P&F Industries
Annual Report 2011

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KP&F INDUSTRIES INC - PFINFiled: March 30, 2012 (period: December 31, 2011)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, 2011oro 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) 694-9800 Securities 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: NONE Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x Indicate 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 x Indicate 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 o Indicate 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 x No o Indicate 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. x Indicate 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 x The 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 30,2011 (the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $10,836,000. As of March 29, 2012 there were 3,616,562 shares of the registrant’s Class A Common Stock outstanding. Documents Incorporated by Reference Part III of this Annual Report on Form 10-K incorporates by reference information from the registrant’s definitive Proxy Statement for its 2012Annual Meeting of Stockholders. Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 30, 2012Powered 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, 2011 TABLE OF CONTENTS PagePART I Item 1.Business3Item 1A.Risk Factors5Item 1B.Unresolved Staff Comments7Item 2.Properties7Item 3.Legal Proceedings7Item 4.Mine Safety Disclosures7PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities8Item 6.Selected Financial Data8Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations8Item 7A.Quantitative and Qualitative Disclosures About Market Risk16Item 8.Financial Statements and Supplementary Data17Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure41Item 9AControls and Procedures41Item 9B.Other Information42PART III Item 10.Directors, Executive Officers and Corporate Governance43Item 11.Executive Compensation43Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters43Item 13.Certain Relationships and Related Transactions, and Director Independence43Item 14.Principal Accounting Fees and Services43PART IV Item 15.Exhibits and Financial Statement Schedules44 Signatures52 2Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 STATEMENTS The 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 I ITEM 1. Business P&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”). Tools We 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 Pneumatic Florida 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 2011, Florida Pneumatic purchased approximately 57% of its pneumatic tools from a Far East manufacturer that owns or represents sixindividual factories in China. Of the total pneumatic tool purchases in 2011, approximately 58% were bought from China, 41% from Taiwan and 1% fromJapan. Florida Pneumatic performs final assembly on certain of its pneumatic tools at its factory in Jupiter, Florida. 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. Florida Pneumatic also assembles and markets a line of air filters, forwhich it imports components from Mexico. There are redundant supply sources for nearly all products purchased. Prior to 2010, Florida Pneumatic imported a line of door and window hardware through its Franklin Manufacturing (“Franklin”) division. However,primarily due to an ongoing diminishing market, Florida Pneumatic decided to discontinue marketing the Franklin product line effective December 31, 2010. 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. 3Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Hy-Tech Hy-Tech manufacturers and distributes its own line of industrial pneumatic tools under the “ATP” brand. Under the ATP brand, Hy-Tech producessells over sixty types of tools, which includes impact wrenches, grinders, drills, and motors and are sold at prices ranging from $450 to $28,000. Further, italso manufacturers tools to customer unique specifications. Users of ATP parts and tools include refineries, chemical plants, power generation, heavyconstruction, oil and mining companies. In addition, Hy-Tech manufactures an extensive line of pneumatic tool replacement parts that are sold competitively tothe original equipment manufacturer. It also manufactures and distributes high pressure stoppers for hydrostatic testing fabricated pipe under the “Thaxton”brand name. It also produces a line of siphons under the “Eureka” name. Hy-Tech products are sold through its in-house sales force as well as manufacturer representatives. Hy-Tech’s products are sold off the shelf andalso are produced to customer’s specifications. The business is not seasonal but may be subject to periodic schedule changes in refineries, power generations and chemical plants. The primarycompetitive factors in the industrial pneumatic market are quality, breadth of products and availability of products. Other than a line of sockets that areimported from Israel, all Hy-Tech products are made in the United States of America. The primary competitive factors in the industrial pneumatic tool market are quality, breadth of products and availability of products, customerservice and technical support. Hardware We conduct our Hardware business through a wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). During 2011, Countrywideconducted its business operations through its wholly-owned subsidiary, Nationwide Industries, Inc. (“Nationwide”). Prior to June 2010, we also conducted astair parts business through certain subsidiaries of Countrywide. Nationwide Nationwide is a developer, importer, and manufacturer of fencing hardware, patio products, and door and window accessories including rollers,hinges, window operators, sash locks, custom zinc castings and door closers. Nationwide’s products are sold through in-house sales personnel andindependent manufacturers’ representatives to distributors, dealers, retailers and OEM customers. Additionally, Nationwide markets a kitchen and bathproduct line. End users of Nationwide’s products include contractors, home builders, pool and patio enclosure contractors, plumbers, OEM/private labelcustomers and general consumers. Nationwide currently out-sources the manufacturing of approximately 90% of its product with several overseas factorieslocated in China and Taiwan, while retaining design, quality control, and patent and trademark control. There are redundant supply sources for mostproducts. Nationwide manufactures approximately 10% of its products sold including rollers, hinges and pool enclosure products at its facility in Tampa,Florida. Nationwide also provides value-add services for the entire product lines with local packaging, kitting, rework and fabrication operations performed inits Tampa, FL location. Nationwide’s sales are moderately seasonal, with revenues typically increasing during the construction activity months in spring andsummer months. The majority of Nationwide’s products are sold off the shelf. The primary competitive factors in Nationwide’s business are price, quality,product availability and service. Former Stair Parts Business Prior to June 2009, Countrywide’s subsidiaries, Woodmark International, L.P. (“Woodmark”) and Pacific Stair Products, Inc. (“PSP”) eachoperated a stair parts business. Additionally, Woodmark was also an importer of kitchen and bath hardware and accessories. In June 2009 pursuant to thetransactions (the “WMC transactions”) that formed the business of WM Coffman LLC (now known as Old Stairs Co (“WMC”)), Woodmark and PSPcontributed stair parts-related assets to WMC in return for members’ equity. Concurrently, Woodmark transferred its kitchen and bath business toNationwide. Accordingly, effective with the WMC transactions, the stair parts business became exclusively the business of WMC, and Woodmark and PSPno longer functioned as operating units. Further, as part of the WMC transactions, in June 2009 WMC acquired substantially all of the assets of CoffmanStairs, LLC, which operated a competitive stair parts business. 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 its bank, PNC, National Association (“PNC”). This in turn led to a decision bythe Company’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 tosell, liquidate or otherwise dispose of its ownership of WMC. Accordingly, the Company began reporting WMC as a discontinued operation effective January1, 2010. As a result, the Company has reclassified prior year financial information to present WMC as a discontinued operation. Further, PNC which was thesole lender and source of credit to WMC, foreclosed upon the assets of WMC. As a result of the aforementioned facts, on June 7, 2010 WMC ceasedoperations. In addition, the Company, no longer includes WMC in its Consolidated Financial Statements. See Item 7 - Management’s Discussion and Analysisof Financial Condition and Results of Operations – Liquidity and Capital Resources and Notes 2 and 4 to Consolidated Financial Statements for furtherdiscussion. 4Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Significant Customers The Tools segment has one customer that accounted for approximately 24.0% and 28.4%, respectively, of consolidated net revenue for the yearsended December 31, 2011 and 2010, and 44.6% and 43.1%, respectively, of consolidated accounts receivable as of December 31, 2011 and 2010. SeeManagement’s Discussion and Analysis – Liquidity and Capital Resources for further discussion pertaining to this customer. There are no such significantcustomers in the Hardware segment. Employees We employed 142 persons as of December 31, 2011, of which 137 were full-time employees. None of these employees are represented by a union. ITEM 1A. Risk Factors A 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 covenants under our credit facility. Our asset based credit facility contains affirmative and negative covenants includingfinancial covenants, and default provisions. A breach of any of these covenants could result in a default under our credit agreement. Upon theoccurrence of an event of default under our current credit agreement, the lenders could elect to declare all amounts outstanding to be immediatelydue and payable and terminate all commitments to extend further credit. If the lenders were to accelerate the repayment of borrowings, we maynot have sufficient assets to repay our asset based credit facility and our other indebtedness. Also, should there be an event of default, or a needto obtain waivers following an event of default, we may be subject to higher borrowing costs and/or more restrictive covenants in future periods. •Significant volatility and disruption in the global capital and credit markets. Volatility in the global capital and credit markets has in recentyears resulted in a tightening of business credit and liquidity, a contraction of consumer credit, business failures, increased unemployment anddeclines in consumer confidence and spending. If global economic and financial market conditions deteriorate or remain weak for an extendedperiod 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. •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 24% of our consolidated revenues for 2011. Loss of key customers or a material negative change in our relationships with our keycustomers (including as a result of a negative change in the financial position of such key customers) could have a material adverse effect on ourbusiness, results of operations or financial position. 5Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. •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 RMB were to be revalued against the dollar, there could be a significant negativeimpact 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 intheir ability to continue to provide us with products on a short-term or long-term basis. Although we believe that there are redundant sourcesavailable and maintain multiple sources for certain of our products, there may be costs and delays associated with securing such sources andthere can be no 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 introduced, or scheduled for introduction, in 2012. There can also be no assurance that the level ofsales generated from these new products relative to our expectations will materialize, based on existing investments in productive capacity andcommitments by us to fund 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. •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. 6Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. •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 oneor more creditors of WMC will not institute legal action against P&F or any of its subsidiaries other than WMC, which could result in amaterial adverse 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 Comments None. ITEM 2. Properties Florida 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. Countrywide 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 some additional space. The three owned properties described above are subject to mortgages and therefore pledged as collateral against the Company’s credit facility, whichis discussed in Management’s Discussion and Analysis – Liquidity and Capital Resources and Notes to Financial Statements. The Company’s executive offices of approximately 5,000 square feet are located in an office building in Melville, New York and are leased from anon-affiliated landlord. ITEM 3. Legal Proceedings We 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. Mine Safety Disclosures None 7Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our 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: 2011 High Low First Quarter $3.74 $3.22 Second Quarter 4.65 3.58 Third Quarter 5.18 3.81 Fourth Quarter 4.40 3.40 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 As of March 20, 2012, 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 $4.15. 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 Data Not required. ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW During 2011 all three of our operating units increased their revenue and gross margins. We continued to work diligently on controlling our operating expensesand managing our working capital more effectively. As a result, we among other things:·increased consolidated revenue more than $3.9 million or 7.8%;·increased income from continuing operations approximately 5.6 times – from $341,000 in 2010 to $1,909,000 in 2011;·improved diluted earnings per share from continuing operations in 2011 to $0.52 from $0.10 in 2010; and·reduced bank debt by more than $5.8 million. KEY INDICATORS Economic Measures Much 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 only slight improvement during 2011 compared to 2010. The key economic measures for Hardware group were the general economic conditions of theUnited 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 Measures Key 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. 8Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Financial Measures Key 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 ESTIMATES We 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 Recognition We 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. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are customer obligations due under normal trade terms. We sell our products to retailers, distributors and original equipmentmanufacturers involved in a variety of industries. We perform continuing credit evaluations of our customers’ financial condition, and although we generallydo not require collateral, letters of credit may be required from customers in certain circumstances. Management reviews accounts receivable to determine ifany receivables will potentially be uncollectible. Factors considered in in the determination include, among other factors, number of days an invoice is pastdue, customer historical trends, available credit ratings information, other financial data and the overall economic environment. Collection agencies may alsobe 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, 2011 was adequate. However, actual write-offs might exceed the recorded allowance. Inventories Inventories 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 Assets In 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. Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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.9Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Income Taxes We 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 and Texas. All subsidiaries fileother state 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. Consolidation of Variable Interest Entities On 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.10Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. RESULTS OF OPERATIONS 2011 compared to 2010 REVENUE Year Ended December 31, 2011 2010 Variance Variance Tools Florida Pneumatic $23,455,000 $22,467,000 $988,000 4.4%Hy-Tech 16,394,000 14,011,000 2,383,000 17.0 Tools Total 39,849,000 36,478,000 3,371,000 9.2 Hardware Nationwide 14,692,000 14,131,000 561,000 4.0 Hardware Total 14,692,000 14,131,000 561,000 4.0 Consolidated $54,541,000 $50,609,000 $3,932,000 7.8% Tools Florida Pneumatic markets its air tool products to two primary sectors within the pneumatic tool market; retail and industrial/catalog. Additionally,Florida Pneumatic also markets, to a much lesser degree, air tools to the automotive market. It also generates revenue from its Berkley products line as well asa line of air filters and other OEM parts. An analysis of Florida Pneumatic revenue for 2011 and 2010 are as follows: Year Ended December 31, 2011 2010 Variance Revenue analysis – Florida Pneumatic Percent of FloridaPneumatic revenue Percent of FloridaPneumatic revenue Retail – major customer 55.8% 64.0% (8.2)% ptsIndustrial/catalog 29.2 23.8 5.4 Automotive 5.5 3.7 1.8 Other 9.5 8.5 1.0 Total 100.0% 100.0% During 2011 Florida Pneumatic continued to expand its presence in the higher gross margin, industrial/catalog sector. As a result, as indicated in thetable above, it was able to increase revenue by 5.4 percentage points, or approximately $1,513,000, when comparing 2011 and 2010. We intend to continue toexpand our marketing efforts in the industrial/catalog market. In addition, revenue from its Berkley, air filters and OEM lines, in the aggregate, increased 1.0percentage point, or approximately $311,000. Florida Pneumatic also increased revenue at its automotive line by 1.8 percentage points, or approximately$457,000. However, revenue from its major retail customer declined 8.2 percentage points, or approximately $1,294,000, when comparing 2011 to 2010. Thisdecline was due primarily to a reduction in 2011 of shipments of specialty and promotional items compared to the levels shipped in 2010. We were able topartially mitigate the revenue shortfall through increased sales of basic items and accessories. Year Ended December 31, 2011 2010 Variance Revenue analysis – Hy-Tech Percent of Hy-Techrevenue Percent of Hy-Techrevenue ATP 67.6% 70.8% (3.2)% ptsHy-Tech Machine 11.7 11.2 0.5 Major customer 18.7 15.0 3.7 All other 2.0 3.0 (1.0)Total 100.0% 100.0% Hy-Tech focuses primarily on the industrial sector of the pneumatic tools market. Hy-Tech creates quality replacement parts for pneumatic tools,markets its own value/added line of air tools under the brand names ATP and Thor, as well as distributes a complementary line of sockets (“ATP”). Hy-Tech’s overall improvement is due primarily to increased product demand within its distribution channels, along with slight improvement in the businesssectors in which it serves. Further, Hy-Tech was able to increase revenue due to competitive advantages. Specifically, revenue from Hy-Tech’s ATP productlines increased $1,167,000 when compared to the same period in 2010. Revenue generated from its sale of products that focus on mining, construction andindustrial manufacturing markets (“Hy-Tech Machine”) increased approximately $353,000 over the same period in 2010. Further, revenue from a majorcustomer of Hy-Tech improved $957,000 when comparing 2011 to 2010. We believe that Hy-Tech’s relationships with its key customers, given the currenteconomic conditions, remain good. 11Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Hardware The table below is an analysis of Nationwide’s revenue: Year Ended December 31, 2011 2010 Revenue analysis - Nationwide Percent ofNationwide revenue Percent ofNationwide revenue Variance Fence and gate hardware 65.5% 60.9% 4.6% pts Kitchen and bath 17.8 19.6 (1.8)OEM 10.7 13.2 (2.5)Patio 6.0 6.3 (0.3)Total 100.0% 100.0% The improvement in Nationwide’s fence and gate hardware revenue is due primarily to the introduction of new products, as well as expandedmarketing efforts, which effectively increased the size of its customer base. Nationwide intends to continue to develop new products and accessories, as wellas to continue to expand its national market campaign. However, its kitchen and bath product line continued to feel the effects of the sluggishness in the homeimprovement and renovation sector, as well as the continued declines in the recreational vehicle and modular home markets. Kitchen and bath was slightlyimpacted in 2011 by growing competitive pressure. As a result, Nationwide’s kitchen and bath product revenue declined $167,000. Much of the decline inOEM revenue was due to weakness in the window and door after-market. Revenue from Nationwide’s patio product line remained flat, increasing less thanone percent. Given the current economic conditions, we believe Nationwide’s relationships with its overall customer base remain good. GROSS MARGIN Year Ended December 31, Change 2011 2010 Amount % Tools $14,631,000 $12,371,000 $2,260,000 18.3%As percent of respective revenue 36.7% 33.9% 2.8 pts. Hardware $5,614,000 $5,264,000 $350,000 6.6%As percent of respective revenue 38.2% 37.3% 0.9 pts. Consolidated $20,245,000 $17,635,000 $2,610,000 14.8%As percent of respective revenue 37.1% 34.8% 2.3 pts. Tools Gross margins at our Tools segment for 2011 improved 2.8 percentage points from 2010. Specifically, Florida Pneumatic’s gross margin increased1.1 percentage points. This improvement was driven by the increase in industrial/catalog sales, which generate higher margins than other sectors to whichFlorida Pneumatic markets its air tool line. Increased revenue at its automotive, Berkley and OEM product lines also contributed to the improved overall grossmargin at Florida Pneumatic. However, gross margins declined in 2011 on sales to its major retail customer, compared to 2010. The decline was primarily dueto lower pricing in 2011 compared to 2010 and product mix. When comparing the years 2011 and 2010, Hy-Tech improved its overall gross margin 5.0 percentage points. A key factor contributing to thisimprovement was improved absorption of factory overhead. During 2010, Hy-Tech’s absorption of its factory overhead was adversely affected by the overallsluggishness in their marketplace, thus increasing costs of products manufactured. As economic conditions began to show improvement during 2011 Hy-Tech’s factory overhead absorption improved. During 2011, Hy-Tech also increased prices slightly on most product offerings. Lastly, its 2011 total grossmargin was positively impacted compared to 2010 by product and customer mix. However, the improvements in Hy-Tech’s gross margin were slightly erodedby higher manufacturing labor and raw material costs incurred in 2011 compared to 2010. 12Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Hardware The gross margin for Nationwide for 2011 of 38.2% reflects an increase of 0.9 percentage points from 37.3% in the prior year. Gross margin onfencing and gate hardware, which accounts for nearly two-thirds of Nationwide’s revenue, improved during 2011 compared to the prior year primarily due tothe increased sales of its new line of specialty products. Gross margin on its OEM, patio, and kitchen and bath product lines during 2011, encounterednominal change when compared to 2010. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, 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 2011 was $17,491,000 compared to $16,016,000 in 2010, an increase of $1,475,000, or 9.2%. As a percentage of revenue, SG&Aincreased 0.5 percentage points to 32.1% in 2011 compared to 31.6% in 2010. A significant component of the increase is compensation, which includeswages, performance-based bonus incentives, associated payroll taxes and employee benefits. Compensation increased $1,306,000 when comparing 2011 to2010, due primarily to the reinstatement in January 2011 of wage and benefit reductions that were put in effect in April 2009, as well as performance-basedbonus incentives. Primarily the result of improved revenue, our variable expenses, which includes commissions, freight out, travel and entertainment,advertising and warranty costs increased an aggregate amount of $360,000. Additionally, non-cash, stock based compensation charges were $98,000 higher in2011 than 2010. We encountered increases in depreciation and amortization of $40,000. The above increases were partially offset by decreases in legal andother professional fees of $430,000, which were incurred in 2010, primarily in connection with resolving conflicts with our former banks, and not incurred in2011. INTEREST Our interest expense of $756,000 for 2011 reflects a decrease of $487,000 compared to interest expense of $1,243,000 incurred in 2010. Asdiscussed further in the Liquidity and Capital Resources section of this Management’s Discussion and Analysis, and in Note 9 – Debt, to our ConsolidatedFinancial Statements, in October 2010 we entered into a new credit agreement with a new bank which, among other things, caused us to repay the then existingterm loan and revolving credit line with the two former banks, pay the balance owed on all real property mortgages, and pay one-half of the amount owed to theparties that sold Hy-Tech to us. As a result, while there was no interest incurred on the real property mortgages in 2011, compared to $67,000 in 2010, therewas an increase of $81,000, to $359,000 from $278,000, in interest attributable to borrowings under long-term bank obligations, due primarily to higheraverage borrowings in 2011. There was also a reduction of $74,000 in interest expense attributable to the note payable to the previous owners of Hy-Tech, dueto both a lower principal balance and lower interest rates. Additionally, interest on our borrowings under the revolving credit loan facility for 2011 was $317,000, which was $403,000 lower than the$720,000 incurred during 2010. Factors contributing to this decrease were lower average balances, as well as lower interest rates. Lastly, we recorded interestexpense of $20,000 to our CEO and $24,000 to an unrelated third party, both attributable to the loans from such parties received by us on April 23, 2010. SeeNote 14 - Related Party Transactions to our Consolidated Financial Statements for further discussion related to these loans. INCOME TAX EXPENSE The effective tax rates applicable to income from continuing operations for the years ended December 31, 2011 and 2010 were 4.5% and 9.3%,respectively. Contributing factors to both the current year’s effective tax rate as well as the effective tax rate for year ended December 31, 2010, were decreasesin a valuation allowance, partially offset by state and local taxes and expenses not deductible for tax purposes. DISCONTINUED OPERATIONS On August 23, 2011, we received a payment of approximately $702,000 relating to a dispute over the sale by our wholly-owned non-operatingsubsidiary, Embassy Industries, Inc. (“Embassy”) of certain real property arising under the Contract of Sale between Embassy and J. D’Addario &Company, Inc., as amended. The payment was made pursuant to the Amended Judgment of the Supreme Court of the State of New York, Suffolk County,dated August 2, 2011 and entered August 4, 2011. Accordingly, we reported the receipt of these funds, less related legal fees and other expenses, as Incomefrom discontinued operations in our Consolidated Financial Statements. The $340,000 after-tax income from discontinued operations for the year ended December 31, 2010 was due to the deconsolidation of WMC. WMCwas primarily engaged in the manufacturing and importing of stair parts and related accessories. In an effort to improve the overall results of the then existingstair parts operation, we purchased substantially all of the assets of a competitor in the stair parts business. These transactions were executed in an attempt totake advantage 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 positivecash flows. This caused, among other things, defaults on WMC’s loan agreement with PNC. 13Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 – Discontinued Operations – Deconsolidation 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 required 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. Wecontinue to evaluate the facts and circumstances pertaining to WMC to ascertain if we should include WMC in our consolidated financial statements in futureperiods. LIQUIDITY AND CAPITAL RESOURCES Our cash flows from operations can be somewhat cyclical, with the greatest demand for cash typically 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 a 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, 2011 2010 Working capital from continuing operations $14,070 $11,750 Current ratio 2.15 to 1 1.77 to 1 Shareholders’ equity $29,155 $26,399 P&F, along with Florida Pneumatic, Hy-Tech and Nationwide, as borrowers, entered into a Credit Agreement (“Credit Agreement”) with Capital OneLeverage Finance Corporation, as agent (“COLF”). The Credit Agreement, entered into in October 2010, has a three-year term, with maximum borrowings of$22,000,000 at that time. The Credit Agreement provides for a Revolving Credit Facility (“Revolver”) with a maximum borrowing of $15,910,000. AtDecember 31, 2011 and 2010, the balances owing on the Revolver were $5,648,000 and $9,996,000, respectively. Direct borrowings under the Revolver aresecured by our accounts receivable, mortgages on our real property located in Cranberry, PA, Jupiter, FL and Tampa, FL (“Real Property”), inventory andequipment, and are cross-guaranteed by certain of our subsidiaries (the “Subsidiary Guarantors”). Revolver borrowings bear interest at LIBOR (LondonInterBank Offered Rate) or the Base Rate, as defined in the Credit Agreement, plus the currently applicable margin rates. Beginning April 1, 2011, the loanmargins applicable to borrowings on the Revolver are determined based upon the computation of total debt divided by earnings before interest, taxes,depreciation and amortization (“EBITDA”). On November 21, 2011, we and COLF entered into the Second Amendment to Credit Agreement (the “Amendment”). The Amendment, among otherthings, (i) further reduced the applicable loan margins for Revolver borrowings by 0.25% or 0.50%, depending on the applicable leverage ratio, (ii) increasedthe maximum aggregate amount of permitted Capital Expenditures (as defined in the Loan Agreement) for each of 2012 and 2013 from $1,000,000 to$2,500,000 and (iii) established a $2,500,000 Capital Expenditure loan commitment by COLF, pursuant to which COLF may make one or more CapexLoans (as defined in the Amendment) to us under the terms set forth in the Amendment. As such, pursuant to the Amendment, the total commitment by COLFincreased from $22,000,000 to $24,500,000. Further, as a result of the Amendment, the applicable loan margins range from 2.50% to 3.50% for LIBORborrowings and from 1.50% to 2.50% for borrowings at Base Rate. Loan margins added to Revolver borrowings at December 31, 2011 were 2.75% and1.75%, respectively, for borrowings at LIBOR and the Base Rate. Loan margins added to Revolver borrowings at December 31, 2010 were 3.75% and 2.75%,respectively, for borrowings at LIBOR and the Base Rate. At December 31, 2011, we had more than $8,000,000 in excess availability, on our Revolver. We incur an unused line fee ranging from one-half percent (0.50%) to three-quarters percent (0.75%), depending on the percentage of the Revolver tothe Credit Facility. We are also required to provide, among other things, monthly financial statements and monthly borrowing base certificates. We are alsosubject to various financial covenants. As part of the Credit Agreement, if an event of default occurs, the interest rate would increase by two percent per annumduring the period of default. 14Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Prior to the effective date of the Credit Agreement, we and our subsidiaries, other than WMC, as co-borrowers, were parties to a credit agreement(“Prior Credit Agreement”), as amended, with Citibank, N.A., as agent. The Prior Credit Agreement, among other things, included a revolving credit loanfacility, (“revolving loan”). Direct borrowings under the revolving loan were secured by our accounts receivable, inventory, equipment and real property, andwere cross-guaranteed by each of our subsidiaries, except WMC. These borrowings incurred interest at LIBOR or the prime interest rate, plus applicable loanmargins. Concurrent with the entering into the new Credit Agreement with COLF, we paid the lenders under the Prior Credit Agreement $14,610,000 as fullsettlement of all of our obligations, including a then revolving loan, a term note and accrued interest. Further, we paid in their entirety, two mortgage loanswith Wachovia Bank, aggregating $1,504,000, including fees and other related expenses. Additionally, we paid $685,000, representing 50% of theoutstanding loan amount, plus accrued interest, to the previous owners of Hy-Tech. With the approval of COLF, we and the previous owners of Hy-Techentered into a Termination of Promissory Note and Mutual Releases dated October 31, 2011, (the “Subordinated Debt Termination Agreement”), which waseffective as of November 1, 2011. Pursuant to the Subordinated Debt Termination Agreement, we paid $550,000 in full satisfaction of the approximately$573,000 in subordinated debt outstanding, plus approximately $4,000 in accrued interest, to the previous owners of Hy-Tech and the parties terminated therelated subordinated promissory note and exchanged releases. The Credit Facility also contains a $6,090,000 term loan (the “Term Loan”), which is secured by mortgages on the Real Property, our accountsreceivable, inventory and equipment. The Term Loan amortizes $33,833 each month, with a balloon payment at maturity of the Credit Agreement. The CreditAgreement requires us to make prepayments, to be applied to the Term Loan, of 25% of excess annual cash flow, as defined in the Credit Agreement, or in theevent of a sale of any real estate assets. Based on 2011 excess annual cash flows, we will make a payment of approximately $633,000 in the second quarter of2012. This amount is included in Current maturities of long-term debt on the Consolidated Balance Sheet. Term Loan borrowings bear interest at LIBOR orthe prime interest rate plus the currently applicable margin rates, which were 5.75% and 4.75%, respectively, at December 31, 2011 and 2010. In April 2010, as part of an amendment to the Prior Credit Agreement, we were required to obtain subordinated loans of $750,000 (the “SubordinatedLoans”). The Subordinated Loans were provided by our Chief Executive Officer (“CEO”), in the amount of $250,000, and an unrelated party, in the amountof $500,000, each with a maturity date of October 25, 2013. These Subordinated Loans bear interest at 8% per annum. We paid interest of $20,000 and$10,000 in 2011 and 2010, respectively, to the CEO. As of the date of this filing, all interest earned through December 31, 2011 has been paid. Pursuant to asubordination agreement with COLF, the principal amount owed to the unrelated third party was paid in full as of December 31, 2011 from excess cash flows,as defined in such subordination agreement. The aggregate amounts of long-term debt scheduled to mature in each of the years ended December 31 are approximately as follows: 2012—$1,039,000; 2013—$656,000; and 2014—$4,205,000. Interest expense on long-term debt was approximately $359,000 and $346,000 for the years endedDecember 31, 2011 and 2010, respectively. Significant Customer We have one customer in the Tools segment that accounted for approximately 24.0% of consolidated revenue for the year ended December 31, 2011and 44.6% of consolidated accounts receivable as of December 31, 2011. The products we sell to this customer are part of a major brand and we believe thebrand has extreme value in today’s marketplace. Generally, our revenue from retail customers increases to peak levels during the holiday season shippingperiod, which is typically, during the fourth calendar quarter. As a result our accounts receivable balance from this customer at December 31, 2011 was nearpeak level. At other times during the year this customer’s accounts receivable balance generally is approximately 20% to 22% of consolidated accountsreceivable. During the first two months of 2012 this customer reduced its December 31, 2011 accounts receivable balance of $2,816,000 by approximately$875,000. To date, this customer continues, with minor exceptions, to be current in its payments. We believe that, should this customer be unable to make any future payments, it would likely negatively impact our working capital, but would notaffect our ability to remain a going concern. We are currently investigating various means by which we can protect our accounts receivable balance with thiscustomer. As previously noted, inventory is also a component of the collateral against which we are able to borrow funds under the terms of the Revolver. Whilewe hold inventory in our warehouse for this customer, we believe the vast majority of items can be repackaged and sold to other customers, without additionalmaterial expense. Since this inventory can be sold to others, we do not believe our ability to borrow funds under the terms of the Revolver would be materiallyadversely affected in the event this customer is unable to purchase such inventory. However, there can be no assurance that COLF will continue to permitborrowings against this inventory. At December 31, 2011 and February 29, 2012, we had approximately $1,700,000 and $1,438,000, respectively, ofinventory for this customer. Other Our cash balance of $443,000 at December 31, 2011 reflects a decrease of $431,000 from $874,000 at December 31, 2010. However, we were able toreduce our total borrowings, which at December 31, 2011 was $11,548,000, from $17,375,000 at December 31, 2010. Additionally, included in the balanceat December 31, 2011 is $633,000 that we are required to pay to COLF as part of the calculation of excess cash flows as defined in the Credit Agreement, asamended. Cash provided by operating activities for the years ended December 31, 2011 and 2010 was $5,363,000 and $9,039,000, respectively. It should benoted that during 2010 we received a federal income tax refund of $3,270,000. We believe that cash derived from operations and cash available throughborrowings under the Credit Agreement will be sufficient to allow us to meet our working capital needs for at least the next twelve months. 15Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 30, 2012Powered 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 percent of debt to total book capitalization (debt plus equity) decreased 11.4 percentage points to 28.3% at December 31, 2011, from 39.7% atDecember 31, 2010. Capital spending increased to $598,000 during the year ended December 31, 2011, compared to $244,000 in 2010. Capital expenditures currentlyplanned for 2012 are approximately $1,400,000, most of which we expect will be financed through our credit facility. The majority of the projected 2012capital expenditures will relate to new equipment at Hy-Tech, which we believe will reduce manufacturing costs. Further, a portion of the planned capitalexpenditures will be for tooling required for new product development. OFF-BALANCE SHEET ARRANGEMENTS In accordance with Accounting Standards Codification (“ASC”) 810-10-40 (“ASC 810”), as of June 30, 2010, we deconsolidated WMC andtherefore do not include its financial position in the Company’s consolidated financial statements. We believe that neither the Company nor any of itssubsidiaries other than WMC are legally responsible for any of the liabilities belonging to WMC. Until such time as these obligations have been resolved,either directly with the creditors, discharged by a court of law, or otherwise eliminated, WMC is required to maintain these obligations on its books, which atDecember 31, 2011 and 2010 were approximately $1.4 million and $12.1 million, respectively. We will, as required by ASC 810, re-evaluate the facts andcircumstances regarding whether or not we should consolidate WMC at each future reporting period. 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,including obtaining price reductions from our overseas suppliers, using alternative supplier sources, increasing selling prices when possible and entering intoforeign currency forward contracts. There were no foreign currency forward contracts at December 31, 2011. IMPACT OF INFLATION We believe that the effects of changing prices and inflation on our consolidated financial position and our results of operations are immaterial. ENVIRONMENTAL MATTERS Although 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 results of operations. NEW ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Standards Refer to Note 1, "Summary of Accounting Policies", to our consolidated financial statements for a discussion of recent accounting standards andpronouncements ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Not Required 16Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 Statements and Supplementary Data P&F INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm18Consolidated Balance Sheets as of December 31, 2011 and 201019Consolidated Statements of Income for the years ended December 31, 2011 and 201021Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2011 and 201022Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 201023Notes to Consolidated Financial Statements25 17Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 FIRM To the Shareholders and Board of DirectorsP&F Industries, Inc. We have audited the accompanying consolidated balance sheets of P&F Industries, Inc. and Subsidiaries as of December 31, 2011 and 2010, and the relatedconsolidated statements of income, shareholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibilityof the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of P&F Industries, Inc. andSubsidiaries as of December 31, 2011 and 2010, and their results of operations and cash flows for the years then ended, in conformity with accountingprinciples generally accepted in the United States of America. /s/ J.H. Cohn LLPJericho, New YorkMarch 30, 2012 18Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31,2011 December 31,2010 ASSETS CURRENT ASSETS Cash $443,000 $874,000 Accounts receivable — net 6,327,000 6,986,000 Inventories — net 18,588,000 18,430,000 Deferred income taxes — net 512,000 233,000 Prepaid expenses and other current assets 454,000 417,000 Current assets of discontinued operations 23,000 23,000 TOTAL CURRENT ASSETS 26,347,000 26,963,000 PROPERTY AND EQUIPMENT Land 1,550,000 1,550,000 Buildings and improvements 7,504,000 7,480,000 Machinery and equipment 16,803,000 16,340,000 25,857,000 25,370,000 Less accumulated depreciation and amortization 15,091,000 13,599,000 NET PROPERTY AND EQUIPMENT 10,766,000 11,771,000 GOODWILL 5,150,000 5,150,000 OTHER INTANGIBLE ASSETS — net 1,950,000 2,300,000 DEFERRED INCOME TAXES — net 1,595,000 1,874,000 OTHER ASSETS — net 778,000 837,000 TOTAL ASSETS $46,586,000 $48,895,000 The accompanying notes are an integral part of these consolidated financial statements. 19Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31,2011 December 31,2010 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Short-term borrowings $5,648,000 $9,996,000 Accounts payable 2,229,000 1,893,000 Accrued liabilities 3,338,000 2,895,000 Current liabilities of discontinued operations 24,000 27,000 Current maturities of long-term debt 1,039,000 406,000 TOTAL CURRENT LIABILITIES 12,278,000 15,217,000 Long-term debt, less current maturities 4,861,000 6,973,000 Long-term liabilities of discontinued operations 292,000 306,000 TOTAL LIABILITIES 17,431,000 22,496,000 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, 2011 and 2010 3,956,000 3,956,000 Class B - $1 par; authorized - 2,000,000 shares; no shares issued — — Additional paid-in capital 10,919,000 10,718,000 Retained earnings 17,235,000 14,680,000 Treasury stock, at cost – 342,000 shares at December 31, 2011 and 2010 (2,955,000) (2,955,000) TOTAL SHAREHOLDERS’ EQUITY 29,155,000 26,399,000 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $46,586,000 $48,895,000 The accompanying notes are an integral part of these consolidated financial statements.20Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2011 2010 Net revenue $54,541,000 $50,609,000 Cost of sales 34,296,000 32,974,000 Gross profit 20,245,000 17,635,000 Selling, general and administrative expenses 17,491,000 16,016,000 Operating income 2,754,000 1,619,000 Interest expense - net 756,000 1,243,000 Income from continuing operations before income taxes 1,998,000 376,000 Income tax expense 89,000 35,000 Income from continuing operations 1,909,000 341,000 Income from discontinued operations (net of tax expense of $9,000 and $0 for the years ended December 31, 2011and 2010) 646,000 340,000 Net income $2,555,000 $681,000 Basic earnings per share Continuing operations $0.53 $0.10 Discontinued operations 0.18 0.09 Net income $0.71 $0.19 Diluted earnings per share Continuing operations $0.52 $0.10 Discontinued operations 0.17 0.09 Net income $0.69 $0.19 Weighted average common shares outstanding: Basic 3,615,000 3,615,000 Diluted 3,698,000 3,634,000 The accompanying notes are an integral part of these consolidated financial statements. 21Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Class A Common Stock, $1 Par Additional paid-in Retained Treasury stock Total Shares Amount capital earnings Shares Amount Balance, January 1, 2010 $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) Net income 2,555,000 2,555,000 Stock-based compensation 201,000 201,000 Balance, December 31, 2011 $29,155,000 3,956,000 $3,956,000 $10,919,000 $17,235,000 (342,000) $(2,955,000) The accompanying notes are an integral part of these consolidated financial statements. 22Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2011 2010 Cash Flows from Operating Activities Net income $2,555,000 $681,000 Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: Income from discontinued operations (646,000) (340,000)Non-cash charges: Depreciation and amortization 1,600,000 1,635,000 Amortization of other intangible assets 350,000 351,000 Amortization of debt issue costs 286,000 210,000 Provision for losses on accounts receivable 1,000 76,000 Stock-based compensation 201,000 103,000 Loss (gain) on sale of fixed assets 1,000 (3,000)Changes in operating assets and liabilities: Accounts receivable 658,000 483,000 Notes and other receivables 49,000 41,000 Inventories (158,000) 1,316,000 Income tax refund receivable — 3,270,000 Prepaid expenses and other current assets (86,000) (179,000)Other assets (227,000) 6,000 Accounts payable 336,000 497,000 Income taxes payable 137,000 243,000 Accrued liabilities 306,000 649,000 Total adjustments 2,808,000 8,358,000 Net cash provided by operating activities of continuing operations 5,363,000 9,039,000 The accompanying notes are an integral part of these consolidated financial statements. 23Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2011 2010 Cash Flows from Investing Activities: Capital expenditures $(598,000) $(244,000)Proceeds from sale of assets 2,000 7,000 Net cash used in investing activities (596,000) (237,000) Cash Flows from Financing Activities: Proceeds from short-term borrowings 40,280,000 15,750,000 Repayments of short-term borrowings (44,628,000) (22,054,000)Term loan advances — 7,047,000 Repayments of term loan (406,000) (6,773,000)Repayments of mortgages — (1,463,000)Principal payments on long-term debt — (336,000)Proceeds from notes payable — 750,000 Repayments on notes payable (1,073,000) (573,000)Payments on capital lease financings — (436,000)Bank financing costs — (816,000)Net cash used in financing activities (5,827,000) (8,904,000) Cash Flows from Discontinued Operations: Operating activities 629,000 2,748,000 Investing activities — (1,735,000)Financing activities — (583,000)Net cash provided by discontinued operations 629,000 430,000 Net (decrease) increase in cash (431,000) 328,000 Cash at beginning of year 874,000 546,000 Cash at end of year $443,000 $874,000 Supplemental disclosures of cash flow information: Cash paid for: Interest $796,000 $1,263,000 Income taxes $16,000 $31,000 The accompanying notes are an integral part of these consolidated financial statements. 24Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 1—SUMMARY OF ACCOUNTING POLICIES Principles of Consolidation The 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. Certain amounts in the financial statements and related footnotes have been reclassified toconform to classifications used in the current year. Company Background P&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.” 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. Hy-Tech manufacturers and distributes its own line of industrial pneumatic tools. Hy-Tech also produces sells over sixty types of tools, whichincludes impact wrenches, grinders, drills, and motors. Further, it also manufacturers tools to customer unique specifications. Its customers includerefineries, chemical plants, power generation, heavy construction, oil and mining companies. In addition, Hy-Tech manufactures an extensive line ofpneumatic tool replacement parts that are sold competitively to the original equipment manufacturer (“OEM”). It also manufactures and distributes highpressure stoppers for hydrostatic testing fabricated pipe. It also produces a line of siphons. Other than a line of sockets that are imported from Israel, all Hy-Tech products are made in the United States of America. The Company conducts its Hardware business through a wholly-owned subsidiary, Countrywide. Countrywide conducts its business operationsthrough its wholly-owned subsidiary, Nationwide Industries, Inc. (“Nationwide”). Nationwide is an importer and manufacturer of door, window and fencinghardware and accessories, including rollers, hinges, window operators, sash locks, custom zinc castings and door closers. Additionally, Nationwide alsomarkets a line of kitchen and bath fixtures. 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. Most of Nationwide’s sales are of products imported from Taiwan and China. Prior to June 2009, Countrywide’s subsidiaries, Woodmark International, L.P. (“Woodmark”) and Pacific Stair Products, Inc. (“PSP”) eachoperated a stair parts business. Additionally, Woodmark was also an importer of kitchen and bath hardware and accessories. In June 2009 pursuant to thetransactions (the “WMC transactions”) that formed the business of WM Coffman LLC (now known as Old Stairs Co (“WMC”)), Woodmark and PSPcontributed stair parts-related assets to WMC in return for members’ equity. Concurrently, Woodmark transferred its kitchen and bath business toNationwide. Accordingly, effective with the WMC transactions, the stair parts business became exclusively the business of WMC, and Woodmark and PSPno longer functioned as operating units. Further, as part of the WMC transactions, in June 2009 WMC acquired substantially all of the assets of CoffmanStairs, LLC, which operated a competitive stair parts business. 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 its bank, PNC, National Association (“PNC”). This in turn led to a decision bythe Company’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 tosell, liquidate or otherwise dispose of its ownership of WMC. Accordingly, the Company began reporting WMC as a discontinued operation effective January1, 2010. As a result, the Company has reclassified prior year financial information to present WMC as a discontinued operation. Further, PNC which was thesole lender and source of credit to WMC, foreclosed upon the assets of WMC. As a result of the aforementioned facts, on June 7, 2010 WMC ceasedoperations. In addition, the Company, no longer includes WMC in its Consolidated Financial Statements. (See Item 7 - Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Liquidity and Capital Resources and Notes 2 and 4 to Consolidated Financial Statements forfurther discussion). 25Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Basis of Financial Statement Presentation The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States(“GAAP”). Consolidation of Variable Interest Entities On January 1, 2010, the Company adopted an accounting standard, which replaced the quantitative-based risks and rewards calculation fordetermining which enterprise, if any, has a controlling financial interest in a variable interest entity. The new approach focuses on identifying which enterprisehas the power to direct the activities of a variable interest entity that most significantly impacts the variable interest entity’s economic performance and (1) theobligation to absorb losses of the variable interest entity or (2) the right to receive benefits from the variable interest entity. As a result of adopting this newaccounting standard, the Company was required to change the way it accounts for its variable interest in WMC. The Company determined that as the resultof the foreclosure by PNC on WMC and PNC’s subsequent disposal and sale of all of WMC’s assets, tangible and intangible, the Company no longer wasthe primary beneficiary of WMC and no longer had a controlling financial interest in WMC. As such, the Company deconsolidated WMC’s financial positionand financial operations. Revenue Recognition The 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 sales returns. If the Company concludes there are potential sales returns, the Company would provide any necessary provisionagainst sales. Shipping and Handling Costs Expenses for shipping and handling costs are included in selling, general and administrative expenses, and totaled approximately $675,000 and$927,000 for the years ended December 31, 2011 and 2010, respectively. Cash Cash 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, 2011 and 2010. The Company maintains cash balances at various financial institutions. At December 31,2011, all cash balances were fully insured by the Federal Deposit Insurance Corporation. Financial Instruments The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts payable and short-term debt approximatefair value as of December 31, 2011 and 2010 because of the relatively short-term maturity of these financial instruments. The carrying amounts reported forlong-term debt approximate fair value as of December 31, 2011 and 2010 because, in general, the interest rates underlying the instruments fluctuate withmarket rates. Accounts Receivable and Allowance for Doubtful Accounts Accounts 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. Management reviews accounts receivable to determine if any receivables will potentially be uncollectible. Factors considered in in the determinationinclude, among other factors, number of days an invoice is past due, customer historical trends, available credit ratings information, other financial data andthe overall economic environment. Collection agencies may also be utilized if management so determines. 26Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 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, 2011 is adequate. However, actual write-offs mightexceed the recorded allowance. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable. The Toolssegment has one customer that accounted for approximately 24.0% and 28.4%, respectively, of consolidated revenue for the years ended December 31, 2011and 2010, and 44.6% and 43.1%, respectively, of consolidated accounts receivable as of December 31, 2011 and 2010. There are no such significantcustomers in the Hardware segment. Use of Estimates The 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 statements 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 accountsreceivable, 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. Inventories Inventories 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 Amortization Property 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. Long-Lived Assets In accordance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) pertaining to the accounting for theimpairment or disposal of long-lived assets, property and equipment and purchased intangibles subject to amortization, are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s assessment of recoverability ofproperty and equipment is performed on an entity level. Recoverability of assets to be held and used is measured by a comparison of the carrying amount ofsuch asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of such asset exceeds its estimatedundiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of theasset. 27Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Goodwill and Other Intangible Assets Goodwill 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, the Company tests goodwill for impairment on an annual basis in the fourthquarter or more frequently if the Company believes indicators of impairment exist. The performance of the test involves a two-step process. The first step ofthe impairment test involves comparing the fair value of the Company’s reporting units with the reporting unit’s carrying amount, including goodwill. TheCompany generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the expected present valueof future cash flows and the market valuation approach. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Companyperforms the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involvescomparing the implied 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 by which the carrying value exceeds the fair value of the asset. Warranty Liability The 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 revenue andhistorical experience. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. While theCompany believes that its estimated liability for product warranties is adequate and that the judgment applied is appropriate, the estimated liability for theproduct warranties could differ materially from future actual warranty costs. Taxes The 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, as well as combined tax returns in New York and Texas. All subsidiaries file other state andlocal tax returns on a stand-alone basis. 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 benefit associated with tax positions takenthat exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheetsalong 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 income. Advertising The Company expenses its costs of advertising in the period in which they are incurred. Advertising costs for the years ended December 31, 2011and 2010 were $819,000 and $873,000, respectively. 28Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Earnings Per Common Share Basic earnings per common share exclude any dilution. It is based upon the weighted average number of shares of common stock outstanding duringthe year. Diluted earnings per common share reflect the effect of shares of common stock issuable upon the exercise of options, unless the effect on earnings isanti-dilutive. Diluted earnings per common share is computed using the treasury stock method. Under this method, the aggregate number of shares of commonstock outstanding reflects the assumed use of proceeds from the hypothetical exercise of any outstanding options to purchase shares of the Company’s Class ACommon 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, 2011 2010 Numerator: Numerator for basic and diluted income per common share: Income from continuing operations $1,909,000 $341,000 Income from discontinued operations 646,000 340,000 Net income $2,555,000 $681,000 Denominator: Denominator for basic income per share—weighted average common sharesoutstanding 3,615,000 3,615,000 Effect of dilutive securities: Stock options 83,000 19,000 Denominator for diluted income per share—adjusted weighted average commonshares and assumed conversions 3,698,000 3,634,000 At December 31, 2011 and 2010 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, 2011 and 2010, respectively. The weighted average anti-dilutive options outstanding for the years ended December 31, 2011 and 2010were 461,624 and 532,624, respectively. Stock-Based Compensation In accordance with GAAP, the Company measures and recognizes compensation expense for all share-based payment awards made to employees anddirectors based on estimated fair values. Share-based compensation expense recognized for the years ended December 31, 2011 and 2010 was approximately$201,000 and $103,000, respectively. Share-based compensation expense is included in selling, general and administrative expense on the accompanyingconsolidated statements of income. See Note 10 for additional information. 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 income. Share-based compensation expense recognized in the Company’s consolidated statements of income for the years ended December 31, 2011 and2010 included compensation expense for share-based payment awards based on the grant date fair value estimate in accordance with GAAP. The Companyfollows the straight-line single option method of attributing the value of stock-based compensation to expense. Also, the Company estimates forfeitures at thetime of grant and revises this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company used the Black-Scholes option-pricing model (“Black-Scholes model”) as its method of valuation for share-based awards granted. The Company’s determination of fair valueof share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regardinga number of complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of theawards and the expected term of the awards. Treasury Stock Treasury 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. 29Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. NEW ACCOUNTING PRONOUNCEMENTS Adoption of New Accounting Pronouncements In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08, Intangibles—Goodwill and Other (Topic 350):Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than itscarrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interimgoodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interimgoodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim periodhave not yet been issued. The Company has concluded that the adoption of this ASU will not have a material effect on its consolidated financial statements. 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— DISCONTINUED OPERATIONS On August 23, 2011, Embassy Industries, Inc. (“Embassy”), a wholly owned non-operating subsidiary of P&F, received a payment ofapproximately $702,000 (the “Payment”) relating to a dispute over the sale by Embassy of certain real property arising under the Contract of Sale (the“Agreement”) between Embassy and J. D’Addario & Company, Inc. (“D’Addario”), dated January 13, 2006, as amended. The Payment was made pursuantto the Amended Judgment of the Supreme Court of the State of New York, Suffolk County, dated August 2, 2011 and entered August 4, 2011. Accordingly,the Company has reported the receipt of these funds, less related legal fees and other expenses, in income from discontinued operations. NOTE 3 — 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 on the requirements within Accounting Standards Codification (“ASC”) 810-10-40 (“ASC 810”), it thenperforms the second step determine whether it is the primary beneficiary of the VIE by considering the following significant factors and judgments, both ofwhich 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 4— DISCONTINUED OPERATIONS – DECONSOLIDATION WMC 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. 30Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 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. 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, in accordance with authoritative literature, the Company determined that WMC was a VIE and were required to deconsolidate WMCfrom its consolidated financial statements. As the result of the foreclosure by PNC on WMC’s assets, tangible and intangible, and their subsequent disposaland sale thereof, the Company, determined that it no longer had a controlling financial interest in WMC and was no longer the primary beneficiary of WMCand accordingly and in accordance with ASC 810, deconsolidated WMC. The Company determined that it no longer had the obligation to absorb losses thatmight be significant to WMC 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 sheetsat December 31, 2011 and 2010. The Company will perform an ongoing reassessment of the VIE to determine the primary beneficiary and may be required toconsolidate WMC in the future. The table below presents the items that have been classified as assets and liabilities of discontinued operations: December 31, 2011 2010 Other current assets $23,000 $23,000 Total current assets of discontinued operations $23,000 $23,000 Accounts payable and accrued expenses 24,000 27,000 Total current liabilities of discontinued operations $24,000 $27,000 Other long-term liabilities $292,000 $306,000 Total non-current liabilities of discontinued operations $292,000 $306,000 31Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 for the year ended December 31, 2011, includes other income of$646,000, net of $9,000 of taxes from discontinued operations other than WMC. Additionally, for the year ended December 31, 2010 the table below presentsthe results of operations of discontinued operations of WMC, other than $67,000 of selling, general and administrative expenses. Years Ended December 31, 2011 2010 Revenue $— $10,136,000 Gross profit $— $900,000 Selling, general and administrative expenses and interest expense — 3,130,000 Loss on foreclosure and other expenses — 5,240,000 Termination of lease — 4,280,000 Other income 655,000 — Income (loss) before income taxes 655,000 (11,750,000) Income tax expense 9,000 — Income (loss) from discontinued operations 646,000 (11,750,000) Gain resulting from deconsolidation of WMC — 12,090,000 Income from discontinued operations $646,000 $340,000 NOTE 5—ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Accounts receivable—net consists of: December 31,2011 December 31,2010 Accounts receivable $6,553,000 $7,211,000 Allowance for doubtful accounts (226,000) (225,000) $6,327,000 $6,986,000 NOTE 6—INVENTORIES Inventories—net consist of: December 31,2011 December 31,2010 Raw materials $2,301,000 $1,932,000 Work in process 979,000 561,000 Finished goods 17,459,000 18,255,000 20,739,000 20,748,000 Reserve for obsolete and slow-moving inventories (2,151,000) (2,318,000) $18,588,000 $18,430,000 32Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 7—GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill 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, 2011. 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 2011 or 2010. Consolidated Tools Hardware Balance, December 31, 2011 and 2010 $5,150,000 $3,277,000 $1,873,000 The balances of other intangible assets were as follows: December 31, 2011 December 31, 2010 Cost Accumulatedamortization Net book value Cost Accumulatedamortization Net book value Other intangible assets: Customer relationships $5,070,000 $3,581,000 $1,489,000 $5,070,000 $3,255,000 $1,815,000 Non-compete and employmentagreements 760,000 760,000 760,000 760,000 Trademarks 199,000 — 199,000 199,000 — 199,000 Drawings 290,000 70,000 220,000 290,000 56,000 234,000 Licensing 105,000 63,000 42,000 105,000 53,000 52,000 Totals $6,424,000 $4,474,000 $1,950,000 $6,424,000 $4,124,000 $2,300,000 There were no impairment charges recorded for the years ended December 31, 2011 and 2010. Amortization expense for intangible assets was approximately $350,000 for each of the years ended December 31, 2011 and 2010. Amortization expense foreach of the next five years is estimated to be as follows 2012—$350,000; 2013—$206,000; 2014—$185,000; 2015—$186,000; and 2016—$175,000. Theweighted average amortization period for intangible assets was 8.2 years and 8.6 years at December 31, 2011 and 2010, respectively. NOTE 8—WARRANTY LIABILITY Changes in the Company’s warranty liability, included in accrued liabilities, were as follows: Years Ended December 31, 2011 2010 Balance, beginning of year $250,000 $183,000 Provision for warranties 512,000 334,000 Actual warranty costs incurred (594,000) (267,000)Balance, end of year $168,000 $250,000 NOTE 9—DEBT SHORT-TERM LOANS P&F along with Florida Pneumatic, Hy-Tech and Nationwide, as borrowers, entered into a Credit Agreement, (“Credit Agreement”) with Capital OneLeverage Finance Corporation, as agent (“COLF”). The Credit Agreement, entered into in October 2010, has a three-year term, with maximum borrowings of$22,000,000 at that time. The Credit Agreement provides for a Revolving Credit Facility (“Revolver”) with a maximum borrowing of $15,910,000. AtDecember 31, 2011 and 2010, the balances owing on the Revolver were $5,648,000 and $9,996,000, respectively. Direct borrowings under the Revolver aresecured by the Company’s accounts receivable, mortgages on the Company’s real property located in Cranberry, PA, Jupiter, FL and Tampa, FL (“RealProperty”), inventory and equipment and are cross-guaranteed by certain of the Company’s subsidiaries (the “Subsidiary Guarantors”). Revolver borrowingsbear interest at LIBOR (London InterBank Offered Rate) or the Base Rate, as defined in the Credit Agreement, plus the currently applicable marginrates. Beginning April 1, 2011, the loan margins applicable to borrowings on the Revolver are determined based upon the computation of total debt divided byearnings before interest, taxes, depreciation and amortization (“EBITDA”). Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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.33Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. On November 21, 2011, the Company and COLF entered into the Second Amendment to Credit Agreement, (the “Amendment”). The Amendment,among other things, (i) further reduced the applicable loan margins for Revolver borrowings by 0.25% or 0.50%, depending on the applicable leverage ratio,(ii) increased the maximum aggregate amount of permitted Capital Expenditures (as defined in the Loan Agreement) for each of 2012 and 2013 from$1,000,000 to $2,500,000 and (iii) established a $2,500,000 Capital Expenditure loan commitment by COLF, pursuant to which COLF may make one ormore Capex Loans (as defined in the Amendment) to the Company under the terms set forth in the Amendment. As such, pursuant to the Amendment, the totalcommitment by COLF increased from $22,000,000 to $24,500,000. Further, as a result of the Amendment, the applicable loan margins range from 2.50% to3.50% for LIBOR borrowings and from 1.50% to 2.50% for borrowings at Base Rate. Loan margins added to Revolver borrowings at December 31, 2011 were2.75% and 1.75%, respectively, for borrowings at LIBOR and the Base Rate. Loan margins added to Revolver borrowings at December 31, 2010 were 3.75%and 2.75%, respectively, for borrowings at LIBOR and the Base Rate. The Company incurs an unused line fee ranging from one-half percent (0.50%) to three-quarters percent (0.75%), depending on the percentage of theRevolver to the Credit Facility. The Company is also required to provide, among other things, monthly financial statements and monthly borrowing basecertificates. The Company is subject to and in compliance with various financial covenants. As part of the Credit Agreement, if an event of default occurs, theinterest rate would increase by two percent per annum during the period of default. Prior to the effective date of the Credit Agreement, the Company and its subsidiaries, other than WMC, as co-borrowers, were parties to a creditagreement, (“Prior Credit Agreement”) as amended, with Citibank, N.A., as agent. The Prior Credit Agreement, among other things, included a revolvingcredit loan facility (“revolving loan”). Direct borrowings under the revolving loan were secured by the Company’s accounts receivable, inventory, equipmentand real property, and were cross-guaranteed by each of the Company’s subsidiaries, except WMC. These borrowings incurred interest at LIBOR or the primeinterest rate, plus applicable loan margins. Concurrent with entering into the new Credit Agreement with COLF, the Company paid the lenders under the Prior Credit Agreement $14,610,000 asfull settlement of all of its obligations, including a then revolving loan, a term note and accrued interest. Further, the Company paid in their entirety, twomortgage loans with Wachovia Bank, aggregating $1,504,000, including fees and other related expenses. Additionally, the Company paid $685,000,representing 50% of the outstanding loan amount, plus accrued interest, to the previous owners of Hy-Tech. With the approval of COLF, the Company andthe previous owners of Hy-Tech entered into a Termination of Promissory Note and Mutual Releases dated October 31, 2011, (the “Subordinated DebtTermination Agreement”), which was effective as of November 1, 2011. Pursuant to the Subordinated Debt Termination Agreement, the Company paid$550,000 in full satisfaction of the approximately $573,000 in subordinated debt outstanding, plus approximately $4,000 in accrued interest, to the previousowners of Hy-Tech and the parties terminated the related subordinated promissory note and exchanged releases. LONG-TERM LOANS Long-term debt consists of: December 31, 2011 2010 Term loan—$33,833 (plus interest) payable monthly December 1, 2010 through October 1, 2013, with allremaining principal payable on October 25, 2013 $5,650,000 $6,056,000 Note payable to former owners of Hy-Tech Machine, Inc ---- 573,000 Subordinated note payable to officer 250,000 250,000 Subordinated note payable to unrelated party ---- 500,000 5,900,000 7,379,000 Less current maturities 1,039,000 406,000 $4,861,000 $6,973,000 The Credit Facility also contains a $6,090,000 term loan (the “Term Loan”), which is secured by mortgages on the Real Property, accountsreceivable, inventory and equipment. The Term Loan amortizes $33,833 each month with a balloon payment at maturity of the Credit Agreement. The CreditAgreement requires the Company to make prepayments, to be applied to the Term Loan, of 25% of excess annual cash flow, as defined in the CreditAgreement, or in the event of a sale of any real estate assets. Based on 2011 excess cash flows, the Company will make a payment of approximately $633,000in the second quarter of 2012. This amount is included in current maturities of long-term debt on the consolidated balance sheet. Term Loan borrowings bearinterest at LIBOR or the prime interest rate plus the currently applicable margin rates, which were 5.75% and 4.75%, respectively, at December 31, 2011 and2010. 34Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 April 2010, as part of an amendment to the Company’s prior credit agreement, the Company was required to obtain subordinated loans of$750,000, (the “Subordinated Loans”). The Subordinated Loans were provided by the Company’s Chief Executive Officer (“CEO”), in the amount of$250,000, and an unrelated party, in the amount of $500,000, each with a maturity date of October 25, 2013. These Subordinated Loans bear interest at 8%per annum. The Company paid interest of $20,000 and $10,000 in 2011 and 2010, respectively, to the CEO. As of the date of this filing, all interest earnedthrough December 31, 2011 has been paid. Pursuant to a subordination agreement with COLF, the principal amount owed to the unrelated third party waspaid in full from excess cash flows, as defined in such subordination agreement. The aggregate amounts of long-term debt scheduled to mature in each of the years ended December 31, are approximately as follows: 2012—$1,039,000; 2013—$656,000; and 2014—$4,205,000. Interest expense on long-term debt was approximately $359,000 and $346,000 for the years endedDecember 31, 2011 and 2010, respectively NOTE 10—STOCK OPTIONS The 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 closing market value of the Class A Common Stock on the date the option isgranted. 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 closing marketvalue of the Class A Common Stock on the date the option is granted. In the event options granted contain a vesting schedule over a period of years, theCompany recognizes compensation cost for these awards on a straight-line basis over the service period. On May 16, 2011, 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 May 16, 2011 vest one-third on each of the first three anniversaries of thegrant date. Further, all options granted on May 16, 2011 have an exercise price of $4.56. 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. The Company estimated the fair value of its common stock options using the following assumptions: For the years ended December 31, 2011 December 31, 2010 Risk-free interest rate3.20% 3.17%Expected term6.5 years Ranging from 6.5 to 10.0Volatility61.99% Ranging from 50.7% to 59.5%Dividend yield0% 0%Weighted-average fair value of options granted$2.80 $1.84 35Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 contains information on the status of the Company’s stock options: Number of Shares WeightedAverage Exercise Price per share Aggregate Intrinsic Value Outstanding, January 1, 2010 514,624 $7.26 Granted 72,000 3.03 Expired (1,000) 11.20 Outstanding, December 31, 2010 585,624 6.73 Granted 70,000 4.56 Expired (500) 11.38 Outstanding, December 31, 2011 655,124 $6.50 $31,000 Vested, December 31, 2011 480,457 $7.40 $12,000 All options that expired in 2011 were issued under the Current Plan. The following is a summary of changes in non-vested shares, all of which are expected to vest: December 31, 2011 2010 Option Shares Weighted Average Grant-Date Fair Value Option Shares Weighted Average Grant-Date Fair Value Non-vested shares, beginning of year 165,333 $2.19 147,667 $2.85 Granted 70,000 2.80 70,000 1.85 Vested (60,666) 2.05 (52,334) 3.61 Forfeited — — — — Non-vested shares, end of year 174,667 $2.43 165,333 $2.19 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, does not necessarily correspond to the period(s) in which straight-line amortization of compensation cost isrecorded. Other Information As of December 31, 2011, the Company had approximately $202,000 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 1.3 years. There were options available for issuance under the Current Plan as of December 31 of each year as follows: 2011—302,712 and 2010—372,212.All of the options outstanding at December 31, 2011 were issued under the Current Plan. The following table summarizes information about stock options outstanding and exercisable at December 31, 2011: Options outstanding Options Exercisable Range of Exercise Prices Number outstanding WeightedAverage Remaining Contractual Life (Years) Weighted Average ExercisePrice Number exercisable Weighted Average Life Weighted Average ExercisePrice $6.00 109,436 0.5 $6.00 109,436 0.5 $6.00 $7.90 - $8.06 115,688 2.5 $8.05 115,688 2.5 $8.05 $14.44 - $16.68 24,500 3.5 $16.50 24,500 3.5 $16.50 $11.20 - $11.38 89,500 5.5 $11.20 89,500 5.5 $11.20 $4.16 174,000 6.5 $4.16 116,000 6.5 $4.16 $2.17 2,000 8.6 $2.17 2,000 8.6 $2.17 $3.05 70,000 9.3 $3.05 23,333 9.3 $3.05 $4.56 70,000 9.4 $4.56 - - $- Total 655,124 480,457 36Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 11—INCOME TAXES Income tax (benefit) for continuing operations in the consolidated statements of income consists of: Years Ended December 31, 2011 2010 Current: Federal $35,000 $5,000 State and local 54,000 30,000 Total current 89,000 35,000 Deferred: Federal — — State and local — — Total deferred — — Totals $89,000 $35,000 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. 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 63% and 75% of the net deferred tax asset at December 31, 2011 and 2010, respectively. The recorded valuationallowance at December 31, 2011 and 2010 was $4,107,000 and $6,107,000, 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, 2011 of approximately $2,000,000, 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 $21,000,000, of which $18,000,000 has a full valuation allowance. The state net operating losses expire in 2027 through 2031.The Company believes it is more likely than not that the remaining tax benefits associated with these net deferred tax assets will not be realized in theforeseeable future based upon its ability to generate sufficient taxable income. 37Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. Deferred tax assets (liabilities) consist of: December 31, 2011 2010 Deferred tax assets—current: Bad debt reserves $83,000 $82,000 Inventory reserves 994,000 780,000 Warranty and other reserves 302,000 335,000 Accrued wages — — 1,379,000 1,197,000 Valuation allowance (735,000) (842,000) 644,000 355,000 Deferred tax liabilities—current: Prepaid expenses (132,000) (122,000)Net deferred tax assets—current $512,000 $233,000 Deferred tax assets—non-current Intangibles $2,334,000 $2,014,000 Goodwill 1,617,000 2,527,000 Federal net operating loss 1,177,000 2,920,000 State net operating loss 448,000 462,000 Other 364,000 221,000 5,940,000 8,144,000 Valuation allowance (3,372,000) (5,265,000) 2,568,000 2,879,000 Deferred tax liabilities—non-current: Depreciation (973,000) (1,005,000)Net deferred tax assets—non-current $1,595,000 $1,874,000 A reconciliation of the Federal statutory rate to the total effective tax rate applicable to income from continuing operations is as follows: Years ended December 31, 2011 2010 $ % $ % Federal income tax computed at statutory rates $679,000 34.0% $128,000 34.0%(Decrease) increase in taxes resulting from: State and local taxes, net of Federal tax benefit 36,000 1.8 20,000 5.3 Change in valuation allowance (675,000) (33.8) (236,000) (62.6)Expenses not deductible for tax purposes 32,000 1.6 50,000 13.3 Increase in uncertain tax positions 15,000 0.8 11,000 2.9 Other 2,000 0.1 62,000 16.4 Income tax expense $89,000 4.5% $35,000 9.3% The Company adopted authoritative guidance issued by the FASB that pertained to the accounting for uncertain matters on January 1, 2007. Theadoption of this guidance did not have a material impact on the Company’s consolidated financial position or results of operations. A reconciliation of thebeginning and ending amounts of unrecognized tax benefits is as follows: Balance at January 1, 2011 $286,000 Interest accrual 15,000 Balance at December 31, 2011 $301,000 Interest and penalties, if any, related to income tax liabilities are included in income tax expense. The Internal Revenue Service has completed examinations of the Company’s Federal tax returns through 2007. A refund claim based on theCompany’s Federal tax return for 2009 is currently awaiting review by the Joint Committee on Taxation. The Company does not expect that this review willrequire any material changes to the refund claim as filed. 38Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 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, 2008 through December 31, 2010. NOTE 12—COMMITMENTS AND CONTINGENCIES (a) The Company maintains a contributory defined contribution plan that covers all eligible employees. All contributions to this plan arediscretionary. Amounts recognized as expense for contributions to this plan were $31,000 and $30,000 for the years ended December 31, 2011 and 2010,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, 2011, the outstanding amount of this withdrawalliability was approximately $292,000, which is included in long-term liabilities of discontinued operations. (c) Effective January 1, 2012, the Company entered into a new employment agreement with its CEO. The employment agreement provides forthe CEO 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 31,2014, 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 $650,000, which will be reviewed annually by the compensation committee of the Board and may be increased, but notdecreased, from time to time. The CEO is eligible for an annual discretionary incentive payment under the Company’s Executive 162(m) Bonus Plan. TheCEO also receives (i) senior executive level employee benefits, (ii) an annual payment of $45,064 to cover premiums on a life insurance policy, (iii) aCompany provided automobile and payment of certain related expenses, and (iv) payment and/or reimbursement of certain legal and consultants’ fees inconnection with the employment agreement. In the event the CEO’s employment is terminated by the Company without cause (as defined in the employment agreement), or the CEO resigns forgood reason (as defined in the employment agreement) then, subject to his execution of a general release, the CEO will continue to receive his base salary for 18months, a pro rata bonus for the year of termination, and the Company will pay his monthly COBRA premiums until the earlier of (a) 18 months from thedate of termination, (b) his becoming eligible for medical benefits from a subsequent employer, or (c) his becoming ineligible for COBRA. 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 employment agreement) or, under certain circumstances, within six months prior to a change in control, then subject to theCEO’s execution of a general release, he will receive the amounts set forth in the previous paragraph either in whole or in part in a lump sum, subject to hisexecution of a general release. Notwithstanding the foregoing, in the event an excise tax (as defined in the employment agreement) would otherwise be incurredby the CEO, amounts paid upon a change in control will be reduced to 2.99 times his “base amount” (as determined in accordance with Sections 280G of theInternal Revenue Code of 1986, as amended). Pursuant to the employment agreement, during term of his employment and for a period of twelve 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, 2011 and 2010, the Company had open purchase order commitments totaling approximately $7,717,000 and$6,319,000, 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 eachof 2011 and 2010 amounted to approximately $252,000. Future minimum payments under non-cancelable operating leases with initial or remaining terms ofmore than one year as of December 31, 2011 were as follows: 2012 $238,000 2013 62,000 2014 11,000 2015 11,000 $322,000 39Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 13—BUSINESS SEGMENTS The 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, 2011 and 2010. 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, 2011 Net revenues from unaffiliated customers $54,541,000 $39,849,000 $14,692,000 Segment operating income $8,282,000 $6,340,000 $1,942,000 General corporate expense - net (5,528,000) Interest expense (756,000) Income from continuing operations before income taxes $1,998,000 Segment assets $43,679,000 $33,106,000 $10,573,000 Corporate assets 2,907,000 Total assets $46,586,000 Long-lived assets, including $198,000 of corporate assets $17,866,000 $13,187,000 $4,481,000 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 from continuing operations 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 of corporate assets $19,221,000 $14,339,000 $4,546,000 Depreciation expense for the Tools and Hardware segments for the year ended December 31, 2011 was $1,181,000 and $198,000, respectively, and$1,166,000 and $229,000, respectively, for the year ended December 31, 2010. Amortization expense for the Tools and Hardware segments for the year endedDecember 31, 2011 was $354,000 and $10,000, respectively, and $354,000 and $10,000, respectively, for the year ended December 31, 2010. There were noimpairment charges recorded in 2011. 40Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 Tools segment has one customer that accounted for approximately 24.0% and 28.4%, respectively, of consolidated revenue for the years endedDecember 31, 2011 and 2010 and 44.6% and 43.1%, respectively, of consolidated accounts receivable as of December 31, 2011 and 2010. There are nosignificant customers in the Hardware segment. NOTE 14—RELATED PARTY TRANSACTIONS One 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 $205,000 and $239,000, respectively, for the years ended December 31, 2011and 2010. The president of Hy-Tech is part owner of one of its vendors. During the years ended December 31, 2011 and 2010, the Company purchasedapproximately $1,268,000 and $827,000, 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 subordinated loans totaling $750,000.These subordinated loans were from the CEO, in the amount of $250,000, and an unrelated party, in the amount of $500,000. The loan payable to theunrelated party was paid in full as of December 31, 2011. The loan payable to the CEO bears interest at 8% per annum and is due October 23, 2013. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. Item 9A. Controls and Procedures Evaluation of disclosure controls and procedures We maintain disclosure and control procedures that are designed to ensure that information required to be disclosed in reports filed under theSecurities and Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securitiesand Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO andchief financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our CEO and chief financial officer, carried out an evaluation of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2011. Basedupon that evaluation, the CEO and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2011. Management’s Report on Internal Control over Financial Reporting Management 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 generally accepted accounting principles. 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 generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorizationsof our management and directors; and •Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that couldhave a material effect on the consolidated financial statements. 41Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 conclusion of the year ended December 31, 2011, 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, 2011. 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. This annual report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal controlover financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of theSecurities and Exchange Commission that permit us to provide only management’s report in this annual report. Changes in Internal Control over Financial Reporting There have been no significant changes in our internal control over financial reporting during the most recently completed fiscal quarter endedDecember 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None 42Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 III Item 10. Directors, Executive Officers and Corporate Governance The 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 2012, to be filed with the Securities andExchange Commission within 120 days following the end of the Company’s year ended December 31, 2011. Item 11. Executive Compensation See Item 10. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters See Item 10. Item 13. Certain Relationships and Related Transactions, and Director Independence See Item 10. Item 14. Principal Accounting Fees and Services See Item 10. 43Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 IV Item 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.17 (2)All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the relatedinstructions or are inapplicable and, therefore, have been omitted.- (3)List of Exhibits 44 The following exhibits are either included in this report or incorporated herein by reference as indicated below: ExhibitNumber Description of Exhibit 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). 4.1 Rights Agreement, dated as of August 19, 2004, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent(Incorporated by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A dated August 19, 2004). 10.1 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). 10.2 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). 10.3 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). 10.4 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). 10.5 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). 10.6 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). 10.7 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). 10.8 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,Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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.2007). 10.9 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). 10.10 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). 44Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 Exhibit 10.11 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). 10.12 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). 10.13 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). 10.14 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). 10.15 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). 10.16 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). 10.17 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). 10.18 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). 10.19 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). 10.20 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). 45Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 Exhibit 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 HSBC Bank USA, NationalAssociation (Incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated March 26, 2009). 10.22 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). 10.23 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., 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). 10.24 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). 10.25 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). 10.26 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 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). 10.27 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). 10.28 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). 10.29 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). 46Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 Exhibit 10.30 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). 10.31 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). 10.32 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). 10.33 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). 10.34 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). 10.35 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). 10.36 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). 10.37 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). 10.38 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). 10.39 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). 10.40 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). 47Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 Exhibit 10.41 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). 10.42 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). 10.43 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). 10.44 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). 10.45 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). 10.46 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). 10.47 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 (Incorporated by reference to Exhibit 10.56 to the Registrant’s Annual Report on Form 10-K forthe fiscal year ended December 31, 2010). 10.48 Agreement Settling Claims and Exchanging Mutual Releases, dated May 5, 2011, among Old Stairs Co LLC, the Registrant, Richard A.Horowitz, Christopher Kliefoth and Xiaman We Yu Wood Products Co., Ltd. (Incorporated by reference to Exhibit 10.1 to the Registrant’sQuarterly Report on Form 10-Q for the quarter ended June 30, 2011). 10.49 Settlement of Claims and Mutual General Releases, dated August 3, 2011, by and between Old Stairs Co LLC, the Registrant and AGNLCoffman, LLC. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period endedSeptember 30, 2011). 10.50 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.) 10.51 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). 10.52 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). 10.53 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). 10.54 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). 48Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 Exhibit 10.55 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). 10.56 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). 10.57 Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, dated as of October 25, 2010, made by CountrywideHardware, Inc. in favor of Capital One Leverage Finance Corporation, as agent (Incorporated by reference to Exhibit 10.10 to the Registrant’sCurrent Report on Form 8-K dated October 25, 2010). 10.58 Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, dated as of October 25, 2010, made by FloridaPneumatic Manufacturing Corporation. in favor of Capital One Leverage Finance Corporation, as agent(Incorporated by reference to Exhibit 10.11to the Registrant’s Current Report on Form 8-K dated October 25, 2010). 10.59 Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, dated as of October 25, 2010, made by Hy-TechMachine, Inc.. in favor of Capital One Leverage Finance Corporation, as agent(Incorporated by reference to Exhibit 10.12 to the Registrant’sCurrent Report on Form 8-K dated October 25, 2010). 10.60 First Amendment to Loan and Security Agreement, dated as of September 21, 2011, among the Registrant, Florida Pneumatic ManufacturingCorporation, Hy-Tech, Machine, Inc., Nationwide Industries, Inc., Continental Tool Group, Inc., Countrywide Hardware, Inc., EmbassyIndustries, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P., and Capital OneLeverage Finance Corporation, as agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated September21, 2011). 10.61 Second Amendment to Loan and Security Agreement, dated as of November 21, 2011, among the Registrant, Florida Pneumatic ManufacturingCorporation, Hy-Tech, Machine, Inc., Nationwide Industries, Inc., Continental Tool Group, Inc., Countrywide Hardware, Inc., EmbassyIndustries, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P., and Capital OneLeverage Finance Corporation, as agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated November21, 2011). 10.62 Capex Term Note, dated November 21, 2011, 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 principal amount of up to $2,500,000(Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated November 21, 2011). 10.63 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). 10.64 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). 10.65 Termination of Promissory Note and Mutual Releases dated October 31, 2011 among the Hy-Tech Machine, Inc., Hy-Tech Holdings, Inc.,Quality Gear Holdings, Inc., HTM Associates and Robert H. Ober, Elizabeth Smail, James J. Browne, Daniel Berg and James Hohman (Filedherein). 10.66 *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) 10.67 *Executive Employment Agreement, dated as of January 1, 2012, between the Registrant and Richard A. Horowitz (Incorporated by reference toExhibit 10.1 to the Registrant’s Current Report on Form 8-K dated December 29, 2011) 10.68 *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). 10.69 *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). 10.70 *Grant of bonus to named executive officers with respect to performance in 2010 (Incorporated by reference to Item 5.02(e) of Registrant’s CurrentSource: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 on Form 8-K dated March 9, 2011). 10.71 *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). 49Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 Exhibit 21 Subsidiaries of the Registrant (Filed herein). 23.1 Consent of 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). 101 ** XBRL Interactive Data 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. ** Attached as Exhibit 101 to this Annual Report on Form 10-K are the following, each formatted in Extensible Business Reporting Language (“XBRL”):(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statementsof Cash Flows and (v) Notes to Consolidated Financial Statements. This exhibit is deemed “furnished”, not “filed”. Accordingly, this exhibit will not beincorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, unless specifically identifiedtherein as being incorporated therein by reference. 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. 50Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. SIGNATURES Pursuant 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 30, 2012 Joseph A. Molino, Jr.Vice PresidentPrincipal Financial andAccounting OfficerDate: March 30, 2012 Pursuant 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 30, 2012Richard A. Horowitz /s/ Jeffrey D. Franklin Director March 30, 2012Jeffrey D. Franklin /s/ Howard Brod Brownstein Director March 30, 2012Howard Brod Brownstein /s/ Dennis Kalick Director March 30, 2012Dennis Kalick /s/ Kenneth M. Scheriff Director March 30, 2012Kenneth M. Scheriff /s/ Mitchell A. Solomon Director March 30, 2012Mitchell A. Solomon /s/ Marc A. Utay Director March 30, 2012Marc A. Utay /s/ Alan Goldberg Director March 30, 2012Alan Goldberg /s/ Robert Dubofsky Director March 30, 2012Robert Dubofsky 51 Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. TERMINATION OF PROMISSORY NOTEAND MUTUAL RELEASES THIS TERMINATION OF PROMISSORY NOTE AND MUTUAL RELEASES (“Release Agreement”) is entered into this 31st day of October,2011, by and among Hy-Tech Machine, Inc., a Delaware corporation (the “Purchaser”), P&F Industries, Inc., a Delaware corporation (“P&F”), Hy-TechHoldings, Inc., a Delaware corporation (“Holdings”), Quality Gear Holdings, Inc., a Delaware corporation (“Quality” and together with Holdings, the“Sellers”), HTM Associates, a Pennsylvania general partnership (“HTM”) and Robert H. Ober, Elizabeth Smail, James J. Browne, Daniel Berg and JamesHohman (collectively, the Shareholders”). Whereas, Sellers, HTM, the Shareholders and the Purchaser are parties to that certain Asset Purchase Agreement dated as of February 12, 2007 (the“Purchase Agreement”), as amended by the parties thereto as of June 26, 2009 by Amendment No. 1 to Asset Purchase Agreement (“Amendment No. 1”). Whereas, Purchaser is the indirect, wholly owned subsidiary of P&F. Whereas, as of May 16, 2009, the Purchaser issued a subordinated promissory note in favor of Holdings in the principal amount of$1,719,706.50 (the “Original Note”), which evidenced payment of a portion of the purchase price payable under the Purchase Agreement. Whereas, as of October 25, 2010, the Purchaser amended and restated the Original Note and issued an amended and restated subordinatedpromissory note in favor of Holdings in the principal amount of $573,235 (the “Amended Note”). Whereas, the parties hereto desire that (a) the Purchaser make a payment of $550,000 plus accrued interest as of the date hereto to Holdings in fulland complete satisfaction of the obligations under the Amended Note and (b) the parties exchange mutual releases. NOW, THEREFORE, in consideration of the promises and covenants herein, and for other good and valuable consideration, the receipt andsufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Payment. In full and complete satisfaction of the Amended Note, the Purchaser shall pay to Holdings the sum of $553,141 in cash (the“Payment”). 2. Termination of the Amended Note. Effective with Holdings’ receipt of the Payment, the Amended Note is and shall be deemed to beterminated by mutual consent according to its terms and provisions, without any further obligations, debts or duties on the part of any party thereto. 3. Release by Holdings, HTM, Quality and the Shareholders. Holdings, HTM, Quality and the Shareholders, together with theirrespective successors and assigns, each hereby releases and discharges the Purchaser and P&F and their respective representatives, agents, administrators,shareholders, subsidiaries, successors, assigns, officers, directors, affiliates 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, knownor unknown, discovered or undiscovered, asserted or unasserted, which Holdings, HTM, Quality and/or the Shareholders and their respective successorsand assigns, ever had, now has, or hereafter can, shall or may have, arising from the beginning of time to the date hereof relating to any obligations pursuantto (a) the Amended Note, (b) the Original Note and (c) Article II of the Purchase Agreement (as the same was amended by Section 2 of Amendment No. 1(collectively, with the Amended Note and the Original Note, the “Payment Agreements”)). Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. 4. Release by the Purchaser and P&F. The Purchaser and P&F, together with their respecive successors and assigns, each hereby releasesand discharges Holdings, HTM, Quality and the Shareholders, and their respective representatives, agents, administrators, shareholders, subsidiaries,successors, assigns, officers, directors, affiliates 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, which the Purchaser, its successors and assigns, ever had, now has, or hereafter can, shall or may have, arisingfrom the beginning of time to the date hereof relating to any obligations pursuant to the Payment Agreements. 5. Conditions Precedent to Occurrence of Effective Date. This Release Agreement shall become effective upon receipt of the Payment byHoldings and the execution and delivery of each of the signatures set forth herein. 6. Presumptions. Each of the parties hereto acknowledge that he, she or it, respectively, has consulted with counsel and with such otherexperts and advisors as he, she or it has deemed necessary in connection with the negotiation, execution and delivery of this Release Agreement and hasparticipated in the drafting hereof. Therefore, this Release Agreement shall be construed without regard to any presumption or rule requiring that it be construedagainst any one party causing this Release or any part hereof to be drafted. 7. Entire Agreement. This Release Agreement contains the entire understanding and agreement by and among the parties with respect to thesubject matter hereof. No other agreements, covenants, representations or warranties, expressed or implied, oral or written, have been made by any party withrespect to the subject matter of this Release Agreement. All prior or contemporaneous conversations, negotiations, proposed agreements and agreements, orcovenants, representations and warranties with respect to the subject matter hereof are waived and superseded by, replaced in their entireties and merged intothis Release Agreement. 8. Further Assurance. Each party to this Release Agreement shall execute such other and further documents and instruments as the otherparty may reasonably request to implement the provisions of this Release Agreement. 9. Benefit of Agreement. This Release Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto andtheir respective successors and assigns. No other person or entity shall be entitled to claim any right or benefit hereunder, including, without limitation, anythird-party beneficiary of this Release Agreement. 10. Severability. The provisions of this Release Agreement are intended to be severable. If any provisions of this Release Agreement shall beheld invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidityor enforceability 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. 2Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. 11. Governing Law, Jurisdiction, Venue. This Release Agreement shall be governed by and construed in accordance with the laws of theState of New York applied to contracts to be performed wholly within the State of New York. Any judicial proceeding brought by or against any party to thisRelease Agreement with respect to this Release Agreement or any related agreement may be brought in any court of competent jurisdiction in the State of NewYork, County of New York, United States of America, and, by execution and delivery of this Release Agreement, each party accepts for himself, herself oritself and in connection with his properties, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts, and irrevocably agree to be boundby any judgment rendered thereby in connection with this Release Agreement.. Each party to this Release Agreement waives any objection to jurisdiction andvenue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. 12. Waiver of Jury Trial. EACH PARTY TO THIS RELEASE AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TOTRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS RELEASE AGREEMENT OR ANYOTHER INSTRUMENT, 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 BY JURY.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. 13. Counterparts; Electronic Signatures. This Release Agreement may be executed in one or more counterparts, all of which taken togethershall constitute 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 signaturehereto. 14. Amendment. No amendment, modification, rescission, waiver or release of any provision of this Release Agreement shall be effectiveunless the same shall be in writing and signed by the parties hereto. 15. Headings. Section headings in this Release Agreement are included herein for convenience of reference only and shall not constitute a partof this Release Agreement for any other purpose. 3Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. [Remainder of page intentionally left blank] 4Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. HY-TECH MACHINE, INC. By: /s/ Joseph A. Molino, Jr.Name: Joseph A. Molino, Jr.Title: Vice President P&F INDUSTRIES, INC. By: /s/ Joseph A. Molino, Jr.Name: Joseph A. Molino, Jr.Title: Vice President HY-TECH HOLDINGS, INC. By: /s/ Robert H. OberName: Robert H. OberTitle: President QUALITY GEAR HOLDINGS, INC. By: /s/ Robert H. OberName: Robert H. OberTitle: President HTM ASSOCIATES By: /s/ Robert H. OberName: Robert H. OberTitle: President [Signatures continued on following page] 5Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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. /s/ Robert H. OberRobert H. Ober /s/ Elizabeth SmailElizabeth Smail /s/ James J. BrowneJames J. Browne /s/ Daniel BergDaniel Berg /s/ James HohmanJames Hohman 6 Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 21 P&F INDUSTRIES, INC. SUBSIDIARIES OF THE REGISTRANT Continental Tool Group, Inc., a Delaware Corporation Hy-Tech Machine, Inc., a Delaware CorporationFlorida Pneumatic Manufacturing Corporation, a Florida CorporationD/b/a Universal ToolD/b/a PipemasterD/b/a Berkley Tool Countrywide Hardware, Inc., a Delaware Corporation Nationwide 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 Company Embassy Industries, Inc., a New York Corporation Green Manufacturing, Inc. a Delaware Corporation Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 30, 2012 relating to the consolidated financial statements of P&F Industries, Inc. as of December 31, 2011 and 2010, and for the years thenended included in this Annual Report of P&F Industries, Inc. on Form 10-K for the year ended December 31, 2011. /s/ J.H. Cohn LLPJericho, New YorkMarch 30, 2012 Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 31.1 P&F INDUSTRIES, INC.CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, 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 reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.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 30, 2012Principal Executive Officer Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 31.2 P&F INDUSTRIES, INC.CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, 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 reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.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 30, 2012Principal Financial Officer Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 32.1 P&F INDUSTRIES, INC.CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report on Form 10-K of P&F Industries, Inc. (the “Company”) for the year ended December 31, 2011, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), the undersigned, Richard A. Horowitz, Principal Executive Officer of the Company,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 30, 2012Principal Executive Officer Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 32.2 P&F INDUSTRIES, INC.CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report on Form 10-K of P&F Industries, Inc. (the “Company”) for the year ended December 31, 2011, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), the undersigned, Joseph A. Molino, Jr., Principal Financial Officer of the Company,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 30, 2012Principal Financial Officer Source: P&F INDUSTRIES INC, 10-K, March 30, 2012Powered 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 30, 2012Powered 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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