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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|For the Fiscal Year Ended December 31, 2002
|or                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1 - 5332

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

|Delaware(State or other jurisdiction of
incorporation or organization)          |  | 22-1657413(I.R.S. Employer Identification Number)
|------------------------------------------------------------------------------- |  | -------------------------------------------------
|300 Smith Street, Farmingdale, New York(Address of principal executive offices) |  | 11735(Zip Code)                                  
|Registrant's telephone number, including area code:(631) 694-1800              
|Securities registered pursuant to Section 12(b) of the Act:None                
|Securities registered pursuant to Section 12(g) of the Act:                    
|Class A Common Stock, $1.00 par value                                          

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

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

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

The
aggregate market value of the registrant's Class A Common Stock held by non-affiliates of the registrant, based on the last sale price on June 30, 2002 (the
last business day of the registrant's most recently completed second fiscal quarter), was approximately $14,642,000.

As
of March 28, 2003, there were 3,503,522 shares of the registrant's Class A Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference information from the registrant's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held during 2003.

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P & F INDUSTRIES, INC.    FORM 10-K    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002    TABLE OF CONTENTS

|         |  |                                                                                                |  | Page 
|-------- |  | ---------------------------------------------------------------------------------------------- |  | -----
|PART I   |  |                                                                                                |  |      
|Item 1.  |  | Business                                                                                       |  | 1-4  
|Item 2.  |  | Properties                                                                                     |  | 5    
|Item 3.  |  | Legal Proceedings                                                                              |  | 5    
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                            |  | 5    
|PART II  |  |                                                                                                |  |      
|Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                          |  | 5    
|Item 6.  |  | Selected Financial Data                                                                        |  | 6    
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations          |  | 7-14 
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 14-15
|Item 8.  |  | Financial Statements and Supplementary Data                                                    |  | 16-45
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures          |  | 46   
|PART III |  |                                                                                                |  |      
|Item 10. |  | Directors and Executive Officers of the Registrant                                             |  | 46   
|Item 11. |  | Executive Compensation                                                                         |  | 46   
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 46   
|Item 13. |  | Certain Relationships and Related Transactions                                                 |  | 46   
|Item 14. |  | Controls and Procedures                                                                        |  | 47   
|PART IV  |  |                                                                                                |  |      
|Item 15. |  | Exhibits, Financial Statement Schedule and Reports on Form 8-K                                 |  | 48-49
|         |  | Signatures and Certifications                                                                  |  | 50-52
|         |  | Exhibit Index                                                                                  |  | 53-55

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

This Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Any forward-looking statements contained herein, including those related to the Company's future performance, are based upon the Company's historical performance and on current plans, estimates
and expectations. Such forward-looking statements are subject to various risks and uncertainties, including, but not limited to, the impact of competition, product demand and pricing. These risks
could cause the Company's actual results for the 2003 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

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PART I

ITEM 1.    Business

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

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

Florida
Pneumatic has one major customer, Sears, Roebuck and Co., that accounted for 21.7%, 21.4% and 23.4% of consolidated revenues for the years ended December 31, 2002, 2001
and 2000, respectively. The Home Depot, Inc. is a customer of both Florida Pneumatic and Countrywide, and accounted for 18.3%, 18.0% and 14.0% of consolidated revenues for the years ended
December 31, 2002, 2001 and 2000, respectively. Revenues derived from countries outside of the United States were immaterial for the years ended December 31, 2002, 2001 and 2000.

Florida Pneumatic

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

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

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

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

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

Three
customers accounted for 39.4%,37.4% and 42.2%, 28.7%, 26.9% and 21.4% and 12.0%, 12.9% and 13.4% of Florida Pneumatic's revenues
for the years ended December 31, 2002, 2001 and 2000, respectively.

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

Florida
Pneumatic purchases significant amounts of pneumatic tools from two foreign suppliers. Although other sources are available, the loss of either supplier could adversely affect
operating results.

Countrywide

Countrywide conducts its business through Nationwide and Franklin.

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

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

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

Two
customers accounted for 13.0% and 7.6%, respectively, of Nationwide's revenue for the year ended December 31, 2002.

Nationwide
currently purchases approximately 75% of its products from one foreign supplier. Although other suppliers are available, the loss of this one supplier could adversely affect
operating results.

Nationwide's
sales are somewhat seasonal, with revenues increasing approximately 10% during the spring and summer months. The majority of Nationwide's products are sold off the shelf.
The backlog at December 31, 2002 of approximately 15% of annual sales results primarily from blanket customer orders.

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

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

Two
customers accounted for approximately 36.9%, 38.0% and 31.5%, and 23.2%, 27.4% and 23.9% of Franklin's revenues for the years ended December 31, 2002, 2001 and 2000,
respectively. One former customer, which accounted for approximately 14.0% of Franklin's revenues for the year ended December 31, 2000 has filed for bankruptcy.

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

2

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

Green

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

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

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

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

Green
also manufactures a line of access equipment for the petro-chemical and bulk storage industries. This product line, which accounts for approximately 24% 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 11% of Green's
revenues, is marketed through farm equipment dealers and wholesalers.

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

One
customer accounted for 4.4%, 26.0% and 24.9% of Green's revenues for the years ended December 31, 2002, 2001 and 2000, respectively. This customer ceased being a customer of
the Company during the first quarter of 2002. Sales to this customer during the year ended December 31, 2002 were approximately $534,000.

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

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

Embassy

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

3

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industrial buildings. Embassy's 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 that dissipate the heat. Sections are two to ten feet in length, project several inches from the wall and rise less than a foot
from the floor. These sections may be combined for longer installations. Embassy's baseboard contains patented plastic tracks, which ease handling and reduce operating noise.

Embassy
also imports a line of radiant heating systems. These systems are different from baseboard heating systems in that the radiant heating systems radiate heat provided by hot water
circulating through plastic tubing, which is generally installed beneath the surface of the floor. These systems include the tubing, manifolds, controls and installation supplies. Embassy also
provides computer software that aids in the design of the system. Sales of this product accounted for approximately 20.6%,20.7% and 16.5% of Embassy's
total heating equipment revenues for the years ended December 31, 2002, 2001 and 2000, respectively. No customer accounted for greater than 10% of Embassy's revenues for the years ended
December 31, 2002, 2001 or 2000.

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

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

Embassy's
baseboard heating products are sold off the shelf, and no material backlog of orders exists. Raw materials are readily available. The business is somewhat seasonal, with
approximately 30% of Embassy's heating equipment revenues coming in the last three months of the year.

Employees

The Company employed 305 persons as of December 31, 2002, including six at corporate headquarters. Countrywide had no employees. Florida Pneumatic had 75
employees, Nationwide had 38 employees and Green had 109 employees. These employees are not represented by a union. Embassy had 77 employees, including 48 factory workers who are covered by a
single-employer union contract that expires on November 30, 2004. The Company believes that its relationships with its employees are satisfactory.

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ITEM 2.    Properties

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

Florida
Pneumatic, Countrywide, Green, and Embassy each own the plant facilities that they occupy. The facilities owned by Florida Pneumatic, Countrywide and Embassy are subject to
mortgages. Florida Pneumatic's 72,000 square foot plant facility is located in Jupiter, Florida. Countrywide's 56,250 square foot plant facility is located in Tampa, Florida. Green's 85,000 square
foot plant facility is located in Bowling Green, Ohio. Embassy's 75,000 square foot plant facility is located in Farmingdale, New York. Each facility either provides adequate space for the operations
of the respective subsidiary 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 a defendant or co-defendant in various actions brought about in the ordinary course of conducting its business. The Company does not
believe that any of these actions are material to the financial condition of the Company.

ITEM 4.    Submission Of Matters To A Vote Of Security Holders

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

PART II

ITEM 5.    Market For 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:

2002

High

LowFirst Quarter

$
7.89

$
6.00Second Quarter


7.45


6.20Third Quarter


7.30


5.85Fourth Quarter


7.07


5.00


2001

High

LowFirst Quarter

$
7.88

$
5.44Second Quarter


7.18


6.06Third Quarter


6.92


5.50Fourth Quarter


8.00


5.65


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 28, 2003, there were approximately 1,400 holders of record of the Company's Class A Common Stock.

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

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ITEM 6.    Selected Financial Data

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

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

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ITEM 7.    Management's Discussion And Analysis Of Financial Condition And Results Of Operations

General

Critical Accounting Policies and Estimates

Note 1 of the Notes to Consolidated Financial Statements, included elsewhere in this Annual Report on Form 10-K, includes a summary of
the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements in accordance with accounting principles generally accepted in the United
States of America. Certain of these accounting policies require the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the
related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates estimates, including those related to bad debts, inventory reserves, intangible assets, income taxes
and contingencies. The Company bases its estimates on historical data and experience, when available, and on various other assumptions that are believed to be reasonable under the circumstances, the
combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates.

The
Company's critical accounting policies include:



The Company records revenues upon shipment with related risks and title passing to the customers. Estimates of losses for bad debts, returns and other allowances
are recorded at the time of the sale. Shipping charges to customers and related expenses that are included in selling, general and administrative expenses are immaterial.



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



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



The Company's operational policy for the assessment and measurement of any impairment in the value of goodwill and other intangible assets that is other than
temporary is to evaluate annually, with the help of independent third-party appraisals, the recoverability and remaining life of its goodwill and other intangible assets to determine the fair value of
these assets. The methodologies to be used to

7

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estimate fair value include the use of estimates and assumptions, including projected revenues, earnings and cash flows. If the fair value of any of these assets is determined to be less than its
carrying value, the Company will reflect the impairment of any such asset through a reduction in its carrying value, in an amount equal to the excess of the carrying value of the asset over its
appraised value.



The Company reviewed certain long-lived assets and identifiable intangibles for impairment. Whenever events or changes in circumstances indicate that
the carrying value of any of these assets may not be recoverable, the Company will assess the recoverability of such assets based upon estimated undiscounted cash flow forecasts.



On May 3, 2002, Countrywide acquired all of the stock of Nationwide for approximately $10,452,000, plus acquisition costs of approximately $490,000 and
working capital adjustments of approximately $260,000. There were additional acquisition-related costs of approximately $364,000 recorded as
goodwill. In addition to the cash paid at the closing, Nationwide's previous owner is entitled to contingent payments of 30% of the excess of Nationwide's earnings before interest and taxes over
$2,500,000, for each of the five twelve-month periods subsequent to the acquisition date, which contingent payments will be treated as additions to goodwill. Countrywide conducts its business through
Nationwide and Franklin. The assets of Franklin were transferred from Embassy to Countrywide on December 30, 2002.

Results Of Operations

2002 Compared to 2001

Consolidated revenues increased 14.9%, from $67,195,912 to $77,213,902. Revenues from pneumatic tools and related equipment increased 10.7%, from $38,359,690 to
$42,459,567, due primarily to large fall seasonal promotions at two major customers and increased sales in the industrial and automotive businesses, which were partially offset by lower commission
revenues. Selling prices of pneumatic tools and related equipment were unchanged from 2001, with the exception of prices to one significant customer, which were substantially reduced at the start of
the third quarter of 2001, and prices to another significant customer, which were substantially reduced early in the fourth quarter of 2002.

Revenues
from hardware products increased 185.6%, from $4,673,604 to $13,346,256, due primarily to the acquisition of Nationwide, which had revenues of approximately $8,000,000 in 2002,
and strong results at Franklin, which is benefiting from the addition of two customers in the fourth quarter of 2001. Selling prices of hardware products were unchanged from 2001.

Revenues
from hydraulic cylinders and other equipment decreased 15.8%, from $14,377,036 to $12,107,485, due primarily to the phasing out of a major customer in the first quarter of 2002
and continued depressed market conditions, which were partially offset by increased sales in the access and agricultural product lines. Selling prices of hydraulic cylinders and other equipment were
virtually unchanged from 2001.

Revenues
from heating products decreased 5.0%, from $9,785,582 to $9,300,594, due primarily to the loss of a major customer in the first quarter of 2002. Selling prices of heating
products were unchanged from 2001.

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Consolidated
gross profit, as a percentage of revenues, increased from 30.0% to 30.4%. Gross profit from pneumatic tools and related equipment decreased from 36.8% to 35.3%, due
primarily to the lower-margin promotional sales noted above and a price reduction to a major customer at the start of the second half of 2001, which was partially offset by productivity improvements
and a weaker yen. Gross profit from hardware products increased from 27.8% to 32.8%, due primarily to the addition of Nationwide's higher margin OEM business, which is now included in the product mix.
Gross profit from hydraulic cylinders and other equipment increased from 9.9% to 10.0%, due primarily to a shift in product mix. Gross profit from heating products decreased from 34.0% to 31.1%, due
primarily to the decrease in revenues, which reduced coverage of fixed expenses, and, to a lesser extent, to new product start-up costs incurred.

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

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

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

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

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

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

2001 Compared to 2000

Consolidated revenues decreased 16.9%, from $80,898,674 to $67,195,912. Revenues from pneumatic tools and related equipment decreased 14.5%, from $44,872,344 to
$38,359,690, due primarily to a decrease in special promotions by a significant customer, as well as to the overall weakness caused by the economic slowdown. The selling prices of pneumatic tools and
related equipment were unchanged during the year.

9

---

Revenues
from hydraulic cylinders and other equipment decreased 28.9%, from $20,219,885 to $14,377,036, due primarily to three major factors. First, one large aerial lift customer
discontinued selling a significant portion of its product line. Second, weakness in demand for both recycled cardboard and large capital goods reduced demand for cylinders sold to the refuse market.
Third, overall weakness in demand for capital goods reduced demand for cylinders sold to the wrecker market. Selling prices of hydraulic cylinders and other equipment were increased by approximately
5% to a majority of customers during the fourth quarter of 2000, and were maintained at that level during 2001.

Revenues
from heating equipment decreased 4.6%, from $10,256,599 to $9,785,582, due primarily to weak sales of baseboard products and the loss of a significant customer, which was
partially offset by sales of a new boiler product and an increase in sales of radiant products. Average selling prices for all heating equipment products were unchanged during the year.

Revenues
from hardware products decreased 15.8%, from $5,549,846 to $4,673,604, due primarily to the loss of two significant customers who declared bankruptcy since the third quarter of
2000. This was partially offset by the addition of a significant new customer in the second half of 2001. Selling prices of hardware products were unchanged during the year.

Consolidated
gross profit, as a percentage of revenues, decreased from 30.5% to 30.0%. Gross profit from pneumatic tools and related equipment was unchanged at 36.8%. Gross profit from
hydraulic cylinders and other equipment decreased from 14.2% to 9.9%, due primarily to the decrease in
revenues, which reduced coverage of fixed expenses, as well as to the production of prototypes and short-run orders for potential new customers, which require significant labor resources
while generating minimal profit margins. Gross profit from heating equipment decreased, from 36.6% to 34.0%, due to a shift in product mix, as well as to lower production activity, which resulted in
lower absorption of fixed expenses. Gross profit from hardware products decreased, from 28.0% to 27.8%, due primarily to a change in product mix.

Consolidated
selling, general and administrative expenses decreased 4.1%, from $17,199,793 to $16,492,976, due primarily to the overall decrease in revenues. As a percentage of revenues,
selling, general and administrative expenses increased, from 21.3% to 24.5%, due primarily to the decrease in revenues.

Interest
expense decreased 42.7%, from $1,390,949 to $796,663, due primarily to decreases in both the average outstanding balance of the Company's borrowings and the average interest
rate on these borrowings.

The
effective tax rates for the years ended December 31, 2001 and 2000 were 36.9% and 37.2%, respectively. See Note 9 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:

December 31,2002

2001

2000(amounts in thousands, except for ratios)Working Capital

$
19,908

$
21,010

$
19,137Current Ratio


2.49 to 1


3.71 to 1


2.16 to 1Shareholders' Equity

$
33,823

$
34,228

$
32,992


10

---

On
May 3, 2002, Countrywide acquired all of the stock of Nationwide for approximately $10,452,000, plus acquisition costs of approximately $490,000 and working capital adjustments
of approximately $260,000. There were additional acquisition-related costs of approximately $364,000 recorded as goodwill. In addition to the cash paid at the closing, Nationwide's previous owner is
entitled to contingent payments of 30% of the excess of Nationwide's earnings before interest and taxes over $2,500,000, for each of the five twelve-month periods subsequent to the acquisition date,
which contingent payments will be treated as additions to goodwill. Countrywide conducts its business through Nationwide and Franklin. The assets of Franklin were transferred from Embassy to
Countrywide on December 30, 2002.

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

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

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

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

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

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

During
2001, gross accounts receivable decreased by approximately $831,000. Florida Pneumatic's accounts receivable decreased by approximately $567,000 and Green's accounts receivable
decreased by approximately $416,000. Embassy's accounts receivable increased by approximately $152,000. The decrease in accounts receivable at Florida Pneumatic was due primarily to a decrease in
sales during the fourth quarter of 2001 compared to 2000, which was partially offset by the timing of payments from one major customer and the permanent extension of terms to another. The decrease in
accounts receivable at Green was due primarily to a decrease in sales during the fourth quarter of 2001 compared to 2000. The increase in accounts receivable at Embassy was primarily due to an
increase in sales during the fourth quarter of 2001 compared to 2000.

11

---

Inventories
decreased by approximately $6,195,000 during 2001. Florida Pneumatic's inventory decreased by approximately $5,830,000 and Green's inventory decreased by approximately
$1,018,000. Embassy's inventory increased by approximately $653,000. At both Florida Pneumatic and Green, the decreases in inventory were consistent with the decreases in revenues. At Embassy, the
increase in inventory was primarily due to the launch of the new boiler product line, and, to a lesser extent, to the initial stocking of inventory for a significant new customer of Franklin.

The
decrease in both accounts receivable and inventories were the primary factors in the decrease of $7,000,000 in short-term borrowings.

On
August 1, 2002, the Company renewed its credit agreement, as amended, with Citibank through July 26, 2003. 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 maximum of $12,000,000, with various sublimits, for direct borrowings, letters of credit, bankers' acceptances and equipment loans. There are no commitment fees for any unused portion of
this credit facility.

At
December 31, 2002, there was $4,500,000 outstanding against the revolving credit loan facility. There was also a commitment of approximately $170,000 at December 31,
2002 for open letters of credit.

The
term loan facility provides a maximum commitment of $15,000,000 to finance acquisitions subject to the lending bank's approval. There are no commitment fees for any unused portion of
this credit facility. The Company borrowed $11,500,000 against this facility to finance the acquisition of Nationwide. There was a balance outstanding against this facility at December 31, 2002
of $7,500,000. There was also a standby letter of credit totaling approximately $350,000 outstanding against this facility at December 31, 2002. This standby letter of credit was used to secure
the Economic Development Revenue Bond assumed as part of the acquisition of Green.

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, 2002 and for the year then ended, the Company satisfied all of these covenants.

Capital
spending was approximately $3,943,000, $944,000 and $1,148,000 in 2002, 2001 and 2000, respectively, which amounts were provided from working capital. Capital expenditures for
2003 are expected to be approximately $1,500,000, some of which may be financed through the Company's credit facilities. Included in the expected total for 2003 are capital expenditures relating to
new products, expansion of existing product lines and replacement of equipment.

Cash
provided by operating activities for 2002, 2001 and 2000 was approximately $5,786,000, $8,923,000 and $1,151,000, respectively. The Company believes that cash on hand derived from
operations and cash available through borrowings under its credit facilities will be sufficient to allow the Company to meet its foreseeable working capital needs.

Off-Balance Sheet Arrangements

The Company's foreign exchange line provides for the availability of up to $10,000,000 in foreign currency forward contracts. These contracts fix the exchange
rate on future purchases of Japanese yen needed for payments to foreign suppliers. The total amount of foreign currency forward contracts outstanding at December 31, 2002 was approximately
$625,000.

12

---



The Company, through Florida Pneumatic, imports a significant amount of its purchases from Japan, with payment due in Japanese yen. As a result, the Company is subject to the effects of
foreign currency exchange fluctuations. The Company uses a variety of techniques to protect itself from any adverse effects from these fluctuations, including increasing its selling prices, obtaining
price reductions from its overseas suppliers, using alternative supplier sources and entering into foreign currency forward contracts. The increase in the strength of the U.S. dollar versus the
Japanese yen from 2001 to 2002 had a positive effect on the Company's results of operations and its financial position. Since December 31, 2002, the relative value of the U.S dollar in relation
to the Japanese yen has decreased. There can be no assurance as to the future trend of this value. See "Item 7AQuantitative and Qualitative Disclosure About Market Risk."

Impact of Inflation

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

Environmental Matters

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

Contractual Obligations and Commercial Commitments

At December 31, 2002, the Company had certain contractual cash obligations and other commercial commitments, as set forth in the following tables:

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

The
Company has an employment agreement, through May 2008, with its President, that provides for minimum annual compensation of $760,000. The Company also has an employment agreement
with the President of a subsidiary, through May 2007, that provides for annual compensation of $75,000.

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

13

---

New Accounting Pronouncements

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

In
November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"), which requires a guarantor to include disclosure of certain
obligations, and, if applicable, at the inception of the guarantee, to recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition
requirement is effective for guarantees issued or modified after December 31, 2002 and is not expected to have a material impact on the Company. The Company has no such obligations that would
fall under either the disclosure or recognition requirements of FIN 45.

In
December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock Based Compensation-Transition and Disclosure"
("SFAS 148"), which was issued to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.
SFAS 148 is effective for financial statements for fiscal years ending after December 15, 2002. SFAS 148 will not have any impact on the Company because the Company does not plan
to implement the fair value method.

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

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

14

---

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

The
Company accounts for changes in the fair value of its foreign currency contracts by marking them to market and recognizing any resulting gains or losses through its statement of
operations. The Company also marks its yen-denominated payables to market, recognizing any resulting gains or losses in its statement of operations. At December 31, 2002, the
Company had foreign currency forward contracts, maturing in 2003, to purchase Japanese yen at contracted forward rates. The value of these contracts at December 31, 2002 was approximately
$625,000, which was the approximate value of the Company's yen-denominated accounts payable. During the years ended December 31, 2002, 2001 and 2000, the Company recorded net
realized losses of approximately $120,000, $55,000 and $215,000, respectively, on foreign currency transactions. At December 31, 2002, the Company had no material unrealized gains or losses on
foreign currency transactions.

The
potential loss in value of the Company's net investment in foreign currency forward contracts resulting from a hypothetical 10 percent adverse change in foreign currency
exchange rates at December 31, 2002 was approximately $66,000.

15

---

ITEM 8.    Financial Statements And Supplementary Data

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

|                                                                                                                   |  | Page 
|------------------------------------------------------------------------------------------------------------------ |  | -----
|Report of Independent Certified Public Accountants                                                                 |  | 17   
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                       |  | 18-19
|Consolidated Statements of Operations for each of the three years ended December 31, 2002, 2001 and 2000           |  | 20-21
|Consolidated Statements of Shareholders' Equity for each of the three years ended December 31, 2002, 2001 and 2000 |  | 22   
|Consolidated Statements of Cash Flows for each of the three years ended December 31, 2002, 2001 and 2000           |  | 23-24
|Notes to Consolidated Financial Statements                                                                         |  | 25-45
|Schedule IIValuation and Qualifying Accounts for each of the three years ended December 31, 2002, 2001 and 2000   |  | 49   

16

---



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

We
have audited the accompanying consolidated balance sheets of P & F Industries, Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001 and the
related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. 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, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.

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

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

/s/
BDO Seidman, LLP

New
York, New York
March 19, 2003

17

---



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

|                                                                                             |                                                                                                      | December 31,        
|-------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | --------------------
|
|ASSETS                                                                                       |                                                                                                      |                     
|CURRENT:                                                                                     |                                                                                                      |                     
|                                                                                             | Cash                                                                                                 |                     
|                                                                                             | Accounts receivable, less allowance for possible losses of $354,441 and $404,557 (Notes 2, 5 and 13) |                     
|                                                                                             | Inventories (Notes 3 and 5)                                                                          |                     
|                                                                                             | Deferred income taxes (Note 9)                                                                       |                     
|                                                                                             | Prepaid expenses and other                                                                           |                     
|                                                                                             |                                                                                                      |                     
|                                                                                             |                                                                                                      | TOTAL CURRENT ASSETS
|                                                                                             |                                                                                                      |                     
|PROPERTY AND EQUIPMENT (Notes 5 and 6):                                                      |                                                                                                      |                     
|                                                                                             | Land                                                                                                 |                     
|                                                                                             | Buildings and improvements                                                                           |                     
|                                                                                             | Machinery and equipment                                                                              |                     
|                                                                                             |                                                                                                      |                     
|                                                                                             |                                                                                                      |                     
|                                                                                             | Less accumulated depreciation and amortization                                                       |                     
|                                                                                             |                                                                                                      |                     
|NET PROPERTY AND EQUIPMENT                                                                   |                                                                                                      |                     
|                                                                                             |                                                                                                      |                     
|DEFERRED INCOME TAXES (Note 9)                                                               |                                                                                                      |                     
|GOODWILL, net of accumulated amortization of $1,419,274 and $2,163,347 (Notes 10, 11 and 13) |                                                                                                      |                     
|OTHER INTANGIBLE ASSETS, net of accumulated amortization of $354,667 (Notes 10 and 11)       |                                                                                                      |                     
|OTHER ASSETS, net of accumulated amortization of $180,858 and $160,049                       |                                                                                                      |                     
|                                                                                             |                                                                                                      |                     
|                                                                                             |                                                                                                      | $                   
|                                                                                             |                                                                                                      |                     

See
accompanying notes to consolidated financial statements.

18

---



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

|                                                      |                                                                             | December 31,                                                                       |                           
|----------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------
|
|LIABILITIES AND SHAREHOLDERS' EQUITY                  |                                                                            
|CURRENT LIABILITIES:                                  |                                                                             |                                                                                    |                           
|                                                      | Short-term borrowings (Note 5)                                              |                                                                                    | $                         
|                                                      | Accounts payable                                                            |                                                                                    |                           
|                                                      | Accruals:                                                                   |                                                                                    |                           
|                                                      |                                                                             | Compensation                                                                       |                           
|                                                      |                                                                             | Other (Note 4)                                                                     |                           
|                                                      | Deferred income taxes (Note 9)                                              |                                                                                    |                           
|                                                      | Current maturities of long-term debt (Note 6)                               |                                                                                    |                           
|                                                      |                                                                             |                                                                                    |                           
|                                                      |                                                                             |                                                                                    | TOTAL CURRENT LIABILITIES 
|LONG-TERM DEBT, less current maturities (Note 6)      |                                                                             |                                                                                    | 11,591,989                
|DEFERRED INCOME TAXES (Note 9)                        |                                                                             |                                                                                    | 1,031,000                 
|                                                      |                                                                             |                                                                                    |                           
|                                                      |                                                                             |                                                                                    | TOTAL LIABILITIES         
|                                                      |                                                                             |                                                                                    |                           
|COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 10 and 12) |                                                                             |                                                                                    |                           
|SHAREHOLDERS' EQUITY (Notes 7 and 8):                 |                                                                             |                                                                                    |                           
|                                                      | Preferred stock$10 par; authorized2,000,000 shares; no shares outstanding |                                                                                    |                           
|                                                      | Common Stock:                                                               |                                                                                    |                           
|                                                      |                                                                             | Class A$1 par; authorized7,000,000 shares; issued3,690,367 and 3,677,593 shares |                           
|                                                      |                                                                             | Class B$1 par; authorized2,000,000 shares; no shares issued or outstanding       |                           
|                                                      | Additional paid-in capital                                                  |                                                                                    |                           
|                                                      | Retained earnings                                                           |                                                                                    |                           
|                                                      | Treasury stock, at cost (176,045 shares and 157,445 shares)                 |                                                                                    |                           
|                                                      |                                                                             |                                                                                    |                           
|                                                      |                                                                             |                                                                                    | TOTAL SHAREHOLDERS' EQUITY
|                                                      |                                                                             |                                                                                    |                           
|                                                      |                                                                             | $                                                                                  | 59,782,556                
|                                                      |                                                                             |                                                                                    |                           

See
accompanying notes to consolidated financial statements.

19

---



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

|                                                                                             |  | Year Ended December 31,
|-------------------------------------------------------------------------------------------- |  | -----------------------
|
|REVENUES (Note 13):                                                                          |  |                        
|Net sales                                                                                    |  | $                      
|Other                                                                                        |  |                        
|                                                                                             |  |                        
|                                                                                             |  |                        
|                                                                                             |  |                        
|COSTS AND EXPENSES:                                                                          |  |                        
|Cost of sales                                                                                |  |                        
|Selling, general and administrative                                                          |  |                        
|Interestnet                                                                                 |  |                        
|                                                                                             |  |                        
|                                                                                             |  |                        
|                                                                                             |  |                        
|INCOME BEFORE TAXES ON INCOME AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE        |  |                        
|TAXES ON INCOME (Note 9)                                                                     |  |                        
|                                                                                             |  |                        
|INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                            |  |                        
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR GOODWILL, NET OF TAXES
OF $1,668,000 (NOTE 11) |  |                        
|                                                                                             |  |                        
|NET INCOME (LOSS)                                                                            |  | ($                     
|                                                                                             |  |                        

See
accompanying notes to consolidated financial statements

20

---



|                                                      |          | Year Ended December 31,                                          
|----------------------------------------------------- | -------- | -----------------------------------------------------------------
|
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 15): |          |                                                                  
|                                                      | BASIC    |                                                                  
|                                                      |          |                                                                  
|                                                      | DILUTED  |                                                                  
|                                                      |          |                                                                  
|EARNINGS (LOSS) PER SHARE OF COMMON STOCK (NOTE 15):  |          |                                                                  
|                                                      | BASIC:   |                                                                  
|                                                      |          | INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
|                                                      |          | CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES
|                                                      |          |                                                                  
|                                                      |          | NET INCOME (LOSS)                                                
|                                                      |          |                                                                  
|                                                      | DILUTED: |                                                                  
|                                                      |          | INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
|                                                      |          | CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES
|                                                      |          |                                                                  
|                                                      |          | NET INCOME (LOSS)                                                
|                                                      |          |                                                                  

See
accompanying notes to consolidated financial statements

21

---



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

|                                                            |  | Class A Common
Stock $1 Par |  |   |           |  |   |           |  |   |           
|----------------------------------------------------------- |  | --------------------------- |  | - | --------- |  | - | --------- |  | - | ----------
|
|
|
|Balance, January 1, 2000                                    |  | 3,504,893                   |  | $ | 3,504,893 |  | $ | 8,282,602 |  | $ | 17,735,535
|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 |  |                            |  |   |          |  |   |          |  |   |          
|Purchase of Class A Common Stock                            |  |                            |  |   |          |  |   |          |  |   |          
|                                                            |  |                             |  |   |           |  |   |           |  |   |           
|Balance, December 31, 2000                                  |  | 3,677,593                   |  |   | 3,677,593 |  |   | 8,464,139 |  |   | 21,560,475
|Net income for the year ended December 31, 2001             |  |                            |  |   |          |  |   |          |  |   | 1,812,808 
|Purchase of Class A Common Stock                            |  |                            |  |   |          |  |   |          |  |   |          
|                                                            |  |                             |  |   |           |  |   |           |  |   |           
|Balance, December 31, 2001                                  |  | 3,677,593                   |  |   | 3,677,593 |  |   | 8,464,139 |  |   | 23,373,283
|Net loss for the year ended December 31, 2002               |  |                            |  |   |          |  |   |          |  |   | (376,267  
|Issuance of Class A Common Stock (Note 7)                   |  | 12,774                      |  |   | 12,774    |  |   | 76,389    |  |   |          
|Purchase of Class A Common Stock (Note 7)                   |  |                            |  |   |          |  |   |          |  |   |          
|                                                            |  |                             |  |   |           |  |   |           |  |   |           
|Balance, December 31, 2002                                  |  | 3,690,367                   |  | $ | 3,690,367 |  | $ | 8,540,528 |  | $ | 22,997,016
|                                                            |  |                             |  |   |           |  |   |           |  |   |           

See accompanying notes to consolidated financial statements.

22

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

|                                                                                         |                                                                                      | Year Ended December 31, |                                          
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------- | -----------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |                                                                                      |                         |                                          
|Net income (loss)                                                                        |                                                                                      | ($376,267               | )                                        
|                                                                                         |                                                                                      |                         |                                          
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                                      |                         |                                          
|                                                                                         | Cumulative effect of change in accounting for goodwill, net of taxes                 |                         | 3,239,118                                
|                                                                                         | Depreciation and amortization                                                        |                         | 1,568,766                                
|                                                                                         | Amortization of goodwill                                                             |                         |                                         
|                                                                                         | Amortization of other intangibles and other assets                                   |                         | 375,476                                  
|                                                                                         | Provision for losses on accounts receivablenet                                      |                         | (90,116                                  
|                                                                                         | Deferred income taxes                                                                |                         | 77,000                                   
|                                                                                         | Issuance of Class A Common Stock as compensation                                     |                         | 89,163                                   
|                                                                                         | Loss (gain) on disposal of fixed assets                                              |                         | 32,162                                   
|Decrease (increase), net of acquisition of Nationwide Industries, Inc., in:              |                                                                                      |                         |                                          
|                                                                                         | Accounts receivable                                                                  |                         | 88,187                                   
|                                                                                         | Inventories                                                                          |                         | 518,656                                  
|                                                                                         | Prepaid expenses and other                                                           |                         | (352,979                                 
|                                                                                         | Other assets                                                                         |                         | (36,722                                  
|Increase (decrease), net of acquisition of Nationwide Industries, Inc., in:              |                                                                                      |                         |                                          
|                                                                                         | Accounts payable                                                                     |                         | 319,021                                  
|                                                                                         | Accruals                                                                             |                         | 334,579                                  
|                                                                                         |                                                                                      |                         |                                          
|                                                                                         |                                                                                      |                         | Total adjustments                        
|                                                                                         |                                                                                      |                         |                                          
|                                                                                         |                                                                                      |                         | Net cash provided by operating activities
|                                                                                         |                                                                                      |                         |                                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |                                                                                      |                         |                                          
|                                                                                         | Capital expenditures                                                                 |                         | (3,943,238                               
|                                                                                         | Payments for acquisition of product line                                             |                         | (848,064                                 
|                                                                                         | Payments for acquisition of Nationwide Industries, Inc., net of $2,920 cash acquired |                         | (10,448,794                              
|                                                                                         | Payments for acquisition-related expenses                                            |                         | (1,113,939                               
|                                                                                         | Proceeds from sale of fixed assets                                                   |                         | 4,200                                    
|                                                                                         |                                                                                      |                         |                                          
|                                                                                         |                                                                                      |                         | Net cash used in investing activities    
|                                                                                         |                                                                                      |                         |                                          

See
accompanying notes to consolidated financial statements.

23

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|                                      |                                                      | Year Ended December 31,                             |          
|------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | ---------
|
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                      |                                                     |          
|                                      | Proceeds from short-term borrowings                  |                                                     |          
|                                      | Repayments of short-term borrowings                  |                                                     |          
|                                      | Proceeds from mortgage                               |                                                     |          
|                                      | Proceeds from term loan                              |                                                     |          
|                                      | Principal payments on long-term debt                 |                                                     |          
|                                      | Proceeds from exercise of stock options and warrants |                                                     |          
|                                      | Purchase of Class A Common Stock                     |                                                     |          
|                                      |                                                      |                                                     |          
|                                      |                                                      | Net cash provided by (used in) financing activities |          
|                                      |                                                      |                                                     |          
|NET INCREASE (DECREASE) IN CASH       |                                                      |                                                     | 516,389  
|CASH AT BEGINNING OF YEAR             |                                                      |                                                     | 507,833  
|                                      |                                                      |                                                     |          
|CASH AT END OF YEAR                   |                                                      | $                                                   | 1,024,222
|                                      |                                                      |                                                     |          

Supplemental disclosures of cash flow information:

Cash paid for:

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

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

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

See
accompanying notes to consolidated financial statements.

24

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

NOTE 1SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

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

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

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

Basis of Financial Statement Presentation

In preparing its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, the Company 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 upon shipment with related risks and title passing to the customers. Estimates of losses for bad debts, returns and other allowances
are recorded at the time of the sale.

Shipping and Handling Costs

The Company generally does not bill customers for shipping and handling costs. Expenses for shipping and handling costs, net of amounts billed to customers, are
included in selling, general and administrative expenses, and totaled approximately $1,206,000, $995,000 and $1,060,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

25

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Financial Instruments

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and short-term debt, approximated fair value as
of December 31, 2002 and 2001 because of the relatively short-term maturity of these instruments. The carrying value of long-term debt approximated fair value as of
December 31, 2002 and 2001, based upon quoted market prices for the same or similar debt issues, with the exception of a fixed rate mortgage with a balance of approximately $1,700,000 at
December 31, 2002. Using current interest rates, the fair value of this mortgage would have been approximately $1,960,000.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. The Company also records
additional allowances based on certain percentages of aged receivables, based on historical experience and the Company's assessment of the general financial conditions affecting its customer base. If
actual collections experience changes, revisions to the allowance may be required. The Company has a limited number of customers with individually large amounts due at any given balance sheet date.
Any unanticipated change in the credit worthiness of any of these customers or any other matters affecting the collectibility of amounts due from such customers could have a material affect on results
of operations in the period in which such changes or events occur. After all reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance.

Inventories

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

Property and Equipment and Depreciation and Amortization

Property and equipment are stated at cost.

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

Buildings and improvements

10 - 30 yearsMachinery and equipment

3 - 12 years


26

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Long-Lived Assets

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS 144"), which supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 addresses financial accounting and reporting for the impairment of long-lived assets to be disposed of, and
was adopted by the Company effective January 1, 2002. The Company reviewed certain long-lived assets and identifiable intangibles for impairment. The adoption of SFAS 144 did
not have a material effect on the Company's consolidated financial statements.

Whenever
events or changes in circumstances indicate that the carrying value of any of these assets may not be recoverable, the Company will assess the recoverability of such assets
based upon estimated undiscounted cash flow forecasts.

Goodwill and Other Intangible Assets

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

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

The
Company had its goodwill and other intangible assets tested for impairment during the second quarter of 2002. As described in Note 11, the Company recorded an impairment
charge of $3,239,118, net of taxes of $1,668,000, retroactive to January 1, 2002, in the second quarter of 2002.

The
Company's annual test for impairment of goodwill and other intangible assets was performed as of November 30, 2002. The results of this testing indicated that, for all
reporting units, the fair value of these assets exceeded the current carrying value.

27

---

Taxes on Income

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

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

Earnings (Loss) Per Share

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

Diluted
earnings (loss) per share is computed using the treasury stock method. Under this method, the aggregate number of shares of common stock outstanding reflects the assumed use of
proceeds from the hypothetical exercise of any outstanding options or warrants to purchase shares of the Company's Class A Common Stock. The average market value for the period is used as the
assumed purchase price.

Stock-Based Compensation

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" ("SFAS 123").

SFAS
123 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 2002 and 2000, respectively; no dividends paid for either of these years; expected volatility of 56.9% and 39.0%; risk-free interest
rates of 4.3% and 6.1%; and expected lives of 8.5 years and 10.0 years. No options were granted in 2001.

28

---

The
weighted-average fair value of options for which the exercise price equaled the market price on the grant date was $4.20 in 2002 and $5.41 in 2000. The weighted-average fair value of
options for which the exercise price exceeded the market price on the grant date was $3.07 in 2002.

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

|                                                                                           |             | Year Ended December 31,
|------------------------------------------------------------------------------------------ | ----------- | -----------------------
|
|Net income (loss) as reported                                                              |             | ($                     
|Deduct: Total stock-based employee compensation expense determined under fair value method |             |                        
|                                                                                           |             |                        
|Pro forma net income (loss)                                                                |             | ($                     
|                                                                                           |             |                        
|Basic earnings (loss) per share:                                                           |             |                        
|                                                                                           | As reported |                        
|                                                                                           | Pro forma   |                        
|Diluted earnings (loss) per share:                                                         |             |                        
|                                                                                           | As reported |                        
|                                                                                           | Pro forma   |                        

Derivative Financial Instruments

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

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

The
Company accounts for changes in the fair value of its foreign currency contracts by marking them to market and recognizing any resulting gains or losses through its statement of
operations. The Company also marks its yen-denominated payables to market, recognizing any resulting gains or losses

29

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in its statement of operations. At December 31, 2002, the Company had foreign currency forward contracts, maturing in 2003, to purchase Japanese yen at contracted forward rates. The value of
these contracts at December 31, 2002 was approximately $625,000, which was the approximate value of the Company's yen-denominated accounts payable. During the years ended
December 31, 2002, 2001 and 2000, the Company recorded net realized losses of approximately $120,000, $55,000 and $215,000, respectively, on foreign currency transactions. At
December 31, 2002, the Company had no material unrealized gains or losses on foreign currency transactions.

New Accounting Pronouncements

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

In
November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), which requires a guarantor to include disclosure of certain obligations, and, if applicable, at the inception of the guarantee, to recognize a liability for the
fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002 and is not expected
to have a material impact on the Company. The Company has no such obligations that would fall under either the disclosure or recognition requirements of FIN 45.

In
December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock Based Compensation-Transition and Disclosure"
("SFAS 148"), which was issued to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.
SFAS 148 is effective for financial statements for fiscal years ending after December 15, 2002. SFAS 148 will not have any impact on the Company because the Company does not plan
to implement the fair value method.

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

30

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NOTE 2ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivables consist of:

|                                |  | December 31, |           
|------------------------------- |  | ------------ | ----------
|
|Trade accounts receivables      |  | $            | 11,218,702
|Allowance for doubtful accounts |  |              | (354,441  
|                                |  |              |           
|Net accounts receivables        |  | $            | 10,864,261
|                                |  |              |           

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

Senior
management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company includes any accounts receivable balances
that are determined to be uncollectible, along with a general reserve, in its overall allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable
is written off against the allowance. Based on the information available, the Company believes that its allowance for doubtful accounts as of December 31, 2002 was adequate. However, actual
write-offs might exceed the recorded allowance.

NOTE 3INVENTORIES

Inventories consist of:

|                |  | December 31,
|--------------- |  | ------------
|
|Raw material    |  | $           
|Work in process |  |             
|Finished goods  |  |             
|                |  |             
|                |  | $           
|                |  |             

NOTE 4WARRANTY LIABILITY

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

Changes
in the Company's warranty liability, included in other accrued liabilities, for the two years ended December 31, 2002 and December 31, 2001 were as follows:

|                                                                   |  | Year Ended December 31, |         
|------------------------------------------------------------------ |  | ----------------------- | --------
|
|Balance, beginning of year                                         |  | $                       | 198,384 
|Warranties issued and changes in estimated pre-existing warranties |  |                         | 296,192 
|Actual warranty costs/settlements                                  |  |                         | (308,063
|                                                                   |  |                         |         
|Balance, end of year                                               |  | $                       | 186,513 
|                                                                   |  |                         |         

31

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NOTE 5SHORT-TERM BORROWINGS

The Company's credit agreement with a bank includes a revolving credit loan facility, which provides a total of $12,000,000, with various sublimits, for direct
borrowings, letters of credit, bankers' acceptances and equipment loans. There are no commitment fees for any unused portion of this credit facility. At December 31, 2002, there was $4,500,000
outstanding against the revolving credit loan facility. There was also a commitment of approximately $170,000 at December 31, 2002 for open letters of credit.

Direct
borrowings under the Company's revolving credit loan facility are secured by the Company's accounts receivable, inventory and equipment and are cross-guaranteed by each of the
Company's subsidiaries. These borrowings bear interest at either the prime interest rate or LIBOR plus 1.6%. The prime interest rate at December 31, 2002 was 4.25% and LIBOR was approximately
1.4%. The prime interest rate at December 31, 2001 was 4.75% and LIBOR was approximately 1.9%.

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 coreign currency forward contracts outstanding at December 31, 2002 was
approximately $625,000.

The
credit agreement also includes a term loan facility, as described in Note 6.

Under
the terms of the Company's credit agreement, the Company is required to adhere to certain financial covenants. At December 31, 2002, and for the year then ended, the Company
satisfied all of these covenants. The credit agreement, which expires in July 2003, is subject to annual review by the lending bank.

32

---

NOTE 6LONG-TERM DEBT

Long-term debt consists of:

|                                                                                                                                                                                                                                               |  | December
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|
|Term loanpayments of interest only are due monthly through May 2003. Principal amount outstanding at June 1, 2003 to be paid in equal quarterly installments (plus interest at LIBOR plus 175 basis points) from June
2003 through March 2009 |  | $       
|Mortgage loan$11,244 (plus interest at LIBOR plus 155 basis points) payable monthly through May 2009, when a final payment of approximately $1,090,000 is due (a)                                                                             |  |         
|Mortgage loan$17,438 (including interest at 8.16%) payable monthly through May 2006, when a final payment of approximately $1,435,000 is due (a)(c)                                                                                           |  |         
|Mortgage loan$16,388 (including interest at 7.09%) payable monthly through March 2014 (a)                                                                                                                                                     |  |         
|Economic Development Revenue Bondpayable yearly in various principal amounts (plus interest at variable rates) through November 2004 (b)                                                                                                      |  |         
|                                                                                                                                                                                                                                               |  |         
|                                                                                                                                                                                                                                               |  |         
|Less current maturities                                                                                                                                                                                                                        |  |         
|                                                                                                                                                                                                                                               |  |         
|                                                                                                                                                                                                                                               |  | $       
|                                                                                                                                                                                                                                               |  |         

---

The
aggregate amounts of the long-term debt scheduled to mature in each of the years ended December 31 are as follows: 2003$1,402,547;
2004$1,742,463; 2005$1,576,778; 2006$2,955,860; 2007$1,506,586; 2008$1,515,423; and 2009 and thereafter$2,294,879.
Interest expense on long-term debt was $550,244,$284,137 and $580,125 for the years ended December 31, 2002, 2001 and 2000,
respectively.

33

---

The
Company's credit agreement with a bank includes a term loan facility, which provides a maximum commitment of $15,000,000 to finance acquisitions subject to the lending bank's
approval. There are no commitment fees for any unused portion of this credit facility. The Company borrowed $11,500,000 against this facility to finance the acquisition of Nationwide and there was a
loan balance of $7,500,000 outstanding against this facility at December 31, 2002. There was also a standby letter of credit totaling approximately $350,000 outstanding against this facility at
December 31, 2002. This standby letter of credit is used to secure the Economic Development Revenue Bond assumed as part of the acquisition of Green.

Under
the terms of the Company's credit agreement, the Company is required to adhere to certain financial covenants. At December 31, 2002, and for the year then ended, the Company
satisfied all of these covenants. The credit agreement, which expires in July 2003, is subject to annual review by the lending bank.

NOTE 7CAPITAL STOCK TRANSACTIONS

During the years ended December 31, 2002, 2001 and 2000, the Company purchased 18,600, 85,260 and 3,025 shares, respectively, of Class A Common
Stock, at costs of $117,336, $577,092 and $19,073, respectively. During the year ended December 31, 2000, the Company received 19,925 shares of Class A Common Stock, with a recorded
value of $192,500, in connection with the exercise of stock options.

On
July 12, 2002, the Company issued to the Chief Executive Officer of the Company 12,774 unrestricted shares of Class A Common Stock. The Company recorded the fair market
value of these
shares, $89,163, as compensation expense. On July 12, 2002, the Company also issued to various employees options to purchase an aggregate of 221,100 shares of Class A Common Stock. On
October 14, 2002, the Company extended until September 30, 2003 its program to repurchase shares of Class A Common Stock.

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

NOTE 8STOCK OPTIONS AND WARRANTS

The Company has an Incentive Stock Option Plan (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 grant, at prices not less than 110% of the market value of the Class A Common Stock on the date the option is granted.

34

---

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.

The
following table contains information on stock options for the three years ended December 31, 2002:

|                                        |  | Option Shares |   | Exercise Price
Range Per
Share |              | Weighted
Average
Exercise
Price
|--------------------------------------- |  | ------------- | - | ------------------------------ | ------------ | -------------------------------
|Outstanding, January 1, 2000            |  | 571,400       |   | $                              | 1.44 to 9.00 |                                
|Granted                                 |  | 2,000         |   |                                | 8.75         |                                
|Exercised                               |  | (172,700      | ) |                                | 1.50 to 5.25 |                                
|Expired                                 |  | (4,400        | ) |                                | 1.50 to 7.88 |                                
|                                        |  |               |   |                                |              |                                
|Outstanding, December 31, 2000 and 2001 |  | 396,300       |   |                                | 1.44 to 9.00 |                                
|Granted                                 |  | 221,100       |   |                                | 6.00 to 6.60 |                                
|Expired                                 |  | (78,500       | ) |                                | 5.25 to 7.88 |                                
|                                        |  |               |   |                                |              |                                
|Outstanding, December 31, 2002          |  | 538,900       |   | $                              | 1.44 to 9.00 |                                
|                                        |  |               |   |                                |              |                                

There
were options available for issuance under the Plan as of December 31 of each year as follows: 2000358,200; 2001358,200; and
2002878,900. Of the options outstanding at December 31, 2002, 221,100 were issued under the current plan and 317,800 were issued under the previous plan.

The
following table summarizes information about stock options outstanding and exercisable at December 31, 2002:

|Range of
Exercise Prices |  | Outstanding |  | Weighted
Average
Remaining
Contractual
Life (Years) |  | Weighted
Average
Exercise Price |      | Exercisable |         | Weighted
Average
Exercise Price
|------------------------ |  | ----------- |  | --------------------------------------------------- |  | ------------------------------- | ---- | ----------- | ------- | -------------------------------
|$8.66                    |  | 11,500      |  | .2                                                  |  | $                               | 8.66 |             |        |                                
|1.44                     |  | 15,000      |  | .6                                                  |  |                                 | 1.44 |             | 15,000  |                                
|1.94                     |  | 48,000      |  | 2.0                                                 |  |                                 | 1.94 |             | 48,000  |                                
|3.75 to 5.25             |  | 67,800      |  | 4.2                                                 |  |                                 | 4.96 |             | 67,800  |                                
|6.00                     |  | 154,436     |  | 9.5                                                 |  |                                 | 6.00 |             | 154,436 |                                
|7.88                     |  | 156,500     |  | 5.2                                                 |  |                                 | 7.88 |             | 156,500 |                                
|8.94 to 9.00             |  | 17,000      |  | 6.2                                                 |  |                                 | 8.96 |             | 17,000  |                                
|8.75                     |  | 2,000       |  | 7.3                                                 |  |                                 | 8.75 |             | 2,000   |                                
|6.60                     |  | 66,664      |  | 4.5                                                 |  |                                 | 6.60 |             |        |                                
|                         |  |             |  |                                                     |  |                                 |      |             |         |                                
|$1.44 to 9.00            |  | 538,900     |  | 6.5                                                 |  | $                               | 6.16 |             | 460,736 |                                
|                         |  |             |  |                                                     |  |                                 |      |             |         |                                

35

---

NOTE 9TAXES ON INCOME

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

|                      |                 | Year Ended December 31,
|--------------------- | --------------- | -----------------------
|
|Current:              |                 |                        
|                      | Federal         |                        
|                      | State and local |                        
|                      |                 |                        
|                      |                 | Total current          
|                      |                 |                        
|Deferred:             |                 |                        
|                      | Federal         |                        
|                      | State and local |                        
|                      |                 |                        
|                      |                 | Total deferred         
|                      |                 |                        
|Total taxes on income |                 | $                      
|                      |                 |                        

Deferred
tax assets (liabilities) consist of:

|                          |                                | December 31,                |           
|------------------------- | ------------------------------ | --------------------------- | ----------
|
|Deferred tax assets:      |                                |                             |           
|                          | Current:                       |                             |           
|                          |                                | Bad debt reserves           |           
|                          |                                | Inventory reserves          |           
|                          |                                | Warranty and other reserves |           
|                          |                                |                             |           
|                          |                                |                             | 695,000   
|                          | Non-current:                   |                             |           
|                          |                                | Goodwill                    |           
|                          |                                |                             |           
|                          | Total deferred tax assets      |                             | $         
|                          |                                |                             |           
|Deferred tax liabilities: |                                |                             |           
|                          | Current:                       |                             |           
|                          |                                | Inventory                   |           
|                          |                                |                             |           
|                          | Non-current:                   |                             |           
|                          |                                | Goodwill                    |           
|                          |                                | Depreciation                |           
|                          |                                |                             |           
|                          |                                |                             | (1,031,000
|                          |                                |                             |           
|                          | Total deferred tax liabilities |                             | ($        
|                          |                                |                             |           

36

---



NOTE 9TAXES ON INCOME (Continued)

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

|                                                 |                                                   | Year Ended December 31, |         
|------------------------------------------------ | ------------------------------------------------- | ----------------------- | --------
|
|
|Federal income taxes computed at statutory rates |                                                   | 1,545,000               |         
|Increase in taxes resulting from:                |                                                   |                         |         
|                                                 | State and local taxes, net of Federal tax benefit |                         | 129,000 
|                                                 | Expenses not deductible for tax purposes          |                         | 174,000 
|                                                 | Other                                             |                         | (168,000
|                                                 |                                                   |                         |         
|Taxes on income                                  |                                                   | 1,680,000               |         
|                                                 |                                                   |                         |         

NOTE 10ACQUISITION

On May 3, 2002, Countrywide acquired all of the stock of Nationwide for approximately $10,452,000, plus acquisition costs of approximately $490,000 and
working capital adjustments of approximately $260,000. There were additional acquisition-related costs of approximately $364,000 recorded as goodwill. This acquisition was accounted for in accordance
with the provisions of Statement of Financial Accounting Standards No. 141, "Business Combinations." Nationwide is engaged in the business of importing and manufacturing door, window and
fencing hardware. The Company completed its acquisition of Nationwide in order to expand its presence in the domestic residential hardware market.

This
acquisition was financed through the term loan facility available under the Company's credit agreement, as described in Note 6. In addition to the cash paid at the closing,
Nationwide's previous owner is entitled to contingent payments of 30% of the excess of Nationwide's earnings before interest, taxes and amortization over $2,500,000, for each of the five twelve-month
periods subsequent to the acquisition date, which contingent payments will be treated as additions to goodwill.

On
May 24, 2002, in connection with the acquisition of Nationwide, Countrywide also purchased, for $2,500,000, the real property and the improvements thereon in which Nationwide
conducts its business.

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

37

---

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

(000's)Current assets

$
4,115Machinery and equipment


860Employment agreement


760Customer list


1,900Goodwill


5,996Total assets acquired


13,631Current liabilities


(2,209
)Total liabilities assumed


(2,209
)Net assets acquired

$
11,422


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

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

The
following table summarizes, on a pro forma basis, the combined results of operations of the Company and Countrywide (combined with Nationwide), as though the acquisition of
Nationwide had been made January 1, 2001. The pro forma amounts give effect to appropriate adjustments for depreciation of fixed assets, amortization of intangible assets, interest expense and
income taxes.

38

---

The
pro forma amounts presented are not necessarily indicative of future operating results.

Year ended December 31,2002

2001

2000Net sales

$
80,380,000

$
75,574,000

$
87,606,000Income before cumulative effect of change in accounting principle

$
2,902,000

$
2,451,000

$
4,136,000Earnings per share of common stock:Basic

$
.83

$
.69

$
1.16Diluted

$
.81

$
.68

$
1.12


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

NOTE 11GOODWILL AND OTHER INTANGIBLE ASSETS

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

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

39

---

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

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

Consolidated

Pneumatic
tools and
related
equipment

Hydraulic
cylinders

Heating
products

Hardware(In thousands)Balance, January 1, 2002

$
7,302

$
2,327

$
4,907

$


$
68Goodwill acquired during the year ended December 31, 2002


6,844





848





5,996Impairment losses


(4,907
)




(4,907
)




Balance, December 31, 2002

$
9,239

$
2,327

$
848

$


$
6,064


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

Years ended December 31,2002

2001

2000Reported net income (loss)

($
376,267
)
$
1,812,808


3,824,940Goodwill amortization





324,436


324,436Tax effect





(120,000
)

(120,000
)Adjusted net income (loss)

($
376,267
)
$
2,017,244

$
4,029,376Earnings (loss) per share of Class A Common stock:BasicReported net income (loss)

($
.11
)
$
.51

$
1.07Goodwill amortization





.09


.09Tax effect





(.03
)

(.03
)Adjusted net income (loss)

($
.11
)
$
.57

$
1.13DilutedReported net income (loss)

($
.11
)
$
.50

$
1.04Goodwill amortization





.09


.09Tax effect





(.03
)

(.04
)Adjusted net income (loss)

($
.11
)
$
.56

$
1.09


40

---

Other
intangible assets were as follows:

December 31, 2002

December 31, 2001Cost

Accumulated
amortization

Cost

Accumulated
amortizationOther intangible assets:Customer list

$
1,900,000

$
253,334

$


$
Employment agreement


760,000


101,333





Total

$
2,660,000

$
354,667

$


$



NOTE 12COMMITMENTS AND CONTINGENCIES

(a)  P &
F and two of its subsidiaries have adopted a defined contribution pension plan, which covers substantially all non-union employees. Contributions
to this plan were determined as a percentage of compensation. The amounts recognized as pension expense for this plan were approximately $342,000, $345,000 and $332,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.

In
conjunction with the acquisition of Green, P & F acquired a defined contribution 401(k) plan, which covers all of Green's employees. Employer contributions to this plan were
determined as a percentage of employee contributions. The amounts recognized as expense for this plan were approximately $63,000 for the year ended December 31, 2002, approximately $62,000 for
the year ended December 31, 2001 and approximately $82,000 for the year ended December 31, 2000.

One
of P & F's subsidiaries also participates in a multi-employer pension plan. This plan provides defined benefits to all union workers. Contributions to this plan are determined
by the union contract. The Company does not administer the plan funds and does not have any control over the plan funds. The amounts recognized as pension expense for this plan were approximately
$33,000, $32,000 and $35,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

(b)  P &
F has an employment agreement with an officer. This agreement currently provides for a minimum annual aggregate salary of $760,000 through May 2008.
This agreement provides that if a change in control of the Company occurs and, as a result, the officer is terminated or is unable to exercise his functions and duties and therefore resigns, he will
have the option to receive either full compensation for the remaining term of the agreement or a severance allowance equal to three times average annual compensation for the five previous years.

The
Company also has an employment agreement with the President of a subsidiary, through May 2007, that provides for annual compensation of $75,000.

(c)  Florida
Pneumatic purchases significant amounts of pneumatic tools from two foreign suppliers. Although other sources are available, the loss of either supplier could
adversely affect operating results.

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

41

---

(e)  Nationwide
currently purchases approximately 75% of its product from one foreign supplier. Although other suppliers are being developed, the loss of this one supplier
could adversely affect operating results.

(f)    The
Company had non-cancellable inventory purchase commitments totalling approximately $11,300,000 at December 31, 2002.

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

NOTE 13SEGMENTS OF BUSINESS

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

The
following presents financial information by segment for the years ended December 31, 2002, 2001 and 2000. 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.

|2002                                                                                  |  | Consolidated |        | Pneumatic
Tools |   | Hardware |  | Hydraulic
Cylinders |        | Heating
Equipment
|------------------------------------------------------------------------------------- |  | ------------ | ------ | --------------- | - | -------- |  | ------------------- | ------ | -----------------
|
|Revenues from external customers                                                      |  | $            | 77,214 |                 | $ | 42,460   |  | $                   | 13,346 |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Operating income (loss)                                                               |  | $            | 8,734  |                 | $ | 7,212    |  | $                   | 1,872  |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|General corporate expense                                                             |  |              | (3,450 | )               |   |          |  |                     |        |                  
|Interest expense                                                                      |  |              | (741   | )               |   |          |  |                     |        |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Income before taxes on income and cumulative effect of change in accounting principle |  | $            | 4,543  |                 |   |          |  |                     |        |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Cumulative effect of change in accounting principle                                   |  | ($           | 3,239  | )               | $ |         |  | $                   |       |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Identifiable assets at December 31, 2002                                              |  | $            | 56,824 |                 | $ | 24,188   |  | $                   | 18,448 |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Corporate assets                                                                      |  |              | 2,959  |                 |   |          |  |                     |        |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Total assets at December 31, 2002                                                     |  | $            | 59,783 |                 |   |          |  |                     |        |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Depreciation and amortization ($16 corporate)                                         |  | $            | 1,569  |                 | $ | 490      |  | $                   | 113    |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Amortization of other intangibles                                                     |  | $            | 375    |                 | $ |         |  | $                   | 358    |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  
|Capital expenditures ($7 corporate)                                                   |  | $            | 3,943  |                 | $ | 496      |  | $                   | 2,706  |                  
|                                                                                      |  |              |        |                 |   |          |  |                     |        |                  

42

---

|2001                                           |  | Consolidated |        | Pneumatic
Tools |   | Hardware |  | Hydraulic
Cylinders |       | Heating
Equipment
|---------------------------------------------- |  | ------------ | ------ | --------------- | - | -------- |  | ------------------- | ----- | -----------------
|
|Revenues from external customers               |  | $            | 67,196 |                 | $ | 38,360   |  | $                   | 4,674 |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Operating income (loss)                        |  | $            | 6,376  |                 | $ | 5,990    |  | $                   | 170   |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|General corporate expense                      |  |              | (2,708 | )               |   |          |  |                     |       |                  
|Interest expense                               |  |              | (796   | )               |   |          |  |                     |       |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Income before taxes on income                  |  | $            | 2,872  |                 |   |          |  |                     |       |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Identifiable assets at December 31, 2001       |  | $            | 45,053 |                 | $ | 23,530   |  | $                   | 2,514 |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Corporate assets                               |  |              | 1,417  |                 |   |          |  |                     |       |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Total assets at December 31, 2001              |  | $            | 46,470 |                 |   |          |  |                     |       |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Depreciation and amortization ($15 corporate)  |  | $            | 1,418  |                 | $ | 475      |  | $                   | 40    |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Amortization of goodwill and other intangibles |  | $            | 342    |                 | $ | 96       |  | $                   |      |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Capital expenditures ($25 corporate)           |  | $            | 944    |                 | $ | 109      |  | $                   |      |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  

|2000                                           |  | Consolidated |        | Pneumatic
Tools |   | Hardware |  | Hydraulic
Cylinders |       | Heating
Equipment
|---------------------------------------------- |  | ------------ | ------ | --------------- | - | -------- |  | ------------------- | ----- | -----------------
|
|Revenues from external customers               |  | $            | 80,899 |                 | $ | 44,872   |  | $                   | 5,550 |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Operating income                               |  | $            | 10,427 |                 | $ | 8,252    |  | $                   | 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   |  | $                   | 2,135 |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Corporate assets                               |  |              | 1,494  |                 |   |          |  |                     |       |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Total assets at December 31, 2000              |  | $            | 54,153 |                 |   |          |  |                     |       |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Depreciation and amortization ($15 corporate)  |  | $            | 1,360  |                 | $ | 479      |  | $                   | 40    |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Amortization of goodwill and other intangibles |  | $            | 342    |                 | $ | 96       |  | $                   |      |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  
|Capital expenditures ($1 corporate)            |  | $            | 1,148  |                 | $ | 216      |  | $                   |      |                  
|                                               |  |              |        |                 |   |          |  |                     |       |                  

The
pneumatic tools segment has one customer that accounted for 21.7%, 21.4% and 23.4% of consolidated revenues for the years ended December 31, 2002, 2001 and 2000, respectively.
This customer also accounted for 37.2% and 24.9% of consolidated accounts receivable as of December 31, 2002 and 2001, respectively. A second customer, of both the pneumatic tools segment and
the hardware segment, accounted for 18.3%, 18.0% and 14.0% of consolidated revenues for the years ended December 31, 2002, 2001 and 2000, respectively, and 12.9% and 21.2% of consolidated
accounts receivable as of December 31, 2002 and 2001, respectively. There were no other major customers requiring disclosure.

43

---

NOTE 14UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION

Unaudited interim consolidated financial information for the two years ended December 31, 2002 and 2001 is summarized as follows:

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

---

|                                    |         | Quarter Ended
|----------------------------------- | ------- | -------------
|
|Revenues                            |         | $            
|                                    |         |              
|Gross profit                        |         | $            
|                                    |         |              
|Net income                          |         | $            
|                                    |         |              
|Earnings per share of common stock: |         |              
|                                    | Basic   |              
|                                    |         |              
|                                    | Diluted |              
|                                    |         |              

During the fourth quarter of 2002, the Company recorded net adjustments increasing its net income by approximately $30,000. The Company recorded
increases to net income of approximately

44

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$290,000, relating primarily to adjustments to reserves for bad debts and accruals for taxes. The Company recorded decreases to net income of approximately $320,000, relating primarily to adjustments
to inventory valuation and other accruals.

During
the fourth quarter of 2001, the Company recorded net adjustments decreasing its net income by approximately $500,000, relating primarily to adjustments to inventory valuation, as
well as to reserves for bad debts and legal expenses.

NOTE 15EARNINGS (LOSS) PER SHARE

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

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

There were outstanding during the years ended December 31, 2002, 2001 and 2000 stock options whose exercise prices were higher than the
average market values for the respective periods. These options are anti-dilutive and are excluded from the computation of earnings (loss) per share. The weighted average
anti-dilutive options outstanding for the years ended December 31, 2002, 2001 and 2000 were as follows: 2002189,000; 2001189,000; and
2000150,500.

45

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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 2003 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 and Related Stockholder Matters


Equity Compensation Plan Information

|Plan category                                              |  | (a) Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights |  | (b) Weighted-average
exercise price of
outstanding options,
warrants and rights |      | (c) Number of securities
remaining available for
future issuance under
equity compensation plans
[excluding securities
reflected in column (a)]
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 538,900                                                                                         |  | $                                                                               | 6.16 |                                                                                                                                                
|Equity compensation plans not approved by security holders |  |                                                                                                |  |                                                                                 |     |                                                                                                                                                
|                                                           |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                
|TOTAL                                                      |  | 538,900                                                                                         |  | $                                                                               | 6.16 |                                                                                                                                                
|                                                           |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                

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.

46

---

Item 14. Controls and Procedures

Evaluation of disclosure controls and procedures

Within 90 days prior to the date of this Annual Report on Form 10-K (this "Report"), an evaluation was performed, under the supervision
of, and with the participation of, the Company's management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) to the Securities and Exchange Act of 1934). Based on that evaluation, the
Company's management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company's disclosure controls and procedures were adequate and effective in timely
alerting them to all material information relating to the Company and its consolidated subsidiaries that is required to be included in this Report.

Changes in internal controls

There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the
date of management's evaluation.

47

---



PART IV

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

|   |   |                                                                                                 |   |                                                                                                                                                                                                                   |  | Page 
|-- | - | ----------------------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|(a | ) | The following documents are filed as part of this Annual Report on Form 10-K:                   |   |                                                                                                                                                                                                                  
|   |   | (1                                                                                              | ) | Financial Statements:                                                                                                                                                                                             |  |      
|   |   |                                                                                                 |   | The consolidated financial statements of the Registrant as set forth under Item 8 of this report.                                                                                                                 |  |      
|   |   | (2                                                                                              | ) | Financial Statement Schedule:                                                                                                                                                                                     |  |      
|   |   |                                                                                                 |   | Schedule IIValuation and Qualifying Accounts for each of the three years ended December 31, 2002, 2001 and 2000                                                                                                  |  | 49   
|   |   |                                                                                                 |   | All other schedules are omitted because they are not applicable, or because the required information is otherwise shown in the consolidated financial statements or notes thereto.                                |  |      
|   |   | (3                                                                                              | ) | Exhibits:                                                                                                                                                                                                         |  |      
|   |   |                                                                                                 |   | The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.                                                                      |  | 53-55
|   |   |                                                                                                 |   | Exhibits 10.1, 10.2, 10.3 and 10.4 constitute the management contracts and compensatory plans and arrangements required to be filed as exhibits to this Annual Report on Form 10-K pursuant to Item 14(c) hereof. |  |      
|(b | ) | Reports on Form 8-K.                                                                            |   |                                                                                                                                                                                                                  
|   |   | No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 2002. |   |                                                                                                                                                                                                                  

48

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

Column A

Column B

Column C

Column D

Column EDescription

Balance at
Beginning Of
Period

Additions
Charged
(Credited)
to Costs and
Expenses

Additions
Charged
(Credited)
to Other
Accounts

Deductions

Balance at
End of
PeriodYear ended December 31, 2002: Allowance for possible losses

$
404,557

($
40,755
)
$
40,000
(a)
$
49,361
(b)
$
354,441Year ended December 31, 2001: Allowance for possible losses

$
496,569

($
17,670
)
$


$
74,342
(b)
$
404,557Year ended December 31, 2000: Allowance for possible losses

$
767,456

$
221,004

($
264,743
)(c)
$
227,148
(b)
$
496,569


---

49

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

P & F INDUSTRIES, INC.(Registrant)

|By: |  | /s/RICHARD A. HOROWITZRichard A. Horowitz
Chairman of the Board
President
Principal Executive Officer
Principal Operating Officer |  | By: |  | /s/JOSEPH A. MOLINO, JR.Joseph A. Molino, Jr.
Vice President
Principal Financial and
Accounting Officer
|--- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | --- |  | -------------------------------------------------------------------------------------------------------

Date:
March 28, 2003

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

|Name                                      |  | Title    |  | Date          
|----------------------------------------- |  | -------- |  | --------------
|                                          |  |          |  |               
|/s/ROBERT L. DUBOFSKYRobert L. Dubofsky   |  | Director |  | March 28, 2003
|/s/ALAN GOLDBERGAlan Goldberg             |  | Director |  | March 28, 2003
|/s/RICHARD A. HOROWITZRichard A. Horowitz |  | Director |  | March 28, 2003
|/s/SIDNEY HOROWITZSidney Horowitz         |  | Director |  | March 28, 2003
|/s/ARTHUR HUG, JR.Arthur Hug, Jr.         |  | Director |  | March 28, 2003
|/s/DENNIS KALICKDennis Kalick             |  | Director |  | March 28, 2003
|/s/NEIL NOVIKOFFNeil Novikoff             |  | Director |  | March 28, 2003
|/s/ROBERT M. STEINBERGRobert M. Steinberg |  | Director |  | March 28, 2003
|/s/MARC A. UTAYMarc A. Utay               |  | Director |  | March 28, 2003

50

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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF P & F INDUSTRIES, INC.

I,
Richard A. Horowitz, Principal Executive Officer of P & F Industries, Inc., certify that:



|March 28, 2003Date |  | /s/RICHARD A. HOROWITZRichard A. Horowitz
Principal Executive Officer
|------------------ |  | ---------------------------------------------------------------------

51

---



CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF P & F INDUSTRIES, INC.

I,
Joseph A. Molino, Jr., Principal Financial Officer of P & F Industries, Inc., certify that:



|March 28, 2003Date |  | /s/JOSEPH A. MOLINO, JR.Joseph A. Molino, Jr.
Principal Financial Officer
|------------------ |  | -------------------------------------------------------------------------

52

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EXHIBIT INDEX

Exhibit
No.:

Description2.1

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.2.2

Stock Purchase Agreement, dated as of May 3, 2002, by and between Mark C. Weldon and the Registrant (Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated May 3, 2002). Pursuant to Item
601(b)(2) of Regulation S-K, the Registrant agrees to furnish supplementally a copy of any exhibit or schedule omitted from the Asset Purchase Agreement to the Securities and Exchange Commission upon request.2.3

Contract for Purchase and Sale, dated as of May 1, 2002, between W. I. Commercial Properties, Inc., a Florida corporation and Countrywide Hardware, Inc., a Delaware corporation (Incorporated by reference to Exhibit 4.7 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).3.1

Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).3.2

Amended By-laws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).4.1

Rights Agreement, dated as of August 23, 1994, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (Incorporated by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A
dated August 24, 1994).4.2

Amendment to Rights Agreement, dated as of April 11, 1997, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (Incorporated by reference to Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002).4.3

Credit Agreement, dated as of July 23, 1998, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, and European American Bank, a New York banking
corporation (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).


53

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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).4.7

Amendment No. 4 to Credit Agreement, dated as of June 25, 2001, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and European American Bank, a New York banking corporation (Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).4.8

Amendment No. 5 to Credit Agreement, dated as of May 3, 2002, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking corporation. (Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002).4.9

Amendment No. 6 to Credit Agreement, dated as of June 13, 2002, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking corporation (Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002).4.10

Amendment No. 7 to Credit Agreement, dated as of August 1, 2002, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc., a Florida corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking corporation
(Incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).4.11

Amendment No. 8 to Credit Agreement, dated as of August 1, 2002, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc., a Florida corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking corporation
(Incorporated by reference to Exhibit 4.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).


54

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4.12

Second Amendment and Restated Term Note, dated as of February 20, 2003, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing,
 Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc., a Florida corporation, and Citibank, N.A. (successor-in-interest to European American Bank), a New York banking
corporation.4.13

Certain instruments defining the rights of holders of the long-term debt securities of the Registrant are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant agrees to furnish supplementally copies of
these instruments to the Commission upon request.10.1

Second Amended and Restated Employment Agreement, dated as of May 30, 2001, between the Registrant and Richard A. Horowitz (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001).10.2

Consulting Agreement, effective as of November 1, 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).10.4

Executive Incentive Bonus Plan of the Registrant (Incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001).10.5

Sale and Purchase Agreement, made as of the 1st day of May 2002, between W. I. Commercial Properties, Inc., a Florida corporation and Countrywide Hardware, Inc., a Delaware corporation (Incorporated by reference to Exhibit 4.7 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).21

Subsidiaries of the Registrant.23

Consent of the Registrant's Independent Certified Public Accountants99.1

Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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

55

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