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

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)  OF THE SECURITIES EXCHANGE ACT OF 1934**  | ** ** |
|------------|-----------------------------------------------------------------------------------------------|------------|
| ** ** | **For the Quarterly Period Ended June 30, 2005**                                              | ** ** |
|       |                                                                                          |       |
| **o**      | **TRANSITION REPORT PURSUANT 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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Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months, and (2) has been subject to such filing requirements forthe past 90 days.

**Yes  ****ý****    NO  ****o**

 

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act).

**YES  ****o****    NO  ****ý**

 

Asof August 12, 2005, there were 3,579,713 shares of the registrant’s Class A CommonStock outstanding.

 

 

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**P & F INDUSTRIES, INC.**

 

**FORM 10-Q**

 

**FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005**

 

**TABLE OF CONTENTS**

 
| **PART I –  FINANCIAL INFORMATION** |                                                                                        |
|------------------------------------------|---------------------------------------------------------------------------------------------|
|                                     |                                                                                        |   |
| Item 1.                                  | Consolidated Condensed Financial Statements  (unaudited)                                    |   |
|                                     |                                                                                        |   |
|                                     | Consolidated Condensed  Balance Sheets                                                      |   |
|                                     |                                                                                        |   |
|                                     | Consolidated Condensed Statements of Earnings                                               |   |
|                                     |                                                                                        |   |
|                                     | Consolidated  Condensed Statement of Shareholders’ Equity                              |   |
|                                     |                                                                                        |   |
|                                     | Consolidated  condensed statements of Cash Flows                                            |   |
|                                     |                                                                                        |   |
|                                     | Notes to  Consolidated Condensed 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 – OTHER  INFORMATION**    |                                                                                        |
|                                     |                                                                                        |   |
| Item 1.                                  | Legal Proceedings                                                                           |   |
|                                     |                                                                                        |   |
| Item 2.                                  | Unregistered Sales  of Equity 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                                                                                    |   |
|                                     |                                                                                        |   |
| **Signature**                            |                                                                                        |   |
|                                     |                                                                                        |   |
| **Exhibit Index**                        |                                                                                        |

 

i

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**PART I - FINANCIAL INFORMATION**

 

**Item 1.****          ****Financial statements**

 

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

**CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)**

 
| ** **                                      | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **ASSETS**                                      |       |              |       |                  |       |
| CURRENT                                         |       |              |       |                  |       |
| Cash and cash equivalents                       |       | $                 | 2,433,357  |                  | $          | 1,189,869 |   |
| Accounts receivable - net                       |       | 15,196,650        |       | 14,849,748            |       |
| Notes and other receivables                     |       | 1,204,627         |       | 1,735,383             |       |
| Inventories - net                               |       | 30,256,631        |       | 25,691,380            |       |
| Deferred income taxes - net                     |       | 1,070,000         |       | 1,070,000             |       |
| Assets of discontinued operations               |       | —            |       | 795,941               |       |
| Prepaid expenses and other                      |       | 1,576,672         |       | 1,383,414             |       |
| TOTAL CURRENT ASSETS                            |       | 51,737,937        |       | 46,715,735            |       |
|                                            |       |              |       |                  |       |
| PROPERTY AND EQUIPMENT                          |       |              |       |                  |       |
| Land                                            |       | 1,246,938         |       | 1,246,938             |       |
| Buildings and improvements                      |       | 7,401,847         |       | 7,230,248             |       |
| Machinery and equipment                         |       | 12,215,693        |       | 12,127,511            |       |
|                                            |       | 20,864,478        |       | 20,604,697            |       |
| Less accumulated depreciation and  amortization |       | 11,676,568        |       | 11,064,240            |       |
| NET PROPERTY AND EQUIPMENT                      |       | 9,187,910         |       | 9,540,457             |       |
|                                            |       |              |       |                  |       |
| GOODWILL                                        |       | 23,235,788        |       | 22,877,021            |       |
|                                            |       |              |       |                  |       |
| OTHER INTANGIBLE ASSETS - net                   |       | 9,242,333         |       | 9,794,833             |       |
|                                            |       |              |       |                  |       |
| ASSETS OF DISCONTINUED OPERATIONS               |       | —            |       | 942,768               |       |
|                                            |       |              |       |                  |       |
| OTHER ASSETS - net                              |       | 714,045           |       | 667,259               |       |
|                                            |       |              |       |                  |       |
| TOTAL ASSETS                                    |       | $                 | 94,118,013 |                  | $          | 90,538,073 |   |

 

See accompanying notes to consolidated condensed financial statements(unaudited).

 

1

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

**CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)**

**(Continued)**

 
| ** **                                                                                | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                            |       |              |       |                  |       |
| CURRENT LIABILITIES                                                                       |       |              |       |                  |       |
| Short-term borrowings                                                                     |       | $                 | 8,500,000  |                  | $          | 4,000,000 |   |
| Accounts payable                                                                          |       | 5,023,620         |       | 3,355,377             |       |
| Income taxes payable                                                                      |       | 574,433           |       | 1,600,683             |       |
| Accrued compensation                                                                      |       | 1,597,137         |       | 2,331,222             |       |
| Other accrued liabilities                                                                 |       | 3,214,052         |       | 2,836,209             |       |
| Current maturities of long-term debt                                                      |       | 4,275,573         |       | 3,062,481             |       |
| TOTAL CURRENT LIABILITIES                                                                 |       | 23,184,815        |       | 17,185,972            |       |
|                                                                                      |       |              |       |                  |       |
| LONG-TERM DEBT, less current maturities                                                   |       | 26,969,502        |       | 31,847,597            |       |
|                                                                                      |       |              |       |                  |       |
| DEFERRED INCOME TAXES - net                                                               |       | 241,000           |       | 337,000               |       |
|                                                                                      |       |              |       |                  |       |
| TOTAL LIABILITIES                                                                         |       | 50,395,317        |       | 49,370,569            |       |
|                                                                                      |       |              |       |                  |       |
| COMMITMENTS AND CONTINGENCIES                                                             |       |              |       |                  |       |
|                                                                                      |       |              |       |                  |       |
| SHAREHOLDERS’ EQUITY                                                                 |       |              |       |                  |       |
| Preferred stock - $10 par; authorized -  2,000,000 shares; no shares outstanding          |       | —            |       | —                |       |
| Common stock:                                                                             |       |              |       |                  |       |
| Class A - $1 par; authorized - 7,000,000  shares; issued - 3,807,367 and 3,777,367 shares |       | 3,807,367         |       | 3,777,367             |       |
| Class B - $1 par; authorized - 2,000,000  shares; no shares issued or outstanding         |       | —            |       | —                |       |
| Additional paid-in capital                                                                |       | 8,902,555         |       | 8,718,450             |       |
| Retained earnings                                                                         |       | 32,846,856        |       | 30,398,528            |       |
| Treasury stock, at cost (230,154 and  223,736 shares)                                     |       | (1,834,082        | )          | (1,726,841            | )          |
|                                                                                      |       |              |       |                  |       |
| TOTAL SHAREHOLDERS’ EQUITY                                                           |       | 43,722,696        |       | 41,167,504            |       |
|                                                                                      |       |              |       |                  |       |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                           |       | $                 | 94,118,013 |                  | $          | 90,538,073 |   |

 

See accompanying notes to consolidated condensed financial statements(unaudited).

 

2

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

**CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (unaudited)**

 
| ** **                                                                                                                                                                   | ** ** | **Three months  ended June 30,** | ** ** | **Six months  ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                                                                                                                                                     |       | $                                | 30,891,335 |                           | $          | 18,089,020 |   | $ | 58,198,183 |   | $ | 34,992,998 |   |
| Cost of sales                                                                                                                                                                |       | 21,018,215                       |       | 11,714,223                     |       | 39,890,312 |   | 23,163,214 |   |
| Gross profit                                                                                                                                                                 |       | 9,873,120                        |       | 6,374,797                      |       | 18,307,871 |   | 11,829,784 |   |
| Selling, general and administrative  expenses                                                                                                                                |       | 6,872,588                        |       | 4,901,572                      |       | 13,000,994 |   | 9,583,945 |   |
| Operating income                                                                                                                                                             |       | 3,000,532                        |       | 1,473,225                      |       | 5,306,877 |   | 2,245,839 |   |
| Interest expense – net                                                                                                                                                  |       | 502,433                          |       | 138,560                        |       | 928,915 |   | 260,433 |   |
| Earnings from continuing operations before  income taxes                                                                                                                     |       | 2,498,099                        |       | 1,334,665                      |       | 4,377,962 |   | 1,985,406 |   |
| Income taxes                                                                                                                                                                 |       | 1,073,000                        |       | 526,000                        |       | 1,844,000 |   | 772,000 |   |
| Earnings from continuing operations before discontinued  operations                                                                                                          |       | 1,425,099                        |       | 808,665                        |       | 2,533,962 |   | 1,213,406 |   |
|                                                                                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Discontinued operations (net of taxes):                                                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| Earnings (loss) from operation of  discontinued operations (net of tax benefit (expense) of $(31,000) and  $80,000 for 2005 and $53,000 and $139,000 for 2004, respectively) |       | 59,825                           |       | (104,291                       | )          | (156,866 | ) | (272,466 | ) |
| Gain on sale of discontinued operations  (net of taxbenefits of $36,000)                                                                                                     |       | —                           |       | —                         |       | 71,232 |   | — |   |
| Earnings (loss) from discontinued  operations                                                                                                                                |       | 59,825                           |       | (104,291                       | )          | (85,634 | ) | (272,466 | ) |
|                                                                                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Net earnings                                                                                                                                                                 |       | $                                | 1,484,924  |                           | $          | 704,374 |   | $ | 2,448,328 |   | $ | 940,940 |   |
|                                                                                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Basic earnings (loss) per common share:                                                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| Continuing operations                                                                                                                                                        |       | $                                | .40        |                           | $          | .23 |   | $ | .71 |   | $ | .35 |   |
| Discontinued operations                                                                                                                                                      |       | .02                              |       | (.03                           | )          | (.02 | ) | (.08 | ) |
|                                                                                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Net earnings per common share - basic                                                                                                                                        |       | $                                | .42        |                           | $          | .20 |   | $ | .69 |   | $ | .27 |   |
|                                                                                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Diluted earnings (loss) per common share:                                                                                                                                    |       |                             |       |                           |       |   |   |   |   |
| Continuing operations                                                                                                                                                        |       | $                                | .37        |                           | $          | .22 |   | $ | .65 |   | $ | .34 |   |
| Discontinued operations                                                                                                                                                      |       | .01                              |       | (.03                           | )          | (.02 | ) | (.08 | ) |
|                                                                                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Net earnings per common share - diluted                                                                                                                                      |       | $                                | .38        |                           | $          | .19 |   | $ | .63 |   | $ | .26 |   |
|                                                                                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Weighted average common shares outstanding:                                                                                                                                  |       |                             |       |                           |       |   |   |   |   |
| Basic                                                                                                                                                                        |       | 3,568,209                        |       | 3,517,755                      |       | 3,564,088 |   | 3,516,601 |   |
| Diluted                                                                                                                                                                      |       | 3,879,657                        |       | 3,611,099                      |       | 3,877,791 |   | 3,621,819 |   |

 

See accompanying notes to consolidated condensed financial statements(unaudited).

 

3

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

**CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’EQUITY**

**(unaudited)**

 
| ** **                                                       | ** ** | ** ** | ** **       | **Class A Common  Stock, $1 par** | ** ** | **Additional  Paid-in** | ** ** | **Retained**    | ** ** | **Treasury  Stock** | ** **      |
|------------------------------------------------------------------|------------|------------|------------------|-----------------------------------|------------|-------------------------|------------|-----------------|------------|---------------------|-----------------|
| ** **                                                       | ** ** | **Total**  | ** **       | **Shares**                        | ** ** | **Amount**              | ** ** | **Capital**     | ** ** | **Earnings**        | ** **      | **Shares** | ** ** | **Amount** | ** ** |
| **Balance,  January 1, 2005**                                    |       | $          |  41,167,504 |                              | 3,777,367  |                    | $          |  3,777,367 |       | $                   |  8,718,450 |   | $ |  30,398,528 |   | (223,736 | ) | $ |  (1,726,841 | ) |
| Net earnings                                                     |       | 2,448,328  |             | —                            |       | —                  |       | —          |       | 2,448,328           |            | — |   | — |   |
| Issuance of class  A common stock upon exercise of stock options | ** ** | 214,105    |             | 30,000                            |       | 30,000                  |       | 184,105         |       | —              |            | — |   | — | ** ** |
| Shares  surrendered as payment for exercise of stock options     |       | (107,241   | )                | —                            |       | —                  |       | —          |       | —              |            | (6,418 | ) | (107,241 | ) |
| **Balance, June 30, 2005**                                       |       | $          | 43,722,696       |                              | 3,807,367  |                    | $          | 3,807,367       |       | $                   | 8,902,555       |   | $ | 32,846,856 |   | (230,154 | ) | $ | (1,834,082 | ) |

 

See accompanying notes to consolidated condensed financial statements(unaudited).

 

4

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

**CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
| ** **                                                                               | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                               | ** ** | **2005**                       | ** ** | **2004** | ** ** |
|                                                                                     |       |                           |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                     |       |                           |       |   |   |
|                                                                                     |       |                           |       |   |   |
| Net earnings                                                                             |       | $                              | 2,448,328  |   | $ | 940,940 |   |
|                                                                                     |       |                           |       |   |   |
| Adjustments to reconcile net earnings to  net cash provided by operating activities:     |       |                           |       |   |   |
| Loss from discontinued operations - net of  taxes                                        |       | 156,866                        |       | — |   |
| Gain on sale of assets of discontinued  operations - net of taxes                        |       | (71,232                        | )          | — |   |
| Non-cash charges and credits:                                                            |       |                           |       |   |   |
| Depreciation and amortization                                                            |       | 641,687                        |       | 879,488 |   |
| Amortization of other intangible assets                                                  |       | 552,500                        |       | 266,000 |   |
| Amortization of other assets                                                             |       | 3,000                          |       | 6,967 |   |
| Provision for losses on accounts receivable  - net                                       |       | 7,772                          |       | 22,858 |   |
| Deferred income taxes - net                                                              |       | (96,000                        | )          | (97,000 | ) |
| Loss on disposal of fixed assets                                                         |       | —                         |       | (9,570 | ) |
| Changes in:                                                                              |       |                           |       |   |   |
| Accounts receivable                                                                      |       | (354,674                       | )          | (65,649 | ) |
| Notes and other receivables                                                              |       | 1,488,402                      |       | — |   |
| Inventories                                                                              |       | (4,565,251                     | )          | (420,284 | ) |
| Prepaid expenses and other                                                               |       | (193,258                       | )          | 93,402 |   |
| Other assets                                                                             |       | (49,786                        | )          | (152,303 | ) |
| Accounts payable                                                                         |       | 1,668,243                      |       | 1,086,496 |   |
| Accruals and other                                                                       |       | (1,562,954                     | )          | (1,113,559 | ) |
|                                                                                     |       |                           |       |   |   |
| Total adjustments                                                                        |       | (2,374,685                     | )          | 496,846 |   |
|                                                                                     |       |                           |       |   |   |
| Net cash provided by operating activities                                                |       | 73,643                         |       | 1,437,786 |   |
|                                                                                     |       |                           |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                     |       |                           |       |   |   |
|                                                                                     |       |                           |       |   |   |
| Capital expenditures                                                                     |       | (293,318                       | )          | (649,900 | ) |
| Purchase of certain assets, net of certain  liabilities, of Woodmark International, L.P. |       | —                         |       | (27,160,000 | ) |
| Additional payments for acquisition-related  expenses                                    |       | —                         |       | (816,784 | ) |
| Proceeds from the sale of access division                                                |       | 880,069                        |       | — |   |
| Additional payments for purchase of  Nationwide Industries, Inc.                         |       | (358,767                       | )          | (379,221 | ) |
| Proceeds from the disposal of fixed assets                                               |       | —                         |       | 27,532 |   |
|                                                                                     |       |                           |       |   |   |
| Net cash provided by (used in) investing  activities                                     |       | 227,984                        |       | (28,978,373 | ) |
|                                                                                          |            |                                |            |  |  |  |  |

 

See accompanying notes to consolidated condensed financial statements(unaudited).

 

5

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| ** **                                             | ** ** | **Six months ended  June 30,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                             | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| CASH FLOWS FROM FINANCING ACTIVITIES                   |       |                           |       |   |   |
| Proceeds from short-term borrowings                    |       | $                              | 9,000,000  |   | $ | 8,000,000 |   |
| Repayments of short-term borrowings                    |       | (4,500,000                     | )          | (6,000,000 | ) |
| Proceeds from term loan                                |       | —                         |       | 34,000,000 |   |
| Repayments of term loan                                |       | (3,500,000                     | )          | (5,250,000 | ) |
| Principal payments on mortgages                        |       | (165,003                       | )          | (172,335 | ) |
| Proceeds from exercise of stock options                |       | 106,864                        |       | 30,000 |   |
|                                                   |       |                           |       |   |   |
| Net cash provided by financing activities              |       | 941,861                        |       | 30,607,665 |   |
|                                                   |       |                           |       |   |   |
| NET INCREASE IN CASH                                   |       | 1,243,488                      |       | 3,067,078 |   |
|                                                   |       |                           |       |   |   |
| CASH AT BEGINNING OF PERIOD                            |       | 1,189,869                      |       | 213,409 |   |
|                                                   |       |                           |       |   |   |
| CASH AT END OF PERIOD                                  |       | $                              | 2,433,357  |   | $ | 3,280,487 |   |
| ** **                                             |       |                           |       |   |   |
| **Supplemental disclosures of cash flow information:** |       |                           |       |   |   |
|                                                   |       |                           |       |   |   |
| Cash paid for:                                         |       |                           |       |   |   |
|                                                   |       |                           |       |   |   |
| Interest                                               |       | $                              | 888,000    |   | $ | 299,000 |   |
|                                                   |       |                           |       |   |   |
| Income taxes                                           |       | $                              | 3,076,000  |   | $ | 1,037,000 |   |

 

Non-cashinvesting and financing activities were as follows:

 

Inconnection with the sale of certain assets of Green’s Access division, theCompany received interest-bearing promissory notes of approximately $958,000,payable in varying amounts through November 2006.

 

Duringthe six months ended June 30, 2005, the Company received 6,418 shares of ClassA Common Stock in connection with the exercise of options to purchase 14,000shares of Class A Common Stock. The value of these shares was recorded at$107,241.

 

See accompanying notes to consolidated condensed financial statements(unaudited).

 

6

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

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

 

**NOTE 1 - SUMMARY OF ACCOUNTING POLICIES**

 

**Principles of Consolidation**

 

Theunaudited consolidated condensed financial statements contained herein includethe accounts of P&F Industries, Inc. and its subsidiaries. All significantintercompany balances and transactions have been eliminated.

 

P&FIndustries, Inc. (“P&F”) conducts its business operations through its fourwholly-owned subsidiaries: Florida Pneumatic Manufacturing Corporation(“Florida Pneumatic”), Countrywide Hardware, Inc. (“Countrywide”), EmbassyIndustries, Inc. (“Embassy”) and Green Manufacturing, Inc. (“Green”). P&Fand its subsidiaries are herein referred to collectively as the “Company.” Inaddition, the words “we”, “our” and “us” refer to the Company.

 

FloridaPneumatic is engaged in the importation, manufacture and sale of pneumatic handtools, primarily for the industrial, retail and automotive markets, and theimportation and sale of compressor air filters. Florida Pneumatic also markets,through its Berkley Tool division (“Berkley”), a line of pipe cutting andthreading tools, wrenches and replacement electrical components for awidely-used brand of pipe cutting and threading machines. In addition, throughits Franklin Manufacturing (“Franklin”) division, Florida Pneumatic imports aline of door and window hardware. Countrywide conducts its business operationsthrough Nationwide Industries, Inc. (“Nationwide”) and through WoodmarkInternational, L.P. (“Woodmark”), a limited partnership between P&F andCountrywide. Nationwide is an importer and manufacturer of door, window andfencing hardware. Woodmark is an importer of builders’ hardware, includingstaircase components and kitchen and bath hardware and accessories. Embassy isengaged in the manufacture and sale of baseboard heating products and theimportation and sale of radiant heating systems. Green was primarily engaged inthe manufacture, development and sale of heavy-duty welded custom designedhydraulic cylinders until it exited that business in December 2004 through thesale of certain assets. Green also manufactured a line of access equipment forthe petro-chemical industry until it exited that business in February 2005 anda line of post hole digging equipment for the agricultural industry until itexited that business in July 2005. Green has effectively ceased all operatingactivities. (See Notes 6 and 12 regarding disposition of certain assets relatedto Green’s exit from the hydraulic cylinder, access equipment and agriculturalequipment businesses.) Note 11 presents financial information for the segmentsof the Company’s business.

 

**Basis of Financial Statement Presentation**

 

Theaccompanying unaudited consolidated condensed 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 financial statements.In the opinion of the Company, these unaudited consolidated condensed financialstatements include all adjustments necessary to present fairly the informationset forth therein. All such adjustments are of a normal recurring nature.Results for interim periods are not necessarily indicative of results to beexpected for a full year.

 

7

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Theresults of operations for Green’s Hydraulic Cylinder and Access divisions havebeen segregated from continuing operations and are reflected on theconsolidated condensed statements of earnings as discontinued operations.

 

Theunaudited consolidated condensed balance sheet information as of December 31,2004 was derived from the audited financial statements included in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2004, asadjusted for discontinued operations. The interim financial statementscontained herein should be read in conjunction with that Report.

 

Inpreparing its unaudited consolidated condensed financial statements inconformity with accounting principles generally accepted in the United Statesof America, the Company is required to make estimates and assumptions thataffect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period. Onan ongoing basis, the Company evaluates estimates, including those related tobad debts, inventory reserves, goodwill and intangible assets. The Companybases its estimates on historical data and experience, when available, and onvarious other assumptions that are believed to be reasonable under thecircumstances, the combined results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results could differ from thoseestimates.

 

**Reclassifications**

 

Certainprior period amounts in the Consolidated Condensed Financial Statements(Unaudited) have been reclassified to conform to the current period’spresentation.

 

**NOTE 2 - EARNINGS PER SHARE**

 

Basicearnings (loss) per common share is based only on the average number of sharesof common stock outstanding for the periods. Diluted earnings (loss) per commonshare reflects the effect of shares of common stock issuable upon the exerciseof options, unless the effect on earnings is antidilutive.

 

Diluted earnings (loss) per common share is computed using the treasurystock method. Under this method, the aggregate number of shares of common stockoutstanding reflects the assumed use of proceeds from the hypothetical exerciseof any outstanding options or warrants to purchase shares of the Company’sClass A Common Stock. The average market value for the period is used as theassumed purchase price.

 

8

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

 
| ** **                                                                                                           | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                           | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Numerator:                                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Numerator for basic and diluted earnings  (loss) per common share:                                                   |       |                             |       |                           |       |   |   |   |   |
| Earnings from continuing operations                                                                                  |       | $                                | 1,425,099  |                           | $          | 808,665 |   | $ | 2,533,962 |   | $ | 1,213,406 |   |
| Discontinued operations, net of taxes                                                                                |       | 59,825                           |       | (104,291                       | )          | (85,634 | ) | (272,466 | ) |
|                                                                                                                 |       |                             |       |                           |       |   |   |   |   |
| Net earnings                                                                                                         |       | $                                | 1,484,924  |                           | $          | 704,374 |   | $ | 2,448,328 |   | $ | 940,940 |   |
|                                                                                                                 |       |                             |       |                           |       |   |   |   |   |
| Denominator:                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Denominator for basic earnings (loss) per share  - weighted average common shares outstanding                        |       | 3,568,209                        |       | 3,517,755                      |       | 3,564,088 |   | 3,516,601 |   |
| Effect of dilutive securities:                                                                                       |       |                             |       |                           |       |   |   |   |   |
| Employee stock options                                                                                               |       | 311,448                          |       | 93,344                         |       | 313,703 |   | 105,218 |   |
| Denominator for diluted earnings (loss) per  share - adjusted weighted average common shares and assumed conversions |       | 3,879,657                        |       | 3,611,099                      |       | 3,877,791 |   | 3,621,819 |   |
| Basic earnings (loss) per common share:                                                                              |       |                             |       |                           |       |   |   |   |   |
| Continuing operations                                                                                                |       | $                                | .40        |                           | $          | .23 |   | $ | .71 |   | $ | .35 |   |
| Discontinued operations                                                                                              |       | .02                              |       | (.03                           | )          | (.02 | ) | (.08 | ) |
| Net earnings per common share - basic                                                                                |       | $                                | .42        |                           | $          | .20 |   | $ | .69 |   | $ | .27 |   |
| Diluted earnings (loss) per common share:                                                                            |       |                             |       |                           |       |   |   |   |   |
| Continuing operations                                                                                                |       | $                                | .37        |                           | $          | .22 |   | $ | .65 |   | $ | .34 |   |
| Discontinued operations                                                                                              |       | .01                              |       | (.03                           | )          | (.02 | ) | (.08 | ) |
| Net earnings per common share - diluted                                                                              |       | $                                | .38        |                           | $          | .19 |   | $ | .63 |   | $ | .26 |   |

 

There were outstanding at June 30, 2004 and during the three-month andsix-month periods ended June 30, 2004 stock options whose exercise prices werehigher than the average market values of the underlying Class A Common Stockfor the period. These options are anti-dilutive and are excluded from thecomputation of earnings per share. There were no anti-dilutive stock optionsoutstanding either at June 30, 2005 or during the three-month and six-monthperiods ended June 30, 2005. The weighted average anti-dilutive stock optionsoutstanding were as follows:

 
| ** **                                                | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Weighted average anti-dilutive stock  options outstanding |       | —                           |       | 19,000                         |       | — |   | 19,000 |   |

 

**NOTE 3 - STOCK-BASED COMPENSATION**

 

In December 2002, the FASB issued SFAS No. 148, *“*Accounting for Stock Based Compensation -Transition and Disclosure”, which was issued to provide alternative methods of transitionfor a voluntary

 

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changeto the fair value based method of accounting for stock-based employeecompensation. In addition, SFAS 148 amended the disclosure requirements of SFAS123, “Accounting for Stock-Based Compensation” to require prominent disclosuresin both annual and interim financial statements about the method of accountingfor stock-based employee compensation and the effect of the method used onreported results.

 

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 earnings and earnings per share as if thefair value based method of accounting had been applied, as required by SFAS123.

 

SFAS 123 requires the Company to provide pro forma informationregarding net earnings and earnings per share as if compensation cost for itsincentive stock option plan had been determined in accordance with the fairvalue method prescribed by SFAS 123. The Company estimates the fair value ofeach stock option at the grant date by using the Black-Scholes option-pricingmodel. No options were granted, and there was no pro forma compensationexpense, during the quarters ended June 30, 2005 and 2004.

 

**NOTE 4 - FOREIGN CURRENCY TRANSACTIONS**

 

**Derivative Financial Instruments**

 

The Company uses derivatives to reduce its exposure to fluctuations inforeign currencies, principally Japanese yen. Derivative products, specificallyforeign currency forward contracts, are used to hedge the foreign currencymarket exposures underlying certain debt and forecasted transactions withforeign vendors. The Company does not enter into such contracts for speculativepurposes.

 

For derivative instruments that are designated and qualify as fairvalue hedges (i.e., hedging the exposure to changes in the fair value of anasset or a liability or an identified portion thereof that is attributable to aparticular risk), the gain or loss on the derivative instrument as well as theoffsetting gain or loss on the hedge item attributable to the hedged risk arerecognized in earnings in the current period. For derivative instruments thatare designated and qualify as a cash flow hedge (i.e., hedging the exposure ofvariability in the expected future cash flows that would be attributable to aparticular risk), the effective portion of the gain or loss on the derivativeinstrument is reported as a component of accumulated comprehensive loss (acomponent of shareholders’ equity) and reclassified into earnings in the sameperiod or periods during which the hedged transaction affects earnings. Theremaining gain or loss on the derivative instrument, if any (i.e., the ineffectiveportion and any portion of the derivative instrument excluded from theassessment of effectiveness), is recognized in earnings in the current period.For derivative instruments not designated as hedging instruments, changes inthe fair market values are recognized in earnings as a component of cost ofsales.

 

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 earnings. The Company also marks itsyen-denominated payables to market, recognizing any resulting gains or lossesin its statement of earnings. At June 30, 2005, the Company had foreigncurrency forward contracts, maturing in 2005, to purchase Japanese yen atcontracted forward rates. The value of these contracts at June 30, 2005, basedon that day’s closing spot rate, was approximately $3,073,000, which was theapproximate value of the Company’s yen-denominated accounts payable. During thethree month periods ended June 30, 2005 and

 

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2004,the Company recorded in its selling, general and administrative expenses a netrealized gain of approximately $12,000 and a net realized loss of approximately$14,000, respectively, on foreign currency transactions. During the six-monthperiods ended June 30, 2005 and 2004, the Company recorded in its selling,general and administrative expenses net realized losses of approximately$90,000 and $83,000, respectively, on foreign currency transactions. At June30, 2005 and 2004, the Company had unrealized gains of $76,000 and $27,000 onforeign currency transactions.

 

**NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS**

 

In May 2005, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards(“SFAS”) No. 154, “Accounting Changes and Error Corrections – a replacement ofAPB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). This Statementreplaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3,“Reporting Accounting Changes in Interim Financial Statements.” SFAS 154changes the requirements for the accounting for and reporting of a change inaccounting principle. Previously, most voluntary changes in accountingprinciples required recognition through a cumulative adjustment within netincome of the period of the change. SFAS 154 requires retrospective applicationto prior periods’ financial statements, unless it is impracticable to determineeither the period-specific effects or the cumulative effect of the change. SFAS154 is effective for accounting changes made in fiscal years beginning afterDecember 15, 2005; however, the Statement does not change the specifictransition provisions of any existing or future accounting pronouncements. Theadoption of this statement is not expected to have a material effect on ourfinancial position or results of operations.

 

In March 2005, the SEC issued Staff Accounting Bulletin No. 107,“Share-Based Payments” (“SAB 107”). SAB 107 expresses views of the SECregarding the interaction between SFAS 123R and certain SEC rules andregulations and provides the SEC’s views regarding the valuation of share-basedcompensation for public companies. We are currently evaluating the adoption ofSFAS 123R and the impact that this statement will have on our results ofoperations. We intend to apply the principles of SAB 107 in conjunction withour adoption of SFAS 123R.

 

In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”),“Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifiesthat the term “conditional asset retirement obligation” as used in SFAS No.143, “Accounting for Assets Retirements Obligations,” refers to a legalobligation to perform an asset retirement activity in which the timing and/ormethod of settlement are conditional on a future event that may or may not bewithin the control of the entity. Furthermore, the uncertainty about the timingand or method of settlement of a conditional asset retirement obligation shouldbe factored into the measurement of the liability when sufficient informationexists. FIN 47 clarifies that an entity is required to recognize the liabilityfor the fair value of a conditional asset obligation when incurred if theliability’s fair value can be reasonably estimated. The adoption of thisstatement is not expected to have a material effect on our financial positionor results of operations. We intend to implement the provisions of thisstatement in the first quarter of 2006.

 

In December 2004, the FASB issued SFAS 151, “Inventory Costs,” which iseffective for inventory costs incurred during fiscal years beginning after June15, 2005*.*This statement amendsARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting forabnormal amounts of idle facility expense, freight, handling costs and wastedmaterial (spoilage). SFAS 151 requires that these items be recognized ascurrent-period charges regardless of whether they meet the criterion of “soabnormal”. In addition, allocation of fixed production overheads to the costsof conversion must be based on the normal capacity of the productionfacilities. The adoption of this statement is not expected to have a materialeffect on our financial position or results of operations.

 

11

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In December 2004, the FASB issued SFAS 123R, “Share-Based Payment.”**This statement is a revision of SFAS 123,“Accounting for Stock-Based Compensation” and supersedes APB 25, “Accountingfor Stock Issued to Employees,” and is effective as of the next fiscal yearthat begins after June 15, 2005. SFAS 123R establishes standards on accountingfor transactions in which an entity obtains employee services in share-basedpayment transactions. This statement requires measurement of the cost ofemployee services received in exchange for an award of equity instruments basedon the grant-date fair value of the award. That cost will be recognized overthe period during which an employee is required to provide service in exchangefor the award, which is usually the vesting period. SFAS 123R also addressestransactions in which an entity incurs liabilities in exchange for goods orservices that are based on the fair value of the entity’s equity instruments orthat may be settled by the issuance of those equity instruments. The adoptionof this statement is not expected to have a material effect on our financialposition or results of operations. We intend to implement the provisions ofthis statement in the first quarter of 2006.

 

**NOTE 6 - DISCONTINUEDOPERATIONS**

 

Green Manufacturing, Inc. –Access Division

 

Pursuant to an Asset Purchase Agreement (the “APA”), dated as ofFebruary 2, 2005, between Green and Benko Products, Inc. (“Benko”), Green soldcertain of its assets comprising its Access Division (the “Division”) to Benko.The assets sold pursuant to the APA include, among others, certain machineryand equipment, accounts receivable (“Purchased Receivables”), inventory,intellectual property and other intangibles. Certain assets of the Divisionwere retained by Green, including, but not limited to, certain of theDivision’s accounts receivable existing at the consummation of the sale toBenko (the “Closing”).

 

The purchase price paid by Benko in consideration for the assetsacquired pursuant to the APA was approximately $1,837,715, consisting of (a) apayment to Green at Closing of approximately $880,069; (b) $836,783 payablepursuant to the terms of a Promissory Note (“Note 1”), dated February 2, 2005,payable in various amounts over a twenty-one (21) month period commencing as ofthe Closing; and (c) $120,862 payable pursuant to the terms of a PromissoryNote (collectively with Note 1, the “Notes”), dated February 2, 2005, payablein various amounts over a four (4) month period commencing as of the Closing.Benko agreed to pay additional consideration on an annual basis for the two (2)successive twelve (12) month periods commencing as of the Closing, dependent oncertain sales by Benko, subject to certain other conditions. In addition, Benkoassumed certain of Green’s contractual obligations. The obligations of Benkounder the APA and the Notes are guaranteed by each of a principal shareholderand an affiliate of Benko, and partially secured by certain collateral.

 

The Company recognized a gain on the sale of these assets ofapproximately $71,000, net of taxes of $36,000, in the first quarter of 2005.

 

Green Manufacturing, Inc. –Hydraulic Cylinder Division

 

In December 2004, pursuant to an Asset Purchase Agreement and otherrelated documents (collectively, the “Agreement”), among P&F, Green andRosenboom Machine & Tool, Inc. (“RMT”) (an unaffiliated third party), Greensold certain of its assets comprising its Hydraulic Cylinder Division to RMT.The assets sold pursuant to the Agreement include, among others, property,machinery and equipment, raw materials, work-in process inventory and certainintangibles. Green also sold the land and building in which the division washoused to RMT in connection with this transaction. Green received

 

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net cash proceeds of approximately $3,679,000and a promissory note of approximately $686,000 at the closing. In addition,Green may receive additional consideration in the form of commissions throughDecember 2009 based upon certain future sales by RMT. For the three- andsix-month periods ended June 30, 2005, Green received approximately $119,000and $227,000, respectively, in additional consideration. In addition, RMTagreed to hire all Green Hydraulic Cylinder Division employees in BowlingGreen, Ohio and, as a result of the transaction, Green has effectively exitedthe hydraulic cylinder business.

 

In connection with the transaction, Green and RMT entered into anagreement which provides for RMT to purchase from Green 100% of RMT’srequirements for products of the type that constitute part of Green’s inventoryof finished goods as of the acquisition date with all purchases by RMT beingbinding and non-cancelable at pre-established prices. The term is for a periodof one year from the acquisition date. RMT shall maintain for the benefit ofGreen the insurance policy insuring the finished goods inventory and will bearthe entire risk of loss, theft, destruction or any damage to the inventory. RMTwill also be responsible for all recordkeeping with respect to the inventory.Within 5 days of the expiration of the term, RMT is obligated to provide Greenwith a list of all unpurchased inventory and return such inventory to Green.Based on the terms of the agreement, Green has effectively entered into anarrangement which provides for a transfer of its inventory to RMT prior topayment, as if it had been sold to RMT, with Green recording it as an othercurrent receivable (based on the cost of the inventory which approximated$889,000). This treatment is based on the fact that Green has effectivelytransferred control of the inventory to RMT. RMT’s employees maintain controlof the inventory as it is located on RMT’s premises and also bears risk ofloss, theft, destruction or any damage to the inventory. Also, all purchases byRMT are binding and non-cancelable at pre-established prices with RMT beingGreen’s only customer for the one-year period.

 

The Company recognized a gain on the sale of these assets ofapproximately $88,000, net of taxes of $46,000, in the fourth quarter of 2004.

 

The following amounts related to Green’s Access division have beensegregated from the Company’s continuing operations and are reported as assetsof discontinued operations in the consolidated condensed balance sheets:

 
| ** **                              | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-----------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **Current**       | ** ** | **Long-term**         | ** ** | **Current** | ** ** | **Long-term** | ** ** |
| Assets of discontinued operations:      |       |              |       |                  |       |   |   |   |   |
| Accounts receivable and inventories     |       | $                 | —     |                  | $          | — |   | $ | 796,000 |   | $ | — |   |
| Property and equipment                  |       | —            |       | —                |       | — |   | 943,000 |   |
|                                    |       |              |       |                  |       |   |   |   |   |
| Total assets of discontinued operations |       | $                 | —     |                  | $          | — |   | $ | 796,000 |   | $ | 943,000 |   |

 

The results of operations for Green’s Hydraulic Cylinder and Accessdivisions have been segregated from continuing operations and are reflected on theconsolidated condensed statement of earnings as discontinued operations.Discontinued operations were approximately as follows:

 

13

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| ** **                                                               | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                               | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                                                 |       | $                                | —     |                           | $          | 3,262,000 |   | $ | 180,000 |   | $ | 5,933,000 |   |
|                                                                     |       |                             |       |                           |       |   |   |   |   |
| Earnings (loss) from operation of  discontinued operations, before taxes |       | $                                | 91,000     |                           | $          | (157,000 | ) | $ | (237,000 | ) | $ | (411,000 | ) |
| Income tax benefit (expense)                                             |       | (31,000                          | )          | 53,000                         |       | 80,000 |   | 139,000 |   |
| Earnings (loss) from operation of  discontinued operations               |       | 60,000                           |       | (104,000                       | )          | (157,000 | ) | (272,000 | ) |
| Gain on sale of discontinued operations,  before taxes                   |       | —                           |       | —                         |       | 107,000 |   | — |   |
| Income taxes                                                             |       | —                           |       | —                         |       | (36,000 | ) | — |   |
| Gain on sale of discontinued operations                                  |       | —                           |       | —                         |       | 71,000 |   | — |   |
| Earnings (loss) from discontinued  operations                            |       | $                                | 60,000     |                           | $          | (104,000 | ) | $ | (86,000 | ) | $ | (272,000 | ) |

 

**NOTE 7 - INVENTORIES**

 

Inventoriesconsist of:

 
| ** **      | ** ** | **June 30,2005** | ** ** | **December 31, 2004** | ** ** |
|-----------------|------------|------------------|------------|-----------------------|------------|
| Raw material    |       | $                | 3,175,823  |                  | $          | 3,181,939 |   |
| Work in process |       | 606,575          |       | 476,174               |       |
| Finished goods  |       | 26,474,233       |       | 22,033,267            |       |
|            |       | $                | 30,256,631 |                  | $          | 25,691,380 |   |

 

**NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS**

 

Thechanges in the carrying amounts of goodwill for the six months ended June 30,2005 are as follows:

 
| **(In thousands)**                                               | ** ** | **Consolidated** | ** ** | **Tools and  other  products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|------------------------------------------------------------------|------------|------------------|------------|--------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| Balance, January 1, 2005                                         |       | $                | 22,877     |                           | $          | 2,326        |       | $                           | 20,551     |                  | $          | — |   | $ | — |   |
| Additional payments for purchase of  Nationwide Industries, Inc. |       | 359              |       | —                         |       | 359          |       | —                      |       | —                |       |
| Balance, June 30, 2005                                           |       | $                | 23,236     |                           | $          | 2,326        |       | $                           | 20,910     |                  | $          | — |   | $ | — |   |

 

In connection withCountrywide’s acquisition of all of the stock of Nationwide in 2002, theCompany is liable for contingent earnout payments to Nationwide’s previousowner, in amounts equal to 30% of the excess of Nationwide’s earnings, beforeamortization of intangible assets, interest and taxes, over $2,500,000, foreach of the five twelve-month periods subsequent to the acquisition date. Thesecontingent earnout payments have been and will be treated as additions togoodwill. During 2005, the Company recorded net additions to goodwill ofapproximately $359,000, related to contingent earnout payments. In July 2005,the Company entered into a settlement agreement and amendment to purchaseagreement with Nationwide’s previous owner regarding future contingent earnoutpayments. In connection therewith, the Company made a payment of $1,250,000 infull and final settlement of the remaining contingent earnout payments.

 

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Other intangible assets wereas follows:

 
| ** **               | ** ** | **June 30, 2005** | ** ** | **December 31, 2004**         | ** ** |
|--------------------------|------------|-------------------|------------|-------------------------------|------------|
| ** **               | ** ** | **Cost**          | ** ** | **Accumulated  amortization** | ** ** | **Cost** | ** ** | **Accumulated  amortization** | ** ** |
| Other intangible assets: |       |              |       |                          |       |   |   |   |   |
| Customer relationships   |       | $                 | 9,160,000  |                          | $          | 1,687,334 |   | $ | 9,160,000 |   | $ | 1,255,334 |   |
| Vendor relationship      |       | 890,000           |       | 89,000                        |       | 890,000 |   | 44,500 |   |
| Employment agreement     |       | 760,000           |       | 481,333                       |       | 760,000 |   | 405,333 |   |
| Trademark                |       | 690,000           |       | —                        |       | 690,000 |   | — |   |
| Total                    |       | $                 | 11,500,000 |                          | $          | 2,257,667 |   | $ | 11,500,000 |   | $ | 1,705,167 |   |

 

Amortization expense forintangible assets subject to amortization was as follows:

 
| **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------|------------|-------------------------------|------------|
| **2005**                        | ** ** | **2004**                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| $                               | 276,250    |                          | $          | 133,000 |   | $ | 552,500 |   | $ | 266,000 |   |
|                                 |            |                               |            |  |  |  |  |  |  |  |  |

 

Amortization expense foreach of the twelve-month periods ending June 30, through the twelve-monthperiod ending June 30, 2010, is estimated to be as follows: 2006 - $1,105,000;2007 - $1,016,000; 2008 - $573,000; 2009 - $573,000; and 2010 - $573,000. Theweighted average amortization period for intangible assets was 11.3 years atJune 30, 2005 and 11.6 years at December 31, 2004.

 

**NOTE 9 - WARRANTY LIABILITY**

 

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

 
| ** **                                                          | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                          | ** ** | **2005**                      | ** ** | **2004** | ** ** |
| Balance, beginning of period                                        |       | $                             | 565,874    |   | $ | 210,989 |   |
| Addition related to the Woodmark  acquisition                       |       | —                        |       | 131,796 |   |
| Warranties issued and changes in estimated pre-existing  warranties |       | 292,881                       |       | 581,805 |   |
| Actual warranty costs incurred                                      |       | (329,628                      | )          | (391,198 | ) |
| Balance, end of period                                              |       | $                             | 529,127    |   | $ | 533,392 |   |

 

**NOTE 10 – CAPITAL STOCK TRANSACTIONS**

 

Duringthe six months ended June 30, 2005, the Company received 6,418 shares of ClassA Common Stock in connection with the exercise of options to purchase 14,000shares of Class A Common Stock. The value of these shares was recorded at$107,241.

 

**NOTE 11 - BUSINESS SEGMENTS**

 

TheCompany has organized its business into four reportable business segments:tools and other products, hardware, agricultural equipment and heatingproducts. The Company is organized around these four distinct operatingsegments, each of which has very different end users. For reporting purposes,Florida Pneumatic and Franklin are combined in the “Tools and other products”segment, Woodmark and Nationwide are combined in the “Hardware” segment, Greenrepresents the “Agricultural equipment” segment and Embassy represents the“Heating products” segment. The Franklin Manufacturing division, formerlyincluded in the hardware segment, relocated its operations to Florida Pneumaticin the first quarter of 2005 and is now included in the “Tools and otherproducts” segment. Prior period amounts have been reclassified to reflect thischange. The primary reasons for taking this action were for, among otherthings, synergies between the companies in the retail channel, principallyselling to the same significant customer, and other operational synergies. TheCompany evaluates segment performance based primarily on segment operatingincome.

 

Thefollowing presents financial information by segment for the three- andsix-month periods ended June 30, 2005 and 2004. Segment operating incomeexcludes general corporate expenses, interest expense

 

15

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andincome taxes. Identifiable assets are those assets directly owned or utilizedby the particular business segment.

 
| **(In Thousands)**                                       | ** ** | **Consolidated** | ** ** | **Tools and  other  products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|----------------------------------------------------------|------------|------------------|------------|--------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| **Three months ended June 30, 2005**                     |       |             |       |                           |       |         |       |                        |       |                  |       |
| Revenues from unaffiliated customers                     |       | $                | 30,891     |                           | $          | 11,960       |       | $                           | 16,170     |                  | $          | 506 |   | $ | 2,255 |   |
| Segment operating income (loss)                          |       | 4,240            |       | $                              | 869        |         | $          | 3,383                       |       | $                     | 30         |   | $ | (42 | ) |
| General corporate expense                                |       | (1,240           | )          |                           |       |         |       |                        |       |                  |       |
| Interest expense – net                              |       | (502             | )          |                           |       |         |       |                        |       |                  |       |
| Earnings from continuing operations before  income taxes |       | $                | 2,498      |                           |       |         |       |                        |       |                  |       |   |
|                                                     |       |             |       |                           |       |         |       |                        |       |                  |       |
| Segment assets                                           |       | $                | 90,802     |                           | $          | 29,798       |       | $                           | 53,202     |                  | $          | 2,094 |   | $ | 5,708 |   |
| Corporate assets                                         |       | 3,316            |       |                           |       |         |       |                        |       |                  |       |
| Total assets                                             |       | $                | 94,118     |                           |       |         |       |                        |       |                  |       |   |

 
| **(In Thousands)**                                       | ** ** | **Consolidated** | ** ** | **Tools and  other  products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|----------------------------------------------------------|------------|------------------|------------|--------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| **Three months ended June 30, 2004**                     |       |             |       |                           |       |         |       |                        |       |                  |       |
| Revenues from unaffiliated customers                     |       | $                | 18,089     |                           | $          | 9,643        |       | $                           | 5,562      |                  | $          | 472 |   | $ | 2,412 |   |
| Segment operating income (loss)                          |       | 2,365            |       | $                              | 922        |         | $          | 1,399                       |       | $                     | 74         |   | $ | (30 | ) |
| General corporate expense                                |       | (892             | )          |                           |       |         |       |                        |       |                  |       |
| Interest expense – net                              |       | (138             | )          |                           |       |         |       |                        |       |                  |       |
| Earnings from continuing operations before  income taxes |       | $                | 1,335      |                           |       |         |       |                        |       |                  |       |   |
|                                                     |       |             |       |                           |       |         |       |                        |       |                  |       |
| Segment assets                                           |       | $                | 90,193     |                           | $          | 25,094       |       | $                           | 49,952     |                  | $          | 9,329 |   | $ | 5,818 |   |
| Corporate assets                                         |       | 3,683            |       |                           |       |         |       |                        |       |                  |       |
| Total assets                                             |       | $                | 93,876     |                           |       |         |       |                        |       |                  |       |   |

 
| **(In Thousands)**                                       | ** ** | **Consolidated** | ** ** | **Tools and  other  products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|----------------------------------------------------------|------------|------------------|------------|--------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| **Six months ended June 30, 2005**                       |       |             |       |                           |       |         |       |                        |       |                  |       |
| Revenues from unaffiliated customers                     |       | $                | 58,198     |                           | $          | 22,074       |       | $                           | 30,380     |                  | $          | 1,032 |   | $ | 4,712 |   |
| Segment operating income (loss)                          |       | 7,631            |       | $                              | 1,908      |         | $          | 5,727                       |       | $                     | 96         |   | $ | (100 | ) |
| General corporate expense                                |       | (2,324           | )          |                           |       |         |       |                        |       |                  |       |
| Interest expense – net                              |       | (929             | )          |                           |       |         |       |                        |       |                  |       |
| Earnings from continuing operations before  income taxes |       | $                | 4,378      |                           |       |         |       |                        |       |                  |       |   |

 
| **(In Thousands)**                                       | ** ** | **Consolidated** | ** ** | **Tools and  other  products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|----------------------------------------------------------|------------|------------------|------------|--------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| **Six months ended June 30, 2004**                       |       |             |       |                           |       |         |       |                        |       |                  |       |
| Revenues from unaffiliated customers                     |       | $                | 34,993     |                           | $          | 20,281       |       | $                           | 8,874      |                  | $          | 921 |   | $ | 4,917 |   |
| Segment operating income (loss)                          |       | 4,147            |       | $                              | 2,023      |         | $          | 1,996                       |       | $                     | 163        |   | $ | (35 | ) |
| General corporate expense                                |       | (1,902           | )          |                           |       |         |       |                        |       |                  |       |
| Interest expense – net                              |       | (260             | )          |                           |       |         |       |                        |       |                  |       |
| Earnings from continuing operations before  income taxes |       | $                | 1,985      |                           |       |         |       |                        |       |                  |       |   |

 

16

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**NOTE 12 – SUBSEQUENT EVENT**

 

Pursuant to an AssetPurchase Agreement (the “APA”), dated as of July 14, 2005, between Green andBenko Products, Inc. (“Benko”), Green sold certain of its assets comprising itsAgricultural Products Division (the “Division”) to Benko. The assets sold pursuantto the APA include, among others, certain machinery and equipment, intellectualproperty and other intangibles. Certain assets of the Division were retained byGreen, including, but not limited to, certain of the Division’s accountsreceivable and inventories existing at the consummation of the sale to Benko(the “Closing”).

 

The purchase price paid byBenko in consideration for the assets acquired pursuant to the APA was$530,000, consisting of (a) a payment to Green at Closing of $225,000; (b)$25,000 payable pursuant to the terms of a Promissory Note (“Note 1”), datedJuly 14, 2005, payable in equal monthly amounts over a five (5) month periodcommencing as of the Closing; and (c) $280,000 payable pursuant to the terms ofa Promissory Note (collectively with Note 1, the “Notes”), dated July 14, 2005,payable in equal monthly amounts over a four (4) year period commencing as ofthe Closing. In addition, Benko assumed certain of Green’s contractualobligations. The obligations of Benko under the APA and the Notes areguaranteed by each of a principal shareholder and an affiliate of Benko, andpartially secured by certain collateral.

 

In connection with thetransaction, Green and Benko entered into an agreement which provides for Benkoto purchase from Green 100% of Benko’s requirements for products of the typethat constitute part of Green’s inventory of raw materials and finished goodsas of the acquisition date with all purchases by Benko being binding andnon-cancelable at pre-established prices. The term is for a period of one yearfrom the acquisition date. Benko shall maintain for the benefit of Green theinsurance policy insuring the finished goods inventory and will bear the entirerisk of loss, theft, destruction or any damage to the inventory. Benko willalso be responsible for all recordkeeping with respect to the inventory. Within5 days of the expiration of the term, Benko is obligated to provide Green witha list of all unpurchased inventory and return such inventory to Green. Basedon the terms of the agreement, Green has effectively entered into anarrangement which provides for a transfer of its inventory to Benko prior topayment, as if it had been sold to Benko, with Green recording it as an othercurrent receivable (based on the cost of the inventory, which approximated$373,000) in the third quarter of 2005. This treatment is based on the factthat Green has effectively transferred control of the inventory to Benko.Benko’s employees maintain control of the inventory as it is located on Benko’spremises and also bears risk of loss, theft, destruction or any damage to theinventory. Also, all purchases by Benko are binding and non-cancelable atpre-established prices with Benko being Green’s only customer for the one-yearperiod.

 

The Company expects torecord a gain on the sale of these assets of approximately $500,000 in thethird quarter of 2005.

 

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**Item 2.****          ****Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

**General**

 

The Private SecuritiesLitigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor forforward-looking statements made by or on behalf of P&F Industries, Inc. andsubsidiaries. The Company and its representatives may, from time to time, makewritten or verbal forward-looking statements, including statements contained inthe Company’s filings with the Securities and Exchange Commission and in itsreports to stockholders. Generally, the inclusion of the words “believe,”“expect,” “intend,” “estimate,” “anticipate,” “will,” and similar expressionsidentify statements that constitute “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934 and that are intended to come within the safeharbor protection provided by those sections. Any forward-looking statementscontained herein, including those related to the Company’s future performance,are based upon the Company’s historical performance and on current plans,estimates and expectations. Such forward-looking statements are subject tovarious risks and uncertainties identified below. Forward-looking statementsspeak only as of the date on which they are made, and the Company undertakes noobligation to update publicly or revise any forward-looking statement, whetheras a result of new information, future developments or otherwise.

 

All forward-lookingstatements involve risks and uncertainties. These risks and uncertainties couldcause the Company’s actual results for the 2005 fiscal year and beyond todiffer materially from those expressed in any forward-looking statement made byor on behalf of the Company for a number of reasons, including, but not limitedto:

 

•  The strength of the retail economy in theUnited States. The Company’s business is subject to economic conditions in itsmajor markets, including recession, inflation, deflation, general weakness inretail, industrial, and housing markets.

 

•  The Company’s ability to maintain mutuallybeneficial relationships with key customers. The Company has severalsignificant customers, including two customers that, in the aggregate,constituted approximately 26% of its consolidated revenues for the six-monthperiod ended June 30, 2005. The loss of either of these significant customersor a material negative change in the Company’s relationships with thesesignificant customers could have an adverse effect on its financial positionand results of operations.

 

•  Adverse changes in currency exchange rates orraw material commodity prices. A significant amount of the Company’s productsare manufactured outside the United States and purchased in the local currency.As a result, the Company is exposed to movements in the exchange rates ofvarious currencies against the United States dollar. The Company believes itsmost significant foreign currency exposures are the Japanese yen, the Taiwandollar, and, to a lesser extent, the euro. In addition, the Company purchases asignificant amount of products from China for which it pays in U.S. dollars. Asa result of the recent and potential future revaluations of the Chineserenminbi, the Company may have additional adverse exposure related to the priceof future purchases.

 

•  Unforeseen inventory adjustments or changesin purchasing patterns by major customers and the resultant impact onmanufacturing volumes and inventory levels. The Company makes its purchasing

 

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decisions based upon a number of factors including an assessment of market needs and preferences, manufacturing lead times and cash flow considerations. To the extent that the Company’s assumptions result in inventory levels being too high or too low, there could be a negative impact on its financial position and results of operations. During the second quarter of 2005, one of the Company’s significant customers decreased its purchasing levels in order to reduce its overall inventory levels. This pattern, which we expect to continue through fiscal 2005, is expected to increase our inventory in the near term and decrease revenues and related profits from that customer. We are unable at this time, however, to quantify the impact on our financial position and results of operations.

 

•  Unforeseen interruptions in the manufacturing ability of certain foreign suppliers. Although the Company believes there are redundant sources available and does maintain multiple sources for certain of its products, there may be costs and delays associated with securing such sources and there can be no assurance that such sources would provide the same quality of product at similar prices.

 

•  Market acceptance of the new products introduced in 2004 and 2005 and other products scheduled for introduction during 2005, as well as the level of sales generated from these new products relative to expectations, based on existing investments in productive capacity and commitments by the Company to fund advertising and product promotions in connection with the introduction of these new products.

 

•  The ability of certain subsidiaries of the Company to generate future cash flows sufficient to support the recorded amounts of goodwill, other intangible assets and other long-lived assets related to those subsidiaries.

 

•  Increased competition. The domestic markets in which the Company sells products are highly competitive on the basis of price, quality, availability, post-sale service and brand-name awareness. A number of competing companies are well-established manufacturers that compete on a global basis.

 

•  Price reductions taken by the Company in response to customer and competitive pressures, as well as price reductions or promotional actions taken in order to drive demand that may not result in anticipated sales necessary to offset the associated costs.

 

•  Interest rate fluctuations and other capital market conditions.

 

•  The effects of litigation and product liability exposures, as well as other risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

 

•  Changes in laws and regulations, including changes in accounting standards, taxation requirements, including tax rate changes, new tax laws and revised tax law interpretations, and environmental laws, in both domestic and foreign jurisdictions.

 

•  The impact of unforeseen events, including war or terrorist activities, on economic conditions and consumer confidence.

 

This listing is not intendedto be all-inclusive. There can be no assurance that the Company has correctlyidentified and appropriately assessed all factors affecting its business orthat the publicly available and other information with respect to these mattersis complete and correct. Additional risks

 

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and uncertainties not presently known to theCompany or that it currently believes to be immaterial also may adverselyimpact the Company. Should any risks and uncertainties develop into actualevents, these developments could have material adverse effects on the Company’sfinancial position and results of operations.

 

**Business**

 

P&FIndustries, Inc. (“P&F”) is a Delaware corporation incorporated on April19, 1963. P&F conducts its business operations through its fourwholly-owned subsidiaries: Florida Pneumatic Manufacturing Corporation (“FloridaPneumatic”), Countrywide Hardware, Inc. (“Countrywide”), Embassy Industries,Inc. (“Embassy”) and Green Manufacturing, Inc. (“Green”). P&F Industries,Inc. and its subsidiaries are herein referred to collectively as the “Company.”

 

FloridaPneumatic is engaged in the importation, manufacture and sale of pneumatic handtools, primarily for the industrial, retail and automotive markets, and theimportation and sale of compressor air filters. Florida Pneumatic also markets,through its Berkley Tool division (“Berkley”), a line of pipe cutting andthreading tools, wrenches and replacement electrical components for awidely-used brand of pipe cutting and threading machines. In addition, throughits Franklin Manufacturing (“Franklin”) division, Florida Pneumatic imports aline of door and window hardware. Countrywide conducts its business operationsthrough Nationwide Industries, Inc. (“Nationwide”), its wholly-owned subsidiary,and through Woodmark International, L.P. (“Woodmark”), a limited partnershipowned by P&F and Countrywide. Nationwide is an importer and manufacturer ofdoor, window and fencing hardware. Woodmark is an importer of builders’hardware, including staircase components and kitchen and bath hardware andaccessories. Embassy is engaged in the manufacture and sale of baseboardheating products and the importation and sale of radiant heating systems andboilers. Green was primarily engaged in the manufacture, development and saleof heavy-duty welded custom designed hydraulic cylinders until it exited thatbusiness in December 2004 through the sale of certain assets. Green alsomanufactured a line of access equipment for the petro-chemical industry untilit exited that business in February 2005 and a line of post hole diggingequipment for the agricultural industry until it exited that business in July2005. (See Notes 6 and 12 to the Notes to Consolidated Condensed FinancialStatements regarding disposition of certain assets related to Green’s exit fromthe hydraulic cylinder, access equipment and agricultural equipmentbusinesses.) Note 11 to the Notes to Consolidated Condensed FinancialStatements presents financial information for the segments of the Company’s business.

 

**Overview**

 

OnJune 30, 2004, Woodmark acquired certain assets comprising the business of theformer Woodmark International L.P. and its wholly-owned subsidiary, the formerStair House, Inc., and assumed certain related liabilities. The Company’s consolidatedresults of operations include the results of operations for Woodmark for the sixmonths ended June 30, 2005 within its hardware business segment. In addition, theCompany’s consolidated results of operations present Green’s hydraulic cylinderand access divisions as discontinued operations.

 

Consolidated revenues forthe quarter ended June 30, 2005 increased $12,802,000, or 70.8%, from $18,089,000to $30,891,000. Revenues increased at three of the four subsidiaries, with thegreatest increase at Countrywide, which includes revenues at Woodmark andNationwide. Woodmark, which was acquired by the Company on June 30, 2004, hadsecond quarter revenues of $9,919,000 and Nationwide reported a $701,000, or 12.6%,increase in revenues. Revenues at Florida Pneumatic increased $2,317,000, or24.0%, from the comparable prior-year period primarily due to the certainretail

 

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promotions in the period and increases fromnew product introductions, offset by a decrease in base sales. There was a $157,000,or 6.5%, decrease in revenues at Embassy. Gross profit increased for thequarter, due primarily to increased revenues. Gross profit increases wereoffset, in part, due to increases in the cost of raw materials and the cost ofimported product due to the weakening of the U.S. dollar versus the yen andTaiwan dollar compared to the prior-year period. Consolidated earnings fromcontinuing operations increased $616,000, or 76.2%, from $809,000 to $1,425,000for the quarter ended June 30, 2005.

 

**Critical Accounting Policies andEstimates**

 

The Company prepares itsconsolidated financial statements in accordance with accounting principlesgenerally accepted in the United States of America. Certain of these accountingpolicies require the Company to make estimates and judgments that affect thereported amounts of assets, liabilities, revenues and expenses, and the relateddisclosure of contingent assets and liabilities, revenues and expenses. On anongoing basis, the Company evaluates estimates, including those related to baddebts, inventory reserves, goodwill and intangible assets and warrantyreserves. The Company bases its estimates on historical data and experience,when available, and on various other assumptions that are believed to bereasonable under the circumstances, the combined results of which form thebasis for making judgments about the carrying values of assets and liabilitiesthat are not readily apparent from other sources. Actual results may differfrom these estimates.

 

There have been no materialchanges in the Company’s critical accounting policies and estimates from thosediscussed in Item 7 of the Company’s Annual Report on Form 10-K for the yearended December 31, 2004.

 

**ACQUISITION**

 

For acquisitions, results ofoperations are included in the Consolidated Condensed Financial Statements fromthe date of acquisition.

 

Woodmark International L.P.

 

On June 30, 2004, pursuantto an Asset Purchase Agreement dated as of such date, Woodmark, a Delawarelimited partnership owned by P&F and Countrywide, acquired certain assets(the “Purchased Property”) comprising the business of the former WoodmarkInternational L.P., a Texas limited partnership, and its wholly-ownedsubsidiary, the former Stair House, Inc., a Georgia corporation (collectively,the “Sellers”), and assumed certain of the Sellers’ related liabilities.Woodmark paid $31,898,000 to acquire the Purchased Property, which purchaseprice consisted primarily of $27,160,000 in cash and certain subordinated notesin the aggregate principal amount of $3,408,000. The purchase price wasnegotiated on the basis of Woodmark’s historical financial performance. Subjectto certain conditions, Woodmark also agreed to pay additional cashconsideration to the Sellers after the third or the fifth anniversary of theclosing of the acquisition if certain financial targets described in the AssetPurchase Agreement are met. The acquisition of the Purchased Property wasfinanced through the Company’s senior credit facility.

 

As part of the acquisition, theCompany recorded approximately $8,840,000 in other identifiable intangibleassets, principally related to the value of customer relationships, andapproximately $12,675,000 of goodwill through June 30, 2005.

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**DISCONTINUED OPERATIONS**

 

Green Manufacturing, Inc. –Agricultural Division

 

Pursuant to an AssetPurchase Agreement (the “APA”), dated as of July 14, 2005, between Green andBenko Products, Inc. (“Benko”), Green sold certain of its assets comprising itsAgricultural Products Division (the “Division”) to Benko. The assets soldpursuant to the APA include, among others, certain machinery and equipment,intellectual property and other intangibles. Certain assets of the Divisionwere retained by Green, including, but not limited to, certain of the Division’saccounts receivable and inventories existing at the consummation of the sale toBenko (the “Closing”).

 

The purchase price paid byBenko in consideration for the assets acquired pursuant to the APA was$530,000, consisting of (a) a payment to Green at Closing of $225,000; (b)$25,000 payable pursuant to the terms of a Promissory Note (“Note 1”), datedJuly 14, 2005, payable in equal monthly amounts over a five (5) month periodcommencing as of the Closing; and (c) $280,000 payable pursuant to the terms ofa Promissory Note (collectively with Note 1, the “Notes”), dated July 14, 2005,payable in equal monthly amounts over a four (4) year period commencing as ofthe Closing. In addition, Benko assumed certain of Green’s contractualobligations. The obligations of Benko under the APA and the Notes areguaranteed by each of a principal shareholder and an affiliate of Benko, andpartially secured by certain collateral.

 

In connection with thetransaction, Green and Benko entered into an agreement which provides for Benkoto purchase from Green 100% of Benko’s requirements for products of the typethat constitute part of Green’s inventory of raw materials and finished goodsas of the acquisition date with all purchases by Benko being binding andnon-cancelable at pre-established prices. The term is for a period of one yearfrom the acquisition date. Benko shall maintain for the benefit of Green theinsurance policy insuring the finished goods inventory and will bear the entirerisk of loss, theft, destruction or any damage to the inventory. Benko willalso be responsible for all recordkeeping with respect to the inventory. Within5 days of the expiration of the term, Benko is obligated to provide Green witha list of all unpurchased inventory and return such inventory to Green. Basedon the terms of the agreement, Green has effectively entered into anarrangement which provides for a transfer of its inventory to Benko prior topayment, as if it had been sold to Benko, with Green recording it as an othercurrent receivable (based on the cost of the inventory, which approximated$373,000) in the third quarter of 2005. This treatment is based on the factthat Green has effectively transferred control of the inventory to Benko. Benko’semployees maintain control of the inventory as it is located on Benko’spremises and also bears risk of loss, theft, destruction or any damage to theinventory. Also, all purchases by Benko are binding and non-cancelable atpre-established prices with Benko being Green’s only customer for the one-yearperiod.

 

Green has effectively ceasedall operating activities. The Company expects to record a gain on the sale ofthese assets of approximately $500,000 in the third quarter of 2005.

 

Green Manufacturing, Inc. –Access Division

 

Pursuant to an AssetPurchase Agreement (the “APA”), dated as of February 2, 2005, between Green andBenko Products, Inc. (“Benko”), Green sold certain of its assets comprising itsAccess Division (the “Division”) to Benko. The assets sold pursuant to the APAinclude, among others, certain machinery and equipment, accounts receivable (“PurchasedReceivables”), inventory, intellectual property and other intangibles. Certainassets of the Division were retained by Green, including, but not

 

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limited to, certain of the Division’saccounts receivable existing at the consummation of the sale to Benko (the “Closing”).

 

The purchase price paid byBenko in consideration for the assets acquired pursuant to the APA wasapproximately $1,837,715, consisting of (a) a payment to Green at Closing ofapproximately $880,069; (b) $836,783 payable pursuant to the terms of aPromissory Note (“Note 1”), dated February 2, 2005, payable in various amountsover a twenty-one (21) month period commencing as of the Closing; and (c)$120,862 payable pursuant to the terms of a Promissory Note (collectively withNote 1, the “Notes”), dated February 2, 2005, payable in various amounts over afour (4) month period commencing as of the Closing. Benko agreed to payadditional consideration on an annual basis for the two (2) successive twelve(12) month periods commencing as of the Closing, dependent on certain sales byBenko, subject to certain other conditions. In addition, Benko assumed certainof Green’s contractual obligations. Pursuant to the APA, and subject to certainconditions, Benko has the option to return, and Green must purchase, certaindelinquent Purchased Receivables. The obligations of Benko under the APA andthe Notes are guaranteed by each of a principal shareholder and an affiliate ofBenko, and partially secured by certain collateral.

 

TheCompany recognized a gain on the sale of these assets of approximately $71,000,net of taxes of $36,000, in the first quarter of 2005.

 

Green Manufacturing, Inc. –Hydraulic Cylinder Division

 

In December 2004, pursuantto an Asset Purchase Agreement and other related documents (collectively, the “Agreement”),among P&F, Green and Rosenboom Machine & Tool, Inc. (“RMT”) (anunaffiliated third party), Green sold certain of its assets comprising itsHydraulic Cylinder Division to RMT. The assets sold pursuant to the Agreementinclude, among others, property, machinery and equipment, raw materials,work-in process inventory and certain intangibles. Green also sold the land andbuilding in which the division was housed to RMT in connection with thistransaction. Green received net cash proceeds of approximately $3,679,000 and apromissory note of approximately $686,000 at the closing. In addition, Greenmay receive additional consideration in the form of commissions throughDecember 2009 based upon certain future sales by RMT. For the three- andsix-month periods ended June 30, 2005, Green received approximately $119,000and $227,000, respectively, in additional consideration. In addition, RMT hasagreed to hire all Green Hydraulic Cylinder Division employees in BowlingGreen, Ohio and, as a result of the transaction, Green has effectively exitedthe hydraulic cylinder business.

 

In connection with thetransaction, Green and RMT entered into an agreement which provides for RMT topurchase from Green 100% of RMT’s requirements for products of the type thatconstitute part of Green’s inventory of finished goods as of the acquisitiondate with all purchases by RMT being binding and non-cancelable atpre-established prices. The term is for a period of one year from theacquisition date. RMT shall maintain for the benefit of Green the insurancepolicy insuring the finished goods inventory and will bear the entire risk ofloss, theft, destruction or any damage to the inventory. RMT will also beresponsible for all recordkeeping with respect to the inventory. Within 5 daysof the expiration of the term, RMT is obligated to provide Green with a list ofall unpurchased inventory and return such inventory to Green. Based on theterms of the agreement, Green has effectively entered into an arrangement whichprovides for a transfer of its inventory to RMT prior to payment, as if it hadbeen sold to RMT, with Green recording it as an other current receivable (basedon the cost of the inventory which approximated $889,000). This treatment isbased on the fact that Green has effectively transferred control of theinventory to RMT. RMT’s employees maintain control of the inventory as it islocated on RMT’s premises and also bears risk of loss, theft, destruction orany damage to the inventory. Also, all

 

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purchases by RMT are binding andnon-cancelable at pre-established prices with RMT being Green’s only customerfor the one-year period.

 

TheCompany recognized a gain on the sale of these assets of approximately $88,000,net of taxes of $46,000, in the fourth quarter of 2004.

 

Thefollowing amounts related to Green’s Access division have been segregated fromthe Company’s continuing operations and are reported as assets of discontinuedoperations in the consolidated condensed balance sheets:

 
| ** **                              | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-----------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **Current**       | ** ** | **Long-term**         | ** ** | **Current** | ** ** | **Long-term** | ** ** |
| Assets of discontinued operations:      |       |              |       |                  |       |   |   |   |   |
| Accounts receivable and inventories     |       | $                 | —     |                  | $          | — |   | $ | 796,000 |   | $ | — |   |
| Property and equipment                  |       | —            |       | —                |       | — |   | 943,000 |   |
|                                    |       |              |       |                  |       |   |   |   |   |
| Total assets of discontinued operations |       | $                 | —     |                  | $          | — |   | $ | 796,000 |   | $ | 943,000 |   |

 

Theresults of operations for Green’s Hydraulic Cylinder and Access divisions havebeen segregated from continuing operations and are reflected on theconsolidated condensed statement of earnings as discontinued operations.Discontinued operations were approximately as follows:

 
| ** **                                                               | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                               | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                                                 |       | $                                | —     |                           | $          | 3,262,000 |   | $ | 180,000 |   | $ | 5,933,000 |   |
|                                                                     |       |                             |       |                           |       |   |   |   |   |
| Earnings (loss) from operation of  discontinued operations, before taxes |       | $                                | 91,000     |                           | $          | (157,000 | ) | $ | (237,000 | ) | $ | (411,000 | ) |
| Income tax benefit (expense)                                             |       | (31,000                          | )          | 53,000                         |       | 80,000 |   | 139,000 |   |
| Earnings (loss) from operation of  discontinued operations               |       | 60,000                           |       | (104,000                       | )          | (157,000 | ) | (272,000 | ) |
| Gain on sale of discontinued operations,  before taxes                   |       | —                           |       | —                         |       | 107,000 |   | — |   |
| Income taxes                                                             |       | —                           |       | —                         |       | (36,000 | ) | — |   |
| Gain on sale of discontinued operations                                  |       | —                           |       | —                         |       | 71,000 |   | — |   |
| Earnings (loss) from discontinued  operations                            |       | $                                | 60,000     |                           | $          | (104,000 | ) | $ | (86,000 | ) | $ | (272,000 | ) |
|                                                                          |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

**RESULTS OF OPERATIONS**

 

**Quarters ended June 30, 2005 and June30, 2004**

 

**Revenues**

 

Revenues for the quartersended June 30, 2005 and 2004 were approximately as follows:

 
| **Three months  ended June 30,** | ** ** | **Consolidated** | ** ** | **Tools and  other products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|----------------------------------|------------|------------------|------------|-------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| **2005**                         |       | $                | 30,891,000 |                          | $          | 11,960,000   |       | $                           | 16,170,000 |                  | $          | 506,000 |   | $ | 2,255,000 |   |
|                             |       |             |       |                          |       |         |       |                        |       |                  |       |
| **2004**                         |       | $                | 18,089,000 |                          | $          | 9,643,000    |       | $                           | 5,562,000  |                  | $          | 472,000 |   | $ | 2,412,000 |   |
|                             |       |             |       |                          |       |         |       |                        |       |                  |       |
| **% increase (decrease)**        |       | 70.8             | %          | 24.0                          | %          | 190.7        | %          | 7.2                         | %          | (6.5                  | )%         |

 

24

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Revenues from tools andother products increased due primarily to approximately $2,791,000 in retailpromotions in the period, as well as an increase of approximately $798,000 relatedto new product introductions, offset by a decrease in base sales of approximately$1,159,000. Base sales decreased as a result of decreased purchasing activity ofapproximately $587,000 from a significant customer as part of a program toreduce its overall inventory levels, as well as a decrease in automotiverevenues of approximately $190,000. Revenues from our automotive customers havedecreased due primarily to the lack of inventory-stocking accounts that wereobtained in 2004, as well as no significant new product introductions in thisarea in 2005. In addition, the Franklin Manufacturing division, formerlyincluded in the hardware segment, relocated its operations to Florida Pneumaticin the first quarter of 2005 and is now included in the “Tools and otherproducts” segment. Prior period amounts have been reclassified to reflect thischange. The primary reasons for taking this action were for, among otherthings, synergies between the companies in the retail channel, principallyselling to the same significant customer, and other operational synergies. Sellingprices of pneumatic tools and related equipment were unchanged.

 

Revenues from hardwareincreased significantly as a result of the acquisition of Woodmark, whichrecorded approximately $9,919,000 in revenues during the second quarter of2005. Revenues from the sale of staircase components continue to increase,benefiting from strong new housing starts. These revenues have more than offsetweakness in demand for our kitchen and bath products sold into the mobile homeand remodeling markets. Moreover, Nationwide’s revenues increased byapproximately $701,000, or 12.6%, primarily attributable to an increase ofapproximately $264,000 in sales of fencing products, and increases in our OEMand patio hardware products of $284,000, or 26.2%, and $153,000, or 19.4%,respectively, which were due primarily to the addition of new OEM customers andto greater sale of patio products resulting from reconstruction following thehurricanes in Florida last year.

 

Revenues from agricultural equipmentincreased primarily due to the addition of a new customer.

 

Revenuesfrom heating products decreased $157,000, or 6.5%, for the quarterly period. Revenuesfrom baseboard products did not increase despite increases in housing starts,especially in the northeast. This was due primarily to decreased constructionactivity in the New York City area, which represents a significant market forus. In addition, certain customers bought inventory ahead of the priceincreases that were instituted late in the first quarter. Our boiler salesincreased due to the timing of certain jobs and we remain actively engaged inthe bidding process for several large projects, the nature of which can causerevenues to fluctuate quarter to quarter. Selling prices of certain baseboardheating products and boilers were increased late in the first quarter to offsetrising costs of materials. Such price increases, which averaged approximately7%, impacted revenues reported in the period by approximately $150,000.

 

Allrevenues are generated in U.S. dollars and are not impacted by changes inforeign currency exchange rates.

 

**Gross Profits**

 

Grossprofits for the quarters ended June 30, 2005 and 2004 were approximately asfollows:

 

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| **Three months  ended June 30,** | ** ** | **Consolidated** | ** ** | **Tools and  other  products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|----------------------------------|------------|------------------|------------|--------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| **2005**                         |       | $                | 9,873,000  |                           | $          | 3,326,000    |       | $                           | 5,806,000  |                  | $          | 78,000 |   | $ | 663,000 |   |
|                             |       | 32.0             | %          | 27.8                           | %          | 35.9         | %          | 15.5                        | %          | 29.4                  | %          |
|                             |       |             |       |                           |       |         |       |                        |       |                  |       |
| **2004**                         |       | $                | 6,375,000  |                           | $          | 3,358,000    |       | $                           | 2,257,000  |                  | $          | 86,000 |   | $ | 674,000 |   |
|                             |       | 35.2             | %          | 34.8                           | %          | 40.6         | %          | 18.3                        | %          | 28.0                  | %          |

 

The decrease in the grossprofit percentage from tools and other products was due primarily to the impactof lower margins related to retail promotional sales, as well as the weaknessof the U.S. dollar in relation to the Japanese yen and the Taiwan dollarcompared to the prior-year period. The decrease in the gross profit percentagefrom hardware was due primarily to the inclusion of Woodmark, whose grossprofit percentage of approximately 31.8% was less than this segment’s comparableprior-year period average. The gross profit percentage for Nationwide, the othercompany in the hardware segment was 40.2% for the second quarter of 2005. Thedecrease in the gross profit percentage from agricultural equipment was dueprimarily to increases in raw material costs which were not able to berecovered through increased selling prices, as well as increased costsassociated with the temporary outsourcing of our manufactured products. The increasein the gross profit percentage from heating products was due primarily to afavorable product mix and the impact of an increase in certain selling priceslate in the first quarter which partially offset increases in steel and otherraw material costs.

 

**Selling,General and Administrative Expenses**

 

Consolidated selling,general and administrative (“SG&A”) expenses increased $1,971,000, or 40.2%,from approximately $4,902,000 to approximately $6,873,000. SG&A expensesincreased due primarily to the inclusion of $1,503,000 of expenses related toWoodmark, increased compensation of approximately $286,000 tied to higherprofitability and increases related to professional fees, mainly related tocorporate compliance and reporting requirements, increased personnel-relatedexpenses resulting from increasing revenues, offset by a reduction in certainwarranty expenses. However, due to increases in revenues and considering thatcertain SG&A expenses are fixed, SG&A expenses as a percentage ofrevenues decreased from 27.1% to 22.2%.

 

**Interest- Net**

 

Net interest expenseincreased $363,000, or 263%, from approximately $139,000 to approximately $502,000,due primarily to the amounts borrowed under the Company’s term loan facility tofinance the Woodmark acquisition transaction on June 30, 2004, as well as theissuance and assumption of certain notes related thereto. Interest expense onborrowings under the term loan facility increased by approximately $249,000 andinterest expense on the acquisition-related notes approximated $34,000.Interest expense on borrowings under the Company’s revolving credit loanfacility increased by approximately $73,000, as a result of both higher averageborrowings and higher average interest rates.

 

**Taxeson Income**

 

The effective tax rates applicableto earnings from continuing operations for the quarters ended June 30, 2005 and2004 were 43.0% and 39.4%, respectively. The increase in the effective tax ratewas

 

26

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due primarily to an increase in expenses thatare not deductible for tax purposes.

 

**Six-month periods ended June 30,2005 and June 30, 2004**

 

**Revenues**

 

Revenues for the six-monthperiods ended June 30, 2005 and 2004 were approximately as follows:

 
| **Six months  ended June 30,** | ** ** | **Consolidated** | ** ** | **Tools and  other products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|--------------------------------|------------|------------------|------------|-------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| **2005**                       |       | $                | 58,198,000 |                          | $          | 22,074,000   |       | $                           | 30,380,000 |                  | $          | 1,032,000 |   | $ | 4,712,000 |   |
|                           |       |             |       |                          |       |         |       |                        |       |                  |       |
| **2004**                       |       | $                | 34,993,000 |                          | $          | 20,281,000   |       | $                           | 8,874,000  |                  | $          | 921,000 |   | $ | 4,917,000 |   |
|                           |       |             |       |                          |       |         |       |                        |       |                  |       |
| **% increase (decrease)**      |       | 66.3             | %          | 8.8                           | %          | 242.3        | %          | 12.0                        | %          | (4.2                  | )%         |

 

Revenues from tools andother products increased due primarily to approximately $1,829,000 inincremental retail promotions during the six-month period, as well as anincrease of approximately $1,801,000 related to new product introductions,offset by a decrease in base sales of approximately $1,405,000 and the loss ofa significant customer in late 2003. Base sales decreased as a result of decreasedpurchasing activity of approximately $830,000 from a significant customer aspart of a program to reduce its overall inventory levels, as well as a decreasein automotive revenues of approximately $286,000. Revenues from our automotivecustomers have decreased due primarily to the lack of inventory-stockingaccounts that were obtained in 2004, as well as no significant new productintroductions in this area in 2005. In addition, the Franklin Manufacturingdivision, formerly included in the hardware segment, relocated its operationsto Florida Pneumatic in the first quarter of 2005 and is now included in the “Toolsand other products” segment. Prior period amounts have been reclassified toreflect this change. The primary reasons for taking this action were for, amongother things, synergies between the companies in the retail channel,principally selling to the same significant customer, and other operationalsynergies. Selling prices of pneumatic tools and related equipment wereunchanged.

 

Revenues from hardwareincreased significantly as a result of the acquisition of Woodmark, whichrecorded approximately $19,910,000 in revenues during the first half of 2005.Revenues from the sale of staircase components continue to increase, benefitingfrom strong new housing starts. These revenues have more than offset weaknessin demand for our kitchen and bath products sold into the mobile home andremodeling markets. Moreover, Nationwide’s revenues increased by approximately$1,624,000, or 18.4%, primarily attributable to an increase of approximately $709,000in sales of fencing products, and increases in our OEM and patio hardwareproducts of $642,000, or 32.7%, and $273,000, or 16.5%, respectively, whichwere due primarily to the addition of new OEM customers and to greater sale ofpatio products resulting from reconstruction following the hurricanes inFlorida last year.

 

Revenues from agriculturalequipment increased primarily due to the addition of a new customer.

 

Revenuesfrom heating products decreased $205,000 for the six-month period ended June30, 2005. Revenues from baseboard products did not increase despite increasesin housing starts, especially

 

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inthe northeast. This was due primarily to decreased construction activity in theNew York City area during the second quarter of 2005, which represents asignificant market for us. Sales of our other heating products, including boilers,were also below comparable prior-period levels. However, we have activelyengaged in the bidding process for several large projects, the nature of whichcan cause revenues to fluctuate quarter to quarter. Selling prices of certainbaseboard heating products and boilers were increased late in the first quarterto offset rising costs of materials. Such price increases, which averagedapproximately 7%, impacted revenues reported in the period by approximately$150,000.

 

Allrevenues are generated in U.S. dollars and are not impacted by changes inforeign currency exchange rates.

 

**Gross Profits**

 

Grossprofits for the six-month periods ended June 30, 2005 and 2004 wereapproximately as follows:

 
| **Six months  ended June 30,** | ** ** | **Consolidated** | ** ** | **Tools and  other  products** | ** ** | **Hardware** | ** ** | **Agricultural  equipment** | ** ** | **Heating  products** | ** ** |
|--------------------------------|------------|------------------|------------|--------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------|------------|
| **2005**                       |       | $                | 18,308,000 |                           | $          | 6,467,000    |       | $                           | 10,380,000 |                  | $          | 169,000 |   | $ | 1,292,000 |   |
|                           |       | 31.5             | %          | 29.3                           | %          | 34.2         | %          | 16.3                        | %          | 27.4                  | %          |
|                           |       |             |       |                           |       |         |       |                        |       |                  |       |
| **2004**                       |       | $                | 11,830,000 |                           | $          | 6,756,000    |       | $                           | 3,479,000  |                  | $          | 191,000 |   | $ | 1,404,000 |   |
|                           |       | 33.8             | %          | 33.3                           | %          | 39.2         | %          | 20.7                        | %          | 28.6                  | %          |

 

The decrease in the grossprofit percentage from tools and other products was due primarily to the impactof lower margins related to retail promotional sales, as well as the weaknessof the U.S. dollar in relation to the Japanese yen and the Taiwan dollarcompared to the prior-year period. The decrease in the gross profit percentagefrom hardware was due primarily to the inclusion of Woodmark, whose grossprofit percentage of approximately 33.2% was less than this segment’scomparable prior-year period average. The gross profit percentage forNationwide, the other company in the hardware segment was 38.7%. The decreasein the gross profit percentage from agricultural equipment was due primarily toincreases in raw material costs which were not able to be recovered throughincreased selling prices, as well as increased costs associated with thetemporary outsourcing of our manufactured products. The decrease in the grossprofit percentage from heating products was due primarily to increases in steeland other raw material costs, prompting an increase in certain selling priceslate in the first quarter.

 

**Selling,General and Administrative Expenses**

 

Consolidated selling,general and administrative expenses increased $3,417,000, or 35.7%, from approximately$9,584,000 to approximately $13,001,000. SG&A expenses increased dueprimarily to the inclusion of $2,947,000 of expenses related to Woodmark,increased compensation of approximately $499,000 tied to higher profitabilityand increases related to professional fees, mainly related to corporatecompliance and reporting requirements, increased personnel-related expensesresulting from increasing revenues, offset by a reduction in certain warrantyexpenses and certain non-recurring legal expenses that were incurred in theprior year. However, due to increases in revenues and considering that certainSG&A expenses are fixed, SG&A expenses as a percentage of revenuesdecreased from 27.4% to 22.3%.

 

28

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**Interest- Net**

 

Net interest expenseincreased $669,000, or 257%, from approximately $260,000 to approximately $929,000,due primarily to the amounts borrowed under the Company’s term loan facility tofinance the Woodmark acquisition transaction on June 30, 2004, as well as theissuance and assumption of certain notes related thereto. Interest expense onborrowings under the term loan facility increased by approximately $482,000 andinterest expense on the acquisition-related notes approximated $67,000.Interest expense on borrowings under the Company’s revolving credit loanfacility increased by approximately $105,000, as a result of both higheraverage borrowings and higher average interest rates.

 

**Taxeson Income**

 

The effective tax ratesapplicable to earnings from continuing operations for the six months ended June30, 2005 and 2004 were 42.1% and 38.9%, respectively. The increase in theeffective tax rate was due primarily to an increase in expenses that are notdeductible for tax purposes.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company’s cash flows from operations arecyclical, with the greatest demand in the second and third quarters followed bypositive cash flows inthe fourth quarter as receivables and inventories trend down. Due to its strongasset base, predictable cash flows and favorable banking relationships, theCompany believes it has adequate access to capital, if and when needed. TheCompany monitors average days sales outstanding, inventory turns and capital expendituresto project liquidity needs and evaluate return on assets employed.

 

TheCompany gauges its liquidity and financial stability by the measurements shownin the following table (dollar amounts in thousands):

 
| ** **                | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------|------------|-------------------|------------|-----------------------|------------|
| Working Capital           |       | $                 | 28,553     |                  | $          | 29,530 |   |
| Current Ratio             |       | 2.23 to 1         |       | 2.72 to 1             |       |
| Shareholders’ Equity |       | $                 | 43,723     |                  | $          | 41,168 |   |

 

Cash increased $1,243,000,from $1,190,000 as of December 31, 2004 to $2,433,000, as of June 30, 2005. TheCompany’s debt levels increased, from $38,910,000 at December 31, 2004 to $39,745,000at June 30, 2005, primarily to fund working capital needs. The Company’s totalpercent of debt to total book capitalization decreased from 48.6% at December31, 2004 to 47.6% at June 30, 2005.

 

In connection withCountrywide’s acquisition of all of the stock of Nationwide in 2002, theCompany is liable for contingent earnout payments to Nationwide’s previousowner, in amounts equal to 30% of the excess of Nationwide’s earnings, beforeamortization of intangible assets, interest and taxes, over $2,500,000, foreach of the five twelve-month periods subsequent to the acquisition date. Thesecontingent earnout payments have been and will be treated as additions togoodwill. During the first half of 2005, the Company recorded net additions togoodwill of approximately $359,000, related to contingent earnout payments. InJuly 2005, the Company entered into a settlement agreement and amendment topurchase agreement with Nationwide’s previous owner regarding future contingentearnout payments. In connection therewith, the Company made a payment of$1,250,000 in full and final

 

29

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settlement of the remaining contingentearnout payments. (See Note 8 to the Notes to Consolidated Condensed FinancialStatements.)

 

In connection with theWoodmark acquisition transaction, the Company is liable for additional paymentsto the sellers. The amount of these payments, which would be made as of eitherJune 30, 2007 or June 30, 2009, are to be based on increases in earnings beforeinterest and taxes, for the year ended on the respective date, over a base of$5,100,000. Woodmark has the option to make a payment as of June 30, 2007 in anamount equal to 48% of this increase. If Woodmark does not make this payment asof June 30, 2007, the Sellers may demand payment as of June 30, 2009 in anamount equal to 40% of the increase. Any such additional payments will betreated as additions to goodwill.

 

Cash provided by operatingactivities was approximately $74,000 and $1,438,000 for the six-month periods endedJune 30, 2005 and 2004, respectively. The Company believes that cash on handderived from operations and cash available through borrowings under its creditfacilities will be sufficient to allow the Company to meet its foreseeableworking capital needs.

 

During the first half of 2005,gross accounts receivable increased by approximately $355,000 in the aggregate.Increases (decreases) were approximately $1,548,000, $(1,715,000), $802,000 and$(280,000) at Countrywide, Green, Florida Pneumatic and Embassy, respectively.These changes were all primarily related to the respective companies’ salesvolume for the period, with the exception of Green, whose reduction wasprincipally related to the collection of outstanding accounts receivable fromthe discontinued operations of its hydraulic cylinder and access equipmentdivisions.

 

During the first half of 2005,inventories increased by approximately $4,565,000 in the aggregate. Increases(decreases) were approximately $4,245,000, $122,000, $261,000 and $(63,000) at FloridaPneumatic, Countrywide, Embassy and Green, respectively. The increase ininventories at Florida Pneumatic was due primarily to the stocking of inventoryrelated to anticipated sales promotions with its two major customers. Overall,inventory levels fluctuate quarter-to-quarter due to the timing of purchases,actual sales and anticipated sales levels.

 

During the first half of 2005,short-term borrowings increased by $4,500,000, primarily to fund workingcapital needs.

 

During the first half of 2005,accounts payable increased by approximately $1,668,000 in the aggregate.Increases (decreases) were approximately $1,651,000, $81,000, $(85,000) and $21,000at Florida Pneumatic, Countrywide, Embassy and Green, respectively. These changeswere all due primarily to the timing of payments associated with inventorypurchases.

 

On June 30, 2004, inconjunction with the Woodmark acquisition transaction, the Company entered intoa credit agreement with Citibank and another bank. This agreement provides theCompany with various credit facilities, including revolving credit loans, termloans for acquisitions and a foreign exchange line. The credit agreement issubject to annual review by the banks. An amendment to the credit agreement,dated June 24, 2005, extended the term of the agreement through June 30, 2006.

 

The revolving credit loanfacility provides a maximum of $12,000,000, with various sublimits, for directborrowings, letters of credit, bankers’ acceptances and equipment loans. Thereare no commitment fees for any unused portion of this credit facility. At June30, 2005, there was $8,500,000 outstanding against the revolving credit loanfacility, and there were no open letters of credit.

 

30

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The term loan facilityprovides a maximum commitment of $34,000,000 to finance acquisitions subject tothe approval of the lending banks. There are no commitment fees for any unusedportion of this credit facility. The Company borrowed $29,000,000 against thisfacility to finance the Woodmark acquisition transaction, and there was $23,500,000outstanding against the term loan facility at June 30, 2005.

 

The foreign exchange lineprovides 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 under the foreign exchange lineat June 30, 2005, based on that day’s closing spot rate, was approximately $3,073,000.

 

Under its credit agreement,the Company is required to adhere to certain financial covenants. Certain ofthe Company’s mortgage agreements also require the Company to adhere to certainfinancial covenants. At June 30, 2005, the Company was in compliance with allof these covenants.

 

Capital spending for the six-monthperiods ending June 30, 2005 and 2004 was approximately $293,000 and $650,000,respectively, which amounts were provided from working capital. Capitalexpenditures for the balance of fiscal 2005 are expected to be approximately $400,000,some of which may be financed through the Company’s credit facilities. Includedin the expected total for 2005 are capital expenditures relating to newproducts, expansion of existing product lines and replacement of equipment.

 

**OFF-BALANCE SHEET ARRANGEMENTS**

 

The Company’s foreignexchange line provides for the availability of up to $10,000,000 in foreigncurrency forward contracts. These contracts fix the exchange rate on futurepurchases of foreign currencies needed for payments to foreign suppliers. TheCompany has not purchased forward contracts on New Taiwan dollars or euros. Thetotal amount of foreign currency forward contracts outstanding at June 30,2005, based on that day’s closing spot rate, was approximately $3,073,000.

 

The Company, through FloridaPneumatic, imports a significant amount of its purchases from Japan, withpayment due in Japanese yen. As a result, the Company is subject to the effectsof foreign currency exchange fluctuations. The Company uses a variety oftechniques to protect itself from any adverse effects from these fluctuations,including increasing its selling prices, obtaining price reductions from itsoverseas suppliers, using alternative supplier sources and entering intoforeign currency forward contracts. The increase in the strength of theJapanese yen versus the U.S. dollar from 2004 to 2005 had a negative effect onthe Company’s results of operations and its financial position. Since December31, 2004, the relative value of the U.S dollar in relation to the Japanese yenhas increased, particularly in the second quarter. There can be no assurance asto the future trend of this value. (See “Item 3 - Quantitative and QualitativeDisclosures About Market Risk.”)

 

**NEW ACCOUNTING PRONOUNCEMENTS**

 

SeeNote 5 to the Notes to Consolidated Condensed Financial Statements included inItem 1 of this report.

 

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

 

TheCompany is exposed to market risks, which include changes in U.S. andinternational exchange rates, the prices of certain commodities and currencyrates as measured against the U.S. dollar and each other. The Company attemptsto reduce the risks related to foreign currency fluctuation by utilizingfinancial instruments, pursuant to Company policy.

 

Thevalue of the U.S. dollar affects the Company’s financial results. Changes inexchange rates may positively or negatively affect the Company’s gross marginsthrough its inventory purchases and operating expenses through realized foreignexchange gains or losses. The Company engages in hedging programs aimed atlimiting, in part, the impact of currency fluctuations. Using primarily forwardexchange contracts, the Company hedges some of those transactions that, whenremeasured according to accounting principles generally accepted in the UnitedStates of America, impact the statement of operations. Factors that couldimpact the effectiveness of the Company’s programs include volatility of thecurrency markets and availability of hedging instruments. All currencycontracts that are entered into by the Company are components of hedgingprograms and are entered into not for speculation but for the sole purpose ofhedging an existing or anticipated currency exposure. The Company does not buyor sell financial instruments for trading purposes. Although the Companymaintains these programs to reduce the impact of changes in currency exchangerates, when the U.S. dollar sustains a weakening exchange rate againstcurrencies in which the Company incurs costs, the Company’s costs are adverselyaffected.

 

TheCompany accounts for changes in the fair value of its foreign currencycontracts by marking them to market and recognizing any resulting gains orlosses through its statement of operations. The Company also marks itsyen-denominated payables to market, recognizing any resulting gains or lossesin its statement of operations. At June 30, 2005, the Company had foreigncurrency forward contracts, maturing in 2005, to purchase Japanese yen atcontracted forward rates. The value of these contracts at June 30, 2005, basedon that day’s closing spot rate, was approximately $3,073,000, which was theapproximate value of the Company’s corresponding yen-denominated accountspayable. During the three month periods ended June 30, 2005 and 2004, theCompany recorded in its selling, general and administrative expenses a netrealized gain of approximately $12,000 and a net realized loss of approximately$14,000, respectively, on foreign currency transactions. During the six-monthperiods ended June 30, 2005 and 2004, the Company recorded in its selling,general and administrative expenses net realized losses of approximately$90,000 and $83,000, respectively, on foreign currency transactions. At June 30,2005 and 2004, the Company had unrealized gains of $76,000 and $27,000 onforeign currency transactions.

 

Thepotential loss in value of the Company’s net investment in foreign currencyforward contracts resulting from a hypothetical 10 percent adverse change inforeign currency exchange rates at June 30, 2005 was approximately $355,000.

 

TheCompany has various debt instruments that bear interest at variable rates tiedto LIBOR (London InterBank Offered Rate). Any increase in LIBOR would have anadverse effect on the Company’s interest costs. In addition to affectingoperating results, adverse changes in interest rates could impact the Company’saccess to capital, certain merger and acquisition strategies and the level ofcapital expenditures.

 

Thecarrying amounts reported in the consolidated balance sheets for cash and cashequivalents, accounts receivable, accounts payable and short-term debt,approximate fair value as of June 30, 2005 because of the relatively short-termmaturity of these financial instruments. The carrying amounts reported

 

32

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forlong-term debt approximate fair value as of June 30, 2005 because, in general,the interest rates underlying the instruments fluctuate with market rates.

 

**Item 4.****                                                          ****Controls and Procedures**

 

**Evaluation of disclosure controls and procedures**

 

An evaluation was performed, under the supervision of, and with the participation of, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities and Exchange Act of 1934). Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were adequate and effective, as of the end of the period covered by this Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (this “Report”), in timely alerting them to all material information relating to the Company and its consolidated subsidiaries that is required to be included in this Report.

 

**Changes in internal controls**

 

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

 

33

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**PART II - OTHER INFORMATION**

 

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

TheCompany is a defendant or co-defendant in various actions brought about in theordinary course of conducting its business. The Company does not believe thatany of these actions are material to the financial condition of the Company.

 

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

None.

 

**Item 3.****                                                          ****Defaults Upon SeniorSecurities**

None.

 

**Item 4.****                                                          ****Submission of Matters to aVote of Security Holders**

OnMay 25, 2005, the Registrant held its Annual Meeting of Stockholders, at which oneproposal, the Election of Directors, was voted upon.

 

Thefollowing persons were duly elected to serve, subject to the Company’s Bylaws,as directors of the Registrant until the 2008 Annual Meeting of Stockholders,or until the election and qualification of their successor(s):

 
| **Name of Director** | ** ** | **Votes in favor** | ** ** | **Votes against** | ** ** | **Votes abstained** | ** ** |
|----------------------|------------|--------------------|------------|-------------------|------------|---------------------|------------|
| Robert L. Dubofsky   |       | 2,620,142          |       | 705,081           |       | 0                   |       |
| Mitchell A. Solomon  |       | 2,970,785          |       | 354,438           |       | 0                   |       |
| Marc A. Utay         |       | 2,973,211          |       | 352,012           |       | 0                   |       |

 

Theterms of office of Richard A. Horowitz, Alan I. Goldberg, Robert M. Steinberg,Jeffrey D. Franklin, Sidney Horowitz and Dennis Kalick as directors of theRegistrant continued after the Annual Meeting of Stockholders.

 

Therewere no broker non-votes pertaining to this proposal.

 

**Item 5.****                                                          ****Other Information**

None.

 

**Item 6.****                                                          ****Exhibits**

See“Exhibit Index” immediately following the signature page.

 

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**SIGNATURE**

 

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

 

 
|                    | **P & F INDUSTRIES, INC.** |
|-------------------------|--------------------------------|
|                    | (Registrant)                   |
|                    |                           |
|                    |                           |
|                    | By                             | /s/  Joseph A. Molino, Jr. |   |
|                    | Joseph  A. Molino, Jr.         |
|                    | Vice  President                |
| Dated:  August 12, 2005 | (Principal  Financial Officer) |

 

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

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **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 Stock Purchase Agreement to the  Securities and Exchange Commission upon request.                                                                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **2.3**             |       | Settlement  Agreement and Amendment to Stock Purchase Agreement, dated as of July 22, 2005,  by and between Mark C. Weldon and the Registrant (Filed herein).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **2.4**             |       | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **2.5**             |       | Asset  Purchase Agreement, dated as of June 30, 2004, by and among WM Texas  International, L.P., a Texas limited partnership formerly known as Woodmark  International, L.P., SH Georgia, Inc., a Georgia corporation formerly known  as Stair House, Inc., Samuel G. Sherstad, WM Texas GP, LLC, WM Texas  Partners, LLC and Woodmark International, L.P., a Delaware limited partnership  (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report  on Form 8-K dated July 9, 2004, and amended September 10, 2004). 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. |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **2.6**             |       | Asset  Purchase Agreement, dated December 13, 2004, among Rosenboom Machine &  Tool, Inc., Green Manufacturing, Inc. and P&F Industries, Inc.  (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report  on Form 8-K dated December 16, 2004, and amended March 4, 2005). 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.                                                                                                                                                                                                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **2.7**             |       | Amendment  to Asset Purchase Agreement, dated June 8, 2005, among Rosenboom Machine  & Tool, Inc. and Green Manufacturing, Inc. (Filed herein).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **2.8**             |       | Asset  Purchase Agreement, dated as of February 2, 2005, between Green  Manufacturing, Inc. and Benko Products, Inc. (Incorporated by reference to  Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated February 3,  2005). Pursuant to Item 601(b)(2) of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

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|     |   | Regulation S-K, the  Registrant agrees to furnish, supplementally, a copy of any exhibit or  schedule omitted from the Asset Purchase Agreement to the Commission upon  request.                                                                                                                                                                                                                                                                                                         |
|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **3.1**  |   | Restated  Certificate of Incorporation of the Registrant (Incorporated by reference to  Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended December 31, 2004).                                                                                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **3.2**  |   | Amended  By-laws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended December 31, 2004).                                                                                                                                                                                                                                                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **3.3**  |   | Amendment  to the Amended By-laws, as amended, of the Registrant (Incorporated by  reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated  March 18, 2005).                                                                                                                                                                                                                                                                                                  |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **4.1**  |   | Rights  Agreement, dated as of August 19, 2004, 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 19, 2004).                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **4.2**  |   | Credit  Agreement, dated as of June 30, 2004, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, Embassy Industries, Inc., Green  Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc.,  Woodmark International, L.P. and Citibank, N.A., as Administrative Agent, and  the lenders** **party thereto (Incorporated by  reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K  dated July 9, 2004).         |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **4.3**  |   | Amendment to Credit  Agreement, dated June 24, 2005, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, Embassy Industries, Inc., Green  Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc.,  Woodmark International, L.P. and Citibank, N.A., as Administrative Agent, and  the lenders** **party thereto (Incorporated by  reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K  dated June 24, 2005). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **4.4**  |   | 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).                                                                                                                                                                                                                                         |

 

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| **10.4** |   | Executive  Incentive Bonus Plan of the Registrant (Incorporated by reference to Exhibit  10.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2001).                         |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                     |
| **10.5** |   | 2002  Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit  4.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended  March 31, 2002).                                   |
|     |   |                                                                                                                                                                                                                     |
| **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 (Filed herein).                                                         |
|     |   |                                                                                                                                                                                                                     |
| **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 (Filed herein).                                                         |
|     |   |                                                                                                                                                                                                                     |
| **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 (Filed herein).         |
|     |   |                                                                                                                                                                                                                     |
| **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 (Filed herein).       |

 

A copy of any of the foregoing exhibits to this Quarterly Report onForm 10-Q may be obtained, upon payment of the Registrant’s reasonable expensesin furnishing such exhibit, by writing to P&F Industries, Inc., 300 SmithStreet, Farmingdale, New York 11735-1114, Attention: Corporate Secretary.

 

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