Table ofContents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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| **x**                                                                                                                                                                                                                                                                      | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                       |       |                                                                                                     |
| **For the Quarterly Period Ended  March 31, 2010**                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                       |       |                                                                                                     |
| **o**                                                                                                                                                                                                                                                                      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|                                                                                                                                                                                                                                                                       |       |                                                                                                     |
| **For the transition period  from                    to                   ** |

 

**Commission File Number 1 - 5332**

 

**P&FINDUSTRIES, INC.**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                                  | ** ** | **22-1657413**                           |
|---------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of                              |       | (I.R.S. Employer  Identification Number) |
| incorporation or  organization)                               |       |                                     |
|                                                          |       |                                     |
| **445 Broadhollow Road,  Suite 100, Melville, New York** | ** ** | **11747**                                |
| (Address of principal  executive offices)                     |       | (Zip Code)                               |

 

Registrant’stelephone number, including area code: **(631)694-9800**

 

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Indicate by checkmark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months, and (2) has been subject to such filing requirements for the past90 days. Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o  No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer o                       |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                        |

 

Indicate by checkmarkwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o  No x

 

As of May 14, 2010there were 3,614,562 shares of the registrant’s Class A Common Stockoutstanding.

 

 

 

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**P&F INDUSTRIES, INC.**

 

**FORM 10-Q**

 

**FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010**

 

**TABLE OF CONTENTS**

 
| ** **                                   | ** **                                                                                                    | **PAGE** |
|----------------------------------------------|---------------------------------------------------------------------------------------------------------------|----------|
|                                         |                                                                                                          |     |
| **PART I — FINANCIAL INFORMATION** | 1                                                                                                             |
|                                         |                                                                                                          |     |
| Item 1.                                      | Financial Statements                                                                                          | 1        |
|                                         |                                                                                                          |     |
|                                         | Consolidated  Condensed Balance Sheets as of March 31, 2010 and December 31, 2009                   | 1        |
|                                         |                                                                                                          |     |
|                                         | Consolidated  Condensed Statements of Operations for the three months ended March 31, 2010 and 2009 | 3        |
|                                         |                                                                                                          |     |
|                                         | Consolidated Condensed Statement of Shareholders’ Equity  for the three months ended March 31, 2010 | 4        |
|                                         |                                                                                                          |     |
|                                         | Consolidated Condensed Statements of Cash Flows for  the three months ended March 31, 2010 and 2009 | 5        |
|                                         |                                                                                                          |     |
|                                         | Notes to Consolidated Condensed Financial Statements                                                          | 7        |
|                                         |                                                                                                          |     |
| Item  2.                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                   | 17       |
|                                         |                                                                                                          |     |
| Item 3.                                      | Quantitative  and Qualitative Disclosures About Market Risk                                                   | 23       |
|                                         |                                                                                                          |     |
| Item 4T                                      | Controls and Procedures                                                                                       | 23       |
|                                         |                                                                                                          |     |
| **PART II — OTHER INFORMATION**    | 24                                                                                                            |
|                                         |                                                                                                          |     |
| Item 1.                                      | Legal Proceedings                                                                                             | 24       |
|                                         |                                                                                                          |     |
| Item 1A.                                     | Risk Factors                                                                                                  | 24       |
|                                         |                                                                                                          |     |
| Item  2.                                     | Unregistered  Sales of Equity Securities and Use of Proceeds                                                  | 24       |
|                                         |                                                                                                          |     |
| Item  3.                                     | Defaults  Upon Senior Securities                                                                              | 24       |
|                                         |                                                                                                          |     |
| Item 4.                                      | [REMOVED AND  RESERVED]                                                                                       | 24       |
|                                         |                                                                                                          |     |
| Item 5.                                      | Other Information                                                                                             | 24       |
|                                         |                                                                                                          |     |
| Item 6.                                      | Exhibits                                                                                                      | 24       |
|                                         |                                                                                                          |     |
| **Signature**                                |                                                                                                          | 25       |
|                                         |                                                                                                          |     |
| **Exhibit Index**                       |                                                                                                          | 26       |

 

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**PART I - FINANCIALINFORMATION**

 

**Item 1.****                   ****Financial Statements**

 

**P&F INDUSTRIES, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED CONDENSED BALANCE SHEETS**

 
| ** **                                     | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **(unaudited)**              | ** ** | **(See Note 1)**      | ** ** |
| **ASSETS**                                     | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| CURRENT ASSETS                                 | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| ** **                                     | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Cash                                           |       | $                            | —     |                            | $          | 546,000 |   |
| Accounts receivable — net                 |       | 7,253,000                    |       | 7,545,000                       |       |
| Inventories - net                              |       | 18,802,000                   |       | 19,746,000                      |       |
| Notes and other receivables                    |       | 198,000                      |       | 110,000                         |       |
| Deferred income taxes — net               |       | 670,000                      |       | 670,000                         |       |
| Income tax refund receivable                   |       | 3,275,000                    |       | 3,270,000                       |       |
| Prepaid expenses and other current assets      |       | 240,000                      |       | 169,000                         |       |
| Assets of discontinued operations              |       | 8,707,000                    |       | 10,797,000                      |       |
| TOTAL CURRENT ASSETS                           |       | 39,145,000                   |       | 42,853,000                      |       |
|                                           |       |                         |       |                            |       |
| PROPERTY AND EQUIPMENT                         |       |                         |       |                            |       |
| Land                                           |       | 1,550,000                    |       | 1,550,000                       |       |
| Buildings and improvements                     |       | 7,476,000                    |       | 7,476,000                       |       |
| Machinery and equipment                        |       | 16,150,000                   |       | 16,130,000                      |       |
|                                           |       | 25,176,000                   |       | 25,156,000                      |       |
| Less accumulated depreciation and amortization |       | 12,379,000                   |       | 11,990,000                      |       |
| NET PROPERTY AND EQUIPMENT                     |       | 12,797,000                   |       | 13,166,000                      |       |
|                                           |       |                         |       |                            |       |
| GOODWILL                                       |       | 5,150,000                    |       | 5,150,000                       |       |
|                                           |       |                         |       |                            |       |
| OTHER INTANGIBLE ASSETS — net             |       | 2,563,000                    |       | 2,651,000                       |       |
|                                           |       |                         |       |                            |       |
| DEFERRED INCOME TAXES -net                     |       | 1,437,000                    |       | 1,437,000                       |       |
|                                           |       |                         |       |                            |       |
| ASSETS OF DISCONTINUED OPERATIONS              |       | 3,680,000                    |       | 3,924,000                       |       |
|                                           |       |                         |       |                            |       |
| OTHER ASSETS — net                        |       | 215,000                      |       | 237,000                         |       |
|                                           |       |                         |       |                            |       |
| TOTAL ASSETS                                   |       | $                            | 64,987,000 |                            | $          | 69,418,000 |   |

 

See accompanying notes toconsolidated condensed financial statements (unaudited).

 

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**P&F INDUSTRIES, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED CONDENSED BALANCE SHEETS**

 
| ** **                                                                                                                  | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                  | ** ** | **(unaudited)**              | ** ** | **(See Note 1)**                | ** ** |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                              | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| CURRENT LIABILITIES                                                                                                         | ** ** | ** **                   | ** ** | ** **                      | ** ** |
|                                                                                                                        | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Short-term borrowings                                                                                                       |       | $                            | 13,900,000 |                            | $          | 16,300,000 |   |
| Accounts payable                                                                                                            |       | 2,669,000                    |       | 1,396,000                       |       |
| Other accrued liabilities                                                                                                   |       | 2,978,000                    |       | 2,003,000                       |       |
| Liabilities of discontinued operations                                                                                      |       | 8,699,000                    |       | 9,719,000                       |       |
| Current maturities of long-term debt                                                                                        |       | 4,370,000                    |       | 5,015,000                       |       |
| TOTAL CURRENT LIABILITIES                                                                                                   |       | 32,616,000                   |       | 34,433,000                      |       |
|                                                                                                                        |       |                         |       |                            |       |
| Long-term debt, less current maturities                                                                                     |       | 3,385,000                    |       | 4,148,000                       |       |
| Liabilities of discontinued operations                                                                                      |       | 5,787,000                    |       | 5,222,000                       |       |
|                                                                                                                        |       |                         |       |                            |       |
| TOTAL LIABILITIES                                                                                                           |       | 41,788,000                   |       | 43,803,000                      |       |
|                                                                                                                        |       |                         |       |                            |       |
| COMMITMENTS AND CONTINGENCIES                                                                                               |       |                         |       |                            |       |
|                                                                                                                        |       |                         |       |                            |       |
| SHAREHOLDERS’ EQUITY                                                                                                   |       |                         |       |                            |       |
| Preferred stock - $10 par; authorized - 2,000,000  shares; no shares issued                                                 |       | —                       |       | —                          |       |
| Common stock                                                                                                                |       |                         |       |                            |       |
| Class A - $1 par; authorized - 7,000,000  shares; issued - 3,956,431 at March 31, 2010 and December 31, 2009 |       | 3,956,000                    |       | 3,956,000                       |       |
| Class B - $1 par; authorized - 2,000,000  shares; no shares issued                                                     |       | —                       |       | —                          |       |
| Additional paid-in capital                                                                                                  |       | 10,650,000                   |       | 10,615,000                      |       |
| Retained earnings                                                                                                           |       | 11,548,000                   |       | 13,999,000                      |       |
| Treasury stock, at cost — 341,869 shares at  March 31, 2010 andDecember 31, 2009                        |       | (2,955,000                   | )          | (2,955,000                      | )          |
|                                                                                                                        |       |                         |       |                            |       |
| TOTAL SHAREHOLDERS’ EQUITY                                                                                             |       | 23,199,000                   |       | 25,615,000                      |       |
|                                                                                                                        |       |                         |       |                            |       |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                             |       | $                            | 64,987,000 |                            | $          | 69,418,000 |   |

 

See accompanying notes toconsolidated condensed financial statements (unaudited).

 

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**P&F INDUSTRIES, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS(Unaudited)**

** **
| ** **                                                                                              | ** ** | **Three months**         | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                                              | ** ** | **ended March 31,** | ** ** |
| ** **                                                                                              | ** ** | **2010**                 | ** ** | **2009** | ** ** |
| Net revenue                                                                                             |       | $                        | 11,147,000 |   | $ | 12,221,000 |   |
| Cost of sales                                                                                           |       | 7,148,000                |       | 8,121,000 |   |
| Gross profit                                                                                            |       | 3,999,000                |       | 4,100,000 |   |
| Selling, general and administrative expenses                                                            |       | 4,317,000                |       | 4,203,000 |   |
| Operating loss                                                                                          |       | (318,000                 | )          | (103,000 | ) |
| Interest expense                                                                                        |       | 389,000                  |       | 305,000 |   |
| Loss from continuing operations before income taxes                                                     |       | (707,000                 | )          | (408,000 | ) |
| Income tax benefit                                                                                      |       | —                   |       | (69,000 | ) |
| Loss from continuing operations                                                                         |       | (707,000                 | )          | (339,000 | ) |
|                                                                                                    |       |                     |       |   |   |
| Loss from discontinued operations (net of tax benefit of $—0— for  2010 and $58,000 for 2009) |       | (1,744,000               | )          | (267,000 | ) |
|                                                                                                    |       |                     |       |   |   |
| Net loss                                                                                                |       | $                        | (2,451,000 | ) | $ | (606,000) |   |
| Basic and diluted loss per common share:                                                                |       |                     |       |   |   |
| Continuing operations                                                                                   |       | $                        | (0.20      | ) | $ | (0.09 | ) |
| Discontinued operations                                                                                 |       | (0.48                    | )          | (0.08 | ) |
|                                                                                                    |       | $                        | (0.68      | ) | $ | (0.17 | ) |
| Weighted average common shares outstanding:                                                             |       |                     |       |   |   |
| Basic and diluted                                                                                       |       | 3,615,000                |       | 3,615,000 |   |

 

See accompanying notes toconsolidated condensed financial statements (unaudited).

 

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**P&FINDUSTRIES, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’EQUITY (unaudited)**

 
| ** **                          | ** ** | ** ** | ** **       | **Class A Common  Stock, $1 Par** | ** ** | **Additional  paid-in** | ** ** | **Retained**    | ** ** | **Treasury stock** | ** **       |
|-------------------------------------|------------|------------|------------------|----------------------------------------|------------|-------------------------|------------|-----------------|------------|--------------------|------------------|
| ** **                          | ** ** | **Total**  | ** **       | **Shares**                             | ** ** | **Amount**              | ** ** | **capital**     | ** ** | **earnings**       | ** **       | **Shares** | ** ** | **Amount** | ** ** |
| ** **                          | ** ** | ** ** | ** **       | ** **                             | ** ** | ** **              | ** ** | ** **      | ** ** | ** **         | ** **       | ** ** | ** ** | ** ** | ** ** |
| Balance,  January 1, 2010 |       | $          |  25,615,000 |                                   | 3,956,000  |                    | $          |  3,956,000 |       | $                  |  10,615,000 |   | $ |  13,999,000 |   | 342,000 |   | $ |  (2,955,000 | ) |
|                                |       |       |             |                                   |       |                    |       |            |       |               |             |   |   |   |   |
| Net loss                            |       | (2,451,000 | )                |                                   |       |                    |       |            |       | (2,451,000         | )                |   |   |   |   |
| Stock-based compensation            |       | 35,000     |             |                                   |       |                    |       | 35,000          |       |               |             |   |   |   |   |
|                                |       |       |             |                                   |       |                    |       |            |       |               |             |   |   |   |   |
| Balance, March 31,  2010       |       | $          |  23,199,000 |                                   | 3,956,000  |                    | $          |  3,956,000 |       | $                  |  10,650,000 |   | $ |  11,548,000 |   | 342,000 |   | $ |  (2,955,000 | ) |

 

See accompanying notes to consolidatedcondensed financial statements (unaudited).

 

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**P&F INDUSTRIES, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS(unaudited)**

 
| ** **                                                                                                 | ** ** | **Three months  ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                 | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Cash Flows from Operating  Activities                                                                      |       |                                   |       |   |   |
| Net loss                                                                                                   |       | $                                      | (2,451,000 | ) | $ | (606,000 | ) |
|                                                                                                       |       |                                   |       |   |   |
| Adjustments to reconcile  net loss to net cash provided by operating activities of continuing  operations: |       |                                   |       |   |   |
| Net loss from discontinued  operations                                                                     |       | 1,744,000                              |       | 267,000 |   |
| Noncash charges:                                                                                           |       |                                   |       |   |   |
| Depreciation and  amortization                                                                             |       | 413,000                                |       | 386,000 |   |
| Amortization of other  intangible assets                                                                   |       | 87,000                                 |       | 88,000 |   |
| Amortization of other assets                                                                               |       | 3,000                                  |       | 3,000 |   |
| Provision (recovery) for  losses on accounts receivable - net                                              |       | 8,000                                  |       | (10,000 | ) |
| Stock-based compensation                                                                                   |       | 35,000                                 |       | 70,000 |   |
| Loss (gain) on sale of  fixed asset                                                                        |       | 2,000                                  |       | (2,000 | ) |
| Changes in operating  assets and liabilities, net of discontinued operations:                              |       |                                   |       |   |   |
| Accounts receivable                                                                                        |       | 283,000                                |       | (693,000 | ) |
| Notes and other  receivables                                                                               |       | (88,000                                | )          | (69,000 | ) |
| Inventories                                                                                                |       | 945,000                                |       | 991,000 |   |
| Income tax refund  receivable                                                                              |       | (5,000                                 | )          | (142,000 | ) |
| Prepaid expenses and other  current assets                                                                 |       | 175,000                                |       | (482,000 | ) |
| Other assets                                                                                               |       | (226,000                               | )          | (149,000 | ) |
| Accounts payable                                                                                           |       | 1,273,000                              |       | 731,000 |   |
| Accruals and other  liabilities                                                                            |       | 975,000                                |       | 8,000 |   |
| Total adjustments                                                                                          |       | 5,624,000                              |       | 997,000 |   |
| Net cash provided by  operating activities of continuing operations                                        |       |                                   | 3,173,000  |   |   | 391,000 |   |

 

Seeaccompanying notes to consolidated condensed financial statements (unaudited).

 

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| ** **                                              | ** ** | **Three months  ended March 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                              | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Cash Flows from Investing  Activities                   |       |                                   |       |   |   |
| Capital expenditures                                    |       | $                                      | (46,000    | ) | $ | (561,000 | ) |
| Proceeds from sales of  fixed assets                    |       | —                                 |       | 3,000 |   |
| Net cash used in investing  activities                  |       | (46,000                                | )          | (558,000 | ) |
|                                                    |       |                                   |       |   |   |
| Cash Flows from Financing  Activities:                  |       |                                   |       |   |   |
| Proceeds from short-term  borrowings                    |       | —                                 |       | 8,484,000 |   |
| Repayments of short-term  borrowings                    |       | (2,400,000                             | )          | (3,484,000 | ) |
| Repayment of term loan                                  |       | (1,253,000                             | )          | (6,444,000 | ) |
| Proceeds from equipment  lease financing                |       | —                                 |       | 348,000 |   |
| Repayments of equipment  lease financing                |       | (106,000                               | )          | (9,000 | ) |
| Principal payments on  long-term debt                   |       | (49,000                                | )          | (68,000 | ) |
| Net cash used in financing  activities                  |       | (3,808,000                             | )          | (1,173,000 | ) |
|                                                    |       |                                   |       |   |   |
| Cash flows from  discontinued operations                |       |                                   |       |   |   |
| Operating activities                                    |       | (154,000                               | )          | 1,117,000 |   |
| Investing activities                                    |       | 245,000                                |       | 30,000 |   |
| Financing activities                                    |       | 44,000                                 |       | — |   |
| Net cash provided by  discontinued operations           |       | 135,000                                |       | 1,147,000 |   |
|                                                    |       |                                   |       |   |   |
| NET DECREASE IN CASH                                    |       | (546,000                               | )          | (193,000 | ) |
| Cash at beginning of  period                            |       | 546,000                                |       | 845,000 |   |
| Cash at end of period                                   |       | $                                      | —     |   | $ | 652,000 |   |
|                                                    |       |                                   |       |   |   |
| **Supplemental disclosures of  cash flow information:** |       |                                   |       |   |   |
| ** **                                              |       |                                   |       |   |   |
| Cash paid for:                                          |       |                                   |       |   |   |
| Interest                                                |       | $                                      | 347,000    |   | $ | 321,000 |   |
| Income taxes                                            |       | $                                      | 16,000     |   | $ | 15,000 |   |

 

See accompanying notes to consolidatedcondensed financial statements (unaudited).

 

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**P&F INDUSTRIES, INC. ANDSUBSIDIARIES**

 

**NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(unaudited)**

 

**NOTE 1 - SUMMARY OF ACCOUNTINGPOLICIES**

 

**Basis of Financial StatementPresentation**

 

The accompanying unauditedconsolidated condensed financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of America (“GAAP”)for interim financial information, and with the rules and regulations ofthe Securities and Exchange Commission regarding interim financial reporting.Accordingly, these interim financial statements do not include all of theinformation and footnotes required by GAAP for complete financial statements.In the opinion of the Company, these unaudited consolidated condensed financialstatements include all adjustments necessary to present fairly the informationset forth therein. All such adjustments are of a normal recurring nature.Results for interim periods are not necessarily indicative of results to beexpected for a full year.

 

The unaudited consolidatedcondensed balance sheet information as of March 31, 2010 was derived fromthe audited consolidated financial statements included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2009. The interimfinancial statements contained herein should be read in conjunction with thatReport.

 

**Principles of Consolidation**

 

The unaudited consolidated condensed financialstatements contained herein include the accounts of P&F Industries, Inc.and its subsidiaries (“P&F”). All significant intercompany balances andtransactions have been eliminated.

 

P&F conducts itsbusiness operations through two of its wholly-owned subsidiaries: ContinentalTool Group, Inc. (“Continental”) and Countrywide Hardware, Inc. (“Countrywide”).P&F and its subsidiaries are herein referred to collectively as the “Company.”In addition, the words “we”, “our” and “us” refer to the Company.  P&F operates in two primary lines ofbusiness, or segments: (i) tools and other products (“Tools”) and (ii) hardwareand accessories (“Hardware”).

 

**The Company**

 

**Tools**

 

The Company conducts its Toolsbusiness through Continental, which in turn currently operates through itswholly-owned subsidiaries, Florida Pneumatic Manufacturing Corporation (“FloridaPneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”).

 

Florida Pneumatic is engaged in the importation, manufacture and saleof pneumatic hand tools, primarily for the industrial, retail and automotivemarkets, and the importation and sale of compressor air filters. FloridaPneumatic also markets, through its Berkley Tool division (“Berkley”), a lineof pipe cutting and threading tools, wrenches and replacement electricalcomponents for a widely-used brand of pipe cutting and threading machines.   Through its Franklin Manufacturing (“Franklin”)division, Florida Pneumatic imported and marketed a line of door and windowhardware including locksets, deadbolts, door and window security hardware,rope-related hardware products and fire escape ladders. However, primarily dueto an ongoing diminishing market, Florida Pneumatic discontinued marketing theFranklin products line effective December 31, 2009.

 

Hy-Tech manufactures and distributes pneumatic tools and parts forindustrial applications. Hy-Tech manufactures approximately sixty types ofindustrial pneumatic tools, most of which are sold at prices ranging from $300to $7,000, under the names “ATP”, “Thaxton”, “THOR” and “Eureka”, as well asunder the trade names or trademarks of other private label customers. This lineof products includes grinders, drills, saws, impact wrenches and pavementbreakers.

 

Hy-Tech’s products are sold to distributors and private label customersthrough in-house sales personnel and manufacturers’ representatives. Users ofHy-Tech’s tools include refineries, chemical plants, power generationfacilities, the heavy construction industry, oil and mining companies and heavyindustry. Hy-Tech’s products are sold off the shelf, and are also produced tocustomer’s orders. The business is not seasonal, but it may be subject tosignificant periodic changes resulting from scheduled shutdowns in refineries,power generation facilities and chemical plants.

 

**Hardware**

 

The Company conducts itsHardware business through Countrywide, which in turn operates through itswholly-owned 

 

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subsidiaries, Nationwide Industries, Inc (“Nationwide”)and until June 8, 2009, Woodmark International, L.P. (“Woodmark”) andPacific Stair Products, Inc. (“PSP”). Woodmark was, until the transactions(“WMC transactions”) which formed WM Coffman, LLC (“WMC”) in June 2009, animporter of both stair parts components and kitchen and bath hardware andaccessories. Woodmark marketed its stair parts nationally. Additionally,effective with the WMC transactions, the operations of Woodmark’s kitchen andbath hardware and accessories product line was transferred to Nationwide.  PSP marketed Woodmark’s staircase componentsto the building industry, in southern California and the southwestern region ofthe United States.  As a result of theWMC transactions, Woodmark and PSP no longer functioned as operatingunits.  Woodmark and PSP contributedcertain net assets to WMC in return for members’ equity. Accordingly, effectivewith the WMC transactions, the stair parts business, which formerly reportedthrough Woodmark and PSP, became part of WMC.

 

As the result of a decision reached by the Company’s board of directorsin March 2010, the Company is reporting WMC as a discontinued operationeffective January 1, 2010. The Company has restated prior year financialinformation to present WMC as a discontinued operation.

 

Nationwide is an importerand distributor of fencing, door, and window hardware.

 

**Reclassifications**

 

Certain amounts in theconsolidated condensed financial statements for the three month period ended March 31,2009 and the year ended December 31, 2009 have been reclassified toconform to the current period’s presentation.

 

**Management Estimates**

 

The preparation of financialstatements and related disclosures in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesreported in those financial statements. Certain significant accounting policies that contain subjectivemanagement estimates and assumptions include those related to revenuerecognition, inventory, goodwill, intangible assets and other long-livedassets, income taxes and deferred taxes. Descriptions of these policies are discussed in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2009.  Management evaluates its estimates andassumptions on an ongoing basis using historical experience and other factors,including the current economic environment, and makes adjustments when factsand circumstances dictate.  Illiquidcredit markets and declines in consumer spending have, among other things,combined to increase the uncertainty inherent in such estimates andassumptions.  As future events and theireffects cannot be determined with precision, actual results could differsignificantly from those estimates and assumptions.  Significant changes, if any, in thoseestimates resulting from continuing changes in the economic environment will bereflected in the consolidated financial statements in future periods.

 

**Recently Adopted Accounting Standards**

 

During the three month period ended March 31, 2010,the Company did not adopt any new accounting standards.

 

**NOTE 2—FAIR VALUE MEASUREMENTS**

 

The Company is required to maximize the use of observable inputs andminimize the use of unobservable inputs when measuring fair value.

 

The fair value hierarchy consists of three broad levels, which givesthe highest priority to unadjusted quoted prices in active markets foridentical assets or liabilities (Level 1) and the lowest priority tounobservable inputs (Level 3). The three levels of the fair value hierarchyare described as follows:

 

·                  Level 1—Unadjustedquoted prices in active markets for identical assets or liabilities that areaccessible at the measurement date.

 

·                  Level 2—Inputs otherthan quoted prices included within Level 1 that are observable for theasset or liability, either directly or indirectly. Level 2 inputs includequoted prices for similar assets or liabilities in active markets; quotedprices for identical or similar assets or liabilities in markets that are notactive; inputs other than quoted prices that are observable for the asset orliability; and inputs that are derived principally from or corroborated byobservable market data by correlation or other means.

 

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·                  Level 3—Inputs that areunobservable for the asset or liability.

 

The following describes the valuation methodologies that we used tomeasure financial instruments at fair value.

 

WMCentered into an advisory agreement with Visador, the parent company of Coffman,pursuant to which WMC agreed to pay Visador, subject to certain conditions,advisory fees, aggregating during the first three years to a maximum of$750,000 in exchange for Visador providing consulting and advisory services toWMC. Cash payments to Visador may be made only with permission of PNC.

 

The following table presents the liabilities that are measured andrecognized at fair value on a recurring basis classified under the appropriatelevel of the fair value hierarchy as of March 31, 2010.

 

| Roll-forward of Level 3 Liabilities:  |   |   |    |
|---------------------------------------|--------|--------|---------|
| Balance — December 31, 2009 |   | $      | 603,000 |   |
| Accretion of interest expense         |   | 20,000 |    |
|                                  |   |   |    |
| Balance March 31, 2010           |   | $      | 623,000 |   |

 

Thecarrying amounts of cash, receivables, accounts payable, and accrued expensesapproximate fair value due to the immediate or short-term maturity of thesefinancial instruments. The fair value of notes payable is determined usingcurrent applicable rates for similar instruments as of the balance sheet dateand they approximate the carrying amounts.

 

AtMarch 31, 2010 and 2009, the Company had no material foreign exchangeforward contracts outstanding. Additionally, there was no material realized or unrealized gains relatedto these contracts during the three month periods ended March 31, 2010 and2009, respectively.

 

**NOTE 3 — DISCONTINUED OPERATIONS**

 

WMC was primarily engaged in themanufacturing and importing of stair parts and related accessories.  In an effort to improve theoverall results of the Company’s existing stair parts operation, the companyacquired, as of June 8, 2009, through a newly formed subsidiary, WMC,substantially all of the assets of one of its competitors in the stair partsbusiness, Coffman Stairs, LLC. These transactions were executed in anattempt to take advantage of the synergies available by combining two largeplayers in an industry at the bottom of its economic cycle with complementarydistribution channels and operations.

 

WMC was not able to achieve the revenue levels anticipated prior to theWMC transactions and, as a result, never produced positive cash flows. Thiscaused, among other things, defaults on the loan agreement specific to WMC. Itslender agreed to forbear from taking certain actions through August 31,2010.  The Company had undertaken asearch for additional sources of capital and considered, among otheralternatives, an outright sale of WMC. Primarily as the result of theaforementioned, at December 31, 2009, the Company wrote down the carryingvalue of the net assets of WMC by $5,549,000, to reflect their fair value.Neither P&F nor any of its subsidiaries other than WMC is a party to or aguarantor of any debt obligations of WMC.

 

As the result of a decision reached by the Company’s board of directorsin March 2010, the Company is Reporting WMC as a discontinued operationeffective January 1, 2010.  WMC continuesto fund its operations through a separate asset-based credit facility. TheCompany does not anticipate any further write downs related to WMC, regardlessof the ultimate resolution of its situation.

 

The table below presents the items that have been reclassified intoassets and liabilities of discontinued operations:

 
| ** **                                                                                        | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
|                                                                                              |       |                         |       |                            |       |
| Cash                                                                                              |       | $                            | 7,000      |                            | $          | 53,000 |   |
| Accounts receivable, net                                                                          |       | 2,508,000                    |       | 2,124,000                       |       |
| Inventory, net                                                                                    |       | 5,720,000                    |       | 7,919,000                       |       |
| Other current assets                                                                              |       | 472,000                      |       | 701,000                         |       |
| Total assets reclassified to current assets of discontinued  operations                           |       | $                            | 8,707,000  |                            | $          | 10,797,000 |   |
|                                                                                              |       |                         |       |                            |       |
| Machinery and equipment, net                                                                      |       | $                            | 2,256,000  |                            | $          | 2,439,000 |   |
| Other                                                                                             |       | 1,424,000                    |       | 1,485,000                       |       |
| Total assets reclassified to non-current assets of discontinued  operations                       |       | $                            | 3,680,000  |                            | $          | 3,924,000 |   |
|                                                                                              |       |                         |       |                            |       |
| Short-term borrowings                                                                             |       | $                            | 4,374,000  |                            | $          | 4,382,000 |   |
| Accounts payable and accrued expenses                                                             |       | 3,755,000                    |       | 4,251,000                       |       |
| Other current liabilities                                                                         |       | 570,000                      |       | 1,086,000                       |       |
| Total liabilities reclassified to current liabilities of discontinued  operations                 |       | $                            | 8,699,000  |                            | $          | 9,719,000 |   |
|                                                                                              |       |                         |       |                            |       |
| Long-term debt, less current portion                                                              |       | $                            | 5,787,000  |                            | $          | 5,222,000 |   |
| Total non-current liabilities reclassified to non-current liabilities  of discontinued operations |       | $                            | 5,787,000  |                            | $          | 5,222,000 |   |

 

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Theresults of operations of WMC for the periods presented are:

 
| ** **                                                         | ** ** | **March 31,  2010** | ** ** | **March 31,  2009** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
|                                                               | ** ** | ** **               | ** ** | ** **               | ** ** |
| Revenue                                                            |       | $                        | 6,269,000  |                     | $          | 3,341,000 |   |
|                                                               |       |                     |       |                     |       |
| Gross profit                                                       |       | $                        | 491,000    |                     | $          | 532,000 |   |
|                                                               |       |                     |       |                     |       |
| Selling, general and administrative expenses and  interest expense |       | $                        | 2,235,000  |                     | $          | 857,000 |   |
|                                                               |       |                     |       |                     |       |
| Loss before income taxes                                           |       | $                        | (1,744,000 | )                        | $          | (325,000 | ) |
| Income tax benefit                                                 |       | —                   |       | (58,000                  | )          |
|                                                               |       |                     |       |                     |       |
| Loss from discontinued operations, net of tax  benefit             |       | $                        | (1,744,000 | )                        | $          | (267,000 | ) |

 

**NOTE 4 — LOSS PER SHARE**

 

Basic loss per common shareis based on the average number of shares of common stock outstanding for theperiods. Diluted earnings per common share reflects the effect of shares ofcommon stock issuable upon the exercise of options, unless the effect onearnings is antidilutive.

 

Diluted loss per commonshare is computed using the treasury stock method. Under this method, theaggregate number of shares of common stock outstanding reflects the assumed useof proceeds from the hypothetical exercise of any outstanding options topurchase shares of the Company’s Class A Common Stock. The average marketvalue for the period is used as the assumed purchase price.

 

The following table setsforth the computation of basic and diluted loss per common share:

 
| ** **                                                                                                    | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                    | ** ** | **March 31,**     | ** ** |
| ** **                                                                                                    | ** ** | **2010**               | ** ** | **2009** | ** ** |
| Numerator:                                                                                                    |       |                   |       |   |   |
| Numerator for  basic and dilutedloss per common share:                                                        |       |                   |       |   |   |
| Loss from  continuing operations                                                                              |       | $                      | (707,000   | ) | $ | (339,000 | ) |
| Loss from  discontinued operations, net of taxes                                                              |       | (1,744,000             | )          | (267,000 | ) |
| Net loss                                                                                                      |       | $                      | (2,451,000 | ) | $ | (606,000 | ) |
| Denominator:                                                                                                  |       |                   |       |   |   |
| Denominator for  basic and diluted loss per share —weighted average common shares  outstanding |       | 3,615,000              |       | 3,615,000 |   |

 

At March 31, 2010 and2009 and during the three month periods then ended, there were outstandingstock options whose exercise prices were higher than the average market valuesof the underlying Class A Common Stock for the period. These options areantidilutive and are excluded from the computation of loss per share. Diluted lossper share for the three month period ended March 31, 2010 was the same asbasic loss per share, since the effect of the inclusion of common shareequivalents would be anti-dilutive, because of the reported loss.

 

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**NOTE 5- STOCK-BASED COMPENSATION**

 

Stock-based Compensation

 

Total stock-based compensation expense is attributableto the granting of, and the remaining requisite service periods of, stockoptions and warrants.  Compensation expense attributable to stock-basedcompensation during the three-month periods ended March 31, 2010 and2009 was approximately $35,000 and $70,000, respectively.  The compensation expense is recognized inselling, general and administrative expenses on the Company’s statements ofoperations on a straight-line basis over the vesting periods.  TheCompany recognizes compensation cost over the requisite service period.However, the exercisability of the respective non-vested options, which are atpre-determined dates on a calendar year, do not necessarily correspond to theperiod(s) in which straight-line amortization of compensation cost isrecorded. As of March 31, 2010, the Company had approximately $142,000 of total unrecognizedcompensation cost related to non-vested awards granted under our stock-basedplans, which we expect to recognize over a weighted-average period of 1.5years.  The Company did not grant anystock options or warrants during the three month period ended March 31,2010.

 

Stock Option Plan

 

The Company’s 2002 IncentiveStock Option Plan (the “Current Plan”) authorizes the issuance, to employeesand directors, of options to purchase a maximum of 1,100,000 shares of Class ACommon Stock. These options must be issued within ten years of the effectivedate of the Current Plan and are exercisable for a ten year period from thedate of grant, at prices not less than 100% of the market value of the Class ACommon Stock on the date the option is granted. Incentive stock options grantedto any 10% stockholder are exercisable for a five year period from the date ofgrant, at prices not less than 110% of the market value of the Class ACommon Stock on the date the option is granted. Pursuant to the Current Plan,the Stock Option Committee has the discretion to award non-qualified stockoption grants with various vesting parameters. Options have vesting periods ofimmediate to three years. In the event options granted contain a vesting scheduleover a period of years, the Company recognizes compensation cost for theseawards on a straight-line basis over the service period. The Current Plan,which terminates in 2012, is the successor to the Company’s 1992 IncentiveStock Option Plan (the “Prior Plan”).

 

The following is a summaryof the changes in outstanding options for the three months ended March 31,2010:

 
| ** **                         | ** ** | **Option Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted Average  Remaining  Contractual Life  (Years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|------------------------------------|------------|-------------------|------------|----------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding,  January 1, 2010 |       | 514,624           |       | $                                      | 7.26       |                                                       | 5          |                            | —     |   |
| Granted                            |       | —            |       | —                                 |       |                                                       |       |                            |       |
| Exercised                          |       | —            |       | —                                 |       |                                                       |       |                            |       |
| Forfeited                          |       | —            |       | —                                 |       |                                                       |       |                            |       |
| Expired                            |       | —            |       | —                                 |       |                                                       |       |                            |       |
| Outstanding,  March 31, 2010  |       | 514,624           |       | $                                      | 7.26       |                                                       |       |                            | —     |   |
|                               |       |              |       |                                   |       |                                                       |       |                            |       |
| Vested, March 31,  2010       |       | 366,957           |       | $                                      | 8.22       |                                                       |       |                            | —     |   |

 

Thefollowing is a summary of changes in non-vested shares for the three monthsended March 31, 2010:

 
| ** **                               | ** ** | **Option Shares** | ** ** | **Weighted  Average Grant-  Date  Fair Value** | ** ** |
|------------------------------------------|------------|------------------------|------------|----------------------------------------------------------|------------|
| Non-vested shares,  January 1, 2010 |       | 147,627                |       | $                                                        | 2.85       |   |
| Granted                                  |       | —                 |       |                                                     |       |
| Vested                                   |       | —                 |       |                                                     |       |
| Forfeited                                |       | —                 |       |                                                     |       |
| Non-vested shares,  March 31, 2010  |       | 147,627                |       | $                                                        | 2.85       |   |

 

The number of shares of Class Acommon stock reserved for stock options available for issuance under theCurrent Plan as of March 31, 2010 was 443,212. Of the options outstandingat March 31, 2010, all were issued under the Current Plan.

 

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**NOTE 6 — RECENT ACCOUNTINGPRONOUNCEMENTS**

 

***Recently adopted Accounting Standards***

 

There were no recentlyadopted accounting standards by the Company during the three month period endedMarch 31, 2010.

 

***Recently Issued Accounting Standards***

 

There were no recentlyissued accounting standards during the three month period ended March 31,2010, which affect the Company.

 

Management does not believethat any other recently issued, but not yet effective accounting standards, ifcurrently adopted would have a material effect on our consolidated condensedfinancial statements.

 

**NOTE 7 - ****ACCOUNTSRECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS******

 

Accountsreceivable - net consists of:

 
| ** **                       | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|----------------------------------|------------|-------------------------|------------|----------------------------|------------|
| Accounts receivable              |       | $                       | 7,410,000  |                       | $          | 7,694,000 |   |
| Allowance for doubtful  accounts |       | (157,000                | )          | (149,000                   | )          |
|                             |       | $                       | 7,253,000  |                       | $          | 7,545,000 |   |

 

**NOTE 8 — INVENTORIES**

 

Inventories - net consist of:

 
| ** **                                        | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| Raw material                                      |       | $                       | 2,033,000  |                       | $          | 2,086,000 |   |
| Work in process                                   |       | 528,000                 |       | 680,000                    |       |
| Finished goods                                    |       | 17,711,000              |       | 18,532,000                 |       |
|                                              |       | 20,272,000              |       | 21,298,000                 |       |
| Reserve for obsolete and  slow-moving inventories |       | (1,470,000              | )          | (1,552,000                 | )          |
|                                              |       | $                       | 18,802,000 |                       | $          | 19,746,000 |   |

 

**NOTE 9 -GOODWILL AND OTHER INTANGIBLE ASSETS**

 

During the three-month period ended March 31,2010, there was no change to the carrying value of goodwill.

 

Other intangible assets wereas follows:

 
| ** **                                  | ** ** | **March 31,  2010** | ** ** | **December 31,  2009**   | ** ** |
|---------------------------------------------|------------|--------------------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | **Cost**                 | ** ** | **Accumulated  amortization** | ** ** | **Net book  value** | ** ** | **Cost** | ** ** | **Accumulated  amortization** | ** ** | **Net book  value** | ** ** |
| Other intangible assets:                    |       |                     |       |                          |       |   |   |   |   |   |   |   |   |
| Customer relationships                      |       | $                        | 5,070,000  |                          | $          | 3,011,000 |   | $ | 2,059,000 |   | $ | 5,070,000 |   | $ | 2,930,000 |   | $ | 2,140,000 |   |
| Non-compete and  Employment agreements |       | 760,000                  |       | 760,000                       |       | — |   | 760,000 |   | 760,000 |   | — |   |
| Trademarks                                  |       | 199,000                  |       | —                        |       | 199,000 |   | 199,000 |   | — |   | 199,000 |   |
| Drawings                                    |       | 290,000                  |       | 45,000                        |       | 245,000 |   | 290,000 |   | 41,000 |   | 249,000 |   |
| Licensing                                   |       | 105,000                  |       | 45,000                        |       | 60,000 |   | 105,000 |   | 42,000 |   | 63,000 |   |
| Totals                                      |       | $                        | 6,424,000  |                          | $          | 3,861,000 |   | $ | 2,563,000 |   | $ | 6,424,000 |   | $ | 3,773,000 |   | $ | 2,651,000 |   |

 

Amortizationexpense for intangible assets subject to amortization was as follows:

 

| **Three months ended  March 31,** | ** ** |
|----------------------------------------|------------|
| **2010**                               | ** ** | **2009** | ** ** |
| $                                      | 88,000     |   | $ | 88,000 |   |
|                                        |            |  |  |  |  |

 

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Amortization expense foreach of the twelve-month periods ending March 31, 2011 through March 31,2015 is estimated to be as follows: 2011 - $351,000 ; 2012 - $350,000 ; 2013 - $330,000; 2014 - $185,000 and 2015 - $186,000 .  The weighted average amortization period forintangible assets was 9.1 years at March 31, 2010 and 9.3 years at December 31,2009.

 

**NOTE 10- WARRANTY LIABILITY**

 

TheCompany offers to its customers, warranties against product defects for periodsprimarily ranging from one to three years. Certain products carry limited lifetime warranties. The Company’stypical warranties require it to repair or replace the defective productsduring the warranty period at no cost to the customer. At the time the productrevenue is recognized, the Company records a liability for estimated costsunder its warranties, which are estimated based on historical experience. TheCompany periodically assesses the adequacy of its recorded warranty liabilityand adjusts the amounts as necessary. While the Company believes that itsestimated liability for product warranties is adequate, the estimated liabilityfor the product warranties could differ materially from future actual warrantycosts.

 

Changesin the Company’s warranty liability, included in other accrued liabilities,were as follows:

 
| ** **                                                          | ** ** | **Three-months ended  March 31,** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                          | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Balance, beginning of  period                                       |       | $                                      | 183,000    |   | $ | 337,000 |   |
| Warranties issued and  changes in estimated pre-existing warranties |       | 112,000                                |       | 117,000 |   |
| Actual warranty costs  incurred                                     |       | (88,000                                | )          | (255,000 | ) |
| Balance, end of period                                              |       | $                                      | 207,000    |   | $ | 199,000 |   |

 

**NOTE 11 — BANK DEBT**

 

*SHORT-TERM LOANS*

 

The Company and itssubsidiaries, other than WMC, as co-borrowers entered into a Credit Agreement,(“Credit Agreement”) as amended, with two banks (“banks”) in 2004.  The Credit Agreement, among other things, includesa revolving credit loan facility, (“revolving loan”). The revolving loan can beused for direct borrowings, with various sub-limits for letters of credit,bankers’ acceptances and equipment loans. There were no letters of credit,bankers’ acceptances or equipment loan borrowings at March 31, 2010, or December 31,2009. There are no commitment fees for any unused portion of this CreditAgreement. Direct borrowings under the revolving loan are secured by theCompany’s accounts receivable, inventory, equipment and real property, and arecross-guaranteed by each of the Company’s subsidiaries, except WMC. Theseborrowings bear interest at LIBOR (London InterBank Offered Rate) , (with aminimum of 1.0%), or the prime interest rate, plus in either case, the currentlyapplicable loan margin of 4.25%.  However, as theresult of the Company not complying with certain financial covenants, anadditional default interest rate of 2.0% was added.  The revolvingloan within the Credit Agreement expired March 30, 2010.  Primarily the result of the expiration of therevolving credit facility, and the Company being in default on variousfinancial covenants, the banks on March 31, 2010 withdrewapproximately $957,000 from its operating accounts and applied these funds topay down the term note, discuss below.  At March 31, 2010 and December 31,2009, the balances outstanding on the revolving loan with the banks were$13,900,000 and $16,300,000, respectively. During the period April 1, 2010 through April 23, 2010, thebanks returned the $957,000 to the Company’s operating accounts.  On April 23, 2010, theCompany and the banks executed a waiver and amendment which, among otherthings, extended the termination date of the revolving credit loan portion ofthe Credit Agreement facility to January 1, 2011, waived all then existingdefaults and eliminated the default interest rate factor of 2.0% . The waiverand amendment set new financial covenants and adjusted the borrowing basecalculation as well as reduced the size of the facility from $17,500,000 to$16,500,000.  In addition, it requiredthat all future advances shall be subject to the requirement that the aggregateamount advanced after giving effect to any such future advances be at least$750,000 less than the aggregate lendable value in eligible borrowing baseassets.  Finally, the banks required asubordinated loan of $750,000, which, in the aggregate was provided by its Chief Executive Officer, President andChairman of the Board of Directors, (“CEO”), and another unrelatedparty.

 

In connection with theWMC transactions, WMC entered into the WMC loan agreement with PNC Bank (“PNC”).The WMC loan agreement expires June 8, 2012. Neither the Company nor anyother subsidiary is a co-borrower or a guarantor to this WMC loan agreement.  The WMC loan agreement provided a maximumloan amount of $12,000,000, of which $1,134,000 was established as a term loan,the balance of $10,866,000 was the maximum revolving advance amount.  The WMC loan agreement is collateralized bythe accounts receivable, inventory, equipment, and general intangibles ofWMC.  At March 31, 2010 and December 31,2009, WMC was not in compliance with certain financial covenants of the LoanAgreement.  This caused a default on the WMC loan agreement, and pursuant to aForbearance Agreement dated February 22, 2010, PNC agreed to forbear fromtaking certain actions, such as accelerating repayment of the loan, through August 31,2010. The Forbearance Agreement set new financial covenants and adjustedthe borrowing base calculation as well as reduced the maximum amount theCompany could borrow under the 

 

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revolverfrom $10,866,000 to $7,000,000.  Per theForbearance Agreement, PNC required WMC to obtain additional funding of$250,000.  During the three month periodended March 31, 2010, this funding was made by the CEO and a trustcontrolled by the president of Countrywide Hardware, pursuant to a juniorparticipation agreement (See Note 12). In return, PNC agreed to reduce a block that applied to the revolvingloan by $350,000.  The balance at March 31, 2010 and December 31,2009 were $4,374,000 and $4,382,000, respectively.  During the three month period ended March 31,2010, WMC paid interest at the default rate of 8.0% per annum.   This PNC bank debt is included in thecurrent position of liabilities of discontinued operations.

 

*LONG TERM LOANS*

 

As part of the amendment to the Credit Agreemententered into in March 2009, the banks agreed to cancel and refinance twoterm loans.  The amendment created onenew term loan in the amount of $7,116,000 with the balance of $6,084,000 added to the revolvingcredit loan facility. This new term loan will expire March 30, 2012. Further, thisnew term loan requires the Company to make monthly principal installmentpayments, which aggregate to approximately $1,780,000 annually.  Similar to the borrowings under the revolvingloan facility of the Credit Agreement, borrowings under the new term loancreated by the March 2009 amendment are secured by the Company’s accountsreceivable, inventory, equipment and real property and are cross-guaranteed byeach of the Company’s subsidiaries, with the exception of WMC. The balance ofthis term loan at March 31, 2010 and December 31, 2009 was $4,528,000and $5,782,000, respectively.  This termloan bears interest at LIBOR plus the currently applicable loan margin of4.50%.  However, as the result of the Companynot complying with certain financial covenants, a default interest rate premiumof an additional 2.0% was added.

 

Included within the WMC loan agreement entered intowith PNC, was a term loan with a principal amount of $1,134,000, which is to berepaid in twenty-four equal monthly installments of $47,250.  As the result of WMC’snon-compliance with certain financial covenants, the entire balance at March 31,2010 and December 31, 2009, of $850,000 and $992,000 are included in thecurrent portion of liabilities of discontinued operations.

 

Countrywideis a party to a loan agreement with Wachovia Bank, which is secured by amortgage with respect to the real property owned by Countrywide and utilized byNationwide.  Countrywide did not make thefinal “balloon” payment that was due on September 21, 2009.  As a result of the non-payment, cross-defaultprovisions set forth in the loan agreement between Florida Pneumatic andWachovia, secured by a mortgage with respect to the real property owned andutilized by Florida Pneumatic, were triggered. On February 23, 2010, Wachovia amended the underlying loan documentto among other things, extend the maturity date of the balloon payment to June 1,2010 and require the Company to make monthly principal payments of approximately$11,000 plus accrued interest commencing on March 24, 2010.  On April 22, 2010, the Company andWachovia entered into a new Loan Modification Agreement, which became effectiveApril 23, 2010, wherein the Company agreed to prepay $150,000 toward thebalance due on the loan agreement. In exchange, Wachovia waived all priordefaults and extended the maturity date to January 1, 2011. The balance onthis loan agreement at March 31, 2010 and December 31, 2009 was$1,079,000 and $1,091,000, respectively.

 

The Credit Agreement entered into with the banksalso includes a foreign exchange line, which provides for the availability ofup to $10,000,000 in foreigncurrency forward contracts.  Thesecontracts fix the exchange rate on future purchases of foreign currenciesneeded for payments to foreign suppliers. At March 31, 2010, there are no foreign currency forward contractsoutstanding.

 

Inconnection with the acquisition of Hy-Tech, the Company agreed to makeadditional payments (“Contingent Consideration”) to the sellers. The amount ofthe Contingent Consideration was based upon Hy-Tech achieving certain financialperformance thresholds during the two year period ending on the secondanniversary of the acquisition. Further, the Company agreed to make an additionalpayment (“Additional Contingent Consideration”), subject to certain conditionsrelated primarily to an exclusive supply agreement with a major customer and,to a certain extent, and subject to certain provisions, the achievement ofContingent Consideration. Hy-Tech successfully achieved the required thresholdsnecessary to be entitled to both the Contingent Consideration and theAdditional Contingent Consideration. The total amount of the ContingentConsideration and the Additional Contingent Consideration was approximately$2,292,000. According to the agreement, the amounts due the sellers werepayable in May 2009. The Company and the sellers agreed upon paymentarrangement wherein the Company was required and did make a payment ofapproximately $573,000 in May 2009, with the balance of approximately$1,719,000 to be paid in six equal payments incurring interest at 6.0% perannum, payable quarterly commencing in August 2009. The August 2009and November 2009 installment payments with interest were paid timely.However, due to the default on the Credit Agreement, the Company was notpermitted to make any subsequent payment without permission from the banks.Further, pursuant to the Waiver and Amendment dated April 23, 2010, theCompany is still not permitted to make any future payments without permissionfrom the banks. The Company,  has beenaccruing interest at 12.0% per annum, the default rate of interest.

 

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**NOTE 12—RELATED PARTYTRANSACTIONS**

 

On February 22, 2010, in connection with a Forbearance andAmendment Agreement by and among WMC and PNC, the Company’s CEO and a trust controlled by the president of CountrywideHardware, (collectively the “Junior Participants”), entered into a JuniorParticipation Agreement with PNC. Each Junior Participant remitted to PNC$125,000. These remittances are without recourse to PNC and shall constitute ajunior and subordinate participation in the outstanding advances PNC may maketo WMC. All amounts payable to the Junior Participants, whether regardingprincipal, interest or otherwise shall be repayable by PNC bank only on thetermination of all of the transactions between WMC and PNC, and only out of anysurplus received by PNC remaining after the payment in full in cash to PNC ofall obligations owing to PNC, including expenses, interest and all othercharges. In no event shall the amount returned to the Junior Participantsexceed the amount of the invested amount plus accrued interest. The rate ofinterest accruing on the $250,000 shall be at the identical rate PNC ispermitted under the terms of the original credit facility.

 

The president of one of oursubsidiaries is part owner of one of the subsidiary’s vendors. During the threemonth periods ended March 31, 2010 and 2009, we purchased approximately$204,000 and $345,000, respectively,of product from thisvendor.

 

**NOTE 13—SUBSEQUENT EVENTS**

 

On April 5, 2010, WMC provided all of its employees at its Marion,VA facility, approximately 100 people, with a notification, pursuant to theWorker Adjustment and Retraining Notification Act, regarding the anticipatedlayoff of a substantial number of employees, beginning in sixty days.

 

On May 4, 2010, WMC received a letter (the “Termination Letter”)from AGNL Coffman, L.L.C. (“AGNL”) purporting to terminate the Lease Agreement,dated as of March 30, 2007, by and between AGNL, as Landlord, and CoffmanStairs, LLC and Visador Holding Corporation, jointly and severally, as Tenant(the “Original Lease”), as amended on June 8, 2009 by First Amendment toLease Agreement made by AGNL and WMC (the “First Amendment”) to provide for,among other things, WMC’s replacement of the original tenants under the Lease(the Original Lease and the First Amendment are collectively referred to hereinas the “Lease”).

 

The Lease, among other things, provides for Basic Rent, as defined inthe Lease of $580,000 per annum, payable quarterly in advance on January 1st,April 1st, July 1st and October 1st, in equal installments of$145,000 and such Additional Rent, as defined, in the Lease, including, but notlimited to, all costs of landlord and tenant incurred in connection with theownership, use and maintenance of the Leased Premises, as defined.  The Lease provides that upon the occurrenceof an Event of Default, as defined, AGNL shall have the right, at its soleoption, to exercise any of the remedies set forth in the Lease, including, butnot limited to, giving notice to WM Coffman of its intent to terminate theLease on a specific date; Further, the Lease provides that, in the event AGNLgives notice to WMC of its intent to terminate the Lease, then, upon writtendemand from AGNL, WMC shall (a) immediately surrender and deliverpossession of the Leased Premises to AGNL; (b) pay to AGNL, as liquidatedand agreed final damages for Tenant’s default and in lieu of all currentdamages beyond the date of such demand, an amount equal to the present value ofthe excess, if any, of (i) all Basic Rent from the date of such demand tothe date on which the term of the Lease is scheduled to expire in the absenceof any earlier termination, re-entry or repossession over (ii) the thenfair market rental value of the Leased Premises for the same period and (c) payto AGNL all Monetary Obligations that are then due and unpaid and those thatarise or become due by reason of Tenant’s default under the Lease.

 

According to the Termination Letter, (1) Basic Rent in the amount of$152,187 was due on April 1, 2010; (2) WMC failed to make suchpayment and, on or about April 28, 2010, made a partial payment of$50,528.65; and (3) as of May 4, 2010, the date of the TerminationLetter, WMC had not paid either the balance due with respect to the Basic Rentor Additional Rent amounting to $94,198.81. Accordingly, AGNL noticed WMC of its intent to terminate the Lease,effective May 4, 2010, and demanded payment from WMC, not the Company, inthe amount of $6,134,279.73 as liquidated and agreed final damages.  WMC is in the process of analyzing thecurrent facts and circumstances to determine its course of action with respectto the Termination Letter

 

**NOTE 14 - BUSINESS SEGMENTS**

 

P&F operates in twoprimary lines of business, or segments: (i) tools and other products (“Tools”)and (ii) hardware and accessories (“Hardware”). For reporting purposes,Florida Pneumatic and Hy-Tech are combined in the Tools segment, whileNationwide is in the Hardware segment. The Company evaluates segment performance based primarily on segmentoperating income. The accounting policies of each of the segments are the sameas those described in Note 1.

 

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| ** **                                         | ** ** | **Consolidated** | ** ** | **Tools** | ** ** | **Hardware** | ** ** |
|----------------------------------------------------|------------|------------------|------------|-----------|------------|--------------|------------|
| **Three month period ended  March 31, 2010**  |       |             |       |      |       |         |       |
| ** **                                         |       |             |       |      |       |         |       |
| Net revenues from unaffiliated customers           |       | $                | 11,147,000 |      | $          | 7,820,000    |       | $ | 3,327,000 |   |
|                                               |       |             |       |      |       |         |       |   |   |   |
| Segment operating income                           |       | $                | 1,268,000  |      | $          | 853,000      |       | $ | 415,000 |   |
| General corporate expense                          |       | (1,586,000       | )          |      |       |         |       |
| Interest expense—net                          |       | (389,000         | )          |      |       |         |       |
| Loss before income taxes                           |       | $                | (707,000   | )         |       |         |       |   |
|                                               |       |             |       |      |       |         |       |
| Segment assets                                     |       | $                | 46,349,000 |      | $          | 36,889,000   |       | $ | 9,460,000 |   |
| Corporate assets                                   |       | 6,251,000        |       |      |       |         |       |
| Total assets                                       |       | $                | 52,600,000 |      |       |         |       |   |
|                                               |       |             |       |      |       |         |       |
| Long-lived assets, including $435,000 at corporate |       | $                | 20,510,000 |      |       |         |       |   |

 
| ** **                                         | ** ** | **Consolidated** | ** ** | **Tools** | ** ** | **Hardware** | ** ** |
|----------------------------------------------------|------------|------------------|------------|-----------|------------|--------------|------------|
| **Three month period ended  March 31, 2009**  |       |             |       |      |       |         |       |
| ** **                                         |       |             |       |      |       |         |       |
| Net revenues from unaffiliated customers           |       | $                | 12,221,000 |      | $          | 9,145,000    |       | $ | 3,076,000 |   |
|                                               |       |             |       |      |       |         |       |
| Segment operating (loss) income                    |       | $                | 1,099,000  |      | $          | 1,007,000    |       | $ | 92,000 |   |
| General corporate expense                          |       | (1,202,000       | )          |      |       |         |       |
| Interest expense—net                          |       | (305,000         | )          |      |       |         |       |
| Loss before income taxes                           |       | $                | (408,000   | )         |       |         |       |   |
|                                               |       |             |       |      |       |         |       |
| Segment assets                                     |       | $                | 54,246,000 |      | $          | 41,354,000   |       | $ | 12,892,000 |   |
| Corporate assets                                   |       | 8,134,000        |       |      |       |         |       |
| Total assets                                       |       | $                | 62,380,000 |      |       |         |       |   |
|                                               |       |             |       |      |       |         |       |
| Long-lived assets, including $193,000 at corporate |       | $                | 18,966,000 |      |       |         |       |   |

 

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** **

**P&F INDUSTRIES, INC. AND SUBSIDIARIES**

 

**Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**General**

 

The Private SecuritiesLitigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor forforward-looking statements made by or on behalf of P&F Industries, Inc.and subsidiaries (“P&F”, or “the Company”). P&F and its representativesmay, from time to time, make written or verbal forward-looking statements,including statements contained in the Company’s filings with the Securities andExchange Commission and in its reports to stockholders. Generally, theinclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,”“will,” and their opposites and similar expressions identify statements thatconstitute “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934 and that are intended to come within the safe harbor protectionprovided by those sections. Any forward-looking statements contained herein,including those related to the Company’s future performance, are based upon theCompany’s historical performance and on current plans, estimates andexpectations. All forward-looking statements involve risks and uncertainties.These risks and uncertainties could cause the Company’s actual results for the2010 fiscal year and beyond to differ materially from those expressed in anyforward-looking statement made by or on behalf of the Company for a number ofreasons, as previously disclosed in theCompany’s Annual Report on Form 10-K for the year ended December 31,2009 in response to Item 1A to Part I of Form 10-K. Forward-lookingstatements speak only as of the date on which they are made. The Companyundertakes no obligation to update publicly or revise any forward-lookingstatement, whether as a result of new information, future developments orotherwise.

 

**Overview**

 

The Company conducts its Hardware business through Countrywide, whichin turn operates through its wholly-owned subsidiaries, Nationwide Industries, Inc.(“Nationwide”), and until June 8, 2009 Woodmark International, L.P. (“Woodmark”)and Pacific Stair Products, Inc. (“PSP”). Woodmark was, until thetransactions (“WMC transactions”) which formed WM Coffman, LLC (“WMC”) in June 2009,an importer of both stair parts components and kitchen and bath hardware andaccessories. Woodmark marketed its stair parts nationally. Effective with theWMC transactions, the operations of Woodmark’s kitchen and bath hardware andaccessories product line was transferred to Nationwide.  PSP, until the WMC transactions, marketedWoodmark’s staircase components to the building industry, in southernCalifornia and the southwestern region of the United States.  As a result of the WMC transactions, Woodmarkand PSP no longer functioned as operating units.  Woodmark and PSP contributed certain netassets to WMC in return for members’ equity. Accordingly, effective with theWMC transactions, the stair parts business, which formerly reported throughWoodmark and PSP became part of WMC. These transactions were executedin an attempt to take advantage of the synergies available by combining twolarge players in the stair parts business, an industry at the bottom of itseconomic cycle with complementary distribution channels and operations. WMC wasnot able to achieve the revenue levels anticipated prior to the WMCtransactions and, as a result, never produced positive cash flow. This caused,among other things, a default on the loan agreement specific to WMC and thelender agreed to forbear from taking certain actions, through August 31,2010. Neither P & F nor any of its subsidiaries other than WMC is aparty to or a guarantor of any debt obligations of WMC. Primarily as the resultof the aforementioned, at December 31, 2009, the Company wrote down thecarrying value of the net assets of WMC by $5,549,000, to reflect their fairvalue.

 

As a result, of a decision reached by our board of directors, we are reportingWMC as a discontinued operation, effective January 1, 2010. WMC continues to fund itsoperations through a separate asset based credit facility with PNC bank.

 

**Business**

 

The unaudited consolidatedcondensed financial statements contained herein include the accounts of P&FIndustries, Inc. and its subsidiaries (“P&F”). All significantintercompany balances and transactions have been eliminated.

 

P&F conducts itsbusiness operations through two of its wholly-owned subsidiaries: ContinentalTool Group, Inc. (“Continental”) and Countrywide Hardware, Inc. (“Countrywide”).P&F and its subsidiaries are herein referred to collectively as the “Company.”In addition, the words “we”, “our” and “us” refer to the Company.  P&F operates in two primary lines ofbusiness, or segments: (i) tools and other products (“Tools”) and (ii) hardwareand accessories (“Hardware”).

 

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**Tools**

 

We conduct our Toolsbusiness through Continental, which in turn operates through its wholly-ownedsubsidiaries, Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”)and Hy-Tech Machine, Inc. (“Hy-Tech”).

 

*Florida Pneumatic*

 

Florida Pneumatic is engaged in the importation, manufacture and saleof pneumatic hand tools, primarily for the industrial, retail and automotivemarkets, and the importation and sale of compressor air filters. FloridaPneumatic also markets, through its Berkley Tool division (“Berkley”), a lineof pipe cutting and threading tools, wrenches and replacement electricalcomponents for a widely-used brand of pipe cutting and threading machines.   Through its Franklin Manufacturing (“Franklin”)division, Florida Pneumatic imported and marketed a line of door and windowhardware including locksets, deadbolts, door and window security hardware,rope-related hardware products and fire escape ladders. However, primarily dueto an ongoing diminishing market, Florida Pneumatic decided to discontinuemarketing the Franklin products line effective December 31, 2009.

 

*Hy-Tech*

 

Hy-Tech manufactures and distributes pneumatic tools and parts forindustrial applications. Hy-Tech manufactures approximately sixty types ofindustrial pneumatic tools, most of which are sold at prices ranging from $300to $7,000, under the names “ATP”, “Thaxton”, “THOR” and “Eureka”, as well asunder the trade names or trademarks of other private label customers. This lineof products includes grinders, drills, saws, impact wrenches and pavementbreakers.

 

Hy-Tech’s products are sold to distributors and private label customersthrough in-house sales personnel and manufacturers’ representatives. Users ofHy-Tech’s tools include refineries, chemical plants, power generationfacilities, the heavy construction industry, oil and mining companies and heavyindustry. Hy-Tech’s products are sold off the shelf, and are also produced tocustomer’s orders. The business is not seasonal, but it may be subject tosignificant periodic changes resulting from scheduled shutdowns in refineries,power generation facilities and chemical plants.

 

**Hardware**

 

*Nationwide*

 

Nationwide, headquartered inTampa, Florida, is an importer and distributor of fencing, door, and windowhardware, and is reported as Other Hardware below.

 

**KEY INDICATOR**

 

**Economic Measure**

 

We focus on a wide array ofcustomer types, and as such, do not rely as much on specific economic measuresor indicators.  As such, we tend to trackthe general economic conditions of the United States, industrial production andgeneral retail sales, all of which have, for the most part, trended downwardduring the past year.

 

We pay particular attentionto the cost of our raw materials, in particular metals, especially varioustypes of steel and aluminum, and wood. To a lesser extent, we are impacted by the value of the U.S. dollar inrelation to the Japanese yen (“yen”) and the Taiwan dollar (“TWD”), as wepurchase a portion of our products from these two countries in the localcurrencies. We also make purchases from Chinese sources in U.S. dollars.However, if the Chinese currency, the Renminbi (“RMB”), were to be revaluedagainst the dollar, there could be a significant negative impact on the cost ofour products.

 

**Operating Measures**

 

Key operating measures weuse to manage our operating segments are: future sales orders; shipments;development of new products; controlling customer retention; inventory levelsand productivity. These measures are recorded and monitored at variousintervals, including daily, weekly and monthly. To the extent these measuresare relevant; they are discussed in the detailed sections for each operatingsegment.

 

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**Financial Measures**

 

Key financial measures weuse to evaluate the results of our business include: revenue; gross margin;selling, general and administrative expenses; earnings before interest taxesand bonus; operating cash flows, capital expenditures; return on sales; returnon assets; days sales outstanding and inventory turns. These measures arereviewed at monthly, quarterly and annual intervals and are compared tohistorical periods as well as established objectives. To the extent that thesemeasures are relevant, they are discussed in the detailed sections for eachoperating segment below.

 

**Critical Accounting Policies andEstimates**

 

We prepare our consolidatedfinancial statements in accordance with accounting principles generallyaccepted in the United States of America, (“GAAP”). Certain of these accountingpolicies require us to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and the relateddisclosure of contingent assets and liabilities, revenues and expenses. On anongoing basis, we evaluate estimates, including those related to bad debts,inventory reserves, goodwill and intangible assets, deferred tax assets andwarranty reserves. We base our estimates on historical data and experience,when available, and on various other assumptions that are believed to bereasonable under the circumstances, the combined results of which form thebasis for making judgments about the carrying values of assets and liabilitiesthat are not readily apparent from other sources. Actual results may differfrom these estimates.

 

There have been no material changes in our criticalaccounting policies and estimates from those discussed in Item 7 of our AnnualReport on Form 10-K for the year ended December 31, 2009.

 

**RESULTSOF OPERATIONS**

 

Thetable below provides an analysis of our net revenue for the three month periodended March 31, 2010 and 2009.

 

**Revenue**

 

Total revenue is generated in U.S. dollars and isnot impacted by changes in foreign currency exchange rates.

 
| ** **        | ** ** | **Three-months Ended  March 31,** | ** ** | ** ** | ** ** | ** **   | ** ** |
|-------------------|------------|----------------------------------------|------------|------------|------------|--------------|------------|
| ** **        | ** ** | **2010**                               | ** ** | **2009**   | ** ** | **Variance** | ** ** | **Variance** | ** ** |
| ** **        | ** ** | ** **                             | ** ** | ** ** | ** ** | **$**        | ** ** | **%** | ** ** |
| Tools             |       |                                   |       |       |       |         |       |   |   |
| Florida Pneumatic |       | $                                      | 4,546,000  |       | $          | 4,709,000    |       | $ | (163,000 | ) | (3.5 | )% |
| Hy-Tech           |       | 3,274,000                              |       | 4,436,000  |       | (1,162,000   | )          | (26.2 | ) |
| Tools Total       |       | 7,820,000                              |       | 9,145,000  |       | (1,325,000   | )          | (14.5 | ) |
|              |       |                                   |       |       |       |         |       |   |   |
| Hardware          |       |                                   |       |       |       |         |       |   |   |
| Other Hardware    |       | 3,327,000                              |       | 3,076,000  |       | 251,000      |       | 8.2 |   |
| Hardware Total    |       | 3,327,000                              |       | 3,076,000  |       | 251,000      |       | 8.2 |   |
|              |       |                                   |       |       |       |         |       |   |   |
| Consolidated      |       | $                                      | 11,147,000 |       | $          | 12,221,000   |       | $ | (1,074,000 | ) | (8.8 | )% |

 

***Tools***

 

Whencomparing the three-month periods ended March 31, 2010 and 2009, netrevenue reported by our Tools segment decreased $1,325,000. Primary componentsto the decrease at Florida Pneumatic include decreases in revenue of $313,000of its Franklin products line, resulting from the decision at December 31,2009, to no longer market this line, and a decrease in revenue of $83,000 fromits Berkley, filters and OEM product lines. Offsetting these reductions were increases in revenue of $153,000 and$57,000, respectively, of its industrial/catalog and automotive lines.  There was a modest increase of $21,000 atsales to its major retail customer. Florida Pneumatic’s relationships with its key customers, given thecurrent economic conditions remain good.

 

Hy-Tech,which focuses on the industrial sector of the pneumatic tools market, continuesto be adversely affected by the down-turn in its market sector. Further, itsrevenue during the three month period ended March 31, 2009, included unusuallylarge orders from two of its customer.  Approximately two thirds of the decrease thisquarter is due to reductions in sales to these two major customers. The balanceof the decrease was across its suite of products as well as customer base.  Despite the overall decrease in revenue,given the current economic conditions, Hy-Tech’s relationships with itscustomer base, remain good.

 

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***Hardware***

 

Despitean 8.2% increase in revenue, Other Hardware revenue, which is comprised ofrevenue from the sale of fencing and gate hardware, kitchen and bathaccessories, OEM products and patio hardware, continues to be affected by,among other things, the general overall economic sluggishness, a diminishingrecreational vehicle and modular home markets, and competitive pressures.  Other Hardware revenue consists of fencingand gate hardware, kitchen and bath, OEM and patio hardware, which during thethree-month period ended March 31, 2010, had revenue of $1,849,000,$820,000, $448,000 and $210,000, respectively, compared to $1,625,000,$851,000, $429,000 and $171,000, respectively, during the same period in theprior year.

 

**Gross Margins / Profits**

 

Grossprofits and gross margins for the three month periods ended March 31, 2010and 2009 were as follows:

 
| **Three months ended March 31,** | ** ** | ** **   | ** ** | **Consolidated** | ** ** | **Tools** | ** ** | **Hardware** | ** ** |
|------------------------------------------------------|------------|--------------|------------|------------------|------------|-----------|------------|--------------|------------|
| 2010                                                 |       | Gross Profit |       | $                | 3,999,000  |      | $          | 2,707,000    |       | $ | 1,292,000 |   |
|                                                 |       | Gross Margin |       | 35.9             | %          | 34.6      | %          | 38.8         | %          |
|                                                 |       |         |       |             |       |      |       |         |       |
| 2009                                                 |       | Gross Profit |       | $                | 4,100,000  |      | $          | 3,200,000    |       | $ | 900,000 |   |
|                                                 |       | Gross Margin |       | 33.5             | %          | 35.0      | %          | 29.3         | %          |

 

***Tools***

 

Grossmargins in the Tools segment for the three-month period ended March 31,2010 decreased 0.4 percentage points to 34.6% for the three month period ended March 31,2010, from 35.0% for the three-month period ended March 31, 2009. Grossprofit for this segment also decreased when comparing the three month periodsended March 31, 2010 and 2009, due primarily to lower revenue and productmix.

 

Specifically,when comparing the three-month periods ended March 31, 2010 and 2009,Florida Pneumatic’s gross margin increased 4.6 percentage points.  This increase in gross margin is dueprimarily to improved pricing from its overseas suppliers, lower indirect laborand improved utilization of fixed overhead. As the result of improved gross margins applied to slightly higherrevenue Florida Pneumatic’s gross profit improved by more than $151,000. 

 

Bothgross margin and gross profit decreased at Hy-Tech when comparing thethree-month periods ended March 31, 2010 and 2009. Gross margins decreasedapproximately 5.0 percentage points. The reduction in gross margin, combinedwith the decrease in revenue, caused Hy-Tech’s gross profit to decreaseapproximately $644,000.  The decrease ingross margin reported this quarter at Hy-Tech is primarily due to loweroverhead absorption which in turn was due to lower volume through thefacility.  We believe the economicslowdown will continue to adversely affect the industrial sector of our Toolssegment.  Although the under-absorptionof manufacturing overhead is principally driven by the amount of manufacturedproduct put through the facility, Hy-Tech will continue to examine itsmanufacturing overhead costs in an effort to identify areas where it believesit can improve absorption, however there can be no assurance this will beeffective.

 

***Hardware***

 

Our grossmargin attributable to Other Hardware productlines for the three-month period ended March 31,2010 increased to 38.8% from 29.3% during the same period in the prior year.This improvement is primarily the result of (i) product mix, (ii) reductionin the cost of products being relieved from inventory, and (iii) greaterabsorption of warehouse overhead.  Weexpect gross margin for this segment to reduce slightly during the remainder of2010, as higher priced products currently being purchased will ultimately flowthrough cost of goods sold.

 

***Selling, General and Administrative Expenses***

 

Selling,general and administrative expenses, (“SG&A”) include salaries and relatedcosts, commissions, travel, administrative facilities expense, communicationscosts and promotional expenses for our direct sales and marketing staff,administrative and executive salaries and related benefits, legal, accountingand other professional fees as well as general corporate overhead and certainengineering expenses.

 

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For the three-month period ended March 31, 2010,our SG&A was $4,317,000 reflecting an increase of $114,000, when compared to$4,203,000 for the three-month period ended March 31, 2009. As apercentage of revenue, SG&A was 38.7% for the three-month period ended March 31,2010 compared to 34.4% for the same period in the prior year.  The most significant factor contributing to thenet change was the increase of $343,000 in legal, consulting and accountingfees incurred during this quarter compared to the first quarter of 2009.  This increase is primarily attributable toour efforts to resolve various matters with our banks, and to a lesser degree, thecosts associated with our efforts to liquidate, sell or otherwise dispose ofWMC.  Additionally, when comparing thefirst quarter of 2010 to the same period in 2009, we incurred $64,000 ofadditional general legal fees and expenses. However, partially offsetting the above was, as the result of thecontinued company-wide pay rate reduction, a decrease in our compensation,payroll taxes and benefits aggregating $285,000.  Although, during our first quarter of 2010,our Company-wide pay and benefits program was negated by increased legal,consulting and accounting costs, we continue to maintain stability throughoutthe remaining SG&A.  We intend toexamine our operating expenses, for further possible reductions particularlyduring these difficult times.

 

***Interest- Net***

 

Our net interest expense of$389,000 for the three-month period ended March 31, 2010, reflects anincrease of $84,000 or 27.5%, when compared to net interest expense of $305,000incurred for the same period in the prior year. Interest expense incurred inconnection with our Term Loan decreased $41,000 to $95,000 from $136,000 duringthe first quarter of 2009, principally the result of lower average borrowingsduring the period due to repayments, offset by higher average interest rates.Interest expense on borrowings under our revolving credit loan facility for thethree-month period ended March 31, 2010 was $240,000, compared to $139,000for the same period in 2009, an increase of $101,000.  Factors contributing to this increase includehigher interest rates, which included the addition of the default rateadjustment applied to our borrowings under the revolving credit facility duringthe three month period ended March 31, 2010, partially offset by loweraverage loan balances. Our total average debt balances under the terms of ourcredit facilities with our banks for the quarters ended March 31, 2010 and2009 were $19,628,000 and $27,691,000, respectively. The total average interestrate for the quarters ended March 31, 2010 and 2009 were 6.84% and 4.04%,respectively.

 

***Income Taxes***

 

The effective rateapplicable to our loss from continuing operations for the three-month periodended March 31, 2010, differs from the statutory rate primarily due touncertainties relating to projected future taxable income, which would enableus to realize the federal carry-forward benefit. As such, we applied a 100%valuation allowance of the calculated tax benefit.   The effective rate applicable to the loss fromcontinuing operations for the three month period ended March 31, 2009 ofapproximately 17% was the statutory rate, less the effect of state income taxesand permanent differences.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Our cash flows from operations can be somewhat cyclical,typically with the greatest demand in the second and third quarters followed bypositive cash flows in the fourth quarter as receivables and inventoriestrend down.  We monitor average dayssales outstanding, inventory turns estimated future purchasing requirements andcapital expenditures to project liquidity needs and evaluate return on assetsemployed.

 

We gauge our liquidity andfinancial stability by various measurements, some of which are shown in thefollowing table:

 
| ** **                                | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| Working Capital of  continuing operations |       | $                       | 6,520,000  |                       | $          | 7,342,000 |   |
| Current Ratio of  continuing operations   |       | 1.27 to 1.0             |       | 1.30 to 1.0                |       |
| Shareholders’ Equity                 |       | $                       | 23,199,000 |                       | $          | 25,615,000 |   |

 

We and our subsidiaries,other than WMC, as co-borrowers entered into a Credit Agreement, (“CreditAgreement”) as amended, with two banks (“banks”) in 2004.  The Credit Agreement, among other things,includes a revolving credit loan facility, (“revolving loan”). The revolvingloan can be used for direct borrowings, with various sub-limits for letters ofcredit, bankers’ acceptances and equipment loans. There were no letters ofcredit, bankers’ acceptances or equipment loan borrowings at March 31,2010, or December 31, 2009. There are no commitment fees for any unusedportion of this Credit Agreement. Direct borrowings under the revolving loanare secured by our accounts receivable, inventory, equipment and real property,and are cross-guaranteed by each of our subsidiaries, except WMC. Theseborrowings bear interest at LIBOR (London InterBank Offered Rate) , (with aminimum of 1.0%), or the prime interest rate, plus in either case, thecurrently applicable loan margin of 4.25%. However, as the result of not complying with certain financialcovenants, an additional default interest rate of 2.0% was added. The revolving loan within the Credit Agreement expired March 30,2010.  Primarily the result of theexpiration of the revolving credit facility, and us being in default on variousfinancial covenants, the banks on March 31, 2010 withdrewapproximately $957,000 from our operating accounts and applied these funds topay down the term note, discuss below.  At March 31, 2010 and December 31,2009, the balances 

 

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outstanding on therevolving loan with the banks were $13,900,000 and $16,300,000,respectively.  During the period April 1,2010 through April 23, 2010, the banks returned the $957,000 to ouroperating accounts.  On April 23,2010, we and the banks executed a waiver and amendment which, among otherthings, extended the termination date of the revolving credit loan portion ofthe Credit Agreement facility to January 1, 2011, waived all then existingdefaults and eliminated the default interest rate factor of 2.0% . The waiverand amendment set new financial covenants and adjusted the borrowing basecalculation as well as reduced the size of the facility from $17,500,000 to$16,500,000.  In addition, it requiredthat all future advances shall be subject to the requirement that the aggregateamount advanced after giving effect to any such future advances be at least$750,000 less than the aggregate lendable value in eligible borrowing base assets.  Finally, the banks required a subordinatedloan of $750,000, which, in the aggregate was provided by its Chief Executive Officer, President andChairman of the Board of Directors, (“CEO”), and another unrelatedparty.

 

In connection with theWMC transactions, WMC entered into the WMC loan agreement with PNC Bank (“PNC”).The WMC loan agreement expires June 8, 2012. Neither us nor any othersubsidiary is a co-borrower or a guarantor to this WMC loan agreement.  The WMC loan agreement provided a maximum loanamount of $12,000,000, of which $1,134,000 was established as a term loan, thebalance of $10,866,000 was the maximum revolving advance amount.  The WMC loan agreement is collateralized bythe accounts receivable, inventory, equipment, and general intangibles ofWMC.  At March 31, 2010 and December 31,2009, WMC was not in compliance with certain financial covenants of the LoanAgreement.  This caused a default on the WMC loan agreement, and pursuant to aForbearance Agreement dated February 22, 2010, PNC agreed to forbear fromtaking certain actions, such as accelerating repayment of the loan, through August 31,2010. The Forbearance Agreement set new financial covenants and adjustedthe borrowing base calculation as well as reduced the maximum amount theCompany could borrow under the revolver from $10,866,000 to $7,000,000.  Per the Forbearance Agreement, PNC requiredWMC to obtain additional funding of $250,000. During the three month period ended March 31, 2010, this fundingwas made by the CEO and a trust controlled by the president of CountrywideHardware, pursuant to a junior participation agreement (See Note 12).  In return, PNC agreed to reduce a block thatapplied to the revolving loan by $350,000.  The balanceat March 31, 2010 and December 31, 2009 were $4,374,000 and$4,382,000, respectively.  During thethree month period ended March 31, 2010, WMC paid interest at the defaultrate of 8.0% per annum.   This PNC bankdebt is included in the current position of liabilities of discontinued operations.

 

As part of the amendment to the Credit Agreemententered into in March 2009, the banks agreed to cancel and refinance twoterm loans.  The amendment created onenew term loan in the amount of $7,116,000 with the balance of $6,084,000 added to the revolvingcredit loan facility. This new term loan will expire March 30, 2012. Further, thisnew term loan requires us to make monthly principal installment payments, whichaggregate to approximately $1,780,000 annually.  Similar to the borrowings under the revolvingloan facility of the Credit Agreement, borrowings under the new term loancreated by the March 2009 amendment are secured by the Company’s accountsreceivable, inventory, equipment and real property and are cross-guaranteed byeach of our subsidiaries, with the exception of WMC. The balance of this termloan at March 31, 2010 and December 31, 2009 was $4,528,000 and$5,782,000, respectively.  This term loanbears interest at LIBOR plus the currently applicable loan margin of4.50%.  However, as the result of our notcomplying with certain financial covenants, a default interest rate premium ofan additional 2.0% was added.

 

Included within the WMC loan agreement entered intowith PNC, was a term loan with a principal amount of $1,134,000, which is to berepaid in twenty-four equal monthly installments of $47,250.    As the result of WMC’s non-compliance withcertain financial covenants, the entire balance at March 31, 2010 and December 31,2009 of $850,000 and $992,000 are included in the current portion ofliabilities of discontinued operations.

 

Countrywideis a party to a loan agreement with Wachovia Bank, which is secured by amortgage with respect to the real property owned by Countrywide and utilized byNationwide.  Countrywide did not make thefinal “balloon” payment that was due on September 21, 2009.  As a result of the non-payment, cross-defaultprovisions set forth in the loan agreement between Florida Pneumatic andWachovia, secured by a mortgage with respect to the real property owned andutilized by Florida Pneumatic, were triggered. On February 23, 2010, Wachovia amended the underlying loan documentto among other things, extend the maturity date of the balloon payment to June 1,2010 and require the Company to make monthly principal payments ofapproximately $11,000 plus accrued interest commencing on March 24,2010.  On April 22, 2010, theCompany and Wachovia entered into a new Loan Modification Agreement, whichbecame effective April 23, 2010, wherein the Company agreed to prepay $150,000toward the balance due on the loan agreement. In exchange, Wachovia waived allprior defaults and extended the maturity date to January 1, 2011. Thebalance on this loan agreement at March 31, 2010 and December 31,2009 was $1,079,000 and $1,091,000, respectively.

 

Inconnection with the acquisition of Hy-Tech, we agreed to make additionalpayments (“Contingent Consideration”) to the sellers. The amount of theContingent Consideration was based upon Hy-Tech achieving certain financialperformance thresholds during the two year period ending on the secondanniversary of the acquisition. Further, the Company agreed to make anadditional payment (“Additional Contingent Consideration”), subject to certainconditions related primarily to an exclusive supply agreement with a majorcustomer and, to a certain extent, and subject to certain provisions, theachievement of Contingent Consideration. Hy-Tech successfully achieved therequired thresholds necessary to be entitled to both the ContingentConsideration and the Additional Contingent Consideration. The total amount ofthe Contingent Consideration and the Additional Contingent Consideration was 

 

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approximately $2,292,000.According to the agreement, the amounts due the sellers were payable in May 2009.  We and the sellers agreed upon paymentarrangement wherein we were required and did make a payment of approximately$573,000 in May 2009, with the balance of approximately $1,719,000 to bepaid in six equal payments incurring interest at 6.0% per annum, payablequarterly commencing in August 2009. The August 2009 and November 2009installment payments with interest were paid timely. However, due to thedefault on the Credit Agreement, we were not permitted to make any subsequentpayment without permission from the banks. Further, pursuant to the Waiver andAmendment dated April 23, 2010, we are still not permitted to make anyfuture payments without permission from the banks.  As such we have been accruing interest at12.0% per annum, the default rate of interest.

 

The Credit Agreement entered into with the banksalso includes a foreign exchange line, which provides for the availability ofup to $10,000,000 in foreigncurrency forward contracts.  Thesecontracts fix the exchange rate on future purchases of foreign currenciesneeded for payments to foreign suppliers. At March 31, 2010, there were noforeign currency forward contracts outstanding.

 

During the three month period ended March 31,2010, our cash decreased to nil from $546,000 at December 31, 2009.  Our total debt at March 31, 2010,excluding $10,522,000 attributable to WMC, was $21,655,000, compared to$25,463,000 at December 31, 2009. The percent of total debt to total bookcapitalization (total debt divided by total bank debt plus equity) was 48.3% atMarch 31, 2010, compared to 50.9% at December 31, 2009.

 

We had net cash of $3,173,000 provided by operatingactivities of continuing operations for the three-month period ended March 31,2010, compared to $391,000 provided byoperating activities of continuing operations during the three-month periodended March 31, 2009.

 

Capital spending wasapproximately $46,000 for the threemonth period ended March 31, 2010, compared to $561,000made during the three monthperiod ended March 31, 2009. Capital expenditures for the balance of 2010 are expected to beapproximately $300,000, some of whichmay be financed through our credit facilities or financed through independentthird party financial institutions. Included in the expected total for 2010 arecapital expenditures relating to new products, expansion of existing productlines and replacement of equipment.

 

We believe we will be ableto fund our current working capital needs, interest and debt servicing paymentswith cash on hand and cash generated from operations, supplemented byborrowings available under the loan agreements from the banks and potentiallyavailable elsewhere, through at least January 1, 2011, which is theexpiration of our current revolving credit facility with our current banks. Further, theCompany continues to seek alternative sources of funding that may be moreflexible. For example, the Company is attempting to obtain new first mortgageson its three properties to replace the current mortgages and the bank’s termnote. In addition, the Company is in discussions with several lenders regardinga new revolving line of credit as well as a term loan secured by the Company’smachinery and equipment. The goal of these activities is to enhance the Company’saccess to capital as well as cash flow. However, the can be no assurance that we will be able to successful inour search for new banking arrangements on terms satisfactory to us or generatethe necessary cash flows.

 

**RECENT ACCOUNTING PRONOUNCEMENTS**

*** ***

***Recently adopted Accounting Standards***

 

There were no recentlyadopted accounting standards by us during the three month period ended March 31,2010.

 

***Recently Issued Accounting Standards***

 

There were no recentlyissued accounting standards during the three month period ended March 31,2010 which affect us.

 

Management does not believethat any recently issued, but not yet effective, accounting standards ifcurrently adopted would have a material effect on our consolidated financialstatements or the Company’s future results of operations.

 

**Item 3.                Quantitative And QualitativeDisclosures About Market Risk**

 

Not required.

 

**Item 4T.             ****Controlsand Procedures**

 

**Evaluationof disclosure controls and procedures**

 

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An evaluation was performed, under thesupervision of, and with the participation of, our management including thePrincipal Executive Officer and Principal Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) to theSecurities and Exchange Act of 1934). Based on that evaluation, our management,including the Principal Executive Officer and Principal Financial Officer,concluded that our disclosure controls and procedures as of March 31, 2010were effective. Accordingly, management believes that the consolidatedcondensed financial statements included in this Quarterly Report on Form 10-Qfairly present, in all material respects, our financial condition, results ofoperations and cash flows for the periods presented.

 

P&F management is responsible forestablishing and maintaining effective internal controls. Because of ourinherent limitations, internal controls may not prevent or detectmisstatements. A control system, no matter how well designed and operated, canonly provide reasonable, not absolute, assurance that the control system’sobjectives will be met. Also, projections of any evaluation of effectiveness asto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance withpolicies and procedures may deteriorate.

 

The Certifications of our Principal ExecutiveOfficer and Principal Financial Officer included as Exhibits 31.1 and 31.2 tothis Quarterly Report on Form 10-Q include, in paragraph 4 of suchcertifications, information concerning our disclosure controls and proceduresand internal control over financial reporting. Such certifications should beread in conjunction with the information contained in this Item 4T - Controls andProcedures for a more complete understanding of the matters covered by suchcertifications.

 

**Changes inInternal Control Over Financial Reporting**

 

There have been no significant changes in ourinternal control over financial reporting during the three-month period ended March 31,2010, that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II - OTHER INFORMATION**

 

**Item 1.****         ****Legal Proceedings**

 

There have been no materialchanges to the legal proceedings described in our Annual Report on Form 10-Kfor the year ended December 31, 2009.

 

**Item 1A.****      ****Risk Factors**

 

Therewere no material changes from risk factors previously disclosed in our AnnualReport on Form 10-K for the year ended December 31, 2009.

 

**Item 2.****         ****Unregistered Sales of EquitySecurities and Use of Proceeds**

 

None.

 

**Item 3.****         ****Defaults Upon Senior Securities**

 

None

 

**Item 4.****          [****REMOVED AND RESERVED]**

 

**Item 5.          Other Information**

 

None

 

**Item 6.          Exhibits**

 

See “Exhibit Index”immediately following the signature page.

 

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**SIGNATURE**

 

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

 

 
| ** **                | **P&F INDUSTRIES, INC.** |
|---------------------------|------------------------------|
|                      | (Registrant)                 |
|                      |                         |   |
|                      |                         |   |
|                      | By                           | /s/ Joseph A. Molino, Jr. |
|                      |                         | Joseph A. Molino, Jr. |
|                      |                         | Chief Financial Officer |
| Dated:  May 17, 2010 |                         | (Principal  Financial and Chief Accounting Officer) |

 

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**EXHIBITINDEX**

 

Thefollowing exhibits are either included in this report or incorporated herein byreference as indicatedbelow:

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **10.1**            |       | Letter Agreement, dated January 22, 2010, by and among the  Registrant., Florida Pneumatic Manufacturing Corporation, Embassy Industries, Inc.,  Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide  Industries, Inc., Woodmark International, L.P., Pacific Stair  Products, Inc., WILP Holdings, Inc., Continental Tool  Group, Inc. and Hy-Tech Machine, Inc., Citibank, N.A. and HSBC Bank  USA, National Association as lenders, and Citibank, N.A., as Administrative  Agent (Incorporated by reference to Exhibit 10.1 to Registrant’s Current  Report on Form 8-K dated January 27, 2010). |
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **10.2**            |       | Forbearance and Amendment Agreement, dated as of February 22,  2010, by and among WM Coffman LLC, the financial institution set  forth on the signature pages thereto and PNC Bank, National Association,  as Agent (Incorporated by reference to Exhibit 10.1 to Registrant’s  Current Report on Form 8-K dated February 22, 2010).                                                                                                                                                                                                                                                                                                            |
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **103**             |       | Junior Participation Agreement, dated as of February 22, 2010,  by and among Richard Horowitz, the Christopher John Kliefoth Revocable Trust  UA 07-10-2007 and PNC Bank, National Association, as Agent and lender  (Incorporated by reference to Exhibit 10.2 to Registrant’s Current  Report on Form 8-K dated February 22, 2010).                                                                                                                                                                                                                                                                                                                          |
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **31.1**            |       | Certification of Richard A. Horowitz, Principal Executive Officer of  the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **31.2**            |       | Certification  of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant,  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **32.1**            |       | Certification of Richard A. Horowitz, Principal Executive Officer of  the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **32.2**            |       | Certification of Joseph A. Molino, Jr., Principal Financial  Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

A copy of any of the foregoing exhibits to thisQuarterly Report on Form 10-Q may be obtained, upon payment of theRegistrant’s reasonable expenses in furnishing such exhibit, by writing toP&F Industries, Inc., 445 Broadhollow Road, Suite 100, MelvilleNew York 11747, Attention: Corporate Secretary.

 

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