P&F Industries Inc (PFIN) 2009 Q1 法說會逐字稿

Greetings and welcome to the P&F Industries first quarter 2009 earnings conference call. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Richard Goodman, Corporate Counsel for P&F Industries. Thank you, Mr. Goodman, you may begin.

Thank you, operator. Good morning and welcome to P&F Industries' first quarter 2009 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'd like to remind you that any forward-looking statements contained herein, including those related to the Company's future performance, and those contained in the comments of management, are based upon the Company's historical performance and current plans, estimates and expectations, which are subject to various risks and uncertainties. Including but not limited to the strength of the retail, industrial, housing, and other markets in which we operate, the impact of competition, product demand, supply chain pricing, and our debt and debt service requirements, 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 annual report on Form 10-K for the fiscal year ended December 31, 2008.

These risks could cause the Company's actual results for the 2009 fiscal year and beyond, 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. Good morning, Richard.

Good morning, Rich, and thank you. And good morning to everybody on the call. Thank you all for joining us this morning on our first quarter 2009's conference call. Let me start with a brief review of our financial results for the first quarter. We are reporting revenue from continuing operations of $15.562 million, down from $24.325 million reported for the same period in 2008. We also unfortunately reported an after-tax loss of $597,000 from continuing operations for the first quarter, compared to an after-tax earnings of $350,000 for the first quarter of last year. This translates to a loss of $0.17 for both basic and diluted loss per share from continuing operations for the three-month period ended March 31, 2009, compared to basic and diluted earnings per share from continuing operations of $0.10 for the comparable period in 2008.

Our results from discontinued operations for the first quarter of two 2009 was $9,000 net of tax effect, compared to an after-tax income of $12,000 reported for the first quarter 2008. As a result, the Company reported a net loss of $606,000 for the three-month period ended March 31, 2009, compared to net earnings of $362,000 reported for the three-month period ended March 31, 2008. Overall, diluted per share loss per share for the three-month periods ended March 31, 2009 was $0.17, compared to diluted earnings per share of $0.10 for the first quarter of last year.

Now, let me just tell you real quickly about our companies, which I'm sure many of you know already. I apologize for the repetitiveness. Our Continental Tool Group consists of Hy-Tech and Florida Pneumatic, wholly owned subsidiaries. Hy-Tech manufactures and distributes pneumatic tools and parts for industrial applications. Hy-Tech manufactures approximately 60 types of industrial pneumatic tools. Most of which are sold at prices ranging from $300 to $7,000 under various labels, ATP, Thaxton, THOR, and Eureka, as well as under the trade names and trademarks of other private label customers. This line of product includes grinders, drills, saws, impact wrenches and pavement breakers. Hy-Tech's product are sold to distributors and private label customers through in-house sales personnel and manufacturers' representatives. Users of Hy-Tech's tools include refineries, chemical plants, power generation facilities for construction industry, oil and mining companies and heavy industry. Hy-Tech's product are sold off the shelf and are also produced to customers' specific orders.

Florida Pneumatic is primarily engaged in importing and manufacturing approximately 75 types of pneumatic hand tools, primarily for the industrial, retail and automotive markets. Florida Pneumatic also markets, through its Berkley tool division, a line of tight-cutting, threading tools, wrenches and replacement electronic components for a widely used brand of pipe cutting and threading machines. In addition, through its Franklin manufacturing division, Florida imports a line of door and window hardware. Florida Pneumatic's products are sold to distributors and private label customers through in-house sales, personnel and manufacturers' representatives.

Our Countrywide hardware division is comprised of Nationwide Industries' Woodmark International and Pacific Stair products. Countrywide imports and manufactures hardware products for items such as doors, windows, and fences, staircase components, kitchen and bath hardware and accessories, as well as other general hardware products. Pacific Stair is a manufacturer of premium stair rail products, as well a distributor of staircase components for Woodmark to the building industry. Primarily in the southern California and southwestern United States markets.

Now, back to the quarterly performance. As most of you no doubt know, new home construction is the principal revenue driver for our hardware segment. Based upon United States Census Bureau statistics, the average number of single family home starts for the three-month period ended March 31, 2009, was 356,000 units, compared to the average for the three-month period ended March 31, 2008, which was 728,000 units, or a decrease of over 50%. As a result, revenue at our hardware segment for the three-month period ended March 31 was $6.417 million, down from $11.039 million for the similar quarter last year.

Specifically, our Woodmark subsidiary, which primarily markets the stair parts for the southern part of the United States, continues to be the hardest hit. And reported first quarter of 2009 revenue at $3.878 million, compared to $6.438 million last year. Within Woodmark, revenue for the three-month period ended March 31, 2009 for its stair parts and accessories product line decreased to $3.027 million for the three-month period ended March 31, 2009, from $4.989 million reported in the same period last year. This decrease is primarily due to the diminished number of new housing starts, mentioned earlier and the loss of a major customer.

Additionally, Woodmark's kitchen and bath product line revenue for the first quarter of fiscal 2009 was $851,000, compared to revenue of $1.449 million for the same period last year. The decrease in this kitchen and bath product line revenue was primarily due to one of its major customers filing for bankruptcy; a diminishing recreational vehicle market, which is a key customer group for us there; as well as the general economic conditions. Until the downward trend in the number of new housing starts levels and begins to increase, we do not expect to see important improvements in Woodmark's net revenue.

Our revenue at Pacific Stair, which services the southern California and Nevada region, continues to suffer as well, as the new housing market in that area remains exceedingly low compared to historical data. As such, Pacific Stair reported net revenue of $315,000 for the three-month period ended March 31, compared to the first quarter of 2008, which had $471,000.

Nationwide, which primarily markets vents and gate hardware, is also feeling the impact of the housing downturn. Its results are being impacted by the overall economic sluggishness, as well as competitive pressures. As such, Nationwide reported fiscal 2009 first quarter revenue of $2.224 million, compared to $4.130 million reported in the same period in the prior year. Within Nationwide, net revenue from its fencing, OEM, and patio products were $1.624 million, $429,000, and $171,000 respectively; compared to $3.048 million, $750,000, and $332,000 respectively for the same period last year. We anticipate that we will likely continue to see the effects of the sluggish economy and lagging new home starts, along with competitive pressures on Nationwide's future revenue for the remainder of 2009.

Turning to our tool group. Net revenue was $9.145 million for first quarter of 2009, compared to $13.286 million for the first quarter 2008. Specifically, first quarter 2009 sales at Florida Pneumatic decreased to $4.709 million, from $8.907 million during the same period a year ago. Significant components contributing to the decline were the loss of Home Depot business, resulting in a decrease of net revenue of $2.647 million, and a decrease in shipments to its major retail customer of $454,000. I should just mention to you that the loss of Home Depot was not a significant net income factor for the Company, as its margins were strongly -- were extremely low. Additionally, revenue from its industrial catalog and OEM product lines were $1.039 million and $562,000 respectively; compared to $1.336 million and $847,000 last year.

During the first quarter of 2009, we also continued to see a weakening in sales of our Franklin product line, which decreased to $306,000 from $794,000 reported in the same period last year. Other than a loss of revenue from the Home Depot, we believe the key factor for the fall-off of revenue of Florida Pneumatic is a result of the slowing overall economy, as we believe our relationships with our customers remain extremely healthy. For the first quarter of 2009, Hy-Tech continued the provide a positive impact to the tool segment. Hy-Tech focuses on the industrial sector of the pneumatic tool market, an area which thus far has not been as affected by an overall sluggish economy compared to the retail sector. For the first quarter 2009, Hy-Tech sales were $4.436 million, up slightly from the same period a year ago, when their sales were $4.379 million. Hy-Tech's relationships with its customers remain healthy as well. However, I must note that beginning late in the first quarter, we began to see indications of a slowdown in this division as well.

As for gross margins at our segments, the overall gross margin for the hardware segment continues to be adversely affected by the downturn in home construction. For the three-month period ended March 31, the aggregate gross margin for the hardware segment was 22.3%, reflecting a decrease when compared to 29.5% for the same period in the prior year. Gross profit for the hardware segment decreased to $1.431 million for the three-month period ended March 31, 2009, from $3.261 million for the same period in 2008. Specifically, gross margins for the stair parts business and its kitchen and bath business decreased 6.4 and 7.7 percentage points, respectively when comparing the three-month period ended March 31, 2009 and 2008. Factors affecting Woodmark's overall gross margins were increases in inventory reserves and lower absorption of fixed warehouse costs, resulting from the obvious lower sales volume, as well as some selling price concessions we needed to make. The gross margin decrease, combined with lower revenue, resulted in an aggregate reduction in gross profit at Woodmark of $997,000.

Gross margin for the three-month period ended March 31, 2009 at Pacific Stair products was a gross margin deficit of 23%, compared to gross margin deficit of 12% in the comparable period last year. The primary factor contributing to the deficit margins is Pacific Stair's ongoing inability to absorb its fixed manufacturing and overhead costs, due primarily to weakening sales volume in the southwestern region of the United States. As a result, Pacific Stair products generated gross deficits of $73,000 and $56,000 for the three-month periods March 31, 2009 and 2008.

Gross margins at Nationwide are now also being affected by the recessionary economy, as well as competitive pricing pressures I mentioned earlier. First quarter 2009 gross margins were 29%, compared to 35.4% reported for the same period in 2008. Additional factors affecting Nationwide's gross margins were product mix and overseas pricing. Combined with decreased revenue, its gross profit fell to $645,000 for the three-month period ended March 31, compared to $1.461 million for the same three-month period in the prior year. Gross margins in the tool segment increased to 35% for the three-month period ended March 31, 2009, from 33.2% for the three-month period last year. However, gross profit for this segment decreased $1.211 million, obviously, as a result of the decrease in revenue.

Specifically, Florida Pneumatic's gross margin decreased 0.8 percentage points and combined with reduced revenue, had a decrease in gross margin of $1.389 million. Product mix was the primary factor contributing to the gross profit slippage. Both gross profit margin and gross profit increased at Hy-Tech when comparing the three-month period ended March 31, 2009 and 2008. Gross margins increased approximately 3.6 percentage points to 45.4% for the three-month period ended March 31, 2009, from 41.8% last year.

In combination with the increased revenue, Hy-Tech's gross profit increased approximately $502,000 during the same period. These increases reported in this quarter are primarily due to product mix, as well as improved manufacturing efficiencies. While Hy-Tech's gross margin for first quarter of 2009 was palpable in relation to the same period last year, we do expect these relative results to not continue, as a slowdown in the industrial sector has become a little more apparent to us.

I would like to take a moment to discuss our selling and G&A expenses. For the three-month period ended March 31, 2009, our SG&A was $5.041 million, reflecting a decrease of $1.469 million, or 22.6% when compared to $6.510 million for the same period last year. Significant components of the decrease include reductions in compensation, payroll taxes and benefits of $645,000. Depreciation and amortization expenses decreased $139,000 as a result of the impairment charges taken in 2008. Additionally, the following items also decreased. Freight by $297,000. Commissions by $244,000. Promotional expenses by $181,000. Warranty expense by $62,000. And travel and entertainment expenses by $62,000. I would be remiss if I didn't applaud management for their ongoing efforts in this regard at all of our subsidiaries.

Offsetting the above comparative reductions in our operating expenses, we received during the three-month period, March 31, 2008, $165,000 as reimbursement of legal fees and other costs related to the settlement of formerly outstanding litigation. That was last year, of course. We intend to continue to examine our operating expenses, particularly during these difficult times. However, as a significant portion of these expenses are fixed, as a percentage of revenue, SG&A was 32% for the three-month period just completed; compared to 26.8% for the same period last year. So now, I'd like to turn the call over to Joe for a few minutes. Joe?

Thank you, Richard. I just wanted to add some additional thoughts and insights to the results for the quarter. The gross margin decreases at Woodmark, 7% and Pacific Stair 11%, were primarily driven by volume decreases and not competitive pressures or cost increases. We fully expect to reverse most of these decreases when the market improves. While we are suffering at Woodmark in this downturn, we have been successful in developing new customers, especially in the southeast. These have been taken at the expense of competitors with service problems or financial issues that have prevented them from properly satisfying these customers. To the credit of our sales and marking staffs, we've been able to offer competitive alternatives to win these account over. We expect these accounts to have some impact during the second and third quarters of this year. Additionally, there are some encouraging signs of activity in a few markets. However, not enough to signal a turnaround as of yet.

The decreased margins at Nationwide, while largely driven by the loss volume, were also created by a change in mix, as well as greater competition. Nationwide is feeling especially acute pressure from strong players in its large local Florida market. In addition, Nationwide has been the aggressor in a battle to take share away from a very large entrenched national competitor with innovative and new, higher end products. This competitor is fighting back vigorously, however, and our battle here is taking a great deal of financial and human resources to wage on a daily basis. We believe that ultimately, we will be successful with these new products, however. While Nationwide is certainly performing poorly in relation to 2008, it is at least meeting our expectations so far this year.

At Florida Pneumatic, we continue to innovate with new tool industrial offerings and have been successful in getting these newly developed tools into large manufacturing operations for serious evaluation. Previously, these organizations were dominated by our multi-billion dollar competitors. But we have recently developed tools that we believe outperform the entrenched competition and are optimistic of future success here, with some very high-margin products. This is in spite of a relatively weak market, I would also point out. We continue to have opportunities with our large retail accounts to provide additional product offerings, as our strong relationship there has been maintained.

While Hy-Tech continues to be our best performer, the large drop in the price of oil and general manufacturing weakness are finally taking their toll on this business. We have canceled some major future capital expenditures that were to be made in anticipation of some possible additional opportunities. We expect, however, that this business will eventually materialize but it will take longer to develop than previously thought. In general, P&F and all of its subsidiaries have reduced expenditures wherever possible. This includes some substantial changes to human resources, both in reductions in headcount, as well as compensation. To help mitigate the impact of the weak revenues and profits, all P&F employees took some form of pay or benefit reduction. In addition, we have renegotiated agreements with a large portion of the vendor base to lower costs for the remainder of 2009 as well.

Finally, there is a major effort underway across all of our entities to reduce inventory levels even below what would have been done in conjunction with volume decreases. This effort will be a major source of cash to P&F as the year progresses. Other items affecting cash flow were depreciation and amortization, which were $423,000 and $90,000 respectively for the quarter. Capital expenditures for the quarter were approximately $567,000. In addition, net interest expense decreased approximately $249,000, or 44.6%, from $558,000 incurred during the three-month period March 31, 2008, to $309,000 for the quarter ended March 31, 2009. This was primarily the result of lower interest rates, as well as lower average borrowings. With that, I'd like to turn the call back over to Richard. Richard?

Thank you, Joe. With all this bad news in the world that we are all feeling today and of course, the bad news that we, as everybody else are reporting, I just wanted to make one comment to everybody. That we believe that when the number of new home starts trends upwards, or at least levels off, and the general economy begins to improve, we will be properly positioned to take advantage of all emerging opportunities as they arise and we will be leaner and meaner. However, until then, our objective will be, as always, to reduce and control our expenses whenever possible without sacrificing quality and customer service, so that we continue to maintain our presence in the marketplace. The management at P&F at all levels remains committed to weathering this economic downturn. That's the end of my report today. And now, I'd be happy to answer any questions anybody may have.

Thank you. (Operator Instructions) Our first question comes from Andrew Shapiro of Lawndale Capital Management. Please proceed with your question.

Hi, good morning. Can you update us on the status of your contingent assets, that of the escrow monies on the sale of your Long Island real estate? And how much in legal costs were passed through as a first quarter event since the trial took place during this past quarter?

Maybe, Joe, you can address the expenses. But in terms of development, as I told you, Andrew, in our last call, there have been no new developments whatsoever. Now, it's a process of sending the judge the briefings and the judge ruling. And we have heard nothing but of course, there's been legal work on the background, filing briefs, et cetera. I want to say that I'm guessing the first quarter, but Joe would be better equipped to answer, but I'm guessing between -- around $60,000 or something like that for the first quarter.

Yes, $50,000 to $60,000.

And that would be probably the bulk of it now that the trial is done. Unless there's an appeal, your legal costs are pretty much -- you've seen the wave come through and that's it?

Yes, yes.

I would say that's correct.

And where are you in the milestone, or what's left? The trial has been held. Have the post-trial motions and all that been made and you're just basically waiting for the judge's decision?

We are basically waiting for the judge's decision at this point, yes.

Okay. The comment, you were saying is that you have some comfort that you don't expect the balance of the year for P&F to be as dismal as Q1 was. And I was just wondering what is it that you are seeing that gives you comfort in saying that?

I believe, and Joe you can add wherever you want to, I believe that we have seen a stabilization or a leveling off of, at each of our subsidiaries. That the precipitous falls of the past with housing, et cetera, have not been -- they've been -- the declines have been lesser, if at all. So I've been seeing some stability, basically in our divisions. With the exception of Hy-Tech, which was operating at a very high level and they had a little bit -- they are seeing a downturn but still operating at a very healthy profit level, even so. So that's what I think. Joe, I don't know if you have anything to add to it?

Yes, the only thing I would add, is that there is some seasonality to the business. Very typically, Nationwide, Woodmark, Pacific Stair products have losses in the first quarter because there's no activity. There's just no buying. And that's actually quite typical. So in the absence of very robust activity at the other units, that will have a significant effect. So second and third quarters where all the activity is going on. it's just a seasonal pickup for sure. And then, it will slow down again in Q4 for those operating units.

So then, really what you're talking about is that you don't expect to see the sizable declines that you've been seeing continue but you haven't seen anything yet that gives you comfort that the current dismal level that we're operating at is going to improve.

Yes, that's not -- we're not counting on that by any means.

All right, I just wanted to get at least the semantics cleared up, as to whether, if the declines are probably not going to continue but you're not seeing anything yet that gives you comfort that the balance of the year will be better performance than Q1?

Yes. However, we have seen a leveling off and we've also seen some bright spots at actually each of our subsidiaries, with customers doing more business, the phone ringing more often. As you know, Andrew, nobody anywhere has that crystal ball but we're just seeing little glimmers of hope around, which gives us a little more comfort.

Can you characterize the competitive landscape in any areas you see opportunity from weakened players a little bit better?

I don't know if I understand that question. Do you, Joe?

Well, you talked a little bit about it in your script. About you think you've gained some share here and there. And I'm just trying to better understand.

Well, in the hardware side of things, typically in stair parts, there are a great deal of regional competitors. We're one of the national players. But there are and have been always pockets of sizable regional guys that were difficult to compete against. Some of them have gone away. Some of them are having financial difficulty. So, that's what I was alluding to earlier. So that -- on the hardware side, that's the case. It's probably a little bit less in Nationwide than Woodmark and PSP. On the tool side, I think there are some opportunities, primarily just from larger players being less and less interested in these markets. To a multi-billion dollar company, a $15 million or $20 million market in a particular suite of tools isn't particularly attractive. To us, it is. So, that's where some of those opportunities lie.

Now, according -- I think it was to your release, you mentioned further cuts were effective April 1. And how much of a good look at your respective markets did you have at that point? And we're now here mid-May. And as you sit today, do you feel you're about right in terms of the cost cuts, too little, or too much?

I think it's fair to say that when we put in the majority of our price cuts -- cost cutting measures in the beginning of April, things were, at least as my memory would serve me, a little bleaker than they are now. I think that we are right sized in regard to our employees and their benefits and our costs in that regard. But having said that, we are -- it's an ongoing effort with the other costs of the Company. Freight, whatever areas that we can save money, we're continuing to do. That's an ongoing effort. Does that answer your question, Andrew?

I think so. One other question and then I'll back out in the queue, in case others have questions but we do have some more to come back to us on. I appreciate the sizable reduction in SG&A year-over-year. And it's unfortunate, of course, that it couldn't be as much as the decline in our gross profit dollars that we suffered but that's rarely the case. But I am curious to understand that in light of reduced revenues sequentially, from the December quarter and all that, what are the components or the factors that led to an increase in SG&A costs in the current quarter versus the last quarter ended December here? The fourth quarter, sequential increase were about $150,000 for the quarter over quarter.

Well, sales between -- well, let me back up. Q1 has a great deal of accounting activity typically and while we do sort of spread that out throughout the year, that is the bulk of the accounting activity for the year. There's always lot of legal activity in Q1 in preparing for the proxy and doing all the quarterly filings. There were also some additional legal activity going on, as I alluded to.

The real estate got $60,000 or $65,000, was in the first quarter as well.

Correct. And as I mentioned, the very substantial battle we are undertaking with a major competitor of Nationwide is sucking up some legal dollars, too.

I would say what Joe is trying to say, is it's more of a timing issue in the first quarter, I would say, than anything else. Because our first quarter is a little heavier, with all that legal and accounting, putting out our K and all the things that go with that.

Also, the refinancing of our credit facility took -- most of that work in Q1.

That was expensed and not capitalized?

Well, it was definitely capitalized but we started it in Q1 and it didn't have anything in Q4.

Okay. All right. I'll back out. I have some more questions. Come back to us but let's let others ask if they have any.

Thank you. (Operator Instructions) We have a follow-up coming from Andrew Shapiro with Lawndale Capital Management. Please proceed with your question.

Okay. Hy-Tech held up remarkably well so far in the two bad quarters of the great recession here. But what are you seeing in Q2? Again, we're here now May 15. Is Hy-Tech still falling off slowly or more precipitously from where, in the last few weeks of Q1, you comment how Hy-Tech was weakening?

It's falling off but it's not -- there's nothing precipitous there. And like I mentioned in my preamble earlier, they're still operating at a very healthy level of revenue and income, of profits. So it's not at quite the level that we saw last year and not even -- and the first quarter of this year was even that much better. It would be -- it was counter cyclical to what was going on in the world and with the price of oil and everything else happening, it kind of caught its breath. So that's the best I can say about it. It's nothing -- we're still operating, as I said, at a very good level there.

But seasonally, in the second quarter ended June, the one that we're in now, last year, Hy-Tech jumped up a bit. And I don't know if that was seasonality, because we obviously faced more difficult comps year-over-year in Hy-Tech for the current quarter that we're in. Is there some seasonality in the business? We will see some uptick in Q2 that we're in versus Q1, even in the present year. Or do we have a bigger head wind?

Hy-Tech is not as seasonal a business as some of our other businesses. But I think that last year Hy-Tech had the benefit of the oil drilling and the pricing of the oil, and that was going just wild, as you recall, in those times. And Hy-Tech was a beneficiary of that, as one of its -- as one factor for sure. So when you compare to that, there will be a decrease there. We're going to, clearly, be a decrease from last year, when we're going compare. Because last year they knocked the cover off the ball from day one until the end of the year. And so again, as I said, it's nothing to be concerned about. They're operating at a good level. Very good management team there. Very good employees altogether, right from the bottom on up. And they're continuing to do very well. They have a good place in the marketplace. And it's just that you can't hit a home run every single time. They're hitting doubles.

But the gross margins in Hy-Tech are more than twice in that Florida Pneumatic. So first off, with respect to operating margins of the two businesses, they're a bit different businesses. Are their operating margins twice that of Florida Pneumatic as well?

I would suspect -- yes, they are, at least.

So then as you have a negative mix shift, because now Hy-Tech no longer may be contributing to positives, while Florida Pneumatic has dropped off, you almost have to make up for any decline in Hy-Tech two to one by Florida Pneumatic. Is that right?

Yes, arithmetically, that's correct, if that were to be the case.

All right. And on Florida Pneumatic, what are you seeing with respect to visibility from Sears, your largest customer? In terms of both your inventory needs, as well as their rollout of promotions, which can come, unscheduled times? Although, they must give you some visibility as to when they're going to be doing promotions.

The visibility with Sears right now and the input that we're getting seems very encouraging for the year.

Okay.

On our budget, really, basically.

But I would remind you that the industrial and -- well, the industrial part of the business, which we loosely call everything else, is now a much larger portion of the margin of that operation than Sears. Sears, while it is the largest account, doesn't drive the bus any more at Florida Pneumatic.

And that, of course, Andrew, is by design. That we wanted to become -- and that's why we bought Hy-Tech because we wanted to be more into the industrial sector of the world.

In terms of cash creation and inventory, how much more do you think you can -- in cash, can we reduce inventory and create cash? And how long might it take in order to achieve that efficiency?

Well, by year end, for the full year, I expect $3 million to $4 million of inventory reduction and therefore, cash generation but for the 12-month period ended 12/31/09.

Right. You mentioned in the last call, you eliminated some third-party service providers in Asia.

Yes.

How has that gone for you in terms of going direct to the factories and any problem with product development or shipping, et cetera?

Non event.

No problems whatsoever.

Okay.

It was a very good move by our management in Florida. And actually, they're more involved and we're getting better information, better flow, better everything.

Okay. And under the new credit agreements, are you presently allowed or what other tests that allow to you buy back and retire shares at these very discounted levels?

It is not addressed specifically but verbally, we're not really in a position to buy back any stock.

The values are -- obviously, the selling price is very low but right now, our emphasis is on the business, Andrew. We have a -- the Board has granted us permission to buy the stock and we bought a little last year but right now that's not our priority right now.

Until the ratios of senior debt to EBITDA improve substantially, that will be the case.

Okay. So that's kind of your measure.

Yes.

Now, you had a Board member recently resign, Steinberg?

Yes.

And have you -- he was on a few committees. Is there any replacement for him on those committees? And is there any reason why you have several Board members who are on multiple committees but several Board members who aren't on any at all, at least according to the proxy?

He was -- Steinberg was on no committees.

Okay. So, he was one of the no committee guys.

Right. He was no committees. And we put the people on the committees who can afford to give us the time and the commitment involved. With the audit, we only have really one considered expert, according to the SEC, financial guy who is a CPA. And the other one is an insider, so we can't use him. So he's got to be there. And the other people who are there, are people who are willing to do it. The other people on our Board have different purposes and they just -- we haven't been -- we haven't gotten them to do that. On the two committees --. (Multiple speakers) Excuse me. The nominating Committee, we have Utay and Dubofsky. On the other one -- so we have one, tho three, four, five out of the eight, which are on one. So it's five out of seven serving on committees.

And one is not independent.

So we have five out of six really are on the committees. So, there's really not much more we could do, really, when you think about it. We have five out of six on the committees and the seventh being me and the eighth being non independent?

Well, which one is that? There's Kalick and Scheriff, who are not on committees.

Kalick is not an independent.

Okay. And why is Scheriff not on any committees?

He's a newer Board member and it takes awhile to get him up to speed. Perhaps, in the future, we will do that, when the time comes. But again, he's only served on the Board a couple years, so to get a full flavor of the Company --.

I just have never heard of Board members being on a Board and not on committee.

All right, well now you've heard of it. We do it. I'm sorry. And it's only, as I say, it's only one.

I'll back out in the queue in case there's anyone else with questions. I might have one or two more and that's it.

Okay.

(Operator Instructions) We do have follow-up coming from Andrew Shapiro. Please proceed, sir.

Well, I don't know how many people are on the call but obviously, no one else seems to care to ask questions. And it actually supports my query that I ask periodically. And I'd like to make sure that it's on the agenda. Frankly, it seems it should be on the agenda every Board meeting. First, regarding that, what if any, Board members listen to either replays or this conference call live?

The Board members are on this call.

Great. All right. So then, I'd like to just get comfort that, frankly, the Company has got substantial costs of being a public Company, Sarbanes-Oxley type requirements, combined with a variety of other requirements. And we also have a Company where you have a decent amount of compensation going on at the high levels that are based upon comps of other public companies, et cetera. That if this enterprise was more of a private equity situation, I think the overhead cost levels would be even adjusted further than they have been adjusted. Stock is at several decades lows. Is it a function of and if not, I'm asking that it be a function of pretty much every Board meeting that the Board evaluates what it is we want to be? What it is we are with respect to being a public Company or other alternatives to maximize value for shareholders? Is it part and parcel of every board agenda, Richard?

It is a part of Board agenda. Going back before this, Andrew, way before the times that we're in now. It is always something that we discuss and review, as far as I can remember, at every Board meeting, as far back as I can remember.

Has the Company received offers from joint venture or acquisition partners who want -- who have considered or thrown out and proposed bids for the Company?

Not offers. We've had inquiries in the past.

You have queries. And how are the inquiries generally handled?

We review them, we discuss them at the Board and we respond.

And is -- are those inquiries received and handled by a group of independent directors, independent of management at the time?

Yes.

Okay, very good. Thank you.

Okay. Thank you.

There appear to be no questions at this time. I'd like to turn the floor back over to the management for closing comments.

I'd like to thank you all for being on the call today. And certainly, we hope that the future calls get a little rosier and we all have better news to report. So, thank you for your time today.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.