**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

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**ý****  QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**For theQuarter Ended June 30, 2003**

 

**o****  TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**CommissionFile Number 1 - 5332**

 

| **P & F INDUSTRIES, INC.**                                               |
|------------------------------------------------------------------------------|
| (Exact name of registrant as specified in its  charter)                      |
|                                                                         |   |   |
| **Delaware**                                                                 |   | **22-1657413** |
| (State or other jurisdiction of  incorporation or organization)              |   | (I.R.S. Employer Identification Number) |
|                                                                         |   |   |
| **300 Smith  Street, Farmingdale, New York**                                 |   | **11735** |
| (Address of principal executive offices)                                     |   | (Zip Code) |
|                                                                         |   |   |
| Registrant’s telephone  number, including area code: **(631) 694-1800** |
|                                                                         |   |   |

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Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months, and (2) has been subject to such filingrequirements for the past 90 days.

**Yes  ****ý   No  ****o**

 

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

 

As of August 13, 2003, there were 3,489,631 shares of the registrant’sClass A Common Stock outstanding.

 

 

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**P & FINDUSTRIES, INC.**

 

**FORM 10-Q**

 

**FOR THEQUARTER ENDED JUNE 30, 2003**

 

**TABLE OFCONTENTS**

 
| **PART I – FINANCIAL INFORMATION** |
|-----------------------------------------|
| Item 1.                                 | Consolidated Financial Statements (unaudited) |
|                                    |   |   |
|                                    |   | Consolidated Balance Sheets |
|                                    |   |   |
|                                    |   | Consolidated Statements of Operations (as  restated) |
|                                    |   |   |
|                                    |   | Consolidated Statement of Shareholders’  Equity |
|                                    |   |   |
|                                    |   | Consolidated Statements of Cash Flows |
|                                    |   |   |
|                                    |   | Notes to Consolidated Financial Statements |
|                                    |   |   |
| Item 2.                                 | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|                                    |   |   |
| Item 3.                                 | Quantitative and Qualitative Disclosures  About Market Risk |
|                                    |   |   |
| Item 4.                                 | Controls and Procedures 31 |
|                                    |   |   |
| **PART II — OTHER INFORMATION**    |
| Item 1.                                 | Legal Proceedings |
|                                    |   |   |
| Item 2.                                 | Changes in Securities and Use of Proceeds |
|                                    |   |   |
| Item 3.                                 | Defaults Upon Senior Securities |
|                                    |   |   |
| Item 4.                                 | Submission of Matters to a Vote of Security  Holders |
|                                    |   |   |
| Item 5.                                 | Other Information |
|                                    |   |   |
| Item 6.                                 | Exhibits and Reports on Form 8-K |
|                                    |   |   |
| **Signatures**                          |   |
|                                    |   |   |
| **Exhibit Index**                       |

 

i

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**PART I - FINANCIAL INFORMATION**

 

**Item 1.    FinancialStatements**

 

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

**CONSOLIDATED BALANCESHEETS**

**(unaudited)**

 
|                                                                                                        |   | **June 30,  2003** |       | **December 31,  2002** |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|------------------------|--------|
|                                                                                                        |   |               |       |                   |   |
| ASSETS                                                                                                      |   |               |       |                   |   |
|                                                                                                        |   |               |       |                   |   |
| CURRENT:                                                                                                    |   |               |       |                   |   |
| Cash                                                                                                        |   | $                  | 506,859    |                   | $      | 1,024,222 |   |
| Accounts  receivable, less allowance for possible losses of $411,239 in 2003 and  $354,441 in 2002 (Note 7) |   | 11,720,288         |       | 10,864,261             |   |
| Inventories  (Notes 6 and 7)                                                                                |   | 21,299,197         |       | 19,580,073             |   |
| Deferred  income taxes                                                                                      |   | 695,000            |       | 695,000                |   |
| Prepaid  expenses and other                                                                                 |   | 1,389,500          |       | 1,080,313              |   |
| TOTAL CURRENT  ASSETS                                                                                       |   | 35,610,844         |       | 33,243,869             |   |
|                                                                                                        |   |               |       |                   |   |
| PROPERTY AND  EQUIPMENT (Note 7):                                                                           |   |               |       |                   |   |
| Land                                                                                                        |   | 1,582,938          |       | 1,582,938              |   |
| Buildings and  improvements                                                                                 |   | 8,928,093          |       | 8,811,117              |   |
| Machinery and  equipment                                                                                    |   | 15,043,532         |       | 14,514,353             |   |
|                                                                                                        |   | 25,554,563         |       | 24,908,408             |   |
| Less  accumulated depreciation and amortization                                                             |   | 12,288,977         |       | 11,409,203             |   |
| NET PROPERTY  AND EQUIPMENT                                                                                 |   | 13,265,586         |       | 13,499,205             |   |
|                                                                                                        |   |               |       |                   |   |
|                                                                                                        |   |               |       |                   |   |
| DEFERRED  INCOME TAXES                                                                                      |   | 1,377,000          |       | 1,377,000              |   |
|                                                                                                        |   |               |       |                   |   |
| GOODWILL, net  of accumulated amortization of $1,419,274 (Note 2)                                           |   | 9,549,702          |       | 9,238,621              |   |
|                                                                                                        |   |               |       |                   |   |
| OTHER  INTANGIBLE ASSETS, net of accumulated amortization of $620,667 and $354,667                          |   | 2,039,333          |       | 2,305,333              |   |
|                                                                                                        |   |               |       |                   |   |
| OTHER ASSETS,  net of accumulated amortization of $167,802 and $180,858                                     |   | 130,833            |       | 118,528                |   |
| TOTAL ASSETS                                                                                                |   | $                  | 61,973,298 |                   | $      | 59,782,556 |   |

 

See accompanying notes to consolidated financialstatements (unaudited).

 

1

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

**CONSOLIDATEDBALANCE SHEETS**

**(unaudited)**

**(continued)**

 
|                                                                                              |   | **June 30,  2003** |       | **December 31,  2002** |   |
|---------------------------------------------------------------------------------------------------|--------|--------------------|------------|------------------------|--------|
|                                                                                              |   |               |       |                   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                         |   |               |       |                   |   |
|                                                                                              |   |               |       |                   |   |
| CURRENT  LIABILITIES:                                                                             |   |               |       |                   |   |
| Short-term  borrowings (Note 7)                                                                   |   | $                  | 7,000,000  |                   | $      | 4,500,000 |   |
| Accounts  payable                                                                                 |   | 3,731,986          |       | 2,860,271              |   |
| Accruals:                                                                                         |   |               |       |                   |   |
| Compensation                                                                                      |   | 1,337,632          |       | 2,112,377              |   |
| Other (Note 8)                                                                                    |   | 2,402,224          |       | 2,250,962              |   |
| Deferred  income taxes                                                                            |   | 210,000            |       | 210,000                |   |
| Current  maturities of long-term debt (Note 7)                                                    |   | 1,507,461          |       | 1,402,547              |   |
| TOTAL CURRENT  LIABILITIES                                                                        |   | 16,189,303         |       | 13,336,157             |   |
|                                                                                              |   |               |       |                   |   |
| LONG-TERM  DEBT, less current maturities (Note 7)                                                 |   | 9,576,897          |       | 11,591,989             |   |
|                                                                                              |   |               |       |                   |   |
| DEFERRED  INCOME TAXES                                                                            |   | 1,031,000          |       | 1,031,000              |   |
| TOTAL  LIABILITIES                                                                                |   | 26,797,200         |       | 25,959,146             |   |
|                                                                                              |   |               |       |                   |   |
| COMMITMENTS  AND CONTINGENCIES                                                                    |   |               |       |                   |   |
| (Notes 7 and  8)                                                                                  |   |               |       |                   |   |
|                                                                                              |   |               |       |                   |   |
| SHAREHOLDERS’  EQUITY (Note 9):                                                              |   |               |       |                   |   |
| Preferred  stock - $10 par; authorized - 2,000,000 shares; no shares issued or  outstanding       |   | —             |       | —                 |   |
| Common stock:                                                                                     |   |               |       |                   |   |
| Class A - $1  par; authorized - 7,000,000 shares; issued - 3,713,367 shares and 3,690,367  shares |   | 3,713,367          |       | 3,690,367              |   |
| Class B - $1  par; authorized - 2,000,000 shares; no shares issued or outstanding                 |   | —             |       | —                 |   |
| Additional  paid-in capital                                                                       |   | 8,564,528          |       | 8,540,528              |   |
| Retained  earnings                                                                                |   | 24,556,140         |       | 22,997,016             |   |
| Treasury  stock, at cost (213,736 and 176,045 shares)                                             |   | (1,657,937         | )          | (1,404,501             | )      |
| TOTAL  SHAREHOLDERS’ EQUITY                                                                  |   | 35,176,098         |       | 33,823,410             |   |
| TOTAL  LIABILITIES AND SHAREHOLDERS’ EQUITY                                                  |   | $                  | 61,973,298 |                   | $      | 59,782,556 |   |

 

See accompanying notes to consolidated financialstatements (unaudited).

 

2

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

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(unaudited)**

 
|                                                                                      |   | **Three months ended  June 30,** |            | **Six months ended  June 30,** |   |
|-------------------------------------------------------------------------------------------|--------|----------------------------------|-----------------|--------------------------------|--------|
|                                                                                      |   | **2003**                         |            | **2002**                       |   | **2003** |   | **2002** |   |
|                                                                                      |   |                             |            | **(restated)**                 |   |   |   |   |   |
|                                                                                      |   |                             |            | **(Note 2)**                   |   |   |   |   |   |
| REVENUES (Note 10):                                                                       |   |                             |            |                           |   |   |   |   |   |
| Net sales                                                                                 |   | $                                | 21,614,224      |                           | $      | 18,398,541 |   | $ | 40,969,994 |   | $ | 35,436,296 |   |
| Other                                                                                     |   | 124,081                          |            | 267,855                        |   | 250,187 |   | 326,819 |   |
|                                                                                      |   | 21,738,305                       |            | 18,666,396                     |   | 41,220,181 |   | 35,763,115 |   |
|                                                                                      |   |                             |            |                           |   |   |   |   |   |
| COSTS AND EXPENSES:                                                                       |   |                             |            |                           |   |   |   |   |   |
| Cost of sales                                                                             |   | 14,599,264                       |            | 12,520,520                     |   | 28,078,766 |   | 24,524,742 |   |
| Selling, general and  administrative                                                      |   | 5,188,457                        |            | 4,424,727                      |   | 10,059,282 |   | 8,513,790 |   |
| Interest - net                                                                            |   | 195,688                          |            | 162,650                        |   | 383,009 |   | 264,422 |   |
|                                                                                      |   | 19,983,409                       |            | 17,107,897                     |   | 38,521,057 |   | 33,302,954 |   |
|                                                                                      |   |                             |            |                           |   |   |   |   |   |
| INCOME BEFORE TAXES ON INCOME  AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE    |   | 1,754,896                        |            | 1,558,499                      |   | 2,699,124 |   | 2,460,161 |   |
|                                                                                      |   |                             |            |                           |   |   |   |   |   |
| TAXES ON INCOME                                                                           |   | 742,000                          |            | 599,000                        |   | 1,140,000 |   | 947,000 |   |
|                                                                                      |   |                             |            |                           |   |   |   |   |   |
| INCOME BEFORE CUMULATIVE  EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                        |   | 1,012,896                        |            | 959,499                        |   | 1,559,124 |   | 1,513,161 |   |
|                                                                                      |   |                             |            |                           |   |   |   |   |   |
| CUMULATIVE EFFECT OF CHANGE  IN ACCOUNTING PRINCIPLE, NET OF TAXES OF $1,668,000 (Note 2) |   | —                           |            | —                         |   | — |   | (3,239,118 | ) |
|                                                                                      |   |                             |            |                           |   |   |   |   |   |
| NET INCOME (LOSS)                                                                         |   | $                                | 1,012,896  |                           | $      | 959,499  |   | $ | 1,559,124  |   | $ | (1,725,957 | ) |

 

See accompanying notes to consolidated financialstatements (unaudited).

 

3

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

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(unaudited)**

 
|                                                               |   | **Three months ended  June 30,** |   | **Six months ended  June 30,** |   |
|--------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                                               |   | **2003**                         |   | **2002**                       |   | **2003** |   | **2002** |   |
|                                                               |   |                             |   | **(restated)**                 |   |   |   |   |   |
|                                                               |   |                             |   | **(Note 2)**                   |   |   |   |   |   |
| Weighted average common  shares outstanding (Note 11):             |   |                             |   |                           |   |   |   |   |   |
| Basic                                                              |   | 3,505,785                        |   | 3,505,272                      |   | 3,505,935 |   | 3,507,924 |   |
|                                                               |   |                             |   |                           |   |   |   |   |   |
| Diluted                                                            |   | 3,578,594                        |   | 3,582,421                      |   | 3,576,654 |   | 3,584,476 |   |
|                                                               |   |                             |   |                           |   |   |   |   |   |
| Earnings (loss) per share of  common stock (Note 11):              |   |                             |   |                           |   |   |   |   |   |
|                                                               |   |                             |   |                           |   |   |   |   |   |
| Basic:                                                             |   |                             |   |                           |   |   |   |   |   |
| Income before cumulative  effect of change in accounting principle |   | $                                | .29    |                           | $      | .27 |   | $ | .44 |   | $ | .43 |   |
|                                                               |   |                             |   |                           |   |   |   |   |   |
| Cumulative effect of change  in accounting principle, net of taxes |   | —                           |   | —                         |   | — |   | (.92 | ) |
|                                                               |   |                             |   |                           |   |   |   |   |   |
| Net income (loss)                                                  |   | $                                | .29    |                           | $      | .27 |   | $ | .44 |   | $ | (.49 | ) |
|                                                               |   |                             |   |                           |   |   |   |   |   |
| Diluted:                                                           |   |                             |   |                           |   |   |   |   |   |
| Income before cumulative  effect of change in accounting principle |   | $                                | .28    |                           | $      | .27 |   | $ | .44 |   | $ | .42 |   |
|                                                               |   |                             |   |                           |   |   |   |   |   |
| Cumulative effect of change  in accounting principle, net of taxes |   | —                           |   | —                         |   | — |   | (.90 | ) |
|                                                               |   |                             |   |                           |   |   |   |   |   |
| Net income (loss)                                                  |   | $                                | .28    |                           | $      | .27 |   | $ | .44 |   | $ | (.48 | ) |

 

See accompanying notes to consolidated financialstatements (unaudited).

 

4

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

**CONSOLIDATED STATEMENT OFSHAREHOLDERS’ EQUITY**

**(unaudited)**

 
|                                               |   | **Common  stock** |      | **Additional  paid-in  capital** |   | **Retained  earnings** |   | **Treasury  stock** |             | **Total** |   |
|----------------------------------------------------|--------|-------------------|-----------|----------------------------------|--------|------------------------|--------|---------------------|------------------|-----------|--------|
|                                               |   |              |      |                             |   |                   |   |                |             |      |   |
| Balance,   January 1, 2003                         |   | $                 | 3,690,367 |                             | $      | 8,540,528              |   | $                   | 22,997,016  |      | $      | (1,404,501 | ) | $ | 33,823,410 |   |
|                                               |   |              |      |                             |   |                   |   |                |             |      |   |
| Net income for the six months  ended June 30, 2003 |   | —            |      | —                           |   | 1,559,124              |   | —              |             | 1,559,124 |   |
|                                               |   |              |      |                             |   |                   |   |                |             |      |   |
| Exercise of stock options                          |   | 23,000            |      | 24,000                           |   | —                 |   | —              |             | 47,000    |   |
|                                               |   |              |      |                             |   |                   |   |                |             |      |   |
| Purchase of Class A Common  Stock (Note 9)         |   | —            |      | —                           |   | —                 |   | (253,436            | )                | (253,436  | )      |
|                                               |   |              |      |                             |   |                   |   |                |             |      |   |
| Balance,   June 30, 2003                           |   | $                 | 3,713,367 |                             | $      | 8,564,528              |   | $                   | 24,556,140  |      | $      | (1,657,937  | ) | $ | 35,176,098 |   |

 

See accompanying notes to consolidated financialstatements (unaudited).

 

5

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

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(unaudited)**

 
|                                                                                      |   | **Six months ended  June 30,** |          |
|-------------------------------------------------------------------------------------------|--------|--------------------------------|---------------|
|                                                                                      |   | **2003**                       |          | **2002** |   |
| CASH FLOWS  FROM OPERATING ACTIVITIES:                                                    |   |                           |          |   |   |
| Net income  (loss)                                                                        |   | $                              | 1,559,124     |   | $ | (1,725,957 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |   |                           |          |   |   |
| Cumulative  effect of change in accounting principle - net of taxes                       |   | —                         |          | 3,239,118 |   |
| Depreciation  and amortization                                                            |   | 879,774                        |          | 750,531 |   |
| Amortization  of intangible assets                                                        |   | 286,757                        |          | 97,256 |   |
| Provision for  losses on accounts receivable - net                                        |   | 56,798                         |          | (8,881 | ) |
| Deferred  income taxes                                                                    |   | —                         |          | (23,000 | ) |
| Decrease  (increase) – net of acquisition of Nationwide Industries, Inc in 2002:     |   |                           |          |   |   |
| Accounts  receivable                                                                      |   | (912,825                       | )             | 266,687 |   |
| Inventories                                                                               |   | (1,719,124                     | )             | (185,331 | ) |
| Prepaid  expenses and other                                                               |   | (309,187                       | )             | (196,041 | ) |
| Other assets                                                                              |   | (33,062                        | )             | — |   |
| Increase  (decrease) - net of acquisition of Nationwide Industries, Inc. in 2002:         |   |                           |          |   |   |
| Accounts  payable                                                                         |   | 871,715                        |          | 964,488 |   |
| Accruals and  other                                                                       |   | (623,483                       | )             | (142,946 | ) |
| Total  adjustments                                                                        |   | (1,502,637                     | )             | 4,761,881 |   |
| Net cash provided  by operating activities                                                |   | 56,487                         |          | 3,035,924 |   |
|                                                                                      |   |                           |          |   |   |
| CASH FLOWS  FROM INVESTING ACTIVITIES:                                                    |   |                           |          |   |   |
| Capital  expenditures                                                                     |   | (646,155                       | )             | (3,362,664 | ) |
| Payments for  acquisition of Nationwide Industries, Inc. - net of $2,920 cash acquired    |   | —                         |          | (10,448,794 | ) |
| Additional  payments for purchase of Nationwide Industries, Inc.                          |   | (311,081                       | )             | — |   |
| Payments for  acquisition-related expenses                                                |   | —                         |          | (750,277 | ) |
| Payment for  acquisition of product line                                                  |   | —                         |          | (397,940 | ) |
| Net cash used  in investing activities                                                    |   | (957,236                  | )             | (14,959,675 | ) |
|                                                                                      |   |                           |          |   |   |
| CASH FLOWS  FROM FINANCING ACTIVITIES:                                                    |   |                           |          |   |   |
| Proceeds from  short-term borrowings                                                      |   | 5,500,000                      |          | 1,500,000 |   |
| Repayments of  short-term borrowings                                                      |   | (3,000,000                     | )             | (1,435,000 | ) |
| Proceeds from  mortgage                                                                   |   | 1,697,301                      |          | 2,024,000 |   |
| Proceeds from term  loan                                                                  |   | —                         |          | 11,500,000 |   |
| Principal  payments on long-term debt                                                     |   | (3,607,479                     | )             | (1,575,704 | ) |
| Proceeds from  exercise of stock options                                                  |   | 47,000                         |          | — |   |
| Purchase of  Class A Common Stock                                                         |   | (253,436                       | )             | (100,800 | ) |
|                                                                                      |   |                           |          |   |   |
| Net cash  provided by financing activities                                                |   | 383,386                        |          | 11,912,496 |   |
|                                                                                      |   |                           |          |   |   |
| NET DECREASE  IN CASH                                                                     |   | (517,363                       | )             | (11,255 | ) |
|                                                                                      |   |                           |          |   |   |
| CASH AT  BEGINNING OF PERIOD                                                              |   | 1,024,222                      |          | 507,833 |   |
|                                                                                      |   |                           |          |   |   |
| CASH AT END OF  PERIOD                                                                    |   | $                              | 506,859  |   | $ | 496,578 |   |
|                                                                                      |   |                           |          |   |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                                        |   |                           |          |   |   |
|                                                                                      |   |                           |          |   |   |
| Cash paid  during the period for:                                                         |   |                           |          |   |   |
| Income taxes                                                                              |   | $                              | 508,500       |   | $ | 480,000 |   |
|                                                                                      |   |                           |          |   |   |
| Interest                                                                                  |   | $                              | 386,465       |   | $ | 228,461 |   |

 

See accompanying notes to consolidated financialstatements (unaudited).

 

6

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

 

**NOTE 1 - PRINCIPLESOF CONSOLIDATION**

 

The unaudited consolidated financial statements contained hereininclude the accounts of P & F Industries, Inc. and its subsidiaries. Allsignificant intercompany balances and transactions have been eliminated.

 

P & F Industries, Inc. (“P & F”) conducts its businessoperations through its four wholly-owned subsidiaries: Florida PneumaticManufacturing Corporation (“Florida Pneumatic”), Countrywide Hardware, Inc.(“Countrywide”), Green Manufacturing, Inc. (“Green”) and Embassy Industries,Inc. (“Embassy”). P & F and its subsidiaries are herein referred tocollectively as the “Company.”

 

Florida Pneumatic is engaged in the importation, manufacture and saleof pneumatic hand tools, primarily for the industrial and retail markets, andthe importation and sale of compressor air filters. Florida Pneumatic alsomarkets, through its Berkley Tool division (“Berkley”), a line of pipe cuttingand threading tools, wrenches and replacement electrical components for awidely-used brand of pipe cutting and threading machines. Countrywide conductsits business operations through Nationwide Industries, Inc. (“Nationwide”), itswholly-owned subsidiary, and through its Franklin Manufacturing (“Franklin”)division. Countrywide acquired all of the stock of Nationwide on May 3, 2002.The assets of Franklin were transferred from Embassy to Countrywide on December30, 2002. Nationwide is an importer and manufacturer of door, window andfencing hardware. Franklin imports a line of door and window hardware. Green isengaged primarily in the manufacture, development and sale of heavy-duty weldedcustom designed hydraulic cylinders. Green also manufactures a line of accessequipment for the petro-chemical industry and a line of post hole diggingequipment for the agricultural industry. Embassy is engaged in the manufactureand sale of baseboard heating products and the importation and sale of radiantheating systems. Note 10 of the Notes to Consolidated Financial Statementspresents financial information for the segments of the Company’s business.

 

**NOTE 2 - BASIS OFFINANCIAL STATEMENT PRESENTATION AND RESTATEMENT**

 

The accompanying unaudited consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information, and with the rulesand regulations of the Securities and Exchange Commission regarding interim financialreporting. Accordingly, these interim financial statements do not include allof the information and footnotes required by accounting principles generallyaccepted in the United States of America for complete financial statements. Inthe opinion of the Company, these unaudited consolidated financial statementsinclude all adjustments necessary to present fairly the information set forththerein. All such adjustments are of a normal recurring nature. Results forinterim periods are not necessarily indicative of results to be expected for afull year.

 

7

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The consolidated balance sheet information as of December 31, 2002 wasderived from the audited financial statements included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2002. The interim financialstatements contained herein should be read in conjunction with that Report.

 

In preparing its consolidated financial statements in conformity withaccounting principles generally accepted in the United States of America, theCompany is required to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.

 

The Companyhad its goodwill tested for impairment, effective January 1, 2002, during thesecond quarter of 2002. The impairment tests performed required that theCompany determine the fair market value of its reporting units for comparisonto the carrying value of their net assets to assess whether any impairmentexists. The methodologies used to estimate fair market value involved the useof estimates and assumptions, including projected revenues, earnings and cashflows.

 

The Company’searnings forecasts for Green, which reflected the extremely weak marketconditions in the hydraulic cylinder business, resulted in the fair marketvalue of Green’s goodwill, as determined by an independent third-partyappraiser, being lower than its carrying value as of December 31, 2001.Accordingly, in the quarter ended June 30, 2002, the Company recorded,retroactive to January 1, 2002, an after-tax impairment charge of approximately$3.2 million, which is reported as a cumulative effect of change in accountingprinciple resulting from the adoption by the Company of Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets.”

 

The statementof operations for the quarter ended June 30, 2002 has been retroactivelyrestated. The restatement gives effect to the cumulative effect of change inaccounting principle, which had previously been reported in the quarter endedJune 30, 2002, being reflected as having occurred as of January 1, 2002

 

8

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**NOTE 3 - STOCK-BASEDCOMPENSATION**

 

The Company accounts for its stock option awards to its employees underthe intrinsic value based method of accounting prescribed by AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued to Employees.”Under the intrinsic value based method, compensation cost is the excess, ifany, of the quoted market price of the stock at grant date or other measurementdate over the amount an employee must pay to acquire the stock. The Companymakes pro forma disclosures of net income and earnings per share as if the fairvalue based method of accounting had been applied, as required by Statement ofFinancial Accounting Standards No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123”).

 

The Company also complies with the disclosure provisions of Statementof Financial Accounting Standards No. 148, “Accounting for StockBased Compensation — Transition and Disclosure,” which requires prominentdisclosures in both annual and interim financial statements about the method ofaccounting for stock-based employee compensation and the effect of the methodon reported results.

 

SFAS 123 requires the Company to provide pro forma informationregarding net income and earnings per share as if compensation cost for theCompany’s 2002 Stock Incentive Plan had been determined in accordance with thefair value method prescribed by SFAS 123. The Company estimates the fair valueof each stock option at the grant date by using the Black-Scholesoption-pricing model. No options were granted, and no pro forma compensationexpense was incurred, during the six month periods ended June 30, 2003 and June30, 2002.

 

**NOTE 4 – FOREIGNCURRENCY TRANSACTIONS**

 

The Company accounts for changes in the fair value of its foreigncurrency contracts by marking them to market and recognizing any resultinggains or losses through its statement of operations. The Company also marks itsyen-denominated payables to market, recognizing any resulting gains or lossesin its statement of operations. At June 30, 2003, the Company had foreigncurrency forward contracts, maturing in 2003, to purchase yen at contractedforward rates. The value of these contracts at June 30, 2003, based on thecontracted forward rates, was approximately $1,363,000, which was theapproximate value of the Company’s corresponding yen-denominated accountspayable. During the quarters ended June 30, 2003 and 2002, the Company recordednet realized losses of approximately $10,000 and $59,000, respectively, onforeign currency transactions. During the six month periods ended June 30, 2003and 2002, the Company recorded net realized losses of approximately $9,000 and $69,000,respectively, on foreign currency transactions. At June 30, 2003, the Companyhad no material unrealized gains or losses on foreign currency transactions.

 

9

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**NOTE 5 - NEWACCOUNTING PRONOUNCEMENTS**

 

In April 2002, the Financial Accounting Standards Board (the “FASB”) issuedStatement of Financial Accounting Standards No. 145, “Recission of FASB Statement No.4, 44, and 64, Amendment of FASBStatement No. 13, and Technical Corrections” (“SFAS 145”), whicheliminates the automatic classification of gain or loss on extinguishment ofdebt as an extraordinary item of income and requires that such gain or loss beevaluated for extraordinary classification under the criteria of AccountingPrinciples Board No. 30, “Reporting Results of Operations.” The provisions ofSFAS 145 related to the recission of Statement 4 are effective for fiscal yearsbeginning after May 15, 2002. The Company adopted SFAS 145 as of January 1,2003. In January 2003, the Company recorded a loss of approximately $84,000,included in selling, general and administrative expenses that resulted from therefinancing of a mortgage.

 

In June 2002,**the FASB issued Statementof Financial Accounting Standards No. 146,**“Accounting for Costs Associated with Exitor Disposal Activities” (“SFAS 146”).**SFAS146 addresses financial accounting and reporting for costs associated with exitor disposal activities and supersedes Emerging Issues Task Force Issue No.94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in aRestructuring)” (“EITF 94-3”). The principal difference between SFAS 146 andEITF 94-3 relates to the requirements for recognition of a liability for a costassociated with an exit or disposal activity. SFAS 146 requires that aliability for a cost associated with an exit or disposal activity be recognizedwhen the liability is incurred. Under EITF 94-3, a liability was recognized atthe date of an entity’s commitment to an exit plan. SFAS 146 is effective forexit or disposal activities that are initiated after December 31, 2002.The Company did not have any exit or disposal activities since the adoption ofSFAS 146.

 

In June 2003,**the FASB issued Statementof Financial Accounting Standards No. 149,**“Amendments of Statement 133 on DerivativeInstruments and Hedging Activities” (“SFAS 149”).**SFAS 149 amends SFAS 133 and certain other FASB standards for decisions made bythe FASB as part of the DerivativesImplementation Group process. Among other changes, SFAS 149 clarifies thedefinition of a derivative financial instrument. SFAS 149 is generallyeffective for contracts entered into or modified after June 30, 2003. Theprovisions of SFAS 149 that relate to SFAS 133 Implementation Issues that havebeen effective for fiscal quarters that began prior to June 15, 2003 shouldcontinue to be applied in accordance with their respective dates. In addition,certain provisions of SFAS 149 that apply to forward purchases or sales ofwhen-issued securities or other securities that do not yet exist are applicableto both existing contracts and new contracts entered into after June 30, 2003.

 

10

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**NOTE 6- INVENTORIES**

 

Major classes of inventory were as follows:

 

|                        |   | **June 30,2003** |       | **December 31,  2002** |   |
|-----------------------------|--------|------------------|------------|------------------------|--------|
| Raw materials  and supplies |   | $                | 3,775,620  |                   | $      | 3,566,161 |   |
| Work in  process            |   | 861,312          |       | 754,857                |   |
| Finished goods              |   | 16,662,265       |       | 15,259,055             |   |
|                        |   | $                | 21,299,197 |                   | $      | 19,580,073 |   |

 

**NOTE 7 – SHORT-TERMBORROWINGS AND LONG-TERM DEBT**

 

On June 30,2003, the Company renewed its credit agreement, as amended, with Citibankthrough July 26, 2004. This agreementincludes a revolving credit loan facility, which provides a total of$12,000,000, with various sublimits, for direct borrowings, letters of credit,bankers’ acceptances and equipment loans. There are no commitment feesfor any unused portion of this credit facility. At June 30, 2003, there was $7,000,000 outstanding against the revolvingcredit loan facility. There was also a commitment of approximately $116,000 atJune 30, 2003 for open letters of credit.

 

Direct borrowings under the Company’s revolving credit loan facilityare secured by the Company’s accounts receivable, inventory and equipment andare cross-guaranteed by each of the Company’s subsidiaries. These borrowingsbear interest at either the prime interest rate or LIBOR (LondonInterBank Offered Rate) plus 1.6%. The primeinterest rate at June 30, 2003 was 4.0% and LIBOR was approximately 1.1%. Theprime interest rate at June 30, 2002 was 4.75% and LIBOR was approximately1.8%.

 

The credit agreement also includes a foreign exchange line, whichprovides for the availability of up to $10,000,000 in foreign currency forwardcontracts. These contracts fix the exchange rate on future purchases of yenneeded for payments to foreign suppliers. The total amount of foreign currencyforward contracts outstanding at June 30, 2003, based on the contracted forwardrates, was approximately $1,363,000.

 

Under the terms of the Company’s credit agreement, the Company isrequired to adhere to certain financial covenants. At June 30, 2003, and forthe six months then ended, the Company satisfied all of these covenants. Thecredit agreement is subject to annual review by the lending bank.

 

11

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The credit agreement also includes a termloan facility, which providesa maximum commitment of $15,000,000 to finance acquisitions subject to thelending bank’s approval. The Company borrowed $11,500,000 against thisfacility to finance the acquisition of Nationwide, described in Note 1, andthere was $5,750,000 outstanding against this facility at June 30, 2003. There was also a standby letter of credit totalingapproximately $351,000 outstanding against this facility at June 30,2003. This standby letter of credit is usedto secure the Economic Development Revenue Bond assumed as part of theacquisition of Green.

 

On January 24, 2003, Embassy refinanced its mortgage, which was payablemonthly through May 2006 and bore interest at 8.16%. The new mortgage, which ispayable monthly through January 2010, bears interest at LIBOR plus 155 basispoints.

 

Certain of the Company’s mortgage agreementsrequire the Company to adhereto certain financial covenants. At June 30, 2003, and for the six months thenended, the Company satisfied all of these covenants.

 

**NOTE 8 - WARRANTYLIABILITY**

 

The Company offers to its customerswarranties against product defects for periods ranging from one year to thelife of the product, depending on the specific product and terms of thecustomer purchase agreement. The Company’s typical warranties require it torepair or replace the defective products during the warranty period at no costto the customer. At the time the product revenue is recognized, the Companyrecords a liability for estimated costs under its warranties. The costs areestimated based on historical experience. The Company periodically assesses theadequacy of its recorded warranty liability and adjusts the amounts necessary.While the Company believes that its estimated liability for product warrantiesis adequate, the estimated liability for the product warranties could differmaterially from future actual warranty costs.

 

12

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Changes in the Company’s warranty liability,included in other accrued liabilities, for the six month periods ended June 30,2003 and June 30, 2002 were as follows:

 

|                                                                |   | **Six months ended  June 30,** |    |
|---------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                |   | **2003**                       |    | **2002** |   |
|                                                                |   |                           |    |   |   |
| Balance,  beginning of period                                       |   | $                              | 186,513 |   | $ | 198,384 |   |
|                                                                |   |                           |    |   |   |
| Warranties  issued and changes in estimated pre-existing warranties |   | 147,239                        |    | 207,005 |   |
|                                                                |   |                           |    |   |   |
| Actual  warranty costs/settlements                                  |   | (146,827                       | )       | (209,745 | ) |
| Balance, end  of period                                             |   | $                              | 186,925 |   | $ | 195,644 |   |

 

**NOTE 9 - CAPITALSTOCK TRANSACTIONS**

 

During the six months ended June 30, 2003, the Company purchased 37,691shares of Class A Common Stock, at a cost of $253,436. During the six monthsended June 30, 2002, the Company purchased 16,000 shares of Class A CommonStock, at a cost of $100,800.

 

13

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

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

 

**NOTE 10 - SEGMENTS OF BUSINESS**

 

The following tables presentfinancial information by segment for the periods ended June 30, 2003 and 2002.Segment profit (loss) excludes general corporate expenses, interest expense andincome taxes. All intersegment revenues have been eliminated.

 
| **Three  months ended  June 30, 2003** |   | **Consolidated** |   | **Pneumatic  tools** |   | **Hardware** |   | **Hydraulic  cylinders** |   | **Heating  equipment** |   |
|----------------------------------------|--------|------------------|--------|----------------------|--------|--------------|--------|--------------------------|--------|------------------------|--------|
| **(In thousands)**                     |   |             |   |                 |   |         |   |                     |   |                   |   |
| Revenues from external  customers      |   | $                | 21,738 |                 | $      | 10,933       |   | $                        | 5,697  |                   | $      | 3,027 |   | $ | 2,081 |   |
|                                   |   |             |   |                 |   |         |   |                     |   |                   |   |
| Segment profit (loss)                  |   | $                | 2,952  |                 | $      | 1,789        |   | $                        | 1,281  |                   | $      | (106 | ) | $ | (12 | ) |
|                                   |   |             |   |                 |   |         |   |                     |   |                   |   |
| Identifiable  assets at June 30, 2003  |   | $                | 59,105 |                 | $      | 25,357       |   | $                        | 19,347 |                   | $      | 8,620 |   | $ | 5,781 |   |
|                                   |   |             |   |                 |   |         |   |                     |   |                   |   |
| Corporate assets                       |   | 2,868            |   |                 |   |         |   |                     |   |                   |   |
|                                   |   |             |   |                 |   |         |   |                     |   |                   |   |
| Total  assets at June 30, 2003         |   | $                | 61,973 |                 |   |         |   |                     |   |                   |   |   |

 
| **Three  months ended  June 30, 2002** |   | **Consolidated** |   | **Pneumatic  tools** |   | **Hardware** |   | **Hydraulic  cylinders** |   | **Heating  equipment** | ** ** |
|----------------------------------------|--------|------------------|--------|----------------------|--------|--------------|--------|--------------------------|--------|------------------------|------------|
| **(In thousands)**                     |   |             |   |                 |   |         |   |                     |   |                   |       |
| Revenues from external  customers      |   | $                | 18,666 |                 | $      | 9,692        |   | $                        | 3,823  |                   | $          | 3,165 |   | $ | 1,986 |   |
|                                   |   |             |   |                 |   |         |   |                     |   |                   |       |
| Segment profit (loss)                  |   | $                | 2,564  |                 | $      | 2,157        |   | $                        | 563    |                   | $          | (178 | ) | $ | 22 |   |
|                                   |   |             |   |                 |   |         |   |                     |   |                   |       |
| Identifiable  assets at June 30, 2002  |   | $                | 56,610 |                 | $      | 23,177       |   | $                        | 19,357 |                   | $          | 8,777 |   | $ | 5,299 |   |
|                                   |   |             |   |                 |   |         |   |                     |   |                   |       |
| Corporate assets                       |   | 2,655            |   |                 |   |         |   |                     |   |                   |       |
|                                   |   |             |   |                 |   |         |   |                     |   |                   |       |
| Total  assets at June 30, 2002         |   | $                | 59,265 |                 |   |         |   |                     |   |                   |       |   |

 

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| **Six months  ended  June 30, 2003** |   | **Consolidated** |   | **Pneumatic  tools** |   | **Hardware** |   | **Hydraulic  cylinders** |   | **Heating  equipment** |   |
|--------------------------------------|--------|------------------|--------|----------------------|--------|--------------|--------|--------------------------|--------|------------------------|--------|
| **(In thousands)**                   |   |             |   |                 |   |         |   |                     |   |                   |   |
| Revenues from external  customers    |   | $                | 41,220 |                 | $      | 21,274       |   | $                        | 9,947  |                   | $      | 5,889 |   | $ | 4,110 |   |
|                                 |   |             |   |                 |   |         |   |                     |   |                   |   |
| Segment profit (loss)                |   | $                | 4,966  |                 | $      | 3,558        |   | $                        | 1,886  |                   | $      | (322 | ) | $ | (156 | ) |

 
| **Six months  ended  June 30, 2002**                 |   | **Consolidated** |   | **Pneumatic  tools** |   | **Hardware** |   | **Hydraulic  cylinders** |   | **Heating  equipment** | ** ** |
|------------------------------------------------------|--------|------------------|--------|----------------------|--------|--------------|--------|--------------------------|--------|------------------------|------------|
| **(In thousands)**                                   |   |             |   |                 |   |         |   |                     |   |                   |       |
| Revenues from external  customers                    |   | $                | 35,763 |                 | $      | 19,701       |   | $                        | 5,287  |                   | $          | 6,508 |   | $ | 4,267 |   |
|                                                 |   |             |   |                 |   |         |   |                     |   |                   |       |
| Segment profit (loss)                                |   | $                | 4,334  |                 | $      | 3,894        |   | $                        | 588    |                   | $          | (272 | ) | $ | 124 |   |
|                                                 |   |             |   |                 |   |         |   |                     |   |                   |       |
| Cumulative  effect of change in accounting principle |   | $                | (3,239 | )                    | $      | —       |   | —              |   | $                      | (3,239     | ) | $ | — |   |

 

15

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Thereconciliations of combined operating profits for reportable segments toconsolidated income before income taxes and cumulative effect of change inaccounting principle are as follows:

 
|                                                                         |   | **Three  months ended  June 30,** |      |
|------------------------------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                                         |   | **2003**                          |      | **2002** | ** ** |
|                                                                         |   |                              |      |   |   |
| Total profit  for reportable segments                                        |   | $                                 | 2,952,065 |   | $ | 2,563,635 |   |
|                                                                         |   |                              |      |   |   |
| General  corporate expenses                                                  |   | (1,001,481                        | )         | (842,486 | ) |
|                                                                         |   |                              |      |   |   |
| Interest  expense - net                                                      |   | (195,688                          | )         | (162,650 | ) |
|                                                                         |   |                              |      |   |   |
| Income  before taxes and cumulative effect of change in accounting principle |   | $                                 | 1,754,896 |   | $ | 1,558,499 |   |

 
|                                                                         |   | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------|--------|--------------------------------|------------|
|                                                                         |   | **2003**                       |       | **2002** | ** ** |
|                                                                         |   |                           |       |   |   |
| Total profit  for reportable segments                                        |   | $                              | 4,965,910  |   | $ | 4,333,768 |   |
|                                                                         |   |                           |       |   |   |
| General  corporate expenses                                                  |   | (1,883,777                | )          | (1,609,185 | ) |
|                                                                         |   |                           |       |   |   |
| Interest  expense - net                                                      |   | (383,009                       | )          | (264,422 | ) |
|                                                                         |   |                           |       |   |   |
| Income  before taxes and cumulative effect of change in accounting principle |   | $                              | 2,699,124  |   | $ | 2,460,161 |   |

 

16

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**NOTE 11 - EARNINGS (LOSS) PER SHARE**

 

The followingtable sets forth the computation of basic and diluted earnings per commonshare:

 
|                                                                                                                  |   | **Three  months ended  June 30,** |            | **Six months  ended  June 30,** |       |
|-----------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------------|---------------------------------|------------|
|                                                                                                                  |   | **2003**                          |            | **2002**                        | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                                  |   |                              |            |                            |       |   |   |   |   |
| Numerator:                                                                                                            |   |                              |            |                            |       |   |   |   |   |
| Numerator for basic and  diluted earnings (loss) per common share:                                                    |   |                              |            |                            |       |   |   |   |   |
| Income before cumulative  effect of change in accounting principle                                                    |   | $                                 | 1,012,896  |                            | $          | 959,499  |   | $ | 1,559,124  |   | $ | 1,513,161 |   |
|                                                                                                                  |   |                              |            |                            |       |   |   |   |   |
| Cumulative effect of  change in accounting principle                                                                  |   | —                            |            | —                          |       | — |   | (3,239,118 | ) |
|                                                                                                                  |   |                              |            |                            |       |   |   |   |   |
| Net income (loss)                                                                                                     |   | $                                 | 1,012,896  |                            | $          | 959,499  |   | $ | 1,559,124 |   | $ | (1,725,957 | ) |
|                                                                                                                  |   |                              |            |                            |       |   |   |   |   |
| Denominator:                                                                                                          |   |                              |            |                            |       |   |   |   |   |
| Denominator for basic  earnings (loss) per common share - weighted average common shares outstanding                  |   | 3,505,785                         |            | 3,505,272                       |       | 3,505,935 |   | 3,507,924 |   |
|                                                                                                                  |   |                              |            |                            |       |   |   |   |   |
| Effect of dilutive  securities: Common stock options                                                                  |   | 72,809                            |            | 77,149                          |       | 70,719 |   | 76,552 |   |
|                                                                                                                  |   |                              |            |                            |       |   |   |   |   |
| Denominator for diluted  earnings per common share - adjusted weighted average common shares and  assumed conversions |   | 3,578,594                         |            | 3,582,421                       |       | 3,576,654 |   | 3,584,476 |   |

 

There wereoutstanding during the six month periods ended June 30, 2003 and 2002 stockoptions whose exercise prices were higher than the average market values of theunderlying Class A Common Stock for the respective periods. These options areanti-dilutive and are excluded from the computation of earnings (loss) pershare. The weighted average anti-dilutive stock options outstanding were asfollows:

** **
|                                                      |   | **Three  months ended  June 30,** |   | **Six months  ended  June 30,** |       |
|-----------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------|------------|
|                                                      |   | **2003**                          |   | **2002**                        | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                      |   |                              |   |                            |       |   |   |   |   |
| Weighted average  anti-dilutive stock options outstanding |   | 253,664                           |   | 189,000                         |       | 253,664 |   | 189,000 |   |

 

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

 

**General**

 

**Critical Accounting Policies and Estimates**

 

The Companyprepares its consolidated financial statements in accordance with accountingprinciples generally accepted in the United States of America. Certain of theseaccounting policies require the Company to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andthe related disclosure of contingent assets and liabilities. On an ongoingbasis, the Company evaluates estimates, including those related to bad debts,inventory reserves, intangible assets, income taxes and contingencies. The Companybases its estimates on historical data and experience, when available, and onvarious other assumptions that are believed to be reasonable under thecircumstances, the combined results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates.

 

The Company’scritical accounting policies include:

 

**Revenue Recognition**

 

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

 

**Allowance for Doubtful Accounts**

 

The Company records an allowance for doubtful accounts based onspecifically identified amounts that are believed to be uncollectible. TheCompany also records as an additional allowance a certain percentage of agedaccounts receivable, based on historical experience and the Company’sassessment of the general financial conditions affecting its customer base. Ifactual collection experience changes, revisions to the allowance may berequired. The Company has a limited number of customers with individually largeamounts due at any given balance sheet date. Any unanticipated change in thecredit worthiness of any of these customers or in any other matters affectingthe collectibility of amounts due from such customers could have a materialaffect on the Company’s results of operations in the period in which suchchanges or events occur. After all reasonable attempts to collect an accountreceivable have failed, the amount of the receivable is written off against theallowance.

 

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**Inventories**

 

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

 

**Goodwill and OtherIntangible Assets**

 

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

 

On a quarterly basis, the Company reviews changes in market conditions, among other factors, that could have a material impact on its estimates of fair value in order to reassess the carrying value of goodwill and other intangible assets. At June 30, 2003, no adjustment for impairment was deemed necessary.

 

**Long-Lived Assets**

 

The Companyreviews certain long-lived assets for impairment. Whenever events or changes incircumstances indicate that the carrying value of any of these assets may notbe recoverable, the Company will assess the recoverability of such assets basedupon estimated undiscounted cash flow forecasts.

 

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**Acquisition**

 

On May 3,2002, Countrywide acquired all of the stock of Nationwide for approximately$10,452,000, plus acquisition costs of approximately $490,000 and workingcapital adjustments of approximately $260,000. There were additionalacquisition-related costs of approximately $364,000 recorded as goodwill. Inaddition to the cash paid at the closing, Nationwide’s previous owner isentitled to contingent payments of 30% of the excess of Nationwide’s earnings,before amortization of intangible assets, interest and taxes, over $2,500,000,for each of the five twelve-month periods subsequent to the acquisition date,which contingent payments will be treated as additions to goodwill. Countrywideconducts its business through Nationwide and through its Franklin division. Theassets of Franklin were transferred from Embassy to Countrywide on December 30,2002.

 

**Results of Operations**

 

**Impairment ofgoodwill**

 

The Companyhad its goodwill tested for impairment, effective January 1, 2002, during thesecond quarter of 2002. The impairment tests performed required that theCompany determine the fair market value of its reporting units for comparisonto the carrying value of their net assets to assess whether any impairmentexists. The methodologies used to estimate fair market value involved the useof estimates and assumptions, including projected revenues, earnings and cashflows.

 

The Company’searnings forecasts for Green, which reflected the extremely weak marketconditions in the hydraulic cylinder business, resulted in the fair marketvalue of Green’s goodwill, as determined by an independent third-partyappraiser, being lower than its carrying value as of December 31, 2001.Accordingly, in the quarter ended June 30, 2002, the Company recorded,retroactive to January 1, 2002, an after-tax impairment charge of approximately$3.2 million, which is reported as a cumulative effect of change in accountingprinciple resulting from the adoption by the Company of Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets.”

 

The statementof operations for the quarter ended June 30, 2002 has been retroactivelyrestated. The restatement gives effect to the cumulative effect of change inaccounting principle, which had previously been reported in the quarter endedJune 30, 2002, being reflected as having occurred as of January 1, 2002

 

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**Comparison of threemonths ended June 30, 2003 and June 30, 2002**

 

Consolidated revenues increased 16.5%, from $18,666,396 to $21,738,305.Revenues from pneumatic tools and related equipment increased 12.8%, from$9,691,652 to $10,933,587, due primarily to strong promotions by two majorcustomers and a major promotion at a new automotive after-market retailer,partially offset by price concessions at a significant customer and decreasedcommission revenues resulting from price and competitive pressures. Sellingprices of pneumatic tools and related equipment were unchanged, with theexception of prices to a significant customer, which were substantially reducedearly in the fourth quarter of 2002. Revenues from hardware products increased49.0%, from $3,822,901 to $5,696,536, due primarily to the inclusion ofNationwide for the entire quarter in 2003, as opposed to only two months in2002. Nationwide’s revenues increased approximately $2,200,000, including anincrease of approximately $1,600,000 from sales of fencing products. Theincrease at Nationwide was partially offset by a decrease in revenues ofapproximately $330,000 at Franklin, as a significant customer reduced itsordering, because of its decreased volume, in the second quarter of 2003.Selling prices of hardware products were unchanged. Revenues from hydrauliccylinders and other equipment decreased 4.4%, from $3,165,181 to $3,027,296,due primarily to depressed conditions in the access sector, partially offset byincreased sales in the refuse market. Selling prices of hydraulic cylinders andother equipment were virtually unchanged. Revenues from heating productsincreased 4.7%, from $1,986,662 to $2,080,886, due primarily to increasedradiant heating sales. Selling prices of heating products were unchanged, withthe exception of a modest price increase for baseboard heating products duringthe second quarter of 2003.

 

Consolidated gross profit, as a percentage of revenues, decreased from32.9% to 32.8%. Gross profit from pneumatic tools and related equipmentdecreased from 41.5% to 37.2%, due primarily to the lower-margin promotionalsales noted above, the impact of the price concessions effective in the fourthquarter of 2002 also noted above and the strengthening of the yen, partiallyoffset by productivity improvements and cost reductions from suppliers. Grossprofit from hardware products increased from 32.6% to 36.8%, due primarily tothe inclusion of Nationwide’s higher margin OEM business for the entire quarterin 2003, as opposed to only two months in 2002. Gross profit from hydrauliccylinders and other equipment increased from 9.0% to 10.0%, due primarily toreductions in labor and overhead. Gross profit from heating equipment increasedfrom 29.9% to 32.4%, due primarily to a change in the product mix and improvedoperating efficiencies.

 

21

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Consolidatedselling, general and administrative expenses increased 17.3%, from $4,424,727to $5,188,457, due primarily to increases in advertising and expenses relatedto promotional sales at Florida Pneumatic and the addition of approximately$200,000 of selling, general and administrative expenses at Nationwide. Alsocontributing to the overall increase were increased compensation tied to higherprofitability and increased expenses related to additional reporting andcontrol requirements. These increases were partially offset by substantialdecreases resulting from cost-cutting efforts in all of the segments. As apercentage of revenues, selling, general and administrative expenses increasedfrom 23.7% to 23.9%.

 

Interest expense increased 20.3%, from $162,650 to $195,688, dueprimarily to changes in average borrowings outstanding during the quartersended June 30, 2003 and 2002. Average borrowings under the Company’s revolvingcredit loan facility were higher in 2003 than in 2002. While average borrowingsunder the Company’s term loan facility, which resulted from the acquisition ofNationwide on May 3, 2002, were lower in 2003 than in 2002, these amounts wereoutstanding for the entire quarter in 2003, as opposed to only two months in2002. The overall increase in interest expense was net of decreases resulting fromlower interest rates on the Company’s borrowings under both its revolvingcredit and term loan facilities, as well as on a refinanced mortgage.

 

The effective tax rates for the quarters ended June 30, 2003 and 2002were 42.3% and 38.4%, respectively. The higher effective tax rate resulted fromthe amortization of intangible assets at Nationwide not being deductible fortax purposes.

 

22

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**Comparison of six months ended June 30, 2003and June 30, 2002**

 

Consolidatedrevenues increased 15.3%, from $35,763,115 to $41,220,181. Revenues frompneumatic tools and related equipment increased 8.0%, from $19,700,562 to$21,273,996, due primarily to strong promotions by two major customers and amajor promotion at an automotive after-market retailer, partially offset byprice concessions at a significant customer, a base volume decrease anddecreased commission revenues resulting from price and competitive pressures.Selling prices of pneumatic tools and related equipment were unchanged, withthe exception of prices to a significant customer, which were substantiallyreduced early in the fourth quarter of 2002. Revenues from hardware productsincreased 88.1%, from $5,287,180 to $9,946,570, due primarily to the inclusionof Nationwide for the entire six months in 2003, as opposed to only two monthsin 2002. Nationwide’s revenues increased approximately $5,100,000, including anincrease of approximately $2,700,000 from sales of fencing products. Theincrease at Nationwide was partially offset by a decrease in revenues ofapproximately $450,000 at Franklin, as a significant customer declaredbankruptcy in the first quarter of 2003 and another significant customerreduced its ordering, because of its decreased volume, in the second quarter of2003. Selling prices of hardware products were unchanged. Revenues fromhydraulic cylinders and other equipment decreased 9.5%, from $6,508,356 to$5,889,543, due primarily to an approximately 70% decrease in sales to thewrecker market, including the phasing out of a major customer in the firstquarter of 2002. Selling prices of hydraulic cylinders and other equipment werevirtually unchanged. Revenues from heating products decreased 3.7%, from$4,267,017 to $4,110,072, due primarily to the weakness in baseboard demand inthe first quarter of 2003, partially offset by increased radiant heating sales.Selling prices of heating products were unchanged, with the exception of amodest price increase for baseboard heating products during the second quarterof 2003.

 

Consolidatedgross profit, as a percentage of revenues, increased from 31.4% to 31.9%. Grossprofit from pneumatic tools and related equipment decreased from 39.1% to37.1%, due primarily to the lower-margin promotional sales noted above, theimpact of the price concessions effective in the fourth quarter of 2002 alsonoted above and the strengthening of the yen, partially offset by productivityimprovements and cost reductions from suppliers. Gross profit from hardwareproducts increased from 30.5% to 34.8%, due primarily to the inclusion ofNationwide’s higher margin OEM business for the entire six months in 2003, asopposed to only two months in 2002. Gross

 

23

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profit from hydraulic cylindersand other equipment decreased from 9.1% to 8.7%, due primarily to the decreasein revenues (reflecting the phasing out of a major customer in the firstquarter of 2002), which reduced coverage of fixed expenses, partially offset byreductions in labor and overhead in the second quarter. Gross profit fromheating equipment increased from 31.1% to 31.2%, due primarily to a change inthe product mix and improved operating efficiencies in the second quarter.

 

Consolidatedselling, general and administrative expenses increased 18.2%, from $8,513,790to $10,059,282, due primarily to the addition of approximately $640,000 ofthese expenses at Nationwide, increases in advertising and expenses related topromotional sales at Florida Pneumatic and, to a lesser extent, to increasedcompensation tied to higher profitability and increases related to additionalreporting and control requirements. These increases were partially offset by substantial decreases resultingfrom cost-cutting efforts in all of the segments. As a percentage of revenues,selling, general and administrative expenses increased from 23.8% to 24.4%, dueprimarily to the increased expenses discussed above.

 

Interestexpense increased 44.9%, from $264,422 to $383,009, due primarily to changes inaverage borrowings outstanding during the six month periods ended June 30, 2003and 2002. Average borrowings under the Company’s revolving credit loan facilitywere higher in 2003 than in 2002. While average borrowings under the Company’sterm loan facility, which resulted from the acquisition of Nationwide on May 3,2002, were lower in 2003 than in 2002, these amounts were outstanding for theentire six months in 2003, as opposed to only two months in 2002. The overallincrease was net of decreases resulting from lower interest rates on theCompany’s borrowings under both its revolving credit and term loan facilities,as well as on a refinanced mortgage.

 

The effective tax rates for the six months ended June 30, 2003 and 2002were 42.2% and 38.5%, respectively. The higher effective tax rate resulted fromthe amortization of intangible assets at Nationwide not being deductible fortax purposes.

 

24

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**Liquidity and Capital Resources**

 

The Companygauges its liquidity and financial stability by the measurements shown in thefollowing table (dollar amounts in thousands):

 
|                       |   | **June 30,  2003** |   | **December  31,  2002** | ** ** | **June 30,  2002** | ** ** |
|----------------------------|--------|--------------------|--------|-------------------------|------------|--------------------|------------|
|                       |   |               |   |                    |       |               |       |
| Working  Capital           |   | $                  | 19,422 |                    | $          | 19,908             |       | $ | 22,010 |   |
| Current  Ratio             |   | 2.20 to 1          |   | 2.49 to 1               |       | 3.02 to 1          |       |
| Shareholders’  Equity |   | $                  | 35,176 |                    | $          | 33,823             |       | $ | 32,401 |   |

 

During the sixmonths ended June 30, 2003, gross accounts receivable increased byapproximately $913,000, with increases of approximately $912,000, $150,000 and$36,000 at Countrywide, Green and Embassy, respectively, partially offset by adecrease of approximately $185,000 at Florida Pneumatic. The increases atCountrywide and Green were due primarily to increases in sales in the secondquarter of 2003 as compared to the fourth quarter of 2002. The increase atEmbassy was due primarily to the timing of sales. The decrease at FloridaPneumatic was due primarily to an overall decrease in sales in the secondquarter of 2003 as compared to the fourth quarter of 2002, partially offset byextended terms on some retail promotional sales.

 

Inventories increased by approximately $1,719,000 during the six monthsended June 30, 2003, with increases of approximately $1,906,000, $64,000 and$40,000 at Florida Pneumatic, Green and Embassy, respectively, partially offsetby a decrease of approximately $291,000 at Countrywide. The increase at FloridaPneumatic was due primarily to a decrease in base revenues. The increase atGreen was due primarily to the timing of purchases of imported products. Theincrease at Embassy was due primarily to preparation for the peak heatingseason. The decrease at Countrywide was due primarily to improved inventoryturnover at Nationwide.

 

During the six months ended June 30, 2003, short-term borrowingsincreased by $2,500,000, primarily to fund working capital changes and toreduce long-term debt.

 

During the six months ended June 30, 2003, accounts payable increasedby approximately $872,000, with an increase of approximately $978,000 atFlorida Pneumatic being partially offset by decreases of approximately $51,000,$35,000 and $20,000 at Countrywide, Embassy and Green, respectively. All ofthese changes were due primarily to the timing of purchases.

 

25

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On June 30,2003, the Company renewed its credit agreement, as amended, with Citibankthrough July 26, 2004. This agreement provides the Company with various creditfacilities, including revolving credit loans, term loans for acquisitions and aforeign exchange line. The revolving credit loan facility provides a maximum of$12,000,000, with various sublimits, for direct borrowings, letters of credit,bankers’ acceptances and equipment loans. There are no commitment fees for anyunused portion of this credit facility. At June 30, 2003, there was $7,000,000outstanding against the revolving credit loan facility. There was also acommitment of approximately $116,000 at June 30, 2003 for open letters ofcredit.

 

The term loanfacility provides a maximum commitment of $15,000,000 to finance acquisitionssubject to the lending bank’s approval. There are no commitment fees for anyunused portion of this credit facility. The Company borrowed $11,500,000against this facility to finance the acquisition of Nationwide, described in Note1, and there was $5,750,000 outstanding against this facility at June 30, 2003.There was also a standby letter of credit totaling approximately $351,000outstanding against this facility at June 30, 2003. This standby letter ofcredit was used to secure the Economic Development Revenue Bond assumed as partof the acquisition of Green.

 

The Company’scredit agreement is subject to annual review by the lending bank. Under thisagreement, the Company is required to adhere to certain financial covenants. AtJune 30, 2003 and for the quarter then ended, the Company satisfied all ofthese covenants.

 

Certain of the Company’s mortgage agreements require the Company to adhereto certain financial covenants. At June 30, 2003, and for the six months thenended, the Company satisfied all of these covenants.

 

Capitalspending for the six month ended June 30, 2003 was approximately $646,000,which amounts were provided from working capital. Capital expenditures for theremainder of 2003 are expected to be approximately $540,000, some of which maybe financed through the Company’s credit facilities. Included in the expectedtotal for the remainder of 2003 are capital expenditures relating to newproducts, expansion of existing product lines and replacement of equipment.

 

Operatingactivities provided cash totaling approximately $56,000 and $3,036,000 duringthe six month periods ended June 30, 2003 and 2002, respectively. The Companybelieves that cash on hand derived from operations and cash available throughborrowings under its credit facilities will be sufficient to allow the Companyto meet its foreseeable capital needs.

 

26

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**Off-Balance SheetArrangements**

 

The Company’sforeign exchange line provides for the availability of up to $10,000,000 inforeign currency forward contracts. These contracts fix the exchange rate onfuture purchases of yen needed for payments to foreign suppliers. The totalamount of foreign currency forward contracts outstanding at June 30, 2003, basedon the contracted forward rates, was approximately $1,363,000.

 

The Company, through Florida Pneumatic, imports a significant amount ofits purchases from Japan, with payment due in yen. As a result, the Company issubject to the effects of foreign currency exchange fluctuations. The Companyuses a variety of techniques to protect itself from any adverse effects fromthese fluctuations, including increasing its selling prices, obtaining pricereductions from its overseas suppliers, using alternative supplier sources andentering into foreign currency forward contracts. The increase in the strengthof the yen versus the U.S. dollar over the last 12 months had a negative effecton the Company’s results of operations and its financial position. There can beno assurance as to the future trend of this value. See “Item 3 — Quantitativeand Qualitative Disclosure About Market Risk.”

 

**New Accounting Pronouncements**

 

In April 2002, the FASB issued Statement ofFinancial Accounting Standards No. 145,“Recission of FASB Statement No.4, 44, and 64, Amendment of FASB Statement No.13, and Technical Corrections” (“SFAS 145”), which eliminates theautomatic classification of gain or loss on extinguishment of debt as anextraordinary item of income and requires that such gain or loss be evaluatedfor extraordinary classification under the criteria of Accounting PrinciplesBoard No. 30, “Reporting Results of Operations.” The provisions of SFAS 145related to the recission of Statement 4 are effective for fiscal years beginningafter May 15, 2002. The Company adopted SFAS 145 as of January 1, 2003. InJanuary 2003, the Company recorded a loss of approximately $84,000, included inselling, general and administrative expenses, that resulted from therefinancing of a mortgage.

 

27

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In June 2002,**the FASB issued Statement of FinancialAccounting Standards No. 146,**“Accounting for Costs Associated with Exitor Disposal Activities” (“SFAS 146”).**SFAS146 addresses financial accounting and reporting for costs associated with exitor disposal activities and supersedes Emerging Issues Task Force Issue No.94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in aRestructuring)” (“EITF 94-3”). The principal difference between SFAS 146 andEITF 94-3 relates to the requirements for recognition of a liability for a costassociated with an exit or disposal activity. SFAS 146 requires that aliability for a cost associated with an exit or disposal activity be recognizedwhen the liability is incurred. Under EITF 94-3, a liability was recognized atthe date of an entity’s commitment to an exit plan. SFAS 146 is effective forexit or disposal activities that are initiated after December 31, 2002.The Company did not have any exit or disposal activities since the adoption ofSFAS 146.

 

In June 2003,**the FASB issued Statementof Financial Accounting Standards No. 149,**“Amendments of Statement 133 on DerivativeInstruments and Hedging Activities” (“SFAS 149”).**SFAS 149 amends SFAS 133 and certain other FASB standards for decisions made bythe FASB as part of the DerivativesImplementation Group process. Among other changes, SFAS 149 clarifies thedefinition of a derivative financial instrument. SFAS 149 is generallyeffective for contracts entered into or modified after June 30, 2003. Theprovisions of SFAS 149 that relate to SFAS 133 Implementation Issues that havebeen effective for fiscal quarters that began prior to June 15, 2003 shouldcontinue to be applied in accordance with their respective dates. In addition,certain provisions of SFAS 149 that apply to forward purchases or sales ofwhen-issued securities or other securities that do not yet exist are applicableto both existing contracts and new contracts entered into after June 30, 2003.

 

28

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**Item 3.    Quantitativeand Qualitative Disclosures About Market Risk**

 

The Company isexposed to market risks, which include changes in international exchange ratesand the prices of certain commodities. The Company attempts to reduce the risks related to foreign currencyfluctuation by utilizing financial instruments, pursuant to Company policy.

 

The value of the U.S. dollar affects the Company’s results.  Changes in exchange rates may positively ornegatively affect the Company’s gross margins and operating expenses. TheCompany engages in hedging programs aimed at limiting, in part, the impact ofcurrency fluctuations. Using primarily forward exchange contracts, the Companyhedges some of those transactions that, when remeasured according to accountingprinciples generally accepted in the United States of America, impact thestatement of operations. Factors that could impact the effectiveness of theCompany’s programs include volatility of the currency markets and availabilityof hedging instruments. All currency transactions that are entered into by theCompany are components of hedging programs and are entered into not forspeculation but for the sole purpose of hedging an existing or anticipatedcurrency exposure. The Company does not buy or sell financial instruments fortrading purposes. Although the Company maintains these programs to reduce theimpact of changes in currency exchange rates, when the U.S. dollar sustains aweakening exchange rate against currencies in which the Company incurs costs,the Company’s costs are adversely affected. The Company has various debtinstruments that bear interest at variable rates tied to LIBOR (LondonInterBank Offered Rate). Any increase in LIBOR would have an adverse effect onthe Company’s interest costs.

 

The Company accounts for changes in the fair value of its foreigncurrency contracts by marking them to market and recognizing any resultinggains or losses through its statement of operations. The Company also marks itsyen-denominated payables to market, recognizing any resulting gains or lossesin its statement of operations. At June 30, 2003, the Company had foreigncurrency forward contracts, maturing in 2003, to purchase yen at contractedforward rates. The value of these contracts at June 30, 2003, based on thecontracted forward rates, was approximately $1,363,000, which was theapproximate value of the Company’s yen-denominated accounts payable. During thequarters ended June 30, 2003 and 2002, the Company recorded net realized lossesof approximately $10,000 and $59,000, respectively, on foreign currencytransactions. During the six month periods ended June 30, 2003 and 2002, theCompany recorded net realized losses of approximately $9,000 and $69,000,respectively, on foreign currency transactions. At June 30, 2003, the Companyhad no material unrealized gains or losses on foreign currency transactions.

 

The potential loss in value of the Company’s net investment in foreigncurrency forward contracts resulting from a hypothetical 10 percent adversechange in foreign exchange rates at June 30, 2003 was approximately $150,000.

 

29

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**Item 4.   ****Controls andProcedures**

 

**Evaluation of disclosure controls and procedures**

 

An evaluation was performed, under the supervision of, and with the participation of, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities and Exchange Act of 1934). Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were adequate and effective, as of the end of the period covered by this Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (the “Report”), in timely alerting them to all material information relating to the Company and its consolidated subsidiaries that is required to be included in this Report.

 

**Changes in internal controls**

 

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

 

30

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**PART II - OTHER INFORMATION**

 

**Item1.    Legal Proceedings**

The Company isa defendant or co-defendant in various actions brought about in the ordinarycourse of conducting its business. The Company does not believe that any ofthese actions are material to the financial condition of the Company.

 

**Item 2.    Changesin Securities and Use of Proceeds**

None.

 

**Item 3.    DefaultsUpon Senior Securities**

None.

 

**Item 4.    Submissionof Matters to a Vote of Security Holders**

On May 28,2003, the Registrant held its Annual Meeting of Stockholders, at which twoproposals were voted upon: (i) Election of Directors and (ii) the Appointmentof Auditors.

 

The followingpersons were duly elected to serve, subject to the Company’s Bylaws, asdirectors of the Registrant until the 2006 Annual Meeting of Stockholders, oruntil election and qualification of their successor(s):

 
|             |   | **Votes  in favor** |   | **Votes  against** |   | **Votes  abstained** |   |
|------------------|--------|---------------------|--------|--------------------|--------|----------------------|--------|
| Sidney  Horowitz |   | 2,650,875           |   | 362,599            |   | 0                    |   |
| Dennis Kalick    |   | 2,651,615           |   | 361,859            |   | 0                    |   |

 

The terms ofoffice of Robert L. Dubofsky, Alan I. Goldberg, Richard A. Horowitz, NeilNovikoff, Robert M. Steinberg and Marc A. Utay as directors of the Registrantcontinued after the Annual Meeting of Stockholders.

 

The appointmentof BDO Seidman, LLP as the Company’s auditors was ratified by 2,656,619 votesin favor and 356,013 votes against.

 

There were nobroker non-votes pertaining to these proposals.

 

**Item5.    Other Information**

None.

 

**Item 6.    Exhibitsand Reports on Form 8-K**

**(a)           Exhibits**

See “ExhibitIndex” immediately following the signature page.

 

**(b)           Reports on Form 8-K**

The Registrantfiled a Report on Form 8-K dated May 13, 2003, in which it furnished a pressrelease announcing its first quarter 2003 results under Items 9 and 12 of suchReport.

 

31

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**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                   | **P & F INDUSTRIES, INC.** |                          |
|------------------------|--------------------------------|-------------------------------|
|                   | (Registrant)                   |                          |
|                   |                           |
|                   | By                             | /s/ Joseph A. Molino, Jr.     |   |
|                   |                           | Joseph A. Molino, Jr.         |   |
|                   |                           | Vice President                |   |
|                   |                           | (Principal Financial Officer) |   |
|                   |                           |                          |
|                   |                           |                          |
| Dated: August 13, 2003 |                           |                          |
|                        |                                |                               |  |  |

 

32

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**EXHIBITINDEX**

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

 

33

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| **Exhibit  No.** |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.4              |   | Amendment No. 1 to Credit Agreement, dated  as of September 16, 1998, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, and  European American Bank, a New York banking corporation (Incorporated by  reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 10-K/A for  the fiscal year ended December 31, 1998).                                |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.5              |   | Amendment No. 2 to Credit Agreement, dated  as of July 28, 1999, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, and  European American Bank, a New York banking corporation (Incorporated by  reference to Exhibit 4.5 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended June 30, 1999).                                            |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.6              |   | Amendment No. 3 to Credit Agreement, dated  as of July 26, 2000, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, and  European American Bank, a New York banking corporation (Incorporated by  reference to Exhibit 4.5 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended June 30, 2000).                                            |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.7              |   | Amendment No. 4 to Credit Agreement, dated  as of June 25, 2001, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, and  European American Bank, a New York banking corporation (Incorporated by  reference to Exhibit 4.7 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2001).                                       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.8              |   | Amendment No. 5 to Credit Agreement, dated  as of May 3, 2002, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, and  Citibank, N.A. (successor-in-interest to European American Bank), a New York  banking corporation. (Incorporated by reference to Exhibit 4.7 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,  2002). |

 

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| **Exhibit  No.** |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.9              |   | Amendment No. 6 to Credit Agreement, dated  as of June 13, 2002, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, and  Citibank, N.A. (successor-in-interest to European American Bank), a New York  banking corporation (Incorporated by reference to Exhibit 4.7 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2002).                                                                                                                      |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.10             |   | Amendment No. 7 to Credit Agreement, dated  as of August 1, 2002, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a  Delaware corporation, Nationwide  Industries, Inc.**,** a  Florida corporation, and Citibank, N.A. (successor-in-interest to European  American Bank), a New York banking corporation (Incorporated by reference to  Exhibit 4.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter  ended June 30, 2002).       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.11             |   | Amendment No. 8 to Credit Agreement, dated  as of August 1, 2002, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a  Delaware corporation, Nationwide  Industries, Inc.**,** a  Florida corporation, and Citibank, N.A. (successor-in-interest to European  American Bank), a New York banking corporation (Incorporated by reference to  Exhibit 4.11 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2002). |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.12             |   | Second Amendment and Restated Term Note,  dated as of February 20, 2003, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a  Delaware corporation, Nationwide Industries,  Inc., a Florida corporation, and Citibank, N.A. (successor-in-interest  to European American Bank), a New York banking corporation (Incorporated by  reference to Exhibit 4.11 to the Registrant’s Annual Report on Form 10-K for  the year ended December 31, 2002).      |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.13             |   | Amendment No. 9 to Credit Agreement, dated  as of June 30, 2003, by and among the Registrant, Florida Pneumatic  Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a  New York corporation, Green Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a  Delaware corporation, Nationwide  Industries, Inc., a Florida corporation, and Citibank, N.A.  (successor-in-interest to European American Bank), a New York banking  corporation.                                                                                                                                                    |

 

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| **Exhibit  No.** |   |                                                                                                                                                                                                                                                                                                |
|------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                |
| 4.14             |   | Certain instruments defining the rights of  holders of the long-term debt securities of the Registrant are omitted  pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The  Registrant agrees to furnish supplementally copies of these instruments to  the Commission upon request. |
|             |   |                                                                                                                                                                                                                                                                                                |
| 10.1             |   | Second Amended and Restated Employment  Agreement, dated as of May 30, 2001, between the Registrant and Richard A.  Horowitz (Incorporated by reference to Exhibit 10.1 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).                               |
|             |   |                                                                                                                                                                                                                                                                                                |
| 10.2             |   | Consulting Agreement, effective as of  November 1, 2000, between the Registrant and Sidney Horowitz (Incorporated by  reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2000).                                                  |
|             |   |                                                                                                                                                                                                                                                                                                |
| 10.3             |   | 1992 Incentive Stock Option Plan of the  Registrant, as amended and restated as of March 13, 1997 (Incorporated by  reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K/A  for the fiscal year ended December 31, 1998).                                                  |
|             |   |                                                                                                                                                                                                                                                                                                |
| 10.4             |   | Executive Incentive Bonus Plan of the  Registrant (Incorporated by reference to Exhibit 10.4 to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended December 31, 2001).                                                                                                     |
|             |   |                                                                                                                                                                                                                                                                                                |
| 10.5             |   | 2002 Stock Incentive Plan of the Registrant  (Incorporated by reference to Exhibit 4.7 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended March 31, 2002).                                                                                                               |
|             |   |                                                                                                                                                                                                                                                                                                |
| 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 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 Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   |

 

A copy of anyof the foregoing exhibits to this Quarterly Report on Form 10-Q may beobtained, upon payment of the Registrant’s reasonable expenses in furnishingsuch exhibit, by writing to P & F Industries, Inc., 300 Smith Street,Farmingdale, New York 11735-1114, Attention: Corporate Secretary.

 

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