**UNITED STATES****SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q/A**

 

**Amendment No. 1**

 

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**ý****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)****OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Quarter Ended March 31, 2003**

 

**o****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)****OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission File 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 May 14, 2003, there were 3,503,822 shares of the registrant’sClass A Common Stock outstanding.

 

 

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**P & F INDUSTRIES, INC.**

 

**FORM 10-Q/A**

 

**FOR THE QUARTER ENDED MARCH 31, 2003**

 

**TABLE OF CONTENTS**

 
| **PART I**         |                                                                                         |                                                                                                     |
|--------------------|----------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| Item 1.            | Financial Statements (unaudited)                                                             |                                                                                                     |
|               |                                                                                         |                                                                                                     |   |
|               |                                                                                         | Consolidated Balance Sheets as of  March 31, 2003 and December 31, 2002                                  |   |
|               |                                                                                         |                                                                                                     |   |
|               |                                                                                         | Consolidated Statements of Operations  for the three months ended  March 31, 2003 and 2002 (as restated) |   |
|               |                                                                                         |                                                                                                     |   |
|               |                                                                                         | Consolidated Statement of Shareholders’  Equity  for the three months ended March 31, 2003          |   |
|               |                                                                                         |                                                                                                     |   |
|               |                                                                                         | Consolidated Statements of Cash Flows  for the three months ended  March 31, 2003 and 2002 (as restated) |   |
|               |                                                                                         |                                                                                                     |   |
|               |                                                                                         | 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                                                                      |                                                                                                     |
|               |                                                                                         |                                                                                                     |   |
| **PART II**        |                                                                                         |                                                                                                     |   |
| 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**  |                                                                                         |
|               |                                                                                         |
| **Certifications** |                                                                                         |

 

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**EXPLANATORYNOTE**

 

This Amendment No. 1 on Form 10-Q/A amends and restates Items 1 and 2of Part I contained in the Company’s Quarterly Report on Form 10-Q for thequarter ended March 31, 2003 to give effect to the restatement of the Company’sconsolidated financial statements as of March 31, 2003, as discussed in Note 3of the Notes to Consolidated Financial Statements. Except as set forth in Items1 and 2 of Part I below, the Company has not made any changes to, nor updatedany disclosures contained in, its Quarterly Report on Form 10-Q filed on May14, 2003.

 

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**PARTI - FINANCIAL INFORMATION**

 

**Item 1.****                                                           FinancialStatements**

 

**P& F INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATEDBALANCE SHEETS****(unaudited)**

 
|                                                                                                       |   | **March 31,  2003** |       | **December  31,  2002** |   |
|------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|--------|
| ASSETS                                                                                                     |   |                |       |                    |   |
| CURRENT:                                                                                                   |   |                |       |                    |   |
| Cash                                                                                                       |   | $                   | 2,819,906  |                    | $      | 1,024,222 |   |
| Accounts receivable, less allowance for  possible losses of $376,097 in 2003 and $354,441 in 2002 (Note 8) |   | 10,654,035          |       | 10,864,261              |   |
| Inventories (Note 7)                                                                                       |   | 21,956,203          |       | 19,580,073              |   |
| Deferred income taxes - net                                                                                |   | 485,000             |       | 485,000                 |   |
| Prepaid expenses and other                                                                                 |   | 1,063,304           |       | 1,080,313               |   |
| TOTAL CURRENT ASSETS                                                                                       |   | 36,978,448          |       | 33,033,869              |   |
|                                                                                                       |   |                |       |                    |   |
| PROPERTY AND EQUIPMENT (Note 8):                                                                           |   |                |       |                    |   |
| Land                                                                                                       |   | 1,582,938           |       | 1,582,938               |   |
| Buildings and improvements                                                                                 |   | 8,917,405           |       | 8,811,117               |   |
| Machinery and equipment                                                                                    |   | 14,703,516          |       | 14,514,353              |   |
|                                                                                                       |   | 25,203,859          |       | 24,908,408              |   |
| Less accumulated depreciation and amortization                                                             |   | 11,844,431          |       | 11,409,203              |   |
| NET PROPERTY AND EQUIPMENT                                                                                 |   | 13,359,428          |       | 13,499,205              |   |
|                                                                                                       |   |                |       |                    |   |
| GOODWILL, net of accumulated amortization  of $1,419,274 (Note 2)                                          |   | 10,285,621          |       | 10,210,621              |   |
|                                                                                                       |   |                |       |                    |   |
| OTHER INTANGIBLE ASSETS, net of accumulated  amortization of $487,667 and $354,667                         |   | 2,172,333           |       | 2,305,333               |   |
|                                                                                                       |   |                |       |                    |   |
| OTHER ASSETS, net of accumulated  amortization of $162,853 and $180,858                                    |   | 127,649             |       | 118,528                 |   |
| TOTAL ASSETS                                                                                               |   | $                   | 62,923,479 |                    | $      | 59,167,556 |   |

 

See accompanying notes to consolidated financial statements(unaudited).

 

1

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**P & F INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED BALANCE SHEETS****(unaudited)**
|                                                                                        |   | **March 31,  2003** |       | **December  31,  2002** |   |
|---------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|--------|
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                   |   |                |       |                    |   |
| CURRENT LIABILITIES:                                                                        |   |                |       |                    |   |
| Short-term borrowings (Note 8)                                                              |   | $                   | 7,500,000  |                    | $      | 4,500,000 |   |
| Accounts payable                                                                            |   | 4,704,390           |       | 2,860,271               |   |
| Accruals:                                                                                   |   |                |       |                    |   |
| Compensation                                                                                |   | 800,520             |       | 2,112,377               |   |
| Other (Note 9)                                                                              |   | 2,209,667           |       | 2,379,962               |   |
| Current maturities of long-term debt (Note  8)                                              |   | 1,755,791           |       | 1,402,547               |   |
| TOTAL CURRENT LIABILITIES                                                                   |   | 16,970,368          |       | 13,255,157              |   |
|                                                                                        |   |                |       |                    |   |
| LONG-TERM DEBT, less current maturities  (Note 8)                                           |   | 11,163,292          |       | 11,591,989              |   |
|                                                                                        |   |                |       |                    |   |
| DEFERRED INCOME TAXES - net                                                                 |   | 448,000             |       | 497,000                 |   |
| TOTAL LIABILITIES                                                                           |   | 28,581,660          |       | 25,344,146              |   |
|                                                                                        |   |                |       |                    |   |
| COMMITMENTS AND CONTINGENCIES  (Notes 8 and 9)                                              |   |                |       |                    |   |
|                                                                                        |   |                |       |                    |   |
| SHAREHOLDERS’ EQUITY (Note 10):                                                        |   |                |       |                    |   |
| Preferred stock - $10 par;  authorized - 2,000,000 shares;  no shares outstanding           |   | —              |       | —                  |   |
| Common stock:  Class A - $1 par;  authorized - 7,000,000 shares;  issued - 3,690,367 shares |   | 3,690,367           |       | 3,690,367               |   |
| Class B - $1 par;  authorized - 2,000,000 shares;  no shares issued or outstanding          |   | —              |       | —                  |   |
| Additional paid-in capital                                                                  |   | 8,540,528           |       | 8,540,528               |   |
| Retained earnings                                                                           |   | 23,587,244          |       | 22,997,016              |   |
| Treasury stock, at cost  (186,845 and 176,045 shares)                                       |   | (1,476,320          | )          | (1,404,501              | )      |
| TOTAL SHAREHOLDERS’ EQUITY                                                             |   | 34,341,819          |       | 33,823,410              |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                             |   | $                   | 62,923,479 |                    | $      | 59,167,556 |   |

 

See accompanying notes to consolidated financial statements(unaudited).

 

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**P& F INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATEDSTATEMENTS OF OPERATIONS****(unaudited)**

 
|                                                                                      |   | **Three  months ended  March 31,** |       |
|-------------------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                                      |   | **2003**                           |       | **2002** |   |
|                                                                                      |   |                               |       | **(restated  - see Note 2)** |   |
| REVENUES (Note 11):                                                                       |   |                               |       |   |   |
| Net sales                                                                                 |   | $                                  | 19,355,770 |   | $ | 17,037,755 |   |
| Other                                                                                     |   | 126,106                            |       | 58,964 |   |
|                                                                                      |   | 19,481,876                         |       | 17,096,719 |   |
|                                                                                      |   |                               |       |   |   |
| COSTS AND EXPENSES:                                                                       |   |                               |       |   |   |
| Cost of sales                                                                             |   | 13,479,502                         |       | 12,004,222 |   |
| Selling, general and administrative                                                       |   | 4,870,825                          |       | 4,089,063 |   |
| Interest – net                                                                       |   | 187,321                            |       | 101,772 |   |
|                                                                                      |   | 18,537,648                         |       | 16,195,057 |   |
|                                                                                      |   |                               |       |   |   |
| INCOME BEFORE TAXES ON INCOME AND  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE    |   | 944,228                            |       | 901,662 |   |
|                                                                                      |   |                               |       |   |   |
| TAXES ON INCOME                                                                           |   | 354,000                            |       | 348,000 |   |
|                                                                                      |   |                               |       |   |   |
| INCOME BEFORE CUMULATIVE EFFECT OF CHANGE  IN ACCOUNTING PRINCIPLE                        |   | 590,228                            |       | 553,662 |   |
|                                                                                      |   |                               |       |   |   |
| CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLE, NET OF TAXES OF $1,668,000 (NOTE 2) |   | —                             |       | (3,239,118 | ) |
|                                                                                      |   |                               |       |   |   |
| NET INCOME (LOSS)                                                                         |   | $                                  | 590,228    |   | $ | (2,685,456 | ) |

 

See accompanying notes to consolidated financial statements(unaudited).

 

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|                                                               |   | **Three  months ended  March 31,** |   |
|--------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                               |   | **2003**                           |   | **2002** |   |
|                                                               |   |                               |   | **(restated  - see Note 2)** |   |
|                                                               |   |                               |   |   |   |
| Weighted average common shares outstanding  (Note 12):             |   |                               |   |   |   |
| Basic                                                              |   | 3,506,086                          |   | 3,510,605 |   |
|                                                               |   |                               |   |   |   |
| Diluted                                                            |   | 3,574,715                          |   | 3,587,347 |   |
|                                                               |   |                               |   |   |   |
| Earnings (loss) per share of common stock  (Note 12):              |   |                               |   |   |   |
|                                                               |   |                               |   |   |   |
| Basic:                                                             |   |                               |   |   |   |
| Income before cumulative effect of change  in accounting principle |   | $                                  | .17    |   | $ | .16 |   |
|                                                               |   |                               |   |   |   |
| Cumulative effect of change in accounting  principle, net of taxes |   | —                             |   | (.92 | ) |
|                                                               |   |                               |   |   |   |
| Net income (loss)                                                  |   | $                                  | .17    |   | $ | (.76 | ) |
|                                                               |   |                               |   |   |   |
| Diluted:                                                           |   |                               |   |   |   |
| Income before cumulative effect of change  in accounting principle |   | $                                  | .16    |   | $ | .15 |   |
|                                                               |   |                               |   |   |   |
| Cumulative effect of change in accounting  principle, net of taxes |   | —                             |   | (.90 | ) |
|                                                               |   |                               |   |   |   |
| Net income (loss)                                                  |   | $                                  | .16    |   | $ | (.75 | ) |

 

See accompanying notes to consolidated financial statements(unaudited).

 

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**P & FINDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY****(unaudited)**

 
|                                                  |   | **Common  stock** |      | **Additional  paid-in  capital** |   | **Retained  earnings** |   | **Treasury  stock** |       |
|-------------------------------------------------------|--------|-------------------|-----------|----------------------------------|--------|------------------------|--------|---------------------|------------|
|                                                  |   |              |      |                             |   |                   |   |                |       |
| Balance,  January 1, 2003                             |   | $                 | 3,690,367 |                             | $      | 8,540,528              |   | $                   | 22,997,016 |   | $ | (1,404,501 | ) |
|                                                  |   |              |      |                             |   |                   |   |                |       |
| Net income for the three months ended March  31, 2003 |   | —            |      | —                           |   | 590,228                |   | —              |       |
|                                                  |   |              |      |                             |   |                   |   |                |       |
| Purchase of Class A Common Stock (Note 10)            |   | —            |      | —                           |   | —                 |   | (71,819             | )          |
| Balance,  March 31, 2003                              |   | $                 | 3,690,367 |                             | $      | 8,540,528              |   | $                   | 23,587,244 |   | $ | (1,476,320 | ) |

 

See accompanying notes to consolidated financial statements(unaudited).

 

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**P& F INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATEDSTATEMENTS OF CASH FLOWS****(unaudited)**

 
|                                                                                                |   | **Three  months ended  March 31,** |    |
|-----------------------------------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                                                |   | **2003**                           |    | **2002** |   |
|                                                                                                |   |                               |    | **(restated  - see Note 2)** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                               |   |                               |    |   |   |
| Net income (loss)                                                                                   |   | $                                  | 590,228 |   | $ | (2,685,456 | ) |
| Adjustments to reconcile net income (loss)  to net cash (used in) provided by operating activities: |   |                               |    |   |   |
| Cumulative effect of change in accounting  for goodwill - net of taxes                              |   | —                             |    | 3,239,118 |   |
| Depreciation and amortization                                                                       |   | 435,228                            |    | 368,944 |   |
| Amortization of intangible assets                                                                   |   | 148,808                            |    | 4,295 |   |
| Provision for losses on accounts receivable  - net                                                  |   | 21,656                             |    | 6,251 |   |
| Deferred income taxes                                                                               |   | (49,000                            | )       | — |   |
| Decrease (increase) in:                                                                             |   |                               |    |   |   |
| Accounts receivable                                                                                 |   | 188,570                            |    | (1,932,484 | ) |
| Inventories                                                                                         |   | (2,376,130                         | )       | 924,959 |   |
| Prepaid expenses and other                                                                          |   | 12,916                             |    | (39,048 | ) |
| Other assets                                                                                        |   | (20,836                            | )       | — |   |
| Increase (decrease) in:                                                                             |   |                               |    |   |   |
| Accounts payable                                                                                    |   | 1,844,119                          |    | 1,150,240 |   |
| Accruals and other                                                                                  |   | (1,482,152                         | )       | (471,209 | ) |
| Total adjustments                                                                                   |   | (1,276,821                         | )       | 3,251,066 |   |
| Net cash (used in) provided by operating  activities                                                |   | (686,593                           | )       | 565,610 |   |
|                                                                                                |   |                               |    |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                               |   |                               |    |   |   |
| Capital expenditures                                                                                |   | (295,451                           | )       | (293,132 | ) |
| Additional payments for purchase of  Nationwide Industries, Inc.                                    |   | (75,000                            | )       | — |   |
| Payment for acquisition of product line                                                             |   | —                             |    | (397,940 | ) |
| Net cash used in investing activities                                                               |   | (370,451                           | )       | (691,072 | ) |
|                                                                                                     |        |                                    |         |  |  |  |  |

 

See accompanying notes to consolidated financial statements(unaudited).

 

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|                                                 |   | **Three  months ended  March 31,** |      |
|------------------------------------------------------|--------|------------------------------------|-----------|
|                                                 |   | **2003**                           |      | **2002** |   |
|                                                 |   |                               |      | **(restated  - see Note 2)** |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                |   |                               |      |   |   |
| Proceeds from short-term borrowings                  |   | 3,000,000                          |      | 800,000 |   |
| Repayments of short-term borrowings                  |   | —                             |      | (1,000,000 | ) |
| Proceeds from mortgage                               |   | 1,697,301                          |      | — |   |
| Principal payments on long-term debt                 |   | (1,772,754                         | )         | (37,809 | ) |
| Purchase of Class A Common Stock                     |   | (71,819                            | )         | (100,800 | ) |
| Net cash provided by (used in) financing  activities |   | 2,852,728                          |      | (338,609 | ) |
|                                                 |   |                               |      |   |   |
| NET INCREASE (DECREASE) IN CASH                      |   | 1,795,684                          |      | (464,071 | ) |
|                                                 |   |                               |      |   |   |
| CASH AT BEGINNING OF PERIOD                          |   | 1,024,222                          |      | 507,833 |   |
|                                                 |   |                               |      |   |   |
| CASH AT END OF PERIOD                                |   | $                                  | 2,819,906 |   | $ | 43,762 |   |
|                                                 |   |                               |      |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:   |   |                               |      |   |   |
|                                                 |   |                               |      |   |   |
| Cash paid during the period for:                     |   |                               |      |   |   |
|                                                 |   |                               |      |   |   |
| Income taxes                                         |   | $                                  | —    |   | $ | 2,500 |   |
|                                                 |   |                               |      |   |   |
| Interest                                             |   | $                                  | 197,846   |   | $ | 107,635 |   |

 

See accompanying notes to consolidated financial statements(unaudited).

 

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**P& F INDUSTRIES, INC. AND SUBSIDIARIES****NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

 

**NOTE 1 - PRINCIPLES OF CONSOLIDATION**

 

The unaudited consolidated financial statements contained herein includethe 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 11 of the Notes to Consolidated Financial Statementspresents financial information for the segments of the Company’s business.

 

**NOTE 2 - BASIS OF FINANCIAL STATEMENTPRESENTATION 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 interimfinancial reporting. Accordingly, these interim financial statements do notinclude all of the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. In the opinion of the Company, these unaudited consolidatedfinancial statements include all adjustments necessary to present fairly theinformation set forth therein. All such adjustments are of a normal recurring nature.Results for interim periods are not necessarily indicative of results to beexpected for a full year.

 

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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 Financial Accounting StandardsBoard Statement of Financial Accounting Standards No. 142, “Goodwill and OtherIntangible Assets.”

 

The statementof operations and the statement of cash flows for the quarter ended March 31,2002 have been retroactively restated to give effect to the cumulative effectof change in accounting principle.

 

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**NOTE 3 – RESTATEMENT OF PREVIOUSLY ISSUEDFINANCIAL STATEMENTS**

 

Subsequent to the issuance of the Company’sconsolidated financial statements as of March 31, 2003, filed as part of itsQuarterly Report on Form 10-Q filed on May 14, 2003, the Company determinedthat it needed to revise its provision for taxes on income in previously issuedfinancial statements. This change resulted from the amortization of a deferredtax liability, not previously recorded, related to the acquisition ofNationwide. The Company’s consolidated financial statements as of March 31,2003 and for the three months ended March 31, 2003 have been restated from theamounts previously reported.

 

Certain balance sheet amounts at December 31,2002 have been reclassified to conform with the current year’s presentation.

 

The following is a summary of the effects ofthe restatements:

 
|                                            |   | **March 31,  2003**      |       |
|-------------------------------------------------|--------|--------------------------|------------|
|                                            |   | **Previously  reported** |       | **Restated** |   |
|                                            |   |                     |       |   |   |
| Deferred income taxes                           |   | $                        | 695,000    |   | $ | 485,000 |   |
|                                            |   |                     |       |   |   |
| Total current assets                            |   | 37,188,448               |       | 36,978,448 |   |
|                                            |   |                     |       |   |   |
| Deferred income taxes                           |   | 1,377,000                |       | — |   |
|                                            |   |                     |       |   |   |
| Goodwill                                        |   | 9,313,621                |       | 10,285,621 |   |
|                                            |   |                     |       |   |   |
| Total assets                                    |   | 63,538,479               |       | 62,923,479 |   |
|                                            |   |                     |       |   |   |
| Accruals – other                           |   | 2,075,667                |       | 2,209,667 |   |
|                                            |   |                     |       |   |   |
| Deferred income taxes                           |   | 210,000                  |       | — |   |
|                                            |   |                     |       |   |   |
| Total current liabilities                       |   | 17,046,368               |       | 16,970,368 |   |
|                                            |   |                     |       |   |   |
| Deferred income taxes                           |   | 1,031,000                |       | 448,000 |   |
|                                            |   |                     |       |   |   |
| Total liabilities                               |   | 29,240,660               |       | 28,581,660 |   |
|                                            |   |                     |       |   |   |
| Retained earnings                               |   | 23,543,244               |       | 23,587,244 |   |
|                                            |   |                     |       |   |   |
| Total shareholders’ equity                 |   | 34,297,819               |       | 34,341,819 |   |
|                                            |   |                     |       |   |   |
| Total liabilities and shareholders’ equity |   | $                        | 63,538,479 |   | $ | 62,923,479 |   |

 

10

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**CONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                                              |   | **Three  months ended  March 31, 2003** |    |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                              |   | **Previously  reported**                |    | **Restated** |   |
|                                                                              |   |                                    |    |   |   |
| Taxes on income                                                                   |   | $                                       | 398,000 |   | $ | 354,000 |   |
|                                                                              |   |                                    |    |   |   |
| Income before cumulative effect of change  in accounting principle and Net income |   | $                                       | 546,228 |   | $ | 590,228 |   |
|                                                                              |   |                                    |    |   |   |
| Earnings per share of common stock:                                               |   |                                    |    |   |   |
| Income before cumulative effect Of change  in accounting principle and Net income |   |                                    |    |   |   |
| Basic                                                                             |   | $                                       | .16     |   | $ | .17 |   |
|                                                                              |   |                                    |    |   |   |
| Diluted                                                                           |   | $                                       | .15     |   | $ | .16 |   |

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
|                                                                           |   | **Three  months ended  March 31, 2003** |       |
|--------------------------------------------------------------------------------|--------|-----------------------------------------|------------|
|                                                                           |   | **Previously  reported**                |       | **Restated** |   |
|                                                                           |   |                                    |       |   |   |
| Cash flows from operating activities:                                          |   |                                    |       |   |   |
| Net income                                                                     |   | $                                       | 546,228    |   | $ | 590,228 |   |
|                                                                           |   |                                    |       |   |   |
| Adjustments to reconcile net income to net  cash used in operating activities: |   |                                    |       |   |   |
| (Decrease) increase in:                                                        |   |                                    |       |   |   |
| Deferred income taxes                                                          |   | —                                  |       | (49,000 | ) |
|                                                                           |   |                                    |       |   |   |
| Accruals and other                                                             |   | (1,487,152                              | )          | (1,482,152 | ) |
|                                                                           |   |                                    |       |   |   |
| Total adjustments                                                              |   | $                                       | (1,232,281 | ) | $ | (1,276,281 | ) |

 

11

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**NOTE 4 - STOCK-BASED COMPENSATION**

 

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 Stock BasedCompensation – Transition and Disclosure”, which requires prominent disclosuresin both annual and interim financial statements about the method of accountingfor stock-based employee compensation and the effect of the method on reportedresults.

 

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 quarters ended March 31, 2003 and March 31,2002.

 

**NOTE 5 – FOREIGN CURRENCY 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 March 31, 2003, the Company had foreigncurrency forward contracts, maturing in 2003, to purchase Japanese yen atcontracted forward rates. The value of these contracts at March 31, 2003 wasapproximately $1,984,000, which was the approximate value of the Company’scorresponding yen-denominated accounts payable. During the quarter ended March31, 2003, the Company recorded net realized gains of approximately $1,000 onforeign currency transactions. During the quarter ended March 31, 2002, theCompany recorded net realized losses of approximately $10,000 on foreigncurrency transactions. At March 31, 2003, the Company had no materialunrealized gains or losses on foreign currency transactions.

 

12

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**NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS**

 

In April 2002,the Financial Accounting Standards Board issued Statement of FinancialAccounting 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 yearsbeginning after May 15, 2002. The Company adopted SFAS 145 as of January 1,2003. During the quarter ended March 31, 2003, the Company recorded a loss ofapproximately $84,000, included in selling, general and administrativeexpenses, that resulted from the refinancing of a mortgage.

 

In June 2002,**theFinancial Accounting Standards Board 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.

 

**NOTE 7- INVENTORIES**

 

Major classes of inventory were as follows:

 

|                       |   | **March 31,2003** |       | **December 31,  2002** |   |
|----------------------------|--------|-------------------|------------|------------------------|--------|
| Raw materials and supplies |   | $                 | 3,351,888  |                   | $      | 3,566,161 |   |
| Work in process            |   | 836,928           |       | 754,857                |   |
| Finished goods             |   | 17,767,387        |       | 15,259,055             |   |
|                       |   | $                 | 21,956,203 |                   | $      | 19,580,073 |   |

 

 

13

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**NOTE 8– SHORT-TERM BORROWINGS AND LONG-TERMDEBT**

 

The Company’s credit agreement with a bank includes a revolving creditloan facility, which provides a total of $12,000,000, with various sublimits,for direct borrowings, letters of credit, bankers’ acceptances and equipmentloans. There are no commitment fees for any unused portion of this creditfacility. At March 31, 2003, there was $7,500,000 outstanding against therevolving credit loan facility. There was also a commitment of approximately$55,000 at March 31, 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 (London InterBankOffered Rate) plus 1.6%. The prime interest rate at March 31, 2003 was 4.25%and LIBOR was approximately 1.3%. The prime interest rate at March 31, 2002 was4.75% and LIBOR was approximately 1.9%.

 

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 ofJapanese yen needed for payments to foreign suppliers. The total amount offoreign currency forward contracts outstanding at March 31, 2003 wasapproximately $1,984,000.

 

Under the terms of the Company’s credit agreement, the Company isrequired to adhere to certain financial covenants. At March 31, 2003, and forthe three months then ended, the Company satisfied all of these covenants. Thecredit agreement, which expires in July 2003, is subject to annual review bythe lending bank.

 

The term loan facility, whichis part of the Company’s credit agreement with a bank, provides a commitment of$15,000,000 to finance acquisitions subject to the lending bank’s approval. TheCompany borrowed $11,500,000 against this facility to finance the acquisitionof Nationwide Industries, Inc., described in Note 1, and there was $7,500,000outstanding against this facility at March 31, 2003. There was also a standbyletter of credit totaling approximately $351,000 outstanding against thisfacility at March 31, 2003. This standby letter of credit is used to secure theEconomic Development Revenue Bond assumed as part of the acquisition of Green.

 

On January 24, 2003, Embassy refinanced its existing mortgage. The newmortgage, which was payable monthly through May 2006, bore interest at 8.16%.The new mortgage, which is payable monthly through January 2010, bears interestat LIBOR plus 155 basis points.

 

14

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**NOTE 9 - WARRANTY LIABILITY**

 

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 and that the judgment applied is appropriate, the estimatedliability for the product warranties could differ materially from future actualwarranty costs.

 

Changes in the Company’s warranty liability,included in other accrued liabilities, for the three month periods endedMarch 31, 2003 and March 31, 2002 were as follows:

 

|                                                                |   | **Three  months ended  March 31,** |    |
|---------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                |   | **2003**                           |    | **2002** |   |
|                                                                |   |                               |    |   |   |
| Balance, beginning of period                                        |   | $                                  | 186,513 |   | $ | 198,384 |   |
|                                                                |   |                               |    |   |   |
| Warranties issued and changes in estimated pre-existing  warranties |   | 114,898                            |    | 134,369 |   |
|                                                                |   |                               |    |   |   |
| Actual warranty costs/settlements                                   |   | (105,849                           | )       | (126,239 | ) |
| Balance, end of period                                              |   | $                                  | 195,562 |   | $ | 206,514 |   |

 

**NOTE 10 - CAPITAL STOCK TRANSACTIONS**

 

During the three months ended March 31, 2003, the Company purchased10,800 shares of Class A Common Stock, at a cost of $71,819.

 

15

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**NOTE 11 - SEGMENTS OF BUSINESS**

 

Thefollowing tables present financial information by segment for the quartersended March 31, 2003 and 2002. Segment profit (loss) excludes general corporateexpenses, interest expense and income taxes. There were no intersegmentrevenues.

 
| **Three months ended  March 31, 2003** |   | **Con-  solidated** |   | **Pneumatic  tools** |   | **Hardware** |   | **Hydraulic  cylinders** |   | **Heating  equipment** |   |
|----------------------------------------|--------|---------------------|--------|----------------------|--------|--------------|--------|--------------------------|--------|------------------------|--------|
| **(In thousands)**                     |   |                |   |                 |   |         |   |                     |   |                   |   |
|                                   |   |                |   |                 |   |         |   |                     |   |                   |   |
| Revenues from external customers       |   | $                   | 19,482 |                 | $      | 10,341       |   | $                        | 4,250  |                   | $      | 2,862 |   | $ | 2,029 |   |
|                                   |   |                |   |                 |   |         |   |                     |   |                   |   |
| Segment profit (loss)                  |   | $                   | 2,014  |                 | $      | 1,769        |   | $                        | 605    |                   | $      | (216 | ) | $ | (144 | ) |
|                                   |   |                |   |                 |   |         |   |                     |   |                   |   |
| Identifiable assets at March 31, 2003  |   | $                   | 59,929 |                 | $      | 25,134       |   | $                        | 20,614 |                   | $      | 8,803 |   | $ | 5,378 |   |
| Corporate assets                       |   | 2,994               |   |                 |   |         |   |                     |   |                   |   |
| Total assets at March 31, 2003         |   | $                   | 62,923 |                 |   |         |   |                     |   |                   |   |   |

 

16

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| **Three months ended  March 31, 2002**               |   | **Con-  solidated** |   | **Pneumatic  tools** |   | **Hardware** |   | **Hydraulic  cylinders** |   | **Heating  equipment** |   |
|------------------------------------------------------|--------|---------------------|--------|----------------------|--------|--------------|--------|--------------------------|--------|------------------------|--------|
| **(restated – see Note 2)  (In thousands)**     |   |                |   |                 |   |         |   |                     |   |                   |   |
|                                                 |   |                |   |                 |   |         |   |                     |   |                   |   |
| Revenues from external customers                     |   | $                   | 17,097 |                 | $      | 10,009       |   | $                        | 1,464  |                   | $      | 3,343 |   | $ | 2,281 |   |
|                                                 |   |                |   |                 |   |         |   |                     |   |                   |   |
| Segment profit (loss)                                |   | $                   | 1,770  |                 | $      | 1,737        |   | $                        | 25     |                   | $      | (94 | ) | $ | 102 |   |
|                                                 |   |                |   |                 |   |         |   |                     |   |                   |   |
| Cumulative effect of change in accounting  principle |   | $                   | (3,239 | )                    | $      | —       |   | $                        | — |                   | $      | (3,239 | ) | $ | — |   |
|                                                 |   |                |   |                 |   |         |   |                     |   |                   |   |
| Identifiable assets at March 31, 2002                |   | $                   | 46,271 |                 | $      | 24,576       |   | $                        | 2,826  |                   | $      | 13,587 |   | $ | 5,282 |   |
| Corporate assets                                     |   | 1,093               |   |                 |   |         |   |                     |   |                   |   |
| Total assets at March 31, 2002                       |   | $                   | 47,364 |                 |   |         |   |                     |   |                   |   |   |

 

The reconciliation of combined operating profits for reportablesegments to consolidated income before income taxes and cumulative effect ofchange in accounting principle is as follows:

 

|                                                                         |   | **Three  months ended  March 31,** |      |
|------------------------------------------------------------------------------|--------|------------------------------------|-----------|
|                                                                         |   | **2003**                           |      | **2002** |   |
| Total profit for reportable segments                                         |   | $                                  | 2,013,845 |   | $ | 1,770,133 |   |
|                                                                         |   |                               |      |   |   |
| General corporate expenses                                                   |   | (882,296                           | )         | (766,699 | ) |
|                                                                         |   |                               |      |   |   |
| Interest expense - net                                                       |   | (187,321                           | )         | (101,772 | ) |
| Income before taxes and cumulative effect  of change in accounting principle |   | $                                  | 944,228   |   | $ | 901,662 |   |

 

17

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**NOTE 12 - EARNINGS (LOSS) PER SHARE**

 

The following table sets forth the computation of basic and dilutedearnings per common share:

 

|                                                                                                                 |   | **Three  months ended  March 31,** |          |
|----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|---------------|
|                                                                                                                 |   | **2003**                           |          | **2002** |   |
|                                                                                                                 |   |                               |          | **(restated  - see Note 2)** |   |
| Numerator:                                                                                                           |   |                               |          |   |   |
| Numerator for basic and diluted earnings  (loss) per common share:                                                   |   |                               |          |   |   |
| Income before cumulative effect of change  in accounting principle                                                   |   | $                                  | 590,228       |   | $ | 553,662 |   |
|                                                                                                                 |   |                               |          |   |   |
| Cumulative effect of change in accounting  principle                                                                 |   | —                             |          | (3,239,118 | ) |
|                                                                                                                 |   |                               |          |   |   |
| Net income (loss)                                                                                                    |   | $                                  | 590,228  |   | $ | (2,685,456 | ) |
|                                                                                                                 |   |                               |          |   |   |
| Denominator:                                                                                                         |   |                               |          |   |   |
| Denominator for basic earnings per common  share – weighted average common shares outstanding                   |   | 3,506,086                          |          | 3,510,605 |   |
|                                                                                                                 |   |                               |          |   |   |
| Effect of dilutive securities: Common stock  options                                                                 |   | 68,629                             |          | 76,742 |   |
|                                                                                                                 |   |                               |          |   |   |
| Denominator for diluted earnings per common  share - adjusted weighted average common shares and assumed conversions |   | 3,574,715                          |          | 3,587,347 |   |

 

There were outstanding during the three month periods ended March 31,2003 and 2002 stock options whose exercise prices were higher than the averagemarket values for the respective periods. These options are anti-dilutive andare excluded from the computation of earnings (loss) per share. The weightedaverage anti-dilutive stock options outstanding were as follows:

 

|                                                      |   | **Three  months ended  March 31,** |   |
|-----------------------------------------------------------|--------|------------------------------------|--------|
|                                                      |   | **2003**                           |   | **2002** |   |
| Weighted average anti-dilutive stock  options outstanding |   | 253,664                            |   | 189,000 |   |

 

18

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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 that affectthe reported amounts of assets, liabilities, revenues and expenses, and therelated disclosure of contingent assets and liabilities. On an ongoing basis,the Company evaluates estimates, including those related to bad debts,inventory reserves, intangible assets, income taxes and contingencies. TheCompany bases its estimates on historical data and experience, when available,and on various 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 baddebts, returns and other allowances are recorded at the time of the sale.  Shipping charges to customers and relatedexpenses that are included in selling, general and administrative expenses areimmaterial.

 

**Allowance for Doubtful Accounts**

 

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

 

19

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**Inventories**

 

Inventories are valued at the lower of cost or market. Cost isdetermined by the first-in, first-out method. The inventory balance, whichincludes materials, labor and manufacturing overhead costs, is recorded net ofan allowance for obsolete or unmarketable inventory. Such allowance is basedupon both historical experience and management’s understanding of marketconditions and forecasts of future product demand. If the actual amount ofobsolete or unmarketable inventory significantly exceeds the estimatedallowance, the Company’s cost of sales, gross profit and net income would besignificantly affected.

 

**Goodwilland Other Intangible Assets**

 

The Company’soperational policy for the assessment and measurement of any impairment in thevalue of goodwill and other intangible assets that is other than temporary isto evaluate annually, with the help of independent third-party appraisals, therecoverability and remaining life of its goodwill and other intangible assetsto determine the fair value of these assets. The methodologies to be used toestimate fair value include the use of estimates and assumptions, includingprojected revenues, earnings and cash flows. If the fair value of any of theseassets is determined to be less than its carrying value, the Company willreflect the impairment of any such asset through a reduction in its carryingvalue, in an amount equal to the excess of the carrying value of the asset overits appraised value.

 

**Long-Lived Assets**

 

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

 

20

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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 earningsbefore interest and taxes over $2,500,000, for each of the five twelve-monthperiods subsequent to the acquisition date, which contingent payments will betreated as additions to goodwill. Countrywide conducts its business throughNationwide and Franklin. The assets of Franklin were transferred from Embassyto Countrywide on December 30, 2002.

 

21

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**Results of Operations**

 

**Quarters ended March 31, 2003 and March 31,2002**

 

Consolidatedrevenues increased 14.0%, from $17,096,719 to $19,481,876. Revenues frompneumatic tools and related equipment increased 3.3%, from $10,008,910 to$10,340,409, due primarily to strong promotions by a major customer, partiallyoffset by price concessions at a significant customer and a base volumedecrease. Selling prices of pneumatic tools and related equipment wereunchanged from the prior year’s first quarter, with the exception of prices toa significant customer, which were substantially reduced early in the fourthquarter of 2002. Revenues from hardware products increased 190.3%, from$1,464,279 to $4,250,034, due primarily to the acquisition of Nationwide, whichhad revenues of approximately $2,900,000 in the first quarter of 2003. Thisincrease was partially offset by a decrease of 8.3% at Franklin, as asignificant customer declared bankruptcy in the first quarter of 2003. Sellingprices of hardware products were unchanged from the first quarter of 2002.Revenues from hydraulic cylinders and other equipment decreased 14.4%, from$3,343,175 to $2,862,247, due primarily to the phasing out of a major customerin the first quarter of 2002 and to continued depressed conditions in therefuse market, partially offset by increased sales in the access andconstruction sectors. Selling prices of hydraulic cylinders and other equipmentwere virtually unchanged from the first quarter of 2002. Revenues from heatingproducts decreased 11.0%, from $2,280,355 to $2,029,186, due primarily to theweakness in baseboard heating demand, which continues to suffer from poorhousing starts in the Northeast. Selling prices of heating products wereunchanged from the comparable quarter of the prior year.

 

Consolidatedgross profit, as a percentage of revenues, increased from 29.8% to 30.8%. Grossprofit from pneumatic tools and related equipment was unchanged at 36.9%. Grossprofit from hardware products increased from 25.2% to 32.1%, due primarily tothe addition of Nationwide’s higher margin OEM business, which joined theproduct mix in the second quarter of 2002. Gross profit from hydrauliccylinders and other equipment decreased from 9.1% to 7.4%, due primarily to thedecrease in revenues, which reduced coverage of fixed expenses. Gross profitfrom heating equipment decreased from 32.0% to 29.9%, due primarily toincreased material costs, a change in product mix and a weakening of the U.S.dollar versus the euro, which increased the cost of imported products.

 

22

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Consolidatedselling, general and administrative expenses increased 19.1%, from $4,089,063to $4,870,825, due primarily to the addition of approximately $440,000 of theseexpenses at Nationwide and to a loss of approximately $84,000 that resultedfrom the refinancing of Embassy’s mortgage, and, to a lesser extent, toincreased compensation tied to higher profitability and to increased expensesrelated to additional reporting and control requirements. These increases werepartially offset by substantial decreases resulting from cost-cutting effortsin all of the segments. As a percentage of revenues, selling, general and administrativeexpenses increased, from 23.9% to 25.0%, due primarily to the increasedexpenses discussed above.

 

Interestexpense increased 84.1%, from $101,772 to $187,321, due primarily to increasedborrowings to finance the Nationwide acquisition. The overall increase was netof decreases resulting from lower interest rates on the Company’s revolverborrowings and a refinanced mortgage.

 

The effectivetax rates for the quarters ended March 31, 2003 and 2002 were 37.5% and 38.6%,respectively.

 

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 Financial AccountingStandards Board Statement of Financial Accounting Standards No. 142, “Goodwilland Other Intangible Assets.”

 

23

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**Liquidity and capital resources**

 

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

 

|                      |   | **March 31,2003** |   | **December 31,  2002** |   | **March 31,  2002** |   |
|---------------------------|--------|-------------------|--------|------------------------|--------|---------------------|--------|
| Working Capital           |   | $                 | 20,008 |                   | $      | 19,779              |   | $ | 21,114 |   |
| Current Ratio             |   | 2.18 to 1         |   | 2.49 to 1              |   | 3.57 to 1           |   |
| Shareholders’ Equity |   | $                 | 34,342 |                   | $      | 33,823              |   | $ | 34,681 |   |

 

During thequarter ended March 31, 2003, gross accounts receivable decreased byapproximately $189,000, with decreases of approximately $672,000 and $240,000at Florida Pneumatic and Embassy, respectively, being partially offset byincreases of $570,000 and $153,000 at Countrywide and Green, respectively. Thedecreases at Florida Pneumatic and Embassy were due primarily to decreases insales in the first quarter of 2003 versus the fourth quarter of 2002. Theincreases at Countrywide and Green were due primarily to increases in sales inthe first quarter of 2003 versus the fourth quarter of 2002 at Nationwide,Franklin and Green.

 

Inventoriesincreased by approximately $2,376,000 during the quarter ended March 31, 2003,with increases of approximately $1,856,000, $347,000, $127,000 and $46,000 atFlorida Pneumatic, Countrywide, Green and Embassy, respectively. The increaseat Florida Pneumatic was primarily attributable to a decrease in revenues, inaddition to the timing of purchases of imported products. The increase atCountrywide was due primarily to the timing of overseas purchases, new items atFranklin and preparation for the peak spring season at Nationwide. The increaseat Green was due primarily to the timing of purchases. The increase at Embassywas due primarily to the timing of overseas purchases and new inventory items.

 

During thefirst quarter of 2003, short-term borrowings increased by $3,000,000, primarilyto fund working capital needs.

 

During thefirst quarter of 2003, accounts payable increased by approximately $1,844,000.Increases of approximately $1,744,000 and $188,000 at Florida Pneumatic andGreen, respectively, were partially offset by decreases of approximately$77,000 and $11,000 at Embassy and Countrywide, respectively. The increases atFlorida Pneumatic and Green were each due primarily to the timing of purchases.The decreases at Countrywide and Embassy were each due primarily to the timingof payments and purchases.

 

24

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On August 1,2002, the Company renewed its credit agreement, as amended, with Citibankthrough July 26, 2003. 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 March 31,2003, there was $7,500,000 outstanding against the revolving credit loanfacility. There was also a commitment of approximately $55,000 at March 31,2003 for open letters of credit.

 

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. There was abalance outstanding against this facility at March 31, 2003 of $7,500,000.There was also a standby letter of credit totaling approximately $351,000outstanding against this facility at March 31, 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. AtMarch 31, 2003 and for the quarter then ended, the Company satisfied all ofthese covenants.

 

Capitalspending for each of the quarters ended March 31, 2003 and 2002 wasapproximately $295,000, which amounts were provided from working capital.Capital expenditures for the remainder of 2003 are expected to be approximately$1,050,000, some of which may be financed through the Company’s creditfacilities. Included in the expected total for the remainder of 2003 arecapital expenditures relating to new products, expansion of existing productlines and replacement of equipment.

 

Operatingactivities used cash totalling approximately $687,000 during the quarter endedMarch 31, 2003 and provided cash totalling approximately $566,000 during thequarter ended March 31, 2002. The Company believes that cash on hand derivedfrom operations and cash available through borrowings under its creditfacilities will be sufficient to allow the Company to meet its foreseeablecapital needs.

 

25

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**Off-Balance Sheet Arrangements**

 

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 on future purchases of Japaneseyen needed for payments to foreign suppliers. The total amount of foreigncurrency forward contracts outstanding at March 31, 2003 was approximately$1,984,000.

 

The Company, throughFlorida Pneumatic, imports a significant amount of its purchases from Japan,with payment due in Japanese yen. As a result, the Company is subject to theeffects of foreign currency exchange fluctuations. The Company uses a varietyof techniques to protect itself from any adverse effects from thesefluctuations, 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 Japanese yen versus the U.S. dollar over the last 12 months had anegative effect on the Company’s results of operations and its financialposition. There can be no assurance as to the future trend of this value. See“Item 3 – Quantitative and Qualitative Disclosure About Market Risk.”

 

**Contractual Obligations and CommercialCommitments**

 

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

 
|                               |   | **Payments  Due by Period** |       |
|------------------------------------|--------|-----------------------------|------------|
| **Contractual Cash  Obligations**  |   | **Total**                   |       | **Less than  1 year** |   | **1 – 3  years** |   | **4 – 5  years** |   | **After 5  years** |   |
| Long-term debt                     |   | $                           | 12,919,083 |   | $ | 1,755,791 |   | $ | 3,383,326 |   | $ | 3,235,063 |   | $ | 4,544,903 |   |
| Short-term borrowings              |   | 7,500,000                   |       | 7,500,000 |   | — |   | — |   | — |   |
| Employment agreements              |   | 4,233,000                   |       | 835,000 |   | 1,670,000 |   | 1,601,000 |   | 127,000 |   |
| Total contractual cash obligations |   | $                           | 24,652,083 |   | $ | 10,090,791 |   | $ | 5,053,326 |   | $ | 4,836,063 |   | $ | 4,671,903 |   |

 

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

 

26

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| **Other**                    |   | **Amount of  Commitment Expiration Per Period** |       |
|------------------------------|--------|-------------------------------------------------|------------|
| **Commercial  Commitments**  |   | **Total**                                       |       | **Less than  1 year** |   | **1 – 3  years** |   | **4 – 5  years** |   | **After 5  years** |   |
| Purchase commitments         |   | $                                               | 12,800,000 |   | $ | 12,800,000 |   | $ | — |   | $ | — |   | $ | — |   |
|                         |   |                                            |       |   |   |   |   |   |   |   |   |
| Commercial letters of credit |   | $                                               | 55,000     |   | $ | 55,000 |   | $ | — |   | $ | — |   | $ | — |   |
|                         |   |                                            |       |   |   |   |   |   |   |   |   |
| Stand-by letter of credit    |   | $                                               | 351,000    |   | $ | 351,000 |   | $ | — |   | $ | — |   | $ | — |   |

 

**New Accounting Pronouncements**

 

In April 2002,the Financial Accounting Standards Board issued Statement of FinancialAccounting 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 yearsbeginning after May 15, 2002. The Company adopted SFAS 145 as of January 1,2003. During the quarter ended March 31, 2003, the Company recorded a loss ofapproximately $84,000, included in selling, general and administrativeexpenses, that resulted from the refinancing of a mortgage.

 

In June 2002,**theFinancial Accounting Standards Board 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.

 

27

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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 ofthe U.S. dollar affects the Company’s results. Changes in exchange rates may positively or negatively affect theCompany’s gross margins and operating expenses. The Company engages in hedgingprograms aimed at limiting, in part, the impact of currency fluctuations. Usingprimarily forward exchange contracts, the Company hedges some of thosetransactions that, when remeasured according to accounting principles generallyaccepted in the United States of America, impact the statement of operations.Factors that could impact the effectiveness of the Company’s programs includevolatility of the currency markets and availability of hedging instruments. Allcurrency transactions that are entered into by the Company are components ofhedging programs and are entered into not for speculation but for the solepurpose of hedging an existing or anticipated currency exposure. The Companydoes not buy or sell financial instruments for trading purposes. Although theCompany maintains these programs to reduce the impact of changes in currencyexchange rates, when the U.S. dollar sustains a weakening exchange rate againstcurrencies in which the Company incurs costs, the Company’s costs are adverselyaffected. The Company has various debt instruments that bear interest atvariable rates tied to LIBOR (London InterBank Offered Rate). Any increase inLIBOR would have an adverse effect on the Company’s interest costs.

 

The Companyaccounts for changes in the fair value of its foreign currency contracts bymarking them to market and recognizing any resulting gains or losses throughits statement of operations. The Company also marks its yen-denominatedpayables to market, recognizing any resulting gains or losses in its statementof operations. At March 31, 2003, the Company had foreign currency forwardcontracts, maturing in 2003, to purchase Japanese yen at contracted forwardrates. The value of these contracts at March 31, 2003 was approximately$1,984,000, which was the approximate value of the Company’s yen-denominatedaccounts payable. During the quarters ended March 31, 2003 and 2002, theCompany recorded a net realized gain of approximately $1,000 and a net realizableloss of approximately $10,000, respectively, on foreign currency transactions.At March 31, 2003, the Company had no material unrealized gains or losses onforeign currency transactions.

 

The potentialloss in value of the Company’s net investment in foreign currency forwardcontracts resulting from a hypothetical 10 percent adverse change in foreignexchange rates at March 31, 2003 was approximately $219,000.

 

28

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

 

**Evaluation of disclosure controls andprocedures**

 

Within 90 daysprior to the date of this Quarterly Report on Form 10-Q (the “Report”), anevaluation was performed, under the supervision of, and with the participationof, the Company’s management, including the Principal Executive Officer andPrincipal Financial Officer, of the effectiveness of the design and operationof the Company’s disclosure controls and procedures (as defined in Rules13a-14(c) and 15d-14(c) to the Securities and Exchange Act of 1934). Based onthat evaluation, the Company’s management, including the Principal ExecutiveOfficer and Principal Financial Officer, concluded that the Company’sdisclosure controls and procedures were adequate and effective in timelyalerting them to all material information relating to the Company and itsconsolidated subsidiaries that is required to be included in this Report.

 

**Changes in internal controls**

 

There havebeen no significant changes in the Company’s internal controls or in otherfactors that could significantly affect these controls subsequent to the dateof management’s evaluation.

 

29

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**PARTII - OTHER INFORMATION**

 

**Item 1.****                    LegalProceedings**

The Company is a defendant or co-defendant in various actions broughtabout in the ordinary course of conducting its business. The Company does notbelieve that any of these actions are material to the financial condition ofthe Company.

 

**Item 2.****                    Changes inSecurities and Use of Proceeds**

None.

 

**Item 3.****                    Defaults UponSenior Securities**

None.

 

**Item 4.****                    Submission ofMatters to a Vote of Security Holders**

None.

 

**Item 5.****                    OtherInformation**

None.

 

**Item 6.****                    Exhibits andReports on Form 8-K**

(a)                                  Exhibits

See “Exhibit Index” immediately following the certification pages.

 

(b)                                 Reports on Form 8-K

The Registrant filed a Report on Form 8-K dated May 13, 2003, in whichit furnished a press release announcing its first quarter 2003 results underItems 9 and 12 of such Report.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                | **P & F INDUSTRIES, INC.**(Registrant) |
|---------------------|--------------------------------------------|
|                |                                       |
|                |                                       |
|                | By                                         | /s/ Joseph A. Molino, Jr. |   |
|                |                                       | Joseph A. Molino, Jr. |   |
| Dated: May 17, 2004 |                                       | Vice President  (Principal Financial Officer) |   |

 

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**EXHIBITINDEX**

 
| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **2.1**    |   | Asset Purchase Agreement, dated as of September 16, 1998, by and  between Green Manufacturing, Inc., an Ohio corporation, and the Registrant  (Incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003). Pursuant to  Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish,  supplementally, a copy of any exhibit or schedule omitted from the Asset  Purchase Agreement to the Commission upon request. |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **2.2**    |   | Stock Purchase Agreement, dated as of May 3, 2002, by and between  Mark C. Weldon and the Registrant (Incorporated by reference to Exhibit 2.1  to the Registrant’s Current Report on Form 8-K dated May 3, 2002). Pursuant  to Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish  supplementally a copy of any exhibit or schedule omitted from the Asset  Purchase Agreement to the Securities and Exchange Commission upon request.                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **2.3**    |   | Contract for Purchase and Sale, dated as of May 1, 2002, between W.  I. Commercial Properties, Inc., a Florida corporation, and Countrywide Hardware,  Inc., a Delaware corporation (Incorporated by reference to Exhibit 4.7 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2002).                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **3.1**    |   | Restated Certificate of Incorporation of the Registrant (Incorporated  by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K  for the fiscal year ended December 31, 1999).                                                                                                                                                                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **3.2**    |   | Amended By-laws of the Registrant (Incorporated by reference to  Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter  ended September 30, 1999).                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **3.3**    |   | Amendment to the Amended By-laws of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **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).                                                                                                                                                                                                         |

 

32

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| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **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 for the fiscal  year ended December 31, 2003).                                                                             |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **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 for the fiscal year ended December  31, 2003). |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **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).      |

 

33

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| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **4.8**    |   | Amendment No. 5 to Credit Agreement, dated as of May 3, 2002, by and  among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida  corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, and Citibank, N.A.  (successor-in-interest to European American Bank), a New York banking  corporation. (Incorporated by reference to Exhibit 4.7 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **4.9**    |   | Amendment No. 6 to Credit Agreement, dated as of June 13, 2002, by  and among the Registrant, Florida Pneumatic Manufacturing Corporation, a  Florida corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, and Citibank, N.A.  (successor-in-interest to European American Bank), a New York banking  corporation (Incorporated by reference to Exhibit 4.7 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **4.10**   |   | Amendment No. 7 to Credit Agreement, dated as of August 1, 2002, by  and among the Registrant, Florida Pneumatic Manufacturing Corporation, a  Florida corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc.**,** a Florida corporation, and  Citibank, N.A. (successor-in-interest to European American Bank), a New York  banking corporation (Incorporated by reference to Exhibit 4.7 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2002).       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **4.11**   |   | Amendment No. 8 to Credit Agreement, dated as of August 1, 2002, by  and among the Registrant, Florida Pneumatic Manufacturing Corporation, a  Florida corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc.**,** a Florida corporation, and  Citibank, N.A. (successor-in-interest to European American Bank), a New York  banking corporation (Incorporated by reference to Exhibit 4.11 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended September  30, 2002). |

 

34

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| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **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 (Incorporated by reference to Exhibit 4.11 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2003).         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **4.14**   |   | Certain instruments defining the rights of holders of the long-term debt  securities of the Registrant are omitted pursuant to Section (b)(4)(iii)(A)  of Item 601 of Regulation S-K. The Registrant agrees to furnish  supplementally copies of these instruments to the Commission upon request.                                                                                                                                                                                                                                                                                                                                            |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **10.1**   |   | Second Amended and Restated Employment Agreement, dated as of May 30,  2001, between the Registrant and Richard A. Horowitz (Incorporated by  reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended June 30, 2001).                                                                                                                                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **10.2**   |   | Consulting Agreement, effective as of November 1, 2003, between the  Registrant and Sidney Horowitz (Incorporated by reference to Exhibit 10.2 to  the Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003).                                                                                                                                                                                                                                                                                                                                                                                            |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **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 for the fiscal year ended  December 31, 2003).                                                                                                                                                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **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).                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

35

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| **Number** |   | **Description**                                                                                                                                                                                                         |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                    |
| **10.5**   |   | 2002 Stock Incentive Plan of the Registrant (Incorporated by  reference to Exhibit 4.7 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended March 31, 2002).                                   |
|       |   |                                                                                                                                                                                                                    |
| **14.1**   |   | Code of Business Conduct and Ethics of the Registrant and its  Affiliates (Incorporated by reference to Exhibit 14.1 to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended December 31, 2003). |
|       |   |                                                                                                                                                                                                                    |
| **31.1**   |   | Certification of Richard A. Horowitz, Principal Executive Officer of  the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                        |
|       |   |                                                                                                                                                                                                                    |
| **31.2**   |   | Certification  of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant,  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                     |
|       |   |                                                                                                                                                                                                                    |
| **32.1**   |   | Certification of Richard A. Horowitz, Principal Executive Officer of  the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                        |
|       |   |                                                                                                                                                                                                                    |
| **32.2**   |   | Certification of Joseph A. Molino, Jr., Principal Financial Officer  of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                      |

 

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

 

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