UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|For the Fiscal Year Ended December 31, 2003
|or                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-5332

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P & F INDUSTRIES, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)          |  | 22-1657413(I.R.S. Employer
Identification Number)
|------------------------------------------------------------------------------- |  | -------------------------------------------------
|300 Smith Street, Farmingdale, New York(Address of principal executive offices) |  | 11735(Zip Code)                                  

Registrant's
telephone number, including area code:(631) 694-1800

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

NONE

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

CLASS A COMMON STOCK, $1.00 PAR VALUE

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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 ý    NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). YES o    NO ý

The aggregate market value of the registrant's Class A Common Stock held by non-affiliates of the registrant, based on the last sale price on
June 30, 2003 (the last business day of the registrant's most recently completed second fiscal quarter), was approximately $14,169,000.

As
of March 29, 2004, there were 3,516,631 shares of the registrant's Class A Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference information from the registrant's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held during 2004.



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P & F INDUSTRIES, INC.

FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

TABLE OF CONTENTS

|         |  |                                                                                                              |  | Page   
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | -------
|PART I   |  |                                                                                                              |  |        
|Item 1.  |  | Business                                                                                                     |  | 1 - 4  
|Item 2.  |  | Properties                                                                                                   |  | 5      
|Item 3.  |  | Legal Proceedings                                                                                            |  | 5      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 5      
|PART II  |  |                                                                                                              |  |        
|Item 5.  |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 5      
|Item 6.  |  | Selected Financial Data                                                                                      |  | 6      
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 7 - 18 
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 19     
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 20 - 50
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                        |  | 51     
|Item 9A. |  | Controls and Procedures                                                                                      |  | 51     
|PART III |  |                                                                                                              |  |        
|Item 10. |  | Directors and Executive Officers of the Registrant                                                           |  | 52     
|Item 11. |  | Executive Compensation                                                                                       |  | 52     
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 52     
|Item 13. |  | Certain Relationships and Related Transactions                                                               |  | 52     
|Item 14. |  | Principal Accountant Fees and Services                                                                       |  | 52     
|PART IV  |  |                                                                                                              |  |        
|Item 15. |  | Exhibits, Financial Statement Schedule and Reports on Form 8-K                                               |  | 53 - 54
|         |  | Signatures                                                                                                   |  | 55     
|         |  | Exhibit Index                                                                                                |  | 56 - 58

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SAFE HARBOR STATEMENT  UNDER THE PRIVATE SECURITIES  LITIGATION REFORM ACT OF 1995

This Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. 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. Such forward-looking statements are subject to various risks and uncertainties, including, but not limited to, the impact of competition, product demand and pricing. These risks
could cause the Company's actual results for the 2004 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company.
Forward-looking statements speak only as of the date on which they are made, and 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.

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PART I

ITEM 1.    Business

P&F Industries, Inc. ("P & F") is a Delaware corporation incorporated on April 19, 1963. P & F conducts its business operations
through its four wholly-owned subsidiaries: Florida Pneumatic Manufacturing Corporation ("Florida Pneumatic"), Countrywide Hardware, Inc. ("Countrywide"), Green Manufacturing, Inc.
("Green") and Embassy Industries, Inc. ("Embassy"). P & F Industries, Inc. and its subsidiaries are herein referred to collectively as the "Company."

Florida
Pneumatic is engaged in the importation, manufacture and sale of pneumatic hand tools, primarily for the industrial and retail markets, and the importation and sale of compressor
air filters. Florida Pneumatic also markets, through its Berkley Tool division ("Berkley"), a line of pipe cutting and threading tools, wrenches and replacement electrical components for a
widely-used brand of pipe cutting and threading machines. Countrywide conducts its business operations through Nationwide Industries, Inc. ("Nationwide"), its wholly-owned
subsidiary, and through its Franklin Manufacturing ("Franklin") division. Countrywide acquired all of the stock of Nationwide on May 3, 2002. The assets of Franklin were transferred from
Embassy to Countrywide on December 30, 2002. Nationwide is an importer and manufacturer of door, window and fencing hardware. Franklin imports a line of door and window hardware. Green is
engaged primarily in the manufacture, development and sale of heavy-duty welded custom designed hydraulic cylinders. Green also manufactures a line of access equipment for the
petro-chemical industry and a line of post hole digging equipment for the agricultural industry. Embassy is engaged in the manufacture and sale of baseboard heating products and the importation and
sale of radiant heating systems. Note 13 of the Notes to Consolidated Financial Statements presents financial information for the segments of the Company's business.

Florida
Pneumatic has one major customer, Sears, Roebuck and Co., that accounted for 22.0%, 22.3% and 21.4% of consolidated revenues for the years ended December 31, 2003, 2002
and 2001, respectively. The Home Depot, Inc. is a customer of both Florida Pneumatic and Countrywide, and accounted for 18.1%, 18.3% and 18.0% of consolidated revenues for the years ended
December 31, 2003, 2002 and 2001, respectively. Revenues derived from countries outside of the United States were immaterial for the years ended December 31, 2003, 2002 and 2001.

Florida Pneumatic

Florida Pneumatic imports or manufactures approximately fifty types of pneumatic hand tools, most of which are sold at prices ranging from $50 to $1,000, under
the names "Florida Pneumatic" and "Universal Tool," as well as under the trade names or trademarks of several private label customers. This line of products includes sanders, grinders, drills, saws
and impact wrenches. These tools are similar in appearance and function to electric hand tools, but are powered by compressed air, rather than directly by electricity. Air tools, as they are also
called, are generally less expensive to operate, offer better performance and weigh less than their electrical counterparts.

Most
of Florida Pneumatic's sales are of pneumatic tools imported from Japan and Taiwan, along with sales of some products imported from mainland China. Florida Pneumatic manufactures
high speed rotary and reciprocating pneumatic tools at its factory in Jupiter, Florida and imports air filters.

Florida
Pneumatic's products are sold to distributors, retailers and private label customers through in-house sales personnel and manufacturers' representatives. Users of
Florida Pneumatic's hand tools include industrial maintenance and production staffs, do-it-yourself mechanics, automobile mechanics and auto body personnel.

Berkley
markets a product line consisting of pipe and bolt dies, pipe taps, pipe and tubing cutter wheels and replacement electrical components for a widely-used brand of
pipe cutting and threading machines. Florida Pneumatic markets Berkley's products through industrial distributors and contractors.

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The
primary competitive factors in the pneumatic tool market are price, service and brand-name awareness.

Three
customers accounted for 42.2%,40.5% and 37.4%, 30.5%, 28.7% and 26.9%, and 9.9.%, 12.0% and 12.9% of Florida Pneumatic's revenues
for the years ended December 31, 2003, 2002 and 2001, respectively.

Florida
Pneumatic's products are sold off the shelf, and no material backlog of orders exists. The business is not seasonal, but it may be subject to significant periodic changes
resulting from occasional sales promotions by customers.

Florida
Pneumatic purchases all of its pneumatic tools from a Far East trading company that owns or represents 18 individual factories in Japan, Taiwan and China. Of the total pneumatic
tool purchases, approximately 30% are bought from Japan, 60% from Taiwan and 10% from China. There are redundant sources for every product manufactured.

Countrywide

Countrywide conducts its business through Nationwide and Franklin.

Nationwide
is an importer and manufacturer of door, window and fencing hardware, including rollers, hinges, window operators, sash locks, custom zinc castings and door closers.

Most
of Nationwide's sales are of products imported from Taiwan, China and Korea. Nationwide manufactures rollers, screen doors, hinges and pool enclosure products at its factory in
Tampa, Florida.

Nationwide's
products are sold through in-house sales personnel and manufacturers' representatives to distributors, retailers and OEM customers. End users of Nationwide's
products include contractors, home builders, pool and patio distributors, OEM/private label customers and general consumers.

Two
customers accounted for 13.0% and 10.5%, and 13.0% and 7.6%, of Nationwide's revenues for the years ended December 31, 2003 and 2002, respectively.

Nationwide
currently purchases approximately 80% of its products from one foreign supplier. Although other suppliers are available, the loss of this one supplier could adversely affect
operating results.

Nationwide's
sales are somewhat seasonal, with revenues increasing approximately 10% during the spring and summer months. The majority of Nationwide's products are sold off the shelf.
The backlog at December 31, 2003 of approximately 15% of annual sales results primarily from blanket customer orders.

The
primary competitive factors in Nationwide's business are price, quality, product availability and service.

Franklin
imports and packages approximately 225 types of hardware products, including locksets, deadbolts, door and window security hardware, rope-related hardware products
and fire escape ladders. Franklin's products generally range in price from under $1.00 to $30.00, and are sold to retailers, wholesalers and private label accounts through manufacturers'
representatives and in-house sales support personnel. Nearly all of Franklin's sales are of products imported from the Far East.

Two
customers accounted for 39.2%, 36.9% and 38.0%, and 20.9%, 23.2% and 27.4% of Franklin's revenues for the years ended December 31, 2003, 2002 and 2001, respectively.

The
primary competitive factors in Franklin's business are price, service, skill in packaging and point-of-sale marketing.

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Franklin's
products are sold off the shelf, and no material backlog of orders exists. Sources of imported products are readily available. Franklin's business is not seasonal.

Green

Green is engaged primarily in the manufacture, development and sale of heavy-duty welded custom designed hydraulic cylinders. All of Green's hydraulic
cylinders are sold for use as integrated components on a variety of equipment and machinery manufactured by others. Hydraulic cylinders are welded casings whose internal chambers consist of a rod and
piston surrounded by a petroleum-based fluid. The casings contain openings or valves that allow the introduction of fluid into one side of the chamber at high pressure. The introduction of fluid
causes the rod/piston to move with tremendous force and allows for the pushing or lifting of extremely heavy loads.

Green's
products, which are sold throughout the United States, are used on tow trucks and car carriers for hoisting and lifting cars, and on aerial lifts and cranes to raise platforms
and other heavy objects. The cylinders are also used on various types of construction equipment for digging and as steering
mechanisms. They are also installed in compacting equipment as the means to compress recyclable cardboard or other refuse.

Green
specializes in cylinders that range in bore size from one to eight inches and that stroke, or extend, up to 180 inches. Each cylinder is engineered to the customer's
specifications.

Green
sells its products directly to OEM customers, at prices ranging from $50 to $1,500, with an approximate average selling price of $150.

Green
also manufactures a line of access equipment for the petro-chemical and bulk storage industries. This product line, which accounted for approximately 21% of Green's revenues in
2003, consists of bridges, platforms, walkways and stairways, constructed of steel or aluminum and generally installed outdoors. These products are designed to customers' specifications and are sold
for use in overhead and elevated access to large containers, including rail cars and storage tanks.

Green
also markets a small line of diggers used primarily as attachments to small tractors for light farm work. This product line, which accounted for approximately 11% of Green's
revenues in 2003, is marketed through farm equipment dealers and wholesalers.

Green's
cylinder business is not seasonal, but revenues from agricultural equipment are stronger during the growing season. Backlogs totaling as much as 25% of yearly sales are standard
for the cylinder business.

One
customer accounted for 4.4% and 26.0% of Green's revenues for the years ended December 31, 2002 and 2001, respectively. This customer ceased being a customer of the Company
during the first quarter of 2002.

The
primary competitive factors in the hydraulic cylinder industry are quality, timely delivery and price.

Green
purchases approximately 20% of its raw materials from one supplier. Since other sources are available, however, the Company believes that the loss of this supplier would not
adversely affect operating results.

Embassy

Embassy's baseboard heating products are sold nationally, under the Embassy name and under its Panel-Track, Commercial-Pak, Ambassador, System 6 and
Hide-a-Vector trademarks, for use in hot-water heating systems installed in single family homes, multi-unit dwellings and commercial and industrial
buildings. Embassy's products are sold principally to wholesalers by manufacturers'

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representatives
and in-house sales support personnel. Embassy's products are also sold to other manufacturers for incorporation into their products and for distribution on a private-label
basis.

Hot-water
heating systems operate by heating water in a boiler and circulating it through the copper tubing in the baseboard along the perimeter of the space to be heated.
Attached to the copper tubing are numerous closely-spaced aluminum fins that dissipate the heat. Sections are two to ten feet in length, project several inches from the wall and rise less than a foot
from the floor. These sections may be combined for longer installations. Embassy's baseboard contains patented plastic tracks, which ease handling and reduce operating noise.

Embassy
also imports a line of radiant heating systems. These systems are different from baseboard heating systems in that the radiant heating systems radiate heat provided by hot water
circulating through plastic tubing, which is generally installed beneath the surface of the floor. These systems include the tubing, manifolds, controls and installation supplies. Embassy also
provides computer software that aids in the design of the system. Sales of this product accounted for approximately 21.0%,20.6% and 20.7% of Embassy's
total heating equipment revenues for the years ended December 31, 2003, 2002 and 2001, respectively. No customer accounted for greater than 10% of Embassy's revenues for the years ended
December 31, 2003, 2002 or 2001.

Baseboard
and radiant heating systems differ from forced hot-air and electric heating systems. Forced hot-air systems, utilizing sheet metal ducts, carry
excessive dust and noise throughout the home. Ineffective spot heating also occurs as a result of the relatively small terminal registers at the end of each duct. Conversely, baseboard hot water
perimeter heating minimizes noise while blanketing exterior walls in each room with convection heat. By design, both radiant and baseboard heating systems also avoid sudden temperature fluctuations
that happen with the "on and off" cycling typical of hot-air blowers. Radiant heat offers the additional benefit of comfortably heated floors, while minimizing the noise and dirt common
with hot-air ducted heat. Electric heating systems are generally more expensive to operate than baseboard and radiant heating systems. Radiant heating systems are generally the most
expensive of these systems to install and therefore tend to be installed more often in custom and higher priced homes. Because Embassy's products are used primarily in new installations, its sales are
related to housing starts.

The
primary competitive factors in the baseboard and radiant heating market are quality, price, service and brand-name awareness.

Embassy's
baseboard heating products are sold off the shelf, and no material backlog of orders exists. Raw materials are readily available. The business is somewhat seasonal, with
approximately 60% of Embassy's heating equipment revenues coming in the last six months of the year.

Employees

The Company employed 308 persons as of December 31, 2003, including six at corporate headquarters. Countrywide had no employees. Florida Pneumatic had 71
employees, Nationwide had 34 employees and Green had 121 employees. These employees are not represented by a union. Embassy had 76 employees, including 46 factory workers who are covered by a
single-employer union contract that expires on November 30, 2004. The Company believes that its relationships with its employees are satisfactory.

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ITEM 2.    Properties

On May 24, 2002, in connection with the acquisition of Nationwide, Countrywide purchased the real property and the improvements thereon in which Nationwide
conducts its business. Countrywide leases part of its facility to a non-affiliated tenant.

Florida
Pneumatic, Countrywide, Green and Embassy each own the plant facilities that they occupy. The facilities owned by Florida Pneumatic, Countrywide and Embassy are subject to
mortgages. Florida Pneumatic's 72,000 square foot plant facility is located in Jupiter, Florida. Countrywide's 56,250 square foot plant facility is located in Tampa, Florida. Green's 85,000 square
foot plant facility is located in Bowling Green, Ohio. Embassy's 75,000 square foot plant facility is located in Farmingdale, New York. Each facility either provides adequate space for the operations
of the respective subsidiary for the foreseeable future or can be expanded to provide additional space. The Company's executive offices are located in Embassy's facility in Farmingdale, New York.

ITEM 3.    Legal Proceedings

The Company is a defendant or co-defendant in various actions brought about in the ordinary course of conducting its business. The Company does not
believe that any of these actions are material to the financial condition of the Company.

ITEM 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the last quarter of the period covered by this Annual Report on Form 10-K.

PART II

ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company's Class A Common Stock trades on The Nasdaq Stock Market. The range of high and low bid information for the Company's Class A Common
Stock during the last two fiscal years was as follows:

High

Low2003First Quarter

$
6.93

$
5.78Second Quarter


7.20


6.24Third Quarter


10.21


6.47Fourth Quarter


10.46


7.30


High

Low2002First Quarter

$
7.89

$
6.00Second Quarter


7.45


6.20Third Quarter


7.30


5.85Fourth Quarter


7.07


5.00


Such
over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.

As
of March 29, 2004, there were approximately 1,400 holders of record of the Company's Class A Common Stock.

The
Company has not declared any cash dividends on its Class A Common Stock since its incorporation in 1962 and has no plans to declare any cash dividends in the foreseeable
future.

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ITEM 6.    Selected Financial Data

The following selected consolidated financial data has been derived from the Company's audited consolidated financial statements. The selected consolidated
financial data for the year ended December 31, 2002 include the results of operations of Nationwide only from May 3, 2002, its date of acquisition, to December 31, 2002. The
selected financial data should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.

|                                                                                |          | Year ended December 31,                                          
|------------------------------------------------------------------------------- | -------- | -----------------------------------------------------------------
|
|Revenues                                                                        |          | $                                                                
|                                                                                |          |                                                                  
|Income before cumulative effect of change in accounting principle               |          | $                                                                
|Cumulative effect of change in accounting principle, net of taxes of $1,668,000 |          |                                                                  
|                                                                                |          |                                                                  
|Net income (loss)                                                               |          | $                                                                
|                                                                                |          |                                                                  
|Income (loss) per share of common stock:                                        |          |                                                                  
|                                                                                | Basic:   |                                                                  
|                                                                                |          | Income before cumulative effect of change in accounting principle
|                                                                                |          | Cumulative effect of change in accounting principle, net         
|                                                                                |          |                                                                  
|                                                                                |          | Net income (loss)                                                
|                                                                                |          |                                                                  
|                                                                                | Diluted: |                                                                  
|                                                                                |          | Income before cumulative effect of change in accounting principle
|                                                                                |          | Cumulative effect of change in accounting principle, net         
|                                                                                |          |                                                                  
|                                                                                |          | Net income (loss)                                                
|                                                                                |          |                                                                  
|Total assets                                                                    |          | $                                                                
|                                                                                |          |                                                                  
|Long-term obligations, less current maturities                                  |          | $                                                                
|                                                                                |          |                                                                  
|Cash dividends declared per common share                                        |          | $                                                                
|                                                                                |          |                                                                  

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ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

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, which are subject to various risk and uncertainties, including, but not limited to, the impact of competition, product demand and pricing. These risks
could cause the Company's actual results for the 2004 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company.
Forward-looking statements speak only as of the date on which they are made, and 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.

OVERVIEW

The Company's consolidated revenues for the twelve months ended December 31, 2003 increased 11.9%, from $77,213,902 to $86,407,200. Although revenues
increased at all subsidiaries, the greatest increase was at Countrywide, resulting primarily from the inclusion of the acquisition of Nationwide for a full twelve months of 2003 as opposed to only
eight months in 2002 and to a significant increase in sales in the fencing product line. Overall gross profit decreased slightly as the increased volume, which typically improves margins, was more
than offset by a less favorable product mix and the increase in cost of imported product due to the weakening of the U.S. dollar versus both the yen and euro. Profits improved overall, when comparing
income before cumulative effect of change in accounting principle, from $2,862,851 to $3,362,949.

KEY INDICATORS

Economic Measures

Key economic measures relevant to the Company include the cost of metals, especially various types of steel, aluminum and copper. Also important is the value of
the dollar in relation to the Japanese yen, the New Taiwan dollar and, to a lesser extent, the euro, as the Company spends approximately $20 million in these currencies annually. Key elements
for the demand for the Company's products include retail sales, housing starts, especially in the northeast and south, and the demand for capital goods.

At
the end of 2003, the Company experienced an increase in the cost of most types of steel and aluminum and products predominantly comprised of steel. This was first attributed to the
tariffs imposed on imported steel, but more recently has been driven by excess demand in Asia. Most tariffs appear to have eased and, thus, should not impact the cost of steel going forward; however,
it is unclear if or when the demand-driven price increase will dissipate. During 2003, the value of the U.S. dollar decreased in relation to both the euro and the Japanese yen. The decrease in the
value of the dollar was approximately 16.6% in relation to the euro and approximately 10.1% in relation to the yen. The net weakening of the U.S. dollar against both the euro and the yen in 2003
resulted in an increase in the cost of imported product from Japan and Europe of approximately $600,000. Although there can be no certainty, the Company does not expect rates to return to the early
2003 levels in the next year.

In
2003, retail sales improved over 2002, and strong housing demand continued in the south. Housing demand in the northeast remained sluggish. The demand for capital goods improved
slightly in 2003. Any change in the trend for these indicators in 2004 will have an impact on results.

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Operating Measures

Key operating measures utilized by the Company to manage its operating segments are orders, sales, development projects pipeline, potential customer lists,
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 for each operating segment.

Financial Measures

Key financial measures utilized by the Company to evaluate the results of its business include: sales, gross margin, selling, general and administrative expenses,
earnings before interest, taxes and bonus, 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 established objectives. To the extent that these measures are relevant, they are discussed in the detailed
sections for each operating segment.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Certain of
these accounting policies require the Company 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, the Company evaluates estimates, including those related to bad debts, inventory reserves, goodwill and intangible assets. The
Company bases its 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. Actual results may differ from these estimates.

The
Company's critical accounting policies include:

Allowance for Doubtful Accounts

Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. Analysis of customer history,
financial data and the overall economic environment are performed. In addition, any balance outstanding for more than 90 days is compared to the accounts receivable reserve for adequacy.
Collection agencies are also utilized.

The
Company records an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. The Company also records as an additional allowance
a certain percentage of aged accounts receivable, based on historical experience and the Company's assessment of the general financial conditions affecting its customer base. If actual collection
experience changes, revisions to the allowance may be required. The Company has a limited number of customers with individually large amounts due at any given balance sheet date. Any unanticipated
change in the credit worthiness of any of these customers could have a material affect on the Company's results of operations in the period in which such changes or events occur. After all reasonable
attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. Based on the information available, the Company believes that its allowance
for doubtful accounts as of December 31, 2003 was adequate. However, actual write-offs might exceed the recorded allowance.

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Inventories

Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. The inventory balance, which
includes materials, labor and manufacturing overhead costs, is recorded net of an allowance for obsolete or unmarketable inventory. Such allowance is based upon both historical experience and
management's understanding of market conditions and forecasts of future product demand. In addition, items in inventory in excess of one year's usage are compared to the allowance for adequacy. If the
actual amount of obsolete or unmarketable inventory significantly exceeds the estimated allowance, the Company's cost of sales, gross profit and net income would be significantly affected.

Goodwill and Other Intangible Assets

The Company's operational policy for the assessment and measurement of any impairment in the value of goodwill and other intangible assets that is other than
temporary is to evaluate at least annually, with the help of independent third-party appraisals, the recoverability and remaining life of its goodwill and other intangible assets to determine their
fair value. The methodologies to be used to estimate fair value include the use of estimates and assumptions, including projected revenues, earnings and cash flows. If the fair value of any of these
assets is determined to be less than its carrying value, the Company will reflect the impairment of any such assets through a reduction in its carrying value, in an amount equal to the excess of the
carrying value of the asset over its appraised value.

On
a quarterly basis, the Company reviews changes in market conditions, among other factors, that could have a material impact on its estimates of fair value in order to reassess the
carrying value of
goodwill and other intangible assets. At December 31, 2003, no adjustment for impairment was deemed necessary.

IMPAIRMENT OF GOODWILL

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), which requires that goodwill not be amortized, but tested annually for impairment. The Company adopted SFAS 142 as of January 1, 2002 and,
in accordance therewith, ceased amortizing its goodwill as of that date.

The
Company had its goodwill tested for impairment, effective January 1, 2002, during the second quarter of 2002. The impairment tests performed required that the Company
determine the fair market value of its reporting units for comparison to the carrying value of their net assets to assess whether any impairment existed. The methodologies used to estimate fair market
value involved the use of estimates and assumptions, including projected revenues, earnings and cash flows.

The
Company's earnings forecast for Green, which reflected the extremely weak market conditions in the hydraulic cylinder business, resulted in the fair market value of Green's goodwill,
as determined by an independent third-party appraiser, being lower than its carrying value as of December 31, 2001. Accordingly, in the quarter ended June 30, 2002, the Company recorded,
retroactive to January 1, 2002, an after-tax impairment charge of approximately $3.2 million, which is reported as a cumulative effect of change in accounting principle
resulting from the adoption of SFAS 142. The Company's annual impairment test done as of November 30, 2003 indicated that the fair values exceeded the carrying amounts.

ACQUISITION

On May 3, 2002, Countrywide acquired all of the stock of Nationwide for approximately $10,452,000, plus an additional payment in 2002 for a working capital
adjustment of approximately

9

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$259,000.
In addition to the cash paid at the closing, the Company is liable for contingent earnout payments to Nationwide's previous owner, in amounts equal to 30% of the excess of Nationwide's
earnings, before amortization of intangible assets, interest and taxes, over $2,500,000, for each of the five twelve-month periods subsequent to the acquisition date. These contingent earnout payments
have been and will be treated as additions to goodwill.

As
part of this acquisition, the Company has recorded goodwill of approximately $7,319,000 through December 31, 2003. During the year ended December 31, 2002, the Company
recorded goodwill of approximately $6,968,000, including approximately $259,000 related to the working capital adjustment described above, approximately $561,000 related to acquisition costs and
acquisition-related expenses, approximately $150,000 related to contingent earnout payments and approximately $972,000 related to a deferred tax liability associated with intangible assets that were
part of the acquisition. During the year ended December 31, 2003, the Company recorded net additions to goodwill of approximately $351,000, related primarily to contingent earnout payments.

Results
of operations are included from the date of acquisition, reflecting only eight months in 2002.

Countrywide
conducts its business through Nationwide and through its Franklin division. The assets of Franklin were transferred from Embassy to Countrywide on December 30, 2002.

RESULTS OF OPERATIONS

2003 Compared to 2002



Revenues for the years ended December 31, 2003 and 2002 were as follows:

Year ended December 31,

Consolidated

Pneumatic
tools and
related
equipment

Hardware

Hydraulic
cylinders
and related
equipment

Heating
products2003

$
86,407,200

$
45,121,611

$
19,212,718

$
12,387,005

$
9,685,8662002

$
77,213,902

$
42,459,567

$
13,346,256

$
12,107,485

$
9,300,594% increase


11.9
%

6.3
%

44.0
%

2.3
%

4.1
%


Revenues
from pneumatic tools and related equipment increased due primarily to strong promotions of approximately $6,100,000 by two major retailers and an increased penetration in the
automotive after-market of approximately $400,000, partially offset by price concessions at a significant customer, a base volume decrease of approximately $1,200,000 and lower industrial revenues of
approximately $600,000. Contributing to the industrial segment decrease was the pending loss of a major customer, expected to occur in early 2004, that generated approximately $4,500,000 in revenues
in 2003. Selling prices of pneumatic tools and related equipment were unchanged, with the exception of prices to a significant customer, which were substantially reduced early in the fourth quarter of
2002.

Revenues
from hardware increased due primarily to the inclusion of Nationwide for the entire year in 2003, as opposed to only eight months in 2002. Nationwide's revenues increased
approximately $6,400,000, including an increase of approximately $4,000,000 from sales of fencing products. The increase at Nationwide was partially offset by a decrease in revenues of approximately
$600,000 at Franklin, as a significant customer declared bankruptcy in the first quarter of 2003 and another significant customer reduced its ordering, because of its decreased volume, in the last
three quarters of 2003. Selling prices of hardware products were unchanged. During 2004, the Company anticipates that

10

---

increases
in the price of steel will negatively impact its material costs. It is unclear to what extent, if any, these price increases can be passed on to customers.

Revenues
from hydraulic cylinders and related equipment increased primarily due to the Company's entry into a new market for log splitter cylinders. This increase was partially offset by
an approximately 60% decrease in sales to the wrecker market, including the phasing out of a major customer in the first quarter of 2002, and decreased sales in the access product line driven by
weakness in the capital goods market. Selling prices of hydraulic cylinders and related equipment were unchanged. During 2004, the Company anticipates that increases in the price of steel will
negatively impact its material costs. It is unclear to what extent, if any, these price increases can be passed on to customers.

Revenues
from heating products increased due primarily to increased boiler and radiant sales in the second half of 2003, reflecting continued market penetration with these newer product
lines, and increased baseboard sales, resulting from strong housing starts in the northwest. In addition, in 2002, several large customers reorganized their distribution methods, which allowed their
inventory levels to fall to exceptionally low levels, and these levels were returned to normal in 2003, affecting all product lines within this segment. Selling prices of heating products were
unchanged, with the exception of a modest price increase for baseboard products during the second quarter of 2003. During 2004, the Company anticipates that increases in the price of steel will
negatively impact its material costs. It is unclear to what extent, if any, these price increases can be passed on to customers.



Gross profits for the years ended December 31, 2003 and 2002 were as follows:

Year ended December 31,

Consolidated

Pneumatic
tools and
related
equipment

Hardware

Hydraulic
cylinders
and related
equipment

Heating
products2003

$
26,150,003

$
15,289,948

$
6,621,836

$
1,216,241

$
3,021,97830.3
%

33.9
%

34.5
%

9.8
%

31.2
%2002

$
23,468,693

$
14,996,013

$
4,375,892

$
1,205,269

$
2,891,51930.4
%

35.3
%

32.8
%

10.0
%

31.1
%


The
decrease in the gross profit percentage from pneumatic tools and related equipment was due primarily to the lower-margin promotional sales noted above, the impact of the price
concessions effective in the fourth quarter of 2002 also noted above and the weakness of the U.S. dollar in relation to the Japanese yen, partially offset by productivity improvements and cost
reductions from suppliers. The increase in the gross profit percentage from hardware products was due primarily to the inclusion of Nationwide's higher margin OEM business for all of 2003, as opposed
to only eight months in 2002, a more favorable product mix and cost savings in material purchases and labor productivity. The decrease in the gross profit percentage from hydraulic cylinders and
related equipment was due primarily to decreased access sales noted above, which reduced coverage of fixed expenses, and an increase in sales of imported products that were at lower margins. The
increase in the gross profit percentage from heating equipment was due primarily to improved overhead absorption and labor efficiency for baseboard products, partially offset by lower radiant margins
resulting principally from the weakening of the U.S. dollar in relation to the euro.

11

---



Consolidated selling, general and administrative expenses increased 10.2%, from $18,184,531 to $20,043,364, due primarily to increased costs associated with the
11.9% increase in revenues noted above, increases in marketing support and expenses related to promotional sales at Florida Pneumatic and, to a lesser extent, to increased compensation tied to higher
profitability and increases related to additional reporting and control requirements. These increases were partially offset by substantial decreases resulting from cost-cutting efforts in
all of the segments. As a percentage of revenues, selling, general and administrative expenses decreased from 23.6% to 23.2%, due primarily to the increase in revenues.



Net interest expense decreased from $741,311 to $726,690, due primarily to lower interest rates on the Company's borrowings under both its revolving credit and
term loan facilities, as well as on a refinanced mortgage. Average borrowings under the Company's term loan facility, which resulted from the acquisition of Nationwide on May 3, 2002, were
lower in 2003 than in 2002, but these amounts were outstanding for all of 2003, as opposed to only eight months in 2002. Partially offsetting the overall decrease was an increase in 2003 over 2002 in
the average borrowings under the Company's revolving credit loan facility.



The effective tax rates for the years ended December 31, 2003 and 2002 were 37.5% and 37.0%, respectively. See Note 9 of the Notes to Consolidated
Financial Statements.

2002 Compared to 2001



Revenues for the years ended December 31, 2002 and 2001 were as follows:

Year ended December 31,

Consolidated

Pneumatic
tools and
related
equipment

Hardware

Hydraulic
cylinders
and related
equipment

Heating
products2002

$
77,213,902

$
42,459,567

$
13,346,256

$
12,107,485

$
9,300,5942001

$
67,195,912

$
38,359,690

$
4,673,604

$
14,377,036

$
9,785,582% increase (decrease)


14.9
%

10.7
%

185.6
%

(15.8
)%

(5.0
)%


Revenues
from pneumatic tools and related equipment increased due primarily to large fall promotions at two major customers and increased sales in the industrial and automotive
businesses, which were partially offset by lower commission revenues. Selling prices of pneumatic tools and related equipment were unchanged from 2001, with the exception of prices to one significant
customer, which were substantially reduced at the start of the third quarter of 2001, and prices to another significant customer, which were substantially reduced early in the fourth quarter of 2002.

Revenues
from hardware products increased due primarily to the acquisition of Nationwide, which had revenues of approximately $8,000,000 in 2002, and strong results at Franklin, which
benefited from the addition of two customers in the fourth quarter of 2001. Selling prices of hardware products were unchanged from 2001.

Revenues
from hydraulic cylinders and related equipment decreased due primarily to the phasing out of a major customer in the first quarter of 2002 and continued depressed market
conditions, which

12

---

were
partially offset by increased sales in the access and agricultural product lines. Selling prices of hydraulic cylinders and related equipment were virtually unchanged from 2001.

Revenues
from heating products decreased due primarily to the loss of a major customer in the first quarter of 2002. Selling prices of heating products were unchanged from 2001.



Gross profits for the years ended December 31, 2002 and 2001 were as follows:

Year ended December 31,

Consolidated

Pneumatic
tools and
related
equipment

Hardware

Hydraulic
cylinders
and related
equipment

Heating
products2002

$
23,468,693

$
14,996,013

$
4,375,892

$
1,205,269

$
2,891,51930.4
%

35.3
%

32.8
%

10.0
%

31.1
%2001

$
20,161,447

$
14,117,199

$
1,298,977

$
1,421,658

$
3,323,61330.0
%

36.8
%

27.8
%

9.9
%

34.0
%


Gross
profit from pneumatic tools and related equipment decreased due primarily to the lower-margin promotional sales noted above and a price reduction to a major customer at the start
of the second half of 2001, which was partially offset by productivity improvements and a weaker yen. Gross profit from hardware products increased due primarily to the addition of Nationwide's higher
margin OEM business, which is now included in the product mix. Gross profit from hydraulic cylinders and related equipment increased due primarily to a shift in product mix. Gross profit from heating
products decreased due primarily to the decrease in revenues, which reduced coverage of fixed expenses, and, to a lesser extent, to new product start-up costs incurred.



Consolidated selling, general and administrative expenses increased 10.3%, from $16,492,976 to $18,184,531, due primarily to the addition of approximately
$1,340,000 of these expenses at Nationwide, and, to a lesser extent, to increased compensation tied to higher profitability and increases related to additional reporting and control requirements,
principally in the fourth quarter. These increases were partially offset by a decrease of approximately $500,000 that resulted from cost cutting efforts in all of the segments. As a percentage of
revenues, selling, general and administrative expenses decreased from 24.5% to 23.6%, due primarily to the increase in revenues.



Net interest expense decreased 7.0%, from $796,663 to $741,311, due primarily to decreases in both the average outstanding balance of the Company's revolver
borrowings and the average rate on these borrowings. The overall decrease was net of increased borrowings to finance the Nationwide acquisition.



The effective tax rates for the years ended December 31, 2002 and 2001 were 37.0% and 36.9%, respectively. See Note 9 of the Notes to Consolidated
Financial Statements.

13

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LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flows from operations are cyclical, with the greatest demand in the second and third quarters followed by positive cash flows in the fourth
quarter as receivables and inventory trend down. Due to its strong asset base and predictable cash flows, the Company has access to substantial additional capital, if and when needed, based on
favorable banking relationships. The Company monitors average days sales outstanding, inventory turns and capital expenditures to project liquidity needs and evaluate return on assets employed.

The
Company gauges its liquidity and financial stability by the measurements shown in the following table (dollar amounts in thousands):

December 31,2003

2002

2001Working Capital

$
20,960

$
19,779

$
21,010Current Ratio


2.72 to 1


2.49 to 1


3.71 to 1Shareholders' Equity

$
36,978

$
33,823

$
34,228


Cash
decreased 79.2%, or $.8 million, from $1.0 million as of December 31, 2002 to $.2 million as of December 31, 2003. The Company's debt levels
decreased from $17.5 million at December 31, 2002 to $13.2 million at December 31, 2003. Total percent of debt to total capitalization decreased from 51.7% at
December 31, 2002 to 35.8% at December 31, 2003.

On
May 3, 2002, Countrywide acquired all of the stock of Nationwide for approximately $10,452,000, plus an additional payment in 2002 for a working capital adjustment of
approximately $259,000. In addition to the cash paid at the closing, the Company is liable for contingent earnout payments to Nationwide's previous owner, in amounts equal to 30% of the excess of
Nationwide's earnings, before amortization of intangible assets, interest and taxes, over $2,500,000, for each of the five twelve-month periods subsequent to the acquisition date. These contingent
earnout payments have been and will be treated as additions to goodwill.

As
part of this acquisition, the Company has recorded goodwill of approximately $7,319,000 through December 31, 2003. During the year ended December 31, 2002, the Company
recorded goodwill of approximately $6,968,000, including approximately $259,000 related to the working capital adjustment described above, approximately $561,000 related to acquisition costs and
acquisition-related expenses, approximately $150,000 related to contingent earnout payments and approximately $972,000 related to a deferred tax liability associated with intangible assets that were
part of the acquisition. During the year ended December 31, 2003, the Company recorded net additions to goodwill of approximately $351,000, related primarily to contingent earnout payments.

On
May 24, 2002, in connection with the acquisition of Nationwide, Countrywide also purchased for $2,500,000 the real property and the improvements thereon in which Nationwide
conducts its business. This purchase was financed primarily through a mortgage loan, in the amount of $2,024,000, from a bank.

The
amounts included in the following analysis of changes in liquidity and capital resources are net of amounts related to the acquisition of Nationwide. For the 2001 comparisons,
Franklin was included with Embassy, as discussed below.

During
2003, gross accounts receivable increased by approximately $1,031,000, with increases of approximately $501,000, $263,000, $156,000 and $111,000 at Florida Pneumatic, Embassy,
Green and Countrywide, respectively. The increase at Florida Pneumatic was due primarily to an increase in sales in the fourth quarter of 2003, along with extended terms on some retail promotional
sales. The increase at Embassy was due primarily to the timing of sales. The increases at Green and Countrywide were due primarily to increases in sales in the fourth quarter of 2003, compared to the
fourth quarter of 2002.

14

---

Inventories
decreased by approximately $825,000 during 2003, with decreases of approximately $994,000 and $336,000 at Countrywide and Embassy, respectively, partially offset by increases
of approximately $408,000 and $97,000 at Florida Pneumatic and Green, respectively. The decrease at Countrywide was due primarily to improved inventory turnover and, for its Franklin division, more
efficient ordering levels. The decrease at Embassy was due primarily to the timing of radiant and boiler inventory
receipts. The increase at Florida Pneumatic was the result of timing of inventory receipts and a decrease in base revenues. The increase at Green was due primarily to an increase in raw material
inventory for cylinder production.

The
decrease in cash and inventories were the primary factors in the decrease of $1,500,000 in short-term borrowings in 2003.

During
2003, accounts payable increased by approximately $442,000, with an increase of approximately $643,000 at Florida Pneumatic, partially offset by decreases of $109,000, $73,000 and
$19,000 at Green, Countrywide and Embassy, respectively. The increase at Florida Pneumatic was due primarily to the timing payments. The decreases at Green and Countrywide were due primarily to the
timing of payments. The decrease at Embassy was due primarily to the timing of purchases.

During
2002, gross accounts receivable decreased by approximately $88,000, with decreases of approximately $438,000, $308,000 and $273,000 at Countrywide, Embassy and Green,
respectively, being substantially offset by an increase of approximately $931,000 at Florida Pneumatic. The decrease at Countrywide was due primarily to decreased sales in the fourth quarter of 2002.
The decreases at Embassy and Green were consistent with the decreases in revenues between the fourth quarter of 2001 and the fourth quarter of 2002.

Inventories
decreased by approximately $519,000 during 2002. Florida Pneumatic's inventory decreased by approximately $920,000 and Green's inventory decreased by approximately $88,000.
Countrywide's inventory increased by approximately $359,000 and Embassy's inventory increased by approximately $130,000. At Florida Pneumatic, reduced safety stock levels for imported products and
reduced work in process inventory for manufactured parts as a result of the lean manufacturing initiative were primarily responsible for the decrease in inventory. The decrease at Green was primarily
the result of a concerted effort to reduce cylinder finished goods inventory, which was partially offset by an investment in inventory for import cylinders and valves. The increase at Countrywide was
due primarily to overall growth in the business. The increase at Embassy was consistent with the decrease in revenues.

During
2002, short-term borrowings increased by $2,500,000, primarily to fund working capital changes and capital expenditures.

During
2002, accounts payable increased by approximately $175,000. Florida Pneumatic's accounts payable increased by approximately $839,000 and Green's accounts payable increased by
approximately $62,000. Countrywide's accounts payable decreased by approximately $694,000 and Embassy's accounts payable decreased by approximately $32,000. The increase at Florida Pneumatic was due
primarily to the timing of payments. The increase at Green was due primarily to the build-up of import cylinder and valve inventory noted above and the timing of payments. The decreases at
Countrywide and Embassy were due primarily to the timing of payments and purchases.

On
June 30, 2003, the Company renewed its credit agreement, as amended, with Citibank through July 26, 2004. This agreement provides the Company with various credit
facilities, including revolving credit loans, term loans for acquisitions and a foreign exchange line. The credit agreement is subject to annual review by Citibank.

The
revolving credit loan facility provides a maximum of $12,000,000, with various sublimits, for direct borrowings, letters of credit, bankers' acceptances and equipment loans. There
are no commitment fees for any unused portion of this credit facility. At December 31, 2003, there was

15

---

$3,000,000
outstanding against the revolving credit loan facility. There was also a commitment of approximately $36,000 at December 31, 2003 for open letters of credit.

The
term loan facility provides a maximum commitment of $15,000,000 to finance acquisitions subject to the lending bank's approval. There are no commitment fees for any unused portion of
this credit facility. The Company borrowed $11,500,000 against this facility to finance the acquisition of Nationwide. At December 31, 2003, there was $5,250,000 outstanding against the term
loan facility. There was also a standby letter of credit totaling approximately $351,000 outstanding against this facility at December 31, 2003. This standby letter of credit was used to secure
the Economic Development Revenue Bond assumed as part of the acquisition of Green.

The
foreign exchange line provides for the availability of up to $10,000,000 in foreign currency forward contracts. These contracts fix the exchange rate on future purchases of Japanese
yen needed for payments to foreign suppliers. The total amount of foreign currency forward contracts outstanding at December 31, 2003, based on the spot rate, was approximately $1,456,000.

Under
its credit agreement, the Company is required to adhere to certain financial covenants. At December 31, 2003, and for the year then ended, the Company satisfied all of these
covenants.

Certain
of the Company's mortgage agreements also require the Company to adhere to certain financial covenants. At December 31, 2003, and for the year then ended, the Company
satisfied all of these covenants.

Capital
spending was approximately $979,000, $3,943,000 and $944,000 in 2003, 2002 and 2001, respectively, which amounts were provided from working capital. Capital expenditures for 2004
are expected to be approximately $1,600,000, some of which may be financed through the Company's credit facilities. Included in the expected total for 2004 are capital expenditures relating to new
products, expansion of existing product lines and replacement of equipment.

Cash
provided by operating activities for 2003, 2002 and 2001 was approximately $4,972,000, $5,786,000 and $8,923,000, respectively. The Company believes that cash on hand derived from
operations and cash available through borrowings under its credit facilities will be sufficient to allow the Company to meet its foreseeable working capital needs.

During
the third quarter of 2003, Florida Pneumatic was informed by its third largest customer that it will be sourcing from a new supplier in early 2004. Sales to this customer for 2003
were approximately $4.5 million. The Company believes that retaining this customer would have required either eliminating all profit margins or converting to an inferior product, which
management felt was not in the best long-term interests of the Company.

OFF-BALANCE SHEET ARRANGEMENTS

The Company's foreign exchange line provides for the availability of up to $10,000,000 in foreign currency forward contracts. These contracts fix the exchange
rate on future purchases of Japanese yen needed for payments to foreign suppliers. The Company has not purchased forward contracts on New Taiwan dollars or euros. The total amount of foreign currency
forward contracts outstanding at December 31, 2003, based on the spot rate, was approximately $1,456,000.

The
Company, through Florida Pneumatic, imports a significant amount of its purchases from Japan, with payment due in Japanese yen. As a result, the Company is subject to the effects of
foreign currency exchange fluctuations. The Company uses a variety of techniques to protect itself from any adverse effects from these fluctuations, including increasing its selling prices, obtaining
price reductions from its overseas suppliers, using alternative supplier sources and entering into foreign currency forward contracts. The increase in the strength of the Japanese yen versus the U.S.
dollar from 2002 to 2003 had a negative effect on the Company's results of operations and its financial position. Since

16

---

December 31,
2003, the relative value of the U.S dollar in relation to the Japanese yen has increased. There can be no assurance as to the future trend of this value. See "Item 7A.
Quantitative and Qualitative Disclosure About Market Risk."

IMPACT OF INFLATION

The Company believes that the effects of changing prices and inflation on its financial condition and its results of operations are immaterial.

ENVIRONMENTAL MATTERS

Although it is difficult to identify precisely the portion of capital expenditures or other costs attributable to compliance with environmental laws and
regulations, the Company does not expect such expenditures or other costs to have a material adverse effect on its business or financial condition.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

At December 31, 2003, the Company had certain contractual cash obligations and other commercial commitments, as set forth in the following tables:

|                                   |  | Payments Due by Period
|---------------------------------- |  | ----------------------
|
|Long-term debt                     |  | $                     
|Short-term borrowings              |  |                       
|Employment agreement               |  |                       
|                                   |  |                       
|Total contractual cash obligations |  | $                     
|                                   |  |                       

|                         |  | Amount of Commitment Expiration Per Period
|------------------------ |  | ------------------------------------------
|
|Purchase commitments     |  | $                                         
|                         |  |                                           
|Standby letter of credit |  | $                                         
|                         |  |                                           

NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145"), which eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or
loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30, "Reporting Results of Operations." The provisions of SFAS 145 related to the
recission of Statement 4 are effective for fiscal years beginning after May 15, 2002. The Company adopted SFAS 145 as of January 1, 2003. In January 2003, the Company
recorded a loss of approximately $84,000, included in selling, general and administrative expenses, that resulted from the refinancing of a mortgage.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). The principal difference between SFAS 146 and
EITF 94-3 relates to the requirements for recognition of a liability for a cost associated

17

---

with
an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under
EITF 94-3, a liability was recognized at the date of an entity's commitment to an exit plan. SFAS 146 is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company did not have any exit or disposal activities since the adoption of SFAS 146.

In
June 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149
amends SFAS 133 and certain other FASB standards for decisions made by the FASB as part of the Derivatives Implementation Group process. Among other changes, FASB 149 clarifies the definition
of a derivative financial instrument. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003. The provisions of SFAS 149 that relate to
SFAS 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003 should continue to be applied in accordance with their respective dates. In
addition, certain provisions of SFAS 149 that apply to forward purchases or sales of when-issued securities or other securities that do no yet exist are applicable to both existing
contracts and new contracts entered into after June 30, 2003. The adoption of SFAS 149 had no impact on either the Company's results of operations or its financial position.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," ("SFAS 150") that
establishes standards for how an
issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 150 had no impact on either the Company's results of
operations or its financial position.

In
January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, ("FIN 46") "Consolidation of Variable Interest Entities." This Interpretation
clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is
effective February 1, 2003 for variable interest entities created after January 31, 2003, and July 1, 2003 for variable interest entities created prior to February 1, 2003
(deferred until the first quarter of 2004). The Company does not expect the adoption of FIN 46 to have a material impact on either its results of operations or its financial position.

In
May 2003, the Emerging Issues Task Force ("EITF"), issued EITF Issue No, 00-21 "Revenue Arrangements with Multiple Deliverables" ("Issue 00-21").
Issue 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue generating activities and how to determine whether
an arrangement involving multiple deliverables contains more than one unit of accounting. Issue 00-21 became effective for revenue arrangements entered into in fiscal periods after
June 15, 2003. The adoption of Issue 00-21 did not have a material effect on either the Company's results of operations or its financial position.

18

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ITEM 7A.    Quantitative And Qualitative Disclosures About Market Risk

The Company is exposed to market risks, which include changes in U.S. and international exchange rates, the prices of certain commodities and currency rates as
measured against the U.S. dollar and each other. The Company attempts to reduce the risks related to foreign currency fluctuation by utilizing financial instruments, pursuant to Company policy.

The
value of the U.S. dollar affects the Company's financial results. Changes in exchange rates may positively or negatively affect the Company's gross margins and operating expenses.
The Company engages in hedging programs aimed at limiting, in part, the impact of currency fluctuations. Using primarily forward exchange contracts, the Company hedges some of those transactions that,
when remeasured according to accounting principles generally accepted in the United States of America, impact the statement of operations. Factors that could impact the effectiveness of the Company's
programs include volatility of the currency markets and availability of hedging instruments. All currency contracts that are entered into by the Company are components of hedging programs and are
entered into not for speculation but for the sole purpose of hedging an existing or anticipated currency exposure. The Company does not buy or sell financial instruments for trading purposes. Although
the Company maintains these programs to reduce the impact of changes in currency exchange rates, when the U.S. dollar sustains a weakening exchange rate against currencies in which the Company incurs
costs, the Company's costs are adversely affected. The Company has various debt instruments that bear interest at variable rates tied to LIBOR (London InterBank Offered Rate). Any increase in LIBOR
would have an adverse effect on the Company's interest costs.

The
Company accounts for changes in the fair value of its foreign currency contracts by marking them to market and recognizing any resulting gains or losses through its statement of
operations. The Company also marks its yen-denominated payables to market, recognizing any resulting gains or losses in its statement of operations. At December 31, 2003, the
Company had foreign currency forward contracts, maturing in 2004, to purchase Japanese yen at contracted forward rates. The value of these contracts at December 31, 2003 was approximately
$1,456,000, which was the approximate value of the Company's yen-denominated accounts payable. During the year ended December 31, 2003, the Company recorded a net realized gain of
approximately $105,000 on foreign currency transactions. During the years ended December 31, 2002 and 2001, the Company recorded net realized losses of approximately $120,000 and $55,000,
respectively, on foreign currency transactions. At December 31, 2003, the Company had no material unrealized gains or losses on foreign currency transactions.

The
potential loss in value of the Company's net investment in foreign currency forward contracts resulting from a hypothetical 10 percent adverse change in foreign currency
exchange rates at December 31, 2003 was approximately $162,000. For further information, see Note 1 of the Notes to the Consolidated Financial Statements.

19

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ITEM 8.    Financial Statements And Supplementary Data

P & F INDUSTRIES, INC. AND SUBSIDIARIES        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  AND SUPPLEMENTARY DATA

|                                                                                                                   |  | Page   
|------------------------------------------------------------------------------------------------------------------ |  | -------
|Report of Independent Certified Public Accountants                                                                 |  | 21     
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                       |  | 22     
|Consolidated Statements of Operations for each of the three years ended December 31, 2003, 2002 and 2001           |  | 23     
|Consolidated Statements of Shareholders' Equity for each of the three years ended December 31, 2003, 2002 and 2001 |  | 24     
|Consolidated Statements of Cash Flows for each of the three years ended December 31, 2003, 2002 and 2001           |  | 25 - 26
|Notes to Consolidated Financial Statements                                                                         |  | 27 - 50
|Schedule IIValuation and Qualifying Accounts for each of the three years ended December 31, 2003, 2002 and 2001   |  | 54     

20

---



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To
the Board of Directors
and the Shareholders of
P & F Industries, Inc.
Farmingdale, New York

We
have audited the accompanying consolidated balance sheets of P & F Industries, Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2003. We have also audited the schedule listed in
the accompanying index. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of P & F Industries, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.

As
discussed in Notes 1 and 11 to the consolidated financial statements, on January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards
No. 142, "Goodwill and other Intangible Assets."

Also,
in our opinion, the schedule presents fairly, in all material respects, the information set forth therein.

/s/BDO SEIDMAN, LLP

New
York, New York
March 5, 2004

21

---



P & F INDUSTRIES, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

|                                                                       |                                                                              | December 31,                                                                       |           
|---------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ----------
|
|ASSETS                                                                 |                                                                              |                                                                                    |           
|CURRENT:                                                               |                                                                              |                                                                                    |           
|                                                                       | Cash                                                                         |                                                                                    | $         
|                                                                       | Accounts receivable, net (Notes 2, 5 and 13)                                 |                                                                                    |           
|                                                                       | Inventories (Notes 3 and 5)                                                  |                                                                                    |           
|                                                                       | Deferred income taxesnet (Note 9)                                           |                                                                                    |           
|                                                                       | Prepaid expenses and other                                                   |                                                                                    |           
|                                                                       |                                                                              |                                                                                    |           
|                                                                       |                                                                              | TOTAL CURRENT ASSETS                                                               |           
|                                                                       |                                                                              |                                                                                    |           
|PROPERTY AND EQUIPMENT (Notes 5 and 6):                                |                                                                              |                                                                                    |           
|                                                                       | Land                                                                         |                                                                                    |           
|                                                                       | Buildings and improvements                                                   |                                                                                    |           
|                                                                       | Machinery and equipment                                                      |                                                                                    |           
|                                                                       |                                                                              |                                                                                    |           
|                                                                       |                                                                              |                                                                                    | 25,581,217
|                                                                       | Less accumulated depreciation and amortization                               |                                                                                    |           
|                                                                       |                                                                              |                                                                                    |           
|NET PROPERTY AND EQUIPMENT                                             |                                                                              |                                                                                    | 12,740,850
|                                                                       |                                                                              |                                                                                    |           
|GOODWILL, net (Notes 10 and 11)                                        |                                                                              |                                                                                    | 10,561,703
|OTHER INTANGIBLE ASSETS, net (Notes 10 and 11)                         |                                                                              |                                                                                    | 1,773,333 
|OTHER ASSETS, net of accumulated amortization of $178,210 and $180,858 |                                                                              |                                                                                    | 120,534   
|                                                                       |                                                                              |                                                                                    |           
|                                                                       |                                                                              | TOTAL ASSETS                                                                       |           
|                                                                       |                                                                              |                                                                                    |           
|LIABILITIES AND SHAREHOLDERS' EQUITY                                   |                                                                              |                                                                                    |           
|CURRENT LIABILITIES:                                                   |                                                                              |                                                                                    |           
|                                                                       | Short-term borrowings (Note 5)                                               |                                                                                    | $         
|                                                                       | Accounts payable                                                             |                                                                                    |           
|                                                                       | Accruals:                                                                    |                                                                                    |           
|                                                                       |                                                                              | Compensation                                                                       |           
|                                                                       |                                                                              | Other (Note 4)                                                                     |           
|                                                                       | Current maturities of long-term debt (Note 6)                                |                                                                                    |           
|                                                                       |                                                                              |                                                                                    |           
|                                                                       |                                                                              | TOTAL CURRENT LIABILITIES                                                          |           
|LONG-TERM DEBT, less current maturities (Note 6)                       |                                                                              |                                                                                    | 8,723,324 
|DEFERRED INCOME TAXESnet (Note 9)                                     |                                                                              |                                                                                    | 455,000   
|                                                                       |                                                                              |                                                                                    |           
|                                                                       |                                                                              | TOTAL LIABILITIES                                                                  |           
|                                                                       |                                                                              |                                                                                    |           
|COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 10 and 12)                  |                                                                              |                                                                                    |           
|SHAREHOLDERS' EQUITY (Notes 7 and 8):                                  |                                                                              |                                                                                    |           
|                                                                       | Preferred stock$10 par; authorized2,000,000 shares; no shares outstanding. |                                                                                    |           
|                                                                       | Common Stock:                                                                |                                                                                    |           
|                                                                       |                                                                              | Class A$1 par; authorized7,000,000 shares; issued3,735,367 and 3,690,367 shares |           
|                                                                       |                                                                              | Class B$1 par; authorized2,000,000 shares; no shares issued or outstanding       |           
|                                                                       | Additional paid-in capital                                                   |                                                                                    |           
|                                                                       | Retained earnings                                                            |                                                                                    |           
|                                                                       | Treasury stock, at cost (223,736 shares and 176,045 shares)                  |                                                                                    |           
|                                                                       |                                                                              |                                                                                    |           
|                                                                       |                                                                              | TOTAL SHAREHOLDERS' EQUITY                                                         |           
|                                                                       |                                                                              |                                                                                    |           
|                                                                       |                                                                              | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                         |           
|                                                                       |                                                                              |                                                                                    |           

See
accompanying notes to consolidated financial statements.

22

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P & F INDUSTRIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                          |          | Year Ended December 31,                                          
|----------------------------------------------------------------------------------------- | -------- | -----------------------------------------------------------------
|
|REVENUES (Note 13):                                                                       |          |                                                                  
|Net sales                                                                                 |          | $                                                                
|Other                                                                                     |          |                                                                  
|                                                                                          |          |                                                                  
|                                                                                          |          |                                                                  
|                                                                                          |          |                                                                  
|COSTS AND EXPENSES:                                                                       |          |                                                                  
|Cost of sales                                                                             |          |                                                                  
|Selling, general and administrative                                                       |          |                                                                  
|Interestnet                                                                              |          |                                                                  
|                                                                                          |          |                                                                  
|                                                                                          |          |                                                                  
|                                                                                          |          |                                                                  
|INCOME BEFORE TAXES ON INCOME AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE     |          |                                                                  
|TAXES ON INCOME (Note 9)                                                                  |          |                                                                  
|                                                                                          |          |                                                                  
|INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                         |          |                                                                  
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES OF $1,668,000 (Note 11) |          |                                                                  
|                                                                                          |          |                                                                  
|NET INCOME (LOSS)                                                                         |          | $                                                                
|                                                                                          |          |                                                                  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 15):                                     |          |                                                                  
|                                                                                          | BASIC    |                                                                  
|                                                                                          |          |                                                                  
|                                                                                          | DILUTED  |                                                                  
|                                                                                          |          |                                                                  
|EARNINGS (LOSS) PER SHARE OF COMMON STOCK (NOTE 15):                                      |          |                                                                  
|                                                                                          | BASIC:   |                                                                  
|                                                                                          |          | INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
|                                                                                          |          | CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES
|                                                                                          |          |                                                                  
|                                                                                          |          | NET INCOME (LOSS)                                                
|                                                                                          |          |                                                                  
|                                                                                          | DILUTED: |                                                                  
|                                                                                          |          | INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
|                                                                                          |          | CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES
|                                                                                          |          |                                                                  
|                                                                                          |          | NET INCOME (LOSS)                                                
|                                                                                          |          |                                                                  

See
accompanying notes to consolidated financial statements

23

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P & F INDUSTRIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

|                                                                         |  |   |            | Class A Common
Stock $1 Par |           |  |   |           |  |   |           |  |  
|------------------------------------------------------------------------ |  | - | ---------- | --------------------------- | --------- |  | - | --------- |  | - | --------- |  | -
|
|
|
|Balance, January 1, 2001                                                 |  | $ | 32,992,134 |                             | 3,677,593 |  | $ | 3,677,593 |  | $ | 8,464,139 |  | $
|Net income for the year ended December 31, 2001                          |  |   | 1,812,808  |                             |          |  |   |          |  |   |          |  |  
|Purchase of Class A Common Stock (Note 7)                                |  |   | (577,092   | )                           |          |  |   |          |  |   |          |  |  
|                                                                         |  |   |            |                             |           |  |   |           |  |   |           |  |  
|Balance, December 31, 2001                                               |  |   | 34,227,850 |                             | 3,677,593 |  |   | 3,677,593 |  |   | 8,464,139 |  |  
|Net loss for the year ended December 31, 2002                            |  |   | (376,267   | )                           |          |  |   |          |  |   |          |  |  
|Issuance of Class A Common Stock (Note 7)                                |  |   | 89,163     |                             | 12,774    |  |   | 12,774    |  |   | 76,389    |  |  
|Purchase of Class A Common Stock (Note 7)                                |  |   | (117,336   | )                           |          |  |   |          |  |   |          |  |  
|                                                                         |  |   |            |                             |           |  |   |           |  |   |           |  |  
|Balance, December 31, 2002                                               |  |   | 33,823,410 |                             | 3,690,367 |  |   | 3,690,367 |  |   | 8,540,528 |  |  
|Net income for the year ended December 31, 2003                          |  |   | 3,362,949  |                             |          |  |   |          |  |   |          |  |  
|Issuance of Class A Common Stock upon exercise of stock options (Note 8) |  |   | 114,312    |                             | 45,000    |  |   | 45,000    |  |   | 69,312    |  |  
|Purchase of Class A Common Stock (Note 7)                                |  |   | (322,340   | )                           |          |  |   |          |  |   |          |  |  
|                                                                         |  |   |            |                             |           |  |   |           |  |   |           |  |  
|Balance, December 31, 2003                                               |  | $ | 36,978,331 |                             | 3,735,367 |  | $ | 3,735,367 |  | $ | 8,609,840 |  | $
|                                                                         |  |   |            |                             |           |  |   |           |  |   |           |  |  

See accompanying notes to consolidated financial statements.

24

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P & F INDUSTRIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                         |                                                                                      | Year Ended December 31,                   |          
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | ---------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |                                                                                      |                                           |          
|Net income (loss)                                                                        |                                                                                      | $                                         | 3,362,949
|                                                                                         |                                                                                      |                                           |          
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                                      |                                           |          
|                                                                                         | Cumulative effect of change in accounting for goodwill, net of taxes                 |                                           |          
|                                                                                         | Depreciation and amortization                                                        |                                           |          
|                                                                                         | Amortization of goodwill                                                             |                                           |          
|                                                                                         | Amortization of other intangibles and other assets                                   |                                           |          
|                                                                                         | Provision for losses on accounts receivablenet                                      |                                           |          
|                                                                                         | Deferred income taxesnet                                                            |                                           |          
|                                                                                         | Issuance of Class A Common Stock as compensation                                     |                                           |          
|                                                                                         | Loss (gain) on disposal of fixed assets                                              |                                           |          
|Decrease (increase), net of acquisition in 2002 of Nationwide Industries, Inc., in:      |                                                                                      |                                           |          
|                                                                                         | Accounts receivable                                                                  |                                           |          
|                                                                                         | Inventories                                                                          |                                           |          
|                                                                                         | Prepaid expenses and other                                                           |                                           |          
|                                                                                         | Other assets                                                                         |                                           |          
|Increase (decrease), net of acquisition in 2002 of Nationwide Industries, Inc., in:      |                                                                                      |                                           |          
|                                                                                         | Accounts payable                                                                     |                                           |          
|                                                                                         | Accruals                                                                             |                                           |          
|                                                                                         |                                                                                      |                                           |          
|                                                                                         |                                                                                      | Total adjustments                         |          
|                                                                                         |                                                                                      |                                           |          
|                                                                                         |                                                                                      | Net cash provided by operating activities |          
|                                                                                         |                                                                                      |                                           |          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |                                                                                      |                                           |          
|                                                                                         | Capital expenditures                                                                 |                                           |          
|                                                                                         | Payments for acquisition of product line                                             |                                           |          
|                                                                                         | Payments for acquisition of Nationwide Industries, Inc., net of $2,920 cash acquired |                                           |          
|                                                                                         | Additional payments for purchase of Nationwide Industries, Inc.                      |                                           |          
|                                                                                         | Payments for acquisitionrelated expenses                                            |                                           |          
|                                                                                         | Proceeds from sale of fixed assets                                                   |                                           |          
|                                                                                         |                                                                                      |                                           |          
|                                                                                         |                                                                                      | Net cash used in investing activities     |          
|                                                                                         |                                                                                      |                                           |          
|                                                                                         |                                                                                      |                                           |          

25

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|CASH FLOWS FROM FINANCING ACTIVITIES: |                                         |                                                     |           |             |            |           |            |            |         |            
|------------------------------------- | --------------------------------------- | --------------------------------------------------- | --------- | ----------- | ---------- | --------- | ---------- | ---------- | ------- | -----------
|                                      | Proceeds from short-term borrowings     |                                                     |           | 9,500,000   |            |           | 5,000,000  |            |         | 3,500,000  
|                                      | Repayments of short-term borrowings     |                                                     |           | (11,000,000 | )          |           | (2,935,000 | )          |         | (10,500,000
|                                      | Proceeds from mortgage                  |                                                     |           | 1,697,301   |            |           | 2,024,000  |            |         |           
|                                      | Proceeds from term loan                 |                                                     |           |            |            |           | 11,500,000 |            |         |           
|                                      | Principal payments on long-term debt    |                                                     |           | (4,442,300  | )          |           | (4,391,484 | )          |         | (296,598   
|                                      | Proceeds from exercise of stock options |                                                     |           | 114,312     |            |           |           |            |         |           
|                                      | Purchase of Class A Common Stock        |                                                     |           | (322,340    | )          |           | (117,336   | )          |         | (577,092   
|                                      |                                         |                                                     |           |             |            |           |           
|                                      |                                         | Net cash (used in) provided by financing activities |           |             | (4,453,027 | )         |            | 11,080,180 |         |            
|                                      |                                         |                                                     |           |             |            |           |           
|NET (DECREASE) INCREASE IN CASH       |                                         |                                                     | (810,813  | )           |            | 516,389   |            |            | 119,411 |            
|CASH AT BEGINNING OF YEAR             |                                         |                                                     | 1,024,222 |             |            | 507,833   |            |            | 388,422 |            
|                                      |                                         |                                                     |           |             |            |           |           
|CASH AT END OF YEAR                   |                                         | $                                                   | 213,409   |             | $          | 1,024,222 |            | $          | 507,833 |            
|                                      |                                         |                                                     |           |             |            |           |           

Supplemental disclosures of cash flow information:

Cash paid for:

| |              | Year Ended December 31,
| | ------------ | -----------------------
|
| | Interest     |                        
| |              |                        
| | Income taxes |                        
| |              |                        

On
July 12, 2002, the Company issued to the Chief Executive Officer of the Company 12,774 unrestricted shares of Class A Common Stock. The Company recorded the fair market
value of these shares, $89,163, as compensation expense.

See
accompanying notes to consolidated financial statements.

26

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P & F INDUSTRIES, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements contained herein include the accounts of P & F Industries, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.

P &
F Industries, Inc. ("P & F") conducts its business operations through its four wholly-owned subsidiaries: Florida Pneumatic Manufacturing Corporation ("Florida
Pneumatic"), Countrywide Hardware, Inc. ("Countrywide"), Green Manufacturing, Inc. ("Green") and Embassy Industries, Inc. ("Embassy"). P & F Industries, Inc. and its
subsidiaries are herein referred to collectively as the "Company."

Florida
Pneumatic is engaged in the importation, manufacture and sale of pneumatic hand tools, primarily for the industrial and retail markets, and the importation and sale of compressor
air filters. Florida Pneumatic also markets, through its Berkley Tool division ("Berkley"), a line of pipe cutting and threading tools, wrenches and replacement electrical components for a
widely-used brand of pipe cutting and threading machines. Countrywide conducts its business operations through Nationwide Industries, Inc. ("Nationwide"), its wholly-owned
subsidiary, and through its Franklin Manufacturing ("Franklin") division. Countrywide acquired all of the stock of Nationwide on May 3, 2002. The assets of Franklin were transferred from
Embassy to Countrywide on December 30, 2002. Nationwide is an importer and manufacturer of door, window and fencing hardware. Franklin imports a
line of door and window hardware. Green is engaged primarily in the manufacture, development and sale of heavy-duty welded custom designed hydraulic cylinders. Green also manufactures a
line of access equipment for the petro-chemical industry and a line of post hole digging equipment for the agricultural industry. Embassy is engaged in the manufacture and sale of baseboard heating
products and the importation and sale of radiant heating systems. Note 13 of the Notes to Consolidated Financial Statements presents financial information for the segments of the Company's
business.

Basis of Financial Statement Presentation

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Certain of
these accounting policies require the Company 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. On an ongoing basis, the Company evaluates estimates, including those related to bad debts, inventory reserves, goodwill and intangible assets. The Company bases its 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. Actual results may differ from these estimates.

Reclassification

Certain prior year amounts have been reclassified to conform with the current year's presentation.

27

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Revenue Recognition

The Company records revenues upon shipment with related risks and title passing to the customers. Estimates of losses for bad debts, returns and other allowances
are recorded at the time of the sale.

Shipping and Handling Costs

The Company generally does not bill customers for shipping and handling costs. Expenses for shipping and handling costs are included in selling, general and
administrative expenses, and totaled approximately $1,346,000, $1,206,000 and $995,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Financial Instruments

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and short-term debt, approximated fair value as
of December 31, 2003 and 2002 because of the relatively short-term maturity of these instruments. The carrying value of long-term debt approximated fair value as of
December 31, 2003 and 2002, based upon quoted market prices for the same or similar debt issues, with the exception of a fixed rate mortgage with a balance of approximately $1,700,000 as of
December 31, 2002. Using interest rates as of December 31, 2002, the fair value of this mortgage would have been approximately $1,960,000. This mortgage was refinanced in
January 2003. This new mortgage bears interest at a variable rate that more closely approximates the current interest rate.

Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms. The Company sells its products to retailers, distributors and original equipment
manufacturers involved in a variety of industries, including heating, hardware, tools and mobile equipment. The Company performs continuing credit evaluations of its customers' financial condition,
and although the Company generally does not require collateral, letters of credit may be required from customers in certain circumstances.

Senior
management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company records an allowance for doubtful accounts
based on specifically identified amounts that are believed to be uncollectible. The Company also records additional allowances based on certain percentages of aged receivables, based on historical
experience and the Company's assessment of the general financial conditions affecting its customer base. If actual collections experience changes, revisions to the allowance may be required. The
Company has a limited number of customers with individually large amounts due at any given balance sheet date. Any unanticipated change in the credit worthiness of any of these customers or any other
matters affecting the collectibility of amounts due from such customers could have a material affect on the Company's results of operations in the period in which such changes or events occur. After
all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, the Company believes that its allowance for
doubtful accounts as of December 31, 2003 was adequate. However, actual write-offs might exceed the recorded allowance.

28

---

Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of temporary cash investments and accounts
receivable. The Company places its cash in overnight money market instruments with high quality financial institutions, which, by policy, limit the amount of credit exposure in any one financial
instrument.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. The inventory balance, which
includes materials, labor and manufacturing overhead costs, is recorded net of an allowance for obsolete or unmarketable inventory. Such allowance is based upon both historical experience and
management's understanding of market conditions and forecasts of future product demand. If the actual amount of obsolete or unmarketable inventory significantly exceeds the estimated allowance, the
Company's cost of sales, gross profit and net income would be significantly affected.

Property and Equipment and Depreciation and Amortization

Property and equipment are stated at cost.

Depreciation
and amortization are computed by the straight-line method for financial reporting purposes and by the straight-line and accelerated methods for
income tax purposes. The estimated useful lives for financial reporting purposes are as follows:

Buildings and improvements

10 - 30 yearsMachinery and equipment

3 - 12 years


Long-Lived Assets

The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying value of any of these assets may not be
recoverable. In that regard, the Company will assess the recoverability of such assets based upon estimated undiscounted cash flow forecasts. If an asset impairment is identified the asset is written
down to fair value based on discounted cash flow or another fair value measure.

Goodwill and Other Intangible Assets

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), which requires that goodwill not be amortized, but that goodwill and other intangible assets be tested annually for impairment. The Company adopted SFAS 142 as of
January 1, 2002 and, in accordance therewith, ceased amortizing its goodwill as of that date. Prior to the adoption of SFAS 142, the Company had amortized goodwill on a
straight-line basis over periods from 25 to 40 years. Other intangible assets continue to be amortized over a period of five years.

The
Company's operational policy for the assessment and measurement of any impairment in the value of goodwill and other intangible assets that is other than temporary is to evaluate
annually, with

29

---

the
help of independent third-party appraisals, the recoverability and remaining life of its goodwill and other intangible assets to determine the fair value of these assets. The methodologies to be
used to estimate fair value include the use of estimates and assumptions, including projected revenues, earnings and cash flows. If the fair value of any of these assets is determined to be less than
its carrying value, the Company will reflect the impairment of any such asset through a reduction in its carrying value, in an amount equal to the excess of the carrying value of the asset over its
appraised value.

Warranty Liability

The Company offers to its customers warranties against product defects for periods ranging from one year to the life of the product, depending on the specific
product and terms of the customer purchase agreement. The Company's typical warranties require it to repair or replace the defective products during the warranty period at no cost to the customer. At
the time the product revenue is recognized, the Company records a liability for estimated costs under its warranties. The costs are estimated based on historical experience. The Company periodically
assesses the adequacy of its recorded warranty liability and adjusts the amounts necessary. While the Company believes that its estimated liability for product warranties is adequate and that the
judgment applied is appropriate, the estimated liability for the product warranties could differ materially from future actual warranty costs.

Taxes on Income

The Company files a consolidated Federal tax return. P & F Industries, Inc. and each of its subsidiaries file separate state and local tax returns.

Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and any operating loss or tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of any change in the tax rate is recognized in
income in the period that includes the enactment date of such change.

Earnings (Loss) Per Share

Basic earnings (loss) per common share is based only on the average number of shares of common stock outstanding for the year. Diluted earnings (loss) per common
share reflects the effect of shares of common stock issuable upon the exercise of options, unless the effect on earnings is antidilutive.

Diluted
earnings (loss) per 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 or warrants to purchase shares of the Company's Class A Common Stock. The average market value for the period is used as the
assumed purchase price.

Stock-Based Compensation

In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock Based Compensation-

30

---

Transition
and Disclosure" ("SFAS 148"), which was issued to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amended the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method
used on reported results.

The
Company accounts for its stock option awards to its employees under the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement
date over the amount an employee must pay to acquire the stock. The Company makes pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been
applied, as required by SFAS 123.

SFAS 123
requires the Company to provide pro forma information regarding net income and earnings per share as if compensation cost for its incentive stock option plan had been
determined in accordance with the fair value method prescribed by SFAS 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing
model with the
following weighted-average assumptions for options granted in 2002; no dividends paid; expected volatility of 56.9%; risk-free interest rate of 4.3%; and expected life of 8.5 years.
No options were granted in either 2003 or 2001.

The
weighted-average fair value of options for which the exercise price equaled the market price on the grant date was $4.20 in 2002. The weighted-average fair value of options for which
the exercise price exceeded the market price on the grant date was $3.07 in 2002.

Under
the provisions of SFAS 123, the Company's net income (loss) and its basic and diluted earnings (loss) per share would have changed to the pro forma amounts indicated below:

Year Ended December 31,2003

2002

2001Net income (loss) as reported

$
3,362,949

$
(376,267
)
$
1,812,808Add: Stock-based employee compensation expense included in reported net income, net of related tax effects





56,172


Deduct: Total stock-based employee compensation expense determined under fair value method, net of related tax effects





(593,100
)

Pro forma net income (loss)

$
3,362,949

$
(913,195
)
$
1,812,808Basic earnings (loss) per share:As reported

$
.96

$
(.11
)
$
.51Pro forma

$
.96

$
(.26
)
$
.51Diluted earnings (loss) per share:As reported

$
.94

$
(.11
)
$
.50Pro forma

$
.94

$
(.26
)
$
.50


31

---



Treasury Stock

Treasury stock is recorded at net acquisition cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in
capital with losses in excess of previously recorded gains charged directly to retained earnings.

Derivative Financial Instruments

The Company uses derivatives to reduce its exposure to fluctuations in foreign currencies, principally Japanese yen. Derivative products, specifically foreign
currency forward contracts, are used to hedge the foreign currency market exposures underlying certain debt and forecasted transactions with foreign vendors. The Company does not enter into such
contracts for speculative purposes.

For
derivative instruments that are designated and qualify as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified
portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedge item attributable to the hedged risk are
recognized in earnings in the current period. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure of variability in the expected future cash
flows that would be attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated comprehensive loss (a component
of shareholders' equity) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument, if
any (i.e., the ineffective portion and any portion of the derivative instrument excluded from the assessment of effectiveness), is recognized in earnings in the current period. For derivative
instruments not designated as hedging instruments, changes in the fair market values are recognized in earnings as a component of cost of goods sold.

The
Company accounts for changes in the fair value of its foreign currency contracts by marking them to market and recognizing any resulting gains or losses through its statement of
operations. The Company also marks its yen-denominated payables to market, recognizing any resulting gains or losses in its statement of operations. At December 31, 2003, the
Company had foreign currency forward contracts, maturing in 2004, to purchase Japanese yen at contracted forward rates. The value of these contracts at December 31, 2003 was approximately
$1,456,000, which was the approximate value of the Company's yen-denominated accounts payable. During the year ended December 31, 2003, the Company recorded a net realized gain of
approximately $105,000 on foreign currency transactions. During the years ended December 31, 2002 and 2001, the Company recorded net realized losses of approximately $120,000 and $55,000,
respectively, on foreign currency transactions. At December 31, 2003, the Company had no material unrealized gains or losses on foreign currency transactions.

New Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145"), which eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or
loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30, "Reporting Results of Operations." The provisions of SFAS 145 related to the
recission of Statement 4 are effective for fiscal years beginning after May 15,

32

---

2002.
The Company adopted SFAS 145 as of January 1, 2003. In January 2003, the Company recorded a loss of approximately $84,000, included in selling, general and administrative
expenses, that resulted from the refinancing of a mortgage.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). The principal difference between SFAS 146 and EITF
94-3 relates to the requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability was recognized at the date of an entity's commitment to an exit plan.
SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company did not have any exit or disposal activities since the adoption of
SFAS 146.

In
June 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends
SFAS 133 and certain other FASB standards for decisions made by the FASB as part of the Derivatives Implementation Group process. Among other changes, FASB 149 clarifies the definition of a
derivative financial instrument. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003. The provisions of SFAS 149 that relate to
SFAS 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003 should continue to be applied in accordance with their respective dates. In
addition, certain provisions of SFAS 149 that apply to forward purchases or sales of when-issued securities or other securities that do no yet exist are applicable to both existing
contracts and new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 had no impact on either the Company's results of operations or its financial position.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," ("SFAS 150") that
establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 150 had no impact on the
Company's results of operations or financial position.

In
January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, ("FIN 46") "Consolidation of Variable Interest Entities." This Interpretation
clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is
effective February 1, 2003 for variable interest entities created after January 31, 2003, and July 1, 2003 for variable interest entities created prior to February 1, 2003
(deferred until the first quarter of 2004). The Company does not expect the adoption of FIN 46 to have a material impact on either its results of operations or its financial position.

In
May 2003, the Emerging Issues Task Force ("EITF"), issued EITF Issue No, 00-21 "Revenue Arrangements with Multiple Deliverables" ("Issue 00-21"). Issue
00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue generating activities and how to determine whether an
arrangement involving multiple deliverables contains more

33

---

than
one unit of accounting. Issue 00-21 became effective for revenue arrangements entered into in fiscal periods after June 15, 2003. The adoption of Issue 00-21 did
not have a material effect on either the Company's results of operations or its financial position.

NOTE 2ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivables consist of:

December 31,2003

2002Trade accounts receivables

$
12,249,920

$
11,218,702Allowance for doubtful accounts


(328,074
)

(354,441
)Net accounts receivable

$
11,921,846

$
10,864,261


NOTE 3INVENTORIES

Inventories consist of:

December 31,2003

2002Raw material

$
3,521,478

$
3,566,161Work in process


723,728


754,857Finished goods


14,509,855


15,259,055$
18,755,061

$
19,580,073


NOTE 4WARRANTY LIABILITY

Changes in the Company's warranty liability, included in other accrued liabilities, for the years ended December 31, 2003 and December 31, 2002 were
as follows:

Year Ended
December 31,2003

2002Balance, beginning of year

$
186,513

$
198,384Warranties issued and changes in estimated pre-existing warranties


241,491


296,192Actual warranty costs incurred


(217,015
)

(308,063
)Balance, end of year

$
210,989

$
186,513


34

---

NOTE 5SHORT-TERM BORROWINGS

The Company's credit agreement with a bank includes a revolving credit loan facility, which provides a total of $12,000,000, with various sublimits, for direct
borrowings, letters of credit, bankers' acceptances and equipment loans. There are no commitment fees for any unused portion of this credit facility. At December 31, 2003, there was $3,000,000
outstanding against the revolving credit loan facility. There was also a commitment of approximately $36,000 at December 31, 2003 for open letters of credit.

Direct
borrowings under the Company's revolving credit loan facility are secured by the Company's accounts receivable, inventory and equipment and are cross-guaranteed by each of the
Company's subsidiaries. These borrowings bear interest at either the prime interest rate or LIBOR plus 1.6%. The prime interest rate at December 31, 2003 was 4.0% and LIBOR was approximately
1.2%. The prime interest rate at December 31, 2002 was 4.25% and LIBOR was approximately 1.4%.

The
credit agreement also includes a foreign exchange line, which provides for the availability of up to $10,000,000 in foreign currency forward contracts. These contracts fix the
exchange rate on future purchases of Japanese yen needed for payments to foreign suppliers. The total amount of foreign currency forward contracts outstanding at December 31, 2003, based on the
spot rate, was approximately $1,456,000.

Under
the terms of the Company's credit agreement, the Company is required to adhere to certain financial covenants. At December 31, 2003, and for the year then ended, the Company
satisfied all of these covenants.

The
credit agreement expires in July 2004 and is subject to annual review by the lending bank. The credit agreement also includes a term loan facility, as described in
Note 6.

35

---

NOTE 6LONG-TERM DEBT

Long-term debt consists of:

December 31,2003

2002Term loanpayments of interest only are due monthly through May 2003. Principal amount outstanding at June 1, 2003 to be paid in equal quarterly installments (plus interest at LIBOR plus 175 basis points) from June
2003 through March 2009

$
5,250,000

$
7,500,000Mortgage loan$11,244 (plus interest at LIBOR plus 155 basis points) payable monthly through May 2009, when a final payment of approximately $1,090,000 is due(a)


1,810,356


1,945,289Mortgage loan$9,429 (plus interest at LIBOR plus 155 basis points) payable monthly through January 2010, when a final payment of approximately $915,000 is due(a)


1,593,577


Mortgage loan$17,438 (including interest at 8.16%) payable monthly through May 2006(c)





1,697,282Mortgage loan$16,388 (including interest at 7.09%) payable monthly through March 2014(a)


1,415,604


1,506,965Economic Development Revenue Bondpayable annually in various principal amounts (plus interest at variable rates) through November 2004(b)


180,000


345,00010,249,537


12,994,536Less current maturities


1,526,213


1,402,547$
8,723,324

$
11,591,989


---

The
aggregate amounts of the long-term debt scheduled to mature in each of the years ended December 31 are as follows: 2004$1,526,213;
2005$1,353,494; 2006$1,361,326; 2007$1,369,740; 2008$1,378,576; 2009$1,639,230; and 2010 and thereafter$1,620,958.
Interest expense on long-term debt was $412,353,$550,244 and $284,137 for the years ended December 31, 2003, 2002 and 2001,
respectively.

The
Company's credit agreement with a bank includes a term loan facility, which provides a maximum commitment of $15,000,000 to finance acquisitions subject to the lending bank's
approval. There are no commitment fees for any unused portion of this credit facility. The Company borrowed $11,500,000 against this facility to finance the acquisition of Nationwide. At
December 31, 2003, there was $5,250,000 outstanding against the term loan facility. There was also a standby letter of credit totaling approximately $351,000 outstanding against this facility
at December 31, 2003. This standby

36

---

letter
of credit is used to secure the Economic Development Revenue Bond assumed as part of the acquisition of Green.

Under
the terms of the Company's credit agreement, the Company is required to adhere to certain financial covenants. At December 31, 2003, and for the year then ended, the Company
satisfied all of these covenants.

The
credit agreement expires in July 2004 and is subject to annual review by the lending bank.

NOTE 7CAPITAL STOCK TRANSACTIONS

During the years ended December 31, 2003, 2002 and 2001, the Company purchased 47,691, 18,600 and 85,260 shares, respectively, of Class A Common
Stock, at costs of $322,340, $117,336 and $577,092, respectively.

On
July 12, 2002, the Company issued to the Chief Executive Officer of the Company 12,774 unrestricted shares of Class A Common Stock. The Company recorded the fair market
value of these shares, $89,163, as compensation expense. On July 12, 2002, the Company also issued to various employees options to purchase an aggregate of 221,100 shares of Class A
Common Stock. On September 30, 2003, the Company extended until September 30, 2004 its program to repurchase shares of Class A Common Stock.

In
connection with its Stockholder Rights Plan, the Company entered into a Rights Agreement (as amended) and distributed as a dividend to each holder of Class A Common Stock a
preferred stock purchase right. These rights entitle the stockholders, in certain circumstances, to purchase one one-thousandth of a share of the Company's Series A Junior
Participating Preferred Stock for $10. The Stockholder Rights Plan, which expires in August 2004, is intended to protect, among other things, the interests of the Company's stockholders in the
event the Company is confronted with coercive or unfair takeover tactics.

NOTE 8STOCK OPTIONS

The Company's 2002 Incentive Stock Option Plan (the "Current Plan") authorizes the issuance, to employees and directors, of options to purchase a maximum of
1,100,000 shares of Class A Common Stock. These options must be issued within ten years of the effective date of the Plan and are exercisable for a ten year period from the date of grant, at
prices not less than 100% of the market value of the Class A Common Stock on the date the option is granted. Options granted to any 10% stockholder are exercisable for a five year period from
the date of grant, at prices not less than 110% of the market value of the Class A Common Stock on the date the option is granted.

The
Current Plan is the successor to the Company's 1992 Incentive Stock Option Plan (the "Prior Plan").

37

---

The
following table contains information on stock options for the three years ended December 31, 2003:

Option
Shares

Exercise
Price Range
Per Share

Weighted
Average
Exercise
PriceOutstanding, January 1, 2001 and 2002

396,300

$
1.44 to 9.00

$
6.06Granted

221,100


6.00 to 6.60


6.18Expired

(78,500
)

5.25 to 7.88


5.72Outstanding, December 31, 2002

538,900


1.44 to 9.00


6.16Exercised

(45,000
)

1.44 to 6.00


2.54Expired

(13,500
)

5.25 to 8.66


8.16Outstanding, December 31, 2003

480,400

$
1.94 to 9.00

$
6.44


There
were options available for issuance under the Current Plan as of December 31 of each year as follows: 2001358,200; 2002878,900; and
2003878,900. Of the options outstanding at December 31, 2003, 219,100 were issued under the Current Plan and 261,300 were issued under the Prior Plan.

The
following table summarizes information about stock options outstanding and exercisable at December 31, 2003:

Range of
Exercise Prices

Outstanding

Weighted
Average
Remaining
Contractual
Life (Years)

Weighted
Average
Exercise Price

Exercisable

Weighted
Average
Exercise Price$1.94

28,000

1.0

$
1.94

28,000

$
1.943.75 to 5.25

57,800

3.3


4.91

57,800


4.917.88

156,500

4.2


7.88

156,500


7.888.94 to 9.00

17,000

5.2


8.96

17,000


8.968.75

2,000

6.3


8.75

2,000


8.756.00

152,436

8.5


6.00

152,436


6.006.60

66,664

3.5


6.60




$1.94 to 9.00

480,400

5.2

$
6.44

413,736

$
6.42


38

---



NOTE 9TAXES ON INCOME

Provisions for taxes on income in the consolidated statements of operations consist of:

Year Ended December 31,2003

2002

2001Current:Federal

$
2,059,000

$
1,392,000

$
953,000State and local


304,000


211,000


88,000Total current


2,363,000


1,603,000


1,041,000Deferred:Federal


(279,000
)

92,000


15,000State and local


(67,000
)

(15,000
)

3,000Total deferred


(346,000
)

77,000


18,000Total taxes on income

$
2,017,000

$
1,680,000

$
1,059,000


Deferred
tax assets (liabilities) consist of:

December 31,2003

2002Deferred tax assetscurrent:Bad debt reserves

$
118,000

$
146,000Inventory reserves


434,000


353,000Warranty and other reserves


237,000


196,000789,000


695,000Deferred tax liabilitiescurrent:Inventory





(210,000
)Net deferred tax assetscurrent

$
789,000

$
485,000Deferred tax assetsnon-current:Goodwill


1,249,000


1,377,000Deferred tax liabilitiesnon-current:Depreciation


(1,014,000
)

(1,031,000
)Intangible assets


(648,000
)

(843,000
)Goodwill


(42,000
)

(1,704,000
)

(1,874,000
)Net deferred tax liabilitiesnon-current

$
(455,000
)
$
(497,000
)


39

---

A
reconciliation of the Federal statutory rate to the total effective tax rate applicable to income before taxes on income is as follows:

|                                                 |                                                   | Year Ended December 31, |        
|------------------------------------------------ | ------------------------------------------------- | ----------------------- | -------
|
|
|Federal income taxes computed at statutory rates |                                                   | 1,829,000               |        
|Increase in taxes resulting from:                |                                                   |                         |        
|                                                 | State and local taxes, net of Federal tax benefit |                         | 156,000
|                                                 | Expenses not deductible for tax purposes          |                         | 57,000 
|                                                 | Other                                             |                         | (25,000
|                                                 |                                                   |                         |        
|Taxes on income                                  |                                                   | 2,017,000               |        
|                                                 |                                                   |                         |        

NOTE 10ACQUISITION

On May 3, 2002, Countrywide acquired all of the stock of Nationwide for approximately $10,452,000, plus an additional payment in 2002 for a working capital
adjustment of approximately $259,000. In addition to the cash paid at the closing, the Company is liable for contingent earnout payments to Nationwide's previous owner, in amounts equal to 30% of the
excess of Nationwide's earnings, before amortization of intangible assets, interest and taxes, over $2,500,000, for each of the five twelve-month periods subsequent to the acquisition date. These
contingent earnout payments have been and will be treated as additions to goodwill.

As
part of this acquisition, the Company has recorded goodwill of approximately $7,319,000 through December 31, 2003. During the year ended December 31, 2002, the Company
recorded goodwill of approximately $6,968,000, including approximately $259,000 related to the working capital adjustment described above, approximately $561,000 related to acquisition costs and
acquisition-related expenses, approximately $150,000 related to contingent earnout payments and approximately $972,000 related to a deferred tax liability associated with intangible assets that were
part of the acquisition. During the year ended December 31, 2003, the Company recorded net additions to goodwill of approximately $351,000, related primarily to contingent earnout payments.

This
acquisition was accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 141, "Business Combinations." Nationwide is engaged in the
business of importing and manufacturing door, window and fencing hardware. The Company completed its acquisition of Nationwide in order to expand its presence in the domestic residential hardware
market.

This
acquisition was financed through the term loan facility available under the Company's credit agreement, as described in Note 6.

On
May 24, 2002, in connection with the acquisition of Nationwide, Countrywide also purchased, for $2,500,000, the real property and the improvements thereon in which Nationwide
conducts its business. This purchase was financed primarily through a mortgage loan, in the amount of $2,024,000, from a bank.

40

---

The
consolidated financial statements presented in this report include the combined results of operations of Countrywide and Nationwide for the period from May 4, 2002 through
December 31, 2003.

The
following table summarizes the estimated fair value of the assets acquired and the liabilities assumed in connection with the acquisition of Nationwide. The Company obtained third
party valuations for the property, plant and equipment and intangible assets (i.e., employment agreement and customer list).

(000's)Current assets

$
4,115Plant and equipment


860Employment agreement


760Customer list


1,900Goodwill


6,968Total assets acquired


14,603Current liabilities


(3,181
)Total liabilities assumed


(3,181
)Net assets acquired

$
11,422


The
employment agreement and the customer list have each been assigned a useful life of five years for accounting purposes. The amortization of these intangible assets is not deductible
for tax purposes. Goodwill is not amortized for either financial reporting or tax purposes.

The
following table summarizes, on a pro forma basis, the combined results of operations of the Company and Countrywide (combined with Nationwide), as though the acquisition of
Nationwide had been made January 1, 2002. The pro forma amounts give effect to appropriate adjustments for depreciation of fixed assets, amortization of intangible assets, interest expense and
income taxes. The pro forma amounts presented are not necessarily indicative of future operating results.

Year ended
December 31,
2002Net sales

$
80,380,000Income before cumulative effect of change in accounting principle

$
2,902,000Earnings per share of common stock:Basic

$
.83Diluted

$
.81


In
January 2002, the Company completed another small acquisition for approximately $848,000. The entire amount was recorded as goodwill.

41

---

NOTE 11GOODWILL AND OTHER INTANGIBLE ASSETS

The Company had its goodwill tested for impairment, retroactive to January 1, 2002, during the second quarter of 2002. The impairment tests performed
required that the Company determine the fair market value of its reporting units for comparison to the carrying value of their net assets to assess whether any impairment exists. The methodologies
used to estimate fair market value involved the use of estimates and assumptions, including projected revenues, earnings and cash flows.

The
Company's earnings forecasts for Green, which reflected the extremely weak market conditions in the hydraulic cylinder business, resulted in the fair market value of Green's
goodwill, as determined by an independent third-party appraiser, was lower than its carrying value as of December 31, 2001. Accordingly, in the quarter ended June 30, 2002, the Company
recorded, retroactive to January 1, 2002, an impairment charge of approximately $3.2 million, net of taxes of approximately $1.7 million, which is reported as a cumulative effect
of change in accounting principle resulting from the adoption of SFAS 142. The Company's annual impairment test done as of November 30, 2003 indicated that the fair values exceeded the
carrying amounts for all reporting units.

The
changes in the carrying amounts of goodwill for the years ended December 31, 2003 and 2002 are as follows:

|                                            |  | Consolidated |        | Pneumatic
tools and
related
equipment |   | Hardware |  | Hydraulic
cylinders |       | Heating
products
|------------------------------------------- |  | ------------ | ------ | ------------------------------------- | - | -------- |  | ------------------- | ----- | ----------------
|
|Balance, January 1, 2002                    |  | $            | 7,302  |                                       | $ | 2,327    |  | $                   | 68    |                 
|Goodwill acquired during the year (Note 10) |  |              | 7,816  |                                       |   |         |  |                     | 6,968 |                 
|Impairment loss                             |  |              | (4,907 | )                                     |   |         |  |                     |      |                 
|                                            |  |              |        |                                       |   |          |  |                     |       |                 
|Balance, December 31, 2002                  |  |              | 10,211 |                                       |   | 2,327    |  |                     | 7,036 |                 
|Goodwill acquired during the year (Note 10) |  |              | 351    |                                       |   |         |  |                     | 351   |                 
|                                            |  |              |        |                                       |   |          |  |                     |       |                 
|Balance, December 31, 2003                  |  | $            | 10,562 |                                       | $ | 2,327    |  | $                   | 7,387 |                 
|                                            |  |              |        |                                       |   |          |  |                     |       |                 

Other
intangible assets were as follows:

|                         |                      | December 31, 2003 |           | December 31, 2002
|------------------------ | -------------------- | ----------------- | --------- | -----------------
|
|Other intangible assets: |                      |                   |           |                  
|                         | Customer list        |                   | $         | 1,900,000        
|                         | Employment agreement |                   |           | 760,000          
|                         |                      |                   |           |                  
|Total                    |                      | $                 | 2,660,000 |                  
|                         |                      |                   |           |                  

Amortization
expense for intangible assets subject to amortization was approximately $532,000 and $355,000 for the years ended December 31, 2003 and 2002, respectively.
Amortization expense for each of the years in the period ending December 31, 2007 is estimated to be approximately $532,000 in 2004 through 2006, and approximately $177,000 in 2007.

42

---

With
its adoption of SFAS 142, the Company ceased amortization of goodwill as of December 31, 2001. The following table presents the comparable results of operations based
on the adoption of SFAS 142 for each of the years ended December 31, 2003, 2002 and 2001, respectively:

|                                                    |         | Year ended December 31,                             |          
|--------------------------------------------------- | ------- | --------------------------------------------------- | ---------
|
|Reported net income (loss)                          |         | $                                                   | 3,362,949
|Cumulative effect of change in accounting principle |         |                                                     |         
|Goodwill amortization                               |         |                                                     |         
|Tax effect                                          |         |                                                     |         
|                                                    |         |                                                     |          
|Adjusted net income                                 |         | $                                                   | 3,362,949
|                                                    |         |                                                     |          
|Earnings (loss) per share of Class A Common stock:  |         |                                                     |          
|                                                    | Basic   |                                                     |          
|                                                    |         | Reported net income (loss)                          |          
|                                                    |         | Cumulative effect of change in accounting principle |          
|                                                    |         | Goodwill amortization                               |          
|                                                    |         | Tax effect                                          |          
|                                                    |         |                                                     |          
|                                                    |         | Adjusted net income                                 |          
|                                                    |         |                                                     |          
|                                                    | Diluted |                                                     |          
|                                                    |         | Reported net income (loss)                          |          
|                                                    |         | Cumulative effect of change in accounting principle |          
|                                                    |         | Goodwill amortization                               |          
|                                                    |         | Tax effect                                          |          
|                                                    |         |                                                     |          
|                                                    |         | Adjusted net income                                 |          
|                                                    |         |                                                     |          

NOTE 12COMMITMENTS AND CONTINGENCIES

(a)   P &
F and two of its subsidiaries have adopted a defined contribution pension plan, which covers substantially all non-union employees. Contributions
to this plan were determined as a percentage of compensation. The amounts recognized as pension expense for this plan were approximately $386,000, $342,000 and $345,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.

In
conjunction with the acquisition of Green, P & F acquired a defined contribution 401(k) plan, which covers all of Green's employees. Employer contributions to this plan were
determined as a percentage of employee contributions. The amounts recognized as expense for this plan were approximately $60,000 for the year ended December 31, 2003, approximately $63,000 for
the year ended December 31, 2002 and approximately $62,000 for the year ended December 31, 2001.

One
of P & F's subsidiaries also participates in a multi-employer pension plan. This plan provides defined benefits to all union workers. Contributions to this plan are determined
by the union contract. The Company does not administer the plan funds and does not have any control over the plan funds. The amounts recognized as pension expense for this plan were approximately
$31,000, $33,000 and $32,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

43

---



(b)   P &
F has an employment agreement with an officer. This agreement currently provides for a minimum annual aggregate salary of $820,000 through May 2008.
This agreement provides that if a change in control of the Company occurs and, as a result, the officer is terminated or is unable to exercise his functions and duties and therefore resigns, he will
have the option to receive either full compensation for the remaining term of the agreement or a severance allowance equal to three times average annual compensation for the five previous years.

(c)   Florida
Pneumatic purchases all of its pneumatic tools from a Far East trading company that owns or represents 18 individual factories in Japan, Taiwan and China. Of the
total pneumatic tool purchases, approximately 30% are bought from Japan, 60% from Taiwan and 10% from China. There are redundant sources for every product manufactured.

(d)   Green
purchases approximately 20% of its raw materials from one supplier. Because other sources are available, however, the Company believes that the loss of this
supplier would not adversely affect its operating results.

(e)   Nationwide
currently purchases approximately 80% of its product from one foreign supplier. Although other suppliers are being developed, the loss of this one supplier
could adversely affect operating results.

(f)    The
Company had non-cancellable inventory purchase commitments totalling approximately $10,130,000 at December 31, 2003.

(g)   The
Company is a defendant or co-defendant in various actions brought about in the ordinary course of conducting its business. The Company does not believe
that any of these actions are material to the financial condition of the Company.

NOTE 13SEGMENTS OF BUSINESS

The Company currently operates four reportable business segments: pneumatic tools and related equipment, hardware, hydraulic cylinders and heating equipment. The
Company is organized around these four distinct product segments, each of which has very different end users. Franklin and Nationwide are combined in the hardware segment for reporting purposes. The
accounting policies of each of the segments are the same as those described in Note 1. The Company evaluates segment performance based on segment profit (loss).

44

---

The
following presents financial information by segment for the years ended December 31, 2003, 2002 and 2001. Segment profit (loss) excludes general corporate expenses, interest
expense and income taxes. Identifiable assets are those assets directly owned or utilized by the particular business segment.

|2003                                          |  | Consolidated |        | Pneumatic
tools and
related
equipment |   | Hardware |  | Hydraulic
cylinders
and related
equipment |        | Heating
products
|--------------------------------------------- |  | ------------ | ------ | ------------------------------------- | - | -------- |  | ----------------------------------------- | ------ | ----------------
|
|Revenues from external customers              |  | $            | 86,407 |                                       | $ | 45,121   |  | $                                         | 19,213 |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Gross profit                                  |  | $            | 26,150 |                                       | $ | 15,290   |  | $                                         | 6,622  |                 
|Selling, general and administrative expenses  |  |              | 16,237 |                                       |   | 8,165    |  |                                           | 3,440  |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Segment profit (loss)                         |  |              | 9,913  |                                       | $ | 7,125    |  | $                                         | 3,182  |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|General corporate expense                     |  |              | (3,806 | )                                     |   |          |  |                                           |        |                 
|Interest expense                              |  |              | (727   | )                                     |   |          |  |                                           |        |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Income before taxes on income                 |  | $            | 5,380  |                                       |   |          |  |                                           |        |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Identifiable assets at December 31, 2003      |  | $            | 57,532 |                                       | $ | 25,216   |  | $                                         | 18,488 |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Corporate assets                              |  |              | 800    |                                       |   |          |  |                                           |        |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Total assets at December 31, 2003             |  | $            | 58,332 |                                       |   |          |  |                                           |        |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Depreciation and amortization ($19 corporate) |  | $            | 1,703  |                                       | $ | 485      |  | $                                         | 219    |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Amortization of other intangibles             |  | $            | 553    |                                       | $ |         |  | $                                         | 538    |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 
|Capital expenditures ($43 corporate)          |  | $            | 979    |                                       | $ | 89       |  | $                                         | 162    |                 
|                                              |  |              |        |                                       |   |          |  |                                           |        |                 

45

---

|2002                                                                                  |  | Consolidated |        | Pneumatic
tools and
related
equipment |   | Hardware |  | Hydraulic
cylinders
and related
equipment |        | Heating
products
|------------------------------------------------------------------------------------- |  | ------------ | ------ | ------------------------------------- | - | -------- |  | ----------------------------------------- | ------ | ----------------
|
|Revenues from external customers                                                      |  | $            | 77,214 |                                       | $ | 42,460   |  | $                                         | 13,346 |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Gross profit                                                                          |  | $            | 23,469 |                                       | $ | 14,996   |  | $                                         | 4,376  |                 
|Selling, general and administrative expenses                                          |  |              | 14,735 |                                       |   | 7,784    |  |                                           | 2,504  |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Segment profit (loss)                                                                 |  |              | 8,734  |                                       | $ | 7,212    |  | $                                         | 1,872  |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|General corporate expense                                                             |  |              | (3,450 | )                                     |   |          |  |                                           |        |                 
|Interest expense                                                                      |  |              | (741   | )                                     |   |          |  |                                           |        |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Income before taxes on income and cumulative effect of change in accounting principle |  | $            | 4,543  |                                       |   |          |  |                                           |        |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Cumulative effect of change in accounting principle                                   |  | $            | (3,239 | )                                     | $ |         |  | $                                         |       |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Identifiable assets at December 31, 2002                                              |  | $            | 57,762 |                                       | $ | 24,188   |  | $                                         | 19,386 |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Corporate assets                                                                      |  |              | 1,405  |                                       |   |          |  |                                           |        |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Total assets at December 31, 2002                                                     |  | $            | 59,167 |                                       |   |          |  |                                           |        |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Depreciation and amortization ($16 corporate)                                         |  | $            | 1,569  |                                       | $ | 490      |  | $                                         | 113    |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Amortization of other intangibles                                                     |  | $            | 375    |                                       | $ |         |  | $                                         | 358    |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 
|Capital expenditures ($7 corporate)                                                   |  | $            | 3,943  |                                       | $ | 496      |  | $                                         | 2,706  |                 
|                                                                                      |  |              |        |                                       |   |          |  |                                           |        |                 

46

---

|2001                                           |  | Consolidated |        | Pneumatic
tools and
related
equipment |   | Hardware |  | Hydraulic
cylinders
and related
equipment |       | Heating
products
|---------------------------------------------- |  | ------------ | ------ | ------------------------------------- | - | -------- |  | ----------------------------------------- | ----- | ----------------
|
|Revenues from external customers               |  | $            | 67,196 |                                       | $ | 38,360   |  | $                                         | 4,674 |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Gross profit                                   |  | $            | 20,163 |                                       | $ | 14,118   |  | $                                         | 1,299 |                 
|Selling, general and administrative expenses   |  |              | 13,787 |                                       |   | 8,128    |  |                                           | 1,129 |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Segment profit (loss)                          |  |              | 6,376  |                                       | $ | 5,990    |  | $                                         | 170   |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|General corporate expense                      |  |              | (2,708 | )                                     |   |          |  |                                           |       |                 
|Interest expense                               |  |              | (796   | )                                     |   |          |  |                                           |       |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Income before taxes on income                  |  | $            | 2,872  |                                       |   |          |  |                                           |       |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Identifiable assets at December 31, 2001       |  | $            | 45,053 |                                       | $ | 23,530   |  | $                                         | 2,514 |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Corporate assets                               |  |              | 1,417  |                                       |   |          |  |                                           |       |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Total assets at December 31, 2001              |  | $            | 46,470 |                                       |   |          |  |                                           |       |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Depreciation and amortization ($15 corporate)  |  | $            | 1,418  |                                       | $ | 475      |  | $                                         | 40    |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Amortization of goodwill and other intangibles |  | $            | 342    |                                       | $ | 96       |  | $                                         |      |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 
|Capital expenditures ($25 corporate)           |  | $            | 944    |                                       | $ | 109      |  | $                                         |      |                 
|                                               |  |              |        |                                       |   |          |  |                                           |       |                 

The
pneumatic tools segment has one customer that accounted for 22.0%, 22.3% and 21.4% of consolidated revenues for the years ended December 31, 2003, 2002 and 2001, respectively.
This customer also accounted for 37.2% and 48.9% of consolidated accounts receivable as of December 31, 2003 and 2002, respectively. A second customer, of both the pneumatic tools segment and
the hardware segment, accounted for 18.1%, 18.3% and 18.0% of consolidated revenues for the years ended December 31, 2003, 2002 and 2001, respectively, and 13.7% and 12.9% of consolidated
accounts receivable as of December 31, 2003 and 2002, respectively. There were no other major customers requiring disclosure.

47

---

NOTE 14UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION

Unaudited interim consolidated financial information for the two years ended December 31, 2003 and 2002 is summarized as follows:

|                                    |         | Quarter Ended                  
|----------------------------------- | ------- | -------------------------------
|
|
|
|Revenues                            |         | $                              
|                                    |         |                                
|Gross profit                        |         | $                              
|                                    |         |                                
|Net incomeas previously reported   |         | $                              
|Adjustments for taxes on income     |         |                                
|                                    |         |                                
|Net incomeas adjusted              |         | $                              
|                                    |         |                                
|Earnings per share of common stock: |         |                                
|                                    | Basic   |                                
|                                    |         | As previously reported         
|                                    |         | Adjustments for taxes on income
|                                    |         |                                
|                                    |         | As adjusted                    
|                                    |         |                                
|                                    | Diluted |                                
|                                    |         | As previously reported         
|                                    |         | Adjustments for taxes on income
|                                    |         |                                
|                                    |         | As adjusted                    
|                                    |         |                                

Net
income for each of the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003 has been restated to reflect a reduction of taxes on income as
previously reported, resulting from the amortization of a deferred tax liability, not previously recorded, related to the acquisition of Nationwide. The Company will file an amended
Form 10-Q, with restated quarterly financial statements reflecting this adjustment, for each of these periods. The amended Forms 10-Q will be filed with the Securities
and Exchange Commission as soon as is practicable.

48

---

|                                                                                           |                                                                   | Quarter Ended                                                    
|------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | -----------------------------------------------------------------
|
|
|Revenues                                                                                   |                                                                   | $                                                                
|                                                                                           |                                                                   |                                                                  
|Gross profit                                                                               |                                                                   | $                                                                
|                                                                                           |                                                                   |                                                                  
|Income before cumulative effect of change in accounting principle                          |                                                                   | $                                                                
|Cumulative effect of change in accounting principle, net of taxes of $1,668,000            |                                                                   |                                                                  
|                                                                                           |                                                                   |                                                                  
|Net income (loss)                                                                          |                                                                   | $                                                                
|                                                                                           |                                                                   |                                                                  
|Earnings (loss) per share of common stock after cumulative change in accounting principle: |                                                                   |                                                                  
|                                                                                           | Basic:                                                            |                                                                  
|                                                                                           |                                                                   | Income before cumulative effect of change in accounting Principle
|                                                                                           |                                                                   | Cumulative effect of change in accounting principle, net         
|                                                                                           |                                                                   |                                                                  
|                                                                                           |                                                                   | Net income (loss)                                                
|                                                                                           |                                                                   |                                                                  
|Diluted:                                                                                   |                                                                   |                                                                  
|                                                                                           | Income before cumulative effect of change in accounting Principle |                                                                  
|                                                                                           | Cumulative effect of change in accounting principle, net          |                                                                  
|                                                                                           |                                                                   |                                                                  
|                                                                                           | Net income (loss)                                                 |                                                                  
|                                                                                           |                                                                   |                                                                  

During
the fourth quarter of 2002, the Company recorded net adjustments increasing its net income by approximately $30,000. The Company recorded increases to net income of approximately
$290,000, relating primarily to adjustments to reserves for bad debts and accruals for taxes. The Company recorded decreases to net income of approximately $320,000, relating primarily to adjustments
to inventory valuation and other accruals.

49

---

NOTE 15EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per common share from continuing operations:

|             |                                                                                                                   | Year Ended December 31,                                                        
|------------ | ----------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------
|
|Numerator:   |                                                                                                                   |                                                                                
|             | Numerator for basic and diluted earnings (loss) per common share:                                                 |                                                                                
|             |                                                                                                                   | Income before cumulative effect of change in accounting principle              
|             |                                                                                                                   | Cumulative effect of change in accounting principle, net of taxes of $1,668,000
|             |                                                                                                                   |                                                                                
|             |                                                                                                                   | Net income (loss)                                                              
|             |                                                                                                                   |                                                                                
|Denominator: |                                                                                                                   |                                                                                
|             | Denominator for basic earnings (loss) per shareweighted average common shares outstanding                        |                                                                                
|             | Effect of dilutive securities:                                                                                    |                                                                                
|             |                                                                                                                   | Common stock options                                                           
|             |                                                                                                                   |                                                                                
|             | Denominator for diluted earnings (loss) per shareadjusted weighted average common shares and assumed conversions |                                                                                
|             |                                                                                                                   |                                                                                
|Basic:       |                                                                                                                   |                                                                                
|             | Income before cumulative effect of change in accounting principle                                                 |                                                                                
|             | Cumulative effect of change in accounting principle, net of taxes                                                 |                                                                                
|             |                                                                                                                   |                                                                                
|             | Net income (loss)                                                                                                 |                                                                                
|             |                                                                                                                   |                                                                                
|Diluted:     |                                                                                                                   |                                                                                
|             | Income before cumulative effect of change in accounting principle                                                 |                                                                                
|             | Cumulative effect of change in accounting principle, net of taxes                                                 |                                                                                
|             |                                                                                                                   |                                                                                
|             | Net income (loss)                                                                                                 |                                                                                
|             |                                                                                                                   |                                                                                

There
were outstanding during the years ended December 31, 2003, 2002 and 2001 stock options whose exercise prices were higher than the average market values for the respective
periods. These options are anti-dilutive and are excluded from the computation of earnings (loss) per share. The weighted average anti-dilutive options outstanding for the
years ended December 31,
2003, 2002 and 2001 were as follows: 2003181,207; 2002189,000; and 2001189,000.

50

---



Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

Item 9A.    Controls and Procedures

An evaluation was performed, under the supervision of, and with the participation of, the Company's management, including the Principal Executive Officer and
Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) to the Securities and Exchange Act of 1934). Based on that evaluation, the Company's management, including the Principal Executive Officer and Principal Financial Officer,
concluded that the Company's disclosure controls and procedures were adequate and effective, as of the end of the period covered by this Annual Report on Form 10-K for the year
ended December 31, 2003 (the "Report"), in timely alerting them to all material information relating to the Company and its consolidated subsidiaries that is required to be included in this
Report.

There
have been no significant changes in the Company's internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over financial reporting.

51

---



PART III

Item 10.    Directors and Executive Officers of the Registrant

Information required by this Item 10 is set forth under the captions "Ownership of Equity Securities," "Corporate Governance" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the registrant's definitive Proxy Statement for its 2004 Annual Meeting of Stockholders (the "Proxy Statement") to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby incorporated by reference.

Item 11.    Executive Compensation

Information required by this Item 11 is set forth under the captions "Executive Compensation," "Report on Executive Compensation" and "Company Stock Performance
Graph" in the Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby incorporated
by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related  Stockholder Matters

Equity Compensation Plan Information

|Plan category                                              |  | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights |  | Weighted-average
exercise price of
outstanding options,
warrants and rights |      | Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders     |  | 480,400                                                                                     |  | $                                                                           | 6.44 |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                                                                            
|Equity compensation plans not approved by security holders |  | N/A                                                                                         |  |                                                                             | N/A  |                                                                                                                                            
|TOTAL                                                      |  | 480,400                                                                                     |  | $                                                                           | 6.44 |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                                                                            

For
further information, see Note 8 of the Notes to the Consolidated Financial Statements.

Other
information required by this Item 12 is set forth under the caption "Ownership of Equity Securities" in the Proxy Statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby incorporated by reference.

Item 13.    Certain Relationships and Related Transactions

Information required by this Item 13 is set forth under the caption "Transactions with Management and Others" in the Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby incorporated by reference.

Item 14.    Principal Accountant Fees and Services

Information required by this Item 14 is set forth under the caption "Selection of Auditors" in the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby incorporated by reference.

52

---



PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

|    |                                                                               |                               |                                                                                                                                                                                                                   |  | Page   
|--- | ----------------------------------------------------------------------------- | ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------
|(a) | The following documents are filed as part of this Annual Report on Form 10-K: |                               |                                                                                                                                                                                                                  
|    | (1)                                                                           | Financial Statements:         |                                                                                                                                                                                                                   | 
|    |                                                                               |                               | The consolidated financial statements of the Registrant as set forth under Item 8 of this report.                                                                                                                 |  |        
|    | (2)                                                                           | Financial Statement Schedule: |                                                                                                                                                                                                                   | 
|    |                                                                               |                               | Schedule IIValuation and Qualifying Accounts for each of the three years ended December 31, 2003, 2002 and 2001                                                                                                  |  | 54     
|    |                                                                               |                               | All other schedules are omitted because they are not applicable, or because the required information is otherwise shown in the consolidated financial statements or notes thereto.                                |  |        
|    | (3)                                                                           | Exhibits:                     |                                                                                                                                                                                                                   | 
|    |                                                                               |                               | The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K                                                                       |  | 56 - 58
|    |                                                                               |                               | Exhibits 10.1, 10.2, 10.3 and 10.4 constitute the management contracts and compensatory plans and arrangements required to be filed as exhibits to this Annual Report on Form 10-K pursuant to Item 14(c) hereof. |  |        
|(b) | Reports on Form 8-K.                                                          |                               |                                                                                                                                                                                                                  

The
Registrant filed a Report on Form 8-K dated November 12, 2003, in which it furnished a press release announcing its third quarter 2003 results under
Items 7 and 12 of such Report.

53

---



P&F INDUSTRIES, INC. AND SUBSIDIARIES        SCHEDULE II        VALUATION AND QUALIFYING ACCOUNTS

|                              |                               | Column A |   | Column B |  | Column C |         | Column D |   | Column E
|----------------------------- | ----------------------------- | -------- | - | -------- |  | -------- | ------- | -------- | - | --------
|
|Year ended December 31, 2003: |                               |          |   |          |  |          |         |          |   |         
|                              | Allowance for possible losses |          | $ | 354,441  |  | $        | 22,884  |          | $ |        
|                              |                               |          |   |          |  |          |         |          |   |         
|Year ended December 31, 2002: |                               |          |   |          |  |          |         |          |   |         
|                              | Allowance for possible losses |          | $ | 404,557  |  | $        | (40,755 | )        | $ | 40,000  
|                              |                               |          |   |          |  |          |         |          |   |         
|Year ended December 31, 2001: |                               |          |   |          |  |          |         |          |   |         
|                              | Allowance for possible losses |          | $ | 496,569  |  | $        | (17,670 | )        | $ |        
|                              |                               |          |   |          |  |          |         |          |   |         

---

54

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)
|----------------------------------
|By:                               

Date:  March 29,
2004

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the date indicated.

|Name                                      |  | Title    |  | Date          
|----------------------------------------- |  | -------- |  | --------------
|                                          |  |          |  |               
|/s/ROBERT L. DUBOFSKYRobert L. Dubofsky   |  | Director |  | March 29, 2004
|/s/ALAN GOLDBERGAlan Goldberg             |  | Director |  | March 29, 2004
|/s/RICHARD A. HOROWITZRichard A. Horowitz |  | Director |  | March 29, 2004
|/s/SIDNEY HOROWITZSidney Horowitz         |  | Director |  | March 29, 2004
|/s/DENNIS KALICKDennis Kalick             |  | Director |  | March 29, 2004
|/s/NEIL NOVIKOFFNeil Novikoff             |  | Director |  | March 29, 2004
|/s/ROBERT M. STEINBERGRobert M. Steinberg |  | Director |  | March 29, 2004
|/s/MARC A. UTAYMarc A. Utay               |  | Director |  | March 29, 2004

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EXHIBIT INDEX

|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1    |  | Asset Purchase Agreement, dated as of September 16, 1998, by and between Green Manufacturing, Inc., an Ohio corporation, and the Registrant (Incorporated by reference to Exhibit 2.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). Pursuant to Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish, supplementally, a copy of any exhibit or schedule omitted from the Asset
Purchase Agreement to the Commission upon request.
|2.2    |  | Stock Purchase Agreement, dated as of May 3, 2002, by and between Mark C. Weldon and the Registrant (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated May 3, 2002). Pursuant to
Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish supplementally a copy of any exhibit or schedule omitted from the Asset Purchase Agreement to the Securities and Exchange Commission upon request.                                            
|2.3    |  | Contract for Purchase and Sale, dated as of May 1, 2002, between W. I. Commercial Properties, Inc., a Florida corporation, and Countrywide Hardware, Inc., a Delaware corporation (Incorporated by reference to Exhibit 4.7 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).                                                                                                                                                                           
|3.1    |  | Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).                                                                                                                                                                                                                                                                                                
|3.2    |  | Amended By-laws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).                                                                                                                                                                                                                                                                                                                      
|4.1    |  | Rights Agreement, dated as of August 23, 1994, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (Incorporated by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A
dated August 24, 1994).                                                                                                                                                                                                                                     
|4.2    |  | Amendment to Rights Agreement, dated as of April 11, 1997, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (Incorporated by reference to Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002).                                                                                                                                                                                                         
|4.3    |  | Credit Agreement, dated as of July 23, 1998, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, and European American Bank, a New York banking
corporation.                                                                                                                                                                                                                                   
|4.4    |  | Amendment No. 1 to Credit Agreement, dated as of September 16, 1998, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and European American Bank, a New York banking corporation.                                                                                                                                                       
|4.5    |  | Amendment No. 2 to Credit Agreement, dated as of July 28, 1999, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and European American Bank, a New York banking corporation (Incorporated by reference to Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).                           
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|4.6  |  | Amendment No. 3 to Credit Agreement, dated as of July 26, 2000, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and European American Bank, a New York banking corporation (Incorporated by reference to Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2000).                                                                                                                                                         
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.7  |  | Amendment No. 4 to Credit Agreement, dated as of June 25, 2001, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and European American Bank, a New York banking corporation (Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).                                                                                                                                                    
|4.8  |  | Amendment No. 5 to Credit Agreement, dated as of May 3, 2002, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking corporation. (Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2002).                                                                                                               
|4.9  |  | Amendment No. 6 to Credit Agreement, dated as of June 13, 2002, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking corporation (Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2002).                                                                                                               
|4.10 |  | Amendment No. 7 to Credit Agreement, dated as of August 1, 2002, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc., a Florida corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking
corporation (Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).      
|4.11 |  | Amendment No. 8 to Credit Agreement, dated as of August 1, 2002, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc., a Florida corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking
corporation (Incorporated by reference to Exhibit 4.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
|4.12 |  | Second Amendment and Restated Term Note, dated as of February 20, 2003, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc., a Florida corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking
corporation (Incorporated by reference to Exhibit 4.11 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002).
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|4.13 |  | Amendment No. 9 to Credit Agreement, dated as of June 30, 2003, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc., a Florida corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking
corporation (Incorporated by reference to Exhibit 4.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 |  | Certain instruments defining the rights of holders of the long-term debt securities of the Registrant are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant agrees to furnish supplementally copies
of these instruments to the Commission upon request.                                                                                                                                                                                                                                                                                                                       
|10.1 |  | Second Amended and Restated Employment Agreement, dated as of May 30, 2001, between the Registrant and Richard A. Horowitz (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001).                                                                                                                                                                                                                                                                                                                                                         
|10.2 |  | Consulting Agreement, effective as of November 1, 2003, between the Registrant and Sidney Horowitz.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.3 |  | 1992 Incentive Stock Option Plan of the Registrant, as amended and restated as of March 13, 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.4 |  | Executive Incentive Bonus Plan of the Registrant (Incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.5 |  | 2002 Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                        
|14.1 |  | Code of Business Conduct and Ethics of the Registrant and its Affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|21   |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|23   |  | Consent of the Registrant's Independent Certified Public Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|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.                                                                                                                                                                                                                                                                                                                                                                                                                      

A
copy of any of the foregoing exhibits to this Annual Report on Form 10-K may be obtained, upon payment of the Registrant's reasonable expenses in furnishing such exhibit, by
writing to P & F Industries, Inc., 300 Smith Street, Farmingdale, New York 11735-1114, Attention: Corporate Secretary.

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