P&F Industries

We are pleased to report that, in 1997, for the sixth consecutive year, net income from continuing operations increased, rising 28.7%, from $1,953,287 to $2,513,779. Diluted earnings per share from continuing operations increased from $.52 to $.71. These increases were driven by a 16.1% increase in revenues, from $43,078,371 to $50,026,947.

Income from discontinued operations, resulting from the sale of real estate of a former subsidiary, totalled #542,837, or $.15 per diluted share, bringing total net income for the year to $3,056,616, or $.86 per diluted share.

Florida Pneumatic reported record income for the ninth consecutive year, on an increase in revenues of 22%. Its major accomplishment this year was the addition of new line of pneumatic tools, which was well received in the marketplace. Florida Pneumatic's Berkley and Tradesman divisions also enjoyed strong growth and showed a combined increase in revenues of 14%.

Embassy Industries reported increased earnings for the third consecutive year, fueled by the rapid growth of Embassy Systems, its new radiant heating line, which grew 49% over the previous year. In 1995, Embassy became the first baseboard heating company to enter this segment of the market, giving it a strong head start on its competitors. Although Embassy Systems currently represents a small percentage of P&F's revenue, we are confident that this product will increase in relative importance as greater market awareness is generated about the advantages of radiant heat.

Embassy's Franklin division continued its profitable operations, with management targeting increased product offerings, as well as additional distribution channels.

P&F's goal in 1998 and beyond will be to continue to strive for increased sales by offering additional products to our prestigious list of customers, thereby capitalizing on the excellent relationships which we enjoy with them. Given the mature industries in which P&F in engaged, we believe that this strategy, combined with an intensified marketing program, will enhance our future growth.

We continue to review, in a deliberate and disciplined fashion, potential acquisitions, preferably in one of the industries in which we operate. In this regard, we have a dual strategy. Although we are still seeking small companies which can be incorporated into one of our existing companies, our primary goal is to acquire a significant manufacturing company that would either be aligned with one of our existing companies or become a third core business for P&F. We are evaluating all prospects in the hope of making the most appropriate acquisition that fits our Company's strategic plan and is at a price consistent with our sense of relative valuations.

On behalf of the Board of Directors, our management team and all of our employees, I thank you for your continued interest and support in P&F Industries. We look forward to 1998, which we expect to be another successful year.

Very truly Yours,

Richard A. Horowitz
Chairman of the Board, President
and Chief Executive Officer