P&F Industries

Fiscal 2007 was an extremely disappointing year for P&F Industries, Inc., as the continuing slowdown in the new home construction market, coupled with the weakening of the general economy, negatively affected us. However, on a brighter note, the successful completion of the acquisition of Hy-Tech Machine in February 2007 helped to somewhat stabilize the results for the year.

Although the country remains in the throes of a severe housing downturn, we stand firm in our long-term strategic initiatives and intend to continue to ''right-size'' P&F wherever possible, so that when the economic sectors to which we are tied begin to improve, we can be properly positioned.

Key financial highlights for the year include: (i) consolidated 2007 revenue of $110.8 million, which reflects a decrease of $900,000 or 0.8% compared to 2006; (ii) gross margins decreased by 3.4% from 2006 results; (iii) in accordance with generally accepted accounting principles, we were required to recognize a non-cash impairment charge to goodwill and other intangible assets of $23.5 million; (iv) we generated $7.8 million and $2.6 million of cash from continuing and discontinuing operations, respectively; and (v) real property, which was the remaining asset held for sale by Embassy Industries, Inc., a discontinued operating entity, was sold during the year, generating a pre-tax profit of $5.1 million. As a result of all the above our total loss per share for 2007 was $3.90.

Total revenue reported by our Continental Tool Group increased $14.7 million compared to 2006, primarily the result of the acquisition of Hy-Tech in February 2007. This transaction was vital to our strategy of expanding our position into the industrial tool market. Hy-Tech, which manufactures and distributes pneumatic tools and parts primarily to the industrial sector, complements Florida Pneumatic's position in the air tool market. For 2007, Hy-Tech met our expectations, delivering $14.9 million of revenue and we believe Hy-Tech should continue to strengthen and enhance the Continental Tool Group through its expanded product offering and historically solid gross margins.

Results at Florida Pneumatic, our other operating unit within the Continental Tool Group, were mixed with annual revenue down a modest $283,000. While we successfully increased revenue at our largest customer, our overall gross margin percent with this customer slipped due to price concessions. In addition, during 2007, revenue at another key customer, The Home Depot decreased significantly. Furthermore, we have been informed that we will be phased out as a vendor for The Home Depot, likely commencing sometime during the second quarter of 2008.

As we look toward the future for our Continental Tool Group, we remain optimistic. Firstly, we will report Hy-Tech's financial results for a full year versus the ten and a half months reported during2007. Secondly, in 2007, we had not fully integrated the Hy-Tech products and marketing efforts with that of Florida Pneumatic, which should generate added revenue and profit not seen in the past. Thirdly, as a result of our continuing efforts to reduce our overall cost structure, we have successfully renegotiated certain import costs at Florida Pneumatic, which should improve margins. Lastly, although as discussed above, we will be phased out as a vendor for The Home Depot in 2008, we do not believe this will have a significant impact on our consolidated operating earnings for the full year of 2008. While The Home Depot generated a significant amount of revenue for Florida Pneumatic, its overall impact to our bottom line was greatly diminished due to significant marketing and servicing costs associated with maintaining this account.

The ongoing downturn in the number of newly constructed homes, particularly in the Southwestern region of the United States continues to severely impact performance of Countrywide Hardware, where 2007 revenue decreased $15.6 million to $51.5 million from what was reported in 2006, while gross margins rose by 1.7%. The most significant factor contributing to the overall gross margin improvement was the proportionate increase in shipments from our warehouses with a corresponding decrease of direct or full container sales. This was partially driven by a reduction in sales to several customers who primarily purchased product in direct container shipments.

The largest operating unit within Countrywide Hardware, Woodmark, primarily an importer and distributor of wood and iron stair parts as well as other accessories for new construction and home improvement applications, was hit extremely hard by the housing downturn, with revenue decreasing $11.1 million. Additionally, Woodmark's Kitchen and Bath division, which markets faucets on a national basis, reported a decrease in annual revenue of $3.5 million or 38% when comparing this year's results of $5.8 million to that of the prior year results.

Pacific Stair Products, our small niche manufacturer and distributor of premium handrail, as well as other stair parts, based in Southern California, was also severely impacted by the reduction in new housing starts, as revenue declined 40% to $3.7 million in 2007. Pacific Stair Products also functions as a satellite warehouse carrying the full line of Woodmark stair products. Maintaining profitability of this West Coast operation as a standalone entity is extremely difficult in this environment, given its current sales level and requisite fixed costs, and we will continue to evaluate the viability of this operation going forward.

Countrywide's Nationwide Industries, Inc. subsidiary saw revenue decline $2.0 million to $16.0 million from 2006, primarily due to the sluggish housing market in the Southeast, as well as from new competition in its fencing segment. This new competition is a concern, and has caused Nationwide to reduce some prices in certain areas to retain its market share. However, we have developed an unprecedented number of new products for launch in the spring of 2008 that we believe will help mitigate these issues.

Needless to say, the entire P&F management team is disappointed in our 2007 results. Despite the depressed new housing market, and the weak general economy, we will continue to focus our attention on increasing sales and margins, while improving and expanding our product offerings, as well as continuing our efforts to reduce costs without sacrificing superior customer service. Achieving the above objectives should enable us to provide a foundation for improvement in the future.

I wish to take this opportunity to thank our many customers for their continued faith in our ability to provide quality products and services during these difficult times. Finally, I wish to acknowledge all P&F employees for their dedicated, hardworking and enthusiastic efforts.

Very truly Yours,

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