Richard B. Goodman - Richard A. Horowitz - Founder, Chairman, Chief Executive Officer, President and Assistant Treasurer Joseph A. Molino - Chief Operating Officer, Chief Financial Officer, Principal Accounting Officer, Vice President, Secretary and Treasurer

Andrew Evan Shapiro - Lawndale Capital Management

Good morning, and welcome to the P&F Industries Incorporated Third Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the presentation over to Mr. Richard Goodman, the Company's General Counsel. Please go ahead, sir. Richard B. Goodman: Thank you, operator. Good morning, and welcome to the P&F Industries Third Quarter 2014 Earnings Conference Call. With us today from management as usual are Richard Horowitz, Chairman, President and CEO; and Joseph Molino, Chief Operating Officer, and CFO. Before we get started, I'd like to remind you that any forward-looking statements discussed on today's call by our management, including those related to the company's future performance and outlook, are based upon the company's historical performance and current plans, estimates and expectations, which are subject to various risks and uncertainties, including, but not limited to the strength of the retail, industrial, housing and other markets in which we operate; the impact of competition, product demand, supply chain pricing; our debt and debt service requirements; and those other risks and uncertainties described in the reports and statements filed by the company with the SEC, including, among others, as described in our annual report on Form 10-K for the fiscal year ended December 31, 2013, and our subsequent filings. Those risks could cause the company's actual results for future periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the company. 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 statements, whether as a result of new information, future developments or otherwise. With that, I would now like to turn the call over to Richard Horowitz. Good morning, Richard. Richard A. Horowitz: Good morning, Rich. Good morning, everybody. Thank you, all, for joining us this morning. I will begin today's call with a brief summary of the company's activity for the third quarter of 2013, as well as our results of operations and earnings per share for the 3- and 9-month period ended September 30, 2014, and how they compare to last year. I will then, as usual, ask Joe Molino to review our key cash flow information and provide an update on key events affecting the company. After which, we will move to our Q&A session. And as per the Q&A session, I want to again remind you all that the purpose of this call is to discuss and review the company's third quarter 2014 results only. As such, I request that anybody who has a question confine all questions and comments to those relating to the company's results. I appreciate your cooperation with this request. As most of you know by now we had a very busy M&A third quarter and 2014. I am pleased to reiterate that effective July 1, we acquired the common stock of Exhaust Technologies Inc., originally located in Spokane, Washington. Exhaust Technology is a designer, developer and distributor of pneumatic air tools. Its AIRCAT and NITROCAT product lines are primarily sold to the automotive sector of the pneumatic tool market. Exhaust Technologies operations have been fully absorbed into our Florida pneumatic facility in Jupiter, Florida for several months now. Additionally, effective July 29, we acquired the common stock of Universal Air Tool Company Ltd. located in England. Universal Markets pneumatic tools to the automotive sector primarily in the United Kingdom and Ireland. And lastly, effective August 14, we acquired essentially all the operating assets of Air Tool Service Company located in Mentor, Ohio. We anticipate that sometime early next year, all of the manufacturing and other operations will be relocated into Hy-Tech's Cranberry, Pennsylvania facility, which we believe will dramatically improve Hy-Tech's overhead absorption. All 3 of these acquisitions are, of course, accretive and show our commitment to the markets that the pneumatic tool market serves. Our consolidated revenue for the 3- and 9-month period ended September 30, 2014, were $22,932,000 and $57,132,000, respectively compared to $20,483,000 and $60,668,000, respectively, for the same periods last year. Specifically, revenue for our Tools segment was $17,865,000 and $41,749,000 compared to $14,776,000 and $43,625,000, respectively. Much of the third quarter revenue increase was due to the Exhaust Technologies and Universal Air Tool acquisitions, as well as increased revenue from our retail customers. Revenue for the 3- and 9-month period ended September 20, 2014, for our Hardware segment, which consists of only Nationwide Industries, was $5,067,000 and $15,383,000 compared to $5,707,000 and $17,043,000 for the same 3- and 9-month period in 2013. The AirNet [ph] decline in revenue for both periods is due in large part to our decision to sell the kitchen and bath product line in November of last year. However, for the 3- and 9-month period ended September 30, 2014, compared to the same period in the prior year, fence and gate hardware product line revenue was up 4.9% and 5.4 -- excuse me, 4.5%, respectively. Nationwide continues to expand its fencing and gate hardware business to successfully increasing its customer base, expanding its product offering with new innovative products. The company's consolidated gross was margin for the 3 and 9 -- for the 3-month period ended September 30, 2014, increased 60 basis points to 35% from 34.4% during the same period in 2013. Specifically, for the Tools segment, the third quarter of 2014 and 2013 had the same gross margin of 33.4%. For the Hardware segment, gross margin improved 340 basis points to 40.6% for the 3 month period ended September 30, 2014, from 37.2% in the third quarter of last year. Our consolidated gross margin on a year-to-date basis is up 10 basis points compared to the same 9-month period in 2013. Specifically, the Tools gross margin during the 9-month period ended September 30, 2014, was 34.9%, down from 35.5%, due primarily to customer and product mix at Hy-Tech. While Hardware's 9-month gross margin increased by 220 basis points to 39.7%, the increase is due primarily to improved gross margins on our fence and gate hardware product lines and to a lesser degree, by the elimination of the kitchen and bath line I discussed earlier. Our selling and G&A expenses for the 3- and 9-month period ended September 30 this year was $6,438,000 and $17,221,000 compared to $5,658,000 and $17,827,000 for the same periods last year. Stated as a percentage of revenue, SG&A for the 3- and 9-month periods ended September 30 of this year was 28.1% and 30.1% compared to 27.6% and 29.4% during the same periods in the prior year. The most significant factor contributing to this increase in our third quarter SG&A were professional fees, which increased $422,000, most of which was incurred due to the 3 acquisitions I discussed earlier. Other factors causing the increase were increases in our variable expenses of $299,000 and amortization and depreciation increasing by $195,000. These increases were partially offset by lower compensation cost and noncash stock-based compensation, which declined compared to the same 3-month period last year by $101,000 and $56,000, respectively. A significant item that contributed to the decline in our SG&A on a 9-month basis include with lower variable cost incurred of $258,000 as a result of lower year-to-date retail revenue. Additionally, in connection with the initial rollout of The Home Depot program during first quarter of last year, we incurred a onetime fee of $700,000, which did not occur this year. Lastly, legal and professional fees for the 9-month period ending September 30 this year increased over the prior year by $694,000. Here, again, the driver to this increase was the 3 acquisitions completed this year. These were partially offset by reductions in compensation, nonstock-based compensation and adjustment to bad debt expense. Our interest expense during the 3- and 9-month period ending September 30 this year was $158,000 and $335,000 compared to $116,000 and $386,000 incurred during the same period in the prior year. The increase in the third quarter interest due to the funding required for our 3 new acquisitions. Our effective tax rate for the 3- and 9-month periods ended this year were 43% and 40.5% compared to 36.8% and 37.3%, respectively for the same period last year. The most significant factors for the increase in our effective tax rates were nondeductible expenses for tax purposes and state taxes. Taking all the above into consideration, our income before income taxes for the 3- and 9-month periods ended September 30 this year were $1,432,300 and $3,110,000 compared to $1,281,000 and $3,678,000 for the same period last year. Our tax expense for the 3- and 9-month periods ended September 30, 2014, was $616,000 and $1,260,000 compared to $471,000 and $1,372,000 for the same period a year ago. As a result, our net income after taxes for the 3- and 9-month periods ended September 30, 2014, were $816,000 and $1,850,000 compared to $810,000 and $2,306,000 for the same periods last year. And lastly, our basic and diluted earnings per share for the 3-month period ended September 30, 2014 and 2013, were $0.22 and $0.20, respectively. While our basic and diluted earnings per share for the 9-month period ended September 30, 2014, was $0.50 and $0.47 compared to basic and diluted earnings per share of $0.63 and $0.59 for the same periods last year. At this point, I'll ask Joe to fill us in with some cash flow information. Joe? Joseph A. Molino: Thanks, Richard. Capital expenditures, excluding the fixed assets that were acquired with the 3 acquisitions during the 9-month period ended September 30, 2014, was $713,000 compared to $428,000 in the same period in 2013. In the aggregate, we used approximately $19,600,000 to purchase ETI, UAT and ATSCO during the third quarter. Significant noncash items affecting our cash flows from operations during the first 9 months of 2014 were depreciation and amortization of $1,137,000, deferred income taxes of $1,079,000, amortization of other intangible assets of $361,000, stock-based compensation expense of $182,000 and amortization of debt issue cost of $67,000. Significant changes in our operating assets and liabilities, excluding the acquired values but including the changes occurring after the date of each acquisition are an increase in our accounts receivable of $3,824,000 primarily due to seasonality, a decrease in net inventory levels of $1,671,000 due to seasonality, increases in accounts payable of $1,212,000 primarily due to the timing of payments and a decrease in accrued expenses payable of $171,000. And finally, an increase in prepaid expenses and other current assets of $419,000. With that, I'd like to turn the call back over to Richard. Richard? Richard A. Horowitz: Thank you, Joe. So I would like to acknowledge all of our employees and management for the outstanding job in helping to grow our company in these continuing unsettling times and especially, with all the work that we've been doing to assimilate these 3 new companies within the P&F structure. Our core value has been and will continue to improve shareholder value going forward. That's the end of our report today. So we'll be happy to answer any questions anyone may have, again, relating only to the company's results. Thank you.

[Operator Instructions] And our first question comes from Andrew Shapiro with Lawndale. Andrew Evan Shapiro - Lawndale Capital Management: Some questions on your acquisitions, and I'll back out. And if you could come back to me, I'll have some on your operations and... Richard A. Horowitz: Andrew, can I ask you to please talk a little louder. We can't hear you. Andrew Evan Shapiro - Lawndale Capital Management: So I'll ask some questions about your acquisitions and then back out into the queue and let others, whatever, if there are any others. So we asked about the first 2 acquisitions on your last call. But can you give us some background on the seller's motivation and your decision to make the third acquisition, the Air Tool Service Company, in terms of what were the most important factors that led you to believe that was a good investment to make? Joseph A. Molino: Well, with regard to the seller's motivation, I can probably only guess but primarily, it was a single owner who used to live in the Mentor area. He has since relocated to another part of the country and has other business interests. And he had done a very good job of building the business and building up a nice customer base and turning it into a much more up-to-date operation than the one he took over. And he felt it was time to take his chips off the table and move on to some other things. I mean that's, in a nutshell, our understanding. As far as our motivation, it's severalfold. First of all, we have an opportunity here to absorb a great deal more overhead in our large factory in Pittsburgh as we ultimately wind down the operation there in Ohio. And in addition to that, we saw the opportunities to broaden our line of -- Hy-Tech is well-known for impact wrenches and ratchets and -- like that basic industrial-level tools sold to various different markets. The firm we bought has slightly different focus. They sell a lot more grinders and -- what we call rivet busters and also, a lot more tools into what we call, the torque control area where limiting or dialing in directly the level of torque you need to tighten the fasteners more important. So those are not markets we're very strong in. We do make some of those tools, we have made some of those tools for years, we don't dominate them in nearly the way we do with the lines we've got. So we saw a great opportunity to, again, absorb overhead and to move into some areas that we hadn't been particularly strong but had interest in. Richard A. Horowitz: And I might add, we -- a couple of years ago, Andrew, we hired a consultant to tell us what to do to increase our tool penetration. And they outlined, they suggested that we get into this area of the business and it just happened to coincide with this company. So it was a very fortuitous time for us to buy that. Andrew Evan Shapiro - Lawndale Capital Management: And the -- when you referred to it being folded into Hy-Tech, are you referring also to Hy-Tech machine revenue or ATP or a combination thereof? Or it'll be a separate line item? Joseph A. Molino: The product line we see is really just an extension of the ATP line. So ultimately -- well, currently and ultimately, it'll be in the ATP line because that essentially is what it is. Andrew Evan Shapiro - Lawndale Capital Management: Okay. So how's the integration going with the 3 new business you've mentioned? Exhaust, having done a lot of the integration you had planned. So what has been done and what is still left to do with your 3 businesses? Richard A. Horowitz: There's a lot still to do. With AIRCAT, they got -- they were the first of the acquisition and that was really just folding in to our Florida place. So it was -- that was more of a marketing integration and a little bit of a warehouse, of course, but that one is, at this point, I'm going to say, pretty seamless. I think we're up to speed pretty good, had doing very nicely with our sales. And we just had a show last week with good customer recognition. So I think that one, we're on our way very nicely. The England company, it's -- we still have the 2 principles in the company, they're still there for another -- until the year end. So there's a little bit of a transition with that. We have a new controller. It started this week, I believe. And it's integrating our new products, our AIRCAT products and other new products in Florida Pneumatics slowly into their product offering. So I would say, by the end of the year, we should be in very good shape there as well. And the ATSCO is a little more of a challenge because it's a factory integration as opposed to more of a marketing and inventory integration. And so whenever you blend 2 companies together, it has -- it's got more of a challenge to it. So -- and we expected that and we know that. And so we're in there just about 2.5 months now or something to that line and our plan is to integrate, close that facility sometime in January. And we started out a little slower and I think we're picking up a lot of momentum there in terms of efficiencies in our factory, getting them to understand our way of doing business. So I would say also, come the first quarter of next year, we should be in a very good state there as well. Joe, I don't know if you want to add anything to that. Joseph A. Molino: Yes. I mean I would also add that we have moved a lot of machine time already to Cranberry. And so we're already starting to see the benefits of additional absorption there. We're just beginning to shift complete tools out of Cranberry of the acquired product line. Not everything. We're shipping from both locations right now. And -- but the most critical ones are now being shipped out of the Cranberry facility and that will grow as we continue to program our machines and train our people in the new -- in the manufacturing of new products. Richard A. Horowitz: And we're very positively inclined in terms of some of their customers, a few of their bigger customers becoming customers of ours. We've had a lot of chat with them -- chatter about that with them and it seems very promising. Though nothing to report yet, but it certainly seems very, very promising for next year. Andrew Evan Shapiro - Lawndale Capital Management: And so you've described it a little bit -- I'll segue here. What asset redundancies exist? And maybe operating redundancies exist that will provide, I guess, sale proceeds and cost savings, for example? Is the facility in Washington, was that part of the acquisition that we're selling? The facility in Mentor, Ohio, is that part of the acquisition that we're selling, or those are leases? Joseph A. Molino: We -- all 3 of the facilities were leased. So -- and we had no -- we took on no lease in Spokane, Washington. Immediately after the closing, we closed the operation and moved it. With respect to the United Kingdom, we just entered into a long-term lease and continued the lease that was there. Actually, I take that back. The building at one point was owned by an affiliate of the sellers, so we pulled -- that was pulled out of the acquisition and we turned it into a long-term lease at market rates. And then in Ohio, we negotiated a short-term lease with the owner who also owned the building and that lease will co -- more or less co-terminate with our exit of -- in Ohio. In terms of operating redundancies, as I've alluded to, the complete facility there is redundant to our operation in Pittsburgh. We will be taking most of the equipment and utilizing it in Pittsburgh, Cranberry. That will be happening over time. But -- and we'll most likely get some proceeds out of disposals of things that are a little too redundant. But we also like some of the equipment we're getting and we'll obviously keep it. It will help defer some purchases of equipment that we would have made otherwise. So I hope that answers your question. Andrew Evan Shapiro - Lawndale Capital Management: Yes, it gives color. What are your plans going forward with respect to additional acquisitions? Are you still looking around for more acquisitions right now, or need you focus your resources at least in the near term, ensuring the success of the currently acquired businesses? Richard A. Horowitz: Yes. I would say that our eyes are always open. And we're always approached and pursuing things. But I would say for the -- of the short-term, certainly, we want to concentrate on making these 3 acquisitions blend into our businesses before -- and see some cash flow and other things coming out of it before we move in another direction. So I would say, for the very short term, we wouldn't have any plans for doing anything. But our not so very short-term and long-term plans will be of course, to grow the company more. Andrew Evan Shapiro - Lawndale Capital Management: Okay. And is the accretive -- the accretive nature of these 3 acquisitions clearly is not fully reflected in your current September quarter. But what more either can we expect in the future in terms of accretiveness dropping down to the bottom line are probably not projectable? But when would be an appropriate time to measure accountability and the fact that these acquisitions now are being fully reflected? Is it the second quarter ended June? Is it too soon to say the first quarter ended March? Richard A. Horowitz: I'll let Joe answer that for the most part, but I will tell you that for the most part, I would look at 2015 as -- I mean there are a lot of moving parts, there's still a lot of things going around for right now. It was accretive in this quarter a little bit. Not dramatically, but certainly accretive. It'll be hopefully accretive next quarter. Every quarter, I expect, will be a little bit better. But by the end of the first quarter next year, I think we should be in pretty fairly good swing with that. Joe, you want to add anything? Joseph A. Molino: Yes. The only thing I'd add is that I think if you would break out Florida Pneumatic from Hy-Tech, Florida will be a little more -- part will be a little ahead of Hy-Tech because obviously those 2 deals were done sooner and there's less integration issues. So I think that Q4 will be a fair amount cleaner. But again, probably not till Q1 we'll that be pretty close to the run rate we would expect, obviously adjusting for any seasonal issues. But Hy-Tech was probably a quarter behind. I think there'll still be some costs in Q1 that will be repeating in Hy-Tech because of the ATSCO acquisition. So it's probably like Q2 to be pretty clean there. But still, I think Q1 will be a nice quarter but Q2 will be a little more reflective of what we would expect for Hy-Tech. Andrew Evan Shapiro - Lawndale Capital Management: Okay. And you incurred costs for the 2 acquisitions in the second quarter. You called out, I think, some costs. But can you, again, summarize the total cost you incurred in the third quarter that were acquisition, nonrecurring related? And if you anticipate any other costs in the current Q4? Richard A. Horowitz: You're talking about legal, Andrew? Andrew Evan Shapiro - Lawndale Capital Management: Anything that you're going to be calling out and saying it's nonrecurring related to the deals. Joseph A. Molino: Okay. Andrew, we looked at it for 9 months. I would say for Q3, and this is just approximation, I'm going to call $500,000 in Q3, give or take. Andrew Evan Shapiro - Lawndale Capital Management: It was 2 90 [ph] in Q... Richard A. Horowitz: Fourth quarter should de minimis, I'm going to say. Joseph A. Molino: Yes. Andrew Evan Shapiro - Lawndale Capital Management: Okay. Let me back out into the queue. I have additional questions, though, please. Richard A. Horowitz: There's nobody else in the queue, Andrew, so why don't you continue. Andrew Evan Shapiro - Lawndale Capital Management: I hope there's others on the call, though. Richard A. Horowitz: There are. Andrew Evan Shapiro - Lawndale Capital Management: Okay. So we can all agree that your acquisition and retirement of the state was 5.5% block of P&F stock was highly accretive, was great, and it's really -- it's certainly chews up a lot of stock that would have taken a bunch of time in the -- a buyback. So I understand all that, that's great. But can you just explain what the benefit has created for the company and the shareholders by imposing the standstill ban on new purchases of shares in the open market from him for the next 3 years? Richard A. Horowitz: Andrew, again, this is really not a quarterly comment -- question, but I'll address this one thing with you. Andrew Evan Shapiro - Lawndale Capital Management: Shares outstanding, I think are. Richard A. Horowitz: Andrew, I'm not going to debate with you. I'll answer the question as best I can. Really, we're not in liberty, contractually, to discuss the particulars of the negotiation with the selling shareholder because that's part of the agreement. In the nonfinancial agreement, the financial-like terms of this agreement were not really a part of this call. As I said -- I will say, however, that we feel that including the standstill provision in the purchase agreement was appropriate and at best interest of the company and its shareholders. And it's not uncommon, it's done quite often. And it was our board's determination that, that was we felt we needed to do. And so being that all our legal counsel and everybody else had no issues with it, there was no reason not to do it that way. So we did it that way. Andrew Evan Shapiro - Lawndale Capital Management: It just seems the band to provide shareholders of a more liquid market and the company of a lower cost of capital from a higher valuation multiple... Richard A. Horowitz: Andrew, next question, please. I'm going to say -- I'll have no other thing to say. That's what it is, it's not part of this call, please ask your next question. Andrew Evan Shapiro - Lawndale Capital Management: More about this from us, then, because if we're not going to talk about it here, then we're going to get a letter and you may hear from our lawyers. Because we think it was a self-serving conflict of interest that is a breach of fiduciary duty of laws. Richard A. Horowitz: Andrew, please move on. Next question. Andrew Evan Shapiro - Lawndale Capital Management: Are you guys going to break out the new income businesses so that shareholders may understand what the income is from the legacy business and what is -- to differentiate the 2? Joseph A. Molino: Andrew, while, I guess, that's theoretically possible, the issue is the following. The integration is fairly dramatic. In other words, we are morphing our old automotive tool lines into the new tool lines. We're rebranding tools that we were making with the new AIRCAT trademark. We're taking technology and putting it in other tools. We're shipping AIRCAT products to Universal Tool in the U.K. to resell. And then on the ATSCO deal, we're already manufacturing ATSCO products in Pittsburgh, so where's the benefit going? We think it's appropriate to move them, those dollars into the appropriate buckets, marketing buckets. I think I'd be -- it would be more misleading to try to carve them out because I don't think it will mean anything. It's just too integrated. Andrew Evan Shapiro - Lawndale Capital Management: Okay. And so are the acquisitions you made the sole driver of your large increase in automotive sales, or was there legacy? Joseph A. Molino: Yes. Yes. The automotive business has been steady this year but pretty, I'm going to say, flat. It's been a decent year, maybe up a little bit, but the large growth is attributable to the acquired 2 businesses, which are both in the automotive tool sector. Andrew Evan Shapiro - Lawndale Capital Management: Okay. What's the current status of your state and federal NOLs? Joseph A. Molino: Well, the state NOLs haven't moved a great deal. We're still in the 20 -- I think it's $20 million range, which is almost all Virginia and [indiscernible]. Andrew Evan Shapiro - Lawndale Capital Management: So we're not using them [ph]. Joseph A. Molino: Yes. Andrew Evan Shapiro - Lawndale Capital Management: How about the federal? Joseph A. Molino: The federal side, it's around $3 million here at the end of the third quarter. Andrew Evan Shapiro - Lawndale Capital Management: Okay. And so the revenue on the retail front continues to be affected by lower sales into Sears, and they have been jettisoning poor performing stores. So do you give any feedback as to when the declines from Sears will change course and the business to them will stabilize? Richard A. Horowitz: We really don't get much input from them about that kind of stuff, Andrew. They're not very forthcoming with all those things. And -- but we do continue to monitor our risk levels and everything to do with Sears on a very, very daily basis. We look into ways to mitigate our risks and try to figure out ways of increasing our business going forward with them. So it's -- but they're not very -- at the level that we speak to the people, they're not very forthcoming with information in that regard. Andrew Evan Shapiro - Lawndale Capital Management: So do you guys sell to a central point or central points? Or do you see the sell-through, the impact, the results of, I guess, individual stores where you might see certain stores stabilizing? Joseph A. Molino: I don't know that we get down to the store level, Andrew. I think we see sell-through data but I do not think it is by store. And we don't sell to the -- we don't even ship to the stores for Sears. We ship to the distribution centers. Andrew Evan Shapiro - Lawndale Capital Management: Right. Because I'm trying to get a feel. And I'm wondering if you have a feel, because you'll have a little -- you'll have a bit more insight as to whether or not the decline is more of a slowdown in their inventory build, keeping those inventories under wraps or tightening them down and that once that's done, you will have achieved and gotten to a stabilized point or if things are in free fall? Joseph A. Molino: Well, I wouldn't say things are in free fall. I don't believe -- while I think their reduced inventory levels to be consistent with their revenue drop, I don't think that we've -- there's some stabilizing event or something that's going to stabilize this. I think they're going to continue to struggle. It's a difficult market out there for them. And obviously, to the extent they keep cutting stores mathematically, their revenue is going to fall. Now they could get to the point where they've got just the best stores left and I would hope that would be the case and maybe things would fall less quickly. But there's no question they're struggling. But I couldn't tell you when the degradation is going to end. If it's going to end. We're doing our best with what we've got to work with and we continue to supply them and, as Richard said, mitigate our risk as best we can. Andrew Evan Shapiro - Lawndale Capital Management: Okay. And is business with Home Depot still ramping up, either from incremental product lines you're offering to them or a greater adoption of the new Husky line? What is the visibility and your experience on ramping there? Joseph A. Molino: We do know that sell-through at the stores year-over-year has gone up. So after you clear the docks for line fill and some additional product that we put in there throughout the year, we do know that the year-over-year sales of the same tools has increased from 2013 through 2014 year-to-date. Andrew Evan Shapiro - Lawndale Capital Management: Okay. And in prior quarter in particular, we had extensive discussion on, we'll call it, loss of cages within the catalog segment as the catalogs diversified out. And there's constantly the redo, et, cetera, of new catalogs as they all roll through. Has that, we'll call it, declined, stabilized? And are we, especially with your new product lines and offerings started to regain pages in the catalog? Richard A. Horowitz: No, nothing changes, Andrew, that quickly in the catalog business. It's a once a year or sometimes even longer period before they change catalogs and reprint and all that stuff. Things are about the same in that area. Andrew Evan Shapiro - Lawndale Capital Management: Right. Although it's been 3 months in -- you're not just in one catalog, right? You're in a variety of catalogs that recycle every -- their particular anniversary each year, right? Joseph A. Molino: Right. Richard A. Horowitz: Yes, exactly. Andrew Evan Shapiro - Lawndale Capital Management: So over the last 3 months since we last had this chat... Richard A. Horowitz: No, Andrew, no. Andrew Evan Shapiro - Lawndale Capital Management: Have we lost... Richard A. Horowitz: No, everything is essentially the same. Joseph A. Molino: We haven't lost any pages, we haven't gained any pages. Richard A. Horowitz: I don’t want you to think for one second that it's a free fall kind of a situation, it's nothing like that at all. It's just that we've lost some business because of it going forward. But it's not anything that's a bad trend or anything like that. We had good customer relations with all those catalog houses. Andrew Evan Shapiro - Lawndale Capital Management: Right. But again, certain things anniversary each quarter and you have some new offerings this quarter you didn't have last quarter. I'm just wondering if you started to regain that or catalog year-over-year is up rather than year-over-year being down. So this quarter, would catalog be described as flat? Joseph A. Molino: Yes. I want to say it's flat, Andrew. Just -- I want to make a point clear. None of the AIRCAT product line is going into catalog, just so you're clear. The channel is very different for that. So we didn't have an opportunity to go in there and sell AIRCAT. Now I'm not saying that, that isn't something that might be tried. But that's really not where we saw the growth coming after the closing. Andrew Evan Shapiro - Lawndale Capital Management: Right. Although the AIRCAT technology is something you're working to migrate some of that into your current catalog offering. Joseph A. Molino: Yes, yes, we are. I mean it's not the first thing on our list, integration and marketing. Reorganizing the marketing is first but yes, absolutely, once the dust settles, the engineers are going to get into that.

[Operator Instructions] We'll go next to Henry Dubral [ph], private investor.

I see that the historical operating income for last year, the full year, as reported in your 10-K, was $5,007,000 on sales of revenue of $76 million. Could you just give a little insight into the 3 acquisitions that you recently made totaling $20 million, which I seem to think the assets that you acquired are substantially intangibles. What's the volume of those 3 on an annual basis? And what would they add to operating income? Joseph A. Molino: You mean the revenue volume?

Correct. Joseph A. Molino: Yes. We can't share that, but I will share the following. For the quarter, ETI generated approximately $1.9 million in revenue. We own that for the entire 3 months and that was consistent with our expectations. For the quarter, we owned UAT for approximately 2 out of the 3 months and generated about $570,000 U.S. in revenue, which was in line with our expectations. I'm not comfortable sharing the ATSCO revenue because, frankly, it's a big project to integrate that in the revenue numbers in the short period of time we owned it, 45 days in the quarter, would be fairly misleading. But we have every belief that we'll get to the numbers we're anticipating. So I can't share any more than that on the revenue. I will also share that the gross margin that we're generating from those 3 is consistent with our expectations and also quite comparable to the margins we enjoy in those markets for the rest of our tools. That's all we're comfortable saying.

Is the revenue seasonal in any of those 3 entities? Joseph A. Molino: That's a good question. I'm going to say generally not seasonal.

Okay. I'm just trying to get a feel to annualize it. Joseph A. Molino: I completely the understand the question, I completely understand why you're asking. But at this point, that's about all we can say. After the fourth quarter, we can probably say a little bit more and we'll be able to -- we'll have 6 months under our belt for the 1 and 4.5 for the other, and so we can probably say a little bit more and some of those results might be a little more interesting.

If there's no one else, I'd like to ask a further question as it relates to the acquisitions. The professional fees that were paid through the 9 months are incurred. Is it principally to third parties, legal accounting experts, does it include broker's fees? Joseph A. Molino: Good question. It's principally legal and accounting. There was a brokerage redo on the ATSCO transaction that was approximately $200,000.

So that's a meaningful amount of the $600,000 or so? Joseph A. Molino: Yes, it absolutely is.

Okay, okay. That gives some clarity. The entities that you acquired, did they previously have audited financials? Joseph A. Molino: In the case of the company in the U.K., yes. In the case of the company in Ohio, yes. In the case of the company in Spokane, no. But having said that, we did a tremendous amount of due diligence on those and got our outside accountants involved actually in all 3 as well that give comfort with the numbers.

Okay. My last question relating to these acquisitions. If a customer decides to send back a defective product, how do you know whether you made it, meaning post acquisition, or the seller made it and is responsible? Are they date coded? How does it work? Joseph A. Molino: Yes, typically, things have date codes. But generally, and I don't have any of the documents in front of me, but typically, what's negotiated with the seller is some sort of provision for dealing with that post closing and absent some sort of catastrophe, massive recall, generally, the buyer in these cases will handle it with -- assuming it's within some reasonable level of expectation. It's usually not material, it's never really. In all the times we've done this, post acquisition warranty has -- or addressing the effects has never really been a material issue. And we don't anticipate that in this case, either.

Okay. My last question. How many workers were employed at the Ohio location? Joseph A. Molino: And currently still employed. When we got there, maybe 14, 15 and maybe there's still a dozen there at this point.

I see. I see. So are they being transferred or most of them will no longer be with the company? Joseph A. Molino: We are taking some. We are interested in many but only some, does it make sense to you for both sides to have them come with us. Some are coming but the majority are not coming over once we're finished.

[Operator Instructions] And with no further questions in queue, I'd like to turn the call back over to management for closing remarks. Richard A. Horowitz: Thank you, all, for being on our call today and we look forward to speaking to you at our year-end call early next year. Have a good holiday, everybody. Thank you.

This concludes today's call. We thank you for your participation.