P&F Industries
Annual Report 2010

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KP&F INDUSTRIES INC - PFINFiled: March 31, 2011 (period: December 31, 2010)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K(Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2010oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5332 P&F INDUSTRIES, INC.(Exact name of registrant as specified in its charter) Delaware(State or other jurisdiction ofincorporation or organization)22-1657413(I.R.S. EmployerIdentification Number) 445 Broadhollow Road, Suite 100, Melville, New York(Address of principal executive offices)11747(Zip Code)Registrant’s telephone number, including area code: (631) 694-9800Securities registered pursuant to Section 12(b) of the Act: (Title of each class) (Name of each exchange on which registered) Class A Common Stock, $1.00 par value The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: NONEIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes o No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if asmaller reporting company)Smaller reporting company x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No xThe aggregate market value of the registrant’s Class A Common Stock held by non-affiliates of the registrant, based on the last sale price on June 30,2010 (the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $5,410,000.As of March 29, 2011 there were 3,614,562 shares of the registrant’s Class A Common Stock outstanding.Documents Incorporated by ReferencePart III of this Annual Report on Form 10-K incorporates by reference information from the registrant’s definitive Proxy Statement for its 2011Annual Meeting of Stockholders.Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. P&F INDUSTRIES, INC. FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2010 TABLE OF CONTENTS PagePART I Item 1.Business2Item 1A.Risk Factors4Item 1B.Unresolved Staff Comments6Item 2.Properties6Item 3.Legal Proceedings7Item 4.[Removed and Reserved]7PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities7Item 6.Selected Financial Data7Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations7Item 7A.Quantitative and Qualitative Disclosures About Market Risk15Item 8.Financial Statements and Supplementary Data16Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure42Item 9AControls and Procedures42Item 9B.Other Information43PART III Item 10.Directors, Executive Officers and Corporate Governance44Item 11.Executive Compensation44Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters44Item 13.Certain Relationships and Related Transactions, and Director Independence44Item 14.Principal Accounting Fees and Services44PART IV Item 15.Exhibits and Financial Statement Schedules45 Signatures52 1Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FORWARD LOOKING STATEMENTSThe Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward looking statements made by or on behalfof P&F Industries, Inc. and subsidiaries (the “Company”). The Company and its representatives may, from time to time, make written or verbal forwardlooking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission, such as this Annual Report onForm 10-K (“Report”), and in its reports to stockholders. Any statements made in the Report that are not historical facts may be deemed to be forward lookingstatements. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” their opposites and similar expressionsidentify statements that constitute “forward looking statements” within the meaning of the Reform Act. Any forward looking statements contained herein,including those related to the Company’s future performance, are based upon the Company’s historical performance and on current plans, estimates andexpectations. Such forward looking statements are subject to various risks and uncertainties, including those risk factors described in this Report, which maycause actual results to differ materially from the forward looking statements. Forward looking statements speak only as of the date on which they are made,and the Company undertakes no obligation to update publicly or revise any forward looking statement, whether as a result of new information, futuredevelopments or otherwise.PART IITEM 1. BusinessP&F Industries, Inc. (“P&F”) is a Delaware corporation incorporated on April 19, 1963. P&F and each of its subsidiaries are herein referred tocollectively as the “Company.” In addition, the words “we”, “our” and “us” refer to the Company. The Company operates in two primary lines of business, orsegments: (i) tools and other products (“Tools”) and (ii) hardware and accessories (“Hardware”).ToolsWe conduct our Tools business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn currently operatesthrough its wholly-owned subsidiaries, Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”).Florida PneumaticFlorida Pneumatic imports and sells pneumatic hand tools of its own design, primarily for the retail, industrial and automotive markets. This line ofproducts includes sanders, grinders, drills, saws and impact wrenches. These tools are similar in appearance and function to electric hand tools, but arepowered by compressed air, rather than directly by electricity. Air tools, as they are also called, generally are less expensive to operate, offer better performanceand weigh less than their electrical counterparts. Additionally, Florida Pneumatic also imports and markets compressor air filters. Florida Pneumatic importsapproximately seventy-five types of pneumatic hand tools, most of which are sold at prices ranging from $50 to $1,000, under the names “Florida Pneumatic”and “Universal Tool,” as well as under the trade names or trademarks of several private label customers. These Florida Pneumatic products are sold todistributors, retailers and private label customers through in-house sales personnel and manufacturers’ representatives. Users of Florida Pneumatic’s handtools include industrial maintenance and production staffs, do-it-yourself mechanics, automobile mechanics and auto body personnel.During 2010, Florida Pneumatic purchased approximately 63% of its pneumatic tools from a Far East manufacturer that owns or represents sixindividual factories in China. Of the total pneumatic tool purchases in 2010, approximately 68% were bought from China, 32% from Taiwan and less than1% from Japan. Florida Pneumatic performs final assembly on certain of its pneumatic tools at its factory in Jupiter, Florida. Florida Pneumatic alsoassembles and markets a line of air filters, for which it imports components from Mexico. There are redundant supply sources for nearly all productspurchased.Florida Pneumatic also markets, through its Berkley Tool division (“Berkley”), a product line which includes pipe and bolt dies, pipe taps,wrenches, vises and stands, pipe and tubing cutting equipment, hydrostatic test pumps, and replacement electrical components for a widely-used brand ofpipe cutting and threading machines. Florida Pneumatic markets Berkley’s products through industrial distributors and contractors. Florida Pneumaticsources its Berkley product line from China and Israel, as well as domestic sources.Through its Franklin Manufacturing (“Franklin”) division, Florida Pneumatic imported a line of door and window hardware. However, primarilydue to an ongoing diminishing market, Florida Pneumatic decided to discontinue marketing the Franklin products line effective December 31, 2009. 2Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The primary competitive factors in the pneumatic hand tool market are price, service and brand-name awareness. The primary competitive factors inBerkley’s business are price and service. Florida Pneumatic’s products are sold off the shelf, and no material backlog of orders exists. The business is notseasonal, but it may be subject to significant periodic changes resulting from holiday sales promotions by customers.Hy-TechHy-Tech manufactures and distributes pneumatic tools and parts for industrial applications. Hy-Tech manufactures approximately sixty types ofindustrial pneumatic tools, most of which are sold at prices ranging from $300 to $7,000, under the names “ATP”, “Thaxton”, “THOR” and “Eureka”, aswell as under the trade names or trademarks of other private label customers. This line of products includes grinders, drills, saws, impact wrenches andpavement breakers.Hy-Tech’s products are sold to distributors and private label customers through in-house sales personnel and manufacturers’ representatives. Usersof Hy-Tech’s tools include refineries, chemical plants, power generation facilities, heavy construction industry and oil and mining companies. Hy-Tech’sproducts are sold off the shelf, and are also produced to customers’ orders. The business is not seasonal, but it may be subject to significant periodic changesresulting from scheduled shutdowns in refineries, power generation facilities and chemical plants.The primary competitive factors in the industrial pneumatic tool market are quality, breadth of products and availability of products, customerservice and technical support.HardwareWe conduct our Hardware business through a wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). During 2010, Countrywideconducted its business operations through its wholly-owned subsidiary, Nationwide Industries, Inc. (“Nationwide”). As discussed below, Countrywide’ssubsidiary, WM Coffman, LLC (now known as Old Stairs Co LLC (“WMC”), also conducted a stair parts business until June 7, 2010.NationwideNationwide is an importer and manufacturer of door, window and fencing hardware, and accessories including rollers, hinges, window operators,sash locks, custom zinc castings and door closers. Nationwide’s products are sold through in-house sales personnel and manufacturers’ representatives todistributors, retailers and OEM customers. End users of Nationwide’s products include contractors, home builders, pool and patio distributors, OEM/privatelabel customers and general consumers. Effective with the WMC transactions discussed below, the Company transferred the kitchen and bath product line,which was formerly a product line marketed through Woodmark International, L.P. (“Woodmark”), to Nationwide. As such, the results of operations andassets and liabilities associated with the kitchen and bath product line have been included in Nationwide’s results.Most of Nationwide’s sales are of products imported from Taiwan and China. Nationwide currently out-sources the manufacturing of approximately90% of its product with several overseas factories, while retaining design, quality control, and patent and trademark control. There are redundant supplysources for most products. Nationwide manufactures approximately 10% of its products sold including rollers, hinges and pool enclosure products at itsfacility in Tampa, Florida. The majority of Nationwide’s sales are seasonal, with revenues typically increasing during the spring and summer months. Themajority of Nationwide’s products are sold off the shelf.The primary competitive factors in Nationwide’s business are price, quality, product availability and service.WMCPrior to June 8, 2009, Countrywide operated a stair parts business through its wholly-owned subsidiaries, Woodmark and Pacific Stair Products,Inc. (“PSP”). Woodmark was, until the transactions (“WMC transactions”) which formed the WMC business in June 2009, an importer of both stair partscomponents and kitchen and bath hardware and accessories. Woodmark marketed its stair parts nationally. However, effective with the WMC transactions,the operations of Woodmark’s kitchen and bath hardware and accessories product line was transferred to Nationwide. PSP was a manufacturer of high-endstair parts. It also marketed Woodmark’s staircase components to the building industry in southern California and the southwestern region of the UnitedStates. As a result of the WMC transactions, Woodmark and PSP no longer functioned as operating units. Woodmark and PSP contributed certain net assetsto WMC in return for members’ equity. Accordingly, effective with the WMC transactions, the stair parts business, which formerly operated throughWoodmark and PSP, became part of WMC. Further, on June 10, 2009, pursuant to an Asset Purchase Agreement dated as of June 8, 2009, WMC acquiredsubstantially all of the assets of Coffman Stairs, LLC, a Delaware limited liability company (“Coffman”). 3Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. WMC was not able to achieve the revenue levels anticipated prior to the WMC transactions and, as a result, never produced positive cash flows.This caused, among other things, defaults on WMC’s loan agreement with PNC, National Association (“PNC”). This, in turn led to a decision by theCompany’s board of directors in March 2010 that it was in the best interest of the Company, its shareholders and creditors that the Company attempt to sell,liquidate or otherwise dispose of its ownership of WMC. Accordingly, the Company began reporting WMC as a discontinued operation effective January 1,2010. As a result, the Company has reclassified prior year financial information to present WMC as a discontinued operation. (See Item 7 - Management’sDiscussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources and Notes 2 and 4 to Consolidated FinancialStatements for further discussion). Further, PNC which was the sole lender and source of credit to WMC, foreclosed upon the assets of WMC. As a result ofthe aforementioned facts, on June 7, 2010 WMC ceased operations.Significant CustomersThe Tools segment has one customer that accounted for approximately 28.4% and 29.7%, respectively, of consolidated revenue for the years endedDecember 31, 2010 and 2009, and 43.1% and 50.4%, respectively, of consolidated accounts receivable as of December 31, 2010 and 2009. There are nosignificant customers in the Hardware segment.EmployeesWe employed 140 persons as of December 31, 2010, of which 133 were full-time employees. None of these employees are represented by a union.ITEM 1A. Risk FactorsA wide range of factors could materially affect our performance. In addition to the factors affecting specific business operations identified inconnection with the description of these operations and the financial results of these operations elsewhere in this report, the following factors, among others,could adversely affect our results of operations or financial position: •Substantial debt and debt service requirements; The amount of our debt could have important consequences. For example, it could: increaseour vulnerability to general adverse economic and industry conditions; limit our ability to fund future capital expenditures, working capital andother general corporate requirements; require us to dedicate a substantial portion of our cash flow from operations to make interest and principalpayments on our debt; limit our flexibility in planning for, or reacting to, changes in our business; place us at a competitive disadvantagecompared with competitors that have less debt; and limit our ability to borrow additional funds, even when necessary to maintain adequateliquidity. •Compliance with financial covenants. Under the terms of our credit agreement that we entered into in October 2010, we are required to adhereto certain financial covenants. Although we were in compliance with our financial covenants as of December 31, 2010, in certain prior periods,we were not in compliance with certain financial covenants under our prior credit facility. If we are not in compliance with any financialcovenant at any time in the future and such non-compliance is not waived, our access to funds may be adversely affected, debt may become dueimmediately, and/or certain of our assets securing our debt could be foreclosed. •Significant volatility and disruption in the global capital and credit markets. Volatility in the global capital and credit markets since early2008 has resulted in a tightening of business credit and liquidity, a contraction of consumer credit, business failures, increased unemploymentand declines in consumer confidence and spending. If global economic and financial market conditions deteriorate or remain weak for anextended period of time, it could have a material adverse effect on our financial condition and results of operations. In particular, lower consumerspending may result in reduced demand and orders for certain of our products, order cancellations, lower revenues, increased inventories, andlower gross margins. Further, if our customers experience difficulty obtaining financing in the capital and credit markets to purchase ourproducts, this could result in further reduced orders for our products, order cancellations, inability of customers to timely meet their paymentobligations to us, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection efforts andincreased bad debt expense; and a severe financial difficulty experienced by our customers may cause them to become insolvent or ceasebusiness operations. •The strength of the retail economy in the United States. Our business is subject to economic conditions in major markets, includingrecession, inflation, deflation, general weakness in retail, industrial, and housing markets. The strength of such markets are a function ofmany factors beyond our control, including interest rates, employment levels, availability of credit and consumer confidence. Such economicconditions have had, and may continue to have, an adverse effect on our results of operations and financial position. 4Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. •Supply chain disruptions. Any difficulty or inability on the part of manufacturers of our products or other participants in our supply chain inobtaining sufficient financing to purchase raw materials or to finance general working capital needs may result in delays or non-delivery ofshipments of our products. •Our ability to maintain mutually beneficial relationships with key customers. We have several key customers, one of which constitutedapproximately 28% of our consolidated revenues for 2010. Loss of key customers or a material negative change in our relationships with our keycustomers could have a material adverse effect on our business, results of operations or financial position. •Adverse changes in currency exchange rates or raw material commodity prices. A majority of our products are manufactured outside theUnited States, of which a significant amount is purchased in the local currency. As a result, we are exposed to movements in the exchange ratesof various currencies against the United States dollar which could have an adverse effect on our results of operations or financial position. Webelieve our most significant foreign currency exposures are the Taiwan dollar (“TWD”) and the Chinese Renminbi (“RMB”). Purchases fromChinese sources are made in U.S. dollars. However, if the Chinese currency, the Renminbi (“RMB”), were to be revalued against the dollar,there could be a significant negative impact on the cost of our products. •Impairment of long-lived assets and goodwill. The inability of certain of our subsidiaries to generate future cash flows sufficient to supportthe recorded amounts of goodwill, other intangible assets and other long-lived assets related to those subsidiaries could result in futureimpairment charges. •Unforeseen interruptions in the manufacturing ability of certain foreign suppliers. Our foreign suppliers may encounter interruption in theirability to continue to provide us with products on a short-term or long-term basis. Although we believe that there are redundant sources availableand maintain multiple sources for certain of our products, there may be costs and delays associated with securing such sources and there can beno assurance that such sources would provide the same quality of product at similar prices. •Unforeseen inventory adjustments or changes in purchasing patterns. We make purchasing decisions based upon a number of factorsincluding an assessment of market needs and preferences, manufacturing lead times and cash flow considerations. To the extent that ourassumptions result in inventory levels being too high or too low, there could be a material adverse effect on our business, results of operations orfinancial position. •Market acceptance of new products. There can be no assurance that the market continues its acceptance of the new products we introduced inrecent years or will accept new products scheduled for introduction in 2011. There can also be no assurance that the level of sales generated fromthese new products relative to our expectations will materialize, based on existing investments in productive capacity and commitments by us tofund advertising and product promotions in connection with the introduction of these new products. •Increased competition. The domestic markets in which we sell our products are highly competitive on the basis of price, quality, availability,post-sale service and brand-name awareness. A number of competing companies are well-established manufacturers that compete on a globalbasis. •Price reductions. Price reductions taken by us in response to customer and competitive pressures, as well as price reductions or promotionalactions taken in order to drive demand, may not result in anticipated sales necessary to offset the associated costs. •Interest rates. Interest rate fluctuations and other capital market conditions could have a material adverse effect on our business, results ofoperations or financial position. •Litigation. The effects of litigation and product liability exposures, as well as other risks and uncertainties described from time to time in ourfilings with the Securities and Exchange Commission and public announcements could have a material adverse effect on our business, resultsof operations or financial position. Further, while we maintain insurance policies to protect against most potential exposures, events may ariseagainst which we may not be adequately insured. •Retention of key personnel. Our success depends to a significant extent upon the abilities and efforts of our key personnel. The loss of theservices of any of our key personnel or our inability to attract and retain qualified personnel in the future could have a material adverse effect onour business, results of operations or financial position. •Acquisition of businesses. Part of our business strategy is to opportunistically acquire complementary businesses and dispose of non-complementary businesses. If we fail to develop and integrate any acquired business or dispose of any businesses effectively, our earnings maybe adversely affected. In addition, our management team will need to devote substantial time and attention to the acquisition and integration of theacquired businesses, which could distract them from their other duties and responsibilities. 5Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. •Regulatory environment. We cannot anticipate the impact of changes in laws and regulations, including changes in accounting standards,taxation requirements, including tax rate changes, new tax laws and revised tax law interpretations, and environmental laws, in both domesticand foreign jurisdictions. •Our financial position, cash flow or results may be adversely affected by the threat of terrorism and related political instability andeconomic uncertainty. The threat of potential terrorist attacks on the United States and throughout the world and political instability hascreated an atmosphere of economic uncertainty in the United States and in foreign markets. Our results may be impacted by the macroeconomiceffects of those events. Also, a disruption in our supply chain as a result of terrorist attacks or the threat thereof may significantly affect ourbusiness and its prospects. In addition, such events may also result in heightened domestic security and higher costs for importing andexporting shipments of components and finished goods. Any of these occurrences may have a material adverse effect on our financial position,cash flow or results in any reporting period. •We may in the future be required to include the financial position of our WMC subsidiary in our consolidated financial statements. TheFinancial Accounting Standards Board has issued accounting guidance regarding variable interest entities (“VIEs”) that affects the accountingtreatment of one of our subsidiaries, WMC. To ascertain if we are required to consolidate this subsidiary, we determine whether it is a VIE andif we are the primary beneficiary in accordance with the accounting guidance, as discussed further in this Annual Report on Form 10-K.Changes in the financial accounting guidance, or changes in circumstances at this subsidiary, could lead us to determine that we have toconsolidate the financial position of such entity in the future. This could have a material adverse impact on our financial position. •Liabilities of WMC. WMC has liabilities on its balance sheet that are not reflected in our consolidated financial statements. While we believethat neither P&F nor any of its subsidiaries other than WMC are legally responsible for any such liabilities, there can be no assurance that one ormore creditors of WMC will not institute legal action against P&F or any of its subsidiaries other than WMC, which could result in a materialadverse impact on our financial position. •Unforeseen events. We cannot anticipate the impact of unforeseen events, including but not limited to war and pandemic disease, on economicconditions and consumer confidence in our business.The risk factors described above are not intended to be all-inclusive. There can be no assurance that we have correctly identified and appropriatelyassessed all factors affecting our business or that the publicly available and other information with respect to these matters is complete and correct. Additionalrisks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact us. Should any risks anduncertainties develop into actual events, these developments could have a material adverse effect on our business, results of operations or financial position. ITEM 1B. Unresolved Staff CommentsNone.ITEM 2. PropertiesToolsFlorida Pneumatic owns a 72,000 square foot plant facility located in Jupiter, Florida. Hy-Tech owns a 51,000 square foot plant facility which islocated in Cranberry Township, Pennsylvania and leases a 10,000 square foot facility located in Punxsutawney, Pennsylvania.HardwareCountrywide owns a 56,250 square foot plant facility located in Tampa, Florida in which Nationwide conducts its business. Countrywide leasespart of the facility to a non-affiliated tenant.Each facility described above either provides adequate space for the operations of the respective subsidiary for the foreseeable future or can bemodified or expanded to provide additional space.The three owned properties described above are pledged as collateral against the Company’s credit facility, which is discussed further Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources. 6Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our executive offices of approximately 5,000 square feet are located in an office building in Melville, New York and are leased from a non-affiliatedlandlord with a lease term expiring in March 2013.ITEM 3. Legal ProceedingsWe are a defendant or co-defendant in various actions brought about in the ordinary course of conducting our business. We do not believe that any ofthese actions are material to our financial position.ITEM 4. [Removed and Reserved]PART IIITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur Class A Common Stock trades on the Nasdaq Global Market under the symbol PFIN. The range of the high and low closing sales prices for ourClass A Common Stock during the last two years were as follows:2010 High Low First Quarter $2.79 $2.51 Second Quarter 2.63 2.00 Third Quarter 2.19 1.52 Fourth Quarter 3.64 1.76 2009 High Low First Quarter $1.40 $0.71 Second Quarter 2.21 0.95 Third Quarter 2.25 1.44 Fourth Quarter 3.20 2.15 As of March 23, 2011, there were approximately 1,100 holders of record of our Class A Common Stock and the closing sale price of our stock asreported by the Nasdaq Global Market was $3.31 We have not declared any cash dividends on our Class A Common Stock since our incorporation in 1963and have no plans to declare any cash dividends in the foreseeable future.ITEM 6. Selected Financial DataNot required.ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOVERVIEWWhile P&F had a slight decrease in revenue in 2010 of about 1% from 2009, the Company was very successful in improving gross margins from30.7% in 2009 to 34.8% in 2010. This improvement came as the result of major cost reduction programs as well as deliberate shift in mix to newer highermargin products. As a result, we were able to achieve an earnings improvement from continuing operations of $1.8 million on a pre-tax basis. These positiveresults, a tax refund of $3.3 million and better use of working capital resulted in a reduction of corporate debt of $8.1 million during 2010.In October of 2010, we entered into a three-year credit facility with Capital One Leverage Finance Corporation. The new facility increased ourborrowing capacity with respect to certain classes of assets, such as machinery and equipment and real estate. As a result, the new credit facility providessignificantly more potential capital than the facility that it replaced. 7Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our WMC subsidiary, which sold residential stair parts for new construction, continued to underperform. In 2010, it was not able to generate sufficient cashflow to meet either its operating needs or debt obligations. As a result, in June of 2010, WMC’s lender, PNC, foreclosed on and subsequently disposed ofsubstantially all of the assets of WMC. Management determined that the facts and circumstances relating to WMC, including the foreclosure procedure byPNC, qualified as a loss of a controlling financial interest in WMC and as a result, we deconsolidated WMC.KEY INDICATORSEconomic MeasuresMuch of our business is driven by the ebbs and flows of the general economic conditions in both the United States and, to a lesser extent,abroad. Our Tools segment focuses on a wide array of customer types; it does not rely as much on specific economic measures or indicators. The Toolssegment tends to track the general economic conditions of the United States, industrial production and general retail sales, all of which have, for the most part,have indicated minimal improvement during 2010 compared to 2009. The key economic measures for Hardware group, which for 2010 consisted ofNationwide Industries only, were the general economic conditions of the United States and to a lesser extent the housing market.Another key economic measure relevant to us is the cost of the raw materials in our products. Key materials include metals, especially various typesof steel and aluminum. Also important is the value of the dollar in relation to the Taiwan dollar (“TWD”), as we purchase a significant portion of our productsfrom Taiwan. Purchases from Chinese sources are made in U.S. dollars. However, if the Chinese currency, the Renminbi (“RMB”), were to be revaluedagainst the dollar, there could be a significant negative impact on the cost of our products.Operating MeasuresKey operating measures we use to manage our operating segments are: orders; shipments; development of new products; customer retention;inventory levels and productivity. These measures are recorded and monitored at various intervals, including daily, weekly and monthly. To the extent thesemeasures are relevant, they are discussed in the detailed sections for each operating segment.Financial MeasuresKey financial measures we use to evaluate the results of our business include: various revenue metrics; gross margin; selling, general andadministrative expenses; earnings before interest and taxes; operating cash flows and capital expenditures; return on sales; return on assets; days salesoutstanding and inventory turns. These measures are reviewed at monthly, quarterly and annual intervals and compared to historical periods as well asestablished objectives. To the extent that these measures are relevant, they are discussed in the detailed sections for each operating segment.CRITICAL ACCOUNTING POLICIES AND ESTIMATESWe prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America(“GAAP”). Certain of these accounting policies require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and the related disclosure of contingent assets and liabilities, revenues and expenses. On an ongoing basis, we evaluate estimates, including thoserelated to bad debts, inventory reserves, goodwill and intangible assets, warranty reserves and taxes. We base our estimates on historical data and experience,when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis formaking judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from theseestimates. Our critical accounting policies are further described below.Revenue RecognitionWe recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or titled has passed to our customer or services havebeen provided, the sale price is fixed or determinable, and collectability is reasonably assured. We sell our goods on terms which transfer title and risk of lossat a specified location, typically shipping point, port of loading or port of discharge, depending on the final destination of the goods. Revenue recognition fromproduct sales occurs when all factors are met, including transfer of title and risk of loss, which occurs either upon shipment by us or upon receipt bycustomers at the location specified in the terms of sale. Other than standard product warranty provisions, our sales arrangements provide for no other post-shipment obligations. We do offer rebates and other sales incentives, promotional allowances or discounts, from time to time and for certain customers,typically related to customer purchase volume, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time ofsale. We periodically evaluate whether an allowance for sales returns is necessary. Historically, we have experienced little, if any, sales returns. If we believethere are material potential sales returns, we would provide the necessary provision against sales. 8Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Accounts Receivable and Allowance for Doubtful AccountsSenior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. Analysis ofcustomer history, financial data and the overall economic environment is performed. In addition, balances outstanding for more than 60 days are evaluated forpossible inclusion in the accounts receivable reserve. Collection agencies may also be utilized if management so determines.We record an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. We also may record as anadditional allowance a certain percentage of aged accounts receivable, based on historical experience and our assessment of the general financial conditionsaffecting our customer base. If actual collection experience changes, revisions to the allowance may be required. We have a limited number of customers withindividually large amounts due at any given balance sheet date. Any unanticipated change in the creditworthiness of any of these customers could have amaterial effect on our results of operations in the period in which such changes or events occur. After all reasonable attempts to collect an account receivablehave failed, the amount of the receivable is written off against the allowance. Based on the information available, we believe that our allowance for doubtfulaccounts as of December 31, 2010 was adequate. However, actual write-offs might exceed the recorded allowance.InventoriesInventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method or the weighted average method. Inventory,which includes materials, labor and manufacturing overhead costs, is recorded net of an allowance for obsolete or unmarketable inventory. Such allowance isbased upon both historical experience and management’s understanding of market conditions and forecasts of future product demand. In addition, all items ininventory in excess of one year’s usage are considered for inclusion in the calculation of inventory obsolescence. If the actual amount of obsolete orunmarketable inventory significantly exceeds the estimated allowance, our cost of sales, gross profit and net earnings would be significantly affected.Goodwill and Other Intangible AssetsIn accordance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) we test goodwill for impairment on anannual basis in the fourth quarter or more frequently if we believe indicators of impairment might exist. The evaluation of goodwill and other intangible assetsrequires that management prepare estimates of future operating results for each of our operating units. These estimates are made with respect to future businessconditions and estimated expected future cash flows to determine estimated fair value. However, if, in the future, key drivers in our assumptions or estimatessuch as (i) a material decline in general economic conditions; (ii) competitive pressures on our revenue or our ability to maintain margins; (iii) pricing from ourvendors which cannot be passed through to our customers; and (iv) breakdowns in supply chain or other factors beyond our control occur, an impairmentcharge against our intangible assets may be required.Income TaxesWe provide for deferred taxes on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operatingloss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differencesbetween the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion ofmanagement, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted forthe effects of changes in tax laws and rates on the date of enactment.We file a consolidated Federal tax return. P&F and certain of its subsidiaries file a combined tax return in New York State. All subsidiaries file otherstate and local tax returns on a stand-alone basis.When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while othersare subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position isrecognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that theposition will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregatedwith other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken thatexceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets alongwith any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognizedtax benefits are classified as income taxes in the consolidated statement of operations. 9Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Consolidation of Variable Interest EntitiesOn January 1, 2010, we adopted an accounting standard, which replaced the quantitative-based risks and rewards calculation for determining whichenterprise, if any, has a controlling financial interest in a variable interest entity. The new approach focuses on identifying which enterprise has the power todirect the activities of a variable interest entity that most significantly impacts the variable interest entity’s economic performance and (1) the obligation toabsorb losses of the variable interest entity or (2) the right to receive benefits from the variable interest entity.As a result of adopting this new accounting standard, we determined that, as the result of the facts and circumstances relating to WMC, includingthe foreclosure, and subsequent disposal and sale of all of tangible and intangible assets by PNC, we were no longer the primary beneficiary of WMC and weno longer had a controlling financial interest in WMC. As such, we deconsolidated WMC’s financial position and results of operations.RESULTS OF OPERATIONS2010 compared to 2009REVENUE Year Ended December 31, 2010 2009 Variance Variance Tools Florida Pneumatic $22,467,000 $23,819,000 $(1,352,000) (5.7)%Hy-Tech 14,011,000 13,997,000 14,000 0.1 Tools Total 36,478,000 37,816,000 (1,338,000) (3.5)Hardware Nationwide 14,131,000 13,341,000 790,000 5.9 Hardware Total 14,131,000 13,341,000 790,000 5.9 Consolidated $50,609,000 $51,157,000 $(548,000) (1.1)%ToolsFlorida Pneumatic focuses its marketing efforts primarily on its retail customers, as well expanding its share in the industrial/catalog sector of thepneumatic market. As indicated in the table above, revenue at Florida Pneumatic decreased $1,352,000, due primarily to the closure of its Franklin Productsdivision effective December 31, 2009. This product line was dropped due to a reduction in market size and ongoing weakening of its contribution margin. Asa result, the decision not to market Franklin Products in 2010 contributed $1,681,000 to the total decline in Florida Pneumatic’s net revenue. It should benoted that the loss of the Franklin Products revenue had minimal impact on Florida Pneumatic’s overall results. Revenue from its major customer declined$842,000 from 2009 levels due primarily to a reduction in sales of specialty products and non-recurring products sold in 2009, which were not sold in2010. This reduction was partially mitigated through increased revenue generated from direct and seasonal shipments. Revenue at its Berkley, filters, andOEM lines, in the aggregate, decreased slightly by $40,000. Florida Pneumatic recorded increases of $959,000 or 21.9% in the higher margin,industrial/catalog product group, as well as increases of $226,000 or 36.8% at its automotive product line. Given the current economic conditions anduncertainties, we believe its relationships with its overall customer base remains good.Hy-Tech focuses more on the industrial sector of the pneumatic tools market. Hy-Tech creates quality replacement parts for pneumatic tools, as wellas markets its own value added line of ATP and Thor brand of air tools. When comparing Hy-Tech’s revenue for the years ended December 31, 2010 and2009, there was a minimal increase of $14,000. There were however, fluctuations within its customer base and product line. For the year ended December 31,2010, Hy-Tech increased its ATP revenue approximately $1,000,000 when compared to the year ended December 31, 2009. This increase is primarilyattributable to a slight overall increase in the industrial sector and combined with a new aggressive marketing campaign. This increase was partially offset bya decline in revenue from one customer during 2010 when compared to revenue attributable to this customer in 2009. We do not believe this decline was theresult of performance or quality. Given the current economic conditions, and uncertainties, we believe its relationships with its overall customer base remainsgood. 10Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. HardwareThe table below is an analysis of Nationwide’s revenue: Year ended December 31, 2010 2009 Variance Variance $ % Nationwide revenue Fence and gate hardware $8,603,000 $7,180,000 $1,423,000 19.8%Kitchen and Bath 2,775,000 2,962,000 (187,000) (6.3)OEM 1,869,000 2,427,000 (558,000) (23.0)Patio 884,000 772,000 112,000 14.5 Total $14,131,000 $13,341,000 $790,000 5.9%Despite overall weakness in the general economy of the United States for much of 2010, Nationwide was able to increase its revenue of its fence andgate hardware during the year ended December 31, 2010 by 19.8%, when compared to the same period in the prior year. This improvement is due primarily tothe introduction of new products as well as expanded marketing efforts, which effectively increased the size of its customer base. Nationwide intends tocontinue to develop new products and accessories. The kitchen and bath product line continues to feel the effects of the sluggishness in the home improvementbusiness sector, as well as the continued declines in the recreational vehicle and modular home markets, all exacerbated by growing competitive pressures. Asa result, Nationwide’s kitchen and bath product revenue declined $187,000. Much of the decline in OEM revenue was due to the loss of Coffman, whichprior to the WMC transactions in September 2009, was a customer of Nationwide. Sales by Nationwide to WMC after the date of the WMC transactions wereeliminated on consolidation. Nationwide was able to increase its patio product line by 14.5%. Given the current economic conditions, we believe Nationwide’srelationships with its overall customer base remain good.GROSS MARGIN Year Ended December 31, Change 2010 2009 Amount % Tools $12,371,000 $11,423,000 $948,000 8.3%As percent of respective revenue 33.9% 30.2% 3.7 pts. Hardware $5,264,000 $4,278,000 $986,000 23.0%As percent of respective revenue 37.3% 32.1% 5.2 pts. Consolidated $17,635,000 $15,701,000 $1,934,000 12.3%As percent of respective revenue 34.8% 30.7% 4.1 pts. Tools Gross margins at our Tools segment for the twelve-month period ended December 31, 2010 improved 3.7 percentage points from the same period in2009. Specifically, Florida Pneumatic’s gross margin increased 5.7 percentage points, due to product cost reductions, which in turn were due primarily to: (i)- vendor changes, (ii) - the sale of new, higher margin products and (iii) - increased revenue at its catalog and industrial product lines, which generate highergross margins compared to its retail items. Another factor contributing to the improvement of Florida Pneumatic’s gross margin was its ability to reducewarehouse overhead costs. When comparing the years ended December 31, 2010 and 2009, Hy-Tech improved its overall gross margin 0.3 percentagepoints. It should be noted that gross margins at Hy-Tech have steadily improved throughout 2010 and have exceeded 2009 gross margins for the respectivethree-month periods ended June 30, September 30 and December 31.Despite the decline in revenue at this segment, gross profit increased $948,000. This increase is the net result of improved gross marginpercentages. Through the improvement in its gross margin, Florida Pneumatic was able to increase its gross profit by $896,000. Hy-Tech increased grossprofit during 2010 compared to the prior year by $52,000. In an effort to improve its manufacturing overhead absorption, Hy-Tech continues to investigateways to reduce its cost of manufacturing, thus lessening the impact of likely reductions in quantity of units produced per job run; however there can be noassurance this will be effective.HardwareThe gross margin for Nationwide for the year ended December 31, 2010 increased to 37.3% from 32.1% during the same period in the prior year,with year-over-year gross profit improving $986,000. Fencing and gate hardware, patio and Kitchen and Bath product lines had increases in their respectivegross margins and gross profits. While the OEM product line increased its gross margin, as the result of the decrease in revenue, OEM gross profit decreasedin 2010 compared to the prior year. Nationwide’s overall improvement is primarily the result of (i) product mix, (ii) reduction in the cost of products beingrelieved from inventory, and (iii) greater absorption of warehouse overhead. 11Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SELLING, GENERAL AND ADMINISTRATIVE EXPENSESSelling, general and administrative expenses (“SG&A”) include salaries and related costs, commissions, travel, administrative facilities,communications costs and promotional expenses for our direct sales and marketing staff, administrative and executive salaries and related benefits, legal,accounting and other professional fees, as well as amortization and depreciation and general corporate overhead and certain engineering expenses.SG&A for the year ended December 31, 2010 was $16,016,000 compared to $15,799,000 in 2009, an increase of $217,000, or 1.4%. Due tounexpected banking issues which arose during the first and second fiscal quarters of 2010, which ultimately resulted in our entering into a new creditagreement with a new bank, we incurred significant increases in our legal, consulting, accounting and bank fees, which aggregated to $676,000. Additionalareas which encountered increases were depreciation and amortization of $281,000, due primarily to the write down of prepaid costs incurred in connectionwith prior bank financings and software application implementation, freight costs, which increased by $112,000 and commission and royalty fees increasing$108,000. The above increases were partially offset by, among other things, a reduction in bad debt expense of $237,000, lower warranty costs of $126,000,due to improved product quality and inspections overseas, and a reduction of $105,000 in the required expensing of non-cash, stock based compensationcharges. While we continue to focus considerable effort on reducing SG&A, we believe it just as important for us to address the matter of employee moraleand retention. Therefore, effective January 1, 2011, we removed the across-the-board 5% wage reduction, which was put in effect in April 2009.INTERESTOur interest expense for the year ended December 31, 2010 was $1,243,000, $99,000 or 7.4% lower than the year ended December 31, 2009 amountof $1,342,000. As discussed further in the Liquidity and Capital Resources section of this Management’s Discussion and Analysis, in October 2010 weentered into a new bank arrangement, which, among other things caused us to repay the then existing term loan and revolving credit line with the two formerbanks, pay the balance owed on all real property mortgages, and pay one half of the amount owed to the parties that sold Hy-Tech to us. Our new creditagreement is comprised of a revolving credit facility and a term loan. Additionally, in May 2010, we paid down $1,989,000 of the term loan in effect at suchtime, thus lowering our 2010 interest expense. This payment was made with a portion of the proceeds of a federal tax refund.Additionally, interest on our borrowings under the revolving credit loan facilities for the year ended December 31, 2010 was $720,000, compared to$766,000 for the same period in 2009, a decrease of $46,000. Factors contributing to this decrease were lower average balances, as well as higher interestrates that were applied when default rate adjustments were imposed in 2009. Further, as the result of the arrangement entered into in 2009, which extended thepayment terms of the contingent consideration owed to the sellers of Hy-Tech, we incurred interest expense of approximately $112,000 during the year endedDecember 31, 2010 compared to $56,000 incurred in the prior year. Additionally, we recorded interest expense of $14,000 to our CEO and $28,000 to anunrelated third party, attributable to the loans from such parties received April 23, 2010.INCOME TAX EXPENSE (BENEFIT)The effective tax rates applicable to income (loss) from continuing operations for the years ended December 31, 2010 and 2009 were 9.3% tax expense and a17.0% tax benefit, respectively. Contributing to the current year’s effective tax rate were, among other factors, a decrease in a valuation allowance, partiallyoffset by state and local taxes and expenses not deductible for tax purposes. Contributing factors impacting the effective tax rate in 2009 were increases to ourtax provision due to state and local taxes, certain expenses not deductible for tax purposes and, as per authoritative guidance pertaining to uncertain taxpositions, an increase to our tax provision. The adjustments were partially offset by a decrease in a valuation allowance.DISCONTINUED OPERATIONS-DECONSOLIDATIONThe most significant portion of the $340,000 after-tax income from discontinued operations was due to the deconsolidation of WMC. This representsan improvement of $7,605,000, when compared with an after-tax loss of $7,265,000 for the year ended December 31, 2009. WMC was primarily engaged inthe manufacturing and importing of stair parts and related accessories. In an effort to improve our overall results of the then existing stair parts operation, oursubsidiary, WMC, purchased substantially all of the assets of one of its competitors in the stair parts business. These transactions were executed in anattempt to take advantage of the synergies available by combining two large players in an industry at the bottom of its economic cycle with complementarydistribution channels and operations. WMC was not able to achieve the revenue levels anticipated prior to the WMC transactions and, as a result, neverproduced positive cash flows. This caused, among other things, defaults on WMC’s loan agreement with PNC. 12Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As a result of a decision reached by our board of directors in March 2010 that it was in the best interest of the Company, its shareholders andcreditors that the Company attempt to sell, liquidate or otherwise dispose of its membership interests in WMC, we began to report WMC as a discontinuedoperation effective January 1, 2010. See Note 4 to the Consolidated Financial Statements for further information.As the result of the subsequent facts and circumstances relating to WMC, including the foreclosure and subsequent disposal and sale of all of thetangible and intangible assets by PNC, we were no longer the primary beneficiary of WMC and no longer had a controlling financial interest in WMC.Further, in accordance with authoritative guidance pertaining to consolidation, we determined that we should deconsolidate WMC, because we are unable todirect the activities of this entity, we no longer had the obligation to absorb losses that might be significant to WMC and we no longer possessed the right toreceive benefits from WMC that could potentially be significant to WMC. The authoritative guidance requires us to record the impact of the deconsolidationthrough our consolidated Statement of Operations. As such, for the year ended December 31, 2010, as the result of the aforementioned, we recognized a gain of$12,090,000, which offset WMC’s losses from operations of $6,510,000 and a loss recognized due to PNC’s foreclosure in June 2010 of $5,240,000. Wewill continue to evaluate the facts and circumstances pertaining to WMC to ascertain if we should include WMC in our consolidated financial statements infuture periods.LIQUIDITY AND CAPITAL RESOURCESOur cash flows from operations can be somewhat cyclical, typically with the greatest demand for cash in the first and fourth quarters. We monitorsuch things as days sales outstanding, inventory requirements, accounts payable and capital expenditures to project liquidity needs and evaluate return onassets. Our primary sources of funds are cash available through a credit agreement with our bank as discussed below, which offers a revolving loan facilityand term loan facility, as well as cash generated from operations.In addition to funds available to us under the terms of the credit agreement discussed below, we determine and gauge our liquidity and financialstability by the measurements shown in the following table: December 31, 2010 2009 Working capital $11,746 $8,420 Current ratio 1.77 to 1 1.24 to 1 Shareholders’ equity $26,399 $25,615 On October 22, 2010, we entered into a credit agreement (the “Credit Agreement”) with Capital One Leverage Finance Corporation, as agent(“COLF”). Additionally, on this date we terminated our banking relationship with our previous banks. The Credit Agreement has a three-year term, withmaximum borrowings of $22,000,000. The Credit Agreement provides for a Revolving Credit Facility (“Revolver”) with a maximum borrowing of$15,910,000. Direct borrowings under the Revolver are secured by our accounts receivable, mortgages on the Company’s real property located in Cranberry,PA, Jupiter, FL and Tampa, FL, inventory and equipment and are cross-guaranteed by each of our subsidiaries, other than WMC. Revolver borrowings bearinterest at LIBOR (London InterBank Offered Rate) or the Base Rate, as defined in the Credit Agreement, plus the currently applicable margin rates, which atDecember 31, 2010 were 3.75% and 2.75%, respectively. Beginning on April 1, 2011, the loan margins applicable to borrowings on the Revolver shall bedetermined based upon the computation of total funded borrowings from COLF divided by earnings before interest, taxes, depreciation and amortization(“EBITDA”). These new applicable loan margins will range from 3.25% to 4.00% for LIBOR borrowings and from 2.25% to 3.00% for borrowings at primerate.The Credit Agreement includes an annual unused line fee ranging from one-half percent (0.50%) to three-quarters percent (0.75%), depending on thepercentage of the Revolver to the Credit Facility. Should we terminate the Credit Facility prior to maturity, the Credit Agreement provides for a prepayment feeof one percent (1.00%) of the total Credit Facility if terminated during the first year and one-half percent (0.50%) if terminated during the second year. We arealso required to provide, among other things, monthly financial statements and monthly borrowing base certificates. The Credit Agreement also requires us tomaintain various financial covenants. If an event of default occurs under this Loan Agreement, the interest rate would increase by two percent per annum.Once cured, the two percent premium would be suspended. 13Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Credit Agreement also contains a $6,090,000 term loan (the “Term Loan”), which is also secured by our accounts receivable, mortgages on theCompany’s real property located in Cranberry, PA, Jupiter, FL and Tampa, FL, inventory and equipment. The Term Loan amortizes $33,833 each monthwith a balloon payment at maturity of the Credit Agreement. The Credit Agreement requires us to make prepayments of 25% of excess annual cash flow, asdefined in the Credit Agreement, or in the event of a sale of any real estate assets. The Term Loan bears interest at LIBOR or the Base Rate plus the currentlyapplicable margin rates, which at December 31, 2010 were 5.75% and 4.75%, respectively.Prior to October 22, 2010, we and our subsidiaries, other than WMC, were parties to a credit agreement, (the “Prior Credit Agreement”) as amended,with Citibank, N.A., as agent (“Citibank”). The Prior Credit Agreement, among other things, included a revolving credit loan facility (“prior revolving loan”).Direct borrowings under the prior revolving loan were secured by our accounts receivable, inventory, equipment and real property, and were cross-guaranteedby each of our subsidiaries, other than WMC. Borrowings under this Prior Credit Agreement incurred interest at LIBOR or the prime interest rate, plusapplicable loan margins. Concurrent with the formation of the new Credit Agreement with COLF, we paid $14,610,000 to the lenders under the Prior CreditAgreement as full settlement of its then revolving credit facility, term note and accrued interest.In April 2010, as part of an amendment to the Prior Credit Agreement, the Company was required to obtain a subordinated loan of $750,000. Thissubordinated loan was, in the aggregate, provided by the Company’s Chief Executive Officer, President and Chairman of the Board of Directors, (“CEO”), inthe amount of $250,000, and another unrelated party in the amount of $500,000. This subordinated loan bears interest at 8% per annum, and remainsoutstanding at December 31, 2010.On October 22, 2010, we also restructured certain obligations to subordinated lenders, which among other things included extending the term of the$750,000 subordinated loans payable to our CEO and unrelated third party discussed in the prior paragraph, as well as the balance of the note payable to theparties that sold Hy-Tech to us in 2007 (the “Hy-Tech Sellers”), to correspond with the three-year term of the credit facility. We can, under certain conditionspursuant to subordination agreements with COLF make interest payments under such subordinated notes payable, and in the case of the holders of the Hy-Tech Sellers note and the unrelated third party, make partial principal payments during the term, subject to certain terms and conditions based on ourperformance.Concurrent with our entering into the Credit Agreement, unless otherwise noted, we repaid the balances, in their entirety, of the following obligations:Mortgage loan—Wachovia Bank (Florida Pneumatic) $630,000 Mortgage loan—Wachovia Bank (Countrywide) 875,000 Note payable to former owners of Hy-Tech Machine, Inc. 1 685,000 Capital Lease Obligations 171,000 1 As discussed in previous filings with the SEC, in connection with the acquisition of Hy-Tech, we agreed to make additionalconsideration payments of $2,362,000 to the sellers of Hy-Tech. We and the sellers agreed upon a payment arrangement. However, due tothe default on the previous credit agreement with our former banks, unpaid future payments were suspended. Under the terms of the CreditAgreement with COLF, we were able to repay 50% plus accrued interest, or $685,000 to the Hy-Tech sellers. The payment of the balancedue of $573,000 is subject to performance criteria. Interest is accruing at a rate of 6% per annum.Our cash balance at December 31, 2010 of $874,000 reflects an increase of $328,000 from $546,000 at December 31, 2009. Our total borrowingsdecreased $8,088,000 to $17,375,000 from $25,463,000 at December 31, 2009. Significant factors contributing to the decrease include the receipt of a $3million tax refund and improvement in working capital. Cash provided by operating activities for the years ended December 31, 2010 and 2009 were$9,039,000 and $8,204,000, respectively. We believe that cash on hand derived from operations and cash available through borrowings under our creditfacilities will be sufficient to allow us to meet our working capital needs for at least the next twelve months.The percent of debt to total book capitalization (debt plus equity) decreased 10.2% to 39.7% at December 31, 2010, from 49.9% at December 31,2009.Capital spending decreased to $244,000 during the year ended December 31, 2010 a decrease of $1,424,000, or 85%, compared to $1,668,000 in2009. Capital expenditures currently planned for 2011 are expected to approximate $400,000, some of which may be financed through our credit facility. Themajority of the projected 2011 capital expenditures will relate to tooling required for new product development.OFF-BALANCE SHEET ARRANGEMENTSIn accordance with authoritative guidance issued by FASB, we deconsolidated WMC. We believe neither P&F nor any of its subsidiaries other thanWMC are legally responsible for any of the liabilities belonging to WMC. Until such time when these obligations have been resolved, either directly with thecreditors, discharged by a court of law, or otherwise eliminated, WMC, which has been deconsolidated, and therefore not included in the Company’sconsolidated balance sheets, is required to maintain these unresolved obligations, which at December 31, 2010 were approximately $12,090,000, on thefinancial statements of WMC only. We will, as required, reevaluate each quarter the facts and circumstances regarding deconsolidation of WMC. 14Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Effective March 4, 2011 WMC entered into a termination agreement with Visador, Coffman and P&F. On such date, WMC paid Visador $110,000.Visador and Coffman agreed to release and forever discharge WMC, P&F and their respective affiliates and such other related parties from all of theirrespective known or unknown claims, liabilities and obligations, including, but not limited to, those relating to a monetary claim against WMC ofapproximately $4.4 million. WMC and P&F agreed to release and forever discharge Visador and their respective affiliates and such other related parties fromall of their respective known or unknown claims, liabilities and obligations.Florida Pneumatic imports approximately 1% of its purchases from Japan, with payment due in Japanese yen. As a result, we are subject to theeffects of foreign currency exchange fluctuations. We use a variety of techniques to protect ourselves from any adverse effects from these fluctuations,obtaining price reductions from our overseas suppliers, using alternative supplier sources, increasing selling prices, when possible and entering into foreigncurrency forward contracts. There were no foreign currency forward contracts at December 31, 2010.IMPACT OF INFLATIONWe believe that the effects of changing prices and inflation on our financial position and its results of operations are immaterial.ENVIRONMENTAL MATTERSAlthough it is difficult to identify precisely the portion of capital expenditures or other costs attributable to compliance with environmental laws andregulations, we do not expect such expenditures or other costs to have a material adverse effect on our consolidated financial position and its results ofoperations.NEW ACCOUNTING PRONOUNCEMENTSRecently Adopted Accounting StandardsRefer to Note 1, "Summary of Significant Accounting Policies", to our consolidated financial statements for a discussion of recent accounting standards andpronouncementsITEM 7A. Quantitative and Qualitative Disclosures About Market RiskNot Required 15Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 8. Financial StatementsP&F INDUSTRIES, INC. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm17Consolidated Balance Sheets as of December 31, 2010 and 200918Consolidated Statements of Operations for the years ended December 31, 2010 and 200920Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2010 and 200921Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 200922Notes to Consolidated Financial Statements24 16Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and Board of DirectorsP&F Industries, Inc.We have audited the accompanying consolidated balance sheets of P&F Industries, Inc. and Subsidiaries (the “Company”) as of December 31, 2010and 2009, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These consolidated financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements basedon our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of P&F Industries,Inc. and Subsidiaries as of December 31, 2010 and 2009, and their consolidated results of operations and cash flows for the years then ended, in conformitywith accounting principles generally accepted in the United States of America./s/ J.H. Cohn LLPJericho, New YorkMarch 31, 2011 17Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. P&F INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, 2010 December 31, 2009 (Audited) (See Note 1) ASSETS CURRENT ASSETS Cash $874,000 $546,000 Accounts receivable — net 6,986,000 7,545,000 Inventories – net 18,430,000 19,746,000 Deferred income taxes — net 233,000 670,000 Income tax refund receivable - 3,270,000 Prepaid expenses and other current assets 417,000 279,000 Current assets of discontinued operations 23,000 10,797,000 TOTAL CURRENT ASSETS 26,963,000 42,853,000 PROPERTY AND EQUIPMENT Land 1,550,000 1,550,000 Buildings and improvements 7,480,000 7,476,000 Machinery and equipment 16,340,000 16,130,000 25,370,000 25,156,000 Less accumulated depreciation and amortization 13,599,000 11,990,000 NET PROPERTY AND EQUIPMENT 11,771,000 13,166,000 GOODWILL 5,150,000 5,150,000 OTHER INTANGIBLE ASSETS — net 2,300,000 2,651,000 DEFERRED INCOME TAXES — net 1,874,000 1,437,000 LONG-TERM ASSETS OF DISCONTINUED OPERATIONS — 3,924,000 OTHER ASSETS — net 837,000 237,000 TOTAL ASSETS $48,895,000 $69,418,000 The accompanying notes are an integral part of these consolidated financial statements. 18Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. P&F INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, 2010 December 31, 2009 (Audited) (See Note 1) LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Short-term borrowings $9,996,000 $16,300,000 Accounts payable 1,673,000 1,396,000 Other accrued liabilities 3,115,000 2,003,000 Current liabilities of discontinued operations 27,000 9,719,000 Current maturities of long-term debt 406,000 5,015,000 TOTAL CURRENT LIABILITIES 15,217,000 34,433,000 Long–term debt, less current maturities 6,973,000 4,148,000 Long-term liabilities of discontinued operations 306,000 5,222,000 TOTAL LIABILITIES 22,496,000 43,803,000 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued — — Common stock Class A - $1 par; authorized - 7,000,000 shares; issued - 3,956,000 at December 31, 2010 and 2009 3,956,000 3,956,000 Class B - $1 par; authorized - 2,000,000 shares; no shares issued — — Additional paid-in capital 10,718,000 10,615,000 Retained earnings 14,680,000 13,999,000 Treasury stock, at cost – 342,000 shares at December 31, 2010 and 2009 (2,955,000) (2,955,000) TOTAL SHAREHOLDERS’ EQUITY 26,399,000 25,615,000 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $48,895,000 $69,418,000 The accompanying notes are an integral part of these consolidated financial statements. 19Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. P&F INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2010 2009 Net revenue $50,609,000 $51,157,000 Cost of sales 32,974,000 35,456,000 Gross profit 17,635,000 15,701,000 Selling, general and administrative expenses 16,016,000 15,799,000 Operating income (loss) 1,619,000 (98,000)Interest expense 1,243,000 1,342,000 Income (loss) from continuing operations before income taxes 376,000 (1,440,000)Income tax expense (benefit) 35,000 (245,000)Income (loss) from continuing operations 341,000 (1,195,000) Income (loss) from discontinued operations (net of tax expense of $0 and $1,394,000 for the years ended December31, 2010 and 2009) 340,000 (7,265,000) Net income (loss) $681,000 $(8,460,000) Basic earnings (loss) per share Continuing operations $0.10 $(0.33)Discontinued operations 0.09 (2.01)Net income (loss) $0.19 $(2.34) Diluted earnings (loss) per share Continuing operations $0.10 $(0.33)Discontinued operations 0.09 (2.01)Net income (loss) $0.19 $(2.34) Weighted average common shares outstanding: Basic 3,615,000 3,615,000 Diluted 3,634,000 3,615,000 The accompanying notes are an integral part of these consolidated financial statements. 20Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. P&F INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Class A CommonStock, $1 Par Additionalpaid-in Retained Treasury stock Total Shares Amount capital earnings Shares Amount Balance, January 1, 2009 $33,867,000 3,956,000 $3,956,000 $10,407,000 $22,459,000 (342,000) $(2,955,000) Net loss (8,460,000) (8,460,000) Stock-based compensation 208,000 208,000 Balance, December 31, 2009 25,615,000 3,956,000 3,956,000 10,615,000 13,999,000 (342,000) (2,955,000) Net income 681,000 681,000 Stock-based compensation 103,000 103,000 Balance, December 31, 2010 $26,399,000 3,956,000 $$3,956,000 $10,718,000 $14,680,000 (342,000) $(2,955,000)The accompanying notes are an integral part of these consolidated financial statements. 21Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. P&F INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2010 2009 Cash Flows from Operating Activities Net income (loss) $681,000 $(8,460,000) Adjustments to reconcile net (income) loss to net cash provided by operating activities of continuingoperations: (Income) loss from discontinued operations (340,000) 7,265,000 Non-cash charges: Depreciation and amortization 1,635,000 1,572,000 Amortization of other intangible assets 351,000 351,000 Amortization of other assets 210,000 56,000 Provision for losses on accounts receivable 76,000 (161,000)Stock-based compensation 103,000 208,000 Deferred income taxes - net — 4,901,000 Gain on sale of fixed assets (3,000) (2,000)Changes in operating assets and liabilities: Accounts receivable 483,000 (80,000)Notes and other receivables 41,000 (42,000)Inventories 1,316,000 6,659,000 Income tax refund receivable 3,270,000 (2,943,000)Prepaid expenses and other current assets (179,000) 460,000 Other assets 6,000 176,000 Accounts payable 277,000 (506,000)Income taxes payable 243,000 — Accrued liabilities 869,000 (1,250,000)Total adjustments 8,358,000 16,664,000 Net cash provided by operating activities of continuing operations 9,039,000 8,204,000 The accompanying notes are an integral part of these consolidated financial statements. 22Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. P&F INDUSTRIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2010 2009 Cash Flows from Investing Activities: Capital expenditures $(244,000)$(1,668,000)Proceeds from sale of fixed assets 7,000 3,000 Additional purchase price – Hy-Tech — (1,216,000)Net cash used in investing activities (237,000)(2,881,000) Cash Flows from Financing Activities: Proceeds from short-term borrowings 15,750,000 13,864,000 Repayments of short-term borrowings (22,054,000)(12,564,000)Term loan advances 7,047,000 — Repayments of term loan (6,773,000)(7,778,000)Repayments of mortgages (1,463,000)— Net proceeds from equipment lease financing — 642,000 Principal payments on long-term debt (336,000)(185,000)Proceeds from notes payable 750,000 — Repayments on notes payable (573,000)— Payments on capital lease financings (436,000)(206,000)Bank financing costs (816,000)— Net cash used in financing activities (8,904,000)(6,227,000) Cash Flows from Discontinued Operations: Operating activities 2,748,000 (2,600,000)Investing activities (1,735,000)(7,725,000)Financing activities (583,000)10,930,000 Net cash provided by Discontinued Operations 430,000 605,000 Net increase (decrease) in cash 328,000 (299,000)Cash at beginning of year 546,000 845,000 Cash at end of year $874,000 $546,000 Supplemental disclosures of cash flow information: Cash paid for: Interest $1,263,000 $1,315,000 Income taxes $31,000 $30,000 The accompanying notes are an integral part of these consolidated financial statements. 23Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. P&F INDUSTRIES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010 and 2009NOTE 1—SUMMARY OF ACCOUNTING POLICIESPrinciples of ConsolidationThe consolidated financial statements contained herein include the accounts of P&F Industries, Inc. and its subsidiaries (“P&F”). All significantintercompany balances and transactions have been eliminated. The 2009 balances in the consolidated financial statements have been reclassified to show theeffects of the deconsolidation of WMC.Company BackgroundP&F conducts its business operations through two of its wholly-owned subsidiaries: Continental Tool Group, Inc. (“Continental”) and CountrywideHardware, Inc. (“Countrywide”). P&F and its subsidiaries are herein referred to collectively as the “Company.” In addition, the words “we”, “our” and “us”refer to the Company.Continental conducts its business operations through Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine,Inc., (“Hy-Tech”). Florida Pneumatic is engaged in the importation and sale of pneumatic hand tools, primarily for the retail, industrial and automotivemarkets, and the importation and sale of compressor air filters. Florida Pneumatic also markets, through its Berkley Tool division (“Berkley”), a line of pipecutting and threading tools, wrenches and replacement electrical components for a widely-used brand of pipe cutting and threading machines. Through itsFranklin Manufacturing (“Franklin”) division, Florida Pneumatic imported a line of door and window hardware. However, primarily due to a diminishingmarket, Florida Pneumatic decided to discontinue marketing the Franklin Products line effective December 31, 2009.Hy-Tech manufactures and distributes pneumatic tools and parts for industrial applications. Hy-Tech manufactures approximately sixty types ofindustrial pneumatic tools, most of which are sold at prices ranging from $300 to $7,000, under the names “ATP”, “Thaxton”, “THOR” and “Eureka”, aswell as under the trade names or trademarks of other private label customers. This line of products includes grinders, drills, saws, impact wrenches andpavement breakers. Hy-Tech’s products are sold to distributors and private label customers through in-house sales personnel and manufacturers’representatives. Users of Hy-Tech’s tools include refineries, chemical plants, power generation facilities, the heavy construction industry, oil and miningcompanies and heavy industry. Hy-Tech’s products are sold off the shelf, and are also produced to customer’s orders. The business is not seasonal, but itmay be subject to significant periodic changes resulting from scheduled shutdowns in refineries, power generation facilities and chemical plants.We conduct our Hardware business through a wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). During 2010, Countrywideconducted its business operations through its wholly-owned subsidiary, Nationwide Industries, Inc. (“Nationwide”). As discussed below, Countrywide alsoconducted a stair parts business until June 7, 2010, through its wholly-owned subsidiary, WM Coffman, LLC (now known as Old Stairs Co LLC)(“WMC”). Nationwide is an importer and manufacturer of door, window and fencing hardware and accessories, including rollers, hinges, window operators,sash locks, custom zinc castings and door closers. Nationwide’s products are sold through in-house sales personnel and manufacturers’ representatives todistributors, retailers and OEM customers. End users of Nationwide’s products include contractors, home builders, pool and patio distributors, OEM/privatelabel customers and general consumers. Effective with the WMC transactions, discussed below, the Company transferred the kitchen and bath product line,which was formerly a product line marketed through Woodmark International, L.P. (“Woodmark”) to Nationwide. As such, the results of operations andassets and liabilities associated with the kitchen and bath product line have been included in Nationwide’s results. Most of Nationwide’s sales are of productsimported from Taiwan and China. Nationwide currently out-sources the manufacturing of approximately 90% of its product with several overseas factories,while retaining design, quality control, and patent and trademark control. There are redundant sources for most products. Nationwide manufacturesapproximately 10% of its products sold including rollers, hinges and pool enclosure products at its facility in Tampa, Florida.Prior to June 8, 2009, Countrywide also operated through its wholly-owned subsidiaries, Woodmark and Pacific Stair Products, Inc. (“PSP”).Woodmark was, until the transactions (“WMC transactions”) which formed the WMC business in June 2009, an importer of both stair parts componentsand kitchen and bath hardware and accessories. Woodmark marketed its stair parts nationally. However, effective with the WMC transactions, the operationsof Woodmark’s kitchen and bath hardware and accessories product line was transferred to Nationwide. PSP was manufacturer of high-end stair parts. It alsomarketed Woodmark’s staircase components to the building industry in southern California and the southwestern region of the United States. As a result ofthe WMC transactions, Woodmark and PSP no longer functioned as operating units. Woodmark and PSP contributed certain net assets to WMC in return formembers’ equity. Accordingly, effective with the WMC transactions, the stair parts business, which formerly reported through Woodmark and PSP, becamepart of WMC. Further, on June 10, 2009, pursuant to an Asset Purchase Agreement dated as of June 8, 2009 (the “Asset Purchase Agreement”), WMCacquired substantially all of the assets of Coffman Stairs, LLC, a Delaware limited liability company (“Coffman”). 24Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. WMC was not able to achieve the revenue levels anticipated prior to the WMC transactions and, as a result, never produced positive cash flows.This caused, among other things, defaults on WMC’s loan agreement with PNC, National Association (“PNC”). This, in turn led to a decision by theCompany’s board of directors in March 2010, that it was in the best interest of the Company, its shareholders and creditors that the Company attempt to sell,liquidate or otherwise dispose of its ownership of WMC. Accordingly, the Company began reporting WMC as a discontinued operation effective January 1,2010. As a result, the Company has reclassified prior year financial information to present WMC as a discontinued operation. (See Note 4 for furtherdiscussion). Further, PNC,which was the sole lender and source of credit to WMC, foreclosed upon and liquidated the assets of WMC. As the result of theaforementioned facts, on June 7, 2010 WMC ceased operations.Basis of Financial Statement PresentationThe Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States(“GAAP”).Consolidation of Variable Interest EntitiesOn January 1, 2010, we adopted an accounting standard, which replaced the quantitative-based risks and rewards calculation for determining whichenterprise, if any, has a controlling financial interest in a variable interest entity. The new approach focuses on identifying which enterprise has the power todirect the activities of a variable interest entity that most significantly impacts the variable interest entity’s economic performance and (1) the obligation toabsorb losses of the variable interest entity or (2) the right to receive benefits from the variable interest entity. As a result of adopting this new accountingstandard, we were required to change the way we account for our variable interest in WMC. We determined that as the result of the foreclosure by PNC onWMC and PNC’s subsequent disposal and sale of all of WMC’s assets, tangible and intangible, we no longer were the primary beneficiary of WMC and nolonger had a controlling financial interest in WMC. As such, we deconsolidated WMC’s financial position and financial operations.Revenue RecognitionThe Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, the saleprice is fixed or determinable, and collectability is reasonably assured. The Company sells its goods on terms which transfer title and risk of loss at aspecified location, typically shipping point, port of loading or port of discharge, depending on the final destination of the goods. Revenue recognition fromproduct sales occurs when all factors are met, including transfer of title and risk of loss, which occurs either upon shipment by the Company or upon receiptby customers at the location specified in the terms of sale. Other than standard product warranty provisions, the Company’s sales arrangements provide forno other, or insignificant, post-shipment obligations. The Company does offer rebates and other sales incentives, promotional allowances or discounts, fromtime to time and for certain customers, typically related to customer purchase volume, all of which are fixed or determinable and are classified as a reductionof revenue and recorded at the time of sale. The Company periodically evaluates whether an allowance for sales returns is necessary. Historically, theCompany has experienced little, if any, sales returns. If the Company believes there are potential sales returns, the Company would provide any necessaryprovision against sales.Shipping and Handling CostsThe Company generally does not bill customers for shipping and handling costs. Expenses for shipping and handling costs are included in selling,general and administrative expenses, and totaled approximately $927,000 and $528,000 for the years ended December 31, 2010 and 2009, respectively.CashCash includes cash on hand, demand deposits, and short-term investments with maturities of three months or less from the date of acquisition.There were no cash equivalents at December 31, 2010 and 2009. The Company maintains cash balances at various financial institutions. At December 31,2010, all cash balances are fully insured by the Federal Deposit Insurance Corporation.Financial InstrumentsThe carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, notes and other receivables, accounts payable andshort-term debt approximate fair value as of December 31, 2010 and 2009 because of the relatively short-term maturity of these financial instruments. Thecarrying amounts reported for long-term debt approximate fair value as of December 31, 2010 and 2009 because, in general, the interest rates underlying theinstruments fluctuate with market rates. 25Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are customer obligations due under normal trade terms. The Company sells its products to retailers, distributors and originalequipment manufacturers involved in a variety of industries. The Company performs continuing credit evaluations of its customers’ financial condition, andalthough the Company generally does not require collateral, letters of credit may be required from customers in certain circumstances.Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. Analysis ofcustomer history, financial data and the overall economic environment is performed. In addition, balances outstanding for more than 90 days are evaluated forpossible inclusion in the accounts receivable reserve. Collection agencies may also be utilized if management so determines.The Company records an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. TheCompany also records as an additional allowance a certain percentage of aged accounts receivable, based on historical experience and the Company’sassessment of the general financial conditions affecting its customer base. If actual collection experience changes, revisions to the allowance may be required.The Company has a limited number of customers with individually large amounts due at any given balance sheet date. Any unanticipated change in thecreditworthiness of any of these customers could have a material effect on the Company’s results of operations in the period in which such changes or eventsoccur. After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. Based on theinformation available, the Company believes that its allowance for doubtful accounts as of December 31, 2010 is adequate. However, actual write-offs mightexceed the recorded allowance.Concentrations of Credit RiskFinancial instruments that potentially subject the Company to concentration of credit risk consist principally of temporary cash investments,accounts receivable and notes receivables. The Company places its cash in overnight money market instruments with high quality financial institutions,which, by policy, limit the amount of credit exposure in any one financial instrument. The Company principally sells its products domestically to customersin diversified industries after completing commercial credit checks.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities, possible disclosure of contingent assets and liabilities at the date of the financial instruments and the reported amounts ofrevenue and expenses during the reporting period. On an on-going basis P&F evaluates its estimates, including those related to collectability of accountreceivable, valuation of inventories, recoverability of goodwill and intangible assets and income taxes. The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for makingjudgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates underdifferent assumptions or conditions. The Company also uses estimates during its continuing evaluation to determine whether or not it has a controllingfinancial interest in WMC.InventoriesInventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method or the weighted average method. Theinventory balance, which includes raw materials, labor and manufacturing overhead costs, is recorded net of an allowance for obsolete or unmarketableinventory. Such allowance is based upon both historical experience and Management’s understanding of market conditions and forecasts of future productdemand. If the actual amount of obsolete or unmarketable inventory significantly exceeds the estimated allowance, the Company’s cost of sales, gross profitand net earnings would be significantly affected.Property and Equipment and Depreciation and AmortizationProperty and equipment are stated at cost less accumulated depreciation and amortization. Generally, the Company capitalizes items in excess of$1,000. Minor replacements and maintenance and repair items are charged to expense as incurred. Upon disposal or retirement of assets, the cost and relatedaccumulated depreciation are removed from the Company’s consolidated balance sheet.Depreciation of buildings and machinery and equipment is computed by using the straight-line method over the estimated useful lives of the assets.Buildings are depreciated over periods ranging from 10 to 31.5 years, and machinery and equipment is depreciated over periods ranging from 3 to 12 years.Leasehold improvements are amortized over the life of the lease or the useful life of the related asset, whichever is shorter. 26Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Long-Lived AssetsIn accordance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) pertaining to the accounting for theimpairment or disposal of long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assessment ofrecoverability of property and equipment is performed on an entity level. Recoverability of assets to be held and used is measured by a comparison of thecarrying amount of such asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of such assetexceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds thefair value of the asset.Goodwill and Other Intangible AssetsGoodwill is carried at cost less any impairment charges. Goodwill and intangible assets with indefinite lives are not amortized but are subject to anannual test for impairment at the entity unit level (operating segment or one level below an operating segment) and between annual tests in certaincircumstances. In accordance with authoritative guidance issued by the FASB, we test goodwill for impairment on an annual basis in the fourth quarter ormore frequently if we believe indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment testinvolves comparing the fair value of the Company’s reporting units with the reporting unit’s carrying amount, including goodwill. The Company generallydetermines the fair value of its reporting units using the income approach methodology of valuation that includes the expected present value of future cashflows and the market valuation approach. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the secondstep of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing theimplied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.Intangible assets other than goodwill and intangible assets with indefinite lives are carried at cost less accumulated amortization. Intangible assets aregenerally amortized on a straight-line basis over the useful lives of the respective assets, generally five to twenty-five years. Long-lived assets and certainidentifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount ofsuch assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of theasset and its eventual disposition. Measurement of any impairment loss for long-lived assets and certain identifiable intangible assets that management expectsto hold and use is based on the amount the carrying value exceeds the fair value of the asset.Warranty LiabilityThe Company offers certain warranties against product defects for periods ranging from one to three years. Certain products carry limited lifetimewarranties. The Company’s typical warranties require it to repair or replace the defective products during the warranty period at no cost to the customer. At thetime the product revenue is recognized, the Company records a liability for estimated costs under its warranties. The costs are estimated based on historicalexperience. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts necessary. While the Companybelieves that its estimated liability for product warranties is adequate and that the judgment applied is appropriate, the estimated liability for the productwarranties could differ materially from future actual warranty costs.TaxesThe Company provides for deferred taxes on the liability method whereby deferred tax assets are recognized for deductible temporary differences andoperating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are thedifferences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in theopinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities areadjusted for the effects of changes in tax laws and rates on the date of enactment.The Company files a consolidated Federal tax return. P&F Industries, Inc. and certain of its subsidiaries file a combined tax return in New YorkState. All subsidiaries file other state and local tax returns on a stand-alone basis. 27Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. When tax returns are filed, it is highly certain that most positions taken would be sustained upon examination by the taxing authorities, while othersmay be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a taxposition is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than notthat the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset oraggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that ismore than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positionstaken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balancesheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated withunrecognized tax benefits are classified as income taxes in the consolidated statement of operations.AdvertisingThe Company expenses its costs of advertising in the period in which they are incurred. Advertising costs for the years ended December 31, 2010and 2009 were $890,000 and $873,000, respectively.Earnings (loss) Per Common ShareBasic earnings (loss) per common share exclude any dilution. It is based upon the weighted average number of shares of common stock outstandingduring the year. Diluted earnings (loss) per common share reflect the effect of shares of common stock issuable upon the exercise of options, unless the effecton earnings is anti-dilutive.Diluted earnings (loss) per common share is computed using the treasury stock method. Under this method, the aggregate number of shares ofcommon stock outstanding reflects the assumed use of proceeds from the hypothetical exercise of any outstanding options to purchase shares of theCompany’s Class A Common Stock. The average market value for the period is used as the assumed purchase price.The following table sets forth the computation of basic and diluted earnings per common share: Years Ended December 31, 2010 2009 Numerator: Numerator for basic and diluted loss per common share: Net income (loss) from continuing operations $341,000 $(1,195,000)Net income (loss) from discontinued operations 340,000 (7,265,000)Net income (loss) $681,000 $(8,460,000)Denominator: Denominator for basic income (loss) per share—weighted averagecommon shares outstanding 3,615,000 3,615,000 Effect of dilutive securities: Stock options 19,000 — Denominator for diluted income (loss) per share—adjusted weighted average common shares and assumedconversions 3,634,000 3,615,000 At December 31, 2010 and 2009 and during the years then ended, there were outstanding stock options whose exercise prices were higher than theaverage market values for the respective periods. These options are anti-dilutive and were excluded from the computation of earnings per share during the yearsended December 31, 2010 and 2009, respectively. The weighted average anti-dilutive options outstanding for the years ended December 31, 2010 and 2009were 532,624 and 534,436, respectively. Diluted loss per share for the year ended December 31, 2009 was the same as basic loss per share, since the effect ofthe inclusion of common share equivalents would be anti-dilutive, because of the reported loss.Stock-Based CompensationIn accordance with U.S. GAAP, the Company measures and recognizes compensation expense for all share-based payment awards made toemployees and directors based on estimated fair values. Share-based compensation expense recognized for the years ended December 31, 2010 and 2009 wasapproximately $103,000 and $208,000, respectively. Share-based compensation expense is included in selling, general and administrative expense on theaccompanying consolidated statements of operations. See Note 10 for additional information. 28Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. GAAP requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value ofthe portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statementof operations. Share-based compensation expense recognized in the Company’s consolidated statements of operations for the years ended December 31, 2010and 2009 included compensation expense for share-based payment awards based on the grant date fair value estimate in accordance with GAAP. TheCompany follows the straight-line single option method of attributing the value of stock-based compensation to expense. Also, the Company estimatesforfeitures at the time of grant and revises this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Companyused the Black-Scholes option-pricing model (“Black-Scholes model”) as its method of valuation for share-based awards granted. The Company’sdetermination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as wellas assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to the Company’s expected stock pricevolatility over the term of the awards and the expected term of the awards.Treasury StockTreasury stock is recorded at net acquisition cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in capitalwith losses in excess of previously recorded gains charged directly to retained earnings.Derivative Financial InstrumentsThe Company uses derivatives to reduce its exposure to fluctuations in foreign currencies, principally Japanese yen. Derivative products,specifically foreign currency forward contracts, are used to hedge the foreign currency market exposures underlying transactions with foreign vendors. TheCompany does not enter into such contracts for speculative purposes.For derivative instruments that are designated and qualify as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or aliability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting gain orloss on the hedge item attributable to the hedged risk are recognized in earnings in the current period. For derivative instruments that are designated and qualifyas a cash flow hedge (i.e., hedging the exposure of variability in the expected future cash flows that would be attributable to a particular risk), the effectiveportion of the gain or loss on the derivative instrument is reported as a component of accumulated comprehensive income, net of tax (a component ofshareholders’ equity) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain orloss on the derivative instrument, if any (i.e., the ineffective portion and any portion of the derivative instrument excluded from the assessment ofeffectiveness), is recognized in earnings in the current period. For derivative instruments not designated as hedging instruments, changes in the fair marketvalues are recognized in earnings as a component of cost of sales.The Company accounts for changes in the fair value of its foreign currency contracts by marking them to market and recognizing any resultinggains or losses through its statements of operations. The Company also marks its yen-denominated payables to market, recognizing any resulting gains orlosses in its statements of operations. At December 31, 2010, the Company had no foreign currency forward contracts to purchase Japanese yen at contractedforward rates. During the years 2010 and 2009, the Company recorded a nominal amount and $24,000, respectively of realized gains on foreign currencytransactions in its costs of sales. At December 31, 2010 and 2009, the Company had no material unrealized gains or losses on foreign currency transactions.NEW ACCOUNTING PRONOUNCEMENTSAdoption of New Accounting PronouncementsNew authoritative accounting guidance (Accounting Standards Update, or “ASU”, No. 2009-17) on the consolidation of Variable Interest Entities, or “VIEs”,under ASC Topic 810-Consolidation, requires entities to perform a qualitative analysis to determine whether the enterprise’s variable interest or interests give ita controlling financial interest in a VIE. The enterprise is required to assess, on an ongoing basis, whether it is a primary beneficiary or has an implicitresponsibility to ensure that a VIE operates as designed. This guidance changes the previous quantitative approach for determining the primary beneficiary to aqualitative approach based on which entity (a) has the power to direct activities of a VIE that most significantly impact economic performance and (b) has theobligation to absorb losses or receive benefits that could be significant to the VIE. In addition, it requires enhanced disclosures that will provide investors withmore transparent information about an enterprise’s involvement with a VIE. This standard became effective for interim and annual periods beginning on orafter June 15, 2010. The adoption of this standard should have resulted in the Company accounting for WMC as a VIE, effective June 30, 2010.In January 2010, the FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary. Under this guidance, anentity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of asubsidiary, an entity recognizes a gain or loss on the deconsolidation and measures any retained investment in the subsidiary at fair value. In contrast, anentity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equitytransaction. This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of a subsidiary orde-recognition of a group of assets. This ASU is effective beginning in the first interim or annual reporting period ending on or after December 31, 2009. Theimpact of the adoption of this ASU is discussed in Notes 2 and 4. 29Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Management does not believe that any other recently issued, but not yet effective accounting standards if currently adopted would have a materialeffect on the consolidated financial statements.NOTE 2 — VARIABLE INTEREST ENTITY The Company’s overall methodology for evaluating transactions and relationships under the variable interest entity (“VIE”) requirements includesthe following: (i) determining whether the entity, meets the criteria to qualify as a VIE; and (ii) determining whether the Company is the primary beneficiary ofthe VIE.If the Company identifies a VIE based the requirements within ASC 810, it then performs the second step determine whether it is the primarybeneficiary of the VIE by considering the following significant factors and judgments, both of which must be met:• Whether the Company has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and• Whether the Company has the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receivebenefits from the entity that could potentially be significant to the VIE.The Company examined the facts and circumstances pertaining to WMC to determine if it is the primary beneficiary, by considering whether or notit has the power to direct the most significant activities of the entity. The Company has concluded that as of June 30, 2010, it did not direct the mostsignificant activities at WMC, nor did it have an obligation to absorb losses or the right to receive benefits from WMC and, therefore, is not considered theprimary beneficiary. Accordingly, the Company deconsolidated WMC as further described in Note 4.The Company will perform an ongoing reassessment of the facts and circumstances pertaining to WMC to determine whether or not the Companymay have become the primary beneficiary.NOTE 3—ACQUISITIONOn June 10, 2009, pursuant to the Asset Purchase Agreement, WMC acquired substantially all of the assets of Coffman. Coffman was in thebusiness of manufacturing and distributing interior wood and iron stair components throughout the United States. Upon the closing of the Asset PurchaseAgreement, Woodmark and PSP contributed to WMC certain respective assets, subject to WMC’s assumption of certain respective liabilities and obligationsof each of Woodmark and PSP In addition, effectively transferring the Company’s stair parts business to WMC.On June 10, 2009, WMC entered into a Revolving Credit, Term Loan and Security Agreement (“WMC loan agreement”), dated as of June 8, 2009with PNC. The maximum amount WMC could borrow under this credit facility with PNC was $12,000,000.The purchase price consisted of a cash payment of $4,528,000, a promissory note in the amount of $3,972,000 payable to Coffman, and theassumption of certain payables, liabilities and obligations. Additionally, subject to certain conditions, WMC also agreed to pay to Coffman contingentconsideration based upon the financial performance of WMC and certain other factors described in the Asset Purchase Agreement. At June 8, 2009, theCompany estimated a range of outcomes wherein contingent consideration would have to be paid to Coffman. The amount of potential contingent considerationranged from $3,697,000 to $6,770,000. The Company, recorded $3,972,000, the then present value of $5,885,000, which is what it believed to be the mostlikely outcome of the potential estimated contingent consideration obligation. WMC also entered into an advisory agreement with Visador, the parent companyof Coffman, pursuant to which WMC agreed to pay Visador, subject to certain conditions, advisory fees, aggregating during the first three years to amaximum of $750,000, in exchange for Visador providing consulting and advisory services to WMC. Cash payments to Visador were to be made only withpermission of PNC. The fair value of this obligation of $614,000 had been included in contingent consideration. As such, as of the date of the WMCtransactions, the Company recorded a total of $4,586,000 as contingent consideration. During the period from the date of the WMC transactions throughDecember 31, 2009, the Company increased this portion of the contingent consideration by $135,000 due to accretion. However, due to a number of factorsincluding, but not limited to, further declines in the number of new housing starts during the remainder of 2009, WMC re-examined certain long-range factorswhich contribute to the determination of the potential contingent consideration obligation that would have to be paid to Coffman. As a result of the re-examination of certain long-range factors, WMC no longer believed there would be any future payments to Coffman, other than in connection with theadvisory agreement with Visador, and had accordingly reduced the fair value of the contingent consideration by $4,118,000 to $603,000 at December 31,2009. The Company further reduced this amount to zero as of December 31, 2010. 30Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Additionally, the Company incurred approximately $952,000 of total fees and expenses in connection with the formation of WMC and the WMCloan agreement, of which the Company recorded in its selling, general and administrative expenses approximately $432,000. A portion of this amount wouldhave been amortized over the three year term of the WMC loan agreement, with the remaining portion to be amortized over approximately 18 years, which wasthe remaining life of the facility lease, discussed below.Contemporaneously with the execution and delivery of the Asset Purchase Agreement, WMC and Coffman entered into an Assignment andAssumption of Lease Agreement dated as of June 8, 2009 (the “Assignment and Assumption Agreement”). Pursuant to the Assignment and AssumptionAgreement, Coffman transferred, conveyed and assigned to WMC all of its right, title and interest, as tenant, in, to and under, and WMC assumed all rights,obligations and liabilities of Coffman under, that certain Lease Agreement, dated as of March 30, 2007, for the lease of certain real property located in Marion,Virginia (the “Leased Premises”). The Lease Agreement had an expiration date of March 30, 2027. The base annual rent was $580,000, payable quarterly inadvance on July 1, October 1, January 1 and April 1, in equal installments of $145,000. Further, WMC was required to present to the landlord a $100,000letter of credit as security deposit.Interest on the unpaid principal balance of the promissory note of $3,972,000 accrued (i) from June 8, 2009 until the Maturity Date, as defined, atthe rate of six and one-half percent (6.5%) simple interest per annum. The principal amount and accrued interest due Coffman was payable on the date (the“Maturity Date”) that is the latter of (1) the last day of the Contingency Period, as defined in the Asset Purchase Agreement or (2) the earlier of (a) the date thatis three (3) years and ninety (90) days after the date of the promissory note or (b) the date that all obligations under the WMC loan agreement, were satisfied infull. Pursuant to the terms of the promissory note, all obligations thereunder were subject to the terms of a Subordination Agreement, dated as of June 8, 2009,among WMC, Coffman and PNC.The purchase price of Coffman Stairs, LLC was as follows: Cash paid at closing $4,528,000 Notes payable 3,972,000 Liabilities assumed 2,788,000 Future contingent consideration 4,586,000 Total $15,874,000 The following table presents, as of the date of the transaction, the fair values of the assets acquired and liabilities assumed and the amounts allocatedto intangible assets and goodwill. Accounts receivable $1,251,000 Inventories 6,677,000 Other current assets 403,000 Property and equipment 2,411,000 Other non-current assets 485,000 Identifiable intangible assets: Customer relationships $1,250,000 Trademark 1,622,000 2,872,000 14,099,000 Less: Deferred tax liability 652,000 Total fair value of net assets acquired 13,447,000 Goodwill 2,427,000 Total purchase price $15,874,000 The excess of the total purchase price over the fair value of the net assets acquired, less the value of the identifiable intangible assets, had beenallocated to goodwill. Goodwill will be amortized for fifteen years for tax purposes, but not for financial reporting purposes. The fair value and estimated livesof the identifiable intangible assets are based on current information and may be subject to change. Those intangible assets which are subject to amortizationwill be amortized over fifteen years for tax purposes. For financial reporting purposes, useful lives have been assigned as follows: EstimatedUseful LifeTrademarkIndefiniteCustomer Relationships16 years 31Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company and Coffman, as though thetransaction had occurred as of January 1, 2009. The pro forma amounts give effect to appropriate adjustments for amortization, depreciation, interest expenseand income taxes. The pro forma amounts presented are not necessarily indicative of either the actual consolidated operating results had the transactionoccurred as of January 1, 2009 or of future consolidated operating results. Year endedDecember 31, 2009 Net revenue $80,184,000 Net loss $(10,766,000)Loss per share of common stock: Basic and diluted $(2.98)During 2009, the Company’s Hardware segment continued to suffer through a very low level of new home construction, which is a key driver to itsrevenue. WMC was unable to achieve the revenues levels anticipated prior to the transactions and as a result, never produced sufficient positive cash flow.WMC’s weak performance resulted in it being in default on certain financial covenants associated with the Loan Agreement with PNC. Pursuant to aforbearance agreement dated February 22, 2010, PNC agreed to forbear from taking certain actions, such as accelerating repayment of the loan, throughAugust 31, 2010. As a result of our annual goodwill and other intangible analysis, as well as other information that came to light, at December 31, 2009, theCompany recorded an impairment charge of $5,549,000 in connection with WMC. See Note 4 for further discussion of WMC.NOTE 4— DISCONTINUED OPERATIONS- DECONSOLIDATIONWMC was primarily engaged in the manufacturing and importing of stair parts and related accessories. In an effort to improve the overall results ofthe Company’s existing stair parts operation, the Company entered into the WMC transactions. These transactions were executed in an attempt to takeadvantage of the synergies available by combining two large players in an industry at the bottom of its economic cycle with complementary distributionchannels and operations.WMC was not able to achieve the revenue levels anticipated prior to the WMC transactions and, as a result, never produced positive cash flows.This caused, among other things, defaults on the WMC loan agreement. As the result of a decision reached by the Company’s board of directors in March2010, that it was in the best interest of the Company and its shareholders that the Company sell, liquidate or otherwise dispose of its membership interests inWMC, the Company reported WMC as a discontinued operation effective January 1, 2010.Effective June 7, 2010, WMC executed and delivered to PNC an Acknowledgment of Events of Default and Peaceful Possession Letter (the “PeacefulPossession Letter”), dated as of June 4, 2010, pursuant to which (1) WMC acknowledged that a material adverse change in its business and assets occurredand that such event constituted a forbearance default under the Loan Agreement, and (2) among other things:(a) consented to PNC’s exercise of all rights of possession in and to the Collateral consistent with the Loan Agreement, the Other Documents(as defined in the WMC loan agreement) and applicable law, to be disposed of consistent with the Loan Agreements, the Other Documents andapplicable law;(b) consented to a sale of substantially all of the Collateral, other than the Marion Fixed Assets by PNC to WM Coffman Resources, LLC,or the “Buyer”, pursuant to the terms and conditions of a Foreclosure Agreement,(c) consented to the Fixed Asset Auction; and(d) agreed to change its name from WM Coffman, LLC to Old Stairs Co. LLC.Included within the WMC loan agreement, was a term loan with an original principal amount of $1,134,000, which was to be repaid in twenty-fourequal monthly installments of $47,000. This term note between PNC and WMC was collateralized by WMC’s fixed assets. As the result of the PeacefulPossession Letter, PNC took title to and possession of all of WMC’s fixed assets located in Marion, Virginia and, in July 2010 arranged for their sale. 32Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. At the time of the sale by PNC to the Buyer, the total outstanding amount of principal and accrued interest owing to PNC was approximately $5.2million. Upon the effectiveness of the aforementioned sale by PNC, and sale of the Marion fixed assets, the outstanding principal and accrued interest owing toPNC was paid. PNC was also able to satisfy the subordinated secured lender obligation of $250,000 plus all accrued interest thereon. In December 2010,WMC received what it believes to be a final accounting from PNC. As a result of sale of all tangible and intangible assets by or on behalf of PNC, WMCreceived approximately $344,000 in December 2010 and a final payment of $48,000 in March 2011.As a result of adopting a new accounting standard, we determined that WMC was a VIE and were required to deconsolidate WMC from ourconsolidated financial statements. The Company will perform an ongoing reassessment of the VIE to determine the primary beneficiary and may be requiredto consolidate WMC in the future.As the result of the foreclosure by PNC on WMC’s assets, tangible and intangible, and their subsequent disposal and sale thereof, the Company,determined that it no longer had a controlling financial interest in WMC and was no longer the primary beneficiary of WMC and accordingly and inaccordance with ASC 810, deconsolidated WMC. The Company determined that it no longer had the obligation to absorb losses that might be significant toWMC nor did it possess the right to receive benefits from WMC that could potentially be significant to WMC.As the result of deconsolidating WMC, there are no assets or liabilities attributable to WMC included in the Company’s consolidated balance sheet atDecember 31, 2010.The table below presents the items that have been reclassified into assets and liabilities of discontinued operations: December 31,2010 December 31, 2009 Cash $- $53,000 Accounts receivable, net - 2,124,000 Inventory, net - 7,919,000 Other current assets 23,000 701,000 Total current assets of discontinued operations $23,000 $10,797,000 Machinery and equipment, net $- $2,439,000 Other - 1,485,000 Total non-current assets of discontinued operations $- $3,924,000 Short-term borrowings - $4,382,000 Accounts payable and accrued expenses 27,000 4,251,000 Current maturities of long-term debt - 1,086,000 Total liabilities reclassified to current liabilities ofdiscontinued operations $27,000 $9,719,000 Other long-term liabilities $306,000 $319,000 Long-term debt, less current portion - 4,903,000 Total non-current liabilities reclassified to non-currentliabilities of discontinued operations $306,000 $5,222,000 33Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The table below presents the results of operations of discontinued operations, which include selling and general and administrative expenses of $67,000 fromdiscontinued operations other than WMC: For the Years Ended December31, 2010 2009 Revenue $10,136,000 $21,427,000 Gross profit $900,000 $2,412,000 Selling, general and administrative expenses and interest expense 3,130,000 6,852,000 Loss on foreclosure and other expenses 5,240,000 — Termination of lease 4,280,000 — Impairment charges — 5,549,000 Income resulting from change in fair value of contingentconsideration — (4,118,000) Loss before income taxes (11,750,000) (5,871,000) Income tax expense — 1,394,000 Loss from discontinued operations (11,750,000) (7,265,000) Gain resulting from deconsolidation of WMC 12,090,000 — Net income (loss) from discontinued operations $340,000 $(7,265,000)NOTE 5—ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTSAccounts receivable—net consists of: December 31, 2010 December 31, 2009 Accounts receivable $7,211,000 $7,694,000 Allowance for doubtful accounts (225,000) (149,000) $6,986,000 $7,545,000 NOTE 6—INVENTORIESInventories—net consist of: December 31, 2010 December 31, 2009 Raw material $1,932,000 $2,086,000 Work in process 561,000 680,000 Finished goods 17,302,000 18,532,000 19,795,000 21,298,000 Reserve for obsolete and slow-moving inventories (1,365,000) (1,552,000) $18,430,000 $19,746,000 NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETSGoodwill and other intangible assets with infinite lives are tested annually or whenever events or circumstances indicate the carrying value of theseassets may not be recoverable. In accordance with authoritative guidance issued by the FASB, the Company performed an annual impairment test of goodwilland indefinite-lived intangible assets during the fourth quarter based on conditions as of November 30, 2010. The impairment testing is performed in twosteps: (i) The Company compares the fair value of a reporting unit with its carrying value, and (ii) if there is impairment, the Company measures the amountof impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. The revised fair value of a reporting unit isallocated to the assets and liabilities of the business unit to arrive at an implied fair value of goodwill, based upon known facts and circumstances, as if theacquisition occurred at that time. The Company determines the fair value of its reporting units using a weighted average of the income approach methodologyof valuation which considers the expected present value of future cash flows and the market valuation approach. As an integral part of the valuation processthe Company anticipates minimal growth in future periods, based upon available statistical data as well as input from its senior management staff. Theresults of step one of the impairment test determined that the fair value exceeded the carrying value, and as such, no impairment to Goodwill and otherintangible assets was recorded in 2010.Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.intangible assets was recorded in 2010. 34Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. However, in 2009, as a result of this impairment test as well as other information that came to light, it was determined that goodwill at WMC wasimpaired, resulting in a charge of $3,821,000. Further, as a result of this impairment analysis, as well as other information, it was determined that thecarrying value of the other intangible assets were also impaired, resulting in a $1,728,000 write-down.The changes in the carrying amounts of goodwill are as follows: Consolidated Tools Hardware Balance, January 1, 2009 $2,440,000 $916,000 $1,524,000 Goodwill acquired during 2009 2,710,000 2,361,000 349,000 Balance, December 31, 2009 and 2010 $5,150,000 $3,277,000 $1,873,000 The balances of other intangible assets were as follows: December 31, 2010 December 31, 2009 Cost Accumulatedamortization Net bookvalue Cost Accumulatedamortization Net bookvalue Other intangible assets: Customer relationships $5,070,000 $3,255,000 $1,815,000 $5,070,000 $2,930,000 $2,140,000 Non-compete andemployment agreements 760,000 760,000 — 760,000 760,000 — Trademarks 199,000 — 199,000 199,000 — 199,000 Drawings 290,000 56,000 234,000 290,000 41,000 249,000 Licensing 105,000 53,000 52,000 105,000 42,000 63,000 Totals $6,424,000 $4,124,000 $2,300,000 $6,424,000 $3,773,000 $2,651,000 There were no impairment charges recorded for the year ended December 31, 2010. The table above includes the impairment charges recorded in theHardware segment totaling approximately $1,728,000 for the year ended December 31, 2009.Amortization expense for intangible assets was approximately $350,000 for the years ended December 31, 2010 and 2009, respectively. Amortizationexpense for each of the next five years is estimated to be as follows 2011—$350,000; 2012—$351,000; 2013—$206,000; 2014—$185,000; and 2015—$186,000. The weighted average amortization period for intangible assets was 8.6 years and 9.3 years at December 31, 2010 and 2009, respectively.NOTE 8—WARRANTY LIABILITYChanges in the Company’s warranty liability, included in other accrued liabilities were as follows: Years Ended December 31, 2010 2009 Balance, beginning of year $183,000 $337,000 Warranties issued and changes in estimated pre-existing incurred 334,000 464,000 Actual warranty costs incurred (267,000) (618,000)Balance, end of year $250,000 $183,000 35Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. NOTE 9—DEBTSHORT-TERM LOANSOn October 22, 2010, the Company entered into a Credit Agreement, (“Credit Agreement”) with Capital One Leverage Finance Corporation, as agent(“COLF”). The Credit Agreement has a three-year term, with maximum borrowings of $22,000,000. The Credit Agreement provides for a Revolving CreditFacility (“Revolver”) with a maximum borrowing of $15,910,000. Direct borrowings under the Revolver are secured by the Company’s accounts receivable,mortgages on the Company’s real property located in Cranberry, PA, Jupiter, FL and Tampa, FL, inventory and equipment and are cross-guaranteed by eachof the Company’s subsidiaries. Revolver borrowings bear interest at LIBOR (London InterBank Offered Rate) or the Base Rate, as defined in the CreditAgreement, plus the currently applicable margin rates, which at December 31, 2010 were 3.75% and 2.75%, respectively. Beginning April 1, 2011, the loanmargins applicable to borrowings on the Revolver shall be determined based upon the computation of total funded borrowings from COLF divided by earningsbefore interest, taxes, depreciation and amortization (“EBITDA”). These new applicable loan margins will range from 3.25% to 4.00% for LIBOR borrowingsand from 2.25% to 3.00% for borrowings at prime rate.The Company incurs an annual unused line fee ranging from one-half percent (0.50%) to three-quarters percent (0.75%), depending on the percentageof the Revolver to the Credit Facility. Should the Company terminate the Credit Facility prior to maturity, the Credit Agreement provides for a prepayment feeof one percent (1.00%) of the total Credit Facility if terminated during the first year and one-half percent (0.50%) if terminated during the second year. TheCompany is also required to provide, among other things, monthly financial statements and monthly borrowing base certificates. As part of the CreditAgreement there is a default rate of 2.0% upon the occurrence of an event of default. The Company is also subject to various financial covenants. If an eventof default occurs under this Credit Agreement, the interest rate would increase by two percent per annum. Once cured, the two percent premium would besuspended.Prior to October 22, 2010, the Company and its subsidiaries, other than WMC, as co-borrowers, were parties to a credit agreement, (“Prior CreditAgreement”) as amended, with Citibank, N.A., as agent (“Citibank”). The Prior Credit Agreement, among other things, included a revolving credit loanfacility, (“revolving loan”). Direct borrowings under the revolving loan were secured by the Company’s accounts receivable, inventory, equipment and realproperty, and are cross-guaranteed by each of the Company’s subsidiaries, except WMC. These borrowings incurred interest at LIBOR or the prime interestrate, plus applicable loan margins.Concurrent with the formation of the new Credit Agreement with COLF, the Company paid the lenders under the Prior Credit Agreement $14,610,000as full settlement of all its obligations, including a then revolving loan, a term note and accrued interest. Further, it paid in their entirety, two mortgage loanswith Wachovia Bank, aggregating $1,504,000, including fees and other related expenses. Additionally, the Company paid $685,000 to the parties that soldHy-Tech to the Company, as further described below.LONG-TERM LOANSThe Credit Facility also contains a $6,090,000 term loan (the “Term Loan”), which is secured by our accounts receivable, mortgages on theCompany’s real property located in Cranberry, PA, Jupiter, FL and Tampa, FL, inventory and equipment. The Term Loan amortizes $33,833 each monthwith a balloon payment at maturity of the Credit Agreement. The Credit Agreement requires the Company to make prepayments of 25% of excess annual cashflow, as defined in the Credit Agreement, or in the event of a sale of any real estate assets. Term Loan borrowings bear interest at LIBOR ) or the prime interestrate plus the currently applicable margin rates, which at December 31, 2010 were 5.75% and 4.75%, respectively.In April 2010, as part of an amendment to the Prior Credit Agreement, the Company was required to obtain a subordinated loan of $750,000. Thissubordinated loan was, in the aggregate, provided by the Company’s Chief Executive Officer, President and Chairman of the Board of Directors, (“CEO”), inthe amount of $250,000, and another unrelated party, in the amount of $500,000. This subordinated loan remains outstanding and bears interest at 8% perannum.As discussed in previous filings, in connection with the acquisition of Hy-Tech, we agreed to make additional consideration payments of$2,362,000 to the parties that sold Hy-Tech to us in 2007 (the “Hy-Tech Sellers”).The Company and the Hy-Tech Sellers agreed upon a payment arrangementwherein we paid approximately $573,000 in May 2009 with the balance of approximately $1,719,000 to be paid in six equal payments incurring interest at6.0% per annum, payable quarterly commencing in August 2009. The August and November 2009 installment payments with interest were paid timely.However, due to the default on the Prior Credit Agreement, the balance of the payments was suspended. Under the terms of the Credit Agreement with COLF,the Company paid $685,000 to the Hy-Tech Sellers representing 50% plus accrued interest. Pursuant to a subordination agreement with COLF, the paymentof the balance of $573,000 due is subject to performance criteria. Interest is accruing at a rate of 6% per annum. 36Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company also restructured certain obligations to its subordinated lenders, which among other things included extending the term of the$750,000 subordinated loan payable to its CEO and unrelated third party, as well as the balance of the note payable to the Hy-Tech Sellers, to correspond withthe three-year term of the Credit Agreement, The Company can, under certain conditions make interest payments under such subordinated notes payable, andin the case of the Hy-Tech Sellers and the unrelated third party, make partial principal payments during the term, subject to certain terms and conditionsbased on Company performance.The aggregate amounts of long-term debt scheduled to mature in each of the years ended December 31, are approximately as follows: 2011—$406,000; 2012—$406,000; and 2013—$6,567,000. Interest expense on long-term debt was approximately $346,000 and $470,000 for the years ended December 31, 2010and 2009, respectively. Total interest expense for the years ended December 31, 2010 and 2009 was approximately $1,243,000 and $1,342,000, respectively.NOTE 10—STOCK OPTIONSThe Company’s 2002 Incentive Stock Option Plan (the “Current Plan”) authorizes the issuance, to employees and directors, of options to purchase amaximum of 1,100,000 shares of Class A Common Stock. These options must be issued within ten years of the effective date of the Plan and are exercisablefor a ten year period from the date of grant, at prices not less than 100% of the market value of the Class A Common Stock on the date the option is granted.Options granted to any 10% stockholder are exercisable for a five year period from the date of grant, at prices not less than 110% of the market value of theClass A Common Stock on the date the option is granted. In the event options granted contain a vesting schedule over a period of years, the Companyrecognizes compensation cost for these awards on a straight-line basis over the service period.On December 14, 2010, the stock option/compensation committee of Company’s board of Directors authorized the issuance of 70,000 options topurchase shares of its Class A Common Stock. The Company granted 15,000 of these options to its Chief Operating Officer/Chief Financial Officer, withthe balance to non-executive employees of the Company. All options granted on December 14, 2010 vest one-third on the first three anniversaries of the grantdate. Further, all options granted on December 14, 2010 have an exercise price of $3.05, which was the closing price of the Company’s common stock on thedate of the grant. On July 29, 2010, the Company granted 2,000 fully vested options to a new member of its board of directors. The exercise price of theseoptions is $2.17, which was the closing price of the Company’s common stock on the date of the grant.During the year ended December 31, 2009, the Company did not grant any options to purchase shares of its Class A Common Stock.The Company estimated the fair value of its common stock options using the following assumptions: Risk-free interest rate3.17%Expected term (in years)Ranging from 6.5 to 10.VolatilityRanging from 50.7% to 59.5%Dividend yield0%Weighted-average fair value of options granted$1.84The following table contains information on the status of our stock options: NumberofShares Weighted AverageExercise Priceper share AggregateIntrinsicValue Outstanding, January 1, 2009 553,936 $7.38 Expired (39,312) 8.91 Outstanding, December 31, 2009 514,624 7.26 Granted 72,000 3.03 Expired (1,000) 11.20 Outstanding, December 31, 2010 585,624 $6.73 $44,000 Vested, December 31, 2010 420,291 $7.93 $3,000 All options that expired in 2010 were issued under the Current Plan. 37Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following is a summary of changes in non-vested shares, expected to vest: December 31, 2010 2009 OptionShares WeightedAverageGrant-DateFair Value OptionShares WeightedAverageGrant-DateFair Value Non-vested shares, beginning of year 147,667 $2.85 212,406 $3.02 Granted 70,000 1.85 — — Vested (52,334) 3.61 (64,739) 3.39 Forfeited — — — — Non-vested shares, end of year 165,333 $2.19 147,667 $2.85 The Company recognizes compensation cost over the requisite service period. However, the exercisability of the respective non-vested options, whichare at pre-determined dates on a calendar year, do not necessarily correspond to the period(s) in which straight-line amortization of compensation cost isrecorded.Other InformationAs of December 31, 2010, the Company had approximately $207,000 of total unrecognized compensation cost related to non-vested awards grantedunder our share-based plans, which we expect to recognize over a weighted-average period of 3.0 years.There were options available for issuance under the Current Plan as of December 31 of each year as follows: 2010—372,212 and 2009—443,212.All of the options outstanding at December 31, 2010 were issued under the Current Plan.The following table summarizes information about stock options outstanding and exercisable at December 31, 2010: Options outstanding Options Exercisable Range of Exercise Prices Numberoutstanding Weighted AverageRemainingContractualLife (Years) WeightedAverageExercise Price Numberexercisable WeightedAverageLife WeightedAverageExercise Price $6.00 109,436 1.5 $6.00 109,436 1.5 $6.00 $7.90 - $8.06 115,688 3.5 $8.05 115,688 3.5 $8.05 $14.44 - $16.68 24,500 4.5 $16.50 24,500 4.5 $16.50 $11.20 - $11.38 90,000 6.5 $11.20 90,000 6.5 $11.20 $4.16 174,000 7.5 $4.16 78,667 7.5 $4.16 $2.17 2,000 9.6 $2.17 2,000 9.6 $2.17 $3.05 70,000 10.0 $3.05 - - $- Total 585,624 420,291 NOTE 11—INCOME TAXESIncome tax (benefit) on continuing operations in the consolidated statements of operations consists of: Years Ended December 31, 2010 2009 Current: Federal $5,000 $(690,000)State and local 30,000 24,000 Total current 35,000 (666,000)Deferred: Federal — 315,000 State and local — 106,000 Total deferred — 421,000 Totals $35,000 $(245,000) The Company recognized deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of theCompany’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. The impact on deferred income taxes of changes in tax rates and laws, if any, isreflected in the consolidated financial statements in the period enacted. 38Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Under the direction of the authoritative guidance issued by the FASB pertaining to the accounting for income taxes, the Company recorded avaluation allowance equal to approximately 75% and 65% of the net deferred tax asset at December 31, 2010 and 2009, respectively. The recorded valuationallowance at December 31, 2010 and 2009 was $6,107,000 and $3,988,000, respectively. The Company believes that the valuation allowance is necessary asit is more likely than not that the entire net deferred tax asset will not be realized in the foreseeable future based on evidence available at this time.The Company has federal net operating loss carry forwards at December 31, 2010 of approximately $8,600,000, which expire in 2030.In addition, the Company recorded a full valuation allowance for the state tax benefit related to deferred tax assets, including a state net operating losscarry forward of approximately $22,000,000, of which $21,000,000 has a full valuation allowance. The state net operating losses expire in 2017 through 2030.The Company believes it is more likely than not that the remaining tax benefits associated with these net deferred tax assets will be realized in the foreseeablefuture based upon its ability to generate sufficient taxable income.Deferred tax assets (liabilities) consist of: December 31, 2010 2009 Deferred tax assets—current: Bad debt reserves $82,000 $108,000 Inventory reserves 780,000 1,130,000 Warranty and other reserves 335,000 608,000 Accrued wages — 91,000 1,197,000 1,937,000 Valuation allowance (842,000) (979,000) 355,000 958,000 Deferred tax liabilities—current: Prepaid expenses (122,000) (288,000)Net deferred tax assets—current $233,000 $670,000 Deferred tax assets—non-current Intangibles $2,014,000 $1,818,000 Goodwill 2,527,000 2,919,000 Federal net operating loss 2,920,000 — State net operating loss 462,000 269,000 Other 221,000 448,000 8,144,000 5,454,000 Valuation allowance (5,265,000) (3,009,000) 2,879,000 2,445,000 Deferred tax liabilities—non-current: Depreciation (1,005,000) (1,008,000)Net deferred tax assets—non-current $1,874,000 $1,437,000 A reconciliation of the Federal statutory rate to the total effective tax rate applicable to income (loss) from continuing operations before income taxes isas follows: Years ended December 31, 2010 2009 $ % $ % Federal income tax (benefits) computed at statutory rates $128,000 34.0% $(489,000) (34.0)%(Decrease) increase in taxes resulting from: State and local taxes, net of Federal tax benefit 20,000 5.3 86,000 5.9 Change in valuation allowance (236,000) (62.6) (220,000) (15.3)Expenses not deductible for tax purposes 50,000 13.3 35,000 2.4 Increase in uncertain tax positions 11,000 2.9 275,000 19.1 Other 62,000 16.4 68,000 4.9 Income tax expense (benefit) $35,000 9.3% $(245,000) (17.0) 39Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company adopted authoritative guidance issued by the FASB which pertained to the accounting for tax provisions relating to uncertain matterson January 1, 2007. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position or results of operations. Areconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Balance at January 1, 2010 $275,000 Additions for tax positions related to current year — Interest accrual 11,000 Lapse of statute of limitations — Settlements with taxing authorities — Balance at December 31, 2010 $286,000 Interest and penalties, if any, related to income tax liabilities are included in income tax expense.In 2009, the Internal Revenue Service completed its examination of the Company’s Federal tax returns for the year 2007 and issued a Revenue Agent’sReport that reported no change to the returns as filed. All examinations of tax years prior to 2007 have been completed.In addition, the Company and certain of its subsidiaries file tax returns in various U.S. state jurisdictions. With few exceptions, the years thatremain subject to examination are December 31, 2007 through December 31, 2009.NOTE 12—COMMITMENTS AND CONTINGENCIES(a) The Company maintains a contributory defined contribution plan that covers all eligible employees of P&F and all of its subsidiaries. Allcontributions to this plan are discretionary. Amounts recognized as expense for contributions to this plan were $30,000 and $54,000 for the years endedDecember 31, 2010 and 2009, respectively.(b) An inactive wholly-owned subsidiary participated in a multi-employer pension plan until it sold substantially all of its operating assets inOctober 2005. This plan provided defined benefits to all of its union workers. Contributions to this plan were determined by the union contract. TheCompany does not administer the plan funds and does not have any control over the plan funds. As a result of the former wholly-owned subsidiary’swithdrawal from the plan, the Company estimated and recorded a withdrawal liability of approximately $369,000, which is payable in quarterly installmentsof approximately $8,200, which includes interest, from May 2006 through February 2026. At December 31, 2010, the outstanding amount of this withdrawalliability was approximately $306,000, which is included in “other long term liabilities of discontinued operations.”(c) Effective January 1, 2007, the Company entered into an employment agreement with its CEO. The employment agreement provides for theCEO to serve as the Company’s President and CEO and, if elected by the Board of Directors, Chairman of the Board, for a term expiring on December 31,2011, unless sooner terminated pursuant to the provisions of the employment agreement. Pursuant to the employment agreement, the CEO will receive aminimum annual base salary of $975,000. However, from April 1, 2009 through December 31, 2010, the CEO agreed to a five percent base salary reduction.The CEO’s base salary is reviewed annually by the compensation committee of the Board and may be increased, but not decreased, from time to time. TheCEO is eligible for an annual discretionary incentive payment under the Company’s Executive 162(m) Bonus Plan. The CEO also receives (i) senior executivelevel employee benefits, (ii) an annual payment of $45,064 to cover premiums on a life insurance policy, and (iii) a Company provided automobile. In April2010, pursuant to the 2010 CEO Deferred Compensation Plan, between the Company and its CEO, the Company deferred $132,000 of the CEO’ssalary. Such deferred amount is to be repaid in January 2012.In the event the CEO’s employment is terminated by the Company without cause (as defined in the agreement), or the CEO resigns for good reason(as defined in the agreement), then subject to his execution of a general release, the officer will continue to receive his base salary for 18 months, a pro ratabonus for the year of termination, and the Company will pay his monthly COBRA premiums until the earlier of (a) 18 months from the date of termination,(b) his becoming eligible for medical benefits from a subsequent employer, or (c) his becoming ineligible for COBRA. 40Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In the event the CEO’s employment is terminated by the Company without cause or the CEO resigns for good reason within two years following achange in control (as defined in the agreement) or, under certain circumstances, within six months prior to a change in control, then subject to the CEO’sexecution of a general release, he will receive the pro rata bonus, the COBRA payments, and a lump sum amount equal to the greater of (i) 18 months basesalary or (ii) the lesser of (a) two times the sum of his base salary plus the amount of any bonus he received for the year prior to the change in control, or (b)3% of the value on the date of the change in control of the Company’s outstanding shares on a fully diluted basis immediately prior to the change in control.Notwithstanding the foregoing, amounts paid to the CEO upon a change in control will be reduced to 2.99 times his “base amount” (as determined inaccordance with Sections 280G of the Internal Revenue Code of 1986, as amended).Pursuant to the employment agreement, during term of his employment and for a period of eighteen months after termination of his employment, theCEO is prohibited from (i) competing with the Company, (ii) soliciting or hiring the Company’s employees, representatives or agents, or (iii) soliciting any ofthe Company’s customers. The employment agreement also prohibits the CEO from using or disclosing any of the Company’s non-public, proprietary orconfidential information.(d) At December 31, 2010 and 2009, the Company had non-cancelable inventory purchase commitments totaling approximately $6,319,000and $4,906,000, respectively.(e) The Company is a defendant or co-defendant in various actions brought about in the ordinary course of conducting its business. TheCompany does not believe that any of these actions are material to the consolidated financial position, results of operations or cash flows of the Company.(f) The Company leases certain facilities and equipment through 2014. Generally, the facility leases carry renewal provisions and require theCompany to pay maintenance costs. Rental payments may be adjusted for increases in taxes and insurance above specified amounts. Rental expense for 2010and 2009 amounted to approximately $252,000 and $405,000, respectively. Future minimum payments under non-cancelable operating leases with initial orremaining terms of more than one year as of December 31, 2010, were as follows: 2011 $252,000 2012 210,000 2013 88,000 2014 6,000 $556,000 NOTE 13—BUSINESS SEGMENTSThe Company has organized its business into two reportable business segments: “Tools” and “Hardware”. The Company is organized around thesetwo distinct product segments, each of which has very different end users. For reporting purposes, Florida Pneumatic, and Hy-Tech are combined in the Toolssegment, with Nationwide being the sole entity reported in the Hardware segment. The Company evaluates segment performance based primarily on segmentoperating income. The accounting policies of each of the segments are the same as those described in Note 1.The following table presents financial information by segment for the years ended December 31, 2010 and 2009. Segment operating income excludesgeneral corporate expenses, interest expense and income taxes. Identifiable assets are those assets directly owned or utilized by the particular business. Consolidated Tools Hardware Year ended December 31, 2010 Net revenues from unaffiliated customers $50,609,000 $36,478,000 $14,131,000 Segment operating income $6,689,000 $4,994,000 $1,695,000 General corporate expense (5,070,000) Interest expense—net (1,243,000) Income before income taxes $376,000 Segment assets $45,702,000 $34,955,000 $10,747,000 Corporate assets 3,193,000 Total assets $48,895,000 Long-lived assets, including $336,000 ofcorporate assets $19,221,000 $14,339,000 $4,546,000 41Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Consolidated Tools Hardware Year ended December 31, 2009 Net revenues from unaffiliated customers $51,157,000 $37,816,000 $13,341,000 Segment operating income $4,502,000 $3,641,000 $861,000 General corporate expense (4,601,000) Interest expense—net (1,341,000) Loss before income taxes $(1,440,000) Segment assets $62,708,000 $39,413,000 $23,295,000 Corporate assets 6,710,000 Total assets $69,418,000 Long-lived assets, including $474,000 ofcorporate assets $20,967,000 $15,768,000 $4,725,000 Depreciation expense for the Tools and Hardware segments for the year ended December 31, 2010 was $1,166,000 and $229,000, respectively and$1,131,000 and $275,000, respectively, for the year ended December 31, 2009. Amortization expense for the Tools and Hardware segments for the year endedDecember 31, 2010 was $354,000 and $10,000, respectively, and $353,000 and $11,000, respectively, for the year ended December 31, 2009. There were noimpairment charges recorded in 2010. The Tools segment has one customer that accounted for approximately 28.4% and 29.7%, respectively, of consolidated revenue for the years endedDecember 31, 2010 and 2009 and 43.1% and 50.4%, respectively, of consolidated accounts receivable as of December 31, 2010 and 2009. There are nosignificant customers in the Hardware segment.NOTE 14—RELATED PARTY TRANSACTIONSOne of the Company’s directors is a principal of one of the insurance brokerage firms that the Company utilizes for the purchase of business-relatedinsurance products. Total premiums paid to this insurance brokerage firm were $239,000 and $353,000, respectively, for the years ended December 31, 2010and 2009.The president of one of our subsidiaries is part owner of one of the subsidiary’s vendors. During the year ended December 31, 2010 and 2009, we purchasedapproximately $827,000 and $963,000, respectively, of product from this vendor.In April 2010, as part of an amendment to the Prior Credit Agreement, the Company was required to obtain a subordinated loan of $750,000. Thissubordinated loan was, in the aggregate, provided by the CEO, in the amount of $250,000, and another unrelated party, in the amount of $500,000. Thissubordinated loan bears interest at 8% per annum. The loan payable to the CEO is due October 23, 2013.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresNone.Item 9A. Controls and ProceduresEvaluation of disclosure controls and procedures We maintain disclosure and control procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure thatinformation required to be disclosed in reports filed under to the Securities and Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information isaccumulated and communicated to our management, including our CEO and chief financial officer, to allow timely decisions regarding required disclosure. As required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act, our management, with the participation of our CEO and chieffinancial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of December 31, 2010. Based upon that evaluation, the CEO and chief financial officer concluded that our disclosure controls andprocedures were not effective as of December 31, 2010 based upon our furnishing a press release in our Current Report on Form 8-K dated March 28, 2011prior to the completion of certain support documentation procedures relating to the classification of debt (the “Procedures”). Notwithstanding the foregoing, webelieve that the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results ofoperations, and cash flows as of the dates, and for the periods, presented, in conformity with GAAP. On March 30, 2011 management instituted additional disclosure controls and procedures that we believe will ensure that the Procedures will beeffective going forward. 42Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Management’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation ofconsolidated financial statements for external purposes in accordance with GAAP.Our internal control over financial reporting includes those policies and procedures that: •Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; •Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordancewith GAAP, and that our receipts and expenditures are being made in accordance with the authorizations of our management and directors; and •Provide reasonable assurance regarding prevention or timely detention of unauthorized acquisition, use, or disposition of our assets that couldhave a material effect on the consolidated financial statementsAt the conclusion of the year ended December 31, 2010, we carried out an evaluation, under the supervision and with the participation of ourmanagement, including our CEO and chief financial officer, of the effectiveness of the design and operation of our internal control over financial reporting.Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework”issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, the CEO and chief financial officerconcluded that our internal controls over financial reporting were effective as of December 31, 2010.Because of its inherent limitations, internal controls may not prevent or detect misstatements. A control system, no matter how well designed andoperated, can only provide reasonable, not absolute, assurance that the control system’s objectives will be met. Also, projections of any evaluation ofeffectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith policies and procedures may deteriorate.Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities andExchange Commission that permit us to provide only management’s report in this annual report.Changes in Internal Control over Financial ReportingExcept as described below, there were no changes in our internal control over financial reporting during the fourth quarter of fiscal 2010, which wereidentified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting.During the fourth quarter of 2010, we retained additional outside accounting expertise to assist us with our accounting for WMC as a VariableInterest Entity (“VIE”) under Accounting Standards Codification (“ASC”) 810-10-40 (“ASC 810”).Upon the foreclosure of the assets of WMC by PNC in June 2010, management concluded that WMC was not a VIE under ASC 810 and that,accordingly, our financial position should include the remaining post-foreclosure financial position and results of operations of WMC. As a result, theconsolidated financial statements contained in our Form 10-Qs filed for the quarters ended June 30, 2010 and September 30 2010, respectively, included thefinancial position and results of operations of WMC.In preparing our consolidated financial statements for the year ended December 31, 2010, management determined that, at the time of the foreclosureof the assets of WMC, under ASC 810, WMC was a VIE because, among other things, we no longer had a controlling financial interest in WMC.At the time of filing of our Form 10-Qs filed for the quarters ended June 30, 2010 and September 30, 2010, we were unable to conclude that, based on ourinterpretation of available authority and the fact that the application of the rules requiring deconsolidation did not appear to us to be applicable to our situation,the financial position of WMC should be deconsolidated. We intend to restate the financial statements contained in our previously issued Form 10-Qs for thequarters ended June 30, 2010 and September 30, 2010. Item 9B. Other InformationNone 43Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information required by Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K is incorporated by reference to theCompany’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in 2011, to be filed with the Securities andExchange Commission within 120 days following the end of the Company’s year ended December 31, 2010.Item 11. Executive CompensationSee Item 10.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersSee Item 10.Item 13. Certain Relationships and Related Transactions, and Director IndependenceSee Item 10.Item 14. Principal Accounting Fees and ServicesSee Item 10. 44Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IVItem 15. Exhibits and Financial Statement Schedules Pagea)List of Financial Statements, Financial Statement Schedules, and Exhibits (1)List of Financial Statements The consolidated financial statements of the Company and its subsidiaries are included in Item 8 of Part II of this report.16 (2)All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under therelated instructions or are inapplicable and, therefore, have been omitted. (3)List of Exhibits 45The following exhibits are either included in this report or incorporated herein by reference as indicated below: ExhibitNumber Description of Exhibit2.1 Asset Purchase Agreement, effective as of February 12, 2007, among Hy-Tech Machine, Inc., a Delaware corporation, Hy-Tech Machine, Inc., aPennsylvania corporation, Quality Gear and Machine, Inc. and HTM Associates (Incorporated by reference to Exhibit 2.1 to the Registrant’sCurrent Report on Form 8-K dated February 14, 2007). 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 this Asset Purchase Agreement to the Commission upon request. 2.2 Amendment No. 1 to Purchase Agreement, dated as of June 26, 2009, by and among Hy-Tech Machine Inc., Hy-Tech Holdings, Inc., QualityGear Holdings, Inc., HTM Associates, Robert Ober, Elizabeth Smail, James J. Browne, Daniel Berg and James Hohman (Incorporated byreference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated June 26, 2009). 2.3 Subordinated Promissory Note, dated May 16, 2009, issued by Hy-Tech Machine, Inc., payable to Hy-Tech Holdings, Inc. (Incorporated byreference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated June 26, 2009). 2.4 Amended and Restated Secured Subordinated Promissory Note, dated October 25, 2010, executed by the Registrant, Florida PneumaticManufacturing Corporation, Hy-Tech, Machine, Inc., Nationwide Industries, Inc., Continental Tool Group, Inc., Countrywide Hardware, Inc.,Embassy Industries, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc. and Woodmark International, L.P infavor of Hy-Tech Holdings, Inc., in the original principal amount of $573,235 (Incorporated by reference to Exhibit 10.7 to the Registrant’sCurrent Report on Form 8-K dated October 25, 2010). 2.5 Subordination and Intercreditor Agreement, dated October 25, 2010, by and between Hy-Tech Holdings, Inc. and Capital One Leverage FinanceCorporation, as agent (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated October 25, 2010) 2.6 Asset Purchase Agreement, dated as of June 8, 2009, by and between Coffman Stairs, LLC and WM Coffman LLC (Incorporated by reference toExhibit 2.1 to Registrant’s Current Report on Form 8-K dated June 10, 2009). Pursuant to Item 601(b)(2) of Regulation S-K, the Registrant agreesto furnish, supplementally, a copy of any exhibit or schedule omitted from this Asset Purchase Agreement to the Commission upon request. 2.7 Promissory Note, dated June 8, 2009, made payable by WM Coffman LLC to Coffman Stairs, LLC (Incorporated by reference to Exhibit 2.2 toRegistrant’s Current Report on Form 8-K dated June 10, 2009). 2.8 Assignment and Assumption of Lease Agreement, made and entered into as of June 8, 2009, by and between Coffman Stairs, LLC and WMCoffman LLC (Incorporated by reference to Exhibit 2.3 to Registrant’s Current Report on Form 8-K dated June 10, 2009). 2.9 Management Agreement, dated June 8, 2009, between Coffman Stairs, LLC and WM Coffman LLC (Incorporated by reference to Exhibit 2.3 toRegistrant’s Current Report on Form 8-K dated June 10, 2009). 3.1 Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Annual Report on Form 10-K for thefiscal year ended December 31, 2004). 3.2 By-laws of the Registrant (as amended on July 29, 2010) (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-Kdated July 29, 2010). 45Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Description of Exhibit10.1 Rights Agreement, dated as of August 19, 2004, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent(Incorporated by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A dated August 19, 2004). 10.2 Credit Agreement, dated as of June 30, 2004, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, Embassy Industries,Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P. and Citibank, N.A.,as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-Kdated July 14, 2004). 10.3 Amendment to Credit Agreement, dated June 24, 2005, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, EmbassyIndustries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P. andCitibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K dated June 27, 2005). 10.4 Amendment No. 2 to Credit Agreement, dated December 27, 2005, by and among the Registrant, Florida Pneumatic Manufacturing Corporation,Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P.and Citibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 4.4 to the Registrant’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2005). 10.5 Amendment No. 3 to Credit Agreement, dated February 13, 2006, by and among the Registrant, Florida Pneumatic Manufacturing Corporation,Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P.,Pacific Stair Products, Inc., WILP Holdings, Inc., and Citibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated byreference to Exhibit 4.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005). 10.6 Amendment No. 4 to Credit Agreement, dated May 11, 2006, by and among the Registrant, Florida Pneumatic Manufacturing Corporation,Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P.,Pacific Stair Products, Inc., WILP Holdings, Inc., and Citibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated byreference to Exhibit 4.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). 10.7 Amendment No. 5 to Credit Agreement, dated June 29, 2006, by and among the Registrant, Florida Pneumatic Manufacturing Corporation,Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P.,Pacific Stair Products, Inc., WILP Holdings, Inc., and Citibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated byreference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated June 30, 2006). 10.8 Amendment No. 6 to Credit Agreement, dated August 31, 2006, by and among the Registrant, Florida Pneumatic Manufacturing Corporation,Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P.,Pacific Stair Products, Inc., WILP Holdings, Inc., and Citibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated byreference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated August 31, 2006). 10.9 Amendment No. 7 to Credit Agreement, dated February 12, 2007, by and among the Registrant, Florida Pneumatic Manufacturing Corporation,Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P.,Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank, N.A., as AdministrativeAgent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 14,2007). 10.10 Amendment No. 8 to Credit Agreement, dated as of June 29, 2007, by and among the Registrant, Florida Pneumatic Manufacturing Corporation,Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P.,Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc. and Hy-Tech Machine, Inc., and Citibank, N.A., asAdministrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-Kdated June 29, 2007). 10.11 Amendment No. 9 and Waiver to Credit Agreement, dated as of November 9, 2007, by and among the Registrant, Florida PneumaticManufacturing Corporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc.,Woodmark International, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. andCitibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant’s QuarterlyReport on Form 10-Q for the quarter ended September 30, 2007). 46Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Description of Exhibit10.12 Amendment No. 10 and Waiver to Credit Agreement, dated as of March 25, 2008, by and among the Registrant, Florida PneumaticManufacturing Corporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc.,Woodmark International, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. andCitibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 4.12 to Registrant’s Annual Report onForm 10-K for the fiscal year ended December 31, 2007). 10.13 Amendment No. 11 and Waiver to Credit Agreement, dated as of May 12, 2008, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank,N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form10-Q for the quarter ended March 31, 2008). 10.14 Amendment No. 12 to Credit Agreement, dated as of June 27, 2008, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank,N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated June 27, 2008). 10.15 Amendment No. 13 to Credit Agreement, dated as of July 31, 2008, by and among the Registrant, Florida Pneumatic Manufacturing Corporation,Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P.,Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank, N.A., as AdministrativeAgent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated July 31, 2008). 10.16 Amendment No. 14 to Credit Agreement, dated as of November 26, 2008, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank,N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated November 26, 2008). 10.17 Amendment No. 15 to Credit Agreement, dated as of January 15, 2009, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank,N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated January 15, 2009). 10.18 Amendment No. 16 to Credit Agreement, dated as of February 17, 2009, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank,N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated February 17, 2009). 10.19 Amendment No. 17 to Credit Agreement, dated as of March 27, 2009, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank,N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated March 26, 2009). 10.20 Amendment No. 18 and Waiver to Credit Agreement, dated as of March 30, 2009, by and among the Registrant, Florida PneumaticManufacturing Corporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc.,Woodmark International, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. andCitibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.2 to Registrant’s Current Reporton Form 8-K dated March 26, 2009). 10.21 Additional Term Loan Note, dated March 30, 2009, issued by the Registrant, Florida Pneumatic Manufacturing Corporation, EmbassyIndustries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P., PacificStair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc. and Hy-Tech Machine, Inc. payable to Citibank, N.A. (Incorporated byreference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated March 26, 2009). 47Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Description of Exhibit10.22 Additional Term Loan Note, dated March 30, 2009, issued by the Registrant, Florida Pneumatic Manufacturing Corporation, EmbassyIndustries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P., PacificStair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc. and Hy-Tech Machine, Inc. payable to HSBC Bank USA, NationalAssociation (Incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated March 26, 2009). 10.23 Third Amended and Restated Revolving Credit Note, dated March 30, 2009, issued by the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc. and Hy-Tech Machine, Inc. payable toCitibank, N.A. (Incorporated by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K dated March 26, 2009). 10.24 Third Amended and Restated Revolving Credit Note, dated March 30, 2009, issued by the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. in favor of HSBCBank USA, National Association (Incorporated by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K dated March 26, 2009). 10.25 Amendment No. 19 and Waiver to Credit Agreement, dated as of June 10, 2009, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank,N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.7 to Registrant’s Current Report on Form 8-K dated June 10, 2009). 10.26 Fourth Amended and Restated Revolving Credit Note, dated June 10, 2009, issued by the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. in favor of HSBCBank USA, National Association (Incorporated by reference to Exhibit 10.8 to Registrant’s Current Report on Form 8-K dated March 26, 2009). 10.27 Fourth Amended and Restated Revolving Credit Note, dated June 10, 2009, issued by the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc payable to Citibank,N.A. (Incorporated by reference to Exhibit 10.9 to Registrant’s Current Report on Form 8-K dated March 26, 2009). 10.28 Amendment No. 20 and Waiver to Credit Agreement, dated as of August 27, 2009, by and among the Registrant, Florida PneumaticManufacturing Corporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc.,Woodmark International, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. andCitibank, N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Reporton Form 8-K dated August 31, 2009). 10.29 Letter Agreement, dated November 2, 2009, by and among the Registrant., Florida Pneumatic Manufacturing Corporation, Embassy Industries,Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P., Pacific StairProducts, Inc., WILP Holdings, Inc., Continental Tool Group, Inc. and Hy-Tech Machine, Inc., Citibank, N.A. and HSBC Bank USA,National Association as lenders, and Citibank, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Registrant’s CurrentReport on Form 8-K dated September 22, 2009). 10.30 Letter Agreement, dated January 22, 2010, by and among the Registrant., Florida Pneumatic Manufacturing Corporation, Embassy Industries,Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., Woodmark International, L.P., Pacific StairProducts, Inc., WILP Holdings, Inc., Continental Tool Group, Inc. and Hy-Tech Machine, Inc., Citibank, N.A. and HSBC Bank USA,National Association as lenders, and Citibank, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Registrant’s CurrentReport on Form 8-K dated January 27, 2010). 10.31 Revolving Credit, Term Loan and Security Agreement, dated as of June 8, 2009, among WM Coffman LLC, the lenders party thereto and PNCBank, National Association, as Agent for the Lenders (Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K datedJune 10, 2009). 10.32 Term Note, dated June 8, 2009, made payable by WM Coffman LLC to the order of PNC Bank, National Association in the original principalamount of $1,134,000 (Incorporated by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K dated June 10, 2009). 48Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Description of Exhibit10.33 Revolving Credit Note, dated June 8, 2009, made payable by WM Coffman LLC to the order of PNC Bank, National Association in the originalprincipal amount of $10,866,000 (Incorporated by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K dated June 10, 2009). 10.34 Reimbursement Agreement, dated as of June 8, 2009, by and between WM Coffman LLC and Richard A. Horowitz (Incorporated by reference toExhibit 10.4 to Registrant’s Current Report on Form 8-K dated June 10, 2009). 10.35 Forbearance and Amendment Agreement, dated as of February 22, 2010, by and among WM Coffman LLC, the financial institution set forth onthe signature pages thereto and PNC Bank, National Association, as Agent (Incorporated by reference to Exhibit 10.1 to Registrant’s CurrentReport on Form 8-K dated February 22, 2010). 10.36 Junior Participation Agreement, dated as of February 22, 2010, by and among Richard Horowitz, the Christopher John Kliefoth Revocable TrustUA 07-10-2007 and PNC Bank, National Association, as Agent and lender (Incorporated by reference to Exhibit 10.2 to Registrant’s CurrentReport on Form 8-K dated February 22, 2010). 10.37 Amendment No. 21 and Waiver to Credit Agreement, dated as of April 23, 2010, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. and Citibank,N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.38 Secured Subordinated Promissory Note, dated as of April 23, 2010, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. in favor of MarcSchorr in the principal amount of $500,000 (Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated April 23,2010). 10.39 Secured Subordinated Promissory Note, dated as of April 23, 2010, by and among the Registrant, Florida Pneumatic ManufacturingCorporation, Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware, Inc., Nationwide Industries, Inc., WoodmarkInternational, L.P., Pacific Stair Products, Inc., WILP Holdings, Inc., Continental Tool Group, Inc., Hy-Tech Machine, Inc. in favor of RichardA. Horowitz in the principal amount of $250,000 (Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K datedApril 23, 2010). 10.40 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and the Registrant, as debtor(Incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.41 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and Florida PneumaticManufacturing Corporation, as debtor (Incorporated by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K dated April 23,2010). 10.42 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and Embassy Industries,Inc., as debtor (Incorporated by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.43 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and Green Manufacturing,Inc., as debtor (Incorporated by reference to Exhibit 10.7 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.44 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and Countrywide Hardware,Inc., as debtor (Incorporated by reference to Exhibit 10.8 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.45 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and Nationwide Industries,Inc., as debtor (Incorporated by reference to Exhibit 10.9 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.46 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and Woodmark International,L.P, as debtor (Incorporated by reference to Exhibit 10.10 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.47 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and WILP Holdings, Inc., asdebtor (Incorporated by reference to Exhibit 10.11 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 49Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Description of Exhibit10.48 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and Continental Tool Group,Inc., as debtor (Incorporated by reference to Exhibit 10.12 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.49 Security Agreement, dated as of April 23, 2010, between Marc Schorr and Richard A. Horowitz, as secured parties, and Hy-Tech Machine, Inc.,as debtor (Incorporated by reference to Exhibit 10.13 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.50 Second Loan Documents Modification Agreement, dated April 22, 2010, between Countrywide Hardware, Inc. and Wells Fargo, NationalAssociation (successor by merger to Wachovia Bank, National Association) as modifying the related (i) Mortgage, Security Agreement andAbsolute Assignment of Leases, (ii) Promissory Note, and (iii) Loan Agreement, each dated May 24, 2002, between Countrywide Hardware, Inc.and Wachovia Bank, National Association, as previously amended (Incorporated by reference to Exhibit 10.15 to Registrant’s Current Report onForm 8-K dated April 23, 2010). 10.51 Acknowledgment of Events of Default and Peaceful Possession Letter, dated June 4, 2010, by WM Coffman LLC in favor of PNC BankNational Association. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated June 7, 2010). 10.52 Mutual Release Agreement, dated as of June 4, 2010, by and among PNC Bank, National Association, as agent, the Registrant, Continental ToolGroup, Inc., Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Countrywide Hardware, Inc., WILP Holdings, Inc., GreenManufacturing, Inc., Embassy Industries, Inc., Nationwide Industries, Inc., Pacific Stair Products, Inc. and Woodmark International, L.P(Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated June 7, 2010). 10.53 Lease Agreement, dated as of March 30, 2007, by and between AGNL Coffman, L.L.C., Coffman Stairs, LLC and Visador Holding Corporation(Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated June 10, 2009). 10.54 First Amendment to Lease Agreement, dated as of June 8, 2009, made by AGNL Coffman, L.L.C. and WM Coffman LLC (Incorporated byreference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated June 10, 2009). 10.55 Indemnification Agreement, dated as of April 23, 2010, by the Registrant in favor of Marc Schorr and Richard A. Horowitz (Incorporated byreference to Exhibit 10.15 to Registrant’s Current Report on Form 8-K dated April 23, 2010). 10.56 Termination of Agreements, Settlement of Claim and Mutual General Releases dated March 3, 2011, among the Registrant, Old Stairs Co LLC,CS Divestiture LLC and Visador Holdings, LLC (Filed herein). 10.57 Loan and Security Agreement, dated as of October 25, 2010, among the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech,Machine, Inc., Nationwide Industries, Inc., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., GreenManufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P., and Capital One Leverage FinanceCorporation, as agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated October 25, 2010.) 10.58 Subordination and Intercreditor Agreement, dated October 25, 2010, by and between Richard Horowitz and Capital One Leverage FinanceCorporation, as agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated October 25, 2010). 10.59 Subordination and Intercreditor Agreement, dated October 25, 2010, by and between Marc Schorr and Capital One Leverage FinanceCorporation, as agent (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated October 25, 2010). 10.60 Amended and Restated Secured Subordinated Promissory Note, dated October 25, 2010, executed by the Registrant, Florida PneumaticManufacturing Corporation, Hy-Tech, Machine, Inc., Nationwide Industries, Inc., Continental Tool Group, Inc., Countrywide Hardware, Inc.,Embassy Industries, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc. and Woodmark International, L.P.infavor of Richard Horowitz, in the original principal amount of $250,000 (Incorporated by reference to Exhibit 10.5 to the Registrant’s CurrentReport on Form 8-K dated October 25, 2010). 10.61 Amended and Restated Secured Subordinated Promissory Note, dated October 25, 2010, executed by the Registrant, Florida PneumaticManufacturing Corporation, Hy-Tech, Machine, Inc., Nationwide Industries, Inc., Continental Tool Group, Inc., Countrywide Hardware, Inc.,Embassy Industries, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc. and Woodmark International, L.P infavor of Marc Schorr, in the original principal amount of $500,000 (Incorporated by reference to Exhibit 10.6 to the Registrant’s Current Reporton Form 8-K dated October 25, 2010). 50Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ExhibitNumber Description of Exhibit10.62 Revolver Note, dated October 25, 2010, executed by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech, Machine, Inc. andNationwide Industries, Inc. in favor of Capital One Leverage Finance Corporation, as agent, in the original principal amount of $15,910,000(Incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K dated October 25, 2010). 10.63 Term Loan Note, dated October 25, 2010, executed by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech, Machine, Inc.and Nationwide Industries, Inc. in favor of Capital One Leverage Finance Corporation, as agent, in the original principal amount of $6,090,000(Incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K dated October 25, 2010). 10.64 Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, dated as ofOctober 25, 2010, made by Countrywide Hardware, Inc. in favor of Capital One Leverage Finance Corporation, as agent (Incorporated byreference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K dated October 25, 2010). 10.65 Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, dated as ofOctober 25, 2010, made by Florida Pneumatic Manufacturing Corporation. in favor of Capital One Leverage Finance Corporation, asagent(Incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K dated October 25, 2010). 10.66 Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, dated as ofOctober 25, 2010, made by Hy-Tech Machine, Inc.. in favor of Capital One Leverage Finance Corporation, as agent(Incorporated by reference toExhibit 10.12 to the Registrant’s Current Report on Form 8-K dated October 25, 2010). 10.67 *Executive Employment Agreement, dated February 12, 2007, among the Registrant and Richard A. Horowitz (Incorporated by reference toExhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 12, 2007). 10.68 *Amended and Restated Executive Employment Agreement, dated December 19, 2008, among the Registrant and Richard A. Horowitz(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated December 19, 2008) 10.69 *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 thequarter ended March 31, 2002). 10.70 *Executive 162(m) Bonus Plan of the Registrant effective as of January 1, 2006 (Incorporated by reference to Exhibit 10.1 to the Registrant’sCurrent Report on Form 8-K dated May 31, 2006). 10.71 *P&F Industries, Inc. 2010 CEO Deferred Compensation Plan, dated April 26, 2010 (Incorporated by reference to Exhibit 10.1 to the Registrant’sCurrent Report on Form 8-K dated April 26, 2010). 10.72. *Grant of bonus to named executive officers with respect to performance in 2010 (Incorporated by reference to Item 5.02(e) of Registrant’s CurrentReport on Form 8-K dated March 9, 2011). 21 Subsidiaries of the Registrant (Filed herein). 23.1 Consent of the Registrant’s Independent Registered Public Accounting Firm (Filed herein). 31.1 Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(Filed herein). 31.2 Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(Filed herein). 32.1 Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (Filed herein). 32.2 Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (Filed herein). Certain instruments defining the rights of holders of the long-term debt securities of the Registrant may be 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 theCommission upon request. ___________________*Management contract or a compensatory plan or arrangement required to be filed as an exhibit.A copy of any of the foregoing exhibits to this Annual Report on Form 10-K may be obtained, upon payment of the Registrant’s reasonable expensesin furnishing such exhibit, by writing to P&F Industries, Inc., 445 Broadhollow Road, Suite 100, Melville New York 11747, Attention: Corporate Secretary. 51Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.P&F INDUSTRIES, INC.(Registrant)By:/s/ Richard A. Horowitz By:/s/ Joseph A. Molino, Jr. Richard A. HorowitzChairman of the BoardPresidentPrincipal Executive OfficerDate: March 31, 2011 Joseph A. Molino, Jr.Vice PresidentPrincipal Financial andAccounting OfficerDate: March 31, 2011Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the date indicated. Name Title Date /s/ Richard A. Horowitz Director March 31, 2011Richard A. Horowitz /s/ Jeffrey D. Franklin Director March 31, 2011Jeffrey D. Franklin /s/ HOWARD BROD BROWNSTEIN Director March 31, 2011Howard Brod Brownstein /s/ Dennis Kalick Director March 31, 2011Dennis Kalick /s/ Kenneth M. Scheriff Director March 31, 2011Kenneth M. Scheriff /s/ Mitchell A. Solomon Director March 31, 2011Mitchell A. Solomon /s/ Marc A. Utay Director March 31, 2011Marc A. Utay /s/ ALAN GOLDBERG Director March 31, 2011Alan Goldberg /s/ ROBERT DUBOFSKY Director March 31, 2011Robert Dubofsky 52 Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.56 TERMINATION OF AGREEMENTS,SETTLEMENT OF CLAIM AND MUTUAL GENERAL RELEASESTHIS TERMINATION OF AGREEMENTS, SETTLEMENT OF CLAIM AND MUTUAL GENERAL RELEASES (“Release Agreement”) ishereby entered into this 3rd day of March, 2011, by and between OLD STAIRS CO. LLC, formerly known as WM Coffman LLC (“Old Stairs”), with anaddress at c/o P&F Industries, Inc., 445 Broadhollow Rd., Melville New York 11747, P&F INDUSTRIES, INC. (“P&F”), with an address at 445Broadhollow Rd., Melville, New York 11747, Visador Holdings LLC, formerly known as Visador Holding Corporation (“Visador”) with an address at 3810Pleasant Valley Road, Attalla, Alabama 35954 and CS Divestiture LLC, formerly known as Coffman Stairs, LLC (“CSD”), with an address at 3810Pleasant Valley Road, Attalla, Alabama 35954.Whereas, on or about June 8, 2009, Old Stairs was formed by a transaction (the “Formation”) pursuant to which, among other things, CSD, asubsidiary of Visador, and certain subsidiaries of P&F sold various assets to Old Stairs in exchange for, among other things, certain cash payments,assumption of liabilities and notes payable (the business formed pursuant to the Formation shall be referred to herein as the “Business”); andWhereas, on and after June 8, 2009, and attendant to the Formation, Old Stairs, P&F, CSD, Visador and certain of their respective affiliates ,entered into certain ancillary agreements listed on Schedule A attached hereto (the “Formation Agreements”); andWhereas, in or about June 2010, Old Stairs’ lender, PNC Bank, N.A. (“PNC”), exercised its rights under its loan documents and the UniformCommercial Code and foreclosed on substantially all of the assets of Old Stairs; andWhereas, P&F asserts a claim against Old Stairs in the total amount of $10,628,346.37 (the “P&F Claim”); andWhereas, Visador asserts a claim against Old Stairs in the total amount of $4,445,450.57 (the “Visador Claim”); andWhereas, Old Stairs has acknowledged that the P&F Claim and the Visador Claim are due and owing by Old Stairs, without offset orcounterclaim; andWhereas, the parties hereto desire to provide for (a) settlement of the Visador Claim, (b) termination of all Formation Agreements, and (c) theexchange of mutual general releases among the parties.NOW, THEREFORE, in consideration of the promises and covenants herein, and for other good and valuable consideration, the sufficiency andreceipt of which is hereby acknowledged, the parties hereto agree as follows:1. Payment of the Claim. In full and complete satisfaction of the Visador Claim, immediately upon execution of this Release Agreement by all partieshereto, Old Stairs shall pay to Visador (or its designee) the sum of $110,000.00 in cash by wire transfer (the “Visador Payment”). Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 2. Termination of the Formation Agreements. The parties acknowledge that Old Stairs has ceased doing business. Effective with receipt by Visador(or its designee) of the Visador Payment, the obligations of each party under each and every one of the Formation Agreements are and shall be deemed to beterminated by mutual consent according to their respective terms and provisions, without any further obligations, liabilities, debts or duties on the part of anyparty thereto.3. Release by Visador. Visador, together with its affiliates, successors and assigns, hereby releases and discharges Old Stairs and P&F, and theirrespective affiliates, representatives, agents, administrators, successors, assigns, shareholders, members, managers, direct and indirect subsidiaries, directand indirect parent companies, officers, directors and attorneys from any and all obligations, debts, losses, damages, liabilities, contracts, controversies,agreements, premises, claims, causes of action, and demands of any kind whatsoever at law or in equity, direct or indirect, known or unknown, discoveredor undiscovered, asserted or unasserted, contingent or fixed, matured or unmatured, which Visador, its affiliates, successors and assigns, ever had, now has,or hereafter can, shall or may have, arising from the beginning of time to the date hereof (collectively, the “Visador Claims”), including, without limitation,Visador Claims arising from or related to the Formation Agreements; provided, that the foregoing shall not apply to any claims under this Release Agreement.4. Release by CSD. CSD, together with its affiliates, successors and assigns, hereby releases and discharges Old Stairs and P&F, and theirrespective affiliates, representatives, agents, administrators, successors, assigns, shareholders, members, managers, direct and indirect subsidiaries, directand indirect parent companies, officers, directors and attorneys from any and all obligations, debts, losses, damages, liabilities, contracts, controversies,agreements, premises, claims, causes of action, and demands of any kind whatsoever at law or in equity, direct or indirect, known or unknown, discoveredor undiscovered, asserted or unasserted, contingent or fixed, matured or unmatured, which CSD, its affiliates, successors and assigns, ever had, now has, orhereafter can, shall or may have, arising from the beginning of time to the date hereof (collectively, the “CSD Claims”), including, without limitation, CSDClaims arising from or related to the Formation Agreements; provided, that the foregoing shall not apply to any claims under this Release Agreement. 5. Release by Old Stairs. Old Stairs, together with its affiliates, successors and assigns, hereby releases and discharges Visador and CSD, andtheir respective affiliates, representatives, agents, administrators, successors, assigns, shareholders, members, managers, direct and indirect subsidiaries,direct and indirect parent companies, officers, directors and attorneys from any and all obligations, debts, losses, damages, liabilities, contracts,controversies, agreements, premises, claims, causes of action, and demands of any kind whatsoever at law or in equity, direct or indirect, known orunknown, discovered or undiscovered, asserted or unasserted, contingent or fixed, matured or unmatured, which Old Stairs, its affiliates, successors andassigns, ever had, now has, or hereafter can, shall or may have, arising from the beginning of time to the date hereof (collectively, the “Old Stairs Claims”),including, without limitation, Old Stairs Claims arising from or related to the Formation Agreements; provided, that the foregoing shall not apply to anyclaims under this Release Agreement. 2Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 6. Release by P&F. P&F, together with its affiliates, successors and assigns, hereby releases and discharges Visador and CSD, and their respectiveaffiliates, representatives, agents, administrators, successors, assigns, shareholders, members, managers, direct and indirect subsidiaries, direct and indirectparent companies, officers, directors and attorneys from any and all obligations, debts, losses, damages, liabilities, contracts, controversies, agreements,premises, claims, causes of action, and demands of any kind whatsoever at law or in equity, direct or indirect, known or unknown, discovered orundiscovered, asserted or unasserted, contingent or fixed, matured or unmatured, which P&F, its affiliates, successors and assigns, ever had, now has, orhereafter can, shall or may have, arising from the beginning of time to the date hereof (collectively, the “P&F Claims”), including, without limitation, P&FClaims arising from or related to the Formation Agreements; provided, that the foregoing shall not apply to any claims under this Release Agreement.7. Conditions Precedent to Occurrence of Effective Date. This Release Agreement and the obligations of each party hereunder shall automaticallybecome effective upon receipt of the Visador Payment by Visador or its designee; provided, however, that the obligations of the parties hereto pursuant toSection 1 of this Release Agreement shall become effective immediately upon execution by all parties hereto of this Release Agreement.8. Presumptions. Each of the parties hereto acknowledge that it has consulted with counsel and with such other experts and advisors as it hasdeemed necessary in connection with the negotiation, execution and delivery of this Release Agreement and has participated in the drafting hereof. Therefore,this Release Agreement shall be construed without regard to any presumption or rule requiring that it be construed against any one party causing this Release orany part hereof to be drafted.9. Entire Agreement. This Release Agreement contains the entire understanding and agreement by and among the parties with respect to the subjectmatter hereof. No other agreements, covenants, representations or warranties, expressed or implied, oral or written, have been made by any party with respectto the subject matter of this Release Agreement. All prior or contemporaneous conversations, negotiations, proposed agreements and agreements, or covenants,representations and warranties with respect to the subject matter hereof are waived and superseded by, replaced in their entireties and merged into this ReleaseAgreement.10. Further Assurance. Each party to this Release Agreement shall execute such other and further documents and instruments as the other party mayreasonably request to implement the provisions of this Release Agreement.11. Benefit of Agreement. This Release Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and theirrespective successors and assigns. No other person or entity shall be entitled to claim any right or benefit hereunder, including, without limitation, any third-party beneficiary of this Release Agreement.12. Severability. The provisions of this Release Agreement are intended to be severable. If any provisions of this Release Agreement shall be heldinvalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity orenforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions of thisRelease in any jurisdiction. 3Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 13. Governing Law, Jurisdiction, Venue. This Release Agreement shall be governed by and construed in accordance with the laws of the State ofNew York applied to contracts to be performed wholly within the State of New York. Any judicial proceeding brought by or against any party to this ReleaseAgreement with respect to this Release Agreement or any related agreement may be brought in any court of competent jurisdiction in the State of New York,County of New York, United States of America, and, by execution and delivery of this Release Agreement, each party accepts for himself, herself or itself andin connection with his properties, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts, and irrevocably agree to be bound by anyjudgment rendered thereby in connection with this Release Agreement. Each party to this Release Agreement waives any objection to jurisdiction and venue ofany action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.14. Waiver of Jury Trial. EACH PARTY TO THIS RELEASE AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BYJURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS RELEASE AGREEMENT OR ANY OTHERINSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAYCONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TOTHIS RELEASE AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED INCONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING ORHEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTSTHAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, ANDTHAT ANY PARTY TO THIS RELEASE AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANYCOURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BYJURY. IN ADDITION, EACH PARTY WAIVES THE RIGHT TO CLAIM OR RECOVER IN ANY SUCH SUIT, ACTION OR PROCEEDING ANYDAMAGES OTHER THAN OR IN ADDITION TO ACTUAL DAMAGES.15. Counterparts; Electronic Signatures. This Release Agreement may be executed in one or more counterparts, all of which taken together shallconstitute one and the same agreement. Any signature delivered by a party in PDF via e-mail or by facsimile shall be deemed to be an original signature hereto.16. Amendment. No amendment, modification, rescission, waiver or release of any provision of this Release Agreement shall be effective unless thesame shall be in writing and signed by the parties hereto.17. Headings. Section headings in this Release Agreement are included herein for convenience of reference only and shall not constitute a part of thisRelease Agreement for any other purpose. 4Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 18. Representations and Warranties.a. Old Stairs represents and warrants to CSD and Visador that, except as set forth on Schedule B-1 to this Release Agreement, it has noactual knowledge of any claim, action, demand or suit of any kind, whether asserted, commenced or threatened by any third party, inconnection with the Business. b. P&F represents and warrants to CSD and Visador that, except as set forth on Schedule B-2 to this Release Agreement, it has no actualknowledge of any claim, action, demand or suit of any kind, whether asserted, commenced or threatened by any third party, inconnection with the Business. c. CSD represents and warrants to Old Stairs and P&F that, except as set forth on Schedule B-3 to this Release Agreement, it has no actualknowledge of any claim, action, demand or suit of any kind, whether asserted, commenced or threatened by any third party, inconnection with the Business. d. Visador represents and warrants to Old Stairs and P&F that, except as set forth on Schedule B-4 to this Release Agreement, it has noactual knowledge of any claim, action, demand or suit of any kind, whether asserted, commenced or threatened by any third party, inconnection with the Business. e. For purposes of this Release Agreement, “actual knowledge” of a party shall be defined as actual knowledge, without investigation, ofthe individual executing this Release Agreement on behalf of such party. [Signatures on next page] 5Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN WITNESS WHEREOF, this Release Agreement has been duly executed as of the day and year first written above. OLD STAIRS CO. LLC By: /s/ Christopher Kliefoth Name: Christopher KliefothTitle: Managing Director P&F INDUSTRIES, INC. By: Joseph A. Molino, Jr. Name: Joseph A. Molino, Jr.Title: Vice President VISADOR HOLDINGS LLC By: William E. Smith Name: William E. SmithTitle: President CS DIVESTITURE LLC By: William E. Smith Name: William E. SmithTitle: President 6Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SCHEDULE A TOTERMINATION OF AGREEMENTS,SETTLEMENT OF CLAIM AND MUTUAL GENERAL RELEASESCOFFMAN STAIRS (AND AFFILIATES) AGREEMENTS WITH WM COFFMAN (AND AFFILIATES)1. Asset Purchase Agreement, dated as of June 8, 2009 by and between Coffman Stairs, LLC (now known as CS Divestiture, LLC ) (“CSD”) andWM Coffman LLC (now known as Old Stairs Co LLC (“Old Stairs”).2. Side Letter relating to Citibank, N.A. credit agreement amendment, dated June 10, 2009, between CSD and Old Stairs.3. Assignment and Assumption Agreement, dated as of June 8, 2009 between CSD and Old Stairs.4. Consulting Agreement, dated June 8, 2009, between Visador Holding Corporation (“Visador”) and Old Stairs.5. Management Agreement, dated June 8, 2009, between Visador and Old Stairs.6. Subordinated Promissory Note in the original principal amount of $3,971,901.64 dated June 8, 2009, by Old Stairs in favor of CSD.7. Letter Agreement, dated June 8, 2009, between P&F Industries, Inc. and CSD.8. Assignment and Assumption of Lease Agreement, dated as of June 8, 2009, between CSD and Old Stairs.9. Sublease Agreement, dated as of June 8, 2009, between Old Stairs and CSD.10. Sublease Agreement, dated as of June 8, 2009, between Old Stairs and Visador.11. Subordinated Promissory Note in the original principal amount of $210,000 dated November 18, 2009, by Old Stairs in favor of Visador. 7Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SCHEDULE B TOTERMINATION OF AGREEMENTS,SETTLEMENT OF CLAIM AND MUTUAL GENERAL RELEASESSCHEDULE B-1 – REPRESENTATIONS AND WARRANTIES MADE BY OLD STAIRS1 Amounts owing to various third-party individuals and entities, the aggregate amount of which does not exceed $3.293 million, incurred in the normaloperations of Old Stairs prior to its June 2010 event of foreclosure. There exist (or existed) various legal actions by certain of such third partiesagainst Old Stairs for the purpose of collection of amounts outstanding to these same third parties, the aggregate amount of which does not exceed$100,000.2A claim by AGNL Coffman, LLC for liquidated damages in connection with the alleged breach and May 4, 2010 termination of Old Stairs’ Marion,Virginia facility lease.3An outstanding subordinated note in the amount of $290,000 in favor of Xaimen Wei Yu Wood Products Co. Ltd.]4. The Visador Claims (as defined in this Agreement).5The P&F Claims (as defined in this Agreement). 8Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SCHEDULE B-2 – REPRESENTATIONS AND WARRANTIES MADE BY P & F INDUSTRIES, INC.None, other than the items listed on Schedule B-1 above.  9Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SCHEDULE B-3 – REPRESENTATIONS AND WARRANTIES MADE BY CSDA claim by AGNL Coffman, LLC under the guaranty provisions in connection with the Old Stairs Marion, Virginia Lease 10Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SCHEDULE –B-4 – REPRESENTATIONS AND WARRANTIES MADE BY VISADORNone, other than the items listed on Schedule B-3 above 11 Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 21P&F INDUSTRIES, INC.SUBSIDIARIES OF THE REGISTRANTContinental Tool Group, Inc., a Delaware CorporationHy-Tech Machine, Inc., a Delaware CorporationFlorida Pneumatic Manufacturing Corporation, a Florida CorporationD/b/a Universal ToolD/b/a PipemasterD/b/a Berkley ToolCountrywide Hardware, Inc., a Delaware CorporationNationwide Industries, Inc., a Florida CorporationPacific Stair Products, Inc., a Delaware CorporationWILP Holdings, Inc., a Delaware CorporationWoodmark International L.P., a Delaware Limited PartnershipOld Stairs Co. LLC, a Delaware Limited Liability CompanyEmbassy Industries, Inc., a New York CorporationGreen Manufacturing, Inc. a Delaware Corporation Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in Forms S-8 (File No. 333-22047 and File No. 333-90562) of P&F Industries, Inc. of our reportdated March 31, 2011 relating to the consolidated financial statements of P&F Industries, Inc. as of December 31, 2010 and 2009, and for the years thenended included in this Annual Report on Form 10-K for the year ended December 31, 2010. /s/ J.H. Cohn LLPJericho, New YorkMarch 31, 2011 Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.1P&F INDUSTRIES, INC.CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Richard A. Horowitz, certify that:1. I have reviewed this annual report on Form 10-K of P&F Industries, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. /s/ Richard A. Horowitz Richard A. HorowitzDate: March 31, 2011Principal Executive Officer Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.2P&F INDUSTRIES, INC.CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Joseph A. Molino, Jr., certify that:1. I have reviewed this annual report on Form 10-K of P&F Industries, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. /s/ JOSEPH A. MOLINO, JR. Joseph A. Molino, Jr.Date: March 31, 2011Principal Financial Officer Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.1P&F INDUSTRIES, INC.CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report on Form 10-K of P&F Industries, Inc. (the “Company”) for the period ended December 31, 2010, as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Richard A. Horowitz, Principal Executive Officer of theCompany, hereby certifies, pursuant to 18 U.S.C. §1350, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. /s/ RICHARD A. HOROWITZ Richard A. HorowitzDate: March 31, 2011Principal Executive Officer Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.2P&F INDUSTRIES, INC.CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report on Form 10-K of P&F Industries, Inc. (the “Company”) for the period ended December 31, 2010, as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Joseph A. Molino, Jr., Principal Financial Officer of theCompany, hereby certifies, pursuant to 18 U.S.C. §1350, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. /s/ JOSEPH A. MOLINO, JR. Joseph A. Molino, Jr.Date: March 31, 2011Principal Financial Officer Source: P&F INDUSTRIES INC, 10-K, March 31, 2011Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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