Pink Sheets

G&A went up 30%! due to officer salaries and an employment agreement in the 10-K
Why do they have loans at prime plus 6% and nothing on the prime plus 1%?? (it got fixed)
CEO owns 56.5% of the stock
Father/Son related party on the board (after hearing the son speak about the business, I'm less concerned)
Richard Maglio resigned from the board (this is a big red flag)
They fired two auditors in a fairly short time (one was late with info, don't know about the other)

Philip Luizzo owns 56.53% of the shares, all executives and directors own 57.1%. In the last 10-K, Interwest Transfer Agency owned 36.28% of the shares. This represents 93.38% of the shares. So the float is only 444K shares which represents $222K. Richard Maglio owns 63K shares, so that total drops to $190K. (this is more than a red flag, it's a major limitation)



The share count has been steady at 6.7 million shares for years. The company did a registration for 280K options back in 2002 (after the original stock plan expired), but that never seemed to amount to anything. The board terminated the stock purchase plan (for details of all this, see the 10-K for 2002, Item 10) after only 67K shares were issued (these are counted in the 6.7 million) bringing in only about 8 cents per share (see 10-K for 2003)! For valuation, I'm going to use 6.8 million shares.

The company basically breaks even, at best, during Q4 of each year. The number of employees has been steadily dropping and recurring SG&A is also dropping (although I expected it to drop more than it did).

Ok, so the real issue here is how much profit the CEO (who has controlling interest) will allow to flow through to shareholders. It doesn't look good. The guy gives himself a $125K bonus when the total profits of the company are around $330K, plus he cranks his salary up by over $100K. The CEO holding controlling interest would be a showstopper in China or somewhere like that. I didn't consider it a showstopper until I got all the way through the process and took a step back. I think the best thing the CEO could do for the company would be to sell about 1/3 of his shares.

In my opinion, the company is likely to earn roughly $375K per year going forward, with that number increasing at some reasonable rate each year. Without the excessive compensation to the CEO, I'd say the stock would be worth about 83 cents per share. The best ask is at 49 cents.

But I think it's very likely that a large portion of the future increases in profits will somehow end up directly in the CEO's pocket without going to all the shareholders.

So I have to say "no" to this as an investment.