ADDvantage Technologies Group Inc (AEY) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ADDvantage Technologies Fourth Quarter Fiscal 2011 Earnings Conference Call. Please note, today's conference is being recorded.

For opening remarks and introductions, I would like to turn the conference over to Mr. Garth Russell of KCSA Strategic Communications. Please go ahead, Mr. Russell.

Thank you. Before we begin today's call, I would like to remind you that this conference call may contain certain forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events, such as the ability of ADDvantage Technologies and its subsidiaries to maintain strategic relationships and agreements with certain original equipment manufacturers and multiple system operators, as well as future financial performance of ADDvantage Technologies.

These statements involve a number of risks and uncertainties. Participants are cautioned that these forward-looking statements are only predictions, and may differ materially from actual future events or results due to a variety of factors, such as those contained in ADDvantage Technologies' most recent report on Form 10-K, which is on file with the Securities and Exchange Commission. Financial information presented in this conference call should be considered in conjunction with the consolidated financial statements and notes thereto included in ADDvantage Technologies' most recent report on Form 10-K filed today, December 15, 2011.

The guidance regarding anticipated future results on this call is based on limited information currently available on ADDvantage Technologies, which is subject to change. Although any such guidance and the factors influencing it will likely change, ADDvantage Technologies will not necessarily update the information, as the Company will only provide guidance at certain points during the year. Such information speaks only as of the date of this presentation.

With nothing further, I would now like to turn the call over to Ken Chymiak, President and Chief Executive Officer of ADDvantage. Ken, the floor is yours.

Thank you, Garth. We welcome everybody to ADDvantage Technologies' Fiscal 2011 Fourth Quarter Year-End Conference Call. With me today is Dave Chymiak, Chairman of the Board, and Scott Francis, our Chief Financial Officer. I'd like to begin today's call by making some general comments regarding our performance during the fiscal 2011. I will then turn the call over to Scott, who will provide the detailed financial results for the fourth quarter and the year ended September 30, 2011. And finally, Dave will address the market conditions the Company is currently facing, and is expecting to face in the foreseeable future.

Despite the ongoing economic uncertainty surrounding the cable vision television industry and the general economy, we continue to maintain profitability and increased our cash position for fiscal 2011. Most notable is our ability to maintain our gross margins of approximately 30%, which is the major reason we continue to report a positive net income throughout the year.

For the fourth quarter of fiscal 2011, we reported net income of $0.07 per basic share. This is despite a 3.4% decline in total sales compared to last year. This decline is most attributable to the current difficult economic, micro-economic climate, which almost all companies currently are facing as customers continue to avoid unnecessary spending in maintaining their cash or their credit lines. In our industry, it is the communication and MSO companies that are holding off on making investments in their infrastructure in order to maintain and conserve this cash, which does affect our sales. This is an ongoing trend, and one that we do not expect to be reversed until the economy improves -- and most notably, until there's a house in construction or it needs a new bandwidth, additions gets back to levels experienced in the early- and mid-2000s.

Another factor affecting our business throughout the year was Tulsat's new reseller contract with Cisco, which was signed during the first quarter of 2011. This agreement reflects Cisco's revised distribution model, which states that Tulsat and other distributors must now purchase its products through a primary stocking distributor, and cannot establish a buildup of inventory for certain products. In addition, Tulsat can no longer sell certain Cisco products to other resellers or brokers as we did in the past, or sell these products outside of the United States, as we had done in the past, based on the previous agreement.

In an effort to offset these challenges, we moved quickly and decisively to improve our financial position while retaining being competitive. This includes several deliverables including -- we closed the Tulsat-West operations that we discussed in Oceanside, California, as a cost-reduction measure once the lease on this facility had expired. We also have strategically been reducing our equipment inventories to levels more in line with current demand. This has effectively allowed us to carry less risk and significantly increased our cash position to approximately $10.9 million from approximately $8.7 million a year ago.

In addition to strategic cost-cutting efforts, we also have continued to seek out new opportunities for growth and market expansion. And most important, we look for opportunities that are aligned with our legacy strategy, and also expands our product and service offerings, as well as grows our end-user customer base. Most notably was our recent acquisition of Adams Global Communications, which complements certain elements of our existing operations, while also offering us new customers through strategic OEM agreement. AGC purchases and sells cable television access and transport equipment, digital converter box and modems to the United States, Canada, and Latin America markets.

One of the main product lines of AGC is digital converter boxes, which is the key capability of our BRI subsidiary. As such, we merged AGC and BRI, establishing greater scale while also simplifying the integration process. In support of their integration and position the joint companies for growth, we relocated their operations to a 26,000-square-foot facility that ADDvantage has purchased in Lenexa, Kansas, a suburb of Kansas City. AGC sales have helped to offset the decrease in sales in other areas of our business.

With the addition of Arris cable television equipment to our acquisition of AGC, we now have supplier resale contracts with the top three cable equipment suppliers in the United States. We hope that the additional business with Arris will partially offset any sales we experience on the new Cisco agreement. We will continue to review other opportunities, which include, but not limited to, acquisitions such as AGC that build upon our legacy business.

This brings me to my next point, which is that while we are dependent on our OEM relationships, we have the flexibility to offer several products from our OEM partners. ADDvantage has a valuable distribution network in its long-standing relationships with hundreds of customers across the United States and South America. Unlike many of our competitors, we have the necessary scale of operations to properly support customers by maintaining the comprehensive inventories of new, surplus new, and refurbished video and broadband equipment for the industry's leading brands. And we are able to provide expert technical repair centers for the OEM products we sell.

You combine this strong market position with our strong financials, including approximately the $10.9 million cash on hand as of September 30, 2011, and a proven ability to generate positive cash flow, which we have done for 25 years, we are in great position to move forward.

With that, and for more detailed financial information, I would like to turn it over to Scott, our CFO, who will provide these details.

Thank you, Ken. As Ken mentioned earlier, our net sales for the fiscal fourth quarter of 2011 were $11.3 million. This is a decrease of 4% when compared to $11.7 million for the same period of fiscal 2010. As Ken mentioned, the overall decrease in our revenues was primarily attributable to the continued economic downturn in the cable industry, as our MSO customers continue to conserve cash and limit their capital expenditures, as well as the negative impact of the Cisco agreement signed in the first-quarter 2011.

Revenue from new equipment sales decreased to $7 million for the three months ended September 30, 2011, compared to $8.4 million for the same period of last year. Our net refurbished equipment sales increased 53% to $2.8 million, compared to $1.8 million for the fourth quarter of fiscal 2010. The increase in our net refurbished equipment sales was primarily driven by our acquisition of AGC, which contributed $1.2 million of revenue in the fiscal fourth quarter of 2011. Revenue from our repair services was relatively flat, at $1.5 million for the three months ended September 30, 2011 and 2010.

Our cost of sales decreased to $7.8 million from $8.4 million. This decrease was mostly attributable to the overall decrease in equipment sales. Our cost of sales was also impacted by a decrease in the provision for excess and obsolete inventory. This provision was $0.1 million for the three months ended September 30, 2011, down from $0.2 million for the same period of last year.

Our gross profit for the three months ended September 30, 2011, increased to $3.4 million compared to $3.3 million for the same period of fiscal 2010, despite our lower revenues. This was due primarily to the increase of refurbished sales, which generally yield a higher margin than new equipment. Our gross profit margins were 30% for the three months ended September 30, 2011, compared to 28% for the same period of last year.

Our operating, selling, and general administrative expenses increased 12% to $1.9 million for the three months ended September 30, 2011, compared to $1.7 million for the same period of fiscal 2010. This is primarily attributable to the increased payroll-related costs resulting from the recent AGC acquisition in the third quarter of fiscal 2011.

Our income from operations in the fourth quarter of 2011 was $1.5 million, compared to $1.6 million for the same period of last year, while our net income attributable to common stockholders for the fourth quarter of 2011 was $0.7 million or $0.07 per basic and diluted share, compared to $0.8 million or $0.08 per basic and diluted share for the same period of last year. Our EBITDA for the fourth quarter of fiscal 2011 was $1.6 million compared to $1.7 million for the same period of last year. And our cash and cash equivalents as of September 30, 2011, was $10.9 million, compared to $8.7 million at September 30, 2010. Our net inventory decreased $1.6 million to $25.8 million at September 30, 2011, compared to $27.4 million at September 30, 2010, which reflects our overall strategy to continue to reduce our inventory. And this is even after considering the additional $0.7 million of inventory we acquired through the AGC acquisition earlier in the year.

Now on to results for the year ended September 30, 2011. For the year ended September 30, 2011, net sales were $38.1 million, which was a decline of 20% from the $47.3 million for the same period of last year. The decline in equipment sales for this period was due to the factors I discussed earlier, as well as severe weather conditions in the second fiscal quarter of 2011. Our new equipment sales for the year ended September 30, 2011, were $25.5 million, compared to $32.1 million in the previous year, which is a decrease of 21%, while sales of our refurbished equipment decreased 21% to $7.4 million for the fiscal 2011 period, compared to $9.4 million for the same period of fiscal 2010. In addition to the factors I discussed earlier, the decrease in refurbished sales also reflect a decrease in digital converter boxes of $1.3 million, which was primarily due to lower demand in the market, and also partially offset by sales volume resulting from the acquisition of AGC.

Revenues from our repair service business during fiscal 2011 were $5.2 million, which is a decrease of 10% from $5.8 million for the same period of last year. This decline for the year ended 2011 is primarily attributable to the closure of our Tulsat-West facility that Ken mentioned earlier. Cost of sales decreased to $26.5 million from $32.9 million, and this decrease was primarily attributable to the overall decrease in our equipment sales. Our cost of sales was also impacted by a decrease in the provision for excess and obsolete inventory. This provision was $0.4 million for the year ended September 30, 2011, which was down from $0.8 million for the same period of last year.

Gross profit decreased by 20% to $11.6 million for the year ended September 30, 2011, compared to $14.5 million for the year ended September 30, 2010, and our gross profit margins were 30% for the fiscal year of 2011, as compared to 31% for the period last year. Operating, selling, and general administrative expenses decreased 4% to $6.6 million for fiscal 2011, compared to $6.9 million for fiscal 2010. This decrease was due primarily to the reduced cost of $0.3 million resulting from the closure of our Tulsat-West facility. Income from operations for the year ended September 30, 2011, was $4.9 million, compared with $7.6 million for the same period of fiscal 2010, which was a decrease of 35%. Our net income attributable to common shareholders for the year ended September 30, 2011, decreased to $2.5 million, or $0.25 per diluted share, from $4.2 million, or $0.41 per basic and diluted share for the same period a year ago. Our EBITDA for the year ended September 30, 2011, was $5.3 million, compared to $8.0 million for the same period last year.

This concludes the financial overview for the quarter and year ended September 30, 2011. I will now turn the call over to Dave.

Thank you, Scott. As Ken discussed earlier, we continue to face serious market conditions that are impacting our business. Continued lull in the US housing market, combined with slow recovery rate of the economy as a whole, has kept many of the MSOs from making any significant investments in their systems, or any changes in technology that require head-in upgrades. This has had a negative impact on the industry overall. Currently there are no clear signs that these trends will reverse themselves in the near term. The one clear upside for ADDvantage at this time is that we are more financially stable than most of our competitors. This has allowed us to make certain opportunistic moves in the market, and make us a more attractive partner for our OEMs.

Currently, in addition to our work with Cisco, we are a leading broadband access network stocking distributor for Motorola, and the master distributor for Fujitsu encoders, decoders and media solution products in the United States. We also have added Triveni test equipment to our product mix, and still have our other existing OEM suppliers, including Blonder-Tongue, RL Drake, Corning-Gilbert, ProMax, Quintech, and Standard. These activities are supported by our six technical service centers that serve many of the products we sell.

And we are constantly working to expand our relationship with these OEMs, in addition to the relationships we build through our acquisition with AGC subsidiary, which has already provided scale with our core business, and helped balance out the decrease in MSO reinvestment opportunities. As such, we believe we are well-positioned to react effectively to shifts in the industry.

In closing, we are continually evaluating and working to build up our relationships with both our partners and customers, as we continue to explore various strategies that will help us grow our business and increase the value for shareholders. This concludes our prepared remarks.

We can open up the queue for any questions.

(Operator Instructions)

Doug Ruth, Lenox Financial Services

Hello, good morning. Congratulations on maintaining the profitability of the Company. I was wondering if you could comment a little bit about what's happening, how the relationship with your acquisition of Adams and what's happening with the Arris contract -- Arris Solutions?

Thanks for the question. They have been doing some business with Arris. They've had a relationship with us for some time. What we have just recently done with Arris is we have become a stocking distributor. And with that, we are not trying to compete with Arris, we are trying to be a support partner with Arris that we will be able, when a customer needs some products in a relatively short period of time, if we have it on the shelf we can get it out to them. In many of these instances, Arris will call us and if we know we have that product in stock, together we can meet the needs of the customers

We're looking forward to -- it's beginning in its infancy as far as the stocking part, but we look forward to grow that significantly as Arris grown their percentage of the overall market. We can only be successful as Arris is successful, and the market as well with the other OEMs. As they sell their product, and there's a demand and there's a longer lead time in a lot of instances, and we have it on the shelf, that gives us an opportunity to sell it. Again, as I said, support the customer and Arris.

Can you quantify what kind of growth you might be able to get out of that product line?

It's relatively new, so If you ask me this question from a year of today I can probably give you a better answer. Because quantitative, we really don't know. We just in the last quarter started getting some of the equipment that we purchased. Like I said, we will know better in a year, and in particular at the end of the year. I just don't know at this time.

How about Fujitsu - how do you pronounce that?

Fujitsu.

Yes. How is that relationship coming on?

(inaudible - technical difficulty) We're the master stocking of it. You have to understand that Fujitsu is a very narrow product line. It's something, with the help of one of our key people, selling to the broadcast industry, which is television stations, trucks, and different opportunities like that. That has done very well for us in a very short time because we started from ground zero and we have done a very good job supporting that product line, and we've had meetings with Fujitsu. I think we're all -- we're looking for new products, but again, they do have challenges in the marketplace.

One of the things that could be a bump up is the upcoming election, and also as long as there are more and more sports activities, Fujitsu is one of the top-rated encoders in the industry, so we look forward to maybe grow that. The other opportunity is as the World Cup and the Olympics comes up, maybe there's some more opportunities there. It is a good product line. You may not know it, but Fujitsu is about a $50 billion company worldwide. They have a chip and a lot of components, and they do a lot of business with the OEM and the manufacturing part of the business.

And they're happy with the job that ADDvantage has been doing for them?

We met with the principals in the United States there a few weeks ago, and yes, they were happy. We all want the same thing, more business and more opportunities. As a partnership, we're looking to enhance that.

Great. Could you comment some on the acquisition environment and what you are seeing out there?

Really, are we aggressive in that? Perhaps not. Unless -- if we're going to do something, the Board of Directors and Management, we're really looking for a bigger opportunities. Right now a lot of these situations are that would be coming your way -- and we're not looking at many, just so you know -- we may get more aggressive and start seeking those out in the next year. It has to be accretive. It has to complement what we do. We're not looking just to purchase a Company or make an acquisition to increase our inventory at this time. That's not what we were looking for.

The AGC acquisition was a little bit different. It complemented. We were in the same business to a degree with the cable boxes, selling the converters in South America and Latin America. All we did was move our inventory to that location and had one resource selling because prior to that, the year before, AGC was one of our larger customers that we were selling boxes and modems to.

I was very impressed with that acquisition. It seemed to make a lot of economic sense and seems like it will benefit the Company longer-term.

Yes, the biggest challenge in that business is the majority, from the converter boxes in the United States with the FCC ban on selling the legacy boxes, the market is in South America. And that goes up and down with the availability to generate the capital and the cash to pay for the product. But we are looking at some more opportunities. We are also in the modem business there. Just so you know, we also sell new Cisco modems, and we sell new Arris modems, and we also sell new Motorola modems. So in the CPE business, consumer premise business, we are in that business. We are selling some new cable boxes for Cisco. We are active in all those markets where there's opportunities.

Very positive. My last question is, could you talk some about how you're trying to enhance shareholder value?

That's a daily opportunity. Just so we all understand, Dave and I., we own approximately 48% of the Company, so we have a vested interest in creating shareholder value for ourselves, as well as the shareholders. Right now, let's face it. The market's been difficult. We have accumulated cash, and there was recently a survey by Duke and CFO magazine that, as cash may become tighter to get, we're a small company and we do have an excellent banking relationship, but we are cognizant that's all predicated that we're making money.

We're very cautious with that. We are looking at opportunities. We're not in a rush to go out there and spend money. We think by being prudent we are maintaining shareholder value and looking for opportunities to increase as we go along. There's a lot of things behind the scenes that we can't discuss that we're doing. Hopefully in fiscal 2012 we will do some more things, but again, cash is king. Most small companies lack access to cash to deploy. Then we also have the economic uncertainty, particularly with the European market. We've got the presidential election coming up, so there's a lot of issues out there.

You are excellent at making acquisitions, and I just encourage you to continue the way you have been going. I appreciate you answering my questions.

Thanks for your call.

Aram Fuchs, Fertilemind Capital.

Yes, you sort of answered it, but I noticed in your amended credit agreement you can now dividend up to 50% of your net income. In the context of your cash is kind, I guess you're not inclined to take advantage of that option? Is that correct?

We'll let Scott talk about that agreement because it is important to understand. One of the things that we're considering -- that's a difficult thing, because some people would say hey, Dave, you and Ken own 50% of the Company, you're going to get half of it. That's one side of the coin. The other side of the coin is, cash is king. If we had some clarity going forward into the marketplace, it would make us feel more comfortable. Scott, do you want to talk about our latest agreement?

Yes. Aaron, basically our agreement for the 50% on the dividend basically allows us to do 50% of our net income assuming you're in compliance with the other covenants, of course. That was actually not a new provision in this agreement. That was the one we did last year, so we've had that. To Ken's point, we haven't elected to do dividends yet as a Board or as a Company because of trying to build the financial position of the balance sheet and strengthening that up. It's always an option.

But we do have that as an option now, which is new last year, whereas we did not before. We were physically limited without getting the approval from the banks first. So we did have that flexibility. It's just one more trigger that we have that we can do, no different than some of the other triggers in that agreement. It's is a good agreement, we're continuing to try to be more flexible, we have a good relationship with our bank. As we continue to move forward, we'll continue to evaluate.

Let's talk a little bit about -- we do have a debt of what, around $12 million at the end of this time, right Scott?

Yes.

Explain how that data is structured, if you could. We do have a financial swap in place. That's why the bank looks at us pretty favorable. One of the considerations, do we pay that off, and the question's always asked but there is a cost to doing that. I will let Scott go over that in case somebody is not familiar with that can understand a little better what we're talking about.

Basically, our debt components, we have three components. We have a mortgage which is on the building that we're in now. We actually have another term note which is our bigger component, it's actually right under $10 million after our November payment. We have a line of credit of $7 million, which we're not utilizing right at the moment. It's just available to us. We then have a swap in place on the bigger term note, the $10 million note, that goes out until November 14. What that does is it swaps us LIBOR 4% to 4.5%. And that's where the effective rate, we come into it right under 6% right now.

That is our debt structure. That is one reason why we haven't taken the cash, though, and applied it against the principle of the term note, even though it might make sense in normal circumstances, but I'd still have the swap in place. Because of that, and with where the LIBOR market has been as everyone knows, we are under water on the swap, so we would have to pay basically a pre-payment on interest of about $900,000 in order to take out the swap. So, that's what we're continually evaluating. We're continuing to looking at it to see what makes the most sense on the debt portfolio from that side.

And is there a particular time when, if interest rates get to a certain point, how do you do the economics of paying that off early versus getting the swap, without having to obligate yourself to pay off the swap as well?

What it amounts to, I can pay the debt off right now, Aram, but it's one of those things to where I'd still have to make the interest payment, so I'm really not saving anything from an income statement or cash flow side. What we're looking at is really two things -- the discounted cash flows and what I would do with the funds otherwise. I've also got a tax consideration, of if I pay off a swap early, I've got a tax consideration there of -- investing loss question there to be able to offset for tax purposes and being able to utilize that.

That's really what we're looking at, trying to figure out what makes the most economic sense. Obviously, back a year or two ago, no one was really anticipating the LIBOR to still be where it's at today, and all indications are, looks like we may be there another year. We're still looking at that and trying to figure out where does it makes sense to pull triggers and do that, and if it does.

We would've probably done that, Aram, if we paid this off, it's kind of like somebody having the cash in the bank and having a note on their house. Do they get some abilities reinvest that money to make a better ROI, or do they feel more comfortable with having their house paid for? One of our considerations here, and we really have looked at that numerous times is, the $900,000, if we paid -- you could kind of classify as a pre-payment penalty, is that it's a capital loss, and we can't take it out of ordinary income.

Everybody needs to understand we really -- we're a little Company, but we're one of the few in the United States that we pay our effective tax rate is 39.7%, something like that. So we really are paying almost 40% of every dollar that we make net in income taxes, so if we do it as a capital loss, you can only write off $3,000 a year basically, I think. If we did that, it would take us forever to get that money back. If that law was changed, or if we can found some way we can do it, we would do it, because I think our priorities would be first, let's get the debt paid off, and then start looking at dividends or something else that's accretive to shareholder value.

Aram, this is Dave. Scott, correct me if I'm wrong, but if interest rates go back up to 5%, instead of being a $900,000 loss, it would be flat, to answer your question, right, in that area. If they go higher our rate would maintain the 5%. The other thing is, this money, if something came along and it was something we'd want to really borrow the money on to be willing to pay back, it's available to us immediately. In other words, yes, we would owe it at the bank on the other part, but we have it available also, if something came up. But we're not going to be haphazardous. Nor, from my point of view, are we in a position that we want to borrow money to pay out a dividend. We're just not in that position.

Right. Great, that's helpful. And just so you know, there has been more and more -- you reference a Duke piece about cash being king. There's also a lot of companies and a lot of literature backing that consistent dividend payers, as long as they are dividending it out from free cash flow, have lower costs of capital. I'd be happy to send that to you.

We always take that, and anything you send we read, and we discuss it among the Board of Management. We don't have all the good ideas. We always look for ways to do these different things. But I think as a shareholder you would acknowledge that we've been very prudent, and we're not out there just throwing the money around. We've cut costs, and one of the challenges we have as well as anybody else is we have to take care of our employees. We know medical costs are going up, we know wages are going up, because we know when employees go to the grocery store things are not what the government tells. They're up substantially. Those are things that we very -- we cut our head count, we're down to 120 plus.

We feel as a Company, we're about to the point where if business would pick up, we're going to have to do is go out there and increase our head count. And I think there's -- we're not the only one in the United States that's in that position. We're waiting to see a clear signal that something is going to be consistent and sustainable in this market place. We feel pretty good at night going to bed at night having the cash in the bank, but we're not -- you notice we keep building it up. We're not depleting it. That's the positive part with our cash flow. We're able to increase that.

Again, it goes back to the Cisco agreement and others. We're not building inventory up. We would love to build up some of the used business, or the used equipment, but as long as there's no business, the large cable companies are not out there upgrading, there's not a lot of used gear that's desirable. But we found out that we've been very aggressive over the last two or three years where it's available when the rest of them did not have the resources financially.

We have a very good legacy refurbished inventory at this time. I think we'll see some good business in that sector over the next three to six months. Some of it's in Latin America and even domestically, the small, second and third tier, and one or two of the large MSOs are buying it. We know by phone call, our competitors don't have a lot of it. Dave, you feel real optimistic, about it, don't you?

Yes, our inventory is very good. Aram, one other answer that maybe will help, and they can correct me if I'm wrong. For us to pay out dividends and meet covenants, we would only be able to pay out 50% of what we had about above $2 million-plus profit. In other words, we're -- we've got $0.24, $0.25 last year? We would have to make that plus more before we could pay out profits according to -- is that correct?

Basically, the way it would work is, if we had $2.5 million of net income, as long as we're in covenants you could pay out $1.25 million.

Oh, we could pay out 50% of it. That tells me a little bit. Again, we don't dismiss what you tell us.

Okay. Then, my last question is about, David, it's more for you. In general, a couple things about the inventory. You mentioned in the K that you still have the Cisco inventory. How confident are you in that? You wrote off a little less this quarter compared to last year. Was that just a natural part of the business? Where do you see inventory leveling out?

If deals come along that makes sense, we're the first one to bid on them. I have not seen very many come out. We're buying packages of $20,000 or less where a year or two years ago we were buying $100,000 packages. There is not very much gear coming out, and our inventory is extremely good. Our Cisco inventory is probably in the neighborhood of $11 million or $12 million now. Part of that is refurbished gear, so I'm very comfortable with it. I'm not losing any sleep on the inventory at all.

On the Cisco inventory, we are selling when we can when it's available in the United States. Needless to say, some of the bigger orders we are buying at through our distribution partner and we send them direct. Dave is watching how we send it. Could we have depleted it more during the year? Yes, right Dave? But we've been very cautious about not totally depleting it in case a big opportunity comes. Is that correct, or is that--?

Well, we've been selling anything that makes sense, there's no question there. We're still making good profit on everything we sell. There's very few items that go out the door that have a loss on it. All of our inventory is pretty well either written off on obsolescence, or it's very good inventory. Our current inventory of Cisco, we can still buy it from the factory. We're still selling that out, and that's generating the cash. Besides our cash, one thing we did pay for the building and the acquisition out of cash, so we would have had more cash on the books at this point if we did not make the AGC acquisition, but that was a good one and we paid for it, and we did it.

Yes, Scott, do you want to address his question on obsolescence, because I think -- straighten that one out?

Aram, on obsolescence itself, just to make sure, we actually wrote off about $1.4 million this past year in inventory as compared to right under $500,000 last year. It wasn't because of things we had dismissed under the economic conditions of this year. We had identified these things over the last couple three years, but we actually physically wrote them off this past year. So they weren't P&L changes, or PL impact per se, but we basically took it out of the reserve and wrote them off this past year, and cleaned up a lot of the stuff that they've had, and the things that had been identified in the past. But we did physically write off $1.4 million this past year.

We did it for tax benefit also.

Yes, there were tax issues there with that. Or tax -- helps there.

Okay great. Thanks for your time.

No problem.

[Edwin McKeene].

Yes, thank you for taking my call. I just wanted to comment on, and give you my input on a good way to disperse some of your cash hoard. I personally don't agree with dividends. They usually just turn to be a wash anyway, because the stock price plunges right after their -- the ex-dividend date comes out. I think that a stock buy-back is a really good way to support your stock price. I just wanted to -- I hadn't heard anybody specifically mention that, so I was wondering if I could get you to comment?

Thanks for the question. We've done that in the past. I think Scott's got the number, $400,000-some we bought back. Last year Dave and I spent quite a bit of money buying the stock back over the last two years ourselves. We understand that. I look at the numbers, I look at the surveys, I look at the reports. Unfortunately, most companies haven't been very good at timing the stock buyback. Today, most of the companies would say they've been very poor as far as the timing mechanism. It's something we continue to discuss. Again, I think our position is the same as the dividends at this time. One of the things we're looking at, until we have some clarity what's going on in the marketplace, we are very reluctant to do that.

The other challenge is, about the only way we can really do any significant buyback is in a private transaction, because we're limited what we can buy on a daily basis because of our thinly-traded stock. That's the biggest issue we really have. We tried to go out before and do it, and you just can't. We're not in a position where we can go out and buy a lot of volume. We've attempted to do that in the past.

Edward, this is Dave. When we're trying to buy, a lot of times we can only buy at 10, maybe 1,000 shares a day, 500, or 4,000 maximum, depending what goes on as a Company. Unless the volume is there, we can't hardly find it. We would be glad to look at any offers of volume at all.

Again, a year ago, we did make -- somebody came to us, a brokerage firm that had a customer who needed to liquidate some, and they brought it to us, and at that time we did make a private transaction. We fully reported it, but that's all we were able as a Company to get, is 100,000 plus shares back that year.

Okay. Thank you for commenting on that and I do appreciate the role of liquidity in the stock. I understand that very well myself. I would much rather see the money stay in your hands. I think you guys have done a fantastic job, and there would be much better than, either a stock buy-back or just keep it. Your fiscal management is impeccable. I heard people talking about dividends, and I wanted to chime in and give you my two cents on that. Thank you for taking my call. That's all I have.

We appreciate those calls and we do consider them. Our shareholders are valuable to us as well as our employees and our OEM partners.

Okay. Thanks again.

(Operator Instructions)

If there's no other questions, we want to thank everybody that's attended via the webinar, and as always we thank you for your interest in the Company. We would like to wish everybody a Merry Christmas and a Happy New Year. Good day.

Thank you. Again, that does conclude our conference for today. We thank you for your participation. You may now disconnect.