<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K

<TABLE>
<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
              FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                  OR
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                         COMMISSION FILE NUMBER 1-5332

                            ------------------------

                             P & F INDUSTRIES, INC.

             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                 <C>
                     DELAWARE                                      22-1657413
         (State or other jurisdiction of            (I.R.S. Employer Identification Number)
          incorporation or organization)

     300 SMITH STREET, FARMINGDALE, NEW YORK                         11735
     (Address of principal executive offices)                      (Zip Code)
</TABLE>

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

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

<TABLE>
<S>                           <C>
    Title of each class         Name of each exchange on which registered
            NONE                                  NONE
</TABLE>

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

                     CLASS A COMMON STOCK, $1.00 PAR VALUE
                                (Title of class)

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

                            ------------------------

    Indicate by check mark 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. /X/

    The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the last sale price on March 19, 2001, was approximately
$14,754,000.

    As of March 19, 2001, there were 3,554,448 shares of the Registrant's
Class A Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Part III incorporates by reference information from the Registrant's
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                             P & F INDUSTRIES, INC.
                                   FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                   PAGE
                                                                                 --------
<S>           <C>                                                                <C>
PART I

Item 1.       Business....................................................          1-4

Item 2.       Properties..................................................            4

Item 3.       Legal Proceedings...........................................            4

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

PART II

Item 5.       Market for Registrant's Common Equity and Related
              Stockholder Matters.........................................          4-5

Item 6.       Selected Financial Data.....................................            5

Item 7.       Management's Discussion and Analysis of Financial Condition
              and
              Results of Operations.......................................          6-9

Item 7A.      Quantitative and Qualitative Disclosures About Market
              Risk........................................................            9

Item 8.       Financial Statements and Supplementary Data.................        10-32

Item 9.       Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosures...................................           32

PART III

Item 10.      Directors and Executive Officers of the Registrant..........           32

Item 11.      Executive Compensation......................................           32

Item 12.      Security Ownership of Certain Beneficial Owners and
              Management..................................................           32

Item 13.      Certain Relationships and Related Transactions..............           32

PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form
              8-K.........................................................           32

              Signatures..................................................           34

              Exhibit Index...............................................        35-36
</TABLE>

                                       i
<PAGE>
                             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 performance for the year 2001, are based upon the Company's historical
performance and on current plans, estimates and expectations. They are subject
to various risks and uncertainties, including, but not limited to, the impact of
competition, product demand and pricing, investment results, legislative and
regulatory developments and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission. These risks could
cause the Company's actual results for the 2001 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.

                                       ii
<PAGE>
                                     PART I

ITEM 1. BUSINESS

    P & F Industries, Inc. and its subsidiaries (the "Company") conduct business
operations through the three wholly-owned subsidiaries. Florida Pneumatic
Manufacturing Corporation ("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. Green
Manufacturing, Inc. ("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. Note 8 of the Notes to Consolidated Financial Statements presents
additional information regarding the acquisition of Green. Embassy
Industries, Inc. ("Embassy") is engaged in the manufacture and sale of baseboard
heating products and the importation and sale of radiant heating systems.
Embassy also imports a line of door and window hardware items through its
Franklin Hardware division ("Franklin"). Note 10 of the Notes to Consolidated
Financial Statements presents financial information for the segments of the
Company's business.

    Florida Pneumatic has two major customers, Sears, Roebuck and Co. and W.W.
Grainger, Inc., that accounted for 23.4%, 24.7% and 35.7%, and 7.4%, 7.7% and
10.1% of consolidated revenues for the years ended December 31, 2000, 1999 and
1998, respectively. A third major customer, The Home Depot, is a customer of
both Florida Pneumatic and Franklin, and accounted for 14.0%, 10.1% and 0.5% of
consolidated revenues for the years ended December 31, 2000, 1999 and 1998,
respectively. Revenues derived from countries outside the United States were
immaterial for the years ended December 31, 2000, 1999 and 1998.

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", "Universal Tool" and "Fuji", as
well as under the trade names or trademarks of several private label customers.
The 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 are lighter in weight 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.

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

    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.

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

                                       1
<PAGE>
    Two customers accounted for 55.6%, 57.4% and 70.4% of Florida Pneumatic's
revenues in 2000, 1999 and 1998, respectively. A third customer accounted for
21.4% and 14.7% of Florida Pneumatic's revenues in 2000 and 1999, respectively.
The Company believes that its relationships with these customers remain
excellent.

    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 significant amounts of pneumatic tools from two
foreign suppliers. Although other sources are available, the loss of either
supplier could cause a temporary disruption in the flow of products, possibly
creating an adverse effect on operating results.

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 which 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 1 to 8 inches
and 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.

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

    Green also manufactures a line of access equipment for the petro-chemical
and bulk storage industries. This product line, which accounts for approximately
10% of Green's revenues, 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 accounts for
approximately 5% of Green's revenues, is marketed through farm equipment dealers
and wholesalers.

    Green's business does not exhibit a great deal of seasonality, but revenues
from agricultural equipment are stronger during the growing season. Backlogs
totalling as much as 25% of yearly sales are standard for the cylinder business.

    One customer accounted for 24.9%, 22.6% and 24.1% of Green's revenues in
2000, 1999 and 1998, respectively. The Company believes that its relationship
with this customer remains excellent.

    Green purchases significant amounts of raw materials from one supplier.
Other sources are available, however, and the Company believes that the loss of
this supplier would not cause any disruption in the flow of products or have an
adverse effect on operating results.

                                       2
<PAGE>
EMBASSY

    Embassy's baseboard heating products are sold nationally, under the Embassy
name and under its Panel-Track and System 6 trademarks, for use in hot-water
heating systems installed in single family homes, multi-unit dwellings and
commercial and industrial buildings. Products are sold principally to
wholesalers by manufacturers' 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 which 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 which aids in the design of the system. Sales of this product
accounted for approximately 16.5%, 15.4% and 15.3% of Embassy's total heating
equipment revenues in 2000, 1999 and 1998, respectively.

    Baseboard and radiant heating systems compete with forced hot-air and
electric heating systems. Compared to baseboard and radiant heating systems,
electric heating systems are generally more expensive to operate, while forced
hot-air systems are noisier, sometimes cause discomfort from fluctuations in
temperature as the furnace cycles on and off and do not distribute warm air
uniformly within the room. 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. Since 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
seasonal, with approximately 57.2% of Embassy's heating equipment revenues
coming in the last six months of the year.

    The Franklin division of Embassy 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.
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. Four customers accounted for
approximately 73.6%, 67.9% and 55.8% of Franklin's revenues in 2000, 1999 and
1998, respectively. Two of these customers, who accounted for approximately
18.3%, 21.9% and 27.8% of Franklin's revenues in 2000, 1999 and 1998,
respectively, have filed for bankruptcy. The Company believes that its
relationships with the remaining two customers continue to be excellent.

    The primary competitive factors in the hardware business are price, service,
skill in packaging and point-of-sale marketing.

    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.

                                       3
<PAGE>
EMPLOYEES

    The Company employed 398 persons as of December 31, 2000, including 5 at
corporate headquarters. The 90 employees of the pneumatic tool segment and the
207 employees of the hydraulic cylinder segment are not represented by a union.
Of the 96 persons employed in the heating equipment and hardware segments, 67
factory workers are covered by a single-employer union contract. The heating
equipment union contract expires on November 30, 2001. The Company believes that
its relations with its employees are satisfactory.

ITEM 2. PROPERTIES

    Embassy, Florida Pneumatic and Green each own the plant facilities which
they occupy. The facilities owned by Embassy and Florida Pneumatic are subject
to mortgages. Embassy's 75,000 square foot plant facility is located in
Farmingdale, New York. Florida Pneumatic's 72,000 square foot plant facility is
located in Jupiter, Florida. Green's 85,000 square foot plant facility is
located in Bowling Green, Ohio. Each facility either provides adequate space for
the operations of the respective subsidiary in 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 not a party to any litigation that is expected to have a
material adverse effect on its business.

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 report.

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.

    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:

<TABLE>
<CAPTION>
2000                                                            HIGH       LOW
----                                                          --------   --------
<S>                                                           <C>        <C>
First Quarter...............................................    $13         $5 15/16
Second Quarter..............................................      9 1/16     6 9/16
Third Quarter...............................................      8 1/2      6 1/2
Fourth Quarter..............................................      7 3/8      4 15/16
</TABLE>

<TABLE>
<CAPTION>
1999                                                            HIGH       LOW
----                                                          --------   --------
<S>                                                           <C>        <C>
First Quarter...............................................    $10 1/8     $8 7/8
Second Quarter..............................................     10 1/8      8 1/8
Third Quarter...............................................      9 7/8      7 29/32
Fourth Quarter..............................................      8 3/8      6 1/4
</TABLE>

    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 19, 2001, there were approximately 1,600 holders of record of
the Company's Class A Common Stock.

                                       4
<PAGE>
    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 immediate future.

ITEM 6. SELECTED FINANCIAL DATA

    The following selected consolidated financial data has been derived from the
audited consolidated financial statements of P & F Industries, Inc. and
subsidiaries. The selected financial data should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
Form 10-K.

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                -------------------------------------------------------------------
                                   2000          1999          1998          1997          1996
                                -----------   -----------   -----------   -----------   -----------
<S>                             <C>           <C>           <C>           <C>           <C>
Revenues......................  $80,898,674   $82,700,440   $58,165,715   $50,026,947   $43,078,371
                                ===========   ===========   ===========   ===========   ===========
Income from continuing
  operations..................  $ 3,824,940   $ 4,545,505   $ 3,943,441   $ 2,513,779   $ 1,953,287
                                ===========   ===========   ===========   ===========   ===========
Income from continuing
  operations per share of
  common stock:
  Basic.......................  $      1.07   $      1.35   $      1.23   $       .83   $       .58
                                ===========   ===========   ===========   ===========   ===========
  Diluted.....................  $      1.04   $      1.23   $      1.07   $       .71   $       .52
                                ===========   ===========   ===========   ===========   ===========
Total assets..................  $54,152,817   $54,240,359   $48,078,479   $32,648,895   $31,331,643
                                ===========   ===========   ===========   ===========   ===========
Long-term obligations, less
  current maturities..........  $ 3,862,512   $ 7,325,661   $10,193,064   $ 5,124,883   $ 5,288,570
                                ===========   ===========   ===========   ===========   ===========
Cash dividends declared per
  common share................  $        --   $        --   $        --   $        --   $        --
                                ===========   ===========   ===========   ===========   ===========
</TABLE>

                                       5
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

2000 COMPARED TO 1999

    Consolidated revenues decreased 2.2%, from $82,700,440 to $80,898,674.
Revenues from pneumatic tools and related equipment decreased 3.9%, from
$46,708,679 to $44,872,344, due primarily to the non-recurrence of shipments to
one large customer for special sales promotions by that customer. The selling
prices of pneumatic tools and related equipment were unchanged during the year.

    Revenues from hydraulic cylinders and other equipment decreased 1.9%, from
$20,611,682 to $20,219,885, due primarily to a plant shutdown at a significant
customer in the fourth quarter of 2000. Selling prices of hydraulic cylinders
and other equipment were increased by approximately 5% to a majority of
customers during the fourth quarter of 2000.

    Revenues from heating equipment increased 4.2%, from $9,843,257 to
$10,256,599, due primarily to a 12% increase in radiant sales and a 3% increase
in baseboard sales to a broad range of customers. Average selling prices for all
heating equipment products were unchanged during the year.

    Revenues from hardware products increased slightly, from $5,536,822 to
$5,549,846. Selling prices of hardware products were unchanged during the year.

    Consolidated gross profit, as a percentage of revenues, decreased from 30.9%
to 30.5%. Gross profit from pneumatic tools and related equipment decreased from
37.5% to 36.8%, due to a less favorable exchange rate of the dollar compared to
the Japanese yen, which raised the cost of imported product. Gross profit from
hydraulic cylinders and other equipment decreased from 14.6% to 14.2%, due
primarily to a significant across-the-board wage increase to factory employees
that was implemented during the third quarter of 2000. Gross profit from heating
equipment increased from 35.8% to 36.6%, due primarily to a change in product
mix and a decrease in the cost of some raw materials. Gross profit from hardware
products increased from 26.3% to 28.0%, due to a change in product mix.

    Consolidated selling, general and administrative expenses increased 1.5%,
from $16,944,706 to $17,199,793, due primarily to annual wage increases. As a
percentage of revenues, selling, general and administrative expenses increased
from 20.5% to 21.3%, due primarily to the decrease in revenues.

    Interest expense increased slightly, from $1,389,383 to $1,390,949. A
decrease in average borrowings outstanding was offset by an increase in interest
rates.

    The effective tax rates for the years ended December 31, 2000 and 1999 were
37.2% and 36.8%, respectively. See Note 7 of the Notes to Consolidated Financial
Statements.

1999 COMPARED TO 1998

    Consolidated revenues increased 42.2%, from $58,165,715 to $82,700,440.
Revenues from pneumatic tools and related equipment increased substantially,
from $37,806,138 to $46,708,679, due primarily to the addition of a new large
customer during the fourth quarter. The selling prices of pneumatic tools and
related equipment were unchanged during the year.

    Revenues from hydraulic cylinders and other equipment increased 213.0%, from
$6,584,830 to $20,611,682. Revenues for 1999 were for the entire year, while
revenues for 1998 were for only the period from the date of the acquisition of
Green to December 31, 1998. Selling prices for hydraulic cylinders and other
equipment were unchanged during the year.

    Revenues from heating equipment increased 4.5%, from $9,423,633 to
$9,843,257. This increase was consistent across both the baseboard and radiant
product lines. Average selling prices for baseboard product, the bulk of the
product line, were unchanged from 1998. Selling prices of radiant tubing were
reduced by an average of 12% in 1999 in an attempt to stimulate demand.

                                       6
<PAGE>
    Revenues from hardware products increased 27.3%, from $4,351,114 to
$5,536,822. This increase was almost exclusively the result of shipments to a
new large customer that was obtained midway through 1998. Selling prices of
hardware products were virtually unchanged, with the exception of one
significant region where discounting was undertaken to maintain competitiveness.

    Consolidated gross profit, as a percentage of revenues, decreased from 35.5%
to 30.9%, due primarily to the lower overall gross margins from hydraulic
cylinders and other equipment. Gross profit from pneumatic tools and related
equipment decreased from 40.1% to 37.5%, due to a less favorable exchange rate
of the dollar compared to the Japanese yen, which raised the cost of imported
product. Gross profit from hydraulic cylinders decreased from 15.8% to 14.6%,
due primarily to a temporary decrease in labor productivity, as well as to a
less favorable product mix. Gross profit from heating equipment products
increased from 34.1% to 35.8%, due primarily to an increase in labor
productivity and a reduction in the cost of some raw materials. Gross profit
from hardware decreased from 28.3% to 26.3%, due to the price discounting noted
above. In addition, an increase in warehouse expenses associated with a large
increase in the average number of orders per dollar of revenue had a negative
impact on gross profit from hardware.

    Consolidated selling, general and administrative expenses increased 27.1%,
from $13,332,424 to $16,944,706, due primarily to the inclusion of Green's
expenses for the entire year in 1999. As a percentage of revenues, selling,
general and administrative expenses decreased from 22.9% to 20.5%, due primarily
to the increase in revenues.

    Interest expense increased 80.0%, from $772,035 to $1,389,383, primarily due
to the debt related to the Green acquisition, the funds borrowed to build-up
inventory associated with the large new customer gained in the fourth quarter
and, to a lesser extent, an increase in the average borrowing rate.

    The effective tax rates for the years ended December 31, 1999 and 1998 were
36.8% and 39.6%, respectively. See Note 7 of the Notes to Consolidated Financial
Statements.

LIQUIDITY AND CAPITAL RESOURCES

    The Company gauges its liquidity and financial stability by the measurements
shown in the following table:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                             ------------------------------------------
                                                2000            1999            1998
                                             ----------      ----------      ----------
                                             (AMOUNTS IN THOUSANDS, EXCEPT FOR RATIOS)
<S>                                          <C>             <C>             <C>
Working Capital............................   $19,137         $17,921         $15,994
Current Ratio..............................  2.16 to 1       2.04 to 1       2.24 to 1
Shareholders' Equity.......................   $32,992         $29,025         $24,450
</TABLE>

    During 2000, gross accounts receivable decreased by $1,888,383. Florida
Pneumatic's accounts receivable decreased by approximately $1,375,000, and
Green's accounts receivable decreased by approximately $450,000. These decreases
in accounts receivable were primarily the result of decreases in sales in
November and December of 2000 versus 1999. Florida Pneumatic's sales for this
period decreased by approximately $1,500,000 and Green's sales decreased by
approximately $790,000. Inventories increased by $2,804,489 during 2000. Florida
Pneumatic's inventory increased by approximately $970,000, primarily as the
result of additional purchases made in anticipation of an increase in orders at
a larger customer that did not materialize. Green's inventory increased by
approximately $1,330,000, primarily as the result of a strategic decision to
reduce machine set-up costs by increasing production run quantities. Also
contributing to the increase at Green was the decision to build safety stock for
several large customers. Embassy's inventory increased by approximately
$500,000, due primarily to lower than expected sales in the fourth quarter of
2000, as well as to the timing of inventory receipts in late December 2000.
Inventory also increased with the addition of a new boiler product line that is
to be marketed beginning in 2001. The net

                                       7
<PAGE>
increase of $916,106 resulting from the changes in accounts receivable and
inventories was financed by cash derived from operations.

    During 1999, gross accounts receivable increased by $3,812,583. Florida
Pneumatic's accounts receivable increased by approximately $4,050,000, while
Green's accounts receivable decreased by approximately $400,000. The increase at
Florida Pneumatic was primarily the result of the timing of shipments to a large
customer, which resulted in an increase of approximately $2,125,000 in accounts
receivable. During 1999, sales to the new customer noted above increased
accounts receivable by approximately $1,300,000. The decrease in accounts
receivable at Green was primarily the result of improved collections, which
resulted in a 9% decrease in average days of accounts receivable outstanding.
Inventories increased $3,593,026, primarily to support the increase in revenues.
The increases in accounts receivable and inventories were financed by an
increase in short-term borrowings of $2,500,000 and by the cash derived from
operations.

    On July 12, 2000, the Company renewed its credit agreement, as amended, with
European American Bank. This agreement provides the Company with various credit
facilities, including revolving credit loans, term loans for acquisitions and a
foreign exchange line. The revolving credit loan facility provides a total of
$12,000,000, with various sublimits, for direct borrowings, letters of credit,
bankers' acceptances and equipment loans. At December 31, 2000, there was
$9,000,000 outstanding against the revolving credit loan facility. There was
also a commitment of approximately $310,000 at December 31, 2000 for open
letters of credit.

    The term loan facility provides a commitment of $15,000,000 to finance
acquisitions subject to the lending banks approval. In September 1998,
$10,000,000 of the term loan facility was used to help finance the acquisition
of Green. There was no loan balance outstanding against this facility at
December 31, 2000. There was, however, a standby letter of credit totalling
approximately $670,000 outstanding against this facility at December 31, 2000.
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,
2000 was approximately $1,974,000.

    The Company's credit agreement is subject to annual review by the lending
bank. Under this agreement, the Company is required to adhere to certain
financial covenants. At December 31, 2000, and for the year then ended, the
Company satisfied all of these covenants.

    Capital spending was approximately $1,148,000, $1,647,000, and $1,416,000 in
2000, 1999 and 1998, respectively, which amounts were provided from working
capital. Capital expenditures for 2001 are expected to be approximately
$1,268,000, some of which may be financed through the Company's credit
facilities. Included in the expected total for 2001 are capital expenditures
relating to new products, expansion of existing product lines and replacement of
old equipment.

    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. Nevertheless, the weakening of
the U.S. dollar versus the Japanese yen in 2000 had a negative effect on the
Company's results of operations and its financial position.

    The Company believes that cash on hand, cash derived from operations and
cash available through borrowings under its credit facilities will be sufficient
to allow the Company to support its capital expenditure program and to meet its
foreseeable working capital needs.

                                       8
<PAGE>
NEW ACCOUNTING PRONOUNCEMENT

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for transactions
entered into after January 1, 2001 and requires that all derivative instruments
be recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are to be recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
the hedge transaction and the type of hedge transaction. The ineffective portion
of all hedges will be recognized in earnings. The Company does not believe that
the adoption of SFAS 133 will have a material impact on either its results of
operations or its financial position.

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. 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 for the sole
purpose of hedging an existing or anticipated currency exposure, not for
speculation. 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. At December 31, 2000, the Company held
open hedge forward contracts to deliver approximately $1,974,000 of Japanese
yen. 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, 2000 is approximately
$219,000.

                                       9
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Report of Independent Certified Public Accountants..........       11

Consolidated Balance Sheets as of December 31, 2000 and
  1999......................................................    12-13

Consolidated Statements of Income for each of the three
  years ended
  December 31, 2000, 1999 and 1998..........................       14

Consolidated Statements of Shareholders' Equity for each of
  the three years ended
  December 31, 2000, 1999 and 1998..........................       15

Consolidated Statements of Cash Flows for each of the three
  years ended
  December 31, 2000, 1999 and 1998..........................    16-17

Notes to Consolidated Financial Statements..................    18-31

Schedule II--Valuation and Qualifying Accounts for each of
  the three years ended
  December 31, 2000, 1999 and 1998..........................       33
</TABLE>

                                       10
<PAGE>
               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 as of December 31, 2000 and 1999 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 2000. 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 at December 31, 2000 and 1999 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.

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

                                          /s/ BDO Seidman, LLP
                                          BDO Seidman, LLP

New York, New York
March 8, 2001

                                       11
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 2000          1999
                           ASSETS                             -----------   -----------
<S>                                                           <C>           <C>
CURRENT:
  Cash......................................................  $   388,422   $ 1,305,351
  Accounts receivable, less allowance for possible losses of
    $496,569 and $767,456 (Notes 3 and 10)..................   10,468,504    12,086,000
  Inventories (Notes 2 and 3)...............................   23,418,990    20,614,501
  Deferred income taxes (Note 7)............................      528,000       532,000
  Prepaid expenses and other................................      762,548       570,914
                                                              -----------   -----------
      TOTAL CURRENT ASSETS..................................   35,566,464    35,108,766
                                                              -----------   -----------
PROPERTY AND EQUIPMENT (Notes 3 and 4):
  Land......................................................    1,182,938     1,182,939
  Buildings and improvements................................    5,983,654     5,942,838
  Machinery and equipment...................................   12,129,262    11,078,539
                                                              -----------   -----------
                                                               19,295,854    18,204,316
  Less accumulated depreciation and amortization............    8,506,651     7,200,142
                                                              -----------   -----------
NET PROPERTY AND EQUIPMENT..................................   10,789,203    11,004,174
                                                              -----------   -----------
GOODWILL, net of accumulated amortization
  of $1,838,911 and $1,514,476..............................    7,626,047     7,950,482
  OTHER ASSETS..............................................      171,103       176,937
                                                              -----------   -----------
                                                              $54,152,817   $54,240,359
                                                              ===========   ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       12
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 2000          1999
            LIABILITIES AND SHAREHOLDERS' EQUITY              -----------   -----------
<S>                                                           <C>           <C>
CURRENT LIABILITIES:
  Short-term borrowings (Note 3)............................  $ 9,000,000   $ 6,000,000
  Accounts payable..........................................    3,177,469     5,592,249
  Accruals:
  Compensation..............................................    2,242,110     2,474,519
  Other.....................................................    1,713,486     2,173,516
  Current maturities of long-term debt (Note 4).............      296,106       947,884
                                                              -----------   -----------
      TOTAL CURRENT LIABILITIES.............................   16,429,171    17,188,168
LONG-TERM DEBT, less current maturities (Note 4)............    3,862,512     7,325,661
DEFERRED INCOME TAXES (Note 7)..............................      869,000       702,000
                                                              -----------   -----------
      TOTAL LIABILITIES.....................................   21,160,683    25,215,829
                                                              -----------   -----------

COMMITMENTS AND CONTINGENCIES (Notes 3, 4 and 9)
SHAREHOLDERS' EQUITY (Notes 5 and 6):
  Preferred stock--$10 par authorized--2,000,000 shares; no
    shares outstanding......................................           --            --

  Common stock:
  Class A--$1 par authorized--7,000,000 shares;
    issued--3,677,593 shares and 3,504,893 shares...........    3,677,593     3,504,893
  Class B--$1 par authorized--2,000,000 shares; no shares
    issued or outstanding...................................           --            --
  Additional paid-in capital................................    8,464,139     8,282,602
  Retained earnings.........................................   21,560,475    17,735,535
  Treasury stock, at cost (72,185 shares and 49,235
    shares).................................................     (710,073)     (498,500)
                                                              -----------   -----------
      TOTAL SHAREHOLDERS' EQUITY............................   32,992,134    29,024,530
                                                              -----------   -----------
                                                              $54,152,817   $54,240,359
                                                              ===========   ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       13
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           2000          1999          1998
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
REVENUES (Note 10):
Net sales.............................................  $80,044,420   $81,936,434   $57,363,317
Other.................................................      854,254       764,006       802,398
                                                        -----------   -----------   -----------
                                                         80,898,674    82,700,440    58,165,715
                                                        -----------   -----------   -----------

COSTS AND EXPENSES:
Cost of sales.........................................   56,218,992    57,168,846    37,534,815
Selling, administrative and general...................   17,199,793    16,944,706    13,332,424
Interest..............................................    1,390,949     1,389,383       772,035
                                                        -----------   -----------   -----------
                                                         74,809,734    75,502,935    51,639,274
                                                        -----------   -----------   -----------

INCOME BEFORE TAXES ON INCOME.........................    6,088,940     7,197,505     6,526,441
TAXES ON INCOME (Note 7)..............................    2,264,000     2,652,000     2,583,000
                                                        -----------   -----------   -----------
NET INCOME............................................  $ 3,824,940   $ 4,545,505   $ 3,943,441
                                                        ===========   ===========   ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 12):
BASIC.................................................    3,560,786     3,370,098     3,208,181
                                                        ===========   ===========   ===========
DILUTED...............................................    3,686,331     3,704,363     3,689,963
                                                        ===========   ===========   ===========

EARNINGS PER SHARE OF
  COMMON STOCK (Note 12):
BASIC.................................................  $      1.07   $      1.35   $      1.23
                                                        ===========   ===========   ===========
DILUTED:..............................................  $      1.04   $      1.23   $      1.07
                                                        ===========   ===========   ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       14
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                             TREASURY STOCK
                                                 CLASS A COMMON                    ----------------------------------
                                                 STOCK--$1 PAR        ADDITIONAL          PAID-IN           RETAINED
         YEARS ENDED DECEMBER 31,            ----------------------   ----------   ----------------------   ---------
            1998, 1999 AND 2000               SHARES       AMOUNT      CAPITAL      EARNINGS      SHARES     AMOUNT
         ------------------------            ---------   ----------   ----------   -----------   --------   ---------
<S>                                          <C>         <C>          <C>          <C>           <C>        <C>
BALANCE, JANUARY 1, 1998...................  3,101,845   $3,101,845   $7,772,239   $ 9,246,589        --    $      --
Net income for the year ended December 31,
  1998.....................................         --           --           --     3,943,441        --           --
Exercise of stock options..................    137,500      137,500       91,438            --        --           --
Tax benefit from exercise of stock
  options..................................         --           --      157,000            --        --           --
                                             ---------   ----------   ----------   -----------   -------    ---------

BALANCE, DECEMBER 31, 1998.................  3,239,345    3,239,345    8,020,677    13,190,030        --           --
Net income for the year ended December 31,
  1999.....................................         --           --           --     4,545,505        --           --
Exercise of stock options..................    265,548      265,548      261,925            --        --           --
Shares surrendered as payment for exercise
  of stock options.........................         --           --           --            --   (49,235)    (498,500)
                                             ---------   ----------   ----------   -----------   -------    ---------
BALANCE, DECEMBER 31, 1999.................  3,504,893    3,504,893    8,282,602    17,735,535   (49,235)    (498,500)
Net income for the year ended December 31,
  2000.....................................         --           --           --     3,824,940        --           --
Exercise of stock options..................    172,700      172,700      181,537            --        --           --
Shares surrendered as payment for exercise
  of stock options.........................         --           --           --            --   (19,925)    (192,500)
Purchase of Class A Common Stock...........         --           --           --            --    (3,025)     (19,073)
                                             ---------   ----------   ----------   -----------   -------    ---------
BALANCE, DECEMBER 31, 2000.................  3,677,593   $3,677,593   $8,464,139   $21,560,475   (72,185)   $(710,073)
                                             =========   ==========   ==========   ===========   =======    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       15
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------
                                                           2000          1999           1998
                                                        -----------   -----------   ------------
<S>                                                     <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income..........................................  $ 3,824,940   $ 4,545,505   $  3,943,441
                                                        -----------   -----------   ------------

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

    Depreciation and amortization.....................    1,359,619     1,240,600        795,198

    Amortization of goodwill and other intangible
      assets..........................................      341,614       354,940        183,707

    Provision for losses on accounts receivable net...     (270,887)      268,787         18,776

    Deferred income taxes.............................      171,000       186,000        (95,000)

    Loss (gain) on disposal of fixed assets...........      (49,026)       22,262             --

    Tax benefit from exercise of stock options........           --            --        157,000

  Decrease (increase):

    Accounts receivable...............................    1,888,383    (3,812,583)     1,948,907

    Inventories.......................................   (2,804,489)   (3,593,026)    (2,020,088)

    Prepaid expenses and other........................     (191,634)       15,999       (231,668)

    Other assets......................................      (11,345)       29,173          2,450

  Increase (decrease):

    Accounts payable..................................   (2,414,780)      747,846         12,250

    Accruals..........................................     (692,439)      573,049        850,407
                                                        -----------   -----------   ------------

        Total adjustments.............................   (2,673,984)   (3,966,953)     1,621,939
                                                        -----------   -----------   ------------

        Net cash provided by operating activities.....    1,150,956       578,552      5,565,380
                                                        -----------   -----------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

  Capital expenditures................................   (1,147,816)   (1,646,999)    (1,415,999)

  Purchase of assets of Green Manufacturing, Inc......           --            --    (10,284,685)

  Payments for acquisition-related expenses...........           --            --       (448,163)

  Proceeds from sale of fixed assets..................       52,194         8,530             --
                                                        -----------   -----------   ------------

        Net cash used in investing activities.........   (1,095,622)   (1,638,469)   (12,148,847)
                                                        -----------   -----------   ------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       16
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                       -----------------------------------------
                                                          2000           1999           1998
                                                       -----------   ------------   ------------
<S>                                                    <C>           <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:

  Proceeds from short-term borrowings................   10,500,000     12,500,000     16,253,023

  Repayments of short-term borrowings................   (7,500,000)   (10,000,000)   (14,013,023)

  Proceeds from acquisition loan.....................           --             --     10,000,000

  Proceeds from mortgage refinancing.................           --      1,800,000             --

  Principal payments on long-term debt...............   (4,114,927)    (4,244,493)    (4,327,727)

  Redemption of subordinated debentures..............           --             --     (1,369,200)

  Proceeds from exercise of stock options and
    warrants.........................................      354,237         28,973        228,938

  Purchase of Class A Common Stock...................     (211,573)            --             --
                                                       -----------   ------------   ------------

    Net cash (used in) provided by financing
      activities.....................................     (972,263)        84,480      6,772,011
                                                       -----------   ------------   ------------

NET INCREASE (DECREASE) IN CASH......................     (916,929)      (975,437)       188,544

CASH AT BEGINNING OF YEAR............................    1,305,351      2,280,788      2,092,244
                                                       -----------   ------------   ------------

CASH AT END OF YEAR..................................  $   388,422   $  1,305,351   $  2,280,788
                                                       ===========   ============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       17
<PAGE>
                    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 (the "Company"). All significant
intercompany balances and transactions have been eliminated.

    The Company conducts its business operations through its three wholly-owned
subsidiaries. Florida Pneumatic Manufacturing Corporation ("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, a line of pipe cutting and threading tools, wrenches and replacement
electrical components for a widely-used brand of pipe cutting and threading
machines. Green Manufacturing, Inc. ("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 Industries, Inc. ("Embassy") is engaged in the
manufacture and sale of baseboard heating products and the importation and sale
of radiant heating systems. Embassy also imports a line of door and window
hardware items through its Franklin Hardware division. Note 10 presents
financial information for the segments of the Company's business.

BASIS OF FINANCIAL STATEMENT PRESENTATION

    In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

    The Company records revenues when products are shipped.

    Effective January 1, 2000, the Company adopted Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" (SAB 101"). SAB 101
requires that a company recognize income only if: persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the
price is fixed or determinable; and collectibility is reasonably assured. The
adoption of SAB 101 has had no material effect on either the Company's balance
sheet or its statements of operations and cash flows.

FINANCIAL INSTRUMENTS

    The carrying amounts of financial instruments, including cash and short-term
debt, approximated fair value as of December 31, 2000 and 1999, because of the
relatively short-term maturity of these instruments. The carrying value of
long-term debt, including the current portion, approximated fair value as of
December 31, 2000 and 1999, based upon quoted market prices for the same or
similar debt issues.

    At December 31, 2000, the Company had foreign currency forward contracts,
maturing in 2001, to purchase approximately $1,974,000 in Japanese yen at
contracted forward rates.

                                       18
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
    The Company enters into foreign currency forward contracts as a hedge
against foreign accounts payable. At December 31, 2000, gains and losses on such
contracts were included in the measurement of the related foreign currency
transactions and reflected in the cost of sales. The Company does not hold or
issue financial instruments for trading purposes.

INVENTORIES

    Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.

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:

<TABLE>
<S>                                       <C>
Buildings and improvements                      10 - 30 years

Machinery and equipment                          3 - 12 years
</TABLE>

LONG-LIVED ASSETS

    The Company reviews certain long-lived assets and identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In that regard, the Company assesses the
recoverability of such assets based upon estimated non-discounted cash flow
forecasts.

GOODWILL

    The excess of the purchase price over fair value of net assets of acquired
businesses arises from business combinations accounted for as purchases and is
amortized on a straight-line basis over periods from 25 to 40 years. The amounts
recognized as amortization expense were $324,435, $324,436 and $164,318 for the
years ended December 31, 2000, 1999 and 1998, respectively.

    The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over net assets acquired which is
other than temporary is to evaluate the recoverability and remaining life of its
goodwill and determine whether the goodwill should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment of goodwill if the fair value of the goodwill is deemed to be less
than its carrying value. If the Company determines that goodwill has been
impaired, the Company will reflect the impairment through a reduction in the
carrying value of goodwill, in an amount equal to the excess of the carrying
amount of the goodwill over the amount of the undiscounted estimated operating
cash flows.

                                       19
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
TAXES ON INCOME

    The Company files a consolidated Federal tax return. The parent company 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 PER SHARE

    Basic earnings per share is based only on the average number of shares of
common stock outstanding for the period. Diluted earnings per share reflects the
effect of shares of common stock issuable upon the exercise of options, warrants
and convertible securities.

    Diluted earnings 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

    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 Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."

SHIPPING AND HANDLING COSTS

    The Company generally does not bill customers for shipping and handling
costs. The amounts billed for these costs are not considered material and are
offset against expenses included in Selling, General and Administrative
expenses.

NEW ACCOUNTING PRONOUNCEMENT

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for transactions
entered into after January 1, 2001 and requires that all derivative instruments
be recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are to be recorded each period in current earnings or other
comprehensive income, depending on whether a

                                       20
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
derivative is designated as part of the hedge transaction and the type of hedge
transaction. The ineffective portion of all hedges will be recognized in
earnings. The Company does not believe that the adoption of SFAS 133 will have a
material impact on either its results of operations or its financial position.

RECLASSIFICATIONS

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

NOTE 2--INVENTORIES

    Inventories consist of:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                     -------------------------
                                                        2000          1999
                                                     -----------   -----------
<S>                                                  <C>           <C>
Raw materials......................................  $ 3,973,442   $ 4,128,374
Work-in-process....................................      934,283       812,929
Finished goods.....................................   18,511,265    15,673,198
                                                     -----------   -----------
 ...................................................  $23,418,990   $20,614,501
                                                     -----------   -----------
</TABLE>

NOTE 3--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.
At December 31, 2000, there was $9,000,000 outstanding against the revolving
credit loan facility. There was also a commitment of approximately $310,000 at
December 31, 2000 for open letters of credit.

    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, 2000 was approximately $1,974,000.

    Direct borrowings under the Company's revolving credit loan facility are
secured by the accounts receivable, inventory and equipment of the Company 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, 2000 was 9.5% and LIBOR was approximately 6.6%.
The prime interest rate at December 31, 1999 was 8.5% and LIBOR was
approximately 5.8%.

    The Company's credit agreement is subject to annual review by the lending
bank. Under this agreement, the Company is required to adhere to certain
financial covenants. At December 31, 2000, and for the year then ended, the
Company satisfied all of these covenants.

                                       21
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--LONG-TERM DEBT

    Long-term debt consists of:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2000         1999
                                                              ----------   ----------
<S>                                                           <C>          <C>
Term loan--principal amount outstanding at October 1, 1999
  to be paid in equal monthly installments (plus interest at
  LIBOR plus 1.75%) through September 2005 (a)..............  $       --   $3,833,333
Mortgage loan--$17,438 payable monthly (plus interest at
  8.16%) through May 2006, when a final payment of
  approximately $1,435,000 is due (b).......................   1,827,437    1,884,993
Mortgage loan--$16,370 payable monthly (plus interest at
  7.09%) through February 2014 (b)..........................   1,671,181    1,745,219
Economic Development Revenue Bond--payable yearly in various
  principal amounts (plus interest at variable rates)
  through November 2004 (c).................................     660,000      810,000
                                                              ----------   ----------
                                                               4,158,618    8,273,545
Less current maturities.....................................     296,106      947,884
                                                              ----------   ----------
                                                              $3,862,512   $7,325,661
                                                              ==========   ==========
</TABLE>

------------------------

(a) In December 2000, the balance outstanding on this term loan, $3,166,667, was
    transferred to the Company's revolving credit facility, which bears interest
    at a lower rate than did the term loan.

(b) These mortgages payable relate to the land and buildings of the Company's
    subsidiaries. Property with a net book value of approximately $4,916,000 is
    pledged as collateral.

(c) The interest rate at December 31, 2000 was 5.1%. This bond was secured by a
    standby letter of credit.

    The aggregate amounts of the long-term debt scheduled to mature in each of
the years ended December 31 are as follows: 2001--$296,106; 2002--$312,241;
2003--$329,258; 2004--$356,935; 2005--$191,205; 2006--$1,570,244; and 2007 and
thereafter--$1,102,629. Interest expense on long-term debt was $580,125,
$653,297 and $528,824 for the years ended December 31, 2000, 1999 and 1998,
respectively.

NOTE 5--CAPITAL STOCK TRANSACTIONS

    During the years ended December 31, 2000 and 1999, the Company received
19,925 and 49,235 shares, respectively, of Class A Common Stock in connection
with the exercise of stock options. The value of these shares was recorded at
$192,500 and $498,500, respectively. During the year ended December 31, 2000,
the Company purchased 3,025 shares of its Class A Common Stock at a cost of
$19,073.

    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 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.

                                       22
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--STOCK OPTIONS AND WARRANTS

    The Company has an Incentive Stock Option Plan (as amended) (the "Plan"),
which 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 the 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 Company applies the Accounting Principles Board Opinion 25, "Accounting
for Stock Issued to Employees" ("APB Opinion 25"), and related interpretations
in accounting for the Plan. Under APB Opinion 25, no compensation cost is
recognized if the exercise price of the Company's employee stock options is
equal to or greater than the market price of the underlying stock on the date of
the grant.

    Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", requires the Company to provide pro
forma information regarding net income and earnings per share as if compensation
cost for the 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 2000, 1999 and
1998, respectively: no dividends paid for any of these years; expected
volatility of 39.0%, 33.9% and 35.2%; risk-free interest rates of 6.1%, 5.1% and
5.5%; and expected lives of 10.0 years, 10.0 years and 9.7 years.

    The weighted-average fair values of options for which the exercise price
equaled the market price on the grant date were $5.41 in 2000, $4.97 in 1999 and
$4.53 in 1998. The weighted-average fair value of options for which the exercise
price exceeded the market price on the grant date was $2.89 in 1998.

    Under the provisions of SFAS 123, the Company's income from continuing
operations available to common shareholders and its basic and diluted earnings
per share would have changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              2000         1999         1998
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Income from continuing operations available to common
shareholders:
  As reported............................................  $3,824,940   $4,545,505   $3,943,441
  Pro forma..............................................  $3,818,145   $4,492,088   $3,485,588

Basic earnings per share:
  As reported............................................  $     1.07   $     1.35   $     1.23
  Pro forma..............................................  $     1.07   $     1.33   $     1.09

Diluted earnings per share:
  As reported............................................  $     1.04   $     1.23   $     1.07
  Pro forma..............................................  $     1.04   $     1.21   $      .94
</TABLE>

                                       23
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--STOCK OPTIONS AND WARRANTS (CONTINUED)
    The following table contains information on stock options for the three
years ended December 31, 2000:

<TABLE>
<CAPTION>
                                                                           EXERCISE     WEIGHTED
                                                                            PRICE       AVERAGE
                                                               OPTION       RANGE       EXERCISE
                                                               SHARES     PER SHARE      PRICE
                                                              --------   ------------   --------
<S>                                                           <C>        <C>            <C>
                                                                         $                $
Outstanding, January 1, 1998................................   786,000   1.44 to 5.71     2.55

Granted.....................................................   171,500   7.88 to 8.66     7.93

Exercised...................................................  (137,500)  1.50 to 1.94     1.67
                                                              --------   ------------     ----

Outstanding, December 31, 1998..............................   820,000   1.44 to 8.66     3.82

Granted.....................................................    17,000   8.94 to 9.00     8.96

Exercised...................................................  (265,600)  1.81 to 1.99     1.99
                                                              --------   ------------     ----

Outstanding, December 31, 1999..............................   571,400   1.44 to 9.00     4.83

Granted.....................................................     2,000   8.75             8.75

Exercised...................................................  (172,700)  1.50 to 5.25     2.05

Expired.....................................................    (4,400)  1.50 to 7.88     4.95
                                                              --------   ------------     ----

Outstanding, December 31, 2000..............................   396,300   1.44 to 9.00     6.06
                                                              ========   ============     ====
</TABLE>

    There were options available for issuance under the Plan as of December 31
of each year as follows: 1998--377,200; 1999--360,200; and 2000--358,200. All of
the options outstanding at December 31, 2000 were issued under the Plan. During
the year ended December 31, 2000, 117,700 options issued under a previous plan
were exercised and 1,400 options issued under the same plan expired.

                                       24
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--STOCK OPTIONS AND WARRANTS (CONTINUED)

    The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:

<TABLE>
<CAPTION>
                                        WEIGHTED
                                        AVERAGE
                                       REMAINING        WEIGHTED                       WEIGHTED
      RANGE OF                        CONTRACTUAL       AVERAGE                        AVERAGE
   EXERCISE PRICES      OUTSTANDING   LIFE (YEARS)   EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
   ---------------      -----------   ------------   --------------   -----------   --------------
<S>                     <C>           <C>            <C>              <C>           <C>
     $5.71                 35,000         1.4              5.71          35,000           5.71
      5.71                 35,000         1.4              5.71              --             --
      8.66                 11,500         2.2              8.66              --             --
      1.44                 15,000         2.6              1.44          15,000           1.44
      1.94                 48,000         4.0              1.94          48,000           1.94
  3.75 to 5.25             74,300         6.2              4.98          74,300           4.98
      7.88                158,500         7.2              7.88         158,500           7.88
  8.94 to 9.00             17,000         8.2              8.96          17,000           8.96
      8.75                  2,000         9.3              8.75           2,000           8.75
                          -------                                       -------
  1.44 to 9.00            396,300         5.3              6.06         349,800           6.01
                          =======                                       =======
</TABLE>

NOTE 7--TAXES ON INCOME

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

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                   ------------------------------------
                                                      2000         1999         1998
                                                   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>
Current:
Federal..........................................  $1,929,000   $2,262,000   $2,476,000
State and local..................................     164,000      204,000      202,000
                                                   ----------   ----------   ----------
Total current....................................   2,093,000    2,466,000    2,678,000
                                                   ----------   ----------   ----------
Deferred:
  Federal........................................     159,000      170,000      (90,000)
  State and local................................      12,000       16,000       (5,000)
                                                   ----------   ----------   ----------
Total deferred...................................     171,000      186,000      (95,000)
                                                   ----------   ----------   ----------
Total taxes on income............................  $2,264,000   $2,652,000   $2,583,000
                                                   ==========   ==========   ==========
</TABLE>

                                       25
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--TAXES ON INCOME (CONTINUED)
    Deferred tax assets (liabilities) consist of:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2000        1999
                                                              ---------   ---------
<S>                                                           <C>         <C>
Current deferred tax assets:
  Bad debt reserves.........................................  $ 187,000   $ 145,000
  Warranty and other reserves...............................    341,000     387,000
                                                              ---------   ---------
                                                              $ 528,000   $ 532,000
                                                              =========   =========
Non-current deferred tax liabilities:
  Depreciation..............................................  ($747,000)  ($635,000)
  Goodwill..................................................   (122,000)    (67,000)
                                                              ---------   ---------
                                                              ($869,000)  ($702,000)
                                                              =========   =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                            ------------------------------------------------------------------
                                                    2000                   1999                   1998
                                            --------------------   --------------------   --------------------
                                                $          %           $          %           $          %
                                            ---------   --------   ---------   --------   ---------   --------
<S>                                         <C>         <C>        <C>         <C>        <C>         <C>
Federal income taxes computed at statutory
  rates...................................  2,070,000     34.0     2,447,000     34.0     2,219,000     34.0
Increase in taxes resulting from:
State and local taxes, net of Federal tax
  benefit.................................    108,000      1.8       135,000      1.9       128,000      2.0
Expenses not deductible for tax
  purposes................................    100,000      1.6       110,000      1.5        97,000      1.5
Other.....................................    (14,000)     (.2)      (40,000)     (.6)      139,000      2.1
                                            ---------     ----     ---------     ----     ---------     ----
Taxes on income...........................  2,264,000     37.2     2,652,000     36.8     2,583,000     39.6
                                            =========     ====     =========     ====     =========     ====
</TABLE>

NOTE 8--ACQUISITION

    On September 16, 1998, the Company acquired certain assets, including cash
totalling $215,315, and assumed certain liabilities of Green
Manufacturing, Inc., a manufacturer of custom-engineered hydraulic cylinders,
prefabricated stairways and platforms and tractor-mounted post hole diggers. The
purchase price for the acquisition was $10,500,000 in cash, $10,000,000 of which
was provided by an acquisition loan made pursuant to the Company's credit
agreement and $500,000 of which was provided by working capital funds.

    As part of the acquisition, the Company assumed $1,095,000 of outstanding
Economic Development Revenue Bonds issued by Wood County, Ohio and $1,260,000 in
short-term borrowings from a bank.

    The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the accompanying consolidated financial statements
include the results of operations of the acquired company only from the date of
acquisition. The excess of acquisition costs over the fair value of net assets
acquired is included in the accompanying balance sheets as "Goodwill". Also
included in "Goodwill" are costs totalling $448,163 incurred in connection with
the acquisition.

                                       26
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--COMMITMENTS AND CONTINGENCIES

    (a) The Company 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 $332,000,
$312,000 and $278,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.

    In conjunction with the acquisition of Green, the Company 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 $82,000 for the year ended December 31, 2000, $62,000 for the year
ended December 31, 1999 and approximately $26,000 for the period from the date
of acquisition to December 31, 1998.

    One of the Company'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 union contracts and the Company
does not administer the funds and does not have any control over the funds. The
amounts recognized as pension expense for this plan were approximately $35,000,
$32,000 and $29,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.

    (b) The Company has an employment agreement with an officer. This agreement
currently provides for a minimum annual aggregate salary of $675,000 through
February 2004. 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 shall 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 significant amounts of pneumatic tools from
two foreign suppliers. Although other sources are available, the loss of either
supplier could cause a temporary disruption in the flow of products, possibly
creating an adverse effect on operating results.

    (d) Green purchases significant amounts of raw materials from one supplier.
Other sources are available, however, and the Company believes that the loss of
this supplier would not cause any disruption in the flow of products or have an
adverse effect on operating results.

NOTE 10--SEGMENTS OF BUSINESS

    The Company currently operates four business segments: pneumatic tools and
related equipment, hydraulic cylinders, heating equipment and hardware. The
accounting policies of each of the segments are the same as those described in
Note 1. The Company evaluates segment performance based on operating income.

                                       27
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--SEGMENTS OF BUSINESS (CONTINUED)
    The following presents financial information by segment for the years ended
December 31, 2000, 1999 and 1998. Operating income excludes general corporate
expenses, interest expense and income taxes. Identifiable assets are those
assets directly owned or utilized by the particular business segment.

<TABLE>
<CAPTION>
                                                           PNEUMATIC
                                                           TOOLS AND
                                                            RELATED    HYDRAULIC    HEATING
                   2000                     CONSOLIDATED   EQUIPMENT   CYLINDERS   EQUIPMENT   HARDWARE
                   ----                     ------------   ---------   ---------   ---------   --------
                                                                  (IN THOUSANDS)
<S>                                         <C>            <C>         <C>         <C>         <C>
Revenues from external customers..........     $80,899      $44,872     $20,220     $10,257     $5,550
                                               =======      =======     =======     =======     ======
Operating income..........................     $10,427      $ 8,252     $   929     $ 1,059     $  187
                                               =======      =======     =======     =======     ======
General corporate expense.................      (2,947)
Interest expense..........................      (1,391)
                                               -------
Income before taxes on income.............     $ 6,089
                                               =======
Identifiable assets at December 31,
  2000....................................     $52,659      $30,481     $14,985     $ 5,058     $2,135
                                               =======      =======     =======     =======     ======
Corporate assets..........................       1,494
                                               -------
Total assets at December 31, 2000.........     $54,153
                                               =======
Depreciation and amortization (including
  $15 corporate)..........................     $ 1,360      $   479     $   584     $   242     $   40
                                               =======      =======     =======     =======     ======
Amortization of goodwill and other
  intangibles.............................     $   342      $    96     $   240     $     6     $   --
                                               =======      =======     =======     =======     ======
Capital expenditures (including $1
  corporate)..............................     $ 1,148      $   216     $   271     $   660     $   --
                                               =======      =======     =======     =======     ======
</TABLE>

                                       28
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--SEGMENTS OF BUSINESS (CONTINUED)

<TABLE>
<CAPTION>
                                                           PNEUMATIC
                                                           TOOLS AND
                                                            RELATED    HYDRAULIC    HEATING
                   1999                     CONSOLIDATED   EQUIPMENT   CYLINDERS   EQUIPMENT   HARDWARE
                   ----                     ------------   ---------   ---------   ---------   --------
                                                                  (IN THOUSANDS)
<S>                                         <C>            <C>         <C>         <C>         <C>
Revenues from external customers..........     $82,700      $46,708     $20,612     $ 9,843     $5,537
                                               =======      =======     =======     =======     ======
Operating income..........................     $11,736      $ 9,304     $ 1,208     $   718     $  506
                                               =======      =======     =======     =======     ======
General corporate expense.................      (3,149)
Interest expense..........................      (1,389)
                                               -------
Income before taxes on income.............     $ 7,198
                                               =======
Identifiable assets at December 31,
  2000....................................     $52,066      $31,127     $14,563     $ 4,031     $2,345
                                               -------
Corporate assets..........................       2,174
                                               -------
Total assets at December 31, 2000.........     $54,240
                                               =======
Depreciation and amortization (including
  $13 corporate)..........................     $ 1,241      $   440     $   528     $   230     $   30
                                               =======      =======     =======     =======     ======
Amortization of goodwill and other
  intangibles.............................     $   355      $   109     $   240     $     6     $   --
                                               =======      =======     =======     =======     ======
Capital expenditures (including $7
  corporate)..............................     $ 1,647      $   867     $   773     $    --     $   --
                                               =======      =======     =======     =======     ======
</TABLE>

<TABLE>
<CAPTION>
                                                           PNEUMATIC
                                                           TOOLS AND
                                                            RELATED    HYDRAULIC    HEATING
                   1998                     CONSOLIDATED   EQUIPMENT   CYLINDERS   EQUIPMENT   HARDWARE
                   ----                     ------------   ---------   ---------   ---------   --------
                                                                  (IN THOUSANDS)
<S>                                         <C>            <C>         <C>         <C>         <C>
Revenues from external customers..........     $58,166      $37,806     $ 6,585     $ 9,424     $4,351
                                               =======      =======     =======     =======     ======
Operating income..........................     $ 9,770      $ 8,410     $   417     $   471     $  472
                                               =======      =======     =======     =======     ======
General corporate expense.................      (2,472)
Interest expense..........................        (772)
                                               -------
Income before taxes on income.............     $ 6,526
                                               =======      =======     =======     =======     ======
Identifiable assets at December 31,
  1998....................................     $44,342      $22,672     $14,225     $ 5,013     $2,432
Corporate assets..........................       3,736
                                               -------
Total assets at December 31, 1998.........     $48,078
                                               -------
Depreciation and amortization (including
  $7 corporate)...........................     $   795      $   419     $   111     $   238     $   20
                                               =======      =======     =======     =======     ======
Amortization of goodwill and other
  intangibles.............................     $   184      $   112     $    66     $     6     $   --
                                               =======      =======     =======     =======     ======
Capital expenditures (including $29
  corporate)..............................     $ 1,416      $   383     $   397     $   607     $   --
                                               =======      =======     =======     =======     ======
</TABLE>

    The pneumatic tools segment has two customers that accounted for 23.4%,
24.7% and 35.7%, and 7.4%, 7.7% and 10.1%, respectively, of consolidated
revenues for the years ended December 31, 2000, 1999 and 1998, respectively.
These two customers also accounted for 30.6% and 37.6% of consolidated

                                       29
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--SEGMENTS OF BUSINESS (CONTINUED)
accounts receivable as of December 31, 2000 and 1999, respectively. A third
customer, a customer of both the pneumatic tools segment and the hardware
segment, accounted for 14.0%, 10.1% and 0.5% of consolidated revenues for the
years ended December 31, 2000, 1999 and 1998, respectively, and 15.7% and 13.2%
of consolidated accounts receivable as of December 31, 2000 and 1999,
respectively. There were no other major customers requiring disclosure.

NOTE 11--UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION

    Unaudited interim consolidated financial information for the two years ended
December 31, 2000 and 1999 is summarized as follows:

<TABLE>
<CAPTION>
                                                                 QUARTER ENDED
                                            --------------------------------------------------------
                   2000                      MARCH 31,     JUNE 30,     SEPTEMBER 30,   DECEMBER 31,
                   ----                     -----------   -----------   -------------   ------------
<S>                                         <C>           <C>           <C>             <C>
Revenues..................................  $20,796,956   $18,963,739    $21,844,757    $19,293,222
                                            ===========   ===========    ===========    ===========
Gross profit..............................    6,394,584     6,287,998      6,205,423      5,791,677
                                            ===========   ===========    ===========    ===========
Net income................................    1,077,007     1,009,669        959,817        778,447
                                            ===========   ===========    ===========    ===========
Earnings per share of common stock:
  Basic...................................          .31           .28            .27            .22
                                            ===========   ===========    ===========    ===========
  Diluted.................................          .29           .27            .26            .21
                                            ===========   ===========    ===========    ===========
                   1999
------------------------------------------
Revenues..................................   18,108,268    17,092,157     20,358,379     27,141,636
                                            ===========   ===========    ===========    ===========
Gross profit..............................    5,562,207     5,433,028      6,330,645      8,205,714
                                            ===========   ===========    ===========    ===========
Net income................................      961,407       754,024      1,233,942      1,596,132
                                            ===========   ===========    ===========    ===========
Earnings per share of common stock:
  Basic...................................          .30           .23            .35            .46
                                            ===========   ===========    ===========    ===========
  Diluted.................................          .26           .20            .33            .44
                                            ===========   ===========    ===========    ===========
</TABLE>

    During the fourth quarter of 2000, the Company recorded net adjustments
decreasing its net income by approximately $265,000, relating to adjustments to
reserves for bad debts, inventory and insurance.

                                       30
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              2000         1999         1998
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Numerator:
  Numerator for basic and diluted earnings
    per common share--net income.........................  $3,824,940   $4,545,505   $3,943,441
                                                           ==========   ==========   ==========
Denominator:
  Denominator for basic earnings per share--weighted
    average common shares outstanding....................   3,560,786    3,370,098    3,208,181
Effect of dilutive securities:
  Common stock options...................................     125,545      334,535      481,782
                                                           ----------   ----------   ----------
  Denominator for diluted earnings per share--adjusted
    weighted average common shares and assumed
    conversions..........................................   3,686,331    3,704,633    3,689,963
                                                           ==========   ==========   ==========
Basic earnings per common share..........................  $     1.07   $     1.35   $     1.23
                                                           ==========   ==========   ==========
Diluted earnings per common share........................  $     1.04   $     1.23   $     1.07
                                                           ==========   ==========   ==========
</TABLE>

    There were outstanding during the years ended December 31, 2000, 1999 and
1998 stock options whose exercise prices were lower than the average market
values for the respective periods. These options are anti-dilutive and are
excluded from the computation of earnings per share. The weighted average
anti-dilutive options outstanding for the years ended December 31, 2000, 1999
and 1998 were as follows: 2000--150,500; 1999--51,375; and 1998--45,750.

NOTE 13--SUPPLEMENTAL CASH FLOW INFORMATION

    Cash paid during the year for:

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,
                                           ------------------------------------
                                              2000         1999         1998
                                           ----------   ----------   ----------
<S>                                        <C>          <C>          <C>
Interest.................................  $1,425,189   $1,400,165   $  673,814
                                           ==========   ==========   ==========
Income taxes.............................  $2,426,470   $2,414,890   $2,539,601
                                           ==========   ==========   ==========
</TABLE>

    During the years ended December 31, 2000 and 1999, the Company received
19,925 and 49,235 shares, respectively, of Class A Common Stock in connection
with the exercise of stock options. The value of these shares was recorded at
$192,500 and $498,500, respectively.

                                       31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURES

    None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information relating to the directors and executive officers of the
Registrant is set forth in the Registrant's definitive Proxy Statement for its
2001 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 relating to executive compensation is set forth 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

    Information relating to the security ownership of certain beneficial owners
and management is set forth 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 relating to certain relationships and related transactions is
set forth 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.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
                                                                     PAGE
                                                                   --------
<S>  <C>                                                           <C>
(a)  Financial statements and financial statement schedules

     (1)  The consolidated financial statements of the Registrant
     as set forth under Item 8 are filed as part of this report.

     (2)  The following consolidated financial statement schedule
     for the three years ended December 31, 2000, 1999 and 1998
     is filed as part of this report:

     Schedule II--Valuation and Qualifying Accounts                    33

     All other schedules are omitted because they are not
     required, are not applicable, or the required information is
     otherwise shown in the financial statements or notes
     thereto.

     (3)  The following exhibits are filed as part of this          35-36
     report: See "Exhibit Index" immediately following the
     signature page.

(b)  Reports on Form 8-K.

     No reports on Form 8-K were filed by the Registrant during
     the quarter ended December 31, 2000.
</TABLE>

                                       32
<PAGE>
                    P & F INDUSTRIES, INC. AND SUBSIDIARIES
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                COLUMN A    COLUMN B    COLUMN C      COLUMN D    COLUMN E
                                               ----------   --------   -----------   ----------   ---------
                                                                        ADDITIONS
                                               ------------------------------------------------------------
                                                            CHARGED      CHARGED
                                               BALANCE AT   TO COSTS   (CREDITED)                  BALANCE
                                               BEGINNING      AND       TO OTHER                   AT END
                 DESCRIPTION                   OF PERIOD    EXPENSES    ACCOUNTS     DEDUCTIONS   OF PERIOD
---------------------------------------------  ----------   --------   -----------   ----------   ---------
<S>                                            <C>          <C>        <C>           <C>          <C>
Year ended December 31, 2000:
Allowance for possible losses................   $767,456    $221,004   ($  264,743)(a) $227,148(b) $496,569
                                                ========    ========   ===========   ==========   ========
Year ended December 31, 1999:
Allowance for possible losses................   $498,669    $339,743   $        --   $ 70,956(b)  $767,456
                                                ========    ========   ===========   ==========   ========
Year ended December 31, 1998:
Allowance for possible losses................   $421,014    $18,776    $ 177,517(c)  $118,638(b)  $498,669
                                                ========    ========   ===========   ==========   ========
</TABLE>

--------------------------

(a) Reclassification

(b) Write-off of expenses against reserve.

(c) Amount received as part of purchase of net assets of Green
    Manufacturing, Inc.

                                       33
<PAGE>
                                   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)

<TABLE>
<S>  <C>                                                    <C>      <C>                                                    <C>
By:                 /s/ RICHARD A. HOROWITZ                 By:                    /s/ JOSEPH A. MOLINO, JR.
            --------------------------------------                          --------------------------------------
                      Richard A. Horowitz                                            Joseph A. Molino, Jr.
                     Chairman of the Board                                              Vice President
                           President                                                Principal Financial and
                  Principal Executive Officer                                         Accounting Officer
                  Principal Executive Officer
</TABLE>

Date: March 19, 2001

    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.

<TABLE>
<CAPTION>
                        NAME                                      TITLE                    DATE
                        ----                                      -----                    ----
<S>                                                    <C>                          <C>
               /s/ ROBERT L. DUBOFSKY
     -------------------------------------------                Director
                 Robert L. Dubofsky

                  /s/ ALAN GOLDBERG
     -------------------------------------------                Director
                    Alan Goldberg

               /s/ RICHARD A. HOROWITZ
     -------------------------------------------                Director
                 Richard A. Horowitz

                 /s/ SIDNEY HOROWITZ
     -------------------------------------------                Director
                   Sidney Horowitz

                 /s/ ARTHUR HUG, JR.
     -------------------------------------------                Director
                   Arthur Hug, Jr.

                  /s/ DENNIS KALICK
     -------------------------------------------                Director
                    Dennis Kalick

                  /s/ NEIL NOVIKOFF
     -------------------------------------------                Director
                    Neil Novikoff

               /s/ ROBERT M. STEINBERG
     -------------------------------------------                Director
                 Robert M. Steinberg

                  /s/ MARC A. UTAY
     -------------------------------------------                Director
                    Marc A. Utay
</TABLE>

Date: March 19, 2001

                                       34
<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
       EXHIBIT
         NO.
---------------------
<C>                         <S>
         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
                            of the Registrant's Current Report on Form 8-K dated
                            September 16, 1998). 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.

         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 4.1 to the Registrant's Current Report on Form 8-K
                            dated April 11, 1997).

         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 (Incorporated by reference to Exhibit 4.3 to the
                            Registrant's Annual Report on Form 10-K/ A for the fiscal
                            year ended December 31, 1998).

         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 (Incorporated
                            by reference to Exhibit 4.4 to the Registrant's Annual
                            Report on Form 10-K/A for the fiscal year ended December 31,
                            1998).

         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).

         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).
</TABLE>

                                       35
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
         NO.
---------------------
<C>                         <S>
         4.7                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                Amended and Restated Employment Agreement, dated as of May
                            28, 1997, between the Registrant and Richard A. Horowitz
                            (Incorporated by reference to Exhibit 10.1 to the
                            Registrant's Annual Report on Form 10-K/A for the fiscal
                            year ended December 31, 1998).

        10.2                Consulting Agreement, effective as of November 1, 2000,
                            between the Registrant and Sidney Horowitz (Incorporated by
                            reference to Exhibit 10.3 to the Registrant's Quarterly
                            Report on Form 10-Q for the quarter ended September 30,
                            2000).

        10.3                1992 Incentive Stock Option Plan of the Registrant, as
                            amended and restated as of March 13, 1997 (Incorporated by
                            reference to Exhibit 10.3 to the Registrant's Annual Report
                            on Form 10-K/A for the fiscal year ended December 31, 1998).

          21                Subsidiaries of the Registrant.

          23                Consent of the Registrant's Independent Certified Public
                            Accountants.
</TABLE>

                                       36