Richard Goodman - General Counsel Richard Horowitz - Chairman, President and Chief Executive Officer Joseph Molino - Chief Operating Officer and Chief Financial Officer

Andrew Shapiro - Lawndale Capital Management Bryan Wagman - Askeladden Capital Henry Dubro - Private Investor

Good day and welcome to the Second Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Richard Goodman, General Counsel. Please go ahead, sir.

Thank you, operator. Good morning and welcome to P&F Industries’ second quarter 2016 earnings conference call. With us today from management are Richard Horowitz, Chairman, President and Chief Executive Officer and Joseph Molino, Chief Operating Officer and Chief Financial Officer. Before we get started, I would 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 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 most recent annual report on Form 10-K, our quarterly reports on Form 10-Q and our subsequent filings. These 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.

Good morning, Rich. Thank you so much and good morning everybody. Thank you all for joining us on our call this morning. I would like to begin today’s call with a brief summary of the company’s second quarter 2016 results from continuing operations and earnings per share from continuing operations and how they compare to the same period a year ago. We will also briefly discuss the goodwill and other intangible assets impairment charge recorded this quarter. I will then ask Joe Molino to briefly review key cash flow information and then discuss discontinued operations and provide an update on key events affecting the company. After which, we will move to our normal Q&A session. However, before I begin I wish to remind you all that the purpose of this call this morning is to discuss and review the company’s second quarter 2016 results only. As such, I kindly request that you please confine your questions and comments to the company’s results. I also wish to point out that unless otherwise noted, the financial information discussed on today’s call refers to our continuing operations, thus excluding nationwide industries which were sold in February of this year and is being accounted for as a discontinued operation. The company’s consolidated revenue for the three-month and six-month periods ended June 30, 2016 were $15,637,000 and $30,136,000 compared to $16,058,000 and $30,617,000 for the same periods in 2015. Florida Pneumatic second quarter 2016 revenue of $12,738,000 reflects an improvement of $735,000 or 6.1% compared to the same period in 2015. This increase was driven by an $851,000 increase in its automotive sales. I am pleased to report that Florida Pneumatic had its best automotive revenue quarter since we have owned the company. A six-month revenue of $23,568,000 improved to – improved by $1,311,000 over last year’s revenue for the same period. It’s automotive revenue for the six months – for six months of 2016 was $7,613,000, an increase of $1,476,000 over the same six-month period in 2015. Additionally, Florida Pneumatic’s retail revenue for the three-month and six-month periods ended June 30, 2016 increased $193,000 and $464,000 respectively over the same periods in 2015. However, it’s industrial and catalog revenue declined $318,000 and $542,000 when comparing the three-month and six-month periods ended June 30, 2016 and 2015. We believe that declines in this sector are due primarily to the ongoing oil and gas exploration and extraction crisis globally, but in particular, here in the United States. Hy-Tech’s revenue this quarter was $2,899,000 compared to $4,055,000 for the same period in 2015. For the six-month ended June 30 this year, Hy-Tech’s revenue was $6,568,000 compared to $8,368,000 reported for the same period a year ago. We firmly believe that the primary course for these declines is the price – is the decline in the price of crude oil. With low crude oil pricing, many rotary rigs have closed or have been temporarily capped. According to Baker Hughes, the average rotary rig count in North America is down 444 to 417 at June 30, 2016 from 861 one year ago today. Limited production reduces the need for much of Hy-Tech’s parts and tools. Further, one of Hy-Tech’s largest customers has decided to manufacture several of the tools and parts, it’s formally acquired from Hy-Tech, which we discussed last quarter. Lastly, Hy-Tech has been advised that one of its customers had acquired in the app that we acquired in the ATSCO acquisition placing new orders – has not placed anymore new orders until such time as when the oil and gas sector rebounds. The company’s consolidated gross margin for three-month and six-month periods ended June 30, 2016, were 33.9% and 34.9%, respectively compared to 36.3% and 37% for the same period last year. Florida Pneumatics gross margins improved 1.9 percentage points, mostly due to product mix, aided by the added slightly higher margin automotive sales. During the second quarter, we adjusted the carrying value of certain items in the Hy-Tech’s inventory. Doing so, of course their gross margin for the second quarter of this year to be 19.9% where as the second quarter of 2015’s margin was 39.6%. Hy-Tech’s gross margin also declined due to lower overhead absorption as primarily due to lower manufacturing activity levels and its decision to manufacture and sell every low gross margin suite of product to a customer acquired in the ATSCO acquisition. Our selling and G&A expenses for the three-month and six-month periods ended June 30, 2016, was $5.154 million and $10.173 million compared to $5.129 million and $10.046 million for the same period in 2015. Variable expenses incurred in connection with higher automotive and retail revenue are the primary components to these increases. As we now have a new lease on the Tampa property, we will be reporting rental income. As such, for the three-month and six-month periods ended June 30 this year, net other income was $18,000 and $32,000 respectively. Included in the second quarter of 2015 was a fair value adjustment to the contingent consideration to the sellers of UAT of $201,000. As a result, second quarter 2015’s net other income was $237,000 and 2015’s six months net other income was $272,000. Our second quarter of 2016 interest expense was $36,000 compared to $29,000 during the same period last year. Interest expense for the six months period ended June 30, 2016, was $138,000 compared to $58,000 in the same period last year. During the first quarter of 2016, we were required to write down the deferred financing costs that were attributable to the debt that was repaid in February. Furthermore, 2015 interest was reduced to accounting requirements to remove and include in discontinued operations certain interest expenses. As I mentioned at the beginning of this call, we recorded an impairment charge this quarter. We determined that in the interim impairment analysis of the goodwill and other intangibles belonging to Hy-Tech was necessary based on a number of factors, which included; One, continued weakness in the oil and gas exploration and extraction sector; Two, the recent loss of a major portion of revenue from one of our larger customers; And three, recent significant reductions of forecasted purchases from the largest customer acquired in the ATSCO acquisition. As a result of these and other factors, we determine that Hy-Tech’s revised short-term and long-term projections at this time indicated an inability to generate sufficient discounted future cash flows to support the recorded amounts of goodwill, other intangible assets and other long lived assets, necessitating this impairment charge. As a result, in accordance with current accounting literature, we recorded an impairment charge of $8.311 million relating to goodwill and other intangible assets during the second quarter of 2016. Should marketing conditions in this sector in which Hy-Tech operates worsen, we could incur additional impairment charges in future periods. Taking all the above data into consideration, particularly the $8.3 million non-cash impairment charge, we are reporting a pretax loss from continuing operations for the three-month and six-month periods ended June 30 of $8.178 million and $8.069 million compared to $910,000 and $1.498 million for the same periods in 2015. Our loss from continuing operations after taxes for the three-month and six-month periods ended June 30, 2016 are $5,370,000 and $5,304,000 compared to net income of $632,000 and $1,005,000 for the same periods last year. Our basic earnings per share from continuing operations for the three-month and six-month periods ended June 30 this year was a loss of $1.49 and a loss of $1.47 per share compared to earnings of $0.17 and $0.28 for the three-month and six-month ended June 30, 2015. Diluted earnings per share from continuing operations were a loss of $1.49 and a loss of $1.47 per share compared to earnings of $0.17 and $0.27 for the same periods in 2015. With all of this going on, I am pleased to also remind everyone that during the second quarter of this year, we paid a special dividend of $0.50 as well as our first quarterly dividend of $0.05 per share and in July, we paid the second quarterly $0.05 per common share dividend. This exemplifies that the company is doing soundly financially. At this time, Joe Molino will discuss our cash flow and discontinued ops.

Thank you, Richard. Capital expenditures during the first six months of 2016 and 2015 were $766,000 and $327,000 respectively. Significant non-cash items affecting our cash flow during the six-month period ending June 30, 2016 were impairment of goodwill and other intangible assets of $8,311,000, depreciation and amortization of $823,000, amortization of other intangible assets of $586,000, amortization of debt issue cost of $108,000 and total stock compensation – stock-based compensation of $38,000. There was non-cash credit attributable to deferred income taxes of $2,868,000. Other significant components which impacted our cash used in operating activities of continued operations of $3,009,000 or increases of $1,619,000 in other current assets; $1,979,000 in accounts receivable; $186,000 in prepaid expenses and other current assets; $531,000 in inventories and increases of $372,000 in total accounts payable and accrued expenses payable. In accordance with current accounting guidance, we are required to report Nationwide’s 2015 results for the period January 1, 2016 through the date of the sale, February 11, 2016 as discontinued operations. Further, with respect to the balance sheet, the transaction is to be accounted for as if it had occurred on January 1, 2015. As a result, included in the December 31, 2015 balance sheet, our Nationwide’s assets and liabilities aggregated in either current assets or current liabilities of discontinued operations. The net booking on the sale of Nationwide is included as part of discontinued operations as well. With that, I would like to turn the call back over to Richard. Richard?

Thank you, Joe. We have given you a lot of information here and a lot of numbers. So, I just want to – I just want to clarify that the $8.3 million non-cash impairment charge we are reporting from last – for this quarter ended up in a three-month and six-month period ended loss of $8,178,000 and $8,069,000 compared to a net gain profit of $910,000 and $1,498,000 for the same period in 2015. I would like to acknowledge all of our employees and management for their commitment in doing such an outstanding job with us during this time in our company’s life. This is the end of our report today and we will be happy now to answer any questions anybody may have. Operator?

Thank you. [Operator Instructions] And we will first go to Andrew Shapiro from Lawndale Capital Management.

Hi, guys. I got several questions. Well, I will ask a few here and then get back out into the queue. But I want to drill down I think immediately to understand the impact in the income statement and just to at least know how the company has done sequentially, in other words, the current quarter you just reported to Q1, so the thing I noticed here is that the gross profit this quarter as reported is higher than Q1, but you mentioned in your press release and maybe your prepared statements that there are some charges, impairments are otherwise from Hy-Tech that you guys took inside of cost of goods sold that impacted gross profit, what I wanted to get a handle on Joe, is if you can – if that is quantifiable, in particular, how much of the charge inside of Hy-Tech’s gross profit and the company’s gross profit was non-recurring and potentially all non-cash, can you clarify?

I can’t give you the exact number. But it is all cash. It is related to inventory, I will call, aging at Hy-Tech. What we typically do and maybe I have explained this in prior calls. I am not 100% sure. But when we look at our inventory company wide, we take a look at usage historically, anticipated usage and we have a – as a starting point an arithmetic algorithm that we employ to give us a first pass at a reserve and then we apply our judgment, knowledge, experience, the latest information about customers and whatnot to modify it. So whenever there is a slowdown in activity, it’s not unusual for us to make adjustments to the reserve. By the same token, if activity picks up and there were reserves on particular items, those reserves can reserve. Normally, we don’t talk about those things because they tend to get lost in noise that are somewhat immaterial on a quarter-to-quarter basis. But as things started slowdown dramatically at Hy-Tech, not only did the approach warrant an additional sort of a step function increase in the reserve. Just our understanding of what’s going on up there required us to do so as well. But to answer your opening question, it was a – there are non-cash items. And to the extent the market rebounds at some point, those reserves could unwind. We don’t necessarily believe those products will ultimately not sell, but given where we are in the market and the fact that we don’t know where some of these activity levels are going to be and when they are going to get back to the historical levels, we thought it was prudent to reserve.

Okay. So in comparison to Q1’s reserve activity and hit, how much of a step function are we talking about, is it $100,000 or is it $300,000 or higher or lower than that?

It’s in that range. It’s a six-figure number. It’s in that range.

Well, there is a big difference between $100,000 and $900,000, you can’t – just in terms of comparison?

No. You had said is that $100,000 or $300,000 and I said it’s in that range. It’s not $900,000.

It’s not close to seven figures number.

Got it, alright. And then if I could follow-up here and I will back out, I would like to follow-up some Hy-Tech stuff if I can, first off, how long ago was Hy-Tech purchased?

We purchased Hy-Tech in February 2007.

Okay. Now, this large customer who you guys describe as ceased placing orders, the – when they ceased to place orders, what’s the advanced time on this, is there business in the current quarter Q3 that will then fall off or there is no business now in Q3 from that customer and when in Q2, what’s the scope of the business in Q2 in terms of time and kind of quantity from that customer that’s not going to repeat now?

Yes. I will just chime in and Joe can give you a little more specifics. But that customer, we discussed that customer last quarter. I know it can get a little confusing. But that customer notified us early in the year that they were pulling out as of April 1 and making everything on their own around that time.

Okay, this is the in-sourcing customer where I have a separate question, so this is the same customer?

I apologize. You are talking about the existing customer that’s what came with ATSCO you are talking about?

No. I have two sets of customers I wanted to make sure this was not a third, so this is…

No, this is not a third. This is not a third.

Okay.

No, no, no. It was just as a clarification for anybody who – I know it’s confusing the first customer notified us early in the year that they were going to be making it themselves. They are very – they are actually a competitor of us. We have been making products for them for a long time. And there was a little bit of business with them in the second quarter. There is a little bit of business with them even as we speak, but nothing to get excited about at all. The other customer is a customer that remains a customer, we can’t – right now, he is not really giving us any orders of magnitude, because of the – because of their tying into oil and gas, but there is still a customer and there will be a customer.

Alright. So now that we have got some of that clarified. Let me just trying to fill in the blanks here in terms of a question. So, the customer that is somewhat of a competitor who gave you notice in April that they were going to in-source and we have already known that, that business was going down. That basically is a large year-over-year decline, but not a sequential decline from last quarter then too much, is that right?

The first quarter, we were pretty much still going.

I would say there is a sequential decline between Q1 and Q2 for that customer, absolutely.

Yes. And having said that last year’s total year volume was significantly less than the year before and the year before that. So, they had been declining for a while already, but this first quarter was still business as usual effectively, I guess I would say.

Yes. And when does this standard – so then the anniversarying of this starts pretty much now. You had some sales in Q2 or it wasn’t all that material even in Q2?

It was not material in Q2. And as Richard pointed out, this company, while significant, has been shrinking for 3 years. So, you are going to see the anniversarying immediately for the next three quarters, four quarters.

But we still do get some business from them, Andrew, but not enough to...

Andrew, just to put this in perspective, there was a time when we referred to in Hy-Tech – the NDA and Hy-Tech referred to a major customer. This is in fact that major customer who shrank so much we stopped calling it a major customer even though it was still significant and now it’s going away even further, if that helps.

Yes, that does help a lot. Now, let’s go to the other – the second of the customers where business is down meaningfully that there is some discussion. Okay. This customer, okay, is the one that had a product line that had little to no margin on it, is that right?

No, that is a third customer. There is a third customer to talk about if you want to talk about it, absolutely, yes.

Okay. And then again, after I finish on Hy-Tech, I will back out here. This large – so, let’s just deal with the large customer that was acquired that then dramatically reduced its purchasing. This is a customer you have good relationships with. Their reduction is because they are heavily in oil and gas and extraction, is that right?

Correct. On a worldwide basis, yes.

Okay. And so they field back, but should the industry – well, I shouldn’t say should, it’s really when. When the industry has its cyclical rebound, is there any reason for you to believe that those purchases will go to a competitor or elsewhere or will come back to you?

No, it will be….

It will be our business.

It is our business.

We have a very good relationship – we are speaking with them all the time. We do get business from them.

Yes. Beyond a good relationship, it’s a very technical product. We, in fact, are the only ones that have the detailed knowledge of how to make it. Certainly, someone else could reverse engineer it, but it would take quite a long time and there is no reason for them to ask anybody else to do it. We have a great relationship. It’s just fully the function of the market.

Okay. And then let’s migrate to the third customer. This is the customer acquired in the ATSCO purchase who has bunch of product lines with you, but one in particular, you were maintaining manufacturer of at little to no margin, but we are in discussions with them that it couldn’t continue, you have now mentioned in here, I think in your release that you are phasing now the product – of this low-margin product, what I wanted to get a feel for from your language is, does that mean that there will still be some negative impact on your Q3 and Q4 product margin, your Hy-Tech margin, as a result of this being phased out rather than something more abruptly discontinued?

Yes, but again, not material, not terribly material. Yes. But that is yes. And that is still a customer of ours and other products, I might add. And by the way, that customer as well as the other one you just referred to who is still a customer, they both came to us with ATSCO.

Right, okay. And this customer who you are phasing out and you mentioned it will have some impact, is the impact sufficient that you will be calling it out on Q3 and Q4’s numbers?

It somewhat depends on what shifts, but I don’t know that it will be big enough to even talk about separately, but it all somewhat depend. I would say this, if it would all ship in Q3 or probably enough to talk about, if it phases out between Q3 and Q4, it probably won’t be.

Okay. So it’s just – it’s a question of shifting inventory already on the books?

Here was the decision. We stopped taking orders. We already had the material from a cash flow basis, it made sense to finish out the orders that we had, because we couldn’t return the material. But the resulting margin is obviously not what you would expect. And by the way I will add, up until recently we had some high hopes that we were going to be able to engineer our way to profitability with that after many quarters of trying we pulled the plug and just decided to get out of that product line, which is not going to work.

Okay. I have other corporate and Florida Pneumatic questions, but I will back out into the queue, but please come back.

Yes. And Andrew, just as a clarification, that customer we are talking about wasn’t customer of Hy-Tech’s before as well, but they also were a customer of ATSCO.

Okay. So it’s good – it will be an ongoing good relationship that they appreciate what you have done?

Yes. No, there is no question. It was not an easy decision. We work with them very hard to try to make that product line work given our relationship with them. But despite our best efforts on both sides, we just couldn’t get there.

Okay, great. I will come back.

Sure.

[Operator Instructions] We will go to Bryan Wagman from Askeladden Capital.

Hi guys. So probably kind of broad questions here, I guess if we could start I remember on the last call, you guys spoke about three areas that you are thinking about will be into oil and gas sort of remains in a depressed state, I was wondering if there was any update there or if you might be ready to identify what those areas are?

I am not sure I am following you, other areas that we were looking to exploit?

Other – you said well, oil and gas remains in a depressed state for Hy-Tech and you are sort of looking into other end markets? Yes.

Yes, certainly. This is with respect to Hy-Tech?

Yes.

Yes. I mean we are not going into the details of what those markets are, but they are non-correlated with oil and gas. And are across some other segments of the economy and what I would say is this. Once they get to be a little more significant and our plans get a little more concrete, we are happy to disclose what those markets are. We are just not quite ready to do that. But we are moving along and we are starting to see some fruits of our labor there, but it’s going to be a long haul.

Okay sure. And on the press release, you had some language I think you said like late 2016, maybe into 2017, is that what you were talking about there, when that might start to become material?

Yes.

Yes. We are starting to – a little bit in Q3, more in Q4. And then we are hoping for a much bigger ramp up in 2017.

Okay, sure. Thanks. And then on the acquisition, so obviously, the broad philosophy hasn’t changed since we last spoke, but could you update us on what you are seeing in terms of both valuations and then just the amount of activity in the pipeline?

Well, valuations still seem reasonable. Our strategy is not to get involved in auctions. So, our strategy is to try to identify owners who are at a point in their careers where it makes sense for them to take their chips off the table so to speak. And usually, it’s got to be a good fit in terms of personality and getting them comfortable with the transition of the business. So in those situations, the valuation work is a little different to just straight up multiples with just out there generically as a private equity firm will look at things. So, we are looking in areas that are what I call bolt-ons very much related to what we currently do. Either niches we don’t serve or accessories that could be added or technologies that we don’t have, but everything related to currently what we do. And I would say we are also not looking at anything that might be involved in historically cyclical areas like oil and gas. So, I don’t know if that helps, but there is still is a lot of activity going on, but there is obviously nothing to report yet. When there is, we will report it.

Sure. Alright. And then on our prior call, I believe you had said that you had several aerospace products plans that will come online this summer. Did those end up getting launched? And if so, how are they doing?

They would be later in the year and development continues, but we fully expect those things to come on board before year end.

Okay, sure. And then with the addition of those new products, I remember you had said before that you maybe have less than sort of 50% of the total offering in some of the major players in that area and you were trying to get more into the 70% to 80% range. Where do you think those new products might take you?

Well, this would be bit of a guess in my part, but I don’t – I certainly don’t think we are at 50% yet, whether these would get us exactly over that, I don’t know. The long-term goal would be to offer the full line with the exception of maybe a few odds and ends. So, the goal is really to get to 90% or more and basically to be a full-line player in that market. That is going to take a few years.

Okay, sure. And then lastly, on the last call, you spoke about attending a Micro-Cap Conference in New York in June, what did you guys walk away from with that? And do you think there could be any potential benefits should we guys participate in?

Well, I was there and it was informative. There was nothing – we didn’t present there. We were a guest of the – actually the host of the event. And it was interesting. I don’t think we walked away with anything other than it was interesting. I mean, I couldn’t really tell you if we would consider doing it next year. If we had something to talk about perhaps we would if the host would want us to do that or allow us to do that, but it was just – it was our first exposure to it, so it was just an interesting couple of days. That’s all.

Okay, sure. That’s all for me. Thanks, guys.

Okay.

You’re welcome.

And we will now go to Henry Dubro and he is a Private Investor.

Yes, thank you. Good morning. The impairment charge necessitate any waiver or amendment to any lending agreement?

No.

No, it did not.

So, it won’t have any impact on your dividends – your dividend policy?

No.

No. Non-cash and our bank debt is very, very long.

So, there is no net worth covenant.

No.

There is no current – in the prior bank amendment, there was a tangible net worth covenant which this would not have had exactly as well. There is no longer even a tangible net covenant under the current circumstances. If availability drops significantly, then there might – there would be a tangible net covenant, but there isn’t one now.

Okay. One last question regarding the disclosure about the customer that you said will seize placing new orders. Is there the anticipation that any prior sales or receivables from this customer will be paid in full or do you anticipate returns from the customer, allowance is needed to be granted?

Good question. No, we have got an ongoing relationship with their customer. They are still paying their bills on time. Their product is coming back. Other than just the discontinuation of orders, there is no other effect on us.

So no anticipated future P&L affect?

No.

Correct.

Okay, thank you.

You’re welcome.

[Operator Instructions] And we will go back to Andrew Shapiro from Lawndale Capital Management.

Hi, okay. Some follow-up here in Florida Pneumatics, so as you just mentioned Mr. Dubro, the write-down here is that almost all of it intangibles that have occurred, in fact I note that your tangible book value per share actually increased to $9 – almost $10 a share as a result of the write-off on the write-down of all the intangibles and with that increase in the tangible book value, our company at very low almost non-existent debt to equity levels because of the recent sale, in your acquisition strategy, as you mentioned, you are not doing the auctions, you are looking for these – I won’t call them all that unique, but these circumstances for owners calling it quits, etcetera with no successor circumstances, when do you decide that it may be appropriate in addition to these as a dividend policy either increasing the dividend or instead of that being any ongoing obligation too high of a level coming in with a stock buyback in a modest dose?

I am not quite sure if I understand what you are asking us Andrew, but if you are asking us if we are going to consider buying stock back in a modest dose, we discussed that in our last meeting right after our annual meeting and we decided to hold off. But it is definitely on our radar to do something like that. I mean we feel that the stock is certainly in our view, under priced. So if we can do that, we will do that. If we get clearance from our legal counsel and I don’t see any reason why we couldn’t consider doing of something that in the very near future. We have a meeting right after – or in early September about that.

Okay. So before, when we talked before obviously, there is a balance in capital deployed to make an acquisition, capital deployed to buyback shares, it’s somewhat mutually exclusive, I want to confirm what I am getting from your language now, given the fact that of our tangible book value has gone up, the stock price is actually down from when we announced and did see Nationwide sale, that a buyback in your mind is something that is giving – is being given greater consideration then maybe six months ago or three months ago just because the discount has gotten greater and maybe the acquisition playing field is a little more difficult, is that the correct interpretation I should get from your comments?

Not really. We are actively looking at acquisitions. We haven’t found that to be – we have had many opportunities looking at many things. So I don’t think that’s dried up in that way. But it’s a balance. And with our financial – with our bank debt at such a low number as opposed to six months ago when we still owned Nationwide and all that. Things have changed in that landscape. So I think that though I can assure that we are going to do this, I am going to assure you that this is high on the radar screen for the Board to look at both acquisitions and a modest stock buyback program if we get legal counsel to bless us doing that.

Okay. So it’s not – then the wiggle room that I am getting from you right now is that before it might have been more mutually exclusive, now it’s no longer mutually exclusive?

That would be my take, yes.

Okay, great. In terms of the acquisition strategy, not looking at oil and gas and also Joe, you mentioned, well we are not really wanting to be in any cyclical businesses. Is there – so when you are looking at these businesses, you are not looking at businesses that you can buy at a low multiple that you guys can necessarily go out and prove and be turnarounds on and get them cheap and then fix them, it’s more you want to get stuff that’s going to get just handed off to you and is only in an ownership transition. Is that correct?

Yes, that would be correct. And then again we want to stay in our tool sector, as we have discussed. So, the answer is yes for that question.

Well, we are not turnaround guys, I will say this. I think there is always an angle we are looking forward in an acquisition to improve our effective multiple whether it be a combination of sourcing better or having different set of geography or a technology that might enhance something else we are doing or a technology we have that can be brought to another product line or something in the combination that makes it more interesting than just simply paying for the cash flows. I will say that. But I don’t think it gets to the level of while there is something broken, we want to go fix it and let’s pay a low multiple and do that. That’s just not what we do.

Okay. Now, with respect to the automotive, I mean, automotive can and is often considered cyclical kind of business industry as well. And it’s been an industry been doing quite well, quite well at a time when we acquired these automotive businesses. Can you give a little color or clarification about how these automotive businesses and our move in growth in the automotive segment is somewhat cushioned against or I don’t want to use the word immunized, because all industry sectors can suffer softness, but are we at risk of an automotive sector turndown like we have just suffered in oil and gas?

No. And I will give you a little perspective. So, the market we currently serve that we call automotive is repair and maintenance work on vehicles. There are 250 million cars and trucks on the road in the United States. Every year, they sell about 10 million more of those. We are servicing or our products are capable of servicing 250 million cars and trucks. So, the extra 10 million that get into the fold after cars and trucks go out of service, that isn’t going to dramatically change the underlying demand for the need of those services in any particular year. We are not involved in the production of automobiles, at least not currently. But so when we say automotive, just be clear, we are really talking about maintenance and repair and things like that, not really production. We are just not in that part of the market.

And Andrew, I would also just to add I would think that Joe would agree with this. Florida Pneumatic is not – I mean, it’s diversified in other areas. So, where Hy-Tech is more affected by the oil and gas in a more dramatic way, if god forbids, automotive did get affected and go down, which it will eventually everything does. It would – of course, would be like what Joe was saying, it’s repair so that it wouldn’t be as dramatic, but we have other areas in the business, industrial, retail, catalogs. I mean, a million other areas, so it would be a little more diminished when that is not as important. Let me say that way.

Yes. Those explanations are really helpful. In fact, theoretically, in periods when new auto sales declined, people are driving their existing cars longer. The maintenance and repairs side actually holds up pretty darn well so...

Yes, it was agreed.

Yes, okay. I have some Florida Pneumatic questions, but again I want to back out since we have other participants I really don’t want to….

There is nobody else in the queue.

There is nobody else in the queue right now.

Alright. Let me know if someone hits the button, but otherwise, let’s ask you some questions in Florida Pneumatic if I could. So, you talked about the timing of introducing some new products and other things down the road. I think to Mr. Wagman’s question on AIRCAT and all that, but one of the things you called out on today’s call was that AIRCAT and your automotive segment has enjoyed some very nice and impressive growth from the results of new products and marketing initiatives you already obviously, successfully deployed, are there any products or marketing initiatives that greatly contributed to that growth that you would like to call out and are worthy to mention?

Historically or on a go-forward basis?

Well, you recently in this quarter reported favorable results as a result of new products and marketing initiatives, Bryan had asked already about the timing of what you guys coming down the pipe, whatever more detail you want to give us about what’s coming down the pipe, that’s great, but in addition, I am just trying to understand if there was anything in particular that contributed to the second quarter’s success?

I wouldn’t – I mean nothing in particular, but certainly a lot of very well thought out programs. Whether they would be more trade shows, more products introduced into the channel a couple. And frankly one or two products we developed at our bigger hits than we ever imagined. What we are seeing is that certainly, it’s not a worldwide brand. Maybe someday it will be. But the AIRCAT brand, it has really taken hold with the younger mechanics. And they are paying attention to us. And we did in fact, I will share this. We did in fact launched a brand new website, aircat.com, I think it was a week ago, Monday. And we were doing all this really without what I view it is an up-to-date site. And there is certainly going to be social media initiatives going on very soon in addition to even more products. So we continue to move forward on that and get into the parts of the country and even outside of the country that we haven’t really fully exploited. So we are still very optimistic about AIRCAT on a go forward basis. We still have a relatively small market share, vis-à-vis the big guys. So we have a lot of upsides still.

Okay, excellent. And you said in prior calls, you had an additional geography primarily you have been – on the last call, I asked and you had talked about you have gotten into the periphery of Europe and I wanted to get the status on the bigger market and your goal of getting into Central Europe that was in developing markets for not just AIRCAT but other tools and I think also developing other distribution opportunities throughout Europe, can you comment about the – give an update and a little more detail at this time. And also with that, your thoughts on any European economic Brexit like slowdown issues that may or may not interfere or impact our efforts we are so small, we are just entering the market it doesn’t really matter?

Alright. So let me just answer your first question, which is an update. I don’t want to get into the specifics about our entrée into Central Europe other than to say I am happy with how things are progressing. And when I have something to say concrete about what’s been accomplished, I will. But we are absolutely moving down – moving along a timeline there with a goal of having a real presence there. But there are multiple angles we are taking at it and some of them were moving faster than others, but we are absolutely moving forward on that goal. And I am very, very confident were going to be established in Europe soon. And we will see how big we can make it. But we are not backing off from that at all. We are getting positive feedback and we like what we see about in terms of what we are trying to do. But nothing concrete to report just yet. But we are getting there. So that’s that. With respect to Brexit, two comments. It goes without saying that in terms of the purchases by our UK sub of product from really almost anywhere in the world outside of the UK just got more expensive. The adjustment to the value of that operation had to be made with respect to inside the financials in the other compressive income section of the balance sheet. You will notice that’s at the very bottom in the equity section. So that adjustment was made. That’s simply a currency exchange issue. The product just got more expensive for them to buy and sell into the United Kingdom, so on a go-forward basis that’s going to have an effect. Having said that, we are – we have plans to mitigate that in various ways. And I think we will go a long way towards mitigating that. But it’s not a situation we were thrilled about. With respect to the rest of Europe and our plans there, I don’t think the Brexit situation or the weakness in Europe in general has really much of an effect of that because you don’t have anything going on there to begin with. So everything we do there is new anyway even if the market is slightly worse or smaller than it was a couple of years ago. Does that answer your question?

Yes, it did a lot. In the industrial catalogs side of the Florida Pneumatic, there was a drop that we called out and there was about seem like $160,000 of special items, I want to say $160,000, a differential, year-over-year of about $160,000 in oil and gas and aerospace, is that $160,000 part of – is that different or the non-special item only when you called out the oil and gas declines or both?

Okay. So the special item is a military item that just did not repeat or not repeat in the levels that we had in the prior year, nothing to do with oil and gas. Oil and gas does affect Florida Pneumatic, but not nearly to the level that it does Hy-Tech. But there if you look at Florida Pneumatic as three pieces, you got the retail part of the business. You have got the automotive part of the business and you got the industrial part of the business. I mean there are some ancillary product lines, but that’s the bulk of everything. Retail, not affected by oil and gas, automotive, not affected by oil and gas, some percentage in spit ball and gear, maybe 25% of the industrial section might be affected by oil and gas. But as a percentage of the grand total, Florida Pneumatic, you are getting into a smaller percentage. But we noticed it. We see it. We are definitely being affected by it.

And I would add that our two biggest competitors have had enormous drops in their reported numbers. You could check them out Ingersoll Rand, Chicago Pneumatic, Atlas Copco in these areas, they have had enormous shortages.

Yes. Although now that’s interesting because that was Copco’s Malibu and their stock price seems to be just chugging so...?

Yes. But they are not an only oil and gas. There were many other things. But it’s…?

Yes. So I guess there is the benefit of being large and they have analyst coverage, so we got to find a way of rising above the rest of the small world here. You mentioned on last quarter’s call that the initial launch experience with Home Depot Canada was quite favorable, we are three months into it further, did that continue and what’s your current experience and visibility so far with Home Depot Canada and the opportunities moving there – into that market further provides us?

Again, I want to reiterate that it’s a fraction of the U.S. market of Home Depot, 5% to 10% of that. Having said that, we are happy with how it’s gone. Reception of the product has been excellent. We certainly expect to be able to grow that grow that faster next year than the rest of Home Depot. But again, I will remind you it’s a fraction of the rest of the business.

Yes. And you said there are additional tools you are going to be rolling out there were going to get the stores today already rolled out at different stores or when does that occur?

Yes, they did. They hit the stores.

Okay. And it was that in the beginning of the Q2 or the end of Q2, just recently?

I think it was part of Q2 and a little bit of that is rolling into Q3.

Okay. And your current experience and visibility with respect to Home Depot, your current experience you kind of reported though actually Sears was more of a growth item for you this quarter than Home Depot was, is that just the sales mix, seasonality timing thing and what other color can you give on this major customer?

I would say its timing. I will say this that we have refreshed our Sears offering in the stores. So there is probably a little bit of that going on. And honestly, Sears is paying a little more attention to this product after a number of product line – after a number of years of not really paying attention at all. So I think there has been a little bit of a pickup as a result of that enthusiasm and tending to the needs of the product line. So I think there is a little bit of that in there, too.

Okay. And you said in the last call that Sears had indicated they were working on additional avenues to sell the craftsman tool lines, is that a part of this growth or that is a potential incremental tailwind for us going forward?

I think it’s both. I think it is part of what’s going on. And we would only be guessing, but we think that maybe 30% of what we sell with to Sears, what we call Sears is really ending up in places that are not the typical Sears mall store and that percentage we expect to grow. And for whatever its worth, we don’t think that is nearly as susceptible to any situation in the long run at the Sears. And Sears’ plan as well, I mean they have stated publicly that they want to sell the craftsman line outside of the typical Sears mall store. And it’s happening. It’s absolutely happening and we are seeing it in where we see the product. I mean it’s a little – we don’t have a perfect view into that, but our estimate is like 30% and growing.

That’s great. And then on Home Depot, is there a timing for where you will be introducing a refresh or a new product lines into the Husky label?

That’s an ongoing thing. They are much more – they keep up with things much – it’s a different situation, that product line is kept on regularly and maintained regularly and updated regularly. So there really isn’t a date. There is no date, but we say we are going to update the line, it kind of happens. We do running changes there regularly.

Got it. And on the CapEx, it seem like the number you were calling out from CapEx is a bit higher in spend from prior year, what do you have planned for the second half of the year for CapEx spend and what were the major projects that this was all going into?

Rest of the year, I think it’s going to be more modest than the first part of the year. We just – there was a fairly sizable CNC machine that we had to put in place. Not had to, but we choose to put in place. And that was the big spike in the quarter.

And is it providing the payback and benefits that you had hoped for?

Well, it just got put in place in the last – I don’t think it’s only been producing parts for less than a month. So it’s a little hard to say. But it is quite similar to another machine we were very happy which we have put in place a few years ago, so we expect – we already know that the return is going to be there because we have already done these ones.

Alright. Well, we will ask you about it next quarter the. That’s all I have guys. Thanks a lot.

Thank you.

Okay. Thank you, Andrew.

And there are no further questions. I will turn the conference back over to our presenters for any additional or closing remarks.

Okay. Thank you all for spending time on the call on a Friday. Enjoy the rest of your summer and we look forward to speaking to you with Q3 results in November. Thank you all. Have a nice day.

This concludes today’s presentation. Thank you for your participation.