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Good morning, ladies and gentlemen, and thank you for holding. Welcome to QEP's Financial Results Conference Call for the Second Quarter and First Half of Fiscal 2021. [Operator Instructions] My name is Chantal, and I will be your conference coordinator today. As a reminder, please note that this call is being recorded. At this time, I would like to introduce your host for today's call, Stan Berger, QEP's Investor Relations representative. Please go ahead, sir.
Thank you, Chantal. Good morning, and thank you for joining today's conference call to listen to our discussion of QEP's financial results for the second quarter and first half of fiscal 2021. The press release was issued on Tuesday, September 29, 2020. If you have not received or had a chance to review the press release and our financial statements, they are available on QEP and OTC Markets' websites. I am joined today by QEP's Chairman and CEO; Lewis Gould; and its President, Leonard Gould.
On today's call, Lewis will review certain and recent developments as well as the highlights of the second quarter and first half of fiscal 2021. We will then give you an opportunity to ask questions.
Before we begin, we would like to remind you that certain statements made in this conference call may be forward-looking statements within the meaning of the federal securities laws. These statements can be identified by words such as expects, plans, projects, will, may, anticipates, believes, should, intends, estimates and other words of similar meaning. Any forward-looking statements contained herein are based on current expectations and beliefs and are subject to a number of risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding economic conditions, sales growth, price increases, profit improvements, product development and marketing, operation expenses, cost savings, acquisition integration, operational synergy realizations, cash flow, debt and currency exchange rates.
Forward-looking statements may also be adversely affected by general market factors, competitive product development, product availability, federal and state regulations and legislation, the CCAA proceeding, manufacturing issues that may arise, patent positions and litigation and other factors. The forward-looking statements contained on this call only apply as the date the statements were made, and QEP does not undertake any obligations to update forward-looking statements, except as required by law.
I will now turn the call over to QEP's Chairman and CEO, Lewis Gould. Lewis?
Stanley, thank you, and thank the participants for joining us on this Friday with all of the things that are going on together, so it's appreciated. By now, we hope that you've had an opportunity to look at the press release that we made. And if you have any additional questions, certainly ask for Paula, when you call QEP, will direct you to the right person. Joining us this morning also is Adam Morgan, our General Counsel; and Enos Brown, who is our Chief Financial Officer and Executive Vice President.
During the presentation, we'll also ask Enos to give you a review of the cost side of our business, and Leonard will give you a review of some of the opportunities on the Internet side of our business as we go forward.
So first, I would like to tell you that we've had a good first half of the year, considering the COVID-19 pandemic everywhere. As you know, we had -- in the first quarter, we were affected greatly by $15 million in lost sales, but we seem to be making it up on a regular basis. I can tell you, looking into the future, it's very, very difficult to see where we are, but we put things in place that I'll tell you that will have a good effect on the next 6 months as we go forward. I can give you some indication of what we think in the month of September. We believe we've had the highest sales month in the history of the company, or at least one of them. We've done over $39.5 million in the month of September, and October has taken off almost the same way. We're using the increased sales and increased profitability to increase our human capital in the company making a difference.
We also have made great strides on our wood business with one of the major wood sellers in the United States on a private label opportunity for us. We've shipped 2 orders so far to our major customer in ceramic tile, which we own a small percentage of, and we have a bright future for that. Also, in our international division, run by Paul, although we have had lockdowns in New Zealand completely, and now it's a partial return, lockdowns again in Australia and England has been off and on as Germany and Spain, et cetera, we continue to make progress. Our sales are up 12% on a year -- year-to-year. We have received some government help in all of these locations. However, we have also watched the cost side of our business continue to go down. So where we are is, I think, in a good place on a worldwide basis. And the dollar, which affects us greatly, has been less than strong, which doesn't hurt us.
So as we look forward to the year, we've gotten an awful lot of traction as we go forward on a day-to-day basis, and we're reviewing everything possible, looking under every stone, whether it's the real estate, our capital investment, et cetera, et cetera.
I do want to point out that during this perilous time, the company has paid down $18 million in debt and more to go. We're cash positive to a nice degree, and we continue to make progress on that.
In other parts of the world that we didn't mention before, in South America, for example, we have the 2 largest chains in South America, which now are almost 100% QEP, and they seem to be doing better month after month. And the relationships that we have with these people generally are quite good.
In Canada, as we have mentioned previously, we've had a process called CCA, which is a reorganization, not a bankruptcy. And where we are right now is we're looking to exit that in the next few weeks. We have filed our plan with the bank in Toronto. And the voting on the plan starts approximately the 12th and then we'll know exactly where we are. We believe that the process will save us a minimum of $3 million to $7 million, somewhere in that area, depending on where we go and we have to return. We're cash positive in Canada, and we've returned to profitability and our forecast is that it should be good for us.
We've retreated from several of the onerous leases that we have, and we're moving primarily our operation into the Toronto area, which will be headquarters for the Kraus Company as we go forward.
In England, Paul is on the line, who runs our international division. Paul was recently promoted. He's a director of the company, and he is also -- Paul, I want you to say nice things about me after this. He's also been working very closely with Bruce in Australia, and these 2 guys are a lethal combination. We believe we're sitting in Australia on potential with our ceramic tile that we hope comes to fruition the next month that might be astounding, considering we have 400 stores that are a potential for us. They've done a real yeoman job in Australia and New Zealand, considering the tremendous problem with the virus on a worldwide basis.
Most recently, there's been a lot of speculation on what will happen with housing starts and remodeling. For us, it's been quite strong. And the forecast, supposedly, from the latest indications that we get as this will continue, which is good for us as people remodel. And also the fires and the hurricanes, et cetera, represent opportunity for your company because we have the replacement parts for that.
We continue to monitor our cost side, and in a moment, Enos Brown, our CFO, will give you more indication of where that is. I do want to tell you that we're working, we recognize our directors who've been pushing us to resource from China and find other avenues. We're doing this on a continuous basis. It's not as easy as we think because many of the products we buy from China are made specifically for us in first class. Although we have moved a lot of our production on the flooring to Cambodia, Vietnam, Indonesia, et cetera, and we continue to do that. We do maintain an office in Shanghai, 14 people. And we're constantly looking for new areas. As you know, because of the travel restrictions all over Asia, if you found a new customer, a new vendor that you want to go to, you get locked down there for 2 weeks and you return to China, you lock down for another 2 weeks. So it's a slow process, we're working on that. We also are working with a home center in India. Hopefully, we'll have some good news on that.
So I'm going to interrupt my own conversation and ask Enos to pick up on some of the more detailed financial information, and he'll be available for questions after this. Enos?
Thank you, Lewis. As Lewis indicated, a very important factor in the company's return to profitability has been a focus on cost reduction and cost containment measures. Many of these initiatives began almost a year ago, pre-COVID-19 crisis and continued through the current year. Many of these things focused on the integration of recent acquisitions and the extraction of those synergies, reduction in force, furlough activity, close management of marketing and sales expenses. And we've also benefited from certain government subsidies in the foreign jurisdictions.
With the continued economic uncertainty, the company is continuing to pay -- closely monitor the overhead infrastructure to ensure that it's appropriate based on the current level of commercial activity. This is something that the company is committed to, to ensuring that our profitability remains.
Additionally, we closely monitor the capital structure to ensure we have sufficient liquidity available to fund any business opportunity that may arise. So very closely monitored on ensuring that not just the top line growth is taking place, but that we are very carefully managing the infrastructure of the organization.
Enos, thank you very much. One of the areas that is a hard area for all companies is the Internet. I can tell you, Leonard, who's the President, has been working very hard on the marketing and management of our general sales growth on a continuing basis, and he's here 7 days a week. And I'm going to turn this over to Leonard now to speak on the Internet and some of our other activities. Leonard?
Thank you. The growth of the e-commerce business is not surprising to anyone. It's arising in virtually every nook and cranny of the retail world. The difference for us versus the generalist is that we are tied in to multiple interconnected locations throughout the country, so we're winning on both fronts. Our goal ultimately is to be wherever the customer chooses to shop. People right now are deferring on vacation decisions. They are deferring on any sort of travel whatsoever. So as people are trapped in their homes, staring at the same walls and floors, the paint industry and the flooring industry have really benefited from that as people continue to pour resources into their single largest asset. We don't expect this to change whatsoever. We think that the e-commerce shift is here to stay, and we are working on many tactical levels to ensure that we are at the leading edge.
Thank you very much, Leonard. I appreciate it. I want to give more color to the cost side and the integration side of our business as we go forward. We had a very large program going on to integrate the Kraus structure with the QEP structure and also, at the same time, are using our system to get more information out, and this was a year project and probably $1 million in cost. We've just about to see the end of the tunnel right now. Our integration and testing went well over the last few weekends for the Kraus entity, and we now have visibility in there.
Our accounting software, which we've looked at very carefully, has been upgraded. We've made a lot of significant opportunity -- significant investments in that. So that was part of our capital improvement in the prior year. On the real estate part of our business, we're trying to get a smaller footprint just generally. We're looking to see if it's possible to sell our existing facility in Calhoun and merge our Dalton and Calhoun facilities into something that's larger in that area. As a result, we've hired Cushman & Wakefield to sell our major property in Calhoun, which we bought. We're very tight on room just generally all over the United States.
On an international basis, we believe that the profitability that we have is going to increase with new customer base. Our subsidiary in Germany for the first time has turned profitable. And we continue to monitor that on a growing basis. We're very pleased, just generally, but we recognize the threats that we all have. If something happens in China, it will affect everybody. We have resourced a lot of the product to Taiwan. The problem is you can get the same product in Taiwan, but it's 40% more. And we're looking all over the world on a regular basis to do that. But I do want to tell you, we've shed 200 employees at least. We're lean and mean now as we go forward. Our overheads have been reduced. The insurance companies have made life difficult, and there's insurance increases everywhere, whether it's our D&O insurance, our general liability insurance, et cetera. We're now past those this year. And next year, probably it will become even more difficult.
Our other costs, which are major costs, the health insurance cost, we've absorbed a small amount of that. And I think we have terrific coverage for our employees and the exit of the CCA process will generate significant monies. We're spending a fortune right now on lawyers and monitors and things like that. But probably, it will be well worth it when we're all over. That's part of the cost of doing business. But our product lines are refreshed. Our customer prospects are quite good all over the world. And we're constantly looking for opportunities almost everywhere.
Now the last thing I want to say is on the COVID-19. In Palm Beach County, where we are in the office, there's -- now we're in Phase 3. We're quite careful. There are masks. We have Cintas doing the cleaning every day. We have put up polyglass between a lot of the offices. We have the 6-foot apart. The bathrooms are cleaned 2 times a day, et cetera. And so far, knock on wood, in all the plants that we have throughout the United States, we sometimes use thermometers, people who are ill go home and are forced quarantine for 14 days before they can come back and retested. We've had a minimal number of people and very little interruption as we go forward. Our plants, we're starting to get -- dig into the overhead on the plants as the volume go up, especially in the Harris Wood plant, we seem to be doing a lot better. And our body count is down just about everywhere we look throughout the world.
So saying that, what we'd like to do is turn this over to the wonderful people who represent our shareholders and advisers and see if we can answer any of the questions that you may have. So Chantal, go ahead.
[Operator Instructions] Our first question will come from Dennis Reiland, Private Management Group.
Terrific quarter. Nice to see. Could you talk about the trend in the quarter as far as June, July, August, what were the trends in? I mean you mentioned September a record month. So how was it during the months of the actual quarter itself?
The month turned out to be a good mix. The mix made a difference. If you noticed, buried in our press release, our gross margin has gone up, which is very hard. I have to give Leonard credit for that as we've discontinued a lot of the low margin items and substituted higher quality items at a higher margin.
What has happened is -- were -- our shipping rates continue to go up. And there's been a switch. We've picked up some new customers, some famous customers where there's additional volume for the first time that we haven't had before. And that's making a difference, both in South America and on the American side. And certainly, on the international division, wow, I got to give these guys a lot of credit. They seem to be doing a bang-up job. Just generally, their sales were up almost 12% year-to-year, month-to-month, quarter-to-quarter, which makes the difference.
Now we have a lot of initiatives that we're waiting for right now. And we believe that besides the unfortunate hurricanes and fires that are occurring, the remodeling will have an effect on us. I've noticed that in the commentary from Mohawk and several others that they think will be on the right side. So finally, we arrived, I believe, that we have the right products. We're in the installation part of the business. When -- [ designer ] part of the business. And now finally, we've gotten Kraus right, and we're now on the dealer side of the business. So the numbers are falling in the proper way, and we have a lot of -- we've made a lot of investment in people this quarter, and we hope to see the -- we're already 1/3 into the new quarter, so let's go and we're giving up sleep to make sure this is going to be a pretty good quarter.
Just to follow up there. What were the CCA costs in the quarter? And how long do you expect this to last? And do you have an appraised value on the Calhoun property?
Yes, we have. Our first CCA process, the cost range from $100,000 to $150,000 a month. It's been going on for several months, not particularly pleased with it. But legally, the amount of paperwork and the stuff they generate and the legal opinions are there. We expect to exit the CCA the second week in October, is that correct?
End of October.
End of October. And then these onetime costs will stop. And there's just nothing we can do about these. These are charges that have to be paid, whether they're court fees or anything else.
And when you -- in Canada, it's extremely difficult on the employment side of life. You have to have good counsel and you have to have the core protection to do this.
Now regarding the appraised property in Calhoun. The company is part of the Kraus purchase, purchased the property for, I think, about $1.9 million roughly 18 months ago. And we have it currently listed at $4.2 million. We recognize that, that may be a more difficult obstacle for us. But if nothing else, there seems to be a shortage of property in the Calhoun, Dalton area and maybe go on to bid, someone will make an offer that we'll certainly consider.
We need time to adjust our footprint in that area, and we have to have some place to go. So we thought we would do is we started a little bit on the high side and come down. The actual appraisal was an old appraisal that we had. I think the appraisal was about pretty much just a little bit more than what we paid for at the time. So we're essentially -- we're going to double. The building needs some work, but we use it 24 hours a day, 7 days a week. So we're just not ready. If we do sell it or lease it, it would be an event that would not happen immediately. It would probably be a 6-month event.
[Operator Instructions] Our next question will come from Jamie Wilen, Wilen Management.
Just want to follow-up on the earlier question about sales. Just the progression, June, July, August and September. Can you give us some flavor for how things have progressed May, June, July? Is it just kind of a straight-line upward? Is that what's happening?
It appears that way because as the -- as companies start to go back to work, as you know, the remodeling sector and the home improvement business is generally the big boxes, are showing record numbers. That's not hurting us at all. So what it looks like right now is if the virus continues, people are going to be locked in the homes, obviously. That's good for us. So I think we're okay in a short period of time.
In a long period of time, I truly don't know. I don't think anybody knows. But right now, our visibility for this quarter seems to be quite good and satisfying. And it is going up on a regular basis, month-over-month. We're probably 10% to 15% over the prior month. Got our fingers crossed. And let me tell you, we are pushing, Jamie, to make this happen. Whether it's the Internet that Leonard mentioned briefly, our overseas sales are doing quite well. Our South American sales are booming with -- we're all -- every aspect of our business and just about every business unit that we have is doing well.
Got you. Historically, seasonally, is September your strongest month of the year?
No. It's generally 1, 2, 3, 4. It was supposed to be slow now and slowed down in the fourth quarter. But a lot of surprises. So if we had the first month locked in and 2 months to go, it's too early to see what October looks like. But we do have a significant backlog to ship no matter what happens.
Leonard, will have to compliment, has been working on the company for a year. On the wood side of the business, we got a $0.5 million order a couple of days ago. We have to make it and ship it. And we seem to be on the right track.
Okay. Well, let me go toward the wood flooring business. I mean with the tariffs in China and the difficulties they've had, it's nice to pick up a new customer, but are we on one shift now? Are we running efficiently? Are there other opportunities to be had in this business since we are, I believe, the largest domestic producer?
I'm not sure if we're the largest. There's some pretty good guys out there. However, the building that it's in, in Johnson City, Tennessee, we also make sponges. We made around, I think, 12 million sponges last year out of that building. We do a lot of packaging. We do some other things out of that. But the actual wood business is recovering because we have some large OEM customers. And we've hired some people that really know the business. Some new people who have been here just in the last couple of months, that will represent good opportunities for us with domestically produced wood.
For some reason, the Chinese, no matter what happens at tariff, the pricing seems to stay pretty much the same. But as you know, it could change overnight. But in the meanwhile, we're getting more traction every month on the wood side of our business, for sure.
And then lastly, on the cost reduction. I mean huge numbers, huge reductions in sales and marketing expenses. Are all these things permanent? Within the new cost structure, what -- when you look out to your business once all these are instituted, and we had a reasonable level of sales, what's a reasonable operating margin target to look for in the new QEP?
Well, first, I can tell you that we've invested in people. We've added on a significant number of senior people in the last month, especially in the marketing and sales area. We recognize that. People who are much higher level than myself who know the lay of the land. As far as our operating margin, a lot of that depends on the sales as we absorb the overhead. But we're selling higher-margin items than we ever did before. And I think what we've done in this quarter, you might see repeated, possibly in the next quarter. I'm very confident that as long as these sales stay at these levels, we're going to be in good shape. And I hope to tell you even more good stories in the next quarter.
Okay. And then with the exit in Canada, you said a minimum of $3 million to $7 million. Is that a one-shot savings? That's not an annual event, I assume.
That's an annual event. I wish it was a one shot. But this will continue. What we're doing is we cut back our overhead and operations in Canada and essentially moved to the eastern part of Canada to operate out of a facility, which is well priced for us, and technically, Mississauga. And all the functions that we had in Canada will reside on the Kraus side of the business there.
We also have another company in Toronto area, which is the traditional QEP and sells the big boxes and does manufacturing adhesives, et cetera. And they're separate corporations. And as you know, so most of the savings will occur on the Kraus side of the business. We're rightsizing it, and we did that for a lot of reasons. If you recall, we did this for customer concentration reasons, et cetera.
However, we've made good progress in that. We've hired some professionals that are running that side of the business, and we're pleased to see that.
So have any of these savings actually showed up on the income statement? Or they'll all occur after we exit the CCA?
No, no. Where we used to have significant losses on a month-to-month basis, because of the government support and the people that are on furlough, we're now probably at breakeven, and we're not having those losses. When we get out of the CCA, what will happen is those extra costs that we had will disappear permanently.
Got you. Okay. And the last thing, Lewis -- you mentioned that in South America, we've picked up 2 of the largest home center chains. I have no idea how large home center chains and how dominant they are in South America, but could you tell us how many stores that would represent?
Leonard?
Approximately 400 big box stores across 6 countries.
Our next question will come from [ Gary Winston ], private investor.
Great quarter. Great 6 months. You spoke about Australia still being shut down. And when you say shut down, is it just there's no business being conducted there? How are we being affected in Australia from the shutdown?
Okay. The shutdown was residential where people cannot leave their homes, I understand, for a couple of hours of exercise. This was reimposed again a couple of weeks ago. And I believe that it will continue for a few more weeks. However, the building material section or side of the business with the big boxes are still in business, and we still ship those people. Also, we have the Internet, et cetera, and the other business that we have there is the supply business for the installers. The installers are still part of the business and that has stayed.
In addition to that, we have received some government support, helping us with the people that are on furlough, et cetera. Although a lot of the support probably will go away, for the foreseeable future right now, we're comfortable seeing that. Our Managing Director, Bruce, told me he's becoming an alcoholic or he's going to go through a divorce if this continues. However, we're working with our largest customer, the 400-store chain down there, and we're praying that good things happen with the new presentations that we've made.
And so when I say shutdown, people can't go out, but the supply side of the business, the Internet side of our business and supplying the big boxes that are open is still available to us.
So in terms of contraction in the business there, can you put a percentage on how the shutdowns affected us?
We're going to find that number, but it's very small. The profit has gone up, the sales have gone down because of the effect of the furloughs and the layoffs that we've had. So even at a lower sales figure, which it hasn't been in the last, actually 6 months, it's only been recent, we've become actually more profitable.
In fact, as a sidelight, our Australian subsidiary sent us $350,000 last week, which made us all happy, as part of the payback of our invested capital.
The productivity gains that you've been able to achieve cutting -- cut... [Technical Difficulty]
I think we lost you.
I said the productivity gains that you're enjoying, your costs are going down, your people count is going down, your revenue is going up, is that primarily driven by Leonard's initiatives using Internet marketing?
Internet marketing is one of the components of what we do, and the answer to that is yes. But the other things that we do, the other initiatives worldwide has helped all of our divisions worldwide. Wherever they are, everybody is starting to make money.
So as we consolidate, our comprehensive income continues to go up. We've even made money in Germany, as I mentioned briefly.
I know we had some losses. Have you had discussions with your CPAs with how the CARES Act and the ability to carry back net operating losses to free up tax refunds from years 2014 forward? Do you have an idea of how that's going to impact us positively?
I'm going to put Enos on and let him tell you.
In the United States, we have carry back losses that was made available through recent legislation changes. We currently have a receivable from the IRS, which we expect to collect in the near term. And that's slightly in excess of $1 million.
I'm sorry, you cut out. Slightly in excess of $1 million?
$1 million, which will go towards straight to additional liquidity availability.
Got it. So we -- in your opening comment, Lew, you mentioned that we've paid off about $18 million of debt, and it would appear that we have another $25 million or so to go in order for the company to be debt free. With your expectation that next year might be as rosy as this year, what would you anticipate using your cash flow in the upcoming 12 months? How much would that go to debt versus human capital versus other uses?
We're going through the budget process right now, although our new year doesn't start for 5 months. And we're looking at it very carefully because several of the shareholders have said, can you pay us a dividend? We have investment in people. We have, moving around, as I told you, a little bit on the real estate. I'll be able to realistically give you some hard numbers.
What we're saying is, though, right now, if we continue the process, we should have our debt paid down significantly as long as business stays on a modest level because no one likes debt and -- except the banks, I think, and all the banks who are on the call. So just pulling everybody's leg. We would like certainly to pay debt down because our liquidity has never been, as far as I can remember, I don't think we've had this large liquidity. Am I correct, Enos?
It is at the highest level since our provision.
They're in the highest level. Our liquidity is about $25 million ballpark figure right now.
Yes. It's just astonishing the amount of debt that the company was able to pay off. In terms of just the market going forward, I mean, my understanding -- I've been with you now 17 years. And back in the day, it seems like a lot of our business was driven by the remodel market. But in our recent discussions, you've indicated that a lot of the business -- new business is coming from the construction boom. And do you have a feel for how much new housing starts contributes to our business versus the remodel market?
The remodel market is absolutely on fire. But the new homes are probably, I don't want to say bond burner with the fires in California, but the new homes -- our OEM cheaper product going and the remodel stuff is what we really want and remodeling right now seems to be boom time. You've got to -- when you're looking at the floor all day long, you've got to change it. And there's been a shift recently. The cheapest of the LTV and the SPC people starting to look to upgrade, hopefully, to wood and engineered wood, which is us, if you will.
So we see that. Every report says remodeling. Look at the home centers, they're booming on the remodeling side. That's us. Globally, worldwide, whether it's in England, whether it's in Australia, whether it's in Germany, whether it's Canada or the United States, that's us.
[ Gary ], I'm not sure if you got that.
I'm sorry, do we have contracts with major homebuilders? Is that how we participate in that market for new construction?
No. It's sold through distribution in most cases. And we have a strong distribution area, which has been our traditional Roberts business. And the distributors primarily sell a lot of the homebuilders because as they complete a home, they need 1 floor, et cetera. Some of the OEM larger businesses we do have, for example, as a separate discussion in Canada, we have several million dollars of backlog for flooring that going -- that's the Canadian Kraus operation. In the United States, we don't. In the United States, it's more remodel.
So with Leonard's Internet initiatives, are we hoping to cut out some of the middleman in -- on the distribution side to the builders themselves?
I don't think we necessarily want to cut out our customers. But at the end of the day, we need to make sure that our products are available for end users wherever the end user chooses to shop, and we're going to make that happen.
And what part of our sales currently are going through the Internet? And what's your expectation over the next year or two?
I could tell you that our global e-commerce sales are extremely robust. It's a growing percentage of our business, and we expect it fully to continue to grow. I don't know if it will be the same pace as these last few months, but evidently, consumer shopping paradigm has completely shifted. So there's only going to be more, not less of this. And we are preparing ourselves to be ready for that.
And is that where a lot of the hiring of sales and marketing folks? Are they going to be part of that process? Is that what you're targeting those people [indiscernible]?
There's some of that. I mean, honestly, we are doubling down on 360-degree photographers and videographers and YouTube commentators and that whole piece is now expected from any serious company out there. So we are truly embracing the new world. The world is different, and we're acting different.
Got it. Congratulations on that. I mean it seems to be the way of the world. I have one last question, then I'll jump out.
So the anticipated sale of our property that you're hoping to get $4 million for, what are the synergies that you hope to achieve when you move both operations into a larger facility? What are you going to be able to do that you can't do now?
We're going to have less shippers, less computer terminals, less insurance and more [indiscernible] and more bundling of products. It will all be together where we produce in one area and ship it to another area to ship, et cetera. So that's our master plan. And we're doing it carefully. So it's not going to happen overnight. We're not ready to lower the price yet.
And then how's the adhesive business in Phoenix going?
We've downsized the operation in Arizona. We -- for a variety of reasons. The adhesive business in Arizona is probably okay. It's not declining. It's getting better all of the time. And we're aggressively looking for new customers out there. It's more expensive for us to produce on the West Coast and the East Coast because, for example, we use Georgia clay that has to be trucked there. And we're not prepared right now to lower the price to get more business. We're happy with the numbers that are being generated currently.
Operator, if there are no other questions, just a couple of closing comments. Does anybody have any more questions?
At this time, we have no further questions in the queue.
Okay. Two things, I just want to say one of our investors, [ Richard Hicks ], sends great vitamins. He calls me every day as a shareholder to make sure I'm alive, and his investment is good. So for [ Mr. Hicks ], I'm here.
Second thing is regarding the trading. We are on the pink sheets right now, and we've discovered that there was a new SEC regulation that went into effect several months ago, which said that in order to be at the next highest level and not shown as a risky company, you would have to show the financial notes and almost have a whole variety of things posted that we never had before. The company is looking into this right now with its auditors and its attorneys to see if we can upgrade the listing that we have because there are some restrictions.
I try to buy some more stock, and I'm not a seller, I'm a buyer. And I had to go to someone else because it was listed as risky. We're going to fix that. It's not going to happen tomorrow. It's going to be a little bit expensive for us. But that's going to probably help all of us as we go forward.
The only other thing I wanted to say is we have the support and we're very pleased with our directors. Our employees have done wonders, considering the virus. We're voluntary to come into the office. There's been an awful lot of voluntary folks coming in just about everywhere. And the management team that we have is starting to gel.
As you've heard, we're disseminating more information. And we're very pleased to say that our cash flow is increasing every day. We're very pleased with it. We've had no large losses of anybody going out of business on us, although we have the usual stuff that goes on from time to time.
So I think where we are is I wish I could give some visibility what it looks like towards the end of the year. I think it's good on a personal level. On a business level, as long as things keep going this way, we'll have -- it will be a pleasure to have a conference call. The last few ones before this, I was a little nervous about. But let me thank all of you. Let's hope that we have some peace and political peace that the President, whether you like him or not, gets better and the stock box goes up, and QEP doubles in book value. So we'll do all of those things as we possibly can.
Let me say thank you, and God Bless America. See you in the next quarter.
Thank you very much. Ladies and gentlemen, this conference call has now concluded. You may disconnect your phone lines, and have a great weekend. Thank you.