Pink Sheets

APES (sec website)

10-K: filed 3/31/05 for the period ending Dec 31, 2004.
Incorporated in Delaware in 1994, reverse merger into Southern Cargo Co. a public shell in 1998.
Offices in an unnamed city in Florida [Longwood]. Here's a map. On Microsoft's LiveLocal bird's eye view (which I can't link directly into), the office is within one of 4 fairly ugly office buildings (looking from both the north and from the south).
6.7 million shares on March 31, 2005. 700 holders of record.

In 1999, acquired all the operating assets of Maglio Inc. which is now a wholly owned subsidiary.

...is primarily engaged in researching and providing decision support information to our clients, generally Human Resources (HR) departments of corporations. These services typically include pre-employment background checks and screenings of new hire candidates and/or employees. The background information products and services currently provided by Accufacts include:

• Criminal history checks (32 states direct, and all 3,300 counties in the US)
  
• Credit reports (from one of the reporters, customized for employment)
  
• Social Security number verifications (deceased, aliases, maiden names, prior addresses)
  
• Driving record histories (via a 3rd party outside the company)
  
• Previous employer verifications (all or just the most recent 3)
  
• Education verifications
• Professional reference verifications
• Professional license verifications
• Federal criminal/civil searches
• Substance testing
• Exit interviews

850 clients. Revenues generated in all 50 states. Expanded international efforts in 2003 and 2004. No customer concentration of over 5% in the last 3 years.

Proprietary decision support software (free distribution) or online access to a 24/7 network. Price ranges from a few dollars to $75.

Network consists of PCs running Windows NT (yikes!) with SQL databases.

Company is subject to the Fair Credit Reporting Act (FCRA) as amended by the Consumer Credit Reporting Reform Act of 1996 and is regulated by the FTC.

Competition is fairly fragmented, often regional. APES is an intermediary for only 2 of it's products: credit reports and motor vehicles.

18 full-time employees. 2 in marketing, 1 in finance, 10 in data research, 1 in programming, 2 in customer service, 2 in management. No unions. 4K sq ft office.

No material lawsuits.

Operations:
Revenues were up 12% over 2003 due to ongoing business development but also due to higher billing levels from certain state court fee cost increases. Cost of services went up 9.4%. G&A went up 30%! due to officer salaries and an employment agreement. Also a $125K bonus to the president for meeting milestones.

$400K line of credit, matures May 1, 2005. Zero dollars outstanding. Interest rate is prime plus 1%, secured by all the assets and personally guaranteed by the president / controlling shareholder. Also overdraft protection of $22K with $3.4K outstanding, prime plus 6%, secured by all the assets. Why do they have loans at prime plus 6% and nothing on the prime plus 1%??

Philip Luizzo, 39, CEO, director since 1998. $300K salary, $125K bonus, $11K car allowance. Owns 56.5% of the stock.

Mr. Luizzo earned an undergraduate degree in finance from The University of Nevada, Las Vegas and has authored a number of articles on background screening for major magazines and professional journals including Security Management Magazine and The Internal Auditing Alert. Mr. Luizzo has lectured to numerous companies and professional organizations on aspects of conducting background investigations for prospective employees.

John C. Svedese, VP, director since 1998.

...has over 12 years experience as a senior investigative auditor for the New York City District Council of Carpenters. Mr. Svedese has been with Accufacts and its predecessor since 1994

Anthony J. Luizzo, 63, director since 1998.

has been an owner and principal employee of L.C. Consulting Group, Inc. for more than five years. Mr. Luizzo has over 35 years of law enforcement and security management experience as a former detective with the New York City Police Department and as a senior security administrator with the New York City Mayor's Office of Economic Development and Business Services and the NYC Health & Hospitals Corporation. Anthony Luizzo earned a graduate degree in criminology and undergraduate degree in security management from Pacific Western University and held adjunct faculty positions at John Jay College of Criminal Justice Studies and New York University. Mr. Luizzo is presently an adjunct faculty member at Long Island University. Mr. Luizzo is a certified fraud examiner, certified security trainer, certified police instructor, and a board certified forensic examiner. He has written over 25 articles addressing aspects of security and loss prevention management for a wide variety of magazines and professional trade journals including The CPA Journal, Security Management Magazine, The Journal of Health Care Protection Management, and The White Paper. He is the author of "Play it Safe," a retail fraud prevention brochure, and coauthor of Fraud Auditing: A Complete Guide, a workbook for accountants and auditors on conducting fraud audits and investigations published by the Foundation for Accounting Education [also Fraud Prevention Jackpot from 1996 and Delving Deeper to Decipher Fraud from 1994]. Mr. Luizzo has lectured on security management issues to corporations, municipal agencies and professional organizations nationwide. He has conducted over 5,000 security surveys for corporations, hospitals, commercial, institutional and residential complexes, and often testifies as a security expert in litigation involving deficient security. Mr. Luizzo is the President of the New York Chapter of Certified Fraud Examiners. He serves or has served on the Board of Directors of The Associated Licensed Detectives of New York State, The Society of Professional Investigators, and The Academy of Security Educators and Trainers.

Ok, so it's fairly clear what's going on here. Anthony Luizzo is the one who really drove this stuff. He's currently 63 years old, so I figure he'll probably have influence over the business for another 10 years or so. His son is the CEO.

On Dec 31, 2004, Richard Maglio resigned from the board according to this 8-K. In the prior year's 10-K, it shows:
Richard J. Maglio, 58

Richard J. Maglio, a Director of Maglio-Accufacts since October 1999, served as the President of Maglio, Inc., a business engaged in providing employment background screening services to client companies throughout the United States, since its inception in 1986 until it was merged into Maglio-Accufacts in October 1999. Previously, Mr. Maglio served as Vice President, Human Resources, for a major division of General Mills. He has served on numerous HR industry boards and is a member of the Board of Directors for the Central Chapter of the Society for Human Resources Management. Mr. Maglio earned an undergraduate degree in Human Resources Management from the University of Wisconsin-Oshkosh in 1968.

Audit fees were $33K in 2004. Additional fees (for tax work) was $3K. 2003 wasn't much different.

Auditors were Tedder James Worden & Assoc. in Orlando, FL.
Tedder has a reasonable background.
James is local royalty who returned to his homeland after the Arthur Anderson smackdown (this guy worked in their Houston office, but in taxes). He "enjoys hunting, fishing, running, working out, golf, and watching the Gators." Well, that's all I need to know.
Worden is a fairly young looking auditor from KPMG, pretty much a local guy.
Bob Morrison is another local guy with pretty good credentials.
Jim Lane is another local with lots of experience.
Charlie Puckett inherited a chocolate factory from... oh wait a second. He comes from various local accounting companies, including the latest one which had local government clients.
Jack Cadden seems to be a non-local and seems fairly impressive.
Robert Heidt is a local with reasonable credentials.
They have 81 "professionals" (presumably all or nearly all accountants).

Unqualified audit opinion. Audit covers 2004 and 2003.


Tedder James Worden also audited...

Aerosonic Corporation (AIM) sec
They replaced PriceWaterhouseCoopers in Dec 2003 which had a disagreement with AIM. Unqualified opinion in 2005 which seems justified. In 2004, they pointed out significant maturities of debt. Bravo!

Spectrum Sciences & Software Holdings Corp (SPSC) sec
Unqualified opinion in 2005. Balance sheet is ok, income statement is horrible, but it's because of a huge charge from stock options for consulting services that totally whacked the financial statements. It's a non-cash charge and doesn't affect the viability as a going concern. But it's good to see it stated rather than hidden somehow. They had to delay the 10-K.

Spectrum’s 2004 year-end cash, cash equivalents and short-term investments grew to $24,462,053 from $696,959 for year-end 2003. The company will also report that it is virtually debt-free, having paid down approximately $3,000,000 of various debts during the year. The Registrant further expects to report operating expenses of $40,564,140, a net operating loss of $40,618,033 and a net loss of $40,328,343 for the twelve month period ended December 31, 2004. The change in the results of operations is due primarily to the recording of non-cash consulting expenses in the amount of $32,944,900 related to the issuance of stock options to a non-employee stockholder and certain other expenses in the approximate amount of $4,853,947 incurred during fiscal 2004 which are anticipated to be non-recurring.

Nobility Homes (NOBH) sec
Like Aerosonic, they replace PWC with Tedder etc. Unqualified opinion in 2006 which is a no-brainer.

Cycle Country Accessories (ATC) sec
Tedder was dismissed and replaced with Henjes, Conner, Williams, and Grimsley. The financial statements look ok at a glance. 2004 they gave an unqualified opinion, which seems fine (strong balance sheet, positive income and cash flow from ops).

Ultrastrip Systems, Inc. (USTP) sec
Tedder gave them a "going concern" qualfier in 2005, which is not surprising since their current liabilities are almost 10 times larger than their current assets, they have a shareholder deficit, losing money, with negative cash flow from ops. And also in 2004.

Zeppelin Energy Inc.

Alico Inc. (ALCO) sec
They did the controls thing for Alico and gave them the ok. I have no way to assess this.


visual display
Balance Sheet

       Assets
Cash                 | *************
AR                   | *****
Current Assets       | ******************

PP&E, net            | **
Goodwill             | *
Intangibles          | *
Total Assets         | **********************

Liabilities and Equity
AP                   | **
Accrued Expenses     | **
Deferred Taxes       | *
Current Liabilities  | ******
Total Liabilities    | ******
Equity               | ****************

Net Cash             | *******     $676K, 10 cents/share

Compared to 2003, cash increased quite a bit. AR decreased somewhat, net PP&E held steady, non-goodwill intangible appeared. Total assets increased somewhat. Equity increased by net income of 2004.

Income Statement:

Revenue           | *************************
Cost of Services  |         *****************
Gross Profit      | ********
G&A               |    *****
Operating Income  | ***
Taxes             |   *
Net Income        | **     $328K, 5 cents per diluted share

Net Income / Non-current Assets = 81%
Net Income / Non-depreciated PP&E = 40%
Net Margin = 6.39%
Net Margin in 2003 = 7.22%
Net Margin in 2002 = 6.38%

Revenues have increased noticably in 2003 and 2004. G&A in 2002 was in-between the low 2003 number and the higher 2004 number.

Net income:
2004: $328K
2003: $330K
2002: $260K
2001: $30K
2000: ($367K) due to high G&A
This is all on modestly increasing revenue

Cash Flow Statement:

Free Cash Flow  | ********************************************************

Operations
Net Income      | +++++++++++++++++++++++++++++++++
Depreciation    |                                  +++++++++++
AR              |                                            -
Prepaid         |                                            +++++++
AP              |                                                   ++++++++
Taxes           |                                                           ++++++++

Investing
Capex           | --------
Customer List   |         -------

Finance
Repayments      | --

Net Increase    | ************************************************

Equity statement shows almost no dilution during 2003 and 2004 and going back to the beginning of 2000 (when they had 6,627,471 shares).

Straight-line depreciation
Revenue recorded when services are performed
Exceeding FDIC limits at a bank (I wish they'd give the FDIC number so I could check out the bank's finances).
They're not saying much at all about stock options. I can't tell how many are outstanding.

Depreciation/amortization schedules:

• Furniture and fixtures: $60K, 7 years
• Computer equipment: $133K, 5 years
• Telephone equipment: $50K, 5 years
• Other office equipment: $10K, 5 years
• Software: $566K, 3 years
• Customer lists: $158K, 3-5 years
• Non-compete covenant: $5K, 3 years
  

If anything, the depreciation is faster than what I'd expect for actual replacement.

Capital lease obligations are $29K for computer equipment and $47K for telephone equipment with accumulated depreciation of $50K. Total minimum lease payments in future years is $63K.