Good day and welcome to the P&F Industries Incorporated Q1 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Richard Goodman, the company's General Counsel. Please go ahead sir.

Thank you, operator. Good morning and welcome to P&F Industries' first quarter 2019 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'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 exposure to fluctuations in energy prices, debt and debt service requirements, borrowing and compliance with covenants under our credit facility, disruption in the global capital and credit markets, the strength of the retail economy in the United States and abroad, supply chain disruptions, customer concentration, adverse changes in currency exchange rates, impairment of long-lived assets and goodwill, unforeseen inventory adjustments or changes in purchasing patterns, market acceptance of products, competition, price reductions, interest rates, litigation and insurance, retention of key personnel, acquisition of businesses, regulatory environment, and threat of terrorism, and related political instability and economic uncertainty and information technology system failures and attacks, and those other risks and uncertainties described in the reports and statements filed by the company with the Securities and Exchange Commission including among others as described in our most recent annual report on Form 10-K and our other filings. These risks could cause the company's actual results for future periods to differ materially from those expressed in any forward-looking statements 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.

Thank you so much Rich and good morning everybody. Thank you all for joining us on this call today. However, I will begin today's call with a brief summary of our first quarter 2019 results and how this data compares to the prior year. However, I direct you to our release from earlier today for more information. This morning's release presented P&F's balance sheet statement of operations per share data along with most of our management's discussion and analysis. I wish to emphasize once again that the purpose of today's call is solely to discuss and review the company's results for the three-month period ended March 31 of this year. As such, I must insist that you please confine your questions to that topic at hand. I will then ask Joe Molino to briefly review key cash flow information and provide an update on any key events affecting the company which -- after which we will move to a Q&A session. The company's first quarter 2019's consolidated revenue was $14,322,000 compared to $15,742,000 in the first quarter of 2018. As discussed in the company's press release published earlier today, a significant cause of the decline was the reduction in retail revenue which was due to The Home Depot being in an overstock position of Florida Pneumatic tools. Additionally, we encountered a decline in our Aerospace revenue. These declines were partially offset by an increase in revenue in Hy-Tech, specifically in Engineered Solutions or OEM sales which improved more than $800,000. The company's first quarter 2019 gross margin was 36.9% compared to 34.5% for the same period the prior year. On a year-over-year basis Florida Pneumatic's gross margin increased 4.3 percentage points. This net increase was due primarily to a change in marketing strategy for our AIRCAT brand, partially offset by lower gross margin on sales to The Home Depot which was due primarily to the previously agreed upon 2% price reduction when a new supply agreement was signed and to a lesser degree product mix. Gross margin at Hy-Tech was negatively affected this quarter by a complete information technology system conversion which caused our facility to close for three business days during the quarter impacting manufacturing absorption. Our selling, general, and administrative expenses for the three-month period ended March 31 of this year were $5,269,000 and last year $5,274,000. Lastly, the company's interest expense during the first quarter of 2019 was $63,000 compared to $37,000 incurred during the same period a year ago. This increase was primarily due to increased revolver borrowings. Taking all of the above into consideration for the three-month period ended March 31 we are reporting a pretax loss of $51,000 compared to pretax income of $88,000 for the same period in 2018. On an after-tax basis, we are reporting a net loss of $26,000 compared to net income of $65,000 in the first quarter of last year. For the three months ended March 31, 2019 we are reporting a $0.01 basic and diluted loss per share, compared to the $0.02 basic and diluted earnings per share. While we are disappointed with the company's first quarter results, we remain optimistic about our success in the long term due to our strong foundation of our businesses and customers, as well as our very many opportunities for growth. Again as a reminder I wish -- I refer you to this morning's press release for additional information. At this time, I will hand the call over to Joe Molino.

Thank you, Richard. Capital expenditures during the first quarter of 2019 were $485,000 compared to $570,000 during the first quarter of 2018. Significant non-cash items affecting our first quarter of 2019 were cash -- cash flows were depreciation and amortization of $389,000, amortization of other intangible assets of $172,000, amortization of consideration payables to customer of $67,000, stock-based compensation of $29,000 and a recovery of losses on accounts receivable of $69,000. Additionally, significant components that impacted cash used in operating activities during the three months ended March 31, 2019 were a decrease of $654,000 in accounts receivable and an increase of $207,000 in prepaid and other current assets, a decrease of $1.282 million in accrued compensation and benefits and finally accounts payable accrued liabilities and other payables in aggregate decreased $219,000. With that, I'd like to turn the call back over to Richard. Richard?

Thank you, Joe. As I always do, I would like to acknowledge all of our employees and management for their continued outstanding performance. Without their dedication and hard work, we would not be where we are today and where we will be headed in the future. That's the end of our report today and we're happy to answer any questions anybody may have. Operator?

[Operator Instructions] We'll go now to Andrew Shapiro with Lawndale Capital Management.

Hi guys. I got several questions. I'll ask a few and then back out for others in the line. Most importantly here, P&F recently filed an 8-K announcing the sale-leaseback agreement for the very long-held Jupiter Florida property for approximately $9.5 million. While I know the timing and the final proceeds are still subject to due diligence, the property's current net book value is known to you. And so what I wanted to know is what is the property on the books for at March 31, or December 31's 10-K, because it's all part of a big summary?

It's approximately $950,000 net book value.

Okay. Net book value. Excellent. And can you elaborate on the milestones and the projected timing of the due diligence and sale process should all go as planned? Is July 3rd still the targeted closing time?

Yes. I believe so. But...

So what would be the milestones that would -- what would be -- I'm sorry to interrupt you? What would be the milestones getting us towards that closing date? In other words, are there other notable milestones in the escrow or sale agreement?

I believe they were released in the...

Yes. We've got -- the due diligence period is 45 days. I don't know how many days we're into that right now. I'm going to think three weeks or so. And then once -- the -- we can choose -- the buyer can choose to go hard if they'd like before the end of that 45 days. But from the time they give us the final deposit, there's 30 days to close.

And mind you there they're doing a lot of due diligence on the building. And so I wouldn't count on it being an issue – being as sale until it's a sale.

Right, which is why I was asking about various milestones. Okay. And what are your plans for the after-tax proceeds on the sale?

We're going to pay down the debt.

Okay. And do you expect around the timing of the sale process and your seasonal working capital needs that there would be a substantial amount of or a range of cash – net cash available above and beyond the pay down of the debt?

I don't believe there'll be much excess.

Okay. But it will be pretty much debt – will be debt-free though.

Yes. Yes. Essentially.

Okay. Great. I have other questions. So I will back out, in case there are others and come back to me please.

Okay.

[Operator Instructions] We'll take our next question from Henry Dubrow [ph] who is a Private Investor.

Good morning. I'd like – you mentioned in today's press release that there was an Aerospace customer that did not come to realization in the first quarter. What was the reason they shied away? And what was their sales in the prior quarter in 2018 and for the total year of 2018?

First of all, just to be clear, it wasn't a customer that didn't come – I forgot what word you used but there was a longtime customer who we had a fairly substantial orders from last year in the first quarter for our program – a new program. We had been told that that program would continue with sizable order – orders also coming in Q1 of 2019. Those orders did not materialize. Don't know, if they will. Don't know when they will, but that's essentially what we're trying to decide.

Was this a customer from more than 2018?

Oh, it's been a customer for years.

So – and it's no longer as of now a customer?

No, no. It's an ongoing customer. It was a customer. It is a customer. We fully expect it to be a customer. There was just a very specific program – launch and there was a big set of orders. Again we were told that they would repeat right around the same time for the same program but that did not happen.

So whatever the SKUs or product line you sold them in the first quarter of 2018 did any of that continue into the remaining quarters in 2018?

I'm sure there were some follow-on and I would also suspect that the tools that we sold them for that program were not particularly unique. There -- I'm sure they were very similar tools sold to other Aerospace companies and through distribution.

And what was the amount of this reduced revenue first quarter 2019 versus 2018?

It's all about $1 million.

Okay. Okay. You also mentioned that you're now contingent liability to Jiffy the one that I think took place April of 2017 reached the cap of $1 million. Is that to be paid within two years of that April 2017 closing or thereabouts?

I forget the actual timing. I believe we're due to pay that sometime between now and the third quarter – end of the third quarter something like that.

End of the third quarter. Okay. Okay. I'd like to ask another question if – unless you feel compelled to go back to the queue.

No. If you have just one more question go ahead.

Okay. In the current quarter I'm assuming that officer compensation was just the basic amount without any accrued bonus.

Well, we accrued bonuses throughout the year and through – for the whole company for all employees that are in the bonus program.

Okay. I'm specifically talking about the two highest paid individuals.

It's for everybody in the company. He just said to you. It's everybody in the company that's accrued every quarter.

To the extent, it's accruable. It's driven by profits and profits in relation to plans and the programs in place. So it's not a linear thing necessarily but it's...

Okay. So your proxy mentioned the amount of the total 2018 bonus to the Chief Executive Officer and the Chief Financial Officer. How much if any of that category was accrued in the first quarter 2019 versus 2018?

If you're talking about programs payable related to 2018 results, none of it would have been in Q1 in 2019.

No, no, no. For 2019. In other words...

No. I don't know that if I have that data. You're asking to compare the bonus accruals between the two quarters?

Yes. Correct.

Oh I -- that's not the data I have at my fingertips. I don't know that the -- it's hard for me to say how material the difference was. It's just not a number I've got. I would doubt that the difference is material. I don't know that that's driving a big change in the results for the quarter.

Okay, okay. I will let someone else. And I will come back. I think I have one or two more questions. Thank you very much.

You're welcome.

[Operator Instructions] We'll go now to Andrew Shapiro with Lawndale Capital Management.

Hi. I'll have a few more and then back out. I actually want to do a little follow-up on what Mr. Dubrow asked because I think I know what he was getting at, but maybe not, but it's related to some of my questions. On the compensation for the first quarter, you're doing an accrual on anticipated bonuses for the 2019 period, based on your projections the company's processed towards the projections et cetera. And my question relates to the fact there is a tax law change that occurred where bonuses or bonus compensation performance-based or otherwise above $1 million no longer is tax-deductible. And that was cited as one of the factors for which the company this quarter reported a greater than 40% almost 49% tax rate. So the thing I wanted to actually know is, if you could summarize about how much of the nondeductible expenses that cause our tax rate -- reported tax rate to be as high as it is, are from the nondeductible compensation factors versus all the other factors and changes such as the foreign and state tax law -- foreign and state tax changes?

That is not data we've got with us Andrew.

Okay. Well again, I'm looking for a summary like you kind of know that while we got a big tax rates because we have -- I'm throwing this number out $400,000 or $500,000 of nondeductible expense. And of that the compensation portion of that that is not nondeductible. Again it's all estimates, which you probably catch up with in the fourth quarter is about 200 or x of it. Even in that kind of summary, you don't have that handy?

No, we don't. As you know in the K, we get into that a little bit in one of the footnotes. It's just not a required disclosure in the quarter.

Okay. And then when Henry asked his question, I think what he's trying to -- well I don't know what he's getting at. I'd like to ask a question related to that which is, when you're accruing the expected bonus, so it's not all fourth quarter hit and you're basing it on your performance threshold targets and the company's progress towards those performance threshold targets et cetera et cetera is -- has there been any material change? Was it an increase a decrease with your performance targets that you're accruing against for the calendar year 2019 versus the calendar year 2018? I know you guys have internal budgets, internal projections various things are going off for which you're seeing we estimate we're going to get a target bonus of x and now you're accruing for it. Has there been any shift in 2019's versus 2018's? Was it a modest increase an increase at all?

Well, the committee revisits the target every year but I'm not going to get into whether the target is higher or lower or how they got to it. I will say this. The accruals in the beginning of the year are a little looser than the accruals in the second and third and obviously, the fourth quarter we got to get it exact. So, things probably look a little more linear earlier on because we're trying to shoot to an expectation by year-end. So, the bonus is based on the full year not a partial year. So, in order to not make the earnings look crazy different it's -- we're just doing our best to see where we're going to end up by year end. So, it's possible that even if a quarter isn't very good we're expecting something different in another quarter we have that in mind when we do those accruals. It's just not simply in a vacuum. So--

Right. Do you mind to air on the side of over accruing initially?

I don't want to say we're -- I would say this. We're definitely conservative. I think that's a good approach to accounting. So, yes, that's probably--

Now, when establishing a higher go-forward performance thresholds for bonuses and I don't know if you're -- Joe you're not on the Board, it's just above your pay grade. But Richard you're part of the Board, but not necessarily part of the Comp Committee's independent deliberations, but I would think they would report out to you what they're doing and why because you guys report, hey, this is our projections for the year. This is our budget. The Comp Committee comes back and establishes performance thresholds for this bonus program. Has the Board's Compensation Committee taken into account when establishing the go-forward performance thresholds? Has the comp committee taken into account the new tax law changes that create an extra cost on bonuses that exceed $1 million?

Andrew I would -- first of all, I'm going to partially answer your question now. But this is an earnings call. And let me ask you and anyone else who wants to talk about things it must be the earnings please in the quarter. That's number one. Number two--

Richard I understand--

Number two I would not be in a position to answer that question. It's a Comp Committee thing. But of course I know in the more higher end stuff yes, they do that. And they do that with a compensation consultant and our compensation lawyer. And I have -- and none of us in this office have input with those people other than reporting. And even at the Board level, they generally report these things in executive session where Joe and I are not present. So, I don't know--

Right. Okay. I understand and that's why I caveated it. I appreciate you weren't in the room, but I didn't know if they report it out to you that amongst the factors they took into account for these things they're taking into account the fact Section 162(m) no longer allows deductibility of bonuses above $1 million whether -- regardless of whether it's performance-based or not which is a major change in the tax law. And how it does relate to the quarter's earnings is your reported 49% whopping tax rate because there are expenses here that are being accrued against that are not deductible and a bunch of it. And I'm wondering how much of it is due to compensation more than it is the foreigner tax issues. And so it does relate to our quarterly numbers and our quarterly earnings. So, I was cognizant of your thing all right? So, you don't need to be defensive. Yes?

Let me make one comment that's sort of mechanical problem. When profits near breakeven funny things happen with the tax rates because again we're shooting for a 12-month tax rate. That's how you have to do this. So, there are things going on in future quarters. There are large expenses that are not deductible that may -- we may have to run linearly. So, if I have a really close to breakeven quarter I'm going to have fairly -- potentially nonsensical tax rates. It's just unfortunate I would suspect -- not that I would suspect. I know that if we were to have a large -- show a large profit in a quarter or for the year the rates would start to look more normal. It's just the mathematical mechanical issue when you're this close to breakeven in a particular quarter.

Sure. And on the sale of the property -- right and on the sale of the property, we're going to have an enormous gain. So, I appreciate that. And again, I'm just trying to get to feel for how much of this is due to the comp over $1 million or not…

I haven't seen…

Yes?

…but just one more thing, I haven't seen our M-1 in a while which is this -- one of our tax people jump on me if I say something silly. But there's a long list of items that move that tax rate around and move it off a statutory number. It wouldn't simply just be compensation. There are multiple, multiple things going on there.

Oh! No, there’s a definitely state and foreign tax issue. Moving on to, some of the business items in your press release here. And I'll back out again. In what ways do you have visibility of Home Depot's, sell-through and stocking?

We have limited visibility. Though, we've been told that their sell-through for the first quarter has been better than expected and very positive. But we don't have a vision into why their ordering patterns change. We get answers from them. But, Andrew to be honest with you, like with the Aerospace industry also we get answers, and a week later we can get a totally different answer. So, we ask the questions, but we don't always get the right answers. But the …

Right.

…sell-through for the first quarter they've been very pleased with …

…higher than expected.

…higher than expected...

And then in the overstock position, that's primarily with the new product line which launched this winter?

Yes, yes. And just to give you a little…

Okay.

…flavor even though it's getting a little down into the weeds. When we got that last order from Home Depot in December, we were told that it would have no impact at all on 2019. And you fast …

Right.

…forward 60 days later they said "Oh! There was an impact, because we placed an order at the end of year." So, I mean…

Got it.

…of course what I'm saying is quality of information sometimes is not always -- is not good as we'd like to think it should be and could be.

Right, now in light of the fact that they've kind of reported this to you now that things are selling through and of course you guys are probably a little more sensitive, on this and calling them a little more often to have -- to get better insight about this to the extent you can. Do you have an expected timing for the normalization of their inventory? And the beginning of we'll call it normal order rates again? Thanks.

Well I'll let Joe answer. Maybe he looks like he wants to say something. But, I could tell you we speak to them, pretty much every day. It's not like we -- and that's been going on really forever. So we get -- we don't ask the same questions every day, obviously, but we, speak to them in a very, very regular basis, about every last thing that they're doing. So we're pretty up to speed on what they tell us. That doesn't mean that …

Right.

…they necessarily have the right information. But Joe why don't you add to that ....

Well I mean -- here we are I mean -- go ahead Joe,...

Joe, go ahead.

They're happy to share with us store sales. What they don't share with us are two important things, inventory stocking levels at the stores, inventory stocking levels at the distribution centers, and targeted inventory stocking levels for both of those. They just will absolutely not share that with us. So, unfortunately that can lead to fairly sizable swings. I mean for all we know, they could have being close to stock out on an SKU and have years' work on something else. We just don't really know. And that can lead to some movements we don't expect.

Which by the way Andrew happens -- happened in the past very, very often. They will call us with a 911 call. We're out of a particular item or two all of a sudden. And we have to scramble if we even have it and if we're lucky enough to have it in inventory. If not they'll be -- we have to get it and it's a whole another thing. So,…

Right.

So you know we really don't always know it. But I would tell you, I mean I think what we're trying to go is have things normalized. And if I -- and if you asked us six weeks ago, we'd say no. And if you asked us four weeks ago, we'd say yes. And then honestly, two weeks ago, we would have said no again. And now we think, maybe yes. So, it seemed spurt -- they spurt along and then all of a sudden they stops. So, there's no consistency yet to their ordering patterns which is more normal to us.

Okay. And they're trying to run you guys, with just-in-time inventory.

I guess. I guess. But to answer your global question, we do expect shortly that, it should be in a more normal situation. If it's not already, it should be here very shortly. That's something -- that's the best information I can give you at this point. But again our knowledge is just a little better than yours, but not as good as the factual. It may not be completely factual.

Got it. I’ll back out. I have more questions of course. Thank you.

[Operator Instructions] We'll go now to Henry Dubrow [ph] with -- who's a Private Investor.

Okay. One quick question relating to the impact. You have a -- you implemented a company-wide information system at Hy-Tech. Was that something that was engineered internally? Was it something you purchased? Are the expenditures all-in? And what period of time are you amortizing this?

It was -- we did a global search for a system. It was a fairly thorough process. The implementation actually began in 2018. And I would suspect that the bulk of the expenses -- I don't want to call it -- excuse me, the bulk of the expenditures related to that will have been out the door by Q1. I don't know for sure what the depreciation period is for the system, fairly short, probably close to three years. I'm seeing maybe parts of it; three parts of it, five, I suspect. I'm just guessing. Some of the software might be three years; other parts of the system might be five years. So I don't know if that's helpful to you.

And what's the total cost?

$200,000 I don't have an exact figure because again we'll expense it all-in one shot. But if I had to guess, I'm going to say $300,000 probably in that ZIP code.

I see. I see. And that may or may not qualify for 179?

Correct. We don't know yet.

Okay. I will back out.

We'll go next to Andrew Shapiro with Lawndale Capital Management.

Okay, guys thank you. I wanted to also follow-up on Henry's question on the aerospace side to get a better clarification. Maybe it's by process of elimination, because you weren't really talking about, which customer or whatever. The weakness or the lack of ordering, hold up in the program from a particular customer, can we -- can -- is that due to the 737 MAX in Boeing? Or can you rule that out and it's just due to something else?

We do not think, it's primarily related to 737 issues. I don't think -- that's not really the answer. It's really what we said. I mean the program I was discussing is not a 737 program.

Okay. Is it commercial or defense?

It's commercial.

Okay. And it's been awhile, maybe it's still not long enough. Are you making any -- but you did hire someone in Europe. Are you making any inroads? And what would the kind of the timing be? Is there something I shouldn't ask again until 2020 regarding giving inroads into Airbus where you've had no sales into them in the past?

Well, we have some systems being tested by various suppliers to Airbus. We are talking to Airbus, but I would say this, we're very happy with what's going on in Europe. It's not just about Airbus. There's tons of opportunities across a lot of Aerospace companies, across many countries, not just France, the U.K., Italy, Germany, Turkey, Spain just a lot of opportunities. So we don't try to just focus on Airbus while they're the 800-pound gorilla over there, but we're very happy with how things are going so far. And what's making us most pleased is we think we've got the right person in that spot.

Right. That would be -- obviously. Now do you have any efforts? Where would the efforts into Latin America and to Brazil in particular be generated for your Aerospace business?

We have a relationship with Embraer.

Okay, good.

Obviously our biggest one down south of the border although there are a few others.

And it predates us. It predates the original buyer. The original owner had a relationship with Embraer before us.

And we don't have boots on the ground per se in South America. We do have a person that covers that. One of our salespeople covers it, but they're obviously not down there. They're not housed down there. We haven't forgotten about it.

Okay. And then from where do you cover Canada? Are you into the Canadian airframe players?

Yes. Yes we are.

Okay. And you cover that...

We cover that...

Okay. And then with the last couple of calls, you said that it would still be -- I mean going back a few quarters, it would be several quarters where these new initiatives would show any signs of traction or success. And so here I am in the middle of the year kind of asking about that. Do you see visibility of program adoption any time here in 2019? Are there some programs that would…

I'll let Joe answer, but we said in our press release that we had our biggest quarter ever in the OEM I believe.

Andrew let's just clarify...

No, no, no. This is Aerospace I'm talking.

Okay. Aerospace I apologize.

I'll get to OEM and the Hy-Tech. Yes.

Yes. We've got some visibility on things that we're very optimistic about a number of programs, but these are quarters and quarters and sometimes years to get the stuff going. I mean the big guys move very slowly.

That's okay. That goes along with my more than 20 years as an investor here. So it's fine. We'll be asking again. Regarding the pneumatics that's a small, but very nice synergistic product line, but you thought that you might be able to roll that product line into some of these aerospace accounts and such, but it would take some -- take a while. But I think the last time I asked about it was on the November call. So here I am six months later half a year later asking, do you have anything to report or any milestones or visibility and progress made with potentially broadening the customer base for pneumatics.

The answer is yes.

We can report lots of progress, but we cannot report any major orders or...

No orders yet, but we're getting increasingly closer to that.

Okay.

We remain optimistic as were before.

Yes. And the kind of segueing here, but going off of what we just talked about. In Europe you have the new Europe person. The European efforts -- this person is leading the efforts in both sides of the coin here from Aerospace to pneumatic and AIRCAT things like that.

Yes everything.

Right. And are there any -- how is this person going about it? This is a P&F employee or a P&F outside distributor or value-added reseller?

He is It's an employee.

He is an employee, okay. And is he or she making inroads in any particular countries or any particular product lines or sectors worthy of calling out yet in reporting?

I would say he's making inroads across every sector that we care about Aerospace, Industrial Automotive other than retail which we're not really pursuing over there. He's making inroads across the board. He's got skills in all of those areas.

Okay. And then now, migrating over to the Florida Pneumatic side, you guys highlighted how the Florida Pneumatic gross margins improved. And I was just wondering is part of the improved margin also a function of the temporarily reduced lower margin Home Depot sales?

Yes. That would have an impact as well of course.

Yes. Okay. So when those sales come back while gross profits will be enhanced it wouldn't be -- or shouldn't surprise us to see gross margins come back down.

Yeah, other things being equal, yes.

Yes. Okay...

Nothing else changed. That's true.

All right. And then in Hy-Tech you've had such a fabulous surge in the OEM-engineered sector here now with 122% increase over last year and $810,000 as you cited in the press release. That's not the chump change anymore for this small company. So I was just wondering with such sizable gains, are there any particular areas, industries or products now where do you have any call out and elaboration?

No. It's really across a number of them. There's no one industry I can point to. So when you break it up into four, five pieces, it's not as big an item. That may shake out. I mean we may -- I think we were just at a show recently where we looked at a lot of other opportunities. So we may discover a niche and push that one a little bit. But right now it's kind of spread around.

Okay. And frankly with this spreading around in industries and different kind of products that you're designing has this widened the population of I guess companies or areas that you're focusing on in your ongoing acquisition search?

Andrew, I don't know that it would, because that would be forward integration. I don't think we'd be doing a forward integration kind of acquisition, but it could be that maybe there's some component to one of these programs that we might want to specialize in, but it -- we wouldn't be looking to forward integrate so...

No I guess I didn't mean that like at the shows you buy one of the customers. It would be more that we've developed this tool. When you develop these tools for these customers is the IP ours? Or is it the IP the customers?

Well again sometimes they're tools but more often they're parts of a system. And we may make the gears. We may make the motor. We make the motor and the gears. We may make the motor the gears and some attachment. It's -- I don't know that I would call it a lot of intellectual property. Everything is sort of a one-off specific to that customer specific to that system. I don't know that I would -- I could even take that IP and even go anywhere else with it.

Right. So if you're making a motor or a gear and it seems like you're gaining traction, would that make a motor or gear company than other motor or gear company's attractive to then be acquiring or that would then start straying that away from our tool business?

Well we've always said that if it's something that's at the core of what we do that counts. So if it's part of a system, a company that sells motors, gears whatever, yes I mean that would be in the suite of something that we'd look at.

I'll back out. I have a few more questions but in case there's someone on the queue.

I don't know if there any other questions.

There are no questions in the queue.

Am I still live then?

Yes, you are.

Yes.

Okay. Great. So then in terms of -- on Hy-Tech, our Hy-Tech OEM Engineered Solutions also an area that is being marketed by your new European salesperson?

A little bit. Not to a great degree as you may not be able to stop. Yes?

It's not at the top of the list, but he has some contacts and skills in that area. So should opportunity arise we'll go after him or something...

He'd recognize it. He'd recognize it and get you guys involved. But otherwise it's Automotive and Aerospace primarily.

Yes.

Yes. But I will say that he spent just a couple of weeks ago time at the Hy-Tech factories Florida Pneumatic factory and got a full briefing and understanding of everything. And the Hy-Tech people expect results from him, but not to the extent that Florida Pneumatic is.

Right. Now in the recent past, you've highlighted when we've talked whether you'd be adding another shift, you've highlighted that the real capacity constraint was finding the supervisory manpower more than putting people more on shifts et cetera. As Hy-Tech continues to grow especially in the OEM-engineered area, I'm assuming that's still somewhat of the capacity constraint unless you've kind of address that. Where do you stand on getting – what are the capacity constraints at Hy-Tech? And where do you stand on addressing those?

We have backed off looking for a second shift supervisor. What we have done very successfully is increased our non-manned machine hours. So as you know a number of years ago we had some robotics systems that run unattended. Well, the folks there figured out a way of increasing by a fair amount the systems, the machines that can run overnight unattended unsupervised. So right now that's doing the trick.

Okay. And on Florida Pneumatic, I needed I guess an update on this it has or when will the co-op marketing payment to Home Depot take place or payments if it's over a period of time and remind me where the capitalization will be placed on the balance sheet and where will the –

I believe it was on the end of last year. Am I right?

The payment was made in over the third and fourth quarter of last year. The cash is out the door. It was put up on the balance sheets in two places. It's in prepaid and other assets, which is obviously current and then it's also in there as a long-term asset. So, probably about $250,000 up in current and the balance which is now being drawn down is in long-term assets.

And why would the balance – and why would the balance for the eight months. Thank you. You already read that question. And what would then be the balance be that is currently as of March 31's balance sheet in the long-term asset?

High 800s something like that. I don't have a perfect number. 875 quarters. I don't know. Over 850 but less than 900.

All right. So you mentioned on the last call that P&F was sourcing some Craftsman product in Stanley Black & Decker. And I thought you had said it wasn't that meaningful and had basically finished it and you're giving kind of guidance that – I don't hate to use that word but you're giving insight that the business with Stanley Black & Decker would be coming down but it did get I guess a call out here in the quarter for first quarter. So what was the I guess year-over-year decline again for the sales of the product that you are selling to Stanley that didn't occur in Q1? And can you give a little bit of a handle on what the sales in Q2 last year were that we would then kind of have an air pocket in Q2 of this year?

Andrew to my knowledge there was no call out on the Stanley Black & Decker. I don't have the queue in front of me but I don't remember reading that.

No. You didn't call it out. I had asked about it on the conference call and we talked a bit about it. And you had mentioned – you and Richard mentioned it's not all that – it's not that meaningful and it will be coming off. It's coming out. It's more transitory gone now?

It's gone Andrew. We've got some dribs and drabs. We're clearing out the shelves. There's not much left. There'll be a little bit left in Q2 and that's it.

Right. So in Q1 you did call out in the press release about almost $200,000. And in Q and that was for Q1. In Q2 of last year the business or the products that then were going to Stanley Black & Decker that won't really be there here in Q2 that we're in now is about how much?

It's been – Joe would give you maybe but he can't. but it's de minimis. It's really – it's hardly worth even talking about any longer. They're done. We're done.

No, no. I understand they're done now and will be de minimis sales in Q2 of 2019. What I'm wondering is at what were the sales to them in Q2 of 2018 last year to understand what our year-over-year air pocket might be.

I'll call it $100000 swing something in that ZIP Code maybe $100000 to $150000.

All right. And then in Q3 of last year it was down to what?

About the same level….

Or the same level?

Yeah. I mean I think maybe we did $1 million of all of last year, and I'm getting head shaking now. Not even. More than $0.5 million, but less than $1 million. So $200,000 becomes $150,000 becomes $100,000 works its way down until where we are now...

Right, because I just kind of want to get a feel for what each of those kind of headwinds are for the quarter till it's off.

Mind you, it's among our lowest margin product. The impact of the bottom line is even less than --

Got it.

See, if you had a swing in Aerospace sales by that much.

Right. Yeah. No it's like the phase-out of the old Sears products similarly.

Yeah. That's right.

Okay. And then, with respect to I guess on Hy-Tech, you had one -- you had I guess some lower margin revenue that shifted to the ATP. I can't recall or ATSCO. ATSCO. And that decline is that related to multiple customers or one particular customer?

Well, I can say this that we're constantly working on the margins, because we've had some very low-margin customers. So in addition to growing the business with larger -- higher-margin customers, we're working on doing something about the margins on the lower customer. So I don't know that I would say it's any one customer.

Okay. And then curtailing the AIRCAT promotional programs, is this a -- like a permanent policy shift? Is it something that is from time-to-time just like you guys used to do with Sears or Home Depot there was periodically promotional programs. When you curtail AIRCAT promotional programs, is it similar kind of a retail nature? Or is it a more permanent policy kind of thing?

It's not – well, it's not retail obviously, but it's just permanent. We -- it's a structural change in how we're going to market. It was determined that the discounts we were providing to generate sales were not really required the product -- the product brand and reputation and demand for it justified eliminating those and that has proven correct. So we don't believe we've lost any sales and margins have gone up dramatically. We're pretty happy about it, because it does -- it was two things I take away from that. One obviously more profits; but two it says a lot about the brand that we're able to do that and not have any falloff in revenue.

Right. And you didn't have the falloff in revenue. That was the follow-up. So that's good. Okay. And I guess we should talk about somewhat of the potential elephant in the room. I know one cannot predict what tweaks come out here and there, and we are at a faithful week where there is going to be a deal and maybe there is not ideal, et cetera, et cetera. But you have had months more opportunity to have discussions with your customers and your suppliers about the prospective increase in tariffs that would come. And do you have any feel the chances of passing through or either with your vendor or to customer, the incremental tariff hit that might come across a large swath of the P&F product line which I'm assuming is primarily Florida Pneumatic? Really, isn't that really the only place it imports? It wouldn't impact Jiffy. It may even give Jiffy an opportunity.

We import at Hy-Tech a bit also, but the great majority of it is Florida Pneumatic. Up until this past week, we were pretty -- we were fine because ...

Sure. Everyone was. Yeah. Yeah.

Yeah. Everyone. We passed the tariffs along and blah, blah, blah. Now we have to wait and see what happened. I mean, we can't -- I'll just say this. We're not going to be selling anybody and not passing it along. We don't have the kind of margin in our product to be able to do that. So, if any whoever it is, doesn't want to pay the tariff and then we won't be doing business with them. I can tell you that.

Right. And is it mostly a pass-through to the customers versus an adjustment by your vendors?

Yes.

Okay.

Something like that, but most of it.

Okay. And Universal, has there been much currency impact to the reported performance from the Universal versus the actual performance?

No.

Not really. The pound/U.S. exchange rate hasn't moved a lot.

Lately.

Lately.

Okay. Right. I don't think I have further questions, but just a request if you could have a Lead Independent Director, Mitch Solomon and the Comp Chairman give me a call. I just want to have a brief conversation with them to make sure we're on the same page and alleviate my concerns that -- on the whole setting of the performance thresholds relating to this, just to make sure we're in sync. I think we are. I just want to make sure we are.

Yeah. We'll ask Mitchell to give you a call -- Mitchell Solomon to give you a call.

Thank you.

Okay. Thank you.

Thank you.

Operator, any other questions?

It appears there are no further questions at this time. I'd like to turn the conference to Mr. Richard Horowitz for any additional or closing remarks.

Okay. Thank you all for your time today and we will look forward to speaking to you with our second quarter results in the next few months. Have a good day everyone and have a good holiday.

This does conclude today's call. Thanks for your participation. You may now disconnect.