466,000			(683,000	)	$	(5,609,000	)	$	(589,000	)

				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, 2018	$	46,013,000			4,203,000	$	4,203,000	$	13,064,000	$	34,455,000			(631,000	)	$	(5,179,000	)	$	(530,000	)

Net income		370,000			—		—		—		370,000			—			—			—

Exercise of stock options		737,000			184,000		184,000		553,000		—			—			—			—

Restricted common stock compensation		18,000			7,000		7,000		11,000		—			—			—			—

Purchase of Class A common stock		(430,000	)		—		—		—		—			(52,000	)		(430,000	)		—

Stock-based compensation		120,000			—		—		120,000		—			—			—			—

Dividends		(359,000	)		—		—		—		(359,000	)		—			—			—

Foreign currency translation adjustment		(59,000	)		—		—		—		—			—			—			(59,000	)

Balance, June 30, 2018	$	46,410,000			4,394,000	$	4,394,000	$	13,748,000	$	34,466,000			(683,000	)	$	(5,609,000	)	$	(589,000	)

See accompanying notes to consolidated financial statements (unaudited).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Six months
	ended June 30,
	2019			2018
Cash Flows from Operating Activities:
Net income	$	5,662,000		$	370,000

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Non-cash charges:
Depreciation and amortization		774,000			660,000
Amortization of other intangible assets		344,000			359,000
Amortization of debt issue costs		17,000			50,000
Amortization of consideration payable to a customer		135,000			—
(Recovery of) provision for losses on accounts receivable - net		(61,000	)		95,000
Stock-based compensation		62,000			120,000
Loss on sale of fixed assets		5,000			—
Gain on sale of property and equipment		(7,817,000	)		(6,000	)
Restricted stock-based compensation		26,000			18,000
Deferred income taxes		364,000			99,000
Fair value increase in contingent consideration		—			57,000
Changes in operating assets and liabilities:
Accounts receivable		48,000			(250,000	)
Inventories		(1,255,000	)		(1,332,000	)
Prepaid expenses and other current assets		(214,000	)		(267,000	)
Other assets		136,000			—
Accounts payable		149,000			1,866,000
Accrued compensation and benefits		(1,040,000	)		(603,000	)
Accrued other liabilities		1,751,000			(397,000	)
Other liabilities		(76,000	)		(10,000	)
Total adjustments		(6,652,000	)		459,000
Net cash (used in) provided by operating activities		(990,000	)		829,000

See accompanying notes to consolidated financial statements (unaudited).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Six months
	ended June 30,
	2019			2018
Cash Flows from Investing Activities:
Capital expenditures	$	(920,000	)	$	(1,224,000	)
Proceeds from disposal of property and equipment		8,760,000			25,000
Net cash provided by (used in) investing activities		7,840,000			(1,199,000	)

Cash Flows from Financing Activities:
Dividend payments		(317,000	)		(359,000	)
Proceeds from exercise of stock options		—			737,000
Purchase of Class A common stock		(3,467,000	)		(430,000	)
Proceeds from notes payable		—			400,000
Net (payment) proceeds from short-term borrowings		(1,915,000	)		311,000
Repayments of long-term debt		(453,000	)		(7,000	)
Bank finance costs		(25,000	)		(15,000	)
Net cash (used in) provided by financing activities		(6,177,000	)		637,000

Effect of exchange rate changes on cash		—			(20,000	)
Net increase in cash		673,000			247,000
Cash at beginning of period		999,000			1,241,000
Cash at end of period	$	1,672,000		$	1,488,000

Supplemental disclosures of cash flow information:

Cash paid for:
Interest	$	112,000		$	44,000
Income taxes	$	—		$	21,000
Cash paid for amounts included in the measurement of operating lease liabilities	$	21,000		$	—

Noncash information:
Right of Use (“ROU”) assets recognized for new operating lease liabilities	$	2,074,000		$	—
Operating lease liability related to ROU assets recognized upon adoption of ASC 842	$	418,000		$	—

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 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, 2018 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, 2018 (“2018 Form 10-K”). The interim financial statements contained herein should be read in conjunction with the 2018 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.

Reclassification

Certain amounts in the consolidated financial statements of the Company have been reclassified to conform to classifications used in the current year. The reclassifications had no effect on previously reported results of operations or retained earnings.

The Company

P&F is a Delaware corporation incorporated on April 19, 1963. The Company 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”). Exhaust Technologies Inc. (“ETI”), Universal Air Tool Company Limited (“UAT”), and Jiffy Air Tool, Inc. (“Jiffy”) are wholly-owned subsidiaries of Florida Pneumatic. Lastly, the business of Air Tool Service Company (“ATSCO”) operates through a wholly-owned subsidiary of Hy-Tech.

Florida Pneumatic imports, manufactures and sells pneumatic hand tools, which are of the Company’s own design, primarily to the retail, industrial, automotive and aerospace markets.

Hy-Tech designs, manufactures and distributes industrial pneumatic tools, industrial gears, hydrostatic test plugs and a wide variety of parts under the brands ATP, ATSCO, OZAT, NUMATX, Thaxton and Quality Gear. Industries served include power generation, petrochemical, construction, railroad, mining, ship building and fabricated metals. Hy-Tech also manufactures components, assemblies, finished product and systems for various Original Equipment Manufacturers (“OEM”) under their own brand names. The Company’s OEM product line is known in the marketplace as “Engineered Solutions”.

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Sale of real property

Effective June 18, 2019 (the “Jupiter Closing Date”), Florida Pneumatic completed the sale of real property located in Jupiter, Florida in which it conducts its principal operations (the “Jupiter Facility”). The Jupiter Facility was purchased by an unrelated third party for purchase price of $9.2 million. After broker fees and other expenses relating to the sale, the Company received approximately $8.7 million.

Purchase price	$	9,200,000
Selling expenses		451,000
Net proceeds		8,749,000

Land		774,000
Building and improvements		2,956,000
Accumulated depreciation		(2,798,000	)
Net book value		932,000
Gain on sale of the Jupiter Facility	$	7,817,000

Effective as of the Jupiter Closing Date, Florida Pneumatic, entered into a lease with respect to an approximately 42,000 square foot portion of the Jupiter Facility. The lease is for a term of five years, with either party able to terminate after four years. The initial monthly base rent under the lease is $32,345 with annual escalations of three percent. Florida Pneumatic will also be responsible for certain other payments of additional rent as set forth in the lease, including certain taxes, assessments and operating expenses. The Company considered the guidance in the current account literature relating to the recognition of the gain and determined that the full amount of $7,817,000 should be recognized as of the date of the transaction.

(See Note 8 and the Liquidity section of Management’s Discussion and Analysis for further information.)

Customer concentration

At June 30, 2019 and December 31, 2018, accounts receivable from The Home Depot was 33.2% and 32.6%, respectively, of total accounts receivable. Additionally, revenue from The Home Depot during the three and six-month periods ended June 30, 2019 and 2018 were 23.0% and 20.3%, and 24.8% and 24.2%, respectively, of total revenue. There were no other customers that accounted for more than 10% of consolidated revenue and accounts receivable during the three or six-month periods ended June 30, 2019 or 2018.

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 2018 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 makes adjustments 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 Annual Report on Form 10-K for the year ended December 31, 2018. The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-02 in February 2016, which was amended in some respects by subsequent ASUs (collectively the “leases standard” or “ASC 842”). The Company’s significant accounting policy relating to the adoption of ASC 842, which was effective January 1, 2019, is discussed below.

Lease Accounting

On January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) ASC 842 “Leases” using the initial date of adoption method, whereby the adoption does not impact any periods prior to 2019. 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. The Company recorded an operating Right of Use (“ROU”) asset of $394,000, and an operating lease liability of $418,000 as of January 1, 2019. The difference between the initial operating ROU asset and operating lease liability of $24,000 is accrued rent previously recorded under ASC 840. The Company elected to adopt the package of practical expedients and, accordingly, did not reassess any previously expired or existing arrangements and related classifications under ASC 840.

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 material finance leases as of June 30, 2019.

For the three and six months ended June 30, 2019, the Company had $78,000 and $159,000, respectively, in Operating lease expense.

As of June 30, 2019, the Company had a net ROU asset of $2,327,000 in Other Assets, a current operating lease liability of $647,000 in Other current liabilities, and a long-term operating lease liability of $1,672,000 in Other liabilities.

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of June 30, 2019:

	As of June 30, 2019
2019 (excluding the six months ended June 30, 2019)	$	371,000
2020		581,000
2021		496,000
2022		459,000
2023		470,000
Thereafter		202,000
Total operating lease payments		2,579,000
Less imputed interest		(260,000	)
Total operating lease liabilities	$	2,319,000

Weighted-average remaining lease term		4.5 years
Weighted-average discount rate		5.0	%

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Revenue recognition

Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool market; Retail, Automotive, Aerospace and Industrial/catalog.

	Three months ended June 30,
	2019					2018					Decrease
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
Retail	$	3,427,000		31.8	%	$	4,215,000		33.8	%	$	(788,000	)		(18.7	)%
Automotive		3,759,000		34.8			3,774,000		30.3			(15,000	)		(0.4	)
Industrial/catalog		1,223,000		11.3			1,291,000		10.3			(68,000	)		(5.3	)
Aerospace		2,231,000		20.7			3,016,000		24.2			(785,000	)		(26.0	)
Other		146,000		1.4			174,000		1.4			(28,000	)		(16.1	)
Total	$	10,786,000		100.0	%	$	12,470,000		100.0	%	$	(1,684,000	)		(13.5	)%

	Six months ended June 30,
	2019					2018					Decrease
			Percent of					Percent of
	Revenue		revenue			Revenue		revenue			$			%
Retail	$	6,139,000		28.9	%	$	8,305,000		33.6	%	$	(2,166,000	)		(26.1	)%
Automotive		7,624,000		35.9			7,710,000		31.2			(86,000	)		(1.1	)
Industrial/catalog		2,547,000		12.0			2,655,000		10.7			(108,000	)		(4.1	)
Aerospace		4,591,000		21.6			5,686,000		23.0			(1,095,000	)		(19.3	)
Other		325,000		1.6			378,000		1.5			(53,000	)		(14.0	)
Total	$	21,226,000		100.0	%	$	24,734,000		100.0	%	$	(3,508,000	)		(14.2	)%

Hy-Tech designs, manufactures and sells a wide range of industrial products under the brands ATP, ATSCO and OZAT, which are categorized as “ATP” for reporting purposes, and include products such as heavy-duty air tools. Hy-Tech’s “Engineered Solutions” is in included in the OEM category in the table below. Currently NUMATX, Thaxton and other peripheral product lines are reported as “Other” below.

	Three months ended June 30,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	1,912,000		47.7	%	$	2,077,000		55.9	%	$	(165,000	)		(7.9	)%
OEM		1,754,000		43.7			1,257,000		33.8			497,000			39.5
Other		346,000		8.6			384,000		10.3			(38,000	)		(9.9	)
Total	$	4,012,000		100.0	%	$	3,718,000		100.0	%	$	294,000			7.9	%

	Six months ended June 30,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	3,784,000		47.9	%	$	3,978,000		55.3	%	$	(194,000	)		(4.9	)%
OEM		3,344,000		42.4			2,379,000		33.1			965,000			40.6	%
Other		766,000		9.7			839,000		11.6			(73,000	)		(8.7	)
Total	$	7,894,000		100.0	%	$	7,196,000		100.0	%	$	698,000			9.7	%

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

New Accounting Pronouncements

The Company does not believe that any other recently issued and effective accounting standard would have a material effect on its consolidated financial statements.

NOTE 2 – EARNINGS PER SHARE

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

Diluted earnings 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 earnings per common share:

	Three months ended				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
Numerator for basic and diluted earnings per common share:
Net income	$	5,688,000	$	305,000	$	5,662,000	$	370,000

Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding		3,163,000		3,592,000		3,271,000		3,588,000
Dilutive securities ⁽¹⁾		67,000		90,000		66,000		126,000
Denominator for diluted earnings per share - weighted average common shares outstanding		3,230,000		3,682,000		3,337,000		3,714,000

⁽¹⁾

Dilutive securities consist of “in the money” stock options.

At June 30, 2019 and 2018, 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				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018

Weighted average antidilutive stock options outstanding		8,000		—		8,000		25,000

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 June 30, 2019.

The following is a summary of the changes in outstanding options during the six-month period ended June 30, 2019:

	Option Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, January 1, 2019		218,075	$	6.22		5.6	$	335,310
Granted		8,000		8.55
Exercised		—		—
Forfeited		—		—
Expired		—		—
Outstanding, June 30, 2019		226,075	$	6.30		5.2	$	457,589
Vested, June 30, 2019		158,742	$	5.90		3.9	$	384,610

	Option Shares		Weighted Average Grant- Date Fair Value
Non-vested options, January 1, 2019		59,333	$	4.41
Granted		8,000		4.60
Vested		—		—
Forfeited		—		—
Non-vested options, June 30, 2019		67,333	$	4.44

The number of shares of Common Stock available for issuance under the P&F Industries, Inc. 2012 Stock Incentive Plan (the “2012 Plan”) as of June 30, 2019 was 62,062. At June 30, 2019, there were 191,575 options outstanding issued under the 2012 Plan and 34,500 options outstanding issued under the 2002 Stock Incentive Plan.

Restricted Stock

On May 22, 2019, 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 $8.31 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 $52,000 to selling, general and administrative expenses through May 2020.

In May 2018, 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 $8.43 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 ratably amortized the total non-cash compensation expense of approximately $53,000 to selling, general and administrative expenses through May 2019.

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 3 – STOCK-BASED COMPENSATION – (Continued)

Treasury Stock

On February 14, 2019, the Company entered into an agreement to repurchase 389,909 shares of its common stock from certain funds and accounts advised or sub-advised by Fidelity Management & Research Company or one of its affiliates in a privately negotiated transaction at approximately $7.62 per share for a total purchase price of $2,971,000. On February 15, 2019, the Company completed this transaction. On February 14, 2019, the Company entered into Amendment No. 6 to the Second Amended and Restated Loan and Security Agreement with Capital One, which permitted the Company to complete the above transaction.

On September 12, 2018, subsequent to the expiration of a repurchase plan (the “2017 Repurchase Program”) that was adopted by the Board of Directors in 2017, the Company’s Board of Directors authorized the Company to repurchase up to 100,000 additional shares of its Common Stock (the “2018 Repurchase Program”) from time-to-time over the next twelve months through a 10b5-1 trading plan, and potentially through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. On September 14, 2018, the Company announced that, pursuant to the 2018 Repurchase Program, it had adopted a written trading plan in accordance with the guidelines specified under Rule 10b5-1 under the Securities Exchange Act of 1934. Repurchases made under the plan, that commenced on September 17, 2018, are subject to the SEC’s regulations, as well as certain price, market, volume, and timing constraints specified in the plan. Since the inception of the 2018 Repurchase Program through June 30, 2019, the Company repurchased 93,897 shares of its Common Stock at an aggregate cost of approximately $769,000. During the three-month period ended June 30, 2019, the Company repurchased 31,992 shares of its Common Stock at an aggregate cost of approximately $265,000. In July 2019 the Company repurchased 6,103 shares of its Common Stock at an aggregate cost of approximately $50,000, thus completing the 2018 Repurchase Program.

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 June 30, 2019, and December 31, 2018, 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).

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 5 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable - net consists of:

	June 30, 2019			December 31, 2018
Accounts receivable	$	9,795,000		$	9,847,000
Allowance for doubtful accounts, sales discounts and chargebacks		(212,000	)		(273,000	)
	$	9,583,000		$	9,574,000

NOTE 6 – INVENTORIES

Inventories consist of:

	June 30, 2019		December 31, 2018
Raw material	$	2,143,000	$	1,963,000
Work in process		1,997,000		1,924,000
Finished goods		17,606,000		16,609,000
	$	21,746,000	$	20,496,000

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill are as follows:

Balance, January 1, 2019	$	4,436,000
Currency translation adjustment		—
Balance, June 30, 2019	$	4,436,000

Other intangible assets were as follows:

	June 30, 2019						December 31, 2018
	Cost		Accumulated amortization		Net book value		Cost		Accumulated amortization		Net book value
Other intangible assets:
Customer relationships (1)	$	6,820,000	$	2,418,000	$	4,402,000	$	6,821,000	$	2,135,000	$	4,686,000
Trademarks and trade names (1)		2,307,000		—		2,307,000		2,308,000		—		2,308,000
Trademarks and trade names		200,000		39,000		161,000		200,000		32,000		168,000
Engineering drawings		330,000		216,000		114,000		330,000		202,000		128,000
Non-compete agreements (1)		232,000		225,000		7,000		233,000		223,000		10,000
Patents		1,405,000		941,000		464,000		1,405,000		905,000		500,000
Totals	$	11,294,000	$	3,839,000	$	7,455,000	$	11,297,000	$	3,497,000	$	7,800,000

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

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

Three months ended June 30,				Six months ended June 30,
2019		2018		2019		2018
$	172,000	$	180,000	$	344,000	$	359,000

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:

	June 30, 2019		December 31, 2018
Customer relationships		8.8		9.3
Trademarks and trade names		12.0		12.5
Engineering drawings		7.5		7.7
Non-compete agreements		1.8		2.3
Patents		7.5		7.9

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

2020	$	662,000
2021		638,000
2022		634,000
2023		634,000
2024		634,000
Thereafter		1,946,000
	$	5,148,000

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 8 – DEBT

In October 2010, the Company entered into a Loan and Security Agreement (“Credit Agreement”) with an affiliate of Capital One, National Association (“Capital One” or the “Bank”). The Credit Agreement, as amended from time-to-time, among other things, provides the ability to borrow funds under a $16,000,000 revolver line (“Revolver”), subject 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, real property among other things. The Company also owed the principal amount of $100,000 under a Tranche A Term Loan, as defined in the Credit Agreement. 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 has an expiration date of February 8, 2024.

As a condition to the Bank approving and releasing the lien on and sale of the Jupiter Facility, discussed in Note 1, upon the consummation of such sale, the Company was required to (and did) apply the net proceeds from such sale to: (a) pay off its Tranche A Term Loan; (b) pay off the Capex Loan (which had a principal amount of approximately $313,000); and (c) pay off the Revolver (which had a balance owing to the Bank of approximately $7.5 million). Following the sale of the Jupiter Facility, the Company is still able to borrow under the Capex Loan and the Revolver under the terms of the Credit Agreement.

At the Company’s option, Revolver borrowings bear interest at either LIBOR (“London interbank Offered Rate”) 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.

SHORT–TERM BORROWINGS

At June 30, 2019, short-term or Revolver borrowing was $181,000, compared to $2,096,000, at December 31, 2018. Applicable Margin Rates at June 30, 2019 and December 31, 2018 for LIBOR and Base Rates were 1.50% and 0.50%. Additionally, at June 30, 2019 and December 31, 2018, there was approximately $15,788,000 and $12,024,000, respectively, available to the Company under its Revolver arrangement.

The average balance of short-term borrowings during the three and six-month periods ended June 30, 2019 were $6,083,000 and $5,085,000, and $2,571,000 and $2,211,000 for the same periods in 2018.

NOTE 9 – DIVIDEND PAYMENTS

On May 9, 2019, 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 May 24, 2019, to shareholders of record at the close of business on May 20, 2019. The total amount of this dividend payment was approximately $159,000. During the six-month period ended June 30, 2019, the Company paid approximately $317,000 in dividend payments.

P&F INDUSTRIES, INC. AND SUBSIDIARIES

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 2019 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:

	·	Exposure to fluctuations in energy prices;
	·	Debt and debt service requirements;
	·	Borrowing and compliance with covenants under our credit facility;
	·	Disruption in the global capital and credit markets;
	·	The strength of the retail economy in the United States and abroad;
	·	Risks associated with sourcing from overseas, including tariffs;
	·	Importation delays;
	·	Customer concentration;
	·	Adverse changes in currency exchange rates;
	·	Impairment of long-lived assets and goodwill;
	·	Unforeseen inventory adjustments or changes in purchasing patterns;
	·	Market acceptance of products;
	·	Competition;
	·	Technology;
	·	Price reductions;
	·	Interest rates;
	·	Litigation and insurance;
	·	Retention of key personnel;
	·	Acquisition of businesses;
	·	Regulatory environment;
	·	The threat of terrorism and related political instability and economic uncertainty; and
	·	Information technology system failures and attacks,

and those other risks and uncertainties described in its Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 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

OUR BUSINESS

P&F and each of its subsidiaries are herein referred to collectively as the “Company.” In addition, the words “we”, “our” and “us” refer to the Company. We conduct our 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”). Exhaust Technologies Inc. (“ETI”), Universal Air Tool Company Limited (“UAT”) and Jiffy Air Tool, Inc. (“Jiffy”), are wholly-owned subsidiaries of Florida Pneumatic. The business of Air Tool Service Company (“ATSCO”) operates through a wholly-owned subsidiary of Hy-Tech.

Florida Pneumatic imports, manufactures and sells pneumatic hand tools, which are of our own design, primarily to the retail, industrial, automotive and aerospace markets.

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.

As the result of several new tariffs imposed in the second half of 2018, specifically those imposed on products imported from China, we now must consider tariffs a key economic measure, as a significant portion of products imported by Florida Pneumatic for our Retail customers 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.

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

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 2018 Form 10-K, and in the Notes to these 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.

OVERVIEW

Key factors or events impacting our second quarter 2019 results of operations were:

In June we sold the Jupiter Facility resulting in a $7.8 million gain.

Major reduction in aerospace revenue due to a slowdown in orders from Boeing

Major reduction in retail revenue due to slowdown in orders from The Home Depot

RESULTS OF OPERATIONS

Based on negotiations with our overseas suppliers and The Home depot, which is our largest customer that was affected by the added tariffs imposed since July 2018, we have been able to avoid much of the impact of such tariffs. There is no guarantee that we will be able to avoid some or all of any new or additional tariffs. Should we be unable to avoid such additional costs, our gross margin on these products likely would be severely impacted. This could cause us to terminate or alter certain customer/supplier relationships.

Additionally, 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. We continue to perform a cost-benefit analysis of developing or incorporating more advanced technologies in our tool platforms.

Lastly, Boeing has reduced production on a major product line. Should Boeing shut down the line completely it would have a material impact on the financial results of Florida Pneumatic.

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.

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

RESULTS OF OPERATIONS – (Continued)

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

REVENUE

The tables below provide an analysis of our net revenue for the three and six-month periods ended June 30, 2019 and 2018:

	Three months ended June 30,
					Increase (decrease)
	2019		2018		$			%
Florida Pneumatic	$	10,786,000	$	12,470,000	$	(1,684,000	)		(13.5	)%
Hy-Tech		4,012,000		3,718,000		294,000			7.9

Consolidated	$	14,798,000	$	16,188,000	$	(1,390,000	)		(8.6	)%

	Six months ended June 30,
					Increase (decrease)
	2019		2018		$			%

Florida Pneumatic	$	21,226,000	$	24,734,000	$	(3,508,000	)		(14.2	)%
Hy-Tech		7,894,000		7,196,000		698,000			9.7

Consolidated	$	29,120,000	$	31,930,000	$	(2,810,000	)		(8.8	)%

Florida Pneumatic

Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool market; Retail, Automotive, Industrial/catalog 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 June 30,
	2019					2018					Decrease
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
Retail	$	3,427,000		31.8	%	$	4,215,000		33.8	%	$	(788,000	)		(18.7	)%
Automotive		3,759,000		34.8			3,774,000		30.3			(15,000	)		(0.4	)
Industrial/catalog		1,223,000		11.3			1,291,000		10.3			(68,000	)		(5.3	)
Aerospace		2,231,000		20.7			3,016,000		24.2			(785,000	)		(26.0	)
Other		146,000		1.4			174,000		1.4			(28,000	)		(16.1	)
Total	$	10,786,000		100.0	%	$	12,470,000		100.0	%	$	(1,684,000	)		(13.5	)%

	Six months ended June 30,
	2019					2018					Decrease
			Percent of					Percent of
	Revenue		revenue			Revenue		revenue			$			%
Retail	$	6,139,000		28.9	%	$	8,305,000		33.6	%	$	(2,166,000	)		(26.1	)%
Automotive		7,624,000		35.9			7,710,000		31.2			(86,000	)		(1.1	)
Industrial/catalog		2,547,000		12.0			2,655,000		10.7			(108,000	)		(4.1	)
Aerospace		4,591,000		21.6			5,686,000		23.0			(1,095,000	)		(19.3	)
Other		325,000		1.6			378,000		1.5			(53,000	)		(14.0	)
Total	$	21,226,000		100.0	%	$	24,734,000		100.0	%	$	(3,508,000	)		(14.2	)%

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

RESULTS OF OPERATIONS - (Continued)

Florida Pneumatic

Retail revenue declined this quarter, compared to the same three-month period in 2018, due primarily to reduced shipments to The Home Depot, which we believe was due to The Home Depot being in an over-stocked position through the latter part of the second quarter of 2019. Shipments to Stanley Black and Decker, which acquired the Craftsman® brand in 2018, declined $173,000, when comparing the second quarter of 2019 to the same period a year ago. We believe it is likely that shipments to Stanley Black and Decker will end shortly. Lower Aerospace revenue this quarter compared to the same period in 2018 was due primarily to lower shipments to Boeing related to its recent production slowdown. Florida Pneumatic’s three-month 2019 revenue of its Automotive, Industrial/catalog and Other sectors were down slightly, when compared to the same three-month period in 2018.

The most significant component to the decline in Florida Pneumatic’s six-month revenue, compared to the same period in the prior year was lower sales to The Home Depot. We believe this reduction in revenue was due to The Home Depot being in an overstocked position at the end of 2018. Six-month sales to Stanley Black and Decker, which acquired the Craftsman® brand in 2018, declined approximately $368,000, when compared to the same period a year ago. The decline in year-to-date Aerospace revenue, compared to the same six-month period that ended June 30, 2018, was due to shipments to a customer in the first quarter of 2018 not repeating in 2019 and lower sales to Boeing related to its recent production slowdown. Automotive revenue is down slightly, due to our decision to curtail lower margin promotional sales. Lastly, the 4.1% decline in Industrial/catalog revenue was due to a general slowdown in the manufacturing sector.

Hy-Tech

Hy-Tech designs, manufactures and sells a wide range of industrial products under the brands ATP, OZAT and a small portion of ATSCO and are categorized as “ATP” for reporting purposes. “Engineered Solutions” and the balance of ATSCO revenue is included in the OEM category in the tables below. NUMATX, Thaxton and other peripheral product lines, such as general machining and gears, are reported as “Other” below:

	Three months ended June 30,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	1,912,000		47.7	%	$	2,077,000		55.9	%	$	(165,000	)		(7.9	)%
OEM		1,754,000		43.7			1,257,000		33.8			497,000			39.5
Other		346,000		8.6			384,000		10.3			(38,000	)		(9.9	)
Total	$	4,012,000		100.0	%	$	3,718,000		100.0	%	$	294,000			7.9	%

	Six months ended June 30,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	3,784,000		47.9	%	$	3,978,000		55.3	%	$	(194,000	)		(4.9	)%
OEM		3,344,000		42.4			2,379,000		33.1			965,000			40.6	%
Other		766,000		9.7			839,000		11.6			(73,000	)		(8.7	)
Total	$	7,894,000		100.0	%	$	7,196,000		100.0	%	$	698,000			9.7	%

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

RESULTS OF OPERATIONS - (Continued)

Hy-Tech

The 39.5% net increase in Hy-Tech’s OEM revenue was driven primarily by Hy-Tech’s Engineered Solutions products offering, which is designed to exploit Hy-Tech’s expertise in engineering and manufacturing and enable them to pursue alternate, non-traditional markets and develop different applications for its tools, motors and related accessories. We believe the development of the Engineered Solutions offering will continue to provide Hy-Tech an opportunity to generate additional sources of revenue in the future. The decline in ATP revenue was driven primarily by a decline in lower margin ATSCO revenue, partially offset by improved ATP tools sales. NUMATX, which accounts for approximately 25% of Other revenue, helped to offset declines in the remaining product offerings within this category.

Hy-Tech’s Engineered Solutions initiative is the major contributor to its improved, year-over-year OEM revenue. The decline in ATP revenue was driven by a reduction in shipments to a lower margin customer, partially offset by an increase in sales of its ATP parts and tools. Hy-Tech’s Other revenue declined 8.7%, when comparing the six-month periods ended June 30, 2019 and 2018, driven primarily by a reduction in lower margin general machining.

Gross profit / margin

	Three months ended June 30,						Increase (decrease)
	2019			2018			Amount			%
Florida Pneumatic	$	4,185,000		$	4,538,000		$	(353,000	)		(7.8	)%
As percent of respective revenue		38.8	%		36.4	%		2.4	% pts
Hy-Tech	$	1,323,000		$	1,333,000		$	(10,000	)		(0.8	)
As percent of respective revenue		33.0	%		35.9	%		(2.9	) % pts
Total	$	5,508,000		$	5,871,000		$	(363,000	)		(6.2	)%
As percent of respective revenue		37.2	%		36.3	%		0.9	% pts

	Six months ended June 30,						Increase (decrease)
	2019			2018			Amount			%
Florida Pneumatic	$	8,192,000		$	8,715,000		$	(523,000	)		(6.0	)%
As percent of respective revenue		38.6	%		35.2	%		3.4	% pts
Hy-Tech	$	2,597,000		$	2,585,000		$	12,000			0.5
As percent of respective revenue		32.9	%		35.9	%		(3.0	)% pts
Total	$	10,789,000		$	11,300,000		$	(511,000	)		(4.5	)%
As percent of respective revenue		37.1	%		35.4	%		1.7	% pts

Similar to Florida Pneumatic’s first quarter gross margin, the improvement in its second quarter gross margin, compared to the same period in the prior year, was driven by its decision to greatly reduce AIRCAT promotional programs in 2019 that were offered during much of 2018. This decision helped improve AIRCAT margins nearly 7 percentage points. Margins also improved on both its Industrial and Aerospace products offerings. Gross margin generated by sales to The Home Depot were lower during the three-month period ended June 30, 2019, compared to the same period in 2018, due primarily to the previously agreed upon two percent price reduction and, to a lesser degree, product mix.

The improved gross margin at Florida Pneumatic for the six-month period ended June 30, 2019, compared to the same period a year ago is due primarily to its decision to greatly reduce AIRCAT promotional programs in 2019 that were offered during much of 2018. Additionally, various price increases, and product mix were contributing factors in stronger gross margin on Florida Pneumatic’s year-to-date sales of its on Aerospace and Industrial product lines. Lower gross margins on The Home Depot shipments partially offset the above improvements.

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

RESULTS OF OPERATIONS - (Continued)

When comparing the second quarter of 2019 to the same period in the prior year, Hy-Tech’s gross margin declined due primarily to product mix, and a slight increase to obsolete and slow-moving inventory charges this quarter, compared to the same period a year ago.

The 3.0 percentage point decline in Hy-Tech’s six-month gross margin stated in the table above, was due to a number of factors: (i) unusually high costs incurred during the three-month period ended March 31, 2019, in areas such as repairs and maintenance and sample costs; (ii) under absorption of manufacturing overhead, mostly in the first quarter of 2019, in turn primarily due to a complete enterprise-wide, information technologies system conversion occurring during the first quarter of 2019 which caused the facility to halt production for approximately three days, (iii) a slight increase to obsolete and slow-moving inventory charges in the second quarter of 2019, compared to the same period a year ago, and (iv) product mix.

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 second quarter of 2019, our SG&A was $5,453,000, compared to $5,355,000 for the same three-month period in 2018. Significant components to the net change include: (i) an increase in compensation expenses of $71,000, which is comprised of base salaries and wages, accrued performance-based bonus incentives, associated payroll taxes and employee benefits; (ii) an increase in variable expenses, which includes such expenses as, commissions, freight out, advertising and promotion expenses and travel and entertainment of $62,000; and (iii) a reduction in our stock-based compensation of $27,000.

Our SG&A for the six-month period ended June 30, 2019 was $10,722,000, compared to $10,630,000 for the same period in 2018. Significant components to the net change include: (i) an increase in compensation expenses of $105,000, which is comprised of base salaries and wages, accrued performance-based bonus incentives, associated payroll taxes and employee benefits; (ii) an increase in variable expenses of $62,000, and (iii) reductions in Bank fees and expenses and general insurance of $34,000 and $18,000, respectively.

Gain on sale of property and equipment

Effective June 18, 2019, we completed the sale of real property located in Jupiter, the facility where Florida Pneumatic conducts its principal operations (the “Jupiter Facility”). The Jupiter Facility was purchased by an unrelated third party, for a final purchase price of $9.2 million. After broker fees and other expenses relating to the sale, the Company received approximately $8.7 million. The Jupiter Facility had at the time of sale a net book value of approximately $932,000. As the result of the sale of the Jupiter Facility, we recognized a gain of approximately $7.8 million (see Notes 1 and 8 and the Liquidity section of Management’s Discussion and Analysis for further information.)

Other expense

Other expense of $28,000 and $57,000, respectively, for the three and six-month periods ended June 30, 2018, represents the adjustment of the fair value of the contingent consideration obligation to the Jiffy Seller.

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

RESULTS OF OPERATIONS - (Continued)

Interest

	Three months ended June 30,				Increase (decrease)
	2019		2018		Amount			%
Interest expense attributable to:
Short-term borrowings	$	63,000	$	24,000	$	39,000			162.5	%
Term loans, including Capex Term Loans		4,000		4,000		—			—
Amortization expense of debt issue costs		1,000		27,000		(26,000	)		(96.3	)

Total	$	68,000	$	55,000	$	13,000			23.6	%

	Six months ended June 30,				Increase (decrease)
	2019		2018		Amount			%
Interest expense attributable to:
Short-term borrowings	$	105,000	$	37,000	$	68,000			183.8	%
Term loans, including Capex Term Loans		9,000		5,000		4,000			80.0
Amortization expense of debt issue costs		17,000		50,000		(33,000	)		(66.0	)

Total	$	131,000	$	92,000	$	39,000			42.4	%

The increase in short-term loan borrowings interest during the second quarter of 2019, compared to the same period in 2018, was driven primarily by greater borrowings against our Revolver, compared to the prior year. Our average balance of short-term borrowings during the three and six-month periods ended June 30, 2019 was $6,083,000 and $5,085,000, respectively, compared to $2,571,000 and $2,211,000, respectively, during the same three and six-month periods in 2018. Debt issue costs incurred in connection with the Amendment No. 5, discussed in Note 8, which are being amortized through February 2024, were lower than the costs associated with the previous amendments.

Income taxes

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 and six-month periods ended June 30, 2019 were 27.1% and 27.0%, compared to the effective tax rates of 29.6% and 29.0%, respectively, for the three and six-month periods ended June 30, 2018. The Company’s effective tax rates for both periods were affected primarily by state taxes, and non-deductible expenses.

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

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 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:

	June 30, 2019		December 31, 2018
Working Capital	$	25,272,000	$	22,323,000
Current Ratio		3.78 to 1		3.26 to 1
Shareholders’ Equity	$	47,494,000	$	45,535,000

Credit facility

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

We provide Capital One with monthly financial statements, borrowing base certificates and certificates of compliance with various financial covenants. Should an event of default occur, the interest rate on all borrowings would increase by two percent per annum during the period of default, in addition to other remedies provided to Capital One.

We believe that should a need arise for us to borrow funds in excess of the Revolver and Term loans currently in effect, our Bank would provide for additional borrowings, based on the value of our real property or other assets.

Cash flows

During the six-month period ended June 30, 2019, our net cash increased to $1,672,000 from $999,000 at December 31, 2018. Our total Bank debt at June 30, 2019 was $181,000 compared to $2,555,000 at December 31, 2018. The total debt to total book capitalization (total debt divided by total debt plus equity); at June 30, 2019 was 0.4% compared to 5.3% at December 31, 2018.

As discussed in Note 1 to our Consolidated Financial Statements, on June 18, 2019, Florida Pneumatic completed the sale of real property located in Jupiter, Florida in which it conducts its principal operations (the “Jupiter Facility”). The Jupiter Facility was purchased by Jupiter Warehouse Holdings LLC, an unrelated third party, for a final purchase price of $9.2 million. After broker fees and other expenses relating to the sale, we received approximately $8.7 million.

As a condition to our Bank approving the above-mentioned sale and releasing the lien on the Jupiter Facility, we were required to apply the major portion of the net proceeds from the sale to pay off the Term Loan of $100,000, the Capex Loan of approximately $313,000, and the Revolver Loan, which on the date of the closing had a balance of approximately $7.4 million. This transaction did not affect our ability to continue to borrow funds under both the Capex Loan and the Revolver Loan under the terms of the Loan Agreement.

Additionally, effective as of the Closing Date, Florida Pneumatic, entered into a lease with respect to an approximately 42,000 square foot portion of the Jupiter Facility. The lease is for a term of five years, with either party able to terminate after four years. The initial monthly base rent under the lease is $32,345 with annual escalations of three percent. Florida Pneumatic is also responsible for certain other payments of additional rent as set forth in the lease, including certain taxes, assessments and operating expenses.

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

RESULTS OF OPERATIONS - (Continued)

LIQUIDITY AND CAPITAL RESOURCES

Cash flows – (continued)

In February and May 2019, our Board of Directors declared quarterly cash dividends of $0.05 per share of our common stock, which were paid in March 2019 and May 2019, respectively. The total dividends paid through June 30, 2019 were $317,000. We intend to maintain the dividend policy; however, the declaration of dividends under this policy going forward is dependent upon our financial condition, results of operations, capital requirements and other factors deemed relevant by our Board of Directors.

On September 12, 2018, our Board of Directors authorized us to repurchase up to 100,000 shares of our Common Stock (the “2018 Repurchase Program”) from time-to-time over a one-year period ending September 2019. Since the inception of the 2018 Repurchase Program through June 30, 2019, we repurchased 93,897 shares of our Common Stock at an aggregate cost of approximately $769,000. During the three-month period ended June 30, 2019, we repurchased 31,992 shares of our Common Stock at an aggregate cost of approximately $266,000. In July 2019, we repurchased 6,103 shares of our Common Stock at an aggregate cost of approximately $50,000, thus completing the 2018 Repurchase Program.

During the six-month period ended June 30, 2019, we used $920,000 for capital expenditures, compared to $1,224,000 during the same period in the prior year. Capital expenditures for the balance of 2019 are expected to be approximately $1,000,000, some of which may be financed through our credit facilities with Capital One or financed through independent third-party financial institutions. The remaining 2019 capital expenditures will likely be for machinery and equipment, tooling, relocation costs and computer hardware and software.

Customer concentration

At June 30, 2019 and December 31, 2018, accounts receivable from The Home Depot was 33.2% and 32.6%, respectively, of our total accounts receivable. Additionally, revenue from The Home Depot during the three and six-month periods ended June 30, 2019 and 2018 were 23.0% and 20.3%, and 24.8% and 24.2%, respectively, of our total revenue. There were no other customers that accounted for more than 10% of our consolidated revenue and accounts receivable during the three or six-month periods ended June 30, 2019 or 2018.

We believe the loss of The Home Depot would negatively impact our financial condition but would not affect our ability to remain a going concern.

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 June 30, 2019, 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 June 30, 2019, the Company’s management, including its CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level 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 2018 Form 10-K.

Item 1A.

Risk Factors

There were no material changes to the risk factors previously disclosed in our 2018 Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

							Maximum
							Number
					Total Number of		of shares
					Shares Purchased as		that May Yet
					Part of Publicly		Be Purchased
	Total Number of		Average Price		Announced Plan		Under the Plan
Period	Shares Purchased		Paid per Share		or Program ⁽¹⁾		or Program ⁽¹⁾

April 1, 2019 – April 30, 2019		7,330	$	8.31		7,330		30,765
May 1, 2019 – May 31, 2019		15,833	$	8.24		15,833		14,932
June 1, 2019 – June 30, 2019		8,829	$	8.47		8,829		6,103

(1)

On September 14, 2018, the Company publicly announced that its Board of Directors authorized a new stock repurchase program and the Company adopted a new written trading plan thereunder for the purpose of repurchasing up to 100,000 shares of its Common Stock. This trading plan was set to expire on September 16, 2019; however, subsequent to June 30, 2019, the Company completed the repurchase of all 100,000 authorized shares.

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: August 9, 2019	(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

2.1		Purchase and Sale Agreement, dated as of April 19, 2019, by and between Florida Pneumatic Manufacturing Corporation and Jupiter Warehouse Holdings LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 19, 2019).

10.1		Consent and Amendment No. 7 to Second Amended and Restated Loan and Security Agreement, dated as of April 19, 2019 by and among the Company, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Jiffy Air Tool, Inc., ATSCO Holdings Corp., Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies Inc., and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated April 19, 2019).

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 Income and Comprehensive Income, (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.