**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q/A**

 

**Amendment No. 1**

 

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

 

**For the Quarter Ended September 30, 2003**

 

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

 

**Commission File Number 1 - 5332**

 

**P & F INDUSTRIES, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                                 |   | **22-1657413**                          |
|------------------------------------------------------------------------------|--------|-----------------------------------------|
| (State or other jurisdiction of  incorporation or organization)              |   | (I.R.S. Employer Identification Number) |
|                                                                         |   |                                    |
| **300 Smith Street, Farmingdale, New York**                                  |   | **11735**                               |
| (Address of principal executive offices)                                     |   | (Zip Code)                              |
|                                                                         |   |                                    |
| Registrant’s telephone number, including  area code: **(631) 694-1800** |

 

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Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months, and (2) has been subject to such filingrequirements for the past 90 days.

**Yes ****ý   No ****o**

 

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

 

As of November 12, 2003, there were 3,511,631 shares of theregistrant’s Class A Common Stock outstanding.

 

 

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**P & F INDUSTRIES, INC.**

 

**FORM 10-Q/A**

 

**FOR THE QUARTER ENDED SEPTEMBER 30, 2003**

 

**TABLE OF CONTENTS**

 

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

 

i

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**EXPLANATORYNOTE**

 

This Amendment No. 1 on Form 10-Q/A amends and restates Items 1 and 2of Part I contained in the Company’s Quarterly Report on Form 10-Q for thequarter ended September 30, 2003 to give effect to the restatement of theCompany’s consolidated financial statements for the quarter endedMarch 31, 2003, as discussed in Note 3 of the Notes to ConsolidatedFinancial Statements. Except as set forth in Items 1 and 2 of Part I below, theCompany has not made any changes to, nor updated any disclosures contained in,its Quarterly Report on Form 10-Q filed on November 13, 2003.

 

ii

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**PARTI - FINANCIAL INFORMATION**

 

**Item1.****           Financial Statements**

 

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

**CONSOLIDATED BALANCE SHEETS (unaudited)**

 
|                                                                                                       |   | **September 30,  2003** |       | **December 31,  2002** |   |
|------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|-----------------------------|--------|
| ASSETS                                                                                                     |   |                         |       |                        |   |
| CURRENT:                                                                                                   |   |                         |       |                        |   |
| Cash                                                                                                       |   | $                            | 1,163,550  |                        | $      | 1,024,222 |   |
| Accounts receivable, less allowance for  possible losses of $392,662 in 2003 and $354,441 in 2002 (Note 8) |   | 14,598,161                   |       | 10,864,261                  |   |
| Inventories (Notes 7 and 8)                                                                                |   | 21,262,989                   |       | 19,580,073                  |   |
| Deferred income taxes - net                                                                                |   | 485,000                      |       | 485,000                     |   |
| Prepaid expenses and other                                                                                 |   | 1,198,558                    |       | 1,080,313                   |   |
| TOTAL CURRENT ASSETS                                                                                       |   | 38,708,258                   |       | 33,033,869                  |   |
|                                                                                                       |   |                         |       |                        |   |
| PROPERTY AND EQUIPMENT (Note 8):                                                                           |   |                         |       |                        |   |
| Land                                                                                                       |   | 1,582,938                    |       | 1,582,938                   |   |
| Buildings and improvements                                                                                 |   | 8,983,150                    |       | 8,811,117                   |   |
| Machinery and equipment                                                                                    |   | 15,012,719                   |       | 14,514,353                  |   |
|                                                                                                       |   | 25,578,807                   |       | 24,908,408                  |   |
| Less accumulated depreciation and  amortization                                                            |   | 12,599,275                   |       | 11,409,203                  |   |
| NET PROPERTY AND EQUIPMENT                                                                                 |   | 12,979,532                   |       | 13,499,205                  |   |
|                                                                                                       |   |                         |       |                        |   |
| GOODWILL, net of accumulated amortization  of $1,419,274 (Note 2)                                          |   | 10,654,867                   |       | 10,210,621                  |   |
|                                                                                                       |   |                         |       |                        |   |
| OTHER INTANGIBLE ASSETS, net of accumulated  amortization of $753,667 in 2003 and $354,667 in 2002         |   | 1,906,333                    |       | 2,305,333                   |   |
|                                                                                                       |   |                         |       |                        |   |
| OTHER ASSETS, net of accumulated  amortization of $173,759 in 2003 and $180,858 in 2002                    |   | 126,301                      |       | 118,528                     |   |
| TOTAL ASSETS                                                                                               |   | $                            | 64,375,291 |                        | $      | 59,167,556 |   |

 

See accompanying notes to consolidated financial statements(unaudited).

 

1

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

**CONSOLIDATEDBALANCE SHEETS (unaudited)**

 
|                                                                                                              |   | **September 30,  2003** |       | **December 31,  2002** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|-----------------------------|--------|
| LIABILITIES AND SHAREHOLDERS’  EQUITY                                                                        |   |                         |       |                        |   |
| CURRENT LIABILITIES:                                                                                              |   |                         |       |                        |   |
| Short-term borrowings (Note 8)                                                                                    |   | $                            | 9,500,000  |                        | $      | 4,500,000 |   |
| Accounts payable                                                                                                  |   | 3,240,650                    |       | 2,860,271                   |   |
| Accruals:                                                                                                         |   |                         |       |                        |   |
| Compensation                                                                                                      |   | 1,677,000                    |       | 2,112,377                   |   |
| Other (Note 9)                                                                                                    |   | 2,698,177                    |       | 2,379,962                   |   |
| Current maturities of long-term debt (Note  8)                                                                    |   | 1,509,180                    |       | 1,402,547                   |   |
| TOTAL CURRENT LIABILITIES                                                                                         |   | 18,625,007                   |       | 13,255,157                  |   |
|                                                                                                              |   |                         |       |                        |   |
| LONG-TERM DEBT, less current maturities  (Note 8)                                                                 |   | 9,240,336                    |       | 11,591,989                  |   |
|                                                                                                              |   |                         |       |                        |   |
| DEFERRED INCOME TAXES - net                                                                                       |   | 351,000                      |       | 497,000                     |   |
| TOTAL LIABILITIES                                                                                                 |   | 28,216,343                   |       | 25,344,146                  |   |
|                                                                                                              |   |                         |       |                        |   |
| COMMITMENTS AND CONTINGENCIES (Notes 8 and  9)                                                                    |   |                         |       |                        |   |
|                                                                                                              |   |                         |       |                        |   |
| SHAREHOLDERS’ EQUITY (Note 10):                                                                              |   |                         |       |                        |   |
| Preferred stock - $10 par; authorized -  2,000,000 shares; no shares issued or outstanding                        |   | —                       |       | —                      |   |
| Common stock:                                                                                                     |   |                         |       |                        |   |
| Class A - $1 par;  authorized - 7,000,000 shares; issued - 3,730,367 shares in 2003 and  3,690,367 shares in 2002 |   | 3,730,367                    |       | 3,690,367                   |   |
| Class B - $1 par;  authorized - 2,000,000 shares; no shares issued or outstanding                                 |   | —                       |       | —                      |   |
| Additional paid-in capital                                                                                        |   | 8,588,590                    |       | 8,540,528                   |   |
| Retained earnings                                                                                                 |   | 25,566,832                   |       | 22,997,016                  |   |
| Treasury stock, at cost (223,736 shares in  2003 and 176,045 shares in 2002)                                      |   | (1,726,841                   | )          | (1,404,501                  | )      |
| TOTAL SHAREHOLDERS’ EQUITY                                                                                   |   | 36,158,948                   |       | 33,823,410                  |   |
|                                                                                                              |   |                         |       |                        |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                   |   | $                            | 64,375,291 |                        | $      | 59,167,556 |   |

 

See accompanying notes to consolidated financial statements(unaudited).

 

2

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

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

 
|                                                                                      |   | **Three  months ended  September 30,** |       | **Nine  months ended  September 30,** |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------------|------------|--------------------------------------------|--------|
|                                                                                      |   | **2003**                                    |       | **2002**                                   |   | **2003** |   | **2002** |   |
| REVENUES (Note 11):                                                                       |   |                                        |       |                                       |   |   |   |   |   |
| Net sales                                                                                 |   | $                                           | 23,614,451 |                                       | $      | 20,915,289 |   | $ | 64,584,445 |   | $ | 56,351,585 |   |
| Other                                                                                     |   | 88,251                                      |       | 167,220                                    |   | 338,438 |   | 494,039 |   |
|                                                                                      |   | 23,702,702                                  |       | 21,082,509                                 |   | 64,922,883 |   | 56,845,624 |   |
|                                                                                      |   |                                        |       |                                       |   |   |   |   |   |
| COSTS AND EXPENSES:                                                                       |   |                                        |       |                                       |   |   |   |   |   |
| Cost of sales                                                                             |   | 16,967,999                                  |       | 14,864,251                                 |   | 45,046,765 |   | 39,388,993 |   |
| Selling, general and administrative                                                       |   | 5,149,755                                   |       | 4,679,836                                  |   | 15,209,037 |   | 13,193,626 |   |
| Interest - net                                                                            |   | 172,256                                     |       | 233,416                                    |   | 555,265 |   | 497,838 |   |
|                                                                                      |   | 22,290,010                                  |       | 19,777,503                                 |   | 60,811,067 |   | 53,080,457 |   |
|                                                                                      |   |                                        |       |                                       |   |   |   |   |   |
| INCOME BEFORE TAXES ON INCOME AND  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE    |   | 1,412,692                                   |       | 1,305,006                                  |   | 4,111,816 |   | 3,765,167 |   |
|                                                                                      |   |                                        |       |                                       |   |   |   |   |   |
| TAXES ON INCOME                                                                           |   | 530,000                                     |       | 528,000                                    |   | 1,542,000 |   | 1,475,000 |   |
|                                                                                      |   |                                        |       |                                       |   |   |   |   |   |
| INCOME BEFORE CUMULATIVE EFFECT OF CHANGE  IN ACCOUNTING PRINCIPLE                        |   | 882,692                                     |       | 777,006                                    |   | 2,569,816 |   | 2,290,167 |   |
|                                                                                      |   |                                        |       |                                       |   |   |   |   |   |
| CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLE, NET OF TAXES OF $1,668,000 (Note 2) |   | —                                      |       | —                                     |   | — |   | (3,239,118 | ) |
|                                                                                      |   |                                        |       |                                       |   |   |   |   |   |
| NET INCOME (LOSS)                                                                         |   | $                                           | 882,692    |                                       | $      | 777,006 |   | $ | 2,569,816 |   | $ | (948,951 | ) |

 

See accompanying notes to consolidated financial statements (unaudited).

 

3

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|                                                               |   | **Three  months ended  September 30,** |   | **Nine  months ended  September 30,** |   |
|--------------------------------------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------|
|                                                               |   | **2003**                                    |   | **2002**                                   |   | **2003** |   | **2002** |   |
| Weighted average common shares outstanding  (Note 12):             |   |                                        |   |                                       |   |   |   |   |   |
| Basic                                                              |   | 3,503,766                                   |   | 3,516,519                                  |   | 3,505,204 |   | 3,510,820 |   |
|                                                               |   |                                        |   |                                       |   |   |   |   |   |
| Diluted                                                            |   | 3,584,939                                   |   | 3,580,074                                  |   | 3,579,407 |   | 3,583,039 |   |
|                                                               |   |                                        |   |                                       |   |   |   |   |   |
| Earnings (loss) per share of common stock  (Note 12):              |   |                                        |   |                                       |   |   |   |   |   |
|                                                               |   |                                        |   |                                       |   |   |   |   |   |
| Basic:                                                             |   |                                        |   |                                       |   |   |   |   |   |
| Income before cumulative effect of change  in accounting principle |   | $                                           | .25    |                                       | $      | .22 |   | $ | .73 |   | $ | .65 |   |
|                                                               |   |                                        |   |                                       |   |   |   |   |   |
| Cumulative effect of change in accounting  principle, net of taxes |   | —                                      |   | —                                     |   | — |   | (.92 | ) |
|                                                               |   |                                        |   |                                       |   |   |   |   |   |
| Net income (loss)                                                  |   | $                                           | .25    |                                       | $      | .22 |   | $ | .73 |   | $ | (.27 | ) |
|                                                               |   |                                        |   |                                       |   |   |   |   |   |
| Diluted:                                                           |   |                                        |   |                                       |   |   |   |   |   |
| Income before cumulative effect of change  in accounting principle |   | $                                           | .25    |                                       | $      | .22 |   | $ | .72 |   | $ | .64 |   |
|                                                               |   |                                        |   |                                       |   |   |   |   |   |
| Cumulative effect of change in accounting  principle, net of taxes |   | —                                      |   | —                                     |   | — |   | (.90 | ) |
|                                                               |   |                                        |   |                                       |   |   |   |   |   |
| Net income (loss)                                                  |   | $                                           | .25    |                                       | $      | .22 |   | $ | .72 |   | $ | (.26 | ) |

 

See accompanying notes to consolidated financial statements(unaudited).

 

4

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

**CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY**

**(unaudited)**

 
|                                                          |   | **Common  stock** |      | **Additional  paid-in  capital** |   | **Retained  earnings** |   | **Treasury  stock** |       | **Total** |   |
|---------------------------------------------------------------|--------|-------------------|-----------|----------------------------------|--------|------------------------|--------|---------------------|------------|-----------|--------|
|                                                          |   |              |      |                             |   |                   |   |                |       |      |   |
| Balance, January 1, 2003                                 |   | $                 | 3,690,367 |                             | $      | 8,540,528              |   | $                   | 22,997,016 |      | $      | (1,404,501 | ) | $ | 33,823,410 |   |
|                                                          |   |              |      |                             |   |                   |   |                |       |      |   |
| Net income for the nine months ended  September 30, 2003 |   | —            |      | —                           |   | 2,569,816              |   | —              |       | 2,569,816 |   |
|                                                          |   |              |      |                             |   |                   |   |                |       |      |   |
| Exercise of stock options                                     |   | 40,000            |      | 48,062                           |   | —                 |   | —              |       | 88,062    |   |
|                                                          |   |              |      |                             |   |                   |   |                |       |      |   |
| Purchase of Class A Common Stock (Note 10)                    |   | —            |      | —                           |   | —                 |   | (322,340            | )          | (322,340  | )      |
|                                                          |   |              |      |                             |   |                   |   |                |       |      |   |
| Balance, September 30, 2003                              |   | $                 | 3,730,367 |                             | $      | 8,588,590              |   | $                   | 25,566,832 |      | $      | (1,726,841 | ) | $ | 36,158,948 |   |

 
| **Shares**                       |   | **Common  stock** |   | **Treasury  stock** |   |
|----------------------------------|--------|-------------------|--------|---------------------|--------|
| Balance, January 1, 2003    |   | 3,690,367         |   | 176,045             |   |
|                             |   |              |   |                |   |
| Exercise of  stock options  |   | 40,000            |   | —              |   |
|                             |   |              |   |                |   |
| Purchase of Class A Common Stock |   | —            |   | 47,691              |   |
|                             |   |              |   |                |   |
| Balance, September 30, 2003 |   | 3,730,367         |   | 223,736             |   |

 

See accompanying notes to consolidated financial statements(unaudited).

 

5

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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
|                                                                                                |   | **Nine  months ended  September 30,** |      |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                                                                |   | **2003**                                   |      | **2002** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                               |   |                                       |      |   |   |
| Net income (loss)                                                                                   |   | $                                          | 2,569,816 |   | $ | (948,951 | ) |
| Adjustments to reconcile net income (loss)  to net cash (used in) provided by operating activities: |   |                                       |      |   |   |
| Cumulative effect of change in accounting  principle - net of taxes                                 |   | —                                     |      | 3,239,118 |   |
| Depreciation and amortization                                                                       |   | 1,307,990                                  |      | 1,176,161 |   |
| Amortization of intangible assets                                                                   |   | 425,714                                    |      | 234,550 |   |
| Issuance of Class A Common Stock                                                                    |   | —                                     |      | 89,163 |   |
| Loss on disposal of fixed assets                                                                    |   | 11,638                                     |      | — |   |
| Provision for losses on accounts receivable  - net                                                  |   | 38,221                                     |      | 5,861 |   |
| Deferred income taxes                                                                               |   | (146,000                                   | )         | (23,000 | ) |
| Decrease (increase) - net of acquisition of  Nationwide Industries, Inc. in 2002:                   |   |                                       |      |   |   |
| Accounts receivable                                                                                 |   | (3,772,121                                 | )         | (1,989,694 | ) |
| Inventories                                                                                         |   | (1,682,916                                 | )         | (2,882,772 | ) |
| Prepaid expenses and other                                                                          |   | (123,763                                   | )         | (354,145 | ) |
| Other assets                                                                                        |   | (28,969                                    | )         | — |   |
| Increase (decrease) - net of acquisition of  Nationwide Industries, Inc. in 2002:                   |   |                                       |      |   |   |
| Accounts payable                                                                                    |   | 380,379                                    |      | 2,685,922 |   |
| Accruals and other                                                                                  |   | (117,162                                   | )         | 158,542 |   |
| Total adjustments                                                                                   |   | (3,706,989                                 | )         | 2,339,706 |   |
| Net cash (used in) provided by operating  activities                                                |   | (1,137,173                                 | )         | 1,390,755 |   |
|                                                                                                |   |                                       |      |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                               |   |                                       |      |   |   |
| Capital expenditures                                                                                |   | (799,955                                   | )         | (3,707,085 | ) |
| Payments for acquisition of Nationwide  Industries, Inc. - net of $2,920 cash acquired              |   | —                                     |      | (10,448,794 | ) |
| Additional payments for purchase of  Nationwide Industries, Inc.                                    |   | (444,246                                   | )         | — |   |
| Payments for acquisition-related expenses                                                           |   | —                                     |      | (800,891 | ) |
| Payment for acquisition of product line                                                             |   | —                                     |      | (397,940 | ) |
| Net cash used in investing activities                                                               |   | (1,244,201                                 | )         | (15,354,710 | ) |
|                                                                                                     |        |                                            |           |  |  |  |  |

 

See accompanying notes to consolidated financial statements(unaudited).

 

6

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|                                               |   | **Nine  months ended  September 30,** |      |
|----------------------------------------------------|--------|--------------------------------------------|-----------|
|                                               |   | **2003**                                   |      | **2002** |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:              |   |                                       |      |   |   |
| Proceeds from short-term borrowings                |   | 9,000,000                                  |      | 4,000,000 |   |
| Repayments of short-term borrowings                |   | (4,000,000                                 | )         | (1,435,000 | ) |
| Proceeds from mortgage                             |   | 1,697,301                                  |      | 2,024,000 |   |
| Proceeds from term loan                            |   | —                                     |      | 11,500,000 |   |
| Principal payments on long-term debt               |   | (3,942,321                                 | )         | (1,658,994 | ) |
| Proceeds from exercise of stock options            |   | 88,062                                     |      | — |   |
| Purchase of Class A Common Stock                   |   | (322,340                                   | )         | (100,800 | ) |
| Net cash provided by financing activities          |   | 2,520,702                                  |      | 14,329,206 |   |
|                                               |   |                                       |      |   |   |
| NET INCREASE IN CASH                               |   | 139,328                                    |      | 365,251 |   |
|                                               |   |                                       |      |   |   |
| CASH AT BEGINNING OF PERIOD                        |   | 1,024,222                                  |      | 507,833 |   |
|                                               |   |                                       |      |   |   |
| CASH AT END OF PERIOD                              |   | $                                          | 1,163,550 |   | $ | 873,084 |   |
|                                               |   |                                       |      |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION: |   |                                       |      |   |   |
|                                               |   |                                       |      |   |   |
| Cash paid during the period for:                   |   |                                       |      |   |   |
|                                               |   |                                       |      |   |   |
| Income taxes                                       |   | $                                          | 1,329,212 |   | $ | 1,282,500 |   |
|                                               |   |                                       |      |   |   |
| Interest                                           |   | $                                          | 566,885   |   | $ | 443,834 |   |

 

See accompanying notes to consolidated financial statements(unaudited).

 

7

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

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

 

**NOTE 1 - PRINCIPLES OF CONSOLIDATION**

 

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

 

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

 

Florida Pneumatic is engaged in the importation, manufacture and saleof pneumatic hand tools, primarily for the industrial and retail markets, andthe importation and sale of compressor air filters. Florida Pneumatic alsomarkets, through its Berkley Tool division (“Berkley”), a line of pipe cuttingand threading tools, wrenches and replacement electrical components for awidely-used brand of pipe cutting and threading machines. Countrywide conductsits business operations through Nationwide Industries, Inc. (“Nationwide”), itswholly-owned subsidiary, and through its Franklin Manufacturing (“Franklin”)division. Countrywide acquired all of the stock of Nationwide on May 3, 2002.The assets of Franklin were transferred from Embassy to Countrywide onDecember 30, 2002. Nationwide is an importer and manufacturer of door,window and fencing hardware. Franklin imports a line of door and windowhardware. Green is engaged primarily in the manufacture, development and saleof heavy-duty welded custom designed hydraulic cylinders. Green alsomanufactures a line of access equipment for the petro-chemical industry and aline of post hole digging equipment for the agricultural industry. Embassy isengaged in the manufacture and sale of baseboard heating products and theimportation and sale of radiant heating systems. Note 11 of the Notes toConsolidated Financial Statements presents financial information for thesegments of the Company’s business.

 

**NOTE 2 - BASIS OF FINANCIAL STATEMENTPRESENTATION**

 

The accompanying unaudited consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information, and with the rulesand regulations of the Securities and Exchange Commission regarding interimfinancial reporting. Accordingly, these interim financial statements do notinclude all of the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. In the opinion of the Company, these unaudited consolidatedfinancial statements include all adjustments necessary to present fairly theinformation set forth therein. All such adjustments are of a normal recurringnature. Results for interim periods are not necessarily indicative of resultsto be expected for a full year.

 

8

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The consolidated balance sheet information as of December 31, 2002was derived from the audited financial statements included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2002. Theinterim financial statements contained herein should be read in conjunctionwith that Report.

 

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

 

The Company had its goodwill tested for impairment, effectiveJanuary 1, 2002, during the second quarter of 2002. The impairment testsperformed required that the Company determine the fair market value of itsreporting units for comparison to the carrying value of their net assets toassess whether any impairment exists. The methodologies used to estimate fairmarket value involved the use of estimates and assumptions, including projectedrevenues, earnings and cash flows.

 

The Company’s earnings forecasts for Green, which reflected theextremely weak market conditions in the hydraulic cylinder business, resultedin the fair market value of Green’s goodwill, as determined by an independentthird-party appraiser, being lower than its carrying value as of December 31,2001. Accordingly, in the quarter ended June 30, 2002, the Companyrecorded, retroactive to January 1, 2002, an after-tax impairment chargeof approximately $3.2 million, which is reported as a cumulative effect ofchange in accounting principle resulting from the adoption by the Company ofStatement of Financial Accounting Standards No. 142, “Goodwill and OtherIntangible Assets.”

 

9

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

 

Subsequent to the issuance of the Company’sconsolidated financial statements as of September 30, 2003, filed as partof its Quarterly Report on Form 10-Q filed on November 13, 2003, theCompany determined that it needed to revise its provision for taxes on incomein previously issued financial statements. This change resulted from theamortization of a deferred tax liability, not previously recorded, related tothe acquisition of Nationwide. The Company’s consolidated financial statementsas of September 30, 2003 and for the three month and nine month periodsended September 30, 2003 have been restated from the amounts previouslyreported.

 

Certain balance sheet amounts atDecember 31, 2002 have been reclassified to conform with the currentyear’s presentation.

 

The following is a summary of the effects ofthe restatements:

 
|                                            |   | **September ****30, 2003** |       |
|-------------------------------------------------|--------|---------------------------------|------------|
|                                            |   | **Previously  reported**        |       | **Restated** |   |
|                                            |   |                            |       |   |   |
| Deferred income taxes                           |   | $                               | 695,000    |   | $ | 485,000 |   |
|                                            |   |                            |       |   |   |
| Total current assets                            |   | 38,918,258                      |       | 38,708,258 |   |
|                                            |   |                            |       |   |   |
| Deferred income taxes                           |   | 1,377,000                       |       | — |   |
|                                            |   |                            |       |   |   |
| Goodwill                                        |   | 9,682,867                       |       | 10,654,867 |   |
|                                            |   |                            |       |   |   |
| Total assets                                    |   | 64,990,291                      |       | 64,375,291 |   |
|                                            |   |                            |       |   |   |
| Accruals - other                                |   | 2,616,177                       |       | 2,698,177 |   |
|                                            |   |                            |       |   |   |
| Deferred income taxes                           |   | 210,000                         |       | — |   |
|                                            |   |                            |       |   |   |
| Total current liabilities                       |   | 18,753,007                      |       | 18,625,007 |   |
|                                            |   |                            |       |   |   |
| Deferred income taxes                           |   | 1,031,000                       |       | 351,000 |   |
|                                            |   |                            |       |   |   |
| Total liabilities                               |   | 29,024,343                      |       | 28,216,343 |   |
|                                            |   |                            |       |   |   |
| Retained earnings                               |   | 25,373,832                      |       | 25,566,832 |   |
|                                            |   |                            |       |   |   |
| Total shareholders’ equity                 |   | 35,965,948                      |       | 36,158,948 |   |
|                                            |   |                            |       |   |   |
| Total liabilities and shareholders’ equity |   | $                               | 64,990,291 |   | $ | 64,375,921 |   |

 

10

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**CONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                                                                      |   | **Three  months ended  September 30, 2003** |    | **Nine  months ended  September 30, 2003** |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|---------|-------------------------------------------------|--------|
|                                                                                                      |   | **Previously reported**                          |    | **Restated**                                    |   | **Previously reported** |   | **Restated** |   |
|                                                                                                      |   |                                             |    |                                            |   |   |   |   |   |
| Taxes on income                                                                                           |   | $                                                | 595,000 |                                            | $      | 530,000 |   | $ | 1,735,000 |   | $ | 1,542,000 |   |
|                                                                                                      |   |                                             |    |                                            |   |   |   |   |   |
| Income before  cumulative effect  of  change in  accounting principle  and Net income |   | $                                                | 817,692 |                                            | $      | 882,692 |   | $ | 2,376,816 |   | $ | 2,569,816 |   |
|                                                                                                      |   |                                             |    |                                            |   |   |   |   |   |
| Earnings per share  of common stock:                                                                 |   |                                             |    |                                            |   |   |   |   |   |
| Income before cumulative effect of change  in accounting principle and Net income                         |   |                                             |    |                                            |   |   |   |   |   |
| Basic                                                                                                     |   | $                                                | .23     |                                            | $      | .25 |   | $ | .68 |   | $ | .73 |   |
|                                                                                                      |   |                                             |    |                                            |   |   |   |   |   |
| Diluted                                                                                                   |   | $                                                | .23     |                                            | $      | .25 |   | $ | .66 |   | $ | .72 |   |

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
|                                                                                |   | **Nine  months ended  September 30, 2003** |       |
|-------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                                |   | **Previously  reported**                        |       | **Restated** |   |
|                                                                                |   |                                            |       |   |   |
| Cash flows from operating activities:                                               |   |                                            |       |   |   |
| Net income                                                                          |   | $                                               | 2,376,816  |   | $ | 2,569,816 |   |
|                                                                                |   |                                            |       |   |   |
| Adjustments to reconcile net income  to net cash used in operating activities: |   |                                            |       |   |   |
| (Decrease) increase in:                                                             |   |                                            |       |   |   |
| Deferred income taxes                                                               |   | —                                          |       | (146,000 | ) |
|                                                                                |   |                                            |       |   |   |
| Accruals and other                                                                  |   | (70,162                                         | )          | (117,162 | ) |
|                                                                                |   |                                            |       |   |   |
| Total adjustments                                                                   |   | $                                               | (3,513,989 | ) | $ | (3,706,989 | ) |

 

11

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**NOTE 4 - STOCK-BASED COMPENSATION**

 

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

 

The Company also complies with the disclosure provisions of Statementof Financial Accounting Standards No. 148, “Accounting for Stock BasedCompensation – Transition and Disclosure,” which requires prominent disclosuresin both annual and interim financial statements about the method of accountingfor stock-based employee compensation and the effect of the method on reportedresults.

 

SFAS 123 requires the Company to provide pro forma informationregarding net income and earnings per share as if compensation cost for theCompany’s 2002 Stock Incentive Plan had been determined in accordance with thefair value method prescribed by SFAS 123. The Company estimates the fair valueof each stock option at the grant date by using the Black-Scholesoption-pricing model. The weighted-average assumptions for options granted inthe three months and the nine months ended September 2002, respectively,were: no dividends paid for either of these periods; expected volatility of56.9%; risk-free interest rate of 4.3%; and expected life of 8.5 years. Nooptions were granted in 2003.

 

The weighted-average fair value of options for which the exercise priceequaled the market price on the grant date was $4.20. The weighted-average fairvalue of options for which the exercise price exceeded the market price on thegrant date was $3.07.

 

12

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

 
|                                                                               |   | **Three  months ended  September 30,** |    | **Nine  months ended  September 30,** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------------|---------|--------------------------------------------|--------|
|                                                                               |   | **2003**                                    |    | **2002**                                   |   | **2003** |   | **2002** |   |
| Net income (loss) as reported                                                      |   | $                                           | 882,692 |                                       | $      | 777,006 |   | $ | 2,569,816 |   | $ | (948,951 | ) |
| Pro forma adjustment for employee  compensation determined under fair value method |   | —                                      |    | (402,696                                   | )      | — |   | (402,696 | ) |
| Pro forma net income (loss)                                                        |   | $                                           | 882,692 |                                       | $      | 374,310 |   | $ | 2,569,816 |   | $ | (1,351,647 | ) |
|                                                                               |   |                                        |    |                                       |   |   |   |   |   |
| Basic earnings (loss) per share                                                    |   |                                        |    |                                       |   |   |   |   |   |   |   |   |   |
| As reported                                                                        |   | $                                           | .25     |                                       | $      | .22 |   | $ | .73 |   | $ | (.27 | ) |
|                                                                               |   |                                        |    |                                       |   |   |   |   |   |
| Pro forma                                                                          |   | $                                           | .25     |                                       | $      | .11 |   | $ | .73 |   | $ | (.38 | ) |
|                                                                               |   |                                        |    |                                       |   |   |   |   |   |
| Diluted earnings (loss) per share                                                  |   |                                        |    |                                       |   |   |   |   |   |   |   |   |   |
| As reported                                                                        |   | $                                           | .25     |                                       | $      | .22 |   | $ | .72 |   | $ | (.26 | ) |
|                                                                               |   |                                        |    |                                       |   |   |   |   |   |
| Pro forma                                                                          |   | $                                           | .25     |                                       | $      | .10 |   | $ | .72 |   | $ | (.38 | ) |

 

**NOTE 5 – FOREIGN CURRENCY TRANSACTIONS**

 

The Company accounts for changes in the fair value of its foreigncurrency contracts by marking them to market and recognizing any resultinggains or losses through its statement of operations. The Company also marks itsyen-denominated payables to market, recognizing any resulting gains or lossesin its statement of operations. At September 30, 2003, the Company hadforeign currency forward contracts, maturing in 2003, to purchase yen atcontracted forward rates. The value of these contracts at September 30,2003, based on the spot rate, was approximately $280,000, which was theapproximate value of the Company’s corresponding yen-denominated accountspayable. During the quarter ended September 30, 2003, the Company recordeda net realized gain of approximately $8,000 on foreign currency transactions.During the quarter ended September 30, 2002, the Company recorded a netrealized loss of approximately $65,000 on foreign currency transactions. Duringthe nine month periods ended September 30, 2003 and 2002, the Companyrecorded net realized losses of approximately $1,000 and $134,000,respectively, on foreign currency transactions. At September 30, 2003, theCompany had an unrealized loss of approximately $168,000 on foreign currencytransactions.

 

13

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**NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS**

 

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

 

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

 

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

 

14

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**NOTE 7- INVENTORIES**

 

Major classes of inventory were as follows:

 
|                       |   | **September 30,2003** |       | **December 31,  2002** |   |
|----------------------------|--------|----------------------------|------------|-----------------------------|--------|
| Raw materials and supplies |   | $                          | 3,803,063  |                        | $      | 3,566,161 |   |
| Work in process            |   | 811,408                    |       | 754,857                     |   |
| Finished goods             |   | 16,648,518                 |       | 15,259,055                  |   |
|                       |   | $                          | 21,262,989 |                        | $      | 19,580,073 |   |

 

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

 

On June 30, 2003, the Company renewed its credit agreement, asamended, with Citibank through July 26, 2004. This agreement includes arevolving credit loan facility, which provides a total of $12,000,000, withvarious sublimits, for direct borrowings, letters of credit, bankers’acceptances and equipment loans. There are no commitment fees for any unusedportion of this credit facility. At September 30, 2003, there was$9,500,000 outstanding against the revolving credit loan facility. There wasalso a commitment of approximately $93,000 at September 30, 2003 for openletters of credit.

 

Direct borrowings under the Company’s revolving credit loan facilityare secured by the Company’s accounts receivable, inventory and equipment andare cross-guaranteed by each of the Company’s subsidiaries. These borrowingsbear interest at either the prime interest rate or LIBOR (London InterBankOffered Rate) plus 1.6%. The prime interest rate at September 30, 2003 was4.0% and LIBOR was approximately 1.1%. The prime interest rate atSeptember 30, 2002 was 4.75% and LIBOR was approximately 1.8%.

 

The credit agreement also includes a foreign exchange line, whichprovides for the availability of up to $10,000,000 in foreign currency forwardcontracts. These contracts fix the exchange rate on future purchases of yen neededfor payments to foreign suppliers. The total amount of foreign currency forwardcontracts outstanding at September 30, 2003, based on the spot rate, wasapproximately $280,000.

 

Under the terms of the Company’s credit agreement, the Company isrequired to adhere to certain financial covenants. At September 30, 2003,and for the nine months then ended, the Company satisfied all of thesecovenants. The credit agreement is subject to annual review by the lendingbank.

 

15

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The credit agreement alsoincludes a term loan facility, which provides a maximumcommitment of $15,000,000 to finance acquisitions subject to the lending bank’sapproval. The Company borrowed $11,500,000 against this facility to finance theacquisition of Nationwide, described in Note 1, and there was $5,500,000outstanding against this facility at September 30, 2003. There was also astandby letter of credit totaling approximately $351,000 outstanding againstthis facility at September 30, 2003. This standby letter of credit is used tosecure the Economic Development Revenue Bond assumed as part of the acquisitionof Green.

 

On January 24, 2003, Embassy refinanced itsmortgage, which was payable monthly through May 2006 and bore interest at8.16%. The new mortgage, which is payable monthly through January 2010, bearsinterest at LIBOR plus 155 basis points.

 

Certain of the Company’s mortgageagreements require the Company to adhere to certain financialcovenants. At September 30, 2003, and for the nine months then ended, theCompany satisfied all of these covenants.

 

**NOTE 9 - WARRANTY LIABILITY**

 

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

 

16

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Changes in the Company’s warrantyliability, included in other accrued liabilities, for the nine month periodsended September 30, 2003 and September 30, 2002 were as follows:

 

|                                                                           |   | **Nine  months ended  September 30,** |    |
|--------------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                           |   | **2003**                              |    | **2002** |   |
| Balance, beginning of period                                                   |   | $                                     | 186,513 |   | $ | 198,384 |   |
|                                                                           |   |                                  |    |   |   |
| Warranties issued and changes  in estimated pre-existing  warranties |   | 258,610                               |    | 183,586 |   |
|                                                                           |   |                                  |    |   |   |
| Actual warranty costs incurred                                                 |   | (230,453                              | )       | (182,696 | ) |
| Balance, end of period                                                         |   | $                                     | 214,670 |   | $ | 199,274 |   |

 

**NOTE 10 - CAPITAL STOCK TRANSACTIONS**

 

During the nine months ended September 30,2003, the Company purchased 47,691 shares of Class A Common Stock, at a cost of$322,340. During the nine months ended September 30, 2002, the Companypurchased 16,000 shares of Class A Common Stock, at a cost of $100,800.

 

17

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**NOTE 11 - SEGMENTS OF BUSINESS**

 

The following tables present financial information by segment for theperiods ended September 30, 2003 and 2002. Segment profit (loss) excludesgeneral corporate expenses, interest expense and income taxes. All intersegmentrevenues have been eliminated.

 
| **Three months ended  September 30, 2003** |   | **Con-  solidated** |         | **Pneumatic  tools** |   | **Hardware** |   | **Hydraulic  cylinders** |   | **Heating  equipment** |   |
|--------------------------------------------|--------|---------------------|--------------|----------------------|--------|--------------|--------|--------------------------|--------|------------------------|--------|
| **(In thousands)**                         |   |                |         |                 |   |         |   |                     |   |                   |   |
| Revenues from external customers           |   | $                   | 23,703  |                 | $      | 12,431  |   | $                        | 5,282  |                   | $      | 3,452 |   | $ | 2,538 |   |
|                                       |   |                |         |                 |   |         |   |                     |   |                   |   |
| Segment profit (loss)                      |   | $                   | 2,543        |                 | $      | 1,734        |   | $                        | 912    |                   | $      | (69 | ) | $ | (34 | ) |
|                                       |   |                |         |                 |   |         |   |                     |   |                   |   |
| Identifiable assets at September 30, 2003  |   | $                   | 62,059       |                 | $      | 28,632       |   | $                        | 18,913 |                   | $      | 8,870 |   | $ | 5,644 |   |
| Corporate assets                           |   | 2,931               |         |                 |   |         |   |                     |   |                   |   |
| Total assets at September 30, 2003    |   | $                   | 64,990       |                 |   |         |   |                     |   |                   |   |   |

 
| **Three months ended  September 30, 2002** |   | **Con-  solidated** |       | **Pneumatic  tools** |       | **Hardware** |       | **Hydraulic  cylinders** |   | **Heating  equipment** |       |
|--------------------------------------------|--------|---------------------|------------|----------------------|------------|--------------|------------|--------------------------|--------|------------------------|------------|
| **(In thousands)**                         |   |                | ** ** |                 | ** ** |         | ** ** |                     |   |                   | ** ** |
| Revenues from external customers           |   | $                   | 21,083     |                 | $          | 11,221       |       | $                        | 4,637  |                   | $          | 2,980 |   | $ | 2,245 |   |
|                                       |   |                |       |                 |       |         |       |                     |   |                   |       |
| Segment profit (loss)                      |   | $                   | 2,427      |                 | $          | 1,862        |       | $                        | 822    |                   | $          | (216 | ) | $ | (41 | ) |
|                                       |   |                |       |                 |       |         |       |                     |   |                   |       |
| Identifiable assets at September 30, 2002  |   | $                   | 62,039     |                 | $          | 27,710       |       | $                        | 19,687 |                   | $          | 8,757 |   | $ | 5,885 |   |
| Corporate assets                           |   | 2,532               |       |                 |       |         |       |                     |   |                   |       |
| Total assets  at September 30, 2002   |   | $                   | 64,571     |                 |       |         |       |                     |   |                   |       |   |

 

18

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| **Nine months ended  September 30, 2003** |   | **Con-  solidated** |       | **Pneumatic  tools** |       | **Hardware** |       | **Hydraulic  cylinders** |   | **Heating  equipment** |       |
|-------------------------------------------|--------|---------------------|------------|----------------------|------------|--------------|------------|--------------------------|--------|------------------------|------------|
| **(In thousands)**                        |   |                | ** ** |                 | ** ** |         | ** ** |                     |   |                   | ** ** |
| Revenues from external customers          |   | $                   | 64,923     |                 | $          | 33,705       |       | $                        | 15,229 |                   | $          | 9,341 |   | $ | 6,648 |   |
|                                      |   |                |       |                 |       |         |       |                     |   |                   |       |
| Segment profit (loss)                     |   | $                   | 7,509      |                 | $          | 5,292        |       | $                        | 2,798  |                   | $          | (391 | ) | $ | (190 | ) |

 
| **Nine months ended  September 30, 2002**           |   | **Con-  solidated** |       | **Pneumatic  tools** |       | **Hardware** |       | **Hydraulic  cylinders** |   | **Heating  equipment** |       |
|-----------------------------------------------------|--------|---------------------|------------|----------------------|------------|--------------|------------|--------------------------|--------|------------------------|------------|
| **(In thousands)**                                  |   |                | ** ** |                 | ** ** |         | ** ** |                     |   |                   | ** ** |
| Revenues from external customers                    |   | $                   | 56,846     |                 | $          | 30,922       |       | $                        | 9,924  |                   | $          | 9,488 |   | $ | 6,512 |   |
|                                                |   |                |       |                 |       |         |       |                     |   |                   |       |
| Segment profit (loss)                               |   | $                   | 6,761      |                 | $          | 5,756        |       | $                        | 1,410  |                   | $          | (488 | ) | $ | 83 |   |
|                                                |   |                |       |                 |       |         |       |                     |   |                   |       |
| Cumulative effect of change in accounting principle |   | $                   | (3,239     | )                    | $          | —       |       | $                        | — |                   | $          | (3,239 | ) | $ | — |   |

 

19

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The reconciliations of combined operatingprofits for reportable segments to consolidated income before income taxes andcumulative effect of change in accounting principle are as follows:

 
|                                                                                    |   | **Three  months ended  September 30,** |      |
|-----------------------------------------------------------------------------------------|--------|----------------------------------------|-----------|
|                                                                                    |   | **2003**                               |      | **2002** |   |
| Total profit for reportable segments                                                    |   | $                                      | 2,543,152 |   | $ | 2,427,230 |   |
|                                                                                    |   |                                   |      |   |   |
| General corporate expenses                                                              |   | (958,204                               | )         | (888,808 | ) |
|                                                                                    |   |                                   |      |   |   |
| Interest expense - net                                                                  |   | (172,256                               | )         | (233,416 | ) |
|                                                                                    |   |                                   |      |   |   |
| Income before taxes and  cumulative effect of change  in accounting principle |   | $                                      | 1,412,692 |   | $ | 1,305,006 |   |

 
|                                                                                    |   | **Nine  months ended  September 30,** |      |
|-----------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                                    |   | **2003**                              |      | **2002** |   |
| Total profit for reportable segments                                                    |   | $                                     | 7,509,062 |   | $ | 6,760,998 |   |
|                                                                                    |   |                                  |      |   |   |
| General corporate expenses                                                              |   | (2,841,981                       | )         | (2,497,993 | ) |
|                                                                                    |   |                                  |      |   |   |
| Interest expense - net                                                                  |   | (555,265                              | )         | (497,838 | ) |
|                                                                                    |   |                                  |      |   |   |
| Income before taxes and  cumulative effect of change  in accounting principle |   | $                                     | 4,111,816 |   | $ | 3,765,167 |   |

 

20

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

 

The following table sets forth thecomputation of basic and diluted earnings per common share:

 
|                                                                                                                                        |   | **Three  months ended  September 30,** |          | **Nine  months ended  September 30,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|---------------|---------------------------------------|--------|
|                                                                                                                                        |   | **2003**                               |          | **2002**                              |   | **2003** |   | **2002** |   |
| Numerator:                                                                                                                                  |   |                                   |          |                                  |   |   |   |   |   |
| Numerator for basic and  diluted earnings (loss)  per common share:                                                               |   |                                   |          |                                  |   |   |   |   |   |   |   |   |   |
| Income before cumulative  effect of change in  accounting principle                                                               |   | $                                      | 882,692  |                                  | $      | 777,006  |   | $ | 2,569,816  |   | $ | 2,290,167 |   |
|                                                                                                                                        |   |                                   |          |                                  |   |   |   |   |   |
| Cumulative effect of change  in accounting principle                                                                                   |   | —                                 |          | —                                |   | — |   | (3,239,118 | ) |
| Net income (loss)                                                                                                                           |   | $                                      | 882,692       |                                  | $      | 777,006 |   | $ | 2,569,816 |   | $ | (948,951 | ) |
|                                                                                                                                        |   |                                   |          |                                  |   |   |   |   |   |
| Denominator:                                                                                                                                |   |                                   |          |                                  |   |   |   |   |   |
| Denominator for basic  earnings (loss) per common  share - weighted average  common shares outstanding                       |   | 3,503,766                              |          | 3,516,519                             |   | 3,505,204 |   | 3,510,820 |   |
|                                                                                                                                        |   |                                   |          |                                  |   |   |   |   |   |
| Effect of dilutive securities:  Common stock options                                                                                        |   | 81,173                                 |          | 63,555                                |   | 74,203 |   | 72,219 |   |
|                                                                                                                                        |   |                                   |          |                                  |   |   |   |   |   |
| Denominator for diluted  earnings per common  share - adjusted weighted  average common shares and  assumed conversions |   | 3,584,939                              |          | 3,580,074                             |   | 3,579,407 |   | 3,583,039 |   |

 

During the periods ended September 30, 2003and 2002, there were outstanding stock options whose exercise prices werehigher than the average market values of the underlying Class A Common Stockfor the respective periods. These options are anti-dilutive and are excludedfrom the computation of earnings (loss) per share. The weighted averageanti-dilutive stock options outstanding were as follows:

 
|                                                      |   | **Three  months ended  September 30,** |   | **Nine  months ended  September 30,** |   |
|-----------------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                                                      |   | **2003**                               |   | **2002**                              |   | **2003** |   | **2002** |   |
| Weighted average anti-dilutive stock  options outstanding |   | 187,000                                |   | 189,000                               |   | 231,443 |   | 189,000 |   |

 

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

 

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

 

**General**

 

**Critical Accounting Policies and Estimates**

 

The Company prepares its consolidatedfinancial statements in accordance with accounting principles generallyaccepted in the United States of America. Certain of these accounting policiesrequire the Company to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and the relateddisclosure of contingent assets and liabilities. On an ongoing basis, theCompany evaluates estimates, including those related to bad debts, inventoryreserves, intangible assets, income taxes and contingencies. The Company basesits estimates on historical data and experience, when available, and on variousother assumptions that are believed to be reasonable under the circumstances,the combined results of which form the basis for making judgments about thecarrying values of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates.

 

The Company’s critical accounting policiesinclude:

 

**RevenueRecognition**

 

The Company records revenues upon shipmentwith related risks and title passing to the customers. Estimates of losses forbad debts, returns and other allowances are recorded at the time of thesale.  Shipping charges to customers andrelated expenses that are included in selling, general and administrativeexpenses are immaterial.

 

**Allowance for Doubtful Accounts**

 

The Company records an allowance for doubtfulaccounts based on specifically identified amounts that are believed to beuncollectible. The Company also records as an additional allowance a certainpercentage of aged accounts receivable, based on historical experience and theCompany’s assessment of the general financial conditions affecting its customerbase. If actual collection experience changes, revisions to the allowance maybe required. The Company has a limited number of customers with individuallylarge amounts due at any given balance sheet date. Any unanticipated change inthe credit worthiness of any of these customers or in any other mattersaffecting the collectibility of amounts due from such customers could have amaterial affect on the Company’s results of operations in the period in whichsuch changes or events occur. After all reasonable attempts to collect anaccount receivable have failed, the amount of the receivable is written offagainst the allowance.

 

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**Inventories**

 

Inventories are valued at the lower of costor market. Cost is determined by the first-in, first-out method. The inventorybalance, which includes materials, labor and manufacturing overhead costs, isrecorded net of an allowance for obsolete or unmarketable inventory. Suchallowance is based upon both historical experience and management’sunderstanding of market conditions and forecasts of future product demand. Ifthe actual amount of obsolete or unmarketable inventory significantly exceedsthe estimated allowance, the Company’s cost of sales, gross profit and netincome would be significantly affected.

 

**Goodwilland Other Intangible Assets**

 

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

 

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

 

**Long-Lived Assets**

 

The Company reviews certain long-lived assetsfor impairment. Whenever events or changes in circumstances indicate that thecarrying value of any of these assets may not be recoverable, the Company willassess the recoverability of such assets based upon estimated undiscounted cashflow forecasts.

 

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**Acquisition**

 

On May 3, 2002, Countrywide acquired all ofthe stock of Nationwide for approximately $10,452,000, plus acquisition costsof approximately $490,000 and working capital adjustments of approximately$260,000. There were additional acquisition-related costs of approximately$364,000 recorded as goodwill. In addition to the cash paid at the closing,Nationwide’s previous owner is entitled to contingent payments of 30% of theexcess of Nationwide’s earnings, before amortization of intangible assets,interest and taxes, over $2,500,000, for each of the five twelve-month periodssubsequent to the acquisition date, which contingent payments will be treatedas additions to goodwill. At December 31, 2002, the Company had accrued$150,000 of these contingent payments. During the nine months ended September30, 2003, contingent payments totaling an additional $444,246, includingamounts accrued at September 30, 2003, have been recorded as additions to goodwill.

 

Countrywide conducts its business throughNationwide and through its Franklin division. The assets of Franklin weretransferred from Embassy to Countrywide on December 30, 2002.

 

**Results of Operations**

 

**Impairment of goodwill**

 

The Company had its goodwill tested for impairment, effective January1, 2002, during the second quarter of 2002. The impairment tests performedrequired that the Company determine the fair market value of its reportingunits for comparison to the carrying value of their net assets to assesswhether any impairment exists. The methodologies used to estimate fair marketvalue involved the use of estimates and assumptions, including projectedrevenues, earnings and cash flows.

 

The Company’s earnings forecasts for Green,which reflected the extremely weak market conditions in the hydraulic cylinderbusiness, resulted in the fair market value of Green’s goodwill, as determinedby an independent third-party appraiser, being lower than its carrying value asof December 31, 2001. Accordingly, in the quarter ended June 30, 2002, theCompany recorded, retroactive to January 1, 2002, an after-tax impairmentcharge of approximately $3.2 million, which is reported as a cumulative effectof change in accounting principle resulting from the adoption by the Company ofStatement of Financial Accounting Standards No. 142, “Goodwill and OtherIntangible Assets.”

 

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**Comparison of three months ended September30, 2003 and September 30, 2002**

 

Consolidated revenues increased 12.4%, from$21,082,509 to $23,702,702. Revenues from pneumatic tools and related equipmentincreased 10.8%, from $11,221,716 to $12,431,566, due primarily to strongpromotions by two major customers, partially offset by lower industrialrevenues resulting from inventory reduction by a customer and the timing of anannual promotional order from another significant customer. Selling prices ofpneumatic tools and related equipment were unchanged, with the exception ofprices to a significant customer, which were substantially reduced early in thefourth quarter of 2002. Revenues from hardware products increased 13.9%, from$4,636,348 to $5,282,013, due primarily to increased sales of fencing products.The increase was partially offset by a decrease in revenues associated with asignificant customer declaring bankruptcy in the first quarter of 2003 andanother significant customer reducing its ordering, because of its decreasedvolume, in the third quarter of 2003. Selling prices of hardware products wereunchanged. Revenues from hydraulic cylinders and other equipment increased15.8%, from $2,979,498 to $3,451,184, due primarily to increased sales thatresulted from entry into a new market for log splitter cylinders, partiallyoffset by depressed conditions early in the third quarter of 2003 in the accesssector. Selling prices of hydraulic cylinders and other equipment wereunchanged. Revenues from heating products increased 13.1%, from $2,244,947 to$2,537,939, due primarily to increased baseboard and boiler sales, reflectingincreases in inventory levels of customers, partially offset by decreasedradiant sales resulting from delays in receipt of vendor shipments. Sellingprices of heating products were unchanged, with the exception of a modest priceincrease for baseboard products commencing in the second quarter of 2003.

 

Consolidated gross profit, as a percentage ofrevenues, decreased from 29.5% to 28.4%. Gross profit from pneumatic tools andrelated equipment decreased from 34.0% to 30.7%, due primarily to thelower-margin promotional sales, the impact of the price concessions effectivein the fourth quarter of 2002 noted above and decreased commission revenues.Gross profit from hardware products increased from 32.1% to 35.1%, due primarilyto a more favorable product mix, which was partially offset by lower overheadabsorption. Gross profit from hydraulic cylinders and other equipment increasedfrom 8.1% to 10.6%, due primarily to higher overhead absorption from greatercylinder activity, partially offset by changes in product mix. Gross profitfrom heating equipment decreased from 29.8% to 27.7%, due primarily to a changein product mix and increased baseboard material costs, partially offset byincreased selling prices for baseboard products, as noted above.

 

25

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Consolidated selling, general andadministrative expenses increased 10.0%, from $4,679,836 to $5,149,755, dueprimarily to increased costs associated with the 12.4% increase in revenuesnoted above, the strengthening of the yen, which generated losses on foreigncurrency transactions, increases in advertising and expenses related topromotional sales at Florida Pneumatic and increased professional andwage-related expenses at Countrywide. Also contributing to the overall increasewere increased expenses related to additional reporting and controlrequirements. These increases were partially offset by substantial decreasesresulting from cost-cutting efforts in all of the segments. As a percentage ofrevenues, selling, general and administrative expenses decreased from 22.2% to21.7%.

 

Interest expense decreased 26.2%, from$233,416 to $172,256, due primarily to lower interest rates on the Company’sborrowings under both its revolving credit and term loan facilities, as well ason a refinanced mortgage.  Averageborrowings under the Company’s revolving credit loan facility were higher in2003 than in 2002, while average borrowings under the Company’s term loanfacility, which resulted from the acquisition of Nationwide on May 3, 2002,were lower in 2003 than in 2002.

 

The effective tax rates for the quartersended September 30, 2003 and 2002 were 37.5% and 40.5%, respectively.

 

**Comparison of nine months ended September 30,2003 and September 30, 2002**

 

Consolidated revenues increased 14.2%, from$56,845,624 to $64,922,883. Revenues from pneumatic tools and related equipmentincreased 9.0%, from $30,922,278 to $33,705,562, due primarily to strongpromotions by two major customers and a major promotion at an automotiveafter-market retailer, partially offset by price concessions at a significantcustomer, a base volume decrease and lower industrial revenues resulting frominventory reductions at two significant customers and a delayed annualpromotion with a third customer. Selling prices of pneumatic tools and relatedequipment were unchanged, with the exception of prices to a significantcustomer, which were substantially reduced early in the fourth quarter of 2002.Revenues from hardware products increased 53.5%, from $9,923,528 to$15,228,583, due primarily to the inclusion of Nationwide for the entire ninemonths in 2003, as opposed to only five months in 2002.

 

26

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Nationwide’s revenues increased approximately $5,900,000, including anincrease of approximately $3,400,000 from sales of fencing products. Theincrease at Nationwide was partially offset by a decrease in revenues ofapproximately $650,000 at Franklin, as a significant customer declaredbankruptcy in the first quarter of 2003 and another significant customerreduced its ordering, because of its decreased volume, in the second and thirdquarters of 2003. Selling prices of hardware products were unchanged. Revenuesfrom hydraulic cylinders and other equipment decreased 1.6%, from $9,487,854 to$9,340,727, due primarily to an approximately 40% decrease in sales to thewrecker market, including the phasing out of a major customer in the firstquarter of 2002, and decreased sales in the access product line, partiallyoffset by increased sales that resulted from entry into a new market for logsplitter cylinders. Selling prices of hydraulic cylinders and other equipmentwere unchanged. Revenues from heating products increased 2.1%, from $6,511,964to $6,648,011, due primarily to increased baseboard and boiler sales in thethird quarter of 2003, reflecting increases in inventory levels of customers.Selling prices of heating products were unchanged, with the exception of amodest price increase for baseboard products during the second quarter of 2003.

 

Consolidated gross profit, as a percentage ofrevenues, decreased from 30.7% to 30.6%. Gross profit from pneumatic tools andrelated equipment decreased from 37.3% to 34.7%, due primarily to thelower-margin promotional sales noted above and the impact of the priceconcessions effective in the fourth quarter of 2002 also noted above, partiallyoffset by productivity improvements and cost reductions from suppliers. Grossprofit from hardware products increased from 31.3% to 34.9%, due primarily tothe inclusion of Nationwide’s higher margin OEM business for the entire ninemonths in 2003, as opposed to only five months in 2002. Gross profit fromhydraulic cylinders and other equipment increased from 8.8% to 9.4%, dueprimarily to changes in product mix. Gross profit from heating equipmentdecreased from 30.6% to 29.9%, due primarily to a change in product mix.

 

27

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Consolidated selling, general andadministrative expenses increased 15.3%, from $13,193,626 to $15,209,037, dueprimarily to increased costs associated with the 14.2% increase in revenuesnoted above, increases in advertising and expenses related to promotional salesat Florida Pneumatic and, to a lesser extent, to increased compensation tied tohigher profitability and increases related to additional reporting and controlrequirements.  These increases werepartially offset by substantial decreases resulting from cost-cutting efforts inall of the segments. As a percentage of revenues, selling, general andadministrative expenses increased from 23.2% to 23.4%, due primarily to theincreased expenses discussed above.

 

Interest expense increased 11.5%, from$497,838 to $555,265, due primarily to changes in average borrowingsoutstanding during the periods. Average borrowings under the Company’srevolving credit loan facility were higher in 2003 than in 2002. Averageborrowings under the Company’s term loan facility, which resulted from theacquisition of Nationwide on May 3, 2002, were lower in 2003 than in 2002, butthese amounts were outstanding for the entire nine months in 2003, as opposedto only five months in 2002. The overall increase was net of decreasesresulting from lower interest rates on the Company’s borrowings under both itsrevolving credit and term loan facilities, as well as on a refinanced mortgage.

 

The effective tax rates for the nine monthsended September 30, 2003 and 2002 were 37.5% and 39.2%, respectively.

 

**Liquidity and Capital Resources**

 

The Company gauges its liquidity andfinancial stability by the measurements shown in the following table (dollaramounts in thousands):

 
|                      |   | **September  30,2003** |   | **December 31,  2002** |   | **September 30,  2002** |   |
|---------------------------|--------|------------------------|--------|------------------------|--------|-------------------------|--------|
| Working Capital           |   | $                      | 20,083 |                   | $      | 19,779                  |   | $ | 22,254 |   |
| Current Ratio             |   | 2.08 to 1              |   | 2.49 to 1              |   | 2.38 to 1               |   |
| Shareholders’ Equity |   | $                      | 36,159 |                   | $      | 33,823                  |   | $ | 33,267 |   |

 

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During the nine months ended September 30,2003, gross accounts receivable increased by approximately $3,772,000, withincreases of approximately $2,152,000, $765,000, $569,000 and $286,000 atFlorida Pneumatic, Countrywide, Green and Embassy, respectively. The increaseat Florida Pneumatic was due primarily to an increase in sales in the thirdquarter of 2003 as compared to the fourth quarter of 2002, along with extendedterms on some retail promotional sales. The increases at Countrywide and Greenwere due primarily to increases in sales in the third quarter of 2003, comparedto the fourth quarter of 2002. The increase at Embassy was due primarily to thetiming of sales.

 

Inventories increased by approximately$1,683,000 during the nine months ended September 30, 2003, with increases ofapproximately $2,640,000 and $85,000 at Florida Pneumatic and Green,respectively, partially offset by decreases of approximately $769,000 and$273,000 at Countrywide and Embassy, respectively. The increase at FloridaPneumatic was the result of the timing of inventory receipts, safety stock inventoryincreases and a decrease in base revenues. The increase at Green was dueprimarily to an increase in raw material inventory for cylinder production. Thedecrease at Countrywide was due primarily to improved inventory turnover. Thedecrease at Embassy was due primarily to the timing of inventory receipts.

 

During the nine months ended September 30,2003, short-term borrowings increased by $5,000,000, net of repayments,primarily to fund working capital needs.

 

During the nine months ended September 30, 2003,accounts payable increased by approximately $380,000, with increases ofapproximately $306,000, $89,000 and $18,000 at Florida Pneumatic, Green andCountrywide, respectively, being partially offset by a decrease ofapproximately $33,000 at Embassy. The increase at Florida Pneumatic was dueprimarily to the timing of payments. The increase at Green was due primarily tothe increase in inventories. The increase at Countrywide and the decrease atEmbassy were due primarily to the timing of purchases.

 

On June 30, 2003, the Company renewed itscredit agreement, as amended, with Citibank through July 26, 2004. Thisagreement provides the Company with various credit facilities, includingrevolving credit loans, term loans for acquisitions and a foreign exchangeline. The revolving credit loan facility provides a maximum of $12,000,000,with various sublimits, for direct borrowings, letters of credit, bankers’acceptances and equipment loans. There are no commitment fees for any unusedportion of this credit facility. At September 30, 2003, there was $9,500,000outstanding against the revolving credit loan facility. There was also acommitment of approximately $93,000 at September 30, 2003 for open letters ofcredit.

 

29

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The term loan facility provides a maximumcommitment of $15,000,000 to finance acquisitions subject to the lending bank’sapproval. There are no commitment fees for any unused portion of this creditfacility. The Company borrowed $11,500,000 against this facility to finance theacquisition of Nationwide, described in Note 1, and there was $5,500,000outstanding against this facility at September 30, 2003. There was also astandby letter of credit totaling approximately $351,000 outstanding againstthis facility at September 30, 2003. This standby letter of credit was used tosecure the Economic Development Revenue Bond assumed as part of the acquisitionof Green.

 

The Company’s credit agreement is subject to annual review by thelending bank. Under this agreement, the Company is required to adhere tocertain financial covenants. At September 30, 2003 and for the nine months thenended, the Company satisfied all of these covenants.

 

Certain of the Company’s mortgage agreementsalso require the Company to adhere to certain financialcovenants. At September 30, 2003, and for the nine months then ended, theCompany satisfied all of these covenants.

 

Capitalspending for the nine month ended September 30, 2003 was approximately$800,000, which amounts were provided from working capital. Capitalexpenditures for the remainder of 2003 are expected to be approximately$300,000, some of which may be financed through the Company’s creditfacilities. Included in the expected total for the remainder of 2003 are capitalexpenditures relating to new products, expansion of existing product lines andreplacement of equipment.

 

Operatingactivities used cash totaling approximately $1,137,000 during the nine monthsended September 30, 2003, and provided cash totaling approximately $1,391,000during the nine months ended September 30, 2002. The Company believes that cashon hand derived from operations and cash available through borrowings under itscredit facilities will be sufficient to allow the Company to meet its foreseeablecapital needs.

 

During thethird quarter of 2003, Florida Pneumatic was informed by its third largestcustomer that it will be sourcing from a new supplier effective January 1,2004. Sales to this customer for the fiscal year 2003 are estimated to beapproximately $4.4 million. We believe that retaining this customer would haverequired either eliminating all profit margins or converting to an inferiorproduct, which management felt was not in the best long-term interests of theCompany.

 

30

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**Off-Balance Sheet Arrangements**

 

The Company’sforeign exchange line provides for the availability of up to $10,000,000 inforeign currency forward contracts. These contracts fix the exchange rate onfuture purchases of yen needed for payments to foreign suppliers. The totalamount of foreign currency forward contracts outstanding at September 30, 2003,based on the spot rate, was approximately $280,000.

 

The Company,through Florida Pneumatic, imports a significant amount of its purchases fromJapan, with payment due in yen. As a result, the Company is subject to theeffects of foreign currency exchange fluctuations. The Company uses a varietyof techniques to protect itself from any adverse effects from 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 the yenversus the U.S. dollar over the last 12 months had a negative effect on theCompany’s results of operations and its financial position. There can be noassurance as to the future trend of this value. See “Item 3 – Quantitative andQualitative Disclosure About Market Risk.”

 

**New Accounting Pronouncements**

 

In April 2002, the FASBissued Statement of Financial Accounting Standards No. 145, “Recission of FASB Statement No.4, 44, and64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS145”), which eliminates the automatic classification of gain or loss onextinguishment of debt as an extraordinary item of income and requires thatsuch gain or loss be evaluated for extraordinary classification under thecriteria of Accounting Principles Board No. 30, “Reporting Results ofOperations.” The provisions of SFAS 145 related to the recission of Statement 4are effective for fiscal years beginning after May 15, 2002. The Companyadopted SFAS 145 as of January 1, 2003. In January 2003, the Company recorded aloss of approximately $84,000, included in selling, general and administrativeexpenses, that resulted from the refinancing of a mortgage.

 

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

 

In June 2003,**theFASB issued Statement of Financial Accounting Standards No. 149,**“Amendmentsof Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS149”).**SFAS 149 amendsSFAS 133 and certain other FASB standardsfor decisions made by the FASB as partof the Derivatives Implementation Group process. Among other changes, SFAS 149clarifies the definition of a derivative financial instrument. SFAS 149 isgenerally effective for contracts entered into or modified after June30, 2003. The provisions of SFAS 149 that relate to SFAS 133 ImplementationIssues that have been effective for fiscal quarters that began prior to June15, 2003 should continue to be applied in accordance with their respectivedates. In addition, certain provisions of SFAS 149 that apply to forwardpurchases or sales of when-issued securities or other securities that do notyet exist are applicable to both existing contracts and new contracts enteredinto after June 30, 2003.

 

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

 

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

 

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

 

The Companyaccounts for changes in the fair value of its foreign currency contracts bymarking them to market and recognizing any resulting gains or losses throughits statement of operations. The Company also marks its yen-denominatedpayables to market, recognizing any resulting gains or losses in its statementof operations. At September 30, 2003, the Company had foreign currency forwardcontracts, maturing in 2003, to purchase yen at contracted forward rates. Thevalue of these contracts at September 30, 2003, based on the spot rate, wasapproximately $280,000, which was the approximate value of the Company’syen-denominated accounts payable. During the quarter ended September 30, 2003,the Company recorded a net realized gain of approximately $8,000 on foreigncurrency transactions. During the quarter ended September 30, 2002, the Companyrecorded a net realized loss of approximately $65,000 on foreign currencytransactions. During the nine month periods ended September 30, 2003 and 2002,the Company recorded net realized losses of approximately $1,000 and $134,000,respectively, on foreign currency transactions. At September 30, 2003, theCompany had an unrealized loss of approximately $168,000 on foreign currencytransactions.

 

The potentialloss in value of the Company’s net investment in foreign currency forwardcontracts resulting from a hypothetical 10 percent adverse change in foreignexchange rates at September 30, 2003 was approximately $29,000.

 

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

 

**Evaluation of disclosure controls and procedures**

 

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

 

**Changes in internal controls**

 

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

 

34

 

**PART II****- OTHER INFORMATION**

 
| **Item 1.** |   | **Legal Proceedings**                                                                                                                                                                                                                            |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   | The Company is a defendant or co-defendant in various actions brought  about in the ordinary course of conducting its business. The Company does not  believe that any of these actions are material to the financial condition of  the Company. |
|        |   |                                                                                                                                                                                                                                             |
| **Item 2.** |   | **Changes in Securities and Use of Proceeds**                                                                                                                                                                                                    |
|        |   | None.                                                                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                             |
| **Item 3.** |   | **Defaults Upon Senior Securities**                                                                                                                                                                                                              |
|        |   | None.                                                                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                             |
| **Item 4.** |   | **Submission of Matters to a Vote of Security Holders**                                                                                                                                                                                          |
|        |   | None.                                                                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                             |
| **Item 5.** |   | **Other Information**                                                                                                                                                                                                                            |
|        |   | None.                                                                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                             |
| **Item 6.** |   | **Exhibits and Reports on****Form 8-K**                                                                                                                                                                                                          |
|        |   | **(a)    Exhibits**                                                                                                                                                                                                          |
|        |   | See “Exhibit Index” immediately following the signature page.                                                                                                                                                                          |
|        |   |                                                                                                                                                                                                                                             |
|        |   | **(b)    Reports  on Form 8-K**                                                                                                                                                                                              |
|        |   | The Registrant filed a Report on Form 8-K dated August 12, 2003, in  which it furnished a press release announcing its second quarter 2003 results  under Items 9 and 12 of such Report.                                                         |

 

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

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

 

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**EXHIBITINDEX**

 
| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **2.1**    |   | Asset Purchase Agreement, dated as of September 16, 1998, by and  between Green Manufacturing, Inc., an Ohio corporation, and the Registrant  (Incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003). Pursuant to  Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish,  supplementally, a copy of any exhibit or schedule omitted from the Asset  Purchase Agreement to the Commission upon request. |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **2.2**    |   | Stock Purchase Agreement, dated as of May 3, 2002, by and between  Mark C. Weldon and the Registrant (Incorporated by reference to Exhibit 2.1  to the Registrant’s Current Report on Form 8-K dated May 3, 2002). Pursuant  to Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish  supplementally a copy of any exhibit or schedule omitted from the Asset  Purchase Agreement to the Securities and Exchange Commission upon request.                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **2.3**    |   | Contract for Purchase and Sale, dated as of May 1, 2002, between W.  I. Commercial Properties, Inc., a Florida corporation, and Countrywide  Hardware, Inc., a Delaware corporation (Incorporated by reference to Exhibit  4.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended  June 30, 2002).                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **3.1**    |   | Restated Certificate of Incorporation of the Registrant (Incorporated  by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K  for the fiscal year ended December 31, 1999).                                                                                                                                                                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **3.2**    |   | Amended By-laws of the Registrant (Incorporated by reference to  Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter  ended September 30, 1999).                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **3.3**    |   | Amendment to the Amended By-laws of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **4.1**    |   | Rights Agreement, dated as of August 23, 1994, between the Registrant  and American Stock Transfer & Trust Company, as Rights Agent  (Incorporated by reference to Exhibit 1 to the Registrant’s Registration  Statement on Form 8-A dated August 24, 1994).                                                                                                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **4.2**    |   | Amendment to Rights Agreement, dated as of April 11, 1997, between  the Registrant and American Stock Transfer & Trust Company, as Rights  Agent (Incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2002).                                                                                                                                                                                                         |

 

37

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| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **4.3**    |   | Credit Agreement, dated as of July 23, 1998, by and among the  Registrant, Florida Pneumatic Manufacturing Corporation, a Florida  corporation, Embassy Industries, Inc., a New York corporation, and European  American Bank, a New York banking corporation (Incorporated by reference to  Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K for the fiscal  year ended December 31, 2003).                                                                             |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **4.4**    |   | Amendment No. 1 to Credit Agreement, dated as of September 16, 1998,  by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a  Florida corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, and European American Bank, a  New York banking corporation (Incorporated by reference to Exhibit 4.4 to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended December  31, 2003). |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **4.5**    |   | Amendment No. 2 to Credit Agreement, dated as of July 28, 1999, by  and among the Registrant, Florida Pneumatic Manufacturing Corporation, a  Florida corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, and European American Bank, a  New York banking corporation (Incorporated by reference to Exhibit 4.5 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,  1999).           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **4.6**    |   | Amendment No. 3 to Credit Agreement, dated as of July 26, 2000, by  and among the Registrant, Florida Pneumatic Manufacturing Corporation, a  Florida corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, and European American Bank, a  New York banking corporation (Incorporated by reference to Exhibit 4.5 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2000).           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **4.7**    |   | Amendment No. 4 to Credit Agreement, dated as of June 25, 2001, by  and among the Registrant, Florida Pneumatic Manufacturing Corporation, a  Florida corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, and European American Bank, a  New York banking corporation (Incorporated by reference to Exhibit 4.7 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended September  30, 2001).      |

 

38

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

 

39

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| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **4.12**   |   | Second Amendment and Restated Term Note, dated as of February 20,  2003, by and among the Registrant, Florida Pneumatic Manufacturing  Corporation, a Florida corporation, Embassy Industries, Inc., a New York  corporation, Green Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a  Delaware corporation, Nationwide  Industries, Inc.**,** a  Florida corporation, and Citibank, N.A. (successor-in-interest to European  American Bank), a New York banking corporation (Incorporated by reference to  Exhibit 4.11 to the Registrant’s Annual Report on Form 10-K for the year  ended December 31, 2002). |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **4.13**   |   | Amendment No. 9 to Credit Agreement, dated as of June 30, 2003, by  and among the Registrant, Florida Pneumatic Manufacturing Corporation, a  Florida corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc.**,** a Florida corporation, and  Citibank, N.A. (successor-in-interest to European American Bank), a New York  banking corporation (Incorporated by reference to Exhibit 4.11 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2003).         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **4.14**   |   | Certain instruments defining the rights of holders of the long-term  debt securities of the Registrant are omitted pursuant to Section  (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant agrees to  furnish supplementally copies of these instruments to the Commission upon  request.                                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **10.1**   |   | Second Amended and Restated Employment Agreement, dated as of May 30,  2001, between the Registrant and Richard A. Horowitz (Incorporated by  reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended June 30, 2001).                                                                                                                                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **10.2**   |   | Consulting Agreement, effective as of November 1, 2003, between the  Registrant and Sidney Horowitz (Incorporated by reference to Exhibit 10.2 to  the Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003).                                                                                                                                                                                                                                                                                                                                                                                            |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **10.3**   |   | 1992 Incentive Stock Option Plan of the Registrant, as amended and  restated as of March 13, 1997 (Incorporated by reference to Exhibit 10.3 to  the Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003).                                                                                                                                                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **10.4**   |   | Executive Incentive Bonus Plan of the Registrant (Incorporated by  reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for  the fiscal year ended December 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

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

 

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

 

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