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 March 31, 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

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 May 7, 2019, there were 3,166,225 shares of the registrant’s Class A Common Stock outstanding.

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

P&F INDUSTRIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS

		PAGE
PART I — FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018	3
	Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2019 and 2018 (unaudited)	5
	Consolidated Statement of Shareholders’ Equity for the three-month periods ended March 31, 2019 and 2018(unaudited)	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II — OTHER INFORMATION		28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
Signature		29
Exhibit Index		30

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2019		December 31, 2018
	(unaudited)		(See Note 1)
ASSETS
CURRENT ASSETS
Cash	$	898,000	$	999,000
Accounts receivable — net		8,996,000		9,574,000
Inventories		20,607,000		20,496,000
Prepaid expenses and other current assets		1,367,000		1,137,000
TOTAL CURRENT ASSETS		31,868,000		32,206,000
PROPERTY AND EQUIPMENT
Land		1,281,000		1,281,000
Buildings and improvements		6,262,000		6,262,000
Machinery and equipment		23,059,000		22,612,000
		30,602,000		30,155,000
Less accumulated depreciation and amortization		20,748,000		20,380,000
NET PROPERTY AND EQUIPMENT		9,854,000		9,775,000
GOODWILL		4,440,000		4,436,000
OTHER INTANGIBLE ASSETS — net		7,640,000		7,800,000
DEFERRED INCOME TAXES — net		651,000		628,000
OTHER ASSETS — net		1,212,000		741,000
TOTAL ASSETS	$	55,665,000	$	55,586,000

See accompanying notes to consolidated financial statements (unaudited).

3

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2019			December 31, 2018
	(unaudited)			(See Note 1)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term borrowings	$	6,354,000		$	2,096,000
Accounts payable		2,709,000			2,755,000
Accrued compensation and benefits		1,056,000			2,336,000
Accrued other liabilities		1,123,000			1,243,000
Current maturities of long-term debt		80,000			453,000
Other current liabilities		1,296,000			1,000,000
TOTAL CURRENT LIABILITIES		12,618,000			9,883,000
Long–term debt, less current maturities		353,000			—
Other liabilities		459,000			168,000
TOTAL LIABILITIES		13,430,000			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 – 4,410,000 at March 31, 2019 and December 31, 2018		4,410,000			4,410,000
Class B - $1 par; authorized - 2,000,000 shares; no shares issued		—			—
Additional paid-in capital		13,946,000			13,904,000
Retained earnings		34,404,000			34,588,000
Treasury stock, at cost –1,234,000 shares at March 31, 2019 and 816,000 shares at December 31, 2018		(9,897,000	)		(6,695,000	)
Accumulated other comprehensive loss		(628,000	)		(672,000	)
TOTAL SHAREHOLDERS’ EQUITY		42,235,000			45,535,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	55,665,000		$	55,586,000

See accompanying notes to consolidated financial statements (unaudited).

4

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(unaudited)

	Three months
	ended March 31,
	2019			2018
Net revenue	$	14,322,000		$	15,742,000
Cost of sales		9,041,000			10,314,000
Gross profit		5,281,000			5,428,000
Selling, general and administrative expenses		5,269,000			5,274,000
Operating income		12,000			154,000
Other expenses		—			29,000
Interest expense		63,000			37,000
(Loss) income before income taxes		(51,000	)		88,000
Income tax (benefit) expense		(25,000	)		23,000
Net (loss) income	$	(26,000	)	$	65,000
Basic and diluted (loss) earnings per share	$	(0.01	)	$	0.02
Weighted average common shares outstanding:
Basic		3,381,000			3,583,000
Diluted		3,381,000			3,745,000
Net (loss) income	$	(26,000	)	$	65,000
Other comprehensive income - foreign currency translation adjustment		44,000			96,000
Total comprehensive income	$	18,000		$	161,000

See accompanying notes to consolidated financial statements (unaudited).

5

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (unaudited)

Three Months Ended March 31, 2019:

				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 loss		(26,000	)		—		—		—		(26,000	)		—			—			—
Restricted common stock compensation		13,000			—		—		13,000		—			—			—			—
Purchase of Class A common stock		(3,202,000	)		—		—		—		—			(418,000	)		(3,202,000	)		—
Stock-based compensation		29,000			—		—		29,000		—			—			—			—
Dividends		(158,000	)		—		—		—		(158,000	)		—			—			—
Foreign currency translation adjustment		44,000			—		—		—		—			—			—			44,000
Balance, March 31, 2019	$	42,235,000			4,410,000	$	4,410,000	$	13,946,000	$	34,404,000			(1,234,000	)	$	(9,897,000	)	$	(628,000	)

Three Months Ended March 31, 2018

				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		65,000			—		—		—		65,000			—			—			—
Exercise of stock options		105,000			26,000		26,000		79,000		—			—			—			—
Restricted common stock compensation		7,000			—		—		7,000		—			—			—			—
Purchase of Class A common stock		(82,000	)		—		—		—		—			(10,000	)		(82,000	)		—
Stock-based compensation		60,000			—		—		60,000		—			—			—			—
Dividends		(180,000	)		—		—		—		(180,000	)		—			—			—
Foreign currency translation adjustment		96,000			—		—		—		—			—			—			96,000
Balance, March 31, 2018	$	46,084,000			4,229,000	$	4,229,000	$	13,210,000	$	34,340,000			(641,000	)	$	(5,261,000	)	$	(434,000	)

See accompanying notes to consolidated financial statements (unaudited).

6

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Three months
	ended March 31,
	2019			2018
Cash Flows from Operating Activities:
Net (loss) income	$	(26,000	)	$	65,000
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Non-cash charges:
Depreciation and amortization		389,000			335,000
Amortization of other intangible assets		172,000			179,000
Amortization of debt issue costs		15,000			23,000
Amortization of consideration payable to customer		67,000			—
Recovery of losses on accounts receivable - net		(69,000	)		(1,000	)
Stock-based compensation		29,000			60,000
Loss on sale of fixed assets		6,000			1,000
Restricted stock-based compensation		13,000			7,000
Deferred income taxes		(25,000	)		21,000
Fair value increase in contingent consideration		—			29,000
Changes in operating assets and liabilities:
Accounts receivable		654,000			(603,000	)
Inventories		(88,000	)		961,000
Prepaid expenses and other current assets		(207,000	)		(200,000	)
Other assets		81,000			—
Accounts payable		(48,000	)		287,000
Accrued compensation and benefits		(1,282,000	)		(985,000	)
Accrued other liabilities and other current liabilities		(133,000	)		(328,000	)
Other liabilities		(38,000	)		(5,000	)
Total adjustments		(464,000	)		(219,000	)
Net cash used in operating activities		(490,000	)		(154,000	)

See accompanying notes to consolidated financial statements (unaudited).

7

P&F INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Three months
	ended March 31,
	2019			2018
Cash Flows from Investing Activities:
Capital expenditures	$	(485,000	)	$	(570,000	)
Proceeds from disposal of assets		11,000			10,000
Net cash used in investing activities		(474,000	)		(560,000	)
Cash Flows from Financing Activities:
Dividend payments		(158,000	)		(180,000	)
Proceeds from exercise of stock options		—			105,000
Purchase of Class A common stock		(3,202,000	)		(82,000	)
Net proceeds from short-term borrowings		4,258,000			1,313,000
Bank finance costs		(20,000	)		—
Repayments of loan term debt		(20,000	)		—
Net cash provided by financing activities		858,000			1,156,000
Effect of exchange rate changes on cash		5,000			21,000
Net (decrease) increase in cash		(101,000	)		463,000
Cash at beginning of period		999,000			1,241,000
Cash at end of period	$	898,000		$	1,704,000
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	37,000		$	16,000
Income taxes	$	—		$	2,000
Cash paid for amounts included in the measurement of operating lease liabilities	$	4,000		$	—
Noncash information:
Right of Use (“ROU”) assets recognized for new operating lease liabilities	$	80,000		$	—
Operating lease liability related to ROU asset recognized upon adoption of ASC 842	$	577,000		$	—

See accompanying notes to consolidated financial statements (unaudited).

8

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 of 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 - 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.

Customer concentration

At March 31, 2019 and December 31, 2018, accounts receivable from The Home Depot was 25.5% and 32.6%, respectively, of our total accounts receivable. Additionally, revenue from The Home Depot during the three-month periods ended March 31, 2019 and 2018 were 17.6% and 23.5%, respectively, of our total revenue. There were no other customers that accounted for more than 10% of our consolidated revenue during the three-month periods ended March 31, 2019 or 2018. 

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”) and Universal Air Tool Company Limited (“UAT”), 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.

9

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 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.

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.

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 $553,000, and an operating lease liability of $577,000 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 March 31, 2019.

For the three months ended March 31, 2019, the Company had $80,000 in Operating lease expense.

As of March 31, 2019, the Company had a net ROU asset of $552,000 in Other Assets, a current operating lease liability of $271,000 in Other current liabilities, and a long-term operating lease liability of $296,000 in Other liabilities.

10

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of March 31, 2019:

	As of March 31, 2019
2019 (excluding the three months ended March 31, 2019)	$	239,000
2020		142,000
2021		114,000
2022		76,000
2023		44,000
Total operating lease payments		615,000
Less imputed interest		(48,000	)
Total operating lease liabilities	$	567,000

Weighted-average remaining lease term	3.1 years
Weighted-average discount rate	5.3	%

The Company analyzes its revenue as follows:

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

	Three months ended March 31,
	2019					2018					Decrease
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
Automotive	$	3,866,000		37.0	%	$	3,938,000		32.1	%	$	(72,000	)		(1.8	)%
Retail		2,709,000		26.0			4,090,000		33.4			(1,381,000	)		(33.8	)
Aerospace		2,360,000		22.6			2,670,000		21.8			(310,000	)		(11.6	)
Industrial		1,325,000		12.7			1,364,000		11.1			(39,000	)		(2.9	)
Other		180,000		1.7			202,000		1.6			(22,000	)		(10.9	)
Total	$	10,440,000		100.0	%	$	12,264,000		100.0	%	$	(1,824,000	)		(14.9	)%

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 also include products such as heavy-duty air tools. Our “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 March 31,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	1,986,000		51.2	%	$	2,357,000		67.8	%	$	(371,000	)		(15.7	)%
OEM		1,476,000		38.0			666,000		19.1			810,000			121.6
Other		420,000		10.8			455,000		13.1			(35,000	)		(7.7	)
Total	$	3,882,000		100.0	%	$	3,478,000		100.0	%	$	404,000			11.6	%

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.

11

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 2 – (LOSS) EARNINGS PER SHARE

Basic (loss) earnings per common share is based only on the average number of shares of Common Stock outstanding for the periods.

Diluted (loss) 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 (loss) 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 (loss) earnings per common share:

	Three months ended
	March 31,
	2019			2018
Numerator for basic and diluted (loss) earnings per common share:
Net (loss) income	$	(26,000	)	$	65,000
Denominator:
For basic (loss) earnings per share - weighted average common shares outstanding		3,381,000			3,583,000
Dilutive securities (1)		—			162,000
For diluted (loss) earnings per share -  weighted average common shares outstanding		3,381,000			3,745,000

⁽¹⁾ Dilutive securities consist of “in the money” stock options.

At March 31, 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. Options for the three months ended March 31, 2019 are anti-dilutive and are excluded from the computation of diluted (loss) earnings per share. The weighted average of anti-dilutive stock options outstanding was as follows:

	Three months ended
	March 31,
	2019		2018
Weighted average antidilutive stock options outstanding		8,000		49,000

NOTE 3 – STOCK-BASED COMPENSATION

During the three-month period ended March 31, 2019, the Company granted 8,000 options to non-executives. The exercise price of these options is $8.55 per option, and will expire in February 2029. Further, one third of these options vest on the anniversary date of the grant for the next three years.

The Company estimated the fair value of these options using the following assumptions:

Risk-free interest rate		2.73	%
Expected term (in years)		10  years
Volatility		62.08	%
Dividend yield		2.34	%
Weighted average fair value of options granted	$	4.60

12

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 3 – STOCK-BASED COMPENSATION – (Continued)

The following is a summary of the changes in outstanding options during the three-month period ended March 31, 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, March 31, 2019		226,075	$	6.30		5.5	$	424,878
Vested, March 31, 2019		158,742	$	5.90		4.2	$	360,798

	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, March 31, 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 March 31, 2019 was 71,437. Further, at March 31, 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

The Company, in May 2018, 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 will ratably amortize the total non-cash compensation expense of approximately $53,000 to selling, general and administrative expenses through May 2019.

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 March 31, 2019, the Company repurchased 61,905 shares of its Common Stock at an aggregate cost of approximately $503,000. During the three-month period ended March 31, 2019, the Company repurchased 28,507 shares of its Common Stock at an aggregate cost of approximately $231,000.

13

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 4 – FAIR VALUE MEASUREMENTS

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

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

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

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

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

As of March 31, 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).

NOTE 5 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable - net consists of:

	March 31, 2019			December 31, 2018
Accounts receivable	$	9,200,000		$	9,847,000
Allowance for doubtful accounts, sales discounts and chargebacks		(204,000	)		(273,000	)
	$	8,996,000		$	9,574,000

NOTE 6 – INVENTORIES

Inventories consist of:

	March 31, 2019		December 31, 2018
Raw material	$	2,230,000	$	1,963,000
Work in process		1,736,000		1,924,000
Finished goods		16,641,000		16,609,000
	$	20,607,000	$	20,496,000

14

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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		4,000
Balance, March 31, 2019	$	4,440,000

Other intangible assets were as follows:

	March 31, 2019						December 31, 2018
	Cost		Accumulated amortization		Net book value		Cost		Accumulated amortization		Net book value
Other intangible assets:
Customer relationships (1)	$	6,827,000	$	2,280,000	$	4,547,000	$	6,821,000	$	2,135,000	$	4,686,000
Trademarks and trade names (1)		2,316,000		—		2,316,000		2,308,000		—		2,308,000
Trademarks and trade names		200,000		35,000		165,000		200,000		32,000		168,000
Engineering drawings		330,000		209,000		121,000		330,000		202,000		128,000
Non-compete agreements (1)		235,000		226,000		9,000		233,000		223,000		10,000
Patents		1,405,000		923,000		482,000		1,405,000		905,000		500,000
Totals	$	11,313,000	$	3,673,000	$	7,640,000	$	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 March 31,
2019		2018
$	172,000	$	179,000

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

	March 31, 2019		December 31, 2018
Customer relationships		9.0		9.3
Trademarks and trade names		12.3		12.5
Engineering drawings		7.6		7.7
Non-compete agreements		2.0		2.3
Patents		7.7		7.9

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

2020	$	675,000
2021		639,000
2022		635,000
2023		635,000
2024		635,000
Thereafter		2,105,000
	$	5,324,000

15

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 Revolver arrangement. Revolver borrowings are secured by the Company’s accounts receivable, inventory, equipment and real property. Additionally, there is a $1,600,000 line available for capital expenditures (“Capex line”). The Credit Agreement includes a $100,000 Term Loan, as defined in the Credit Agreement. This Term Loan remains in place to enable the Company and Capital One to facilitate future term loan borrowings more efficiently and in a less costly manner. 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 had an expiration date of February 11, 2019.

On February 8, 2019, the Company entered into Amendment No. 5 to the Second Amended and Restated Loan and Security Agreement with Capital One (“Amendment No.5”). Amendment No. 5, among other things, extended the termination date of the Credit Agreement to February 8, 2024, set the Capex line to $2,000,000, increased the Eligible Inventory (as defined in the Credit Agreement) to $10,000,000 from $8,000,000, and reduced certain fees and charges.

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 March 31, 2019, short-term or Revolver borrowing was $6,354,000, compared to $2,096,000, at December 31, 2018. Applicable Margin Rates at March 31, 2019 and December 31, 2018 for LIBOR and Base Rates were 1.50% and 0.50%. Additionally, at March 31, 2019 and December 31, 2018, there was approximately $8,857,000 and $12,024,000, respectively, available to the Company under its Revolver arrangement.

The average balance of short-term borrowings during the three-month periods ended March 31, 2019 and 2018, were $4,076,000 and $1,847,000, respectively.

TERM LOAN BORROWINGS

There is a $100,000 Term Loan that is secured by mortgages on the real property, accounts receivable, inventory and equipment. The Term Loan borrowings can be at either LIBOR, or at the Base Rate, or a combination of the two plus the Applicable Margins. At March 31, 2019 and December 31, 2018, the total borrowing of this Term Loan was at LIBOR. The Applicable Margin for LIBOR at March 31, 2019 and December 31, 2018 was 1.5%.

In April 2018, the Company borrowed $400,000 against the Capex line. This borrowing is to be repaid in equal principal installments of approximately $6,700, payable monthly, with the balance due at its Maturity Date as defined in the Credit Agreement. Of the initial borrowing, $300,000 was at LIBOR plus Applicable Margin, with the balance of $100,000 at the Base Rate, or prime rate plus Applicable Margin. The Applicable Margin added to all Base Rate and LIBOR borrowings were 1.50% and 0.50%, respectively.

16

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 8 – DEBT – (Continued)

The Company’s Term loan borrowings are:

	March 31, 2019		December 31, 2018
Term Loan	$	100,000	$	100,000
Capex borrowing		333,000		354,000
Debt issue costs		—		(1,000	)
		433,000		453,000
Less current maturities		80,000		453,000
	$	353,000	$	—

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

We believe that should a need arise whereby the current credit facility is insufficient; we can borrow additional amounts against our real property or other assets. 

NOTE 9– DIVIDEND PAYMENTS

On March 8, 2019, the Company’s Board of Directors, in accordance with their dividend policy, declared a quarterly cash dividend of $0.05 per common share, which was paid on March 22, 2019, to shareholders of record at the close of business on March 18, 2019. The total amount of this dividend payment was approximately $158,000.

NOTE 10– SUBSEQUENT EVENTS

Florida Pneumatic entered into a purchase and sale agreement (the “PSA”) effective April 19, 2019 (the “Effective Date”) pursuant to which Florida Pneumatic agreed to sell (the “Sale”) certain real property located at 851 Jupiter Park Lane, Jupiter, Florida, as described in the PSA, including the building in which Florida Pneumatic conducts its primary operations (the “Property”), to Jupiter Warehouse Holdings LLC., a Florida limited liability company (the “Purchaser”), for a cash purchase price of $9,500,000.

The Sale, contingent upon completion of due diligence and other conditions set forth in the PSA, is expected to close by July 3, 2019; however, there is no guarantee that the Sale will close in the timeframe the Company expects, or at all.

Further, pursuant to the terms of the PSA, the parties have agreed to enter into a lease (the “Lease”). Pursuant to the terms of the Lease, upon the closing of the Sale, Florida Pneumatic would become the tenant with respect to approximately 42,000 square foot portion of the Property. The Lease would be for a term of five years, with either party able to terminate after four years. The initial monthly Base Rent (as defined in the Lease) would be $32,345 with annual escalations of three percent, and Florida Pneumatic would also be responsible for certain other payments of Additional Rent (as defined in the Lease) as set forth in the Lease, including certain taxes, assessments and operating expenses. In connection with the Sale, Florida Pneumatic is obligated to construct a demising wall, obtain certain permits and cause the Property to be separately metered for electricity.

17

P&F INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 10– SUBSEQUENT EVENTS – Continued

Additionally, effective as of April 19, 2019, the Company entered into Consent and Amendment No. 7 to the Second Amended and Restated Loan and Security Agreement (“Amendment No. 7”) with Capital One.

Amendment No. 7, among other things, modified the Credit Agreement by revising and adding certain defined terms and revising certain covenants, in each case as set forth in Amendment No. 7. Among other things, Amendment No. 7 provides for a consent of Capital One to the Sale, provided that, among other things, the proceeds are used in the manner set forth in Amendment No. 7. Furthermore, Amendment No. 7 suspends the requirement for the Company to be in compliance with the covenant relating to a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) for the period from the Measurement Period (as defined in Amendment No. 7) ending April 30, 2019 through the Measurement Period ending March 31, 2020 (the “Fixed Charge Coverage Ratio Suspension Period”). Amendment No. 7 also establishes an Additional Availability Reserve (as defined in Amendment No. 7) of $5.0 million to be in place until the later of (i) the end of the Fixed Charge Coverage Ratio Suspension Period and (ii) the date of delivery by the Company of the requisite compliance certificate demonstrating compliance with the Fixed Charge Coverage Ratio covenant.

18

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”) 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.

19

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.

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 under their own brand names.

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.

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.

20

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

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 first quarter 2019 results of operations were:

· Increased OEM revenue at Hy-Tech;

· Declines in both Retail and Aerospace revenue at Florida Pneumatic; and

· The impact of the implementation of a complete entity-wide information system at Hy-Tech adversely affecting absorption.

RESULTS OF OPERATIONS

Effective July 6, 2018, the Office of the United States Trade Representative (“USTR”) announced that an additional 25% tariff be imposed on certain Chinese-made products. This additional tariff raised the cost on a small number of products that we sell, primarily to The Home Depot (“THD”). We were able to pass through most of the costs associated with the additional tariffs. Further, the USTR announced that effective September 24, 2018, a new group of Chinese–made products was subject to an additional 10% tariff. The USTR stated that commencing January 1, 2019, an additional tariff of 15% would be imposed on this second group of products increasing the additional tariff to 25%.  It was later announced that this proposed additional 15% increase would be delayed until March 1, 2019. However, in February 2019, President Trump delayed imposing the additional 15% tariffs on Chinese goods.

Based on negotiations with our overseas suppliers and THD relating to the tariffs imposed on September 24, 2018, we were able to avoid substantially all of the impact of such tariffs effective January 1, 2019. There is no guarantee that we will be able to avoid some or all of the impact associated with potential additional 15% tariffs discussed above. Should we be unable to avoid such additional costs, our gross margin on these products will be severely impacted. This could cause us to terminate or alter certain customer relationships.

Lastly, 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.

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

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

21

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

RESULTS OF OPERATIONS - (Continued)

The tables below provide an analysis of our net revenue from for the three-month periods ended March 31, 2019 and 2018.

	Three months ended March 31,
					(Decrease) increase
	2019		2018		$			%
Florida Pneumatic	$	10,440,000	$	12,264,000	$	(1,824,000	)		(14.9	)%
Hy-Tech		3,882,000		3,478,000		404,000			11.6
Consolidated	$	14,322,000	$	15,742,000	$	(1,420,000	)		(9.0	)%

Florida Pneumatic

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

	Three months ended March 31,
	2019					2018					Decrease
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
Automotive	$	3,866,000		37.0	%	$	3,938,000		32.1	%	$	(72,000	)		(1.8	)%
Retail		2,709,000		26.0			4,090,000		33.4			(1,381,000	)		(33.8	)
Aerospace		2,360,000		22.6			2,670,000		21.8			(310,000	)		(11.6	)
Industrial		1,325,000		12.7			1,364,000		11.1			(39,000	)		(2.9	)
Other		180,000		1.7			202,000		1.6			(22,000	)		(10.9	)
Total	$	10,440,000		100.0	%	$	12,264,000		100.0	%	$	(1,824,000	)		(14.9	)%

The most significant component to the decline in Florida Pneumatic’s first quarter 2019 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. We believe that once The Home Depot’s inventory normalizes, orders and shipments will rebound to levels similar to prior periods, however no assurance can be made this will occur. Additionally, shipments to Stanley Black and Decker, which acquired the Craftsman® brand in 2018, declined nearly $200,000, when comparing the first quarter of 2019 to the same period a year ago. We believe it is likely that shipments to Stanley Black and Decker will end sometime in 2019. The decline in our Aerospace revenue this quarter, compared to the first quarter of 2018 was due to shipments to a customer in the first quarter of 2018 not repeating in 2019. Lastly, Automotive revenue is down slightly, due to our decision to greatly curtail lower margin promotional sales.

22

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

RESULTS OF OPERATIONS - (Continued)

Hy-Tech

Hy-Tech designs, manufactures and sells a wide range of industrial products under the brands ATP, ATSCO and OZAT, which are categorized as “ATP” for reporting purposes and include products such as heavy-duty air tools. Our “Engineered Solutions” are 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 March 31,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	1,986,000		51.2	%	$	2,357,000		67.8	%	$	(371,000	)		(15.7	)%
OEM		1,476,000		38.0			666,000		19.1			810,000			121.6
Other		420,000		10.8			455,000		13.1			(35,000	)		(7.7	)
Total	$	3,882,000		100.0	%	$	3,478,000		100.0	%	$	404,000			11.6	%

Hy-Tech’s Engineered Solutions products offering, which is designed to market its engineering and manufacturing expertise, and develop different applications for their tools, motors and accessories continues to expand. Revenue from this offering during the first quarter of 2019 increased $962,000, when compared to the same three-month period in 2018, with other components within this group, down slightly. 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 to a decline of $534,000 in lower margin ATSCO revenue, partially offset by improved OZAT and ATP tools sales.

Hy-Tech intends to continue to focus on expanding its Engineered Solutions, and other, newer expanding technologies and offerings. As such, it is possible that revenue from certain product lines and sectors, such as oil and gas, may decline.

23

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

RESULTS OF OPERATIONS - (Continued)

Gross profit / margin

	Three Months Ended March 31,						Increase/(Decrease)
	2019			2018			Amount			%
Florida Pneumatic	$	4,007,000		$	4,177,000		$	(170,000	)		(4.1	)%
As percent of respective revenue		38.4	%		34.1	%		4.3	% pts
Hy-Tech	$	1,274,000		$	1,251,000		$	23,000			1.8
As percent of respective revenue		32.8	%		36.0	%		(3.2	)% pts
Total Tools	$	5,281,000		$	5,428,000		$	(147,000	)		(2.7	)%
As percent of respective revenue		36.9	%		34.5	%		2.4	% pts

Several factors impacted Florida Pneumatic’s gross margin during the three-month period ended March 31, 2019. The most significant of which was the result of our decision to curtail AIRCAT promotional programs in 2019 that were offered during the first quarter of 2018. This decision helped improve AIRCAT margins by more than 9 percentage points. Partially offsetting the above was a decline in THD gross margin of approximately 3.3 percentage points. The lower THD gross margin was due primarily to the previously agreed upon two percent price reduction and to a lesser degree product mix.

The 3.2 percentage point decline in Hy-Tech’s gross margin stated in the table above, was due primarily to two 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; and (ii) under absorption of manufacturing overhead. A complete enterprise-wide, information technologies system conversion which occurred during the first quarter of 2019 caused the facility to halt production for approximately three days.

Selling, general and administrative expenses

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

During the first quarter of 2019, our SG&A was $5,269,000, compared to $5,274,000 for the same three-month period in 2018. Expense items of note include: (i) variable expenses, which include costs such as: commissions, advertising and promotional costs, travel and entertainment, and freight out, had a net decrease of $45,000; (ii) compensation expense which is comprised of base salaries and wages, accrued performance-based bonus incentives, associated payroll taxes and employee benefits, increased $66,000; (iii) professional fees increased $19,000, and (iv) our stock-based compensation declined $31,000.

Other Expense

While there were no Other expenses during the first quarter of 2019, the $29,000 incurred during the first quarter of 2018 represented an adjustment to the fair value of the contingent consideration obligation to the seller of the Jiffy business. This obligation of $1,000,000 is the maximum amount we are obligated to pay and is included in our Other current liabilities.

24

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

RESULTS OF OPERATIONS - (Continued)

Interest

	Three months ended March 31,				Increase (decrease)
	2019		2018		Amount
Interest expense attributable to:
Short-term borrowings	$	43,000	$	13,000	$	30,000
Term loans, including Capital Expenditure Term Loans		5,000		1,000		4,000
Amortization expense of debt issue costs		15,000		23,000		(8,000	)
Total	$	63,000	$	37,000	$	26,000

The increase in short-term loan borrowings interest was driven primarily by greater borrowings against our Revolver, compared to the prior year. Our average balance of short-term borrowings during the three-month period ended March 31, 2019 was $4,076,000, compared to $1,847,000 during the same three-month period in 2018.

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-month period ended March 31, 2019 was 49.0%, compared to the effective tax rate of 26.1% for the three-month period ended March 31, 2018. The Company’s effective tax rates for both periods were affected primarily by state taxes, non-deductible expenses and foreign tax rate differentials.

In addition to those items mentioned above that affected the Company’s effective tax rates was the Tax Cuts and Jobs Act (the “Act”) which was enacted on December 22, 2017. The Act reduced the U.S. federal corporate income tax rate from 35% to 21%. However, it eliminated the tax deductibility of certain performance-based compensation, which increased our effective tax rate, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries previously deferred from tax, generally eliminated U.S federal income taxes on dividends from foreign subsidiaries and created a new provision designed to tax global intangible low-taxed income.

25

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

	March 31, 2019		December 31, 2018
Working Capital	$	19,250,000	$	22,323,000
Current Ratio		2.53 to 1		3.26 to 1
Shareholders’ Equity	$	42,235,000	$	45,535,000

Credit facility

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

Cash flows

During the three-month period ended March 31, 2019, our net cash decreased to $898,000 from $999,000 at December 31, 2018.   Our total bank debt at March 31, 2019 was $6,787,000 and $2,555,000 at December 31, 2018. The total debt to total book capitalization (total debt divided by total debt plus equity) at March 31, 2019 was 13.8% and at December 31, 2018 was 5.3%. The most significant factor contributing to the increase in our bank debt was the decision in February 2019 to repurchase 389,909 shares of our Common Stock. See Note 3 to our consolidated financial statements for further details.

 During the three-month period ended March 31, 2019, we used $485,000 for capital expenditures, compared to $570,000 during the same period in the prior year.  Capital expenditures for the balance of 2019 are expected to be approximately $1,500,000, 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 and computer hardware and software.

In March 2019, our Board of Directors declared a quarterly cash dividend of $0.05 per share of our common stock, which was paid in March 2019. The total of such dividend payment was approximately $158,000. The Company continues 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.  

Customer concentration

At March 31, 2019 and December 31, 2018, accounts receivable from The Home Depot was 25.5% and 32.6%, respectively, of our total accounts receivable. Additionally, revenue from The Home Depot during the three-month periods ended March 31, 2019 and 2018 were 17.6% and 23.5%, respectively, of our total revenue. There were no other customers that accounted for more than 10% of our consolidated revenue during the three-month periods ended March 31, 2019 or 2018. 

NEW ACCOUNTING PRONOUNCEMENTS

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

26

Item 3. Quantitative And Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated, as of March 31, 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 March 31, 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.

27

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)
January 1, 2019 - January 31, 2019		13,179	$	7.92		13,179		53,423
February 1, 2019 – February 28, 2019 (2)		403,332	$	7.64		13,423		40,000
March 1, 2019 – March 31, 2019		1,905	$	8.35		1,905		38,095

(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 expires on September 16, 2019.
(2)	Includes 389,909 shares purchased by the Company at $7.62 per common share in a privately negotiated transaction that was not part of the adopted written trading plan.

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.

28

SIGNATURE

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

	P&F INDUSTRIES, INC.
	(Registrant)
	/s/ JOSEPH A. MOLINO, Jr.
	Joseph A. Molino, Jr.
	Chief Financial Officer
Dated: May 10, 2019	(Principal Financial and Chief Accounting Officer)

29

EXHIBIT INDEX

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

Exhibit Number	Description of Exhibit
10.1	Amendment No. 5 to Second Amended and Restated Loan and Security Agreement, dated as of February 8, 2019, by and among the Registrant, 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 10.1 to the Registrant’s Current Report on Form 8-K dated February 8, 2019).
10.2	Third Amended and Restated Capex Loan Note, dated February 8, 2019, by the Registrant, Florida Pneumatic Manufacturing Corporation and Hy-Tech Machine, Inc. in favor of Capital One, National Association, as lender. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated February 8, 2019).
10.3	Purchase Amendment, dated as of February 14, 2019, by and among the Registrant and Fidelity Puritan Trust: Fidelity Low-Priced Stock Fund, Fidelity Low Priced Stock Commingled Pool, and Fidelity Puritan Trust: Fidelity Low-Priced Stock K6 Fund (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 14, 2019).
10.4	Amendment No. 6 to Second Amended and Restated Loan and Security Agreement, dated as of February 14, 2019 by and among the Registrant, 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 February 14, 2019).
10.5	Agreement, dated February 14, 2019, between Richard A. Horowitz and the Board of Directors of the Registrant (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated February 14, 2019).
10.6	Amendment No. 1 to Executive Employment Agreement, dated as of March 5, 2019, between the Registrant and Joseph A. Molino, Jr. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March  5, 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 Operations and Comprehensive Income; (iii) Consolidated Statement 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.

30

EX-31.1

EXHIBIT 31.1

P&F INDUSTRIES, INC.

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard A. Horowitz, certify that:

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

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

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

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

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

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

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

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

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

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

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

	/s/ RICHARD A. HOROWITZ
	Richard A. Horowitz
Date: May 10, 2019	Principal Executive Officer

EX-31.2

EXHIBIT 31.2

P&F INDUSTRIES, INC.

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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

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

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

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

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

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

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

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

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

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

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

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

	/s/ JOSEPH A. MOLINO, JR.
	Joseph A. Molino, Jr.
Date: May 10, 2019	Principal Financial Officer

EX-32.1

EXHIBIT 32.1

P&F INDUSTRIES, INC.

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

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of P&F Industries, Inc. (the “Company”) for the period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Richard A. Horowitz, Principal Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ RICHARD A. HOROWITZ
	Richard A. Horowitz
Date: May 10, 2019	Principal Executive Officer

EX-32.2

EXHIBIT 32.2

P&F INDUSTRIES, INC.

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

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of P&F Industries, Inc. (the “Company”) for the period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Joseph A. Molino, Jr., Principal Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ JOSEPH A. MOLINO, JR.
	Joseph A. Molino, Jr.
Date: May 10, 2019	Principal Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 07, 2019
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Entity Registrant Name	P&F INDUSTRIES INC
Entity Central Index Key	0000075340
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Trading Symbol	PFIN
Entity Common Stock, Shares Outstanding		3,166,225
Entity Emerging Growth Company	false
Entity Small Business	true

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2019	Dec. 31, 2018
CURRENT ASSETS
Cash	$ 898,000	$ 999,000
Accounts receivable — net	8,996,000	9,574,000
Inventories	20,607,000	20,496,000
Prepaid expenses and other current assets	1,367,000	1,137,000
TOTAL CURRENT ASSETS	31,868,000	32,206,000
PROPERTY AND EQUIPMENT
Land	1,281,000	1,281,000
Buildings and improvements	6,262,000	6,262,000
Machinery and equipment	23,059,000	22,612,000
Property, Plant and Equipment, Gross	30,602,000	30,155,000
Less accumulated depreciation and amortization	20,748,000	20,380,000
NET PROPERTY AND EQUIPMENT	9,854,000	9,775,000
GOODWILL	4,440,000	4,436,000
OTHER INTANGIBLE ASSETS — net	7,640,000	7,800,000
DEFERRED INCOME TAXES — net	651,000	628,000
OTHER ASSETS — net	1,212,000	741,000
TOTAL ASSETS	55,665,000	55,586,000
CURRENT LIABILITIES
Short-term borrowings	6,354,000	2,096,000
Accounts payable	2,709,000	2,755,000
Accrued compensation and benefits	1,056,000	2,336,000
Accrued other liabilities	1,123,000	1,243,000
Current maturities of long-term debt	80,000	453,000
Other current liabilities	1,296,000	1,000,000
TOTAL CURRENT LIABILITIES	12,618,000	9,883,000
Long–term debt, less current maturities	353,000	0
Other liabilities	459,000	168,000
TOTAL LIABILITIES	13,430,000	10,051,000
SHAREHOLDERS' EQUITY
Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued	0	0
Additional paid-in capital	13,946,000	13,904,000
Retained earnings	34,404,000	34,588,000
Treasury stock, at cost –1,234,000 shares at March 31, 2019 and 816,000 shares at December 31, 2018	(9,897,000)	(6,695,000)
Accumulated other comprehensive loss	(628,000)	(672,000)
TOTAL SHAREHOLDERS' EQUITY	42,235,000	45,535,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	55,665,000	55,586,000
Common Class A [Member]
SHAREHOLDERS' EQUITY
Common stock	4,410,000	4,410,000
TOTAL SHAREHOLDERS' EQUITY	4,410,000	4,410,000
Common Class B [Member]
SHAREHOLDERS' EQUITY
Common stock	$ 0	$ 0

XML

CONSOLIDATED BALANCE SHEETS [Parenthetical] - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Preferred stock, par value (in dollars per share)	$ 10	$ 10
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Treasury stock, shares	1,234,000	816,000
Common Class A [Member]
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	7,000,000	7,000,000
Common stock, shares issued	4,410,000	4,410,000
Common Class B [Member]
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	2,000,000	2,000,000
Common stock, shares issued	0	0

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net revenue	$ 14,322,000	$ 15,742,000
Cost of sales	9,041,000	10,314,000
Gross profit	5,281,000	5,428,000
Selling, general and administrative expenses	5,269,000	5,274,000
Operating income	12,000	154,000
Other expenses	0	29,000
Interest expense	63,000	37,000
(Loss) income before income taxes	(51,000)	88,000
Income tax (benefit) expense	(25,000)	23,000
Net (loss) income	$ (26,000)	$ 65,000
Basic and diluted (loss) earnings per share	$ (0.01)	$ 0.02
Weighted average common shares outstanding:
Basic	3,381,000	3,583,000
Diluted	3,381,000	3,745,000
Net (loss) income	$ (26,000)	$ 65,000
Other comprehensive income - foreign currency translation adjustment	44,000	96,000
Total comprehensive income	$ 18,000	$ 161,000

XML

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - USD ($)	Total	Common Class A [Member]	Additional paid-in capital [Member]	Retained earnings [Member]	Treasury stock [Member]	Accumulated other comprehensive loss [Member]
Balance at Dec. 31, 2017	$ 46,013,000	$ 4,203,000	$ 13,064,000	$ 34,455,000	$ (5,179,000)	$ (530,000)
Balance (in shares) at Dec. 31, 2017		4,203,000			(631,000)
Net loss	65,000	$ 0	0	65,000	$ 0	0
Exercise of stock options	105,000	$ 26,000	79,000	0	0	0
Exercise of stock options (in shares)		26,000
Restricted common stock compensation	7,000	$ 0	7,000	0	0	0
Purchase of Class A common stock	(82,000)	0	0	0	$ (82,000)	0
Purchase of Class A common stock (in shares)					(10,000)
Stock-based compensation	60,000	0	60,000	0	$ 0	0
Dividends	(180,000)	0	0	(180,000)	0	0
Foreign currency translation adjustment	96,000	0	0	0	0	96,000
Balance at Mar. 31, 2018	46,084,000	$ 4,229,000	13,210,000	34,340,000	$ (5,261,000)	(434,000)
Balance (in shares) at Mar. 31, 2018		4,229,000			(641,000)
Balance at Dec. 31, 2018	45,535,000	$ 4,410,000	13,904,000	34,588,000	$ (6,695,000)	(672,000)
Balance (in shares) at Dec. 31, 2018		4,410,000			(816,000)
Net loss	(26,000)	$ 0	0	(26,000)	$ 0	0
Restricted common stock compensation	13,000	0	13,000	0	$ 0	0
Restricted common stock compensation (in shares)					0
Purchase of Class A common stock	(3,202,000)	0	0	0	$ (3,202,000)	0
Purchase of Class A common stock (in shares)					(418,000)
Stock-based compensation	29,000	0	29,000	0	$ 0	0
Dividends	(158,000)	0	0	(158,000)	0	0
Foreign currency translation adjustment	44,000	0	0	0	0	44,000
Balance at Mar. 31, 2019	$ 42,235,000	$ 4,410,000	$ 13,946,000	$ 34,404,000	$ (9,897,000)	$ (628,000)
Balance (in shares) at Mar. 31, 2019		4,410,000			(1,234,000)

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash Flows from Operating Activities:
Net (loss) income	$ (26,000)	$ 65,000
Non-cash charges:
Depreciation and amortization	389,000	335,000
Amortization of other intangible assets	172,000	179,000
Amortization of debt issue costs	15,000	23,000
Amortization of consideration payable to customer	67,000	0
Recovery of losses on accounts receivable - net	(69,000)	(1,000)
Stock-based compensation	29,000	60,000
Loss on sale of fixed assets	6,000	1,000
Restricted stock-based compensation	13,000	7,000
Deferred income taxes	(25,000)	21,000
Fair value increase in contingent consideration	0	29,000
Changes in operating assets and liabilities:
Accounts receivable	654,000	(603,000)
Inventories	(88,000)	961,000
Prepaid expenses and other current assets	(207,000)	(200,000)
Other assets	81,000	0
Accounts payable	(48,000)	287,000
Accrued compensation and benefits	(1,282,000)	(985,000)
Accrued other liabilities and other current liabilities	(133,000)	(328,000)
Other liabilities	(38,000)	(5,000)
Total adjustments	(464,000)	(219,000)
Net cash used in operating activities	(490,000)	(154,000)
Cash Flows from Investing Activities:
Capital expenditures	(485,000)	(570,000)
Proceeds from disposal of assets	11,000	10,000
Net cash used in investing activities	(474,000)	(560,000)
Cash Flows from Financing Activities:
Dividend payments	(158,000)	(180,000)
Proceeds from exercise of stock options	0	105,000
Purchase of Class A common stock	(3,202,000)	(82,000)
Net proceeds from short-term borrowings	4,258,000	1,313,000
Bank finance costs	(20,000)	0
Repayments of loan term debt	(20,000)	0
Net cash provided by financing activities	858,000	1,156,000
Effect of exchange rate changes on cash	5,000	21,000
Net (decrease) increase in cash	(101,000)	463,000
Cash at beginning of period	999,000	1,241,000
Cash at end of period	898,000	1,704,000
Supplemental disclosures of cash flow information:
Cash paid for: Interest	37,000	16,000
Cash paid for: Income taxes	0	2,000
Cash paid for amounts included in the measurement of operating lease liabilities	4,000	0
Noncash information:
Right of Use ("ROU") assets recognized for new operating lease liabilities	80,000	0
Operating lease liability related to ROU asset recognized upon adoption of ASC 842	$ 577,000	$ 0

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

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 of 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 - 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.

Customer concentration

At March 31, 2019 and December 31, 2018, accounts receivable from The Home Depot was 25.5% and 32.6%, respectively, of our total accounts receivable. Additionally, revenue from The Home Depot during the three-month periods ended March 31, 2019 and 2018 were 17.6% and 23.5%, respectively, of our total revenue. There were no other customers that accounted for more than 10% of our consolidated revenue during the three-month periods ended March 31, 2019 or 2018. 

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”) and Universal Air Tool Company Limited (“UAT”), 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.

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.

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 $553,000, and an operating lease liability of $577,000 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 March 31, 2019.

For the three months ended March 31, 2019, the Company had $80,000 in Operating lease expense.

As of March 31, 2019, the Company had a net ROU asset of $552,000 in Other Assets, a current operating lease liability of $271,000 in Other current liabilities, and a long-term operating lease liability of $296,000 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 March 31, 2019:

	As of March 31, 2019
2019 (excluding the three months ended March 31, 2019)	$	239,000
2020		142,000
2021		114,000
2022		76,000
2023		44,000
Total operating lease payments		615,000
Less imputed interest		(48,000	)
Total operating lease liabilities	$	567,000

Weighted-average remaining lease term	3.1 years
Weighted-average discount rate	5.3	%

The Company analyzes its revenue as follows:

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

	Three months ended March 31,
	2019					2018					Decrease
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
Automotive	$	3,866,000		37.0	%	$	3,938,000		32.1	%	$	(72,000	)		(1.8	)%
Retail		2,709,000		26.0			4,090,000		33.4			(1,381,000	)		(33.8	)
Aerospace		2,360,000		22.6			2,670,000		21.8			(310,000	)		(11.6	)
Industrial		1,325,000		12.7			1,364,000		11.1			(39,000	)		(2.9	)
Other		180,000		1.7			202,000		1.6			(22,000	)		(10.9	)
Total	$	10,440,000		100.0	%	$	12,264,000		100.0	%	$	(1,824,000	)		(14.9	)%

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 also include products such as heavy-duty air tools. Our “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 March 31,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	1,986,000		51.2	%	$	2,357,000		67.8	%	$	(371,000	)		(15.7	)%
OEM		1,476,000		38.0			666,000		19.1			810,000			121.6
Other		420,000		10.8			455,000		13.1			(35,000	)		(7.7	)
Total	$	3,882,000		100.0	%	$	3,478,000		100.0	%	$	404,000			11.6	%

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.

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(LOSS) EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE 2 – (LOSS) EARNINGS PER SHARE

Basic (loss) earnings per common share is based only on the average number of shares of Common Stock outstanding for the periods.

Diluted (loss) 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 (loss) 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 (loss) earnings per common share:

	Three months ended
	March 31,
	2019			2018
Numerator for basic and diluted (loss) earnings per common share:
Net (loss) income	$	(26,000	)	$	65,000
Denominator:
For basic (loss) earnings per share - weighted average common shares outstanding		3,381,000			3,583,000
Dilutive securities (1)		—			162,000
For diluted (loss) earnings per share -  weighted average common shares outstanding		3,381,000			3,745,000

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

At March 31, 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. Options for the three months ended March 31, 2019 are anti-dilutive and are excluded from the computation of diluted (loss) earnings per share. The weighted average of anti-dilutive stock options outstanding was as follows:

	Three months ended
	March 31,
	2019		2018
Weighted average antidilutive stock options outstanding		8,000		49,000

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STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 3 – STOCK-BASED COMPENSATION

During the three-month period ended March 31, 2019, the Company granted 8,000 options to non-executives. The exercise price of these options is $8.55 per option, and will expire in February 2029. Further, one third of these options vest on the anniversary date of the grant for the next three years.

The Company estimated the fair value of these options using the following assumptions:

Risk-free interest rate		2.73	%
Expected term (in years)		10 years
Volatility		62.08	%
Dividend yield		2.34	%
Weighted average fair value of options granted	$	4.60

The following is a summary of the changes in outstanding options during the three-month period ended March 31, 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, March 31, 2019		226,075	$	6.30		5.5	$	424,878
Vested, March 31, 2019		158,742	$	5.90		4.2	$	360,798

	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, March 31, 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 March 31, 2019 was 71,437. Further, at March 31, 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

The Company, in May 2018, 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 will ratably amortize the total non-cash compensation expense of approximately $53,000 to selling, general and administrative expenses through May 2019.

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 March 31, 2019, the Company repurchased 61,905 shares of its Common Stock at an aggregate cost of approximately $503,000. During the three-month periods ended March 31, 2019, the Company repurchased 28,507 shares of its Common Stock at an aggregate cost of approximately $231,000.

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 4 – FAIR VALUE MEASUREMENTS

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

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

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

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

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

As of March 31, 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).

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 5 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable - net consists of:

	March 31, 2019			December 31, 2018
Accounts receivable	$	9,200,000		$	9,847,000
Allowance for doubtful accounts, sales discounts and chargebacks		(204,000	)		(273,000	)
	$	8,996,000		$	9,574,000

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INVENTORIES

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

NOTE 6 – INVENTORIES

Inventories consist of:

	March 31, 2019		December 31, 2018
Raw material	$	2,230,000	$	1,963,000
Work in process		1,736,000		1,924,000
Finished goods		16,641,000		16,609,000
	$	20,607,000	$	20,496,000

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GOODWILL AND OTHER INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

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		4,000
Balance, March 31, 2019	$	4,440,000

Other intangible assets were as follows:

	March 31, 2019						December 31, 2018
	Cost		Accumulated amortization		Net book value		Cost		Accumulated amortization		Net book value
Other intangible assets:
Customer relationships (1)	$	6,827,000	$	2,280,000	$	4,547,000	$	6,821,000	$	2,135,000	$	4,686,000
Trademarks and trade names (1)		2,316,000		—		2,316,000		2,308,000		—		2,308,000
Trademarks and trade names		200,000		35,000		165,000		200,000		32,000		168,000
Engineering drawings		330,000		209,000		121,000		330,000		202,000		128,000
Non-compete agreements (1)		235,000		226,000		9,000		233,000		223,000		10,000
Patents		1,405,000		923,000		482,000		1,405,000		905,000		500,000
Totals	$	11,313,000	$	3,673,000	$	7,640,000	$	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 March 31,
2019		2018
$	172,000	$	179,000

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

	March 31, 2019		December 31, 2018
Customer relationships		9.0		9.3
Trademarks and trade names		12.3		12.5
Engineering drawings		7.6		7.7
Non-compete agreements		2.0		2.3
Patents		7.7		7.9

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

2020	$	675,000
2021		639,000
2022		635,000
2023		635,000
2024		635,000
Thereafter		2,105,000
	$	5,324,000

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DEBT

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

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 Revolver arrangement. Revolver borrowings are secured by the Company’s accounts receivable, inventory, equipment and real property. Additionally, there is a $1,600,000 line available for capital expenditures (“Capex line”). The Credit Agreement includes a $100,000 Term Loan, as defined in the Credit Agreement. This Term Loan remains in place to enable the Company and Capital One to facilitate future term loan borrowings more efficiently and in a less costly manner. 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 had an expiration date of February 11, 2019.

On February 8, 2019, the Company entered into Amendment No. 5 to the Second Amended and Restated Loan and Security Agreement with Capital One (“Amendment No.5”). Amendment No. 5, among other things, extended the termination date of the Credit Agreement to February 8, 2024, set the Capex line to $2,000,000, increased the Eligible Inventory (as defined in the Credit Agreement) to $10,000,000 from $8,000,000, and reduced certain fees and charges.

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 March 31, 2019, short-term or Revolver borrowing was $6,354,000, compared to $2,096,000, at December 31, 2018. Applicable Margin Rates at March 31, 2019 and December 31, 2018 for LIBOR and Base Rates were 1.50% and 0.50%. Additionally, at March 31, 2019 and December 31, 2018, there was approximately $8,857,000 and $12,024,000, respectively, available to the Company under its Revolver arrangement.

The average balance of short-term borrowings during the three-month periods ended March 31, 2019 and 2018, were $4,076,000 and $1,847,000, respectively.

TERM LOAN BORROWINGS

There is a $100,000 Term Loan that is secured by mortgages on the real property, accounts receivable, inventory and equipment. The Term Loan borrowings can be at either LIBOR, or at the Base Rate, or a combination of the two plus the Applicable Margins. At March 31, 2019 and December 31, 2018, the total borrowing of this Term Loan was at LIBOR. The Applicable Margin for LIBOR at March 31, 2019 and December 31, 2018 was 1.5%.

In April 2018, the Company borrowed $400,000 against the Capex line. This borrowing is to be repaid in equal principal installments of approximately $6,700, payable monthly, with the balance due at its Maturity Date as defined in the Credit Agreement. Of the initial borrowing, $300,000 was at LIBOR plus Applicable Margin, with the balance of $100,000 at the Base Rate, or prime rate plus Applicable Margin. The Applicable Margin added to all Base Rate and LIBOR borrowings were 1.50% and 0.50%, respectively.

The Company’s Term loan borrowings are:

	March 31, 2019		December 31, 2018
Term Loan	$	100,000	$	100,000
Capex borrowing		333,000		354,000
Debt issue costs		—		(1,000	)
		433,000		453,000
Less current maturities		80,000		453,000
	$	353,000	$	—

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

We believe that should a need arise whereby the current credit facility is insufficient; we can borrow additional amounts against our real property or other assets.

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DIVIDEND PAYMENTS

3 Months Ended

Mar. 31, 2019

Equity [Abstract]

Dividends Payable and Options Adjustments [Text Block]

NOTE 9– DIVIDEND PAYMENTS

On March 8, 2019, the Company’s Board of Directors, in accordance with their dividend policy, declared a quarterly cash dividend of $0.05 per common share, which was paid on March 22, 2019, to shareholders of record at the close of business on March 18, 2019. The total amount of this dividend payment was approximately $158,000.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE 10– SUBSEQUENT EVENTS

Florida Pneumatic entered into a purchase and sale agreement (the “PSA”) effective April 19, 2019 (the “Effective Date”) pursuant to which Florida Pneumatic agreed to sell (the “Sale”) certain real property located at 851 Jupiter Park Lane, Jupiter, Florida, as described in the PSA, including the building in which Florida Pneumatic conducts its primary operations (the “Property”), to Jupiter Warehouse Holdings LLC., a Florida limited liability company (the “Purchaser”), for a cash purchase price of $9,500,000.

The Sale, contingent upon completion of due diligence and other conditions set forth in the PSA, is expected to close by July 3, 2019; however, there is no guarantee that the Sale will close in the timeframe the Company expects, or at all.

Further, pursuant to the terms of the PSA, the parties have agreed to enter into a lease (the “Lease”). Pursuant to the terms of the Lease, upon the closing of the Sale, Florida Pneumatic would become the tenant with respect to approximately 42,000 square foot portion of the Property. The Lease would be for a term of five years, with either party able to terminate after four years. The initial monthly Base Rent (as defined in the Lease) would be $32,345 with annual escalations of three percent, and Florida Pneumatic would also be responsible for certain other payments of Additional Rent (as defined in the Lease) as set forth in the Lease, including certain taxes, assessments and operating expenses. In connection with the Sale, Florida Pneumatic is obligated to construct a demising wall, obtain certain permits and cause the Property to be separately metered for electricity.

Additionally, effective as of April 19, 2019, the Company entered into Consent and Amendment No. 7 to the Second Amended and Restated Loan and Security Agreement (“Amendment No. 7”) with Capital One.

Amendment No. 7, among other things, modified the Credit Agreement by revising and adding certain defined terms and revising certain covenants, in each case as set forth in Amendment No. 7. Among other things, Amendment No. 7 provides for a consent of Capital One to the Sale, provided that, among other things, the proceeds are used in the manner set forth in Amendment No. 7. Furthermore, Amendment No. 7 suspends the requirement for the Company to be in compliance with the covenant relating to a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) for the period from the Measurement Period (as defined in Amendment No. 7) ending April 30, 2019 through the Measurement Period ending March 31, 2020 (the “Fixed Charge Coverage Ratio Suspension Period”). Amendment No. 7 also establishes an Additional Availability Reserve (as defined in Amendment No. 7) of $5.0 million to be in place until the later of (i) the end of the Fixed Charge Coverage Ratio Suspension Period and (ii) the date of delivery by the Company of the requisite compliance certificate demonstrating compliance with the Fixed Charge Coverage Ratio covenant.

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

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 of 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 - foreign currency translation adjustment”.

Consolidation, Policy [Policy Text Block]

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.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Customer concentration

At March 31, 2019 and December 31, 2018, accounts receivable from The Home Depot was 25.5% and 32.6%, respectively, of our total accounts receivable. Additionally, revenue from The Home Depot during the three-month periods ended March 31, 2019 and 2018 were 17.6% and 23.5%, respectively, of our total revenue. There were no other customers that accounted for more than 10% of our consolidated revenue during the three-month periods ended March 31, 2019 or 2018. 

Reclassification, Policy [Policy Text Block]

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”) and Universal Air Tool Company Limited (“UAT”), 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.

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.

Lessee, Leases [Policy Text Block]

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 $553,000, and an operating lease liability of $577,000 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 March 31, 2019.

For the three months ended March 31, 2019, the Company had $80,000 in Operating lease expense.

As of March 31, 2019, the Company had a net ROU asset of $552,000 in Other Assets, a current operating lease liability of $271,000 in Other current liabilities, and a long-term operating lease liability of $296,000 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 March 31, 2019:

	As of March 31, 2019
2019 (excluding the three months ended March 31, 2019)	$	239,000
2020		142,000
2021		114,000
2022		76,000
2023		44,000
Total operating lease payments		615,000
Less imputed interest		(48,000	)
Total operating lease liabilities	$	567,000

Weighted-average remaining lease term	3.1 years
Weighted-average discount rate	5.3	%

The Company analyzes its revenue as follows:

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

	Three months ended March 31,
	2019					2018					Decrease
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
Automotive	$	3,866,000		37.0	%	$	3,938,000		32.1	%	$	(72,000	)		(1.8	)%
Retail		2,709,000		26.0			4,090,000		33.4			(1,381,000	)		(33.8	)
Aerospace		2,360,000		22.6			2,670,000		21.8			(310,000	)		(11.6	)
Industrial		1,325,000		12.7			1,364,000		11.1			(39,000	)		(2.9	)
Other		180,000		1.7			202,000		1.6			(22,000	)		(10.9	)
Total	$	10,440,000		100.0	%	$	12,264,000		100.0	%	$	(1,824,000	)		(14.9	)%

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 also include products such as heavy-duty air tools. Our “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 March 31,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	1,986,000		51.2	%	$	2,357,000		67.8	%	$	(371,000	)		(15.7	)%
OEM		1,476,000		38.0			666,000		19.1			810,000			121.6
Other		420,000		10.8			455,000		13.1			(35,000	)		(7.7	)
Total	$	3,882,000		100.0	%	$	3,478,000		100.0	%	$	404,000			11.6	%

New Accounting Pronouncements, Policy [Policy Text Block]

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.

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Schedule of Revenue by Major Customers by Reporting Segments [Table Text Block]

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

	Three months ended March 31,
	2019					2018					Decrease
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
Automotive	$	3,866,000		37.0	%	$	3,938,000		32.1	%	$	(72,000	)		(1.8	)%
Retail		2,709,000		26.0			4,090,000		33.4			(1,381,000	)		(33.8	)
Aerospace		2,360,000		22.6			2,670,000		21.8			(310,000	)		(11.6	)
Industrial		1,325,000		12.7			1,364,000		11.1			(39,000	)		(2.9	)
Other		180,000		1.7			202,000		1.6			(22,000	)		(10.9	)
Total	$	10,440,000		100.0	%	$	12,264,000		100.0	%	$	(1,824,000	)		(14.9	)%

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 also include products such as heavy-duty air tools. Our “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 March 31,
	2019					2018					Increase (decrease)
	Revenue		Percent of revenue			Revenue		Percent of revenue			$			%
ATP	$	1,986,000		51.2	%	$	2,357,000		67.8	%	$	(371,000	)		(15.7	)%
OEM		1,476,000		38.0			666,000		19.1			810,000			121.6
Other		420,000		10.8			455,000		13.1			(35,000	)		(7.7	)
Total	$	3,882,000		100.0	%	$	3,478,000		100.0	%	$	404,000			11.6	%

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of March 31, 2019:

	As of March 31, 2019
2019 (excluding the three months ended March 31, 2019)	$	239,000
2020		142,000
2021		114,000
2022		76,000
2023		44,000
Total operating lease payments		615,000
Less imputed interest		(48,000	)
Total operating lease liabilities	$	567,000

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(LOSS) EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

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

	Three months ended
	March 31,
	2019			2018
Numerator for basic and diluted (loss) earnings per common share:
Net (loss) income	$	(26,000	)	$	65,000
Denominator:
For basic (loss) earnings per share - weighted average common shares outstanding		3,381,000			3,583,000
Dilutive securities (1)		—			162,000
For diluted (loss) earnings per share -  weighted average common shares outstanding		3,381,000			3,745,000

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

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

The weighted average of anti-dilutive stock options outstanding was as follows:

	Three months ended
	March 31,
	2019		2018
Weighted average antidilutive stock options outstanding		8,000		49,000

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STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The Company estimated the fair value of these options using the following assumptions:

Risk-free interest rate		2.73	%
Expected term (in years)		10 years
Volatility		62.08	%
Dividend yield		2.34	%
Weighted average fair value of options granted	$	4.60

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

The following is a summary of the changes in outstanding options during the three-month period ended March 31, 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, March 31, 2019		226,075	$	6.30		5.5	$	424,878
Vested, March 31, 2019		158,742	$	5.90		4.2	$	360,798

Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable [Table Text Block]

	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, March 31, 2019		67,333	$	4.44

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS (Tables)

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Accounts receivable - net consists of:

	March 31, 2019			December 31, 2018
Accounts receivable	$	9,200,000		$	9,847,000
Allowance for doubtful accounts, sales discounts and chargebacks		(204,000	)		(273,000	)
	$	8,996,000		$	9,574,000

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INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventories consist of:

	March 31, 2019		December 31, 2018
Raw material	$	2,230,000	$	1,963,000
Work in process		1,736,000		1,924,000
Finished goods		16,641,000		16,609,000
	$	20,607,000	$	20,496,000

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill [Table Text Block]

Changes in the carrying amount of goodwill are as follows:

Balance, January 1, 2019	$	4,436,000
Currency translation adjustment		4,000
Balance, March 31, 2019	$	4,440,000

Schedule of Finite-Lived Intangible Assets [Table Text Block]

Other intangible assets were as follows:

	March 31, 2019						December 31, 2018
	Cost		Accumulated amortization		Net book value		Cost		Accumulated amortization		Net book value
Other intangible assets:
Customer relationships (1)	$	6,827,000	$	2,280,000	$	4,547,000	$	6,821,000	$	2,135,000	$	4,686,000
Trademarks and trade names (1)		2,316,000		—		2,316,000		2,308,000		—		2,308,000
Trademarks and trade names		200,000		35,000		165,000		200,000		32,000		168,000
Engineering drawings		330,000		209,000		121,000		330,000		202,000		128,000
Non-compete agreements (1)		235,000		226,000		9,000		233,000		223,000		10,000
Patents		1,405,000		923,000		482,000		1,405,000		905,000		500,000
Totals	$	11,313,000	$	3,673,000	$	7,640,000	$	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.

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

	March 31, 2019		December 31, 2018
Customer relationships		9.0		9.3
Trademarks and trade names		12.3		12.5
Engineering drawings		7.6		7.7
Non-compete agreements		2.0		2.3
Patents		7.7		7.9

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

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

Three months ended March 31,
2019		2018
$	172,000	$	179,000

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

2020	$	675,000
2021		639,000
2022		635,000
2023		635,000
2024		635,000
Thereafter		2,105,000
	$	5,324,000

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DEBT (Tables)

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

The Company’s Term loan borrowings are:

	March 31, 2019		December 31, 2018
Term Loan	$	100,000	$	100,000
Capex borrowing		333,000		354,000
Debt issue costs		—		(1,000	)
		433,000		453,000
Less current maturities		80,000		453,000
	$	353,000	$	—

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (Details) - USD ($)	Mar. 31, 2019	Jan. 01, 2019	Mar. 31, 2018
Lessee Disclosure [Abstract]
2019 (excluding the three months ended March 31, 2019)	$ 239,000
2020	142,000
2021	114,000
2022	76,000
2023	44,000
Total operating lease payments	615,000
Less imputed interest	(48,000)
Total operating lease liabilities	$ 577,000	$ 577,000	$ 0
Weighted-average remaining lease term	3 years 1 month 6 days
Weighted-average discount rate	5.30%

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 14,322,000	$ 15,742,000
Florida Pneumatic [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 10,440,000	$ 12,264,000
Percentage Of Revenue	100.00%	100.00%
Increase or Decrease in Revenue	$ (1,824,000)
Percentage Of Change In Revenue	(14.90%)
Florida Pneumatic [Member] | Retail [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 2,709,000	$ 4,090,000
Percentage Of Revenue	26.00%	33.40%
Increase or Decrease in Revenue	$ (1,381,000)
Percentage Of Change In Revenue	(33.80%)
Florida Pneumatic [Member] | Automotive [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 3,866,000	$ 3,938,000
Percentage Of Revenue	37.00%	32.10%
Increase or Decrease in Revenue	$ (72,000)
Percentage Of Change In Revenue	(1.80%)
Florida Pneumatic [Member] | Aerospace [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 2,360,000	$ 2,670,000
Percentage Of Revenue	22.60%	21.80%
Increase or Decrease in Revenue	$ (310,000)
Percentage Of Change In Revenue	(11.60%)
Florida Pneumatic [Member] | Industrial [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 1,325,000	$ 1,364,000
Percentage Of Revenue	12.70%	11.10%
Increase or Decrease in Revenue	$ (39,000)
Percentage Of Change In Revenue	(2.90%)
Florida Pneumatic [Member] | Other brands [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 180,000	$ 202,000
Percentage Of Revenue	1.70%	1.60%
Increase or Decrease in Revenue	$ (22,000)
Percentage Of Change In Revenue	(10.90%)
Hy-Tech [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 3,882,000	$ 3,478,000
Percentage Of Revenue	100.00%	100.00%
Increase or Decrease in Revenue	$ 404,000
Percentage Of Change In Revenue	11.60%
Hy-Tech [Member] | Other brands [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 420,000	$ 455,000
Percentage Of Revenue	10.80%	13.10%
Increase or Decrease in Revenue	$ (35,000)
Percentage Of Change In Revenue	(7.70%)
Hy-Tech [Member] | ATP brands [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 1,986,000	$ 2,357,000
Percentage Of Revenue	51.20%	67.80%
Increase or Decrease in Revenue	$ (371,000)
Percentage Of Change In Revenue	(15.70%)
Hy-Tech [Member] | OEM [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Revenues	$ 1,476,000	$ 666,000
Percentage Of Revenue	38.00%	19.10%
Increase or Decrease in Revenue	$ 810,000
Percentage Of Change In Revenue	121.60%

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BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Jan. 01, 2019
Schedule Of Summary Of Accounting Policies [Line Items]
Operating Lease, Right-of-Use Asset	$ 80,000	$ 0		$ 553,000
Operating Lease, Liability	577,000	$ 0		577,000
Accrued Rent, Current				$ 24,000
Operating Lease, Expense	80,000
Other Assets [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Operating Lease, Right-of-Use Asset	552,000
Other Current Liabilities [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Operating Lease, Liability	271,000
Other Noncurrent Liabilities [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Operating Lease, Liability, Noncurrent	$ 296,000
Accounts Receivable [Member] | Home Depot [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Concentration Risk, Percentage	25.50%		32.60%
Sales Revenue, Net [Member] | Home Depot [Member]
Schedule Of Summary Of Accounting Policies [Line Items]
Concentration Risk, Percentage	17.60%	23.50%

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(LOSS) EARNINGS PER SHARE (Details) - USD ($)		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Numerator for basic and diluted earnings (loss) per common share:
Net (loss) income		$ (26,000)	$ 65,000
Denominator:
For basic earnings (loss) per share - weighted average common shares outstanding		3,381,000	3,583,000
Dilutive securities	[1]	0	162,000
For diluted earnings (loss) per share - weighted average common shares outstanding		3,381,000	3,745,000

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

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(LOSS) EARNINGS PER SHARE (Details 1) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Equity Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Weighted average antidilutive stock options outstanding	8,000	49,000

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STOCK-BASED COMPENSATION (Details)	3 Months Ended
	Mar. 31, 2019 $ / shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Risk-free interest rate	2.73%
Expected term (in years)	0 years
Volatility	62.08%
Dividend yield	2.34%
Weighted average fair value of options granted	$ 4.60

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STOCK-BASED COMPENSATION (Details 1) - Employee Stock Option [Member] - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares, Outstanding	218,075
Number of Shares, Granted	8,000
Number of Shares, Exercised	0
Number of Shares, Forfeited	0
Number of Shares, Expired	0
Number of Shares, Outstanding	226,075	218,075
Number of Shares, Vested	158,742
Weighted Average Exercise Price per share, Outstanding (in dollars per share)	$ 6.22
Weighted Average Exercise Price per share, Granted (in dollars per share)	8.55
Weighted Average Exercise Price per share, Exercised (in dollars per share)	0
Weighted Average Exercise Price per share, Forfeited (in dollars per share)	0
Weighted Average Exercise Price per share, Expired (in dollars per share)	0
Weighted Average Exercise Price per share, Outstanding (in dollars per share)	6.30	$ 6.22
Weighted Average Exercise Price per share, Vested (in dollars per share)	$ 5.90
Weighted Average Remaining Contractual Life, Outstanding (Years)	5 years 6 months	5 years 7 months 6 days
Weighted Average Remaining Contractual Life, Vested (Years)	4 years 2 months 12 days
Aggregate Intrinsic Value, Outstanding and Vested (in dollars)	$ 424,878	$ 335,310
Aggregate Intrinsic Value, Vested (in dollars)	$ 360,798

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STOCK-BASED COMPENSATION (Details 2) - Employee Stock Option [Member]	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option Shares, Nonvested shares, beginning of year | shares	59,333
Option Shares, Granted | shares	8,000
Option Shares, Vested | shares	0
Option Shares, Forfeited | shares	0
Option Shares, Nonvested shares, end of year | shares	67,333
Weighted Average Grant-Date Fair Value, Non-vested shares, beginning of year (in dollars per share) | $ / shares	$ 4.41
Weighted Average Grant-Date Fair Value, Granted (in dollars per share) | $ / shares	4.60
Weighted Average Grant-Date Fair Value, Vested (in dollars per share) | $ / shares	0
Weighted Average Grant-Date Fair Value, Forfeited (in dollars per share) | $ / shares	0
Weighted Average Grant-Date Fair Value, Non-vested shares, end of year (in dollars per share) | $ / shares	$ 4.44

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STOCK-BASED COMPENSATION (Details Textual) - USD ($)			1 Months Ended	3 Months Ended
	Feb. 14, 2019	Sep. 12, 2018	May 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant				71,437
Restricted stock-based compensation (in dollars)				$ 13,000	$ 7,000
Stock Repurchased During Period, Value				$ 3,202,000	$ 82,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value				$ 4.60
Treasury Stock, Shares, Acquired	389,909
Temporary Equity, Redemption Price Per Share	$ 7.62
Treasury Stock, Retired, Par Value Method, Amount	$ 2,971,000
Common Stock Repurchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Repurchased During Period, Shares		61,905		28,507
Stock Repurchased During Period, Value		$ 503,000		$ 231,000
Stock Repurchase Program, Number of Shares Authorized to be Repurchased		100,000
Non Employee Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				8,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price				$ 8.55
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights				three years
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Date				Feb. 28, 2029
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			1,250
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance			6,250
Restricted stock-based compensation (in dollars)			$ 53,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value			$ 8.43
Incentive Stock Option Plan 2002 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance				34,500
Incentive Stock Option Plan 2012 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance				191,575

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable	$ 9,200,000	$ 9,847,000
Allowance for doubtful accounts, sales discounts and chargebacks	(204,000)	(273,000)
Accounts Receivable, Net, Current, Total	$ 8,996,000	$ 9,574,000

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INVENTORIES (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Inventory [Line Items]
Raw material	$ 2,230,000	$ 1,963,000
Work in process	1,736,000	1,924,000
Finished goods	16,641,000	16,609,000
Inventory net	$ 20,607,000	$ 20,496,000

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details)	3 Months Ended
	Mar. 31, 2019 USD ($)
Balance, beginning	$ 4,436,000
Currency translation adjustment	4,000
Balance, ending	$ 4,440,000

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details 1) - USD ($)		3 Months Ended	12 Months Ended
		Mar. 31, 2019	Dec. 31, 2018
Other intangible assets:
Cost		$ 11,313,000	$ 11,297,000
Accumulated amortization		3,673,000	3,497,000
Net book value		7,640,000	7,800,000
Customer relationships [Member]
Other intangible assets:
Cost	[1]	6,827,000	6,821,000
Accumulated amortization	[1]	2,280,000	2,135,000
Net book value	[1]	$ 4,547,000	$ 4,686,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		9 years	9 years 3 months 18 days
Trademarks and trade names one [Member]
Other intangible assets:
Cost	[1]	$ 2,316,000	$ 2,308,000
Accumulated amortization	[1]	0	0
Net book value	[1]	$ 2,316,000	$ 2,308,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		12 years 3 months 18 days	12 years 6 months
Engineering drawings [Member]
Other intangible assets:
Cost		$ 330,000	$ 330,000
Accumulated amortization		209,000	202,000
Net book value		$ 121,000	$ 128,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		7 years 7 months 6 days	7 years 8 months 12 days
Non-compete agreements [Member]
Other intangible assets:
Cost	[1]	$ 235,000	$ 233,000
Accumulated amortization	[1]	226,000	223,000
Net book value	[1]	$ 9,000	$ 10,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		2 years	2 years 3 months 18 days
Patents [Member]
Other intangible assets:
Cost		$ 1,405,000	$ 1,405,000
Accumulated amortization		923,000	905,000
Net book value		$ 482,000	$ 500,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		7 years 8 months 12 days	7 years 10 months 24 days
Trademarks And Trade Names Two [Member]
Other intangible assets:
Cost		$ 200,000	$ 200,000
Accumulated amortization		35,000	32,000
Net book value		$ 165,000	$ 168,000

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

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details 2) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets	$ 172,000	$ 179,000

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details 3)	Mar. 31, 2019 USD ($)
Finite-Lived Intangible Assets [Line Items]
2020	$ 675,000
2021	639,000
2022	635,000
2023	635,000
2024	635,000
Thereafter	2,105,000
Total	$ 5,324,000

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DEBT (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Long-term Debt	$ 433,000	$ 453,000
Debt issue costs	0	(1,000)
Less current maturities	80,000	453,000
Long-term Debt, Excluding Current Maturities	353,000	0
Term Loan [Member]
Long-term Debt	100,000	100,000
Capex Borrowing [Member]
Long-term Debt	$ 333,000	$ 354,000

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DEBT (Details Textual) - USD ($)		1 Months Ended	3 Months Ended		12 Months Ended
	Feb. 08, 2019	Apr. 30, 2018	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 8,000,000
Short-term Debt			$ 6,354,000		$ 2,096,000
Long-term Debt, Current Maturities			80,000		453,000
Debt Instrument, Face Amount	2,000,000
Line of Credit Facility, Increase (Decrease), Net	$ 10,000,000
Line of Credit Facility, Average Outstanding Amount			4,076,000	$ 1,847,000
Long-term Debt			$ 433,000		$ 453,000
Base Rate Borrowing [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate			1.50%		1.50%
Short-term Debt [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Remaining Borrowing Capacity			$ 8,857,000		$ 12,024,000
Short-term Debt [Member] | Base Rate borrowing [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate			1.50%		0.50%
Short-term Debt [Member] | LIBOR Margin [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate			1.50%		0.50%
Term Loan A [Member]
Debt Instrument [Line Items]
Long-term Debt			$ 100,000		$ 100,000
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Capacity Available for Specific Purpose Other than for Trade Purchases			1,600,000
Long-term Debt, Current Maturities			100,000
Capex Borrowing [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount		$ 400,000
Debt Instrument, Periodic Payment		6,700
Long-term Debt			$ 333,000		$ 354,000
Debt Instrument, Maturity Date	Feb. 08, 2024
Capex Borrowing 300000 Principal [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount		300,000
Capex Borrowing 100000 Principal [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount		$ 100,000

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DIVIDEND PAYMENTS (Details Textual)	Mar. 08, 2019 USD ($) $ / shares
Dividends Payable, Amount Per Share | $ / shares	$ 0.05
Dividends Payable, Current | $	$ 158,000

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SUBSEQUENT EVENTS (Details Textual) - Jupiter Warehouse Holdings LLC [Member] - Subsequent Event [Member]	1 Months Ended
	Apr. 19, 2019 USD ($) ft²
Sale Leaseback Transaction, Net Proceeds, Investing Activities	$ 9,500,000
Area of Land | ft²	42,000
Sale Leaseback Transaction, Monthly Rental Payments	$ 32,345
Additional Availability of Reserve	$ 5,000,000