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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________
Commission File No. 0-23382
Trans Global Services, Inc.
(Exact name of Registrant as Specified in its Charter)
Delaware 62-1544008
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1770 Motor Parkway, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (516) 582-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, par value .01 per share
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock as of March 25,1997: $11,908,875
State the number of shares outstanding of each of the Registrant's classes of
common stock as of March 25, 1996: 22,901,331 shares of Common Stock, par
value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
None
2
PART I
Item 1. Business.
Trans Global Services, Inc. (the "Registrant"), is engaged in providing
technical temporary staffing services. In performing such services, the
Registrant addresses the current trend of major corporations in "downsizing"
and "outsourcing" by providing engineers, designers and technical personnel
on a temporary contract assignment basis pursuant to contracts with major
corporations. The engagement may relate to a specific project or may cover
an extended period based on the client's requirements. The Registrant
believes that the market for outsourcing services such as those offered by
the Registrant results from the trend in employment practices by major
corporations in the aerospace, electronics, energy, engineering and
telecommunications industries to reduce their permanent employee staff and
to supplement their staff with temporary personnel on an as-needed basis.
The Registrant seeks to offer its clients a cost-effective means of work
force flexibility and the elimination of the inconvenience associated with
the employment of temporary personnel, such as advertising, initial inter-
viewing, fringe benefits and record keeping. Although the employees provided
by the Registrant are on temporary contract assignment, they work with the
client's permanent employees; however, they receive different compensation
and benefits than permanent employees.
In providing its services, the Registrant engages the employees, pays the
payroll and related costs, including FICA, worker's compensation and similar
Federal and state mandated insurance and related payments. The Registrant
charges its clients for services based upon the hourly payroll cost of the
personnel. Each temporary employee submits to the Registrant a weekly time
sheet with work hours approved by the client. The employee is paid on the
basis of such hours, and the client is billed for those hour at agreed upon
billing rates.
The Registrant is a Delaware corporation which was incorporated in September
1993 under the name Concept Technologies Group, Inc. ("Concept"). The
Registrant's executive offices are located at 1770 Motor Parkway, Hauppauge,
New York 11788, telephone (516) 582-9000.
In May 1995, Concept acquired all of the issued and outstanding stock of
Trans Global Services, Inc., a Delaware corporation now known as TGS Services
Corp. ("TGS"), in exchange for a controlling interest in the Registrant. Such
transaction is referred to as the "Trans Global Transaction." In March 1996,
the Registrant changed its corporate name to Trans Global Services, Inc.
Prior to May 1995, the Registrant's primary business was the operation,
through WWR Technology, Inc. ("WWR"), of the Klipsch professional
loudspeaker business. As a result of the Trans Global Transaction, the
Registrant's principal business became the provision of technical temporary
staffing services. As of September 30, 1995, the Registrant sold the stock
of WWR to an affiliated party.
3
Item 1. Business [Continued]
TGS is a Delaware corporation which was incorporated in January 1995 to hold
the stock of its two subsidiaries, Avionics Research Holdings, Inc.
("Holdings") and Resource Management International, Inc. ("RMI"). Prior to
January 1995, the stock of Holdings and RMI was held by SIS Capital Corp.
("SISC"), which is a wholly-owned subsidiary of Consolidated Technology Group
Ltd. ("Consolidated"). Consolidated is a public company whose businesses
include, in addition to the Registrant, the management and operation of
magnetic resonance imaging centers, the manufacture and sale of electro-
mechanical and electro-optical products, a range of telecommunications
services, computerized health information systems and related services which
are offered to health care providers, and the marketing and selling of three
dimensional imaging products. Holdings was formed to acquire the stock of
two related companies, Avionics Research Corporation of New York and Avionics
Research Corp. of Florida (collectively, "Avionics") in December 1993. RMI
was formed in 1994 to acquire assets of Job Shop Technical Services, Inc.
("Job Shop") in November 1994. RMI conducts business under the name The RMI
Group. Avionics has been engaged in the contract engineering business since
its organization in 1954, and RMI commenced such business in November 1994,
with the acquisition of assets from Job Shop.
References to the Registrant refer to the Registrant and TGS and its
subsidiaries, unless the context indicates otherwise. References to Concept
relate to the Registrant prior to the consummation of the Trans Global
Transaction in May 1995.
At December 31, 1996, SISC was the owner of approximately 48.9% of the
Registrant's outstanding Common Stock and held warrants which, if converted
and exercised, would result in SISC's ownership of approximately 54.5% of the
Common Stock. Mr. Lewis S. Schiller, chairman of the board and chief
executive officer of the Registrant, is also chairman of the board and chief
executive officer of Consolidated, SISC, Netsmart Technologies, Inc.
("Netsmart"), a public corporation of which SISC owns a majority of the Common
Stock, and Lafayette Industries, Inc. ("Lafayette"), a public corporation
controlled by SISC. Mr. Schiller and SISC together owned approximately 53.9%
of the Registrant's outstanding Common Stock and held warrants and options
which, if exercised, would result in their ownership of approximately 59.7%
of the Registrant's Common Stock. The Trinity Group, Inc. ("Trinity"), a
wholly-owned subsidiary of Consolidated, has an agreement with the Registrant
pursuant to which the Registrant pays Trinity fees of $10,000 per month
through March 2000, which monthly fee will increase to $25,000 commencing
with the month in which its proposed public offering is completed. Mr. Norman
J. Hoskin, a director of the Registrant, is a director of Consolidated,
Netsmart, Lafayette and certain subsidiaries of Consolidated. Mr. E. Gerald
Kay, a director of the Registrant, is a director of Lafayette and certain
subsidiaries of Consolidated.
4
Item 1. Business [Continued]
Since May 1995, the Registrant's principal business has been technical
temporary staffing services. In performing such services, the Registrant,
through its two wholly-owned subsidiaries, Holdings and RMI, addresses the
current trend of major corporations in "downsizing" and "outsourcing" by
providing engineers, designers and technical personnel on a temporary contract
assignment basis pursuant to contracts with major corporations. The engagement
may relate to a specific project or may cover an extended period based on the
client's requirements. The Registrant believes that the market for outsourcing
services such as those offered by the Registrant results from the trend in
employment practices by major corporations in the aerospace, electronics,
energy, engineering and telecommunications industries to reduce their
permanent employee staff and to supplement their staff with temporary
personnel on an as-needed basis. The Registrant seeks to offer its clients
a cost-effective means of work force flexibility and the elimination of the
inconvenience associated with the employment of temporary personnel, such as
advertising, initial interviewing, fringe benefits and record keeping.
Although the employees provided by the Registrant are on temporary contract
assignment, they work with the client's permanent employees; however, they
receive different compensation and benefits than permanent employees.
In providing its services, the Registrant engages the employees, pays the
payroll and related costs, including FICA, worker's compensation and similar
Federal and state mandated insurance and related payments. The Registrant
charges its clients for services based upon the hourly payroll cost of the
personnel. Each temporary employee submits to the Registrant a weekly time
sheet with work hours approved by the client. The employee is paid on the
basis of such hours, and the client is billed for those hours at agreed
upon billing rates.
The Registrant also offers its clients a range of integrated logistical
support services which are performed at the Registrant's facilities. These
services, which are ancillary to a project, include the management of
technical documents involving technical writing, preparation of engineering
reports, parts provisioning documents and test equipment support documents,
establishing maintenance concepts and procedures, and providing manpower and
personnel support. In performing these services, the Registrant hires the
necessary employees for its own account and may work with the client in
developing and preparing the documentation. Payments are made pursuant to
a purchase order from the client on a project basis and not as a percentage
of the cost of the employees. To date, the integrated logistics support
business has not generated more than nominal revenue, and no assurance can
be given that the Registrant will generate any significant revenue or profit
from such services.
The Registrant's strategy has been directed at increasing its customer base
and providing additional services, such as integrated logistics support, to
its existing customer base. The Registrant believes that the key to
profitability is to provide a range of services to an increased customer base.
In this connection, the Registrant is increasing its marketing effort both
through its own personnel and in marketing efforts with other companies that
offer complementary services.
5
Item 1. Business [Continued]
Markets and Marketing
The market for the Registrant's services is comprised of major corporations
in such industries as aerospace, electronics, energy, engineering, computer
services and telecommunications, where "downsizing" and "outsourcing" have
become an increasingly important method of cost reduction. Typically, a
client enters into an agreement with one or a small number of companies to
serve as employer of record for its temporary staff, and its agreements are
terminable by the client without significant notice.
The Registrant maintains a computerized data base of technical personnel
based upon their qualifications and experience. The data base, which contains
more than 100,000 names, is generated through employees previously employed
by the Registrant, referrals and responses to advertisements placed by the
Registrant in a variety of local media, including newspapers, yellow pages,
magazines and trade publications. Part of the Registrant's responsibilities
for any engagement is the recruitment and initial interviewing of potential
employees, with the client conducting any final interviews it deems necessary.
The majority of work performed by the Registrant' employees is performed at
the client's premises and under the client's direction, although the
Registrant is the employer of record.
The Registrant markets its services to potential clients through its
officers, management and recruitment personnel who seek to provide potential
clients with a program designed to meet the client's specific requirements.
The marketing effort utilizes referrals from other clients, sales calls,
mailings and telemarketing. The Registrant also conducts an ongoing program
to survey and evaluate the clients' needs and satisfaction with the
Registrant's services, which it uses as part of its marketing effort.
Although the Registrant has eight offices, including its main office in Long
Island, New York, throughout the United States, there is no limited
geographic markets for the Registrant's services. The Registrant has in the
past established offices in new locations when it receives a contract in the
area and it cannot effectively service such contract from its existing
offices. The Registrant intends to continue to establish new offices as
necessary to meet the needs of its customers.
A client will utilize contract engineering services such as those provided by
the Registrant when it requires a person with specific technical knowledge or
capabilities which are not available from the client's permanent staff or to
supplement its permanent staff for a specific project or to meet peak load
requirements. When the client requires personnel, it provides the Registrant
with a detailed job description. The Registrant then conducts an electronic
search in its computerized resume data base for candidates matching the job
description. In addition, each branch office maintains a file of active local
resumes for candidates available for assignment in the vicinity of the branch
office. The candidates are then contacted by telephone by the Registrant's
recruiters, who interview interested candidates. If a candidate is acceptable
to the Registrant and interested in the position, the Registrant refers the
candidate to the client. An employment agreement is executed with the
Registrant prior to the commencement of employment.
6
Item 1. Business [Continued]
The Registrant serves primarily the aerospace and electronics industries as
well as the telecommunications, banking and computer science industries and
public utilities along with numerous manufacturing companies. The Registrant
is expanding its effort to address the general trend of "downsizing" and
"outsourcing" by major corporations on a national basis. To meet this goal,
the Registrant has commenced a national sales campaign addressing a broad
spectrum of Fortune 500 companies, offering a managed staffing service to
those companies in the process of downsizing and outsourcing specific
functions. Since a company engaged in downsizing seeks to focus on its core
business needs with its in-house staff, the Registrant seeks to identify and
address the needs of a specific task or department not part of the core
business for which outsourcing would be an appropriate method of addressing
those needs. In addressing these needs, the Registrant has conducted
marketing efforts with Manpower International, Inc., TAD Resources
International Inc. and Olsten Corporation.
The Registrant's contracts are generally terminable by the client on short
notice.
The Registrant's largest customers for 1996 were Boeing, Lockheed,
Northrop Grumman, Gulfstream Aerospace Corp. and Bell Helicopter Textron,
which accounted for approximately $16 million, $13 million, $9 million, $5
million and $4 million, or 25.6%, 20.8%, 14.4%, 8% and 6.4% of revenue,
respectively. For the year ended December 31, 1995, Northrop Grumman,
Lockheed and Boeing accounted for $19.4 million, $10.2 million and $9.6
million, or 30.7%, 16.1% and 15.2% of revenue, respectively. No other client
accounted for 5% or more of the Registrant's revenues in either the year
ended December 31 ,1996 or the year ended December 31, 1995.
Avionics' largest clients for 1994 were Northrop Grumman and Martin Marietta
Corp., which accounted for approximately $14.5 million and $2.0 million,
respectively, which represented approximately 57% and 8% of the Registrant's
revenue for 1994.
RMI was formed in 1994 to acquire assets of Job Shop in November 1994. RMI
conducts business under the name The RMI Group. During 1994, six clients of
RMI and Job Shop accounted for aggregate revenues of $32 million, or
approximately 90% of their combined revenue for the year. Boeing and Lockheed
Ft. Worth Company, which accounted for revenues of $10 million and $7.5
million, or 22% and 17% of such combined revenue for 1994, were the only
clients which accounted for more than 10% of the combined revenue of RMI and
Job Shop. four other clients, three of which are in the aerospace industry,
accounted for aggregate revenue of $14.7 million, or 51% of the combined
revenue of RMI and Job Shop for 1994.
7
Item 1. Business [Continued]
Competition
The business of providing employees on either a permanent or temporary basis
is highly competitive and is typically local in nature. The Registrant
competes with numerous technical service organizations, a number of which are
better capitalized, better known, have more extensive industry contacts and
conduct extensive advertising campaigns aimed at both employers and job
applicants. The Registrant believes that the ability to demonstrate a
pattern of providing reliable qualified employees is an important aspect of
developing new business and retaining existing business. Furthermore, the
ability of the Registrant to generate revenues is dependent not only upon its
ability to obtain contracts with clients, but also to provide its clients
with qualified employees. The market for qualified personnel is highly
competitive, and the Registrant competes with other companies in attracting
employees.
Government Regulations
The technical temporary staffing industry,in which the Registrant is engaged,
does not require licensing as a personnel or similar agency. However, as a
provider of personnel for other corporations, the Registrant is subject to
Federal and state regulations concerning the employment relationship,
including those relating to wages and hours and unemployment compensation.
The Registrant also maintains 401(k) plans for its employees and is subject
to regulations concerning such plans.
The Registrant does not have contracts with any government agencies. However,
the Registrant does have contracts with clients, including major defense
contractors, that have contracts with government agencies. The Registrant's
contracts with its clients are based on hourly billing rates for each
technical discipline. Many of the clients' contracts with government
agencies are subject to renegotiation or cancellation for the convenience of
the government. Since the manpower needs of each of the Registrant's clients
are based on the clients own requirements and the client's needs are affected
by any modification in requirements, any reduction in staffing by a client
resulting from cancellation or modification of government contracts could
adversely impact the business of the Registrant.
8
Item 1. Business [Continued]
Employees
At December 31, 1996, the Registrant had 963 employees, of which 921 were
contract service employees who performed services on the clients' premises
and 42 were executive and administrative employees. Each of the Registrant's
offices is staffed by recruiters and sales managers. Each contract service
employee enters into a contract with the Registrant which sets forth the
client for whom and the facility at which the employee's services are to be
performed and the rate of pay. If an employee ceases to be required by the
Registrant's clients for any reason, the Registrant has no further obligation
to the employee. Although assignments can be for as short as 90 days, in
some cases, they have been for several years. The average assignment is in
the range of six to nine months. The Registrant's employees are not
represented by a labor union, and the Registrant considers its employee
relationship to be good.
Item 2. Description of Property.
The Registrant leases an aggregate of approximately 12,800 square feet of
office facilities at two locations in Long Island, New York, where it
maintains its executive offices. It also rents modest office space in
Houston, Texas, Phoenix, Arizona, Arlington, Texas, Los Angeles, California,
Seattle, Washington, Orlando, Florida and Wichita, Kansas. The aggregate
annual rent payable by the Registrant is approximately $160,000, which is
subject to annual increases. The Registrant believes that its present office
space is adequate for its present needs and that additinal office space is
readily available on commercially reasonable terms.
Item 3. Legal Proceedings.
There is no material litigation pending or threatened against the Registrant.
The United States Department of Labor and the independent trustee of Job
Shop's 401(k) retirement plan (collectively, "DOL") has filed a complaint
against Job Shop and its principal stockholder for civil violations of ERISA
resulting from the failure of Job Shop to deposit employee contributions to
Job Shop's 401(k) retirement plan. A similar complaint was filed by former
employees of Job Shop against Job Shop, its principal stockholder and others.
At November 22, 1994, the amount due to the Job Shop 401(k) plan was
approximately $3.0 million, which amount may have increased since such date
as a result of interest and penalties. Neither the Registrant nor RMI, the
subsidiary which acquired assets and assumed certain obligations of Job Shop
in November 1994, has been named as a defendant in either of such actions.
The DOL has raised with the Registrant the possibility that RMI may by liable
with respect to Job Shop's ERISA liability as a successor corporation or
purchaser of plan assets, even though RMI did not assume such obligations and
paid value for the Job Shop assets which it did purchase. Although the
Registrant is engaged in discussions with the DOL, no assurance can be given
that such discussions will result in any settlement acceptable to the
Registrant. However, in connection with the negotiations with the DOL and
with the consent of the IRS, the Registrant has paid into escrow $400,000 of
the money due the IRS in connection with the agreement with the IRS relating
to the acquisition of Job Shop assets. See Note 11 of Notes to Trans Global
Services, Inc. Consolidated Financial Statements. During 1996, the
Registrant established a $300,000 reserve with respect to the DOL's claim,
however, no assurance can be given that such reserve will be adequate.
9
Item 3. Legal Proceedings [Continued]
In May 1991, prior to the acquisition of Avionics by the Registrant, the
Government Printing Office wrote the Registrant asking for reimbursement of
approximately $300,000 for allegedly unauthorized work on two programs. The
Registrant believes that these claims are without merit and intends to
contest these claims vigorously if reasserted. The Registrant believes that
the ultimate disposition of this matter will not have a material adverse
affect on the Registrant's consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
On November 21, 1996, the Registrant held a special meeting of stockholders.
At the meeting the following proposals were approved by the vote set forth
below:
Proposal Votes For Votes Abstain Broker
Against Non-votes
- -------- --------- ------- ------- ---------
Amendment to the certificate of
incorporation to increase the
authorized capital stock to
20,000,000 shares of Preferred
Stock and 50,000,000 shares of
Common Stock. 9,099,451 85,545 13,450 7,739,670
Amendment to the 1995 Long Term
Incentive Plan to increase the
maximum number of shares subject
to the plan from 500,000 shares
to 2,000,000 shares. 9,093,001 91,995 13,450 7,739,670
10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Registrant's Common Stock and Redeemable Common Stock Purchase Warrants
are traded on The Nasdaq SmallCap Market. Until September 20, 1995, the
symbols for the Common Stock and 1994 Warrants were "CTGI" and "CTGIW,"
respectively. Effective on September 21, 1995, the trading symbols were
changed to "TGSI" and "TGSIW," respectively.
The high and low closing bid prices for the Registrant's Common Stock and
1994 Warrants since January 1995 are as follows:
Common Stock 1994 Warrants
--------------- ---------------
High Low High Low
1994
Third Quarter
(from September 22) $5-7/8 $4-5/8 $1-1/4 $5/8
Fourth Quarter 5-3/4 3-1/8 1-3/8 1/2
1995
First Quarter 3-7/8 2 1 3/8
Second Quarter 4-3/4 3-1/2 7/8 7/8
Third Quarter 4-1/4 2-1/8 15/16 5/16
Fourth Quarter 3-1/2 1-3/8 1/2 11/32
1996
First Quarter 1-11/16 15/16 15/32 3/16
Second Quarter 1-3/4 1-7/32 1/2 5/16
Third Quarter 1-31/32 1-3/8 11/32 7/32
Fourth Quarter 2-1/4 1-7/16 7/32 5/32
1997
First Quarter(through March 25) 2-3/32 1-1/8 5/32 3/32
The closing bid prices for the Common Stock and 1994 Warrants on March 25,
1997 were $1 3/8 and $3/32, respectively. These quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
As of February 28, 1997, the Registrant believes that there were
approximately 1,500 beneficial holders of the Common Stock.
The Registrant has paid no dividends on its Common Stock since inception, and
does not expect to pay any dividends for the foreseeable future.
11
Item 6. Selected Financial Data.
TRANS GLOBAL SERVICES, INC.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Set forth below is selected financial data with respect to the Company for
the years ended December 31, 1996, 1995 and 1994. The selected financial
data has been derived from the financial statements which appear elsewhere
in this Report. This data should be read in conjunction with the financial
statements of the Company and the related notes which are included elsewhere
in this Report.
Statement of Operations Data 1:
- ------------------------------
Year Ended December 31,
-----------------------------
1996 1995 1994
Revenue $62,594 $63,152 $25,287
Net (loss) from continuing operations (681) (4,413) (411)
Net (loss) (681) (4,696) (411)
Net (loss) per share of Common Stock (.04) (1.48) (.68)
Weighted average number of shares of
Common Stock outstanding 15,183 3,173 600
Balance Sheet Data:
December 31,
-----------------------------
1996 1995 1994
Working capital (deficiency) $ (755) $(2,401) $(1,805)
Total assets 13,100 12,763 10,345
Total liabilities 6,274 8,511 9,033
Accumulated deficit (5,788) (5,106) (411)
Stockholders' equity 6,826 4,252 1,312
1 Statement of operations data includes the operations of RMI commencing
November 22, 1994.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The following information relates to the business of the Registrant and TGS
for the periods covered. The only business conducted by the Registrant is
the technical temporary staffing services business, which was conducted by
TGS and its affiliated companies prior to the completion of the Trans Global
Transaction. The business conducted by the Registrant prior to the Trans
Global Transaction is no longer conducted by the Registrant and is treated as
discontinued operations. References to the Registrant's operations prior to
January 1995, when the Registrant was organized, relate to the operations of
Avionics and RMI as subsidiaries of SISC.
12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
Years ended December 31, 1996 and 1995
Revenue from technical temporary staffing services is based on the hourly
cost of payroll plus a percentage. The success of the Registrant's business
will be dependent upon its ability to generate sufficient revenues to enable
it to cover its fixed costs and other operating expenses, and to reduce its
variable costs, principally its interest. Under its agreements with its
clients, the Registrant is required to pay its employees and pay all
applicable Federal and state withholding and payroll taxes prior to the
receipt of payment from the clients. Furthermore, the Registrant's payments
from its clients are based upon the hourly rate paid to the employee, without
regard to when payroll taxes are payable with respect to the employee.
Accordingly, the Registrant's cost of services are greater during the first
part of the year, when Federal Social Security taxes and state unemployment
and related taxes, which are based on a specific level of compensation, are
due. Thus, until the Registrant satisfies its payroll tax obligations, it
will have a lower gross margin than after such obligations are satisfied.
Furthermore, to the extent that the Registrant experiences turnover in
employees, its gross margin will be adversely affected. For example, in 1996,
Social Security taxes are payable on the first $62,700 of compensation. Once
that level of compensation is paid with respect to any employee, there is no
further requirement for the Registrant to pay Social Security tax for such
employee. Since most of the Registrant's employees receive compensation in
excess of that amount, the Registrant's costs with respect to any employee
are significantly higher during the period when it is required to pay
Social Security taxes than it is after such taxes have been paid.
For 1996, the Registrant had revenues of $62.6 million, reflecting a 1%
decrease from the revenue of $63.2 million during 1995. This decrease is
attributed to the loss of a contract on January 1, 1996, from one of the
Registrant's larger customers in the aerospace industry. By December 31,1996,
the Registrant had increased its revenue base so that, at such date, the
annual rate of revenue was greater than it was prior to the loss of the
customer. During 1996, approximately 61% of the Registrant's revenue was
derived from its three largest clients and 75% of such revenue was derived
from its five largest clients. The Registrant's gross margin for 1996 was
8.2%, as compared to 6.3% for 1995. The increase reflects a higher gross
margin on the new contracts entered into by the Registrant as compared with
the lower gross margin on the contract that was lost.
Selling, general and administrative expenses decreased by $1.9 million, or
30.0%, from $6.4 million in 1995 to $4.5 million for 1996. This decrease
reflects a high level of such expenses in 1995 resulting from the issuance of
securities to consultants in 1995 ($2.3 million) and penalties for late
withholding taxes ($1.0 million). During 1996, penalties for late withholding
taxes were $635,000.
During 1995, the Registrant incurred $528,000 of acquisition expenses
relating to the issuance of securities in connection with the Trans Global
Transaction. The acquisition expenses reflect the value of Common Stock
issued to a finder in connection with the Trans Global Transaction and in
consideration of agreements by certain of the Registrant's stockholders to
enter into lock-up agreements. The delivery of such shares of Common Stock
was deferred until after the Registrant's certificate of incorporation was
amended to increase its authorized Common Stock. No comparable expenses were
incurred in 1996.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
The Registrant finances its payroll obligations by borrowing from a
non-affiliated asset-based lender at an interest rate of 2% in excess of
prime. The Registrant also pays a fee of .30% of the face amount of the
invoices financed, regardless of the amount borrowed against the invoice.
This reflects a reduction in the financing charges resulting from a June 1995
amendment to its borrowing agreement. Prior to the amendment, the Registrant
paid interest at a rate of 4% in excess of prime and a fee of 1% of its
borrowings relating to RMI's operations. Pursuant to a January 1997 amendment
to the Registrant's agreement with its asset-based lender, on April 1, 1997
or earlier at the request of the Registrant, the borrowing availability will
be reduced to $3.0 million and the Registrant will pay a fixed monthly fee of
$10,500 to the asset-based lender. The fee will be subject to increases to
the extent that receivables in any month exceed $10.0 million. The interest
rate of 2% in excess of prime will not be affected by the amendment. The
Company is negotiating with the asset-based lender with respect to a deferral
of the date on which the reduction of availability becomes effective and has
received oral advice from such lender granting a reasonable extension. The
borrowings are secured by a security interest in all of the Company's assets.
At December 31,1996, such borrowings from the asset-based lender were
approximately $3.7 milion. The ability of the Company to operate profitably
is dependent in part upon its ability to reduce its financing costs. The
interest rates (exclusive of the fee) payable by the Company at December 31,
1996 and 1995 was 10.25%. During 1996, the interest expense was
approximately $712,000, as compared to $963,000 for 1995, a decrease of 26%,
which reflects the reduced borrowing rates which were effective in June 1995.
Amortization of customer lists and other intangible assets was unchanged
from 1995 to 1996. During 1996, the Registrant established a $300,000
reserve in connection with the claim by the DOL arising from the acquisition
of Job Shop assets, which is reflected on the Consolidated Statements of
Operations as a contingency reserve.
The Registrant has not provided for income taxes for 1996 period due to a
current period loss. Federal and state tax benefits have not been recognized
for 1996 since, under SFAS No. 109, "Accounting for Income Taxes," the
Registrant has determined that more likely than not the deferred tax asset
will not be realized.
As a result of the foregoing, the Registrant sustained a net loss of
$681,000, or $.04 per share, for 1996, as compared with a loss of $4.7
million, or $1.48 per share, for 1995. The Registrant believes that, with
the reduced level of selling, general and administrative expenses and
improved gross margin, which are reflected in the results of its operations
for 1996, it can improve its operations by reducing its interest expense
through its amended agreement with its asset-based lender combined with a
lower level of borrowing and eliminating future late withholding tax
penalties, which affected the Registrant's operations since its organization.
The Registant may also seek to reduce its financing costs further by seeking
to enter into agreements with other financing sources which would offer lower
financing costs. However, no assurance can be given that the Registrant can
or will operate profitably in the future.
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued]
Years Ended December 31, 1995 and 1994
For the year ended December 31, 1995, the Registrant had revenues of $63.2
million, reflecting a 150% increase in revenue from the revenue of $25.3
million during 1994. During 1994, the Registrant's operations consisted of
Avionics for the entire year and RMI from November 22, 1994, the date of the
acquisition of Job Shop assets. The increase in revenue in 1995 reflected
the inclusion of the operations of RMI for the entire year, as well as an
increase in revenue from Avionics' clients resulting from its increased
marketing effort. The increase in costs of sales from $23.7 million for 1994
to $59.2 million for 1995 also reflects the inclusion of the operations of
RMI. The gross margin was 6.3% for both 1995 and 1994.
Selling, general and administrative expenses increased by 540% from $1.0
million for 1994 to $6.4 million for 1995. This increase reflects a number of
factors, including (i) $2.3 million from the issuance of securities for
consulting services, (ii) $2.0 million managing expenses relating to the
operations of RMI; and (iii) $1.0 million of penalties resulting from late
withholding tax payments. Although the Registrant has been taking steps to
reduce overhead, it is possible that selling, general and administrative
expenses may continue at modestly reduced levels for the short-term future.
In 1994 selling, general and administrative expenses reflected a $159,000
credit resulting from the refund of a withholding tax penalty previously
paid by the Registrant.
During 1995, the Registrant also incurred approximately $528,000 of
acquisition expenses reflecting the value of securities issued in connection
with the Trans Global Transaction.
Amortization of customer lists and other intangible assets increased by 47%
during 1995 from $309,000 to $455,000, reflecting the increased amortization
resulting from the November 1994 acquisition of Job Shop assets. During 1994,
the amortization related primarily to the December 1993 acquisition of
Avionics.
The Registrant incurred an operating loss for 1995 of $3.4 million, compared
with operating income of $277,000 for 1994. The increase in the loss reflects
(i) the substantial increase in selling, general and administrative expenses,
(ii) the acquisition expenses relating to the Trans Global Transaction and
(iii) the increased amortization of intangibles.
The Registrant's interest expense reflects principally its obligations due to
its asset-based lender. In June 1995, the Registrant effected a reduction in
the financing costs under its agreement with its asset-based lender for
borrows by RMI. The interest rate (exclusive of the fee) payable by the
Registrant at December 31, 1995 was 10.25%. In 1995, the average outstanding
borrows increased 147% from $1.5 million to $3.7 million. The increase in
outstanding borrows reflected the inclusion of the operations of RMI for the
entire year in 1995. As a result, although the Registrant was able to reduce
its finance rates from 1994 to 1995, finance costs increased 38.4% from
$696,000 for 1994 to $963,000 for 1995.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
As a result of the foregoing, the Registrant sustained a loss from continuing
operations of $4.4 million, or $1.39 per share, for 1995 as compared with a
loss of $411,000, or $.68 per share, for 1994.
At September 30, 1995, the Registrant disposed of WWR, which operated its
loudspeaker business. Such business is reflected as a discontinued operation.
This operation generated a loss of approximately $25,000 for 1995. After
giving effect to the loss from discontinued operations, the Registrant's net
loss for 1995 was $4.7 million, or $1.48 per share.
Liquidity and Capital Resources
As of December 31, 1996, the Registrant had a working capital deficiency of
$755,000. Its working capital deficiency reflects (a) $3.7 million due to
the Registrant's asset-based lender, (b) payroll and related taxes and
expenses of $1.9 million, and (c) accounts payable and accrued expenses of
$280,000. The payroll and related taxes and expenses relates primarily to
compensation to the Registrant's contract employees and related taxes, which
were paid during the first week of January 1997. At such date, the Registrant
required additional capital to enable it to reduce its expenses, principally
interest, and expand its operations. The principal source of funds, other
than its asset-based lender, has been from the sale of securities. In July
1996, the Registrant raised $2 million from the sale of Common Stock and used
such funds principally to pay tax obligations.
At December 31, 1996, the Registrant owed approximately $3.7 million to its
asset-based lender. The Registrant had been advised that, as a result of a
change in its general lending policies, the asset-based lender was to reduce
the Registrant's maximum borrowing availability to $1 million, effective in
late October 1996, which date had been orally extended until January 1997.
In January 1997, the asset-based lender agreed to an amendment to its
agreement with the Registrant pursuant to which, at April 1, 1997, or earlier
at the request of the Registrant, the borrowing availability will be reduced
to $3.0 million. Such reduction in borrowing availability, if implemented,
would have a material adverse effect upon the Company's business. The
amendment also provides for a reduction in the monthly fee payable to the
asset-based lender. The Company is negotiating with the asset-based lender
with respect to a deferral of the date on which the reduction of availability
becomes effective and has received oral advice from such lender granting a
reasonable extension. Although the Company is seeking alternative financing
sources, no assurance can be given that the Company can or will be able to
obtain an alternate financing source, the failure of which could have a
material adverse effect upon the Company.
The Registrant and its subsidiaries have certain outstanding notes. One of
these notes, issued by WWR, with an outstanding principal amount of $325,000
at December 31, 1996, is guaranteed by certain entities which are affiliated
with a former director of the Registrant. The Registrant and Consolidated
have guaranteed the guarantee obligations of certain of such entities. The
Registrant's obligation on its guarantee continues notwithstanding the sale
of WWR to an affiliate of SISC in September 1995.
16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
In November 1994, RMI purchased assets of Job Shop. The DOL has raised with
the Registrant the possibility that RMI may be liable with respect to Job
Shop's ERISA liability as a successor corporation or purchaser of plan
assets, even though RMI did not assume such obligations and paid value for
those assets which it did purchase. At November 22, 1994, the date of the
purchase of the Job Shop assets, the amount due to the Job Shop 401(k) plan
was approximately $3.0 million, which amount may have increased since such
date as a result of interest and penalties. Although the Registrant believes
that RMI is not a successor corporation to Job Shop and is not responsible for
Job Shop's ERISA violations, the DOL may take a contrary position. The
Registant and the DOL are currently engaged in discussions. If an agreement
cannot be reached by the parties involved and the DOL prevails in court, it
could have a material adverse effect upon the operations of RMI and possibly
the Registrant as a whole. In 1996, the Registrant had reserved $300,000
with respect to the claim by the DOL, which management believed to be
the maximum range of recovery by the DOL; however, no assurance can be given
that such reserve will be adequate. The Registrant has a proposed agreement
with the DOL providing for the payment to the DOL of $300,000.
In May 1991, prior to the acquisition of Avionics by the Registrant, the
Government Printing Office wrote Avionics asking for reimbursement of
approximately $300,000 for allegedly unauthorized work on two programs.
Although the Registrant believes that these claims are without merit and
intends to contest these claims vigorously if reasserted, it believes that
the ultimate disposition of this matter will not have a material adverse
affect on the Registrant's consolidated financial position.
In August 1996, the Registrant entered into an agreement with the IRS to pay
its delinquent payroll taxes, interest and penalties. The Registrant paid
$1.3 million and has agreed to pay the balance in eight equal monthly
installments of $150,000, commencing in September 1996, with the remaining
balance of $300,000 to be paid in May 1997. The IRS has agreed to
subordinate its lien to the lien of the Registrant's asset-based lender
provided that the Registrant is in compliance with current IRS regulations
concerning the timely deposit of Federal employment and witholding taxes. At
February 28, 1997, the Registrant owed the IRS approximately $600,000 pursuant
to its agreement with the IRS, and the Registrant was current in its
withholding tax obligations.
17
Item 8. Financial Statements.
The Financial Statements begin on Page F-1.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information concerning the directors
and the executive officers of the Registrant:
Name Age Position with the Registrant
----- ----- -----------------------------
Lewis S. Schiller 66 Chairman of the board, chief executive
officer and director
Joseph G. Sicinski 65 President and director
Glen R. Charles 43 Chief financial officer and treasurer
Grazyna B. Wnuk 32 Secretary
E. Gerald Kay -1 57 Director
Norman J. Hoskin -1 61 Director
- ----------
- -1 Member of the stock option committee.
Mr. Lewis S. Schiller has been chairman of the board, chief executive officer
and a director of the Registrant since the consummation of the Trans Global
Transaction in May 1995. He served in the same capacities for TGS since its
organization in January 1995 until the completion of the Trans Global
Transaction in May 1995. Mr. Schiller is chairman of the board and chief
executive officer of Consolidated, a corporation which, through subsidiaries,
is engaged in various businesses. Mr. Schiller is also chairman of the board,
chief executive officer and a director of Netsmart, a majority owned
subsidiary of Consolidated that markets health information systems and other
network based software systems, and Lafayette, a public-traded corporation
controlled by SISC which is engaged in various manufacturing businesses.
Consolidated's businesses include, in addition to the Registrant, the
management and operation of magnetic resonance imaging centers, the manufacture
and sale of electro-mechanical and electro-optical products, a range of tele-
communications services, computerized health information systems and related
services which are offered to health care providers, and the marketing and
selling of three dimensional imaging products. Mr. Schiller has held his
positions with Consolidated for more than the past five years. Mr. Schiller
devotes a significant portion of his time to the business of Consolidated and
its other subsidiaries, and he devotes only a portion of his time to the
business of the Registrant.
18
Item 10. Directors and Executive Officers of the Registrant [Continued].
Mr. Joseph G. Sicinski has been president and a director of the Registrant
since the consummation of the Trans Global Transaction in May 1995. He served
in the same capacities for TGS since its organization in January 1995, and
served as president of a predecessor of TGS since September 1992. For more
than eight years prior thereto, he was executive vice president of corporate
marketing for Interglobal Technical Services, Inc., which was engaged in
providing technical temporary staffing services.
Mr. Glen R. Charles has been chief financial officer and treasurer of the
Registrant since May 1995 and of TGS since its organization in January 1995.
He served as chief financial officer of RMI since its acquisition in November
1994. From 1992 to November 1994, he was engaged in the private practice of
accounting. For more than five years prior thereto, he was chief financial
officer of Telephone Support Systems, Inc., a manufacturer of
telecommunications peripheral equipment.
Ms. Grazyna B. Wnuk has been the secretary of the Registrant since May 1995.
She is also secretary of Consolidated, a position she has held since 1991.
She is also a director of Consolidated.
Mr. E. Gerald Kay has been a director of the Registrant since the
consummation of the Trans Global Transaction in May 1995. He has been
chairman of the board and chief executive officer of Chem International, Inc.,
a pharmaceutical manufacturer, Manhattan Drug Co., Inc., a wholesaler of
pharmaceutical products, The Vitamin Factory, Inc., a chain of retail
vitamin stores, and Connaught Press, Inc., a publisher for more than the
past five years. From 1988 to 1990, he was also president and a director of
The Rexall Group, Inc., a distrtibutor of Rexall brand products. Mr. Kay is
a director of Lafayette and was a director of Netsmart from 1994 until
December 1996.
Mr. Norman J. Hoskin has been a director of the Registrant since 1995. He
is chairman of Atlantic Capital Group, a financial advisory services company,
a position he has held for more than the past five years. He is also chairman
of the board and a director of Tapistron International, Inc., a high tech
manufacturer of carpeting, and is a director of Consolidated, Netsmart,
Lafayette, Aqua Care Systems, Inc., a water media filtration and remediation
company, and Spintek Gaming, Inc., a manufacturer of gaming equipment.
The Board of Directors presently has one committee, the stock option
committee, which was formed in 1995 and which administers the Registrant's
1993 Stock Option Plan, the 1995 Stock Incentive Plan and the 1995 Long Term
Incentive Plan.
The Registrant's Certificate of Incorporation provides that to the fullest
extent provided by Delaware law, a director shall not be liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director. The Certificate of Incorporation also contains broad
indemnification provisions. These provisions do not affect the liability of
any director under Federal or applicable state securities laws.
19
Item 11. Executive Compensation.
Set forth below is information with respect to compensation paid or accrued
by the Registrant for 1996, 1995 and 1994 to its chief executive officer and
to each other officer whose compensation exceeded $100,000 for 1996.
Annual Compensation Long-Term Compensation
(Awards)
-------------------- ----------------------
Restricted Options SARs
Stock Awards (Number)
Name and Principal Position Year Salary Bonus (Dollars)
- --------------------------- ---- ------ ----- ------------ -----------
Lewis S. Schiller, CEO -1 1996 -- -- -- 555,000 -2
1995 -- -- -- --
1994 -- -- -- --
Joseph G. Sicinski, President 1996 195,500 -- -- 1,200,000-3
1995 178,000 -- -- 250,000-3
1994 110,000 -- 15,000 --
1 Mr. Schiller received no compensation from the Registrant. Effective
December 31, 1994, Consolidated changed its fiscal year to a calendar
year from the twelve months ended July 31. During the years ended
December 31, 1996 and 1995, the period from August 1, 1994 to December 31,
1994 and the fiscal year ended July 31, 1994, the total compensation paid
or accrued by Consolidated to Mr. Schiller was $340,000, $250,000, $94,000
and $181,451, respectively.
2 Represents warrants to purchase 400,000 shares of Common Stock at $1.25
per share, an incentive stock option to purchase 150,000 shares of Common
Stock at $1.125 per share and a nonqualified stock option to purchase
5,000 shares at $1.03 per share. Such options and warrants were granted
at the fair market value on the date of grant. Mr. Schiller transferred
warrants to purchase 150,000 shares to members of his family.
3 Represents warrants to purchase 400,000 shares of Common Stock at $1.25
per share and an incentive stock option to purchase 800,000 shares of
Common Stock at $1.125 per share. Such options and warrants were granted
at the fair market value on the date of grant. In connection with the grant
of the incentive stock option to purchase 800,000 shares of Common Stock,
Mr. Sicinski agreed to the cancellation of an incentive stock option to
purchase 250,000 shares of Common Stock at $2.125, which was granted in
1995.
Pursuant to his employment agreement with Consolidated, Mr. Schiller received,
prior to September 1, 1996, an annual salary of $250,000, subject to a cost
of living increase, a bonus equal to 10% of Consolidated's net income before
income taxes or cash flow, whichever is greater, in excess of $350,000.
Effective September 1, 1996, Mr. Schiller's base salary was increased to
$500,000. Pursuant to his employment agreement with Consolidated, Mr.
Schiller acquired 10% of SISC's interest in its subsidiaries and investments,
including its investment in the Registrant, at 110% of SISC's cost.
20
Item 11. Executive Compensation [Continued]
In January 1995, Mr. Joseph G. Sicinski entered into a five-year employment
agreement with the Registrant pursuant to which he received annual
compensation of $180,000, subject to an annual cost of living increase.
Effective September 1, 1996, Mr. Sicinski entered into a new employment
agreement for a five-year term commencing September 1, 1996 pursuant to which
he receives annual compensation of $234,000, subject to an annual cost of
living increase. In addition, Mr. Sicinski is entitled to a bonus equal to
5% of the Registrant's income before income taxes, but not more than 200% of
his salary. The Registrant also provides Mr. Sicinski with an automobile which
he may use for personal use.
In August 1995, SISC granted Mr. Sicinski a five-year option to purchase
200,000 shares of Common Stock owned by SISC at $1.625 per share. In April
1996, SISC granted Mr. Sicinski a five-year option to purchase 800,000
shares of Common Stock owned by SISC at $.25 per share, and the prior option
was canceled. The Registrant granted Mr. Sicinski certain demand and piggy
- -back registration rights with respect to the shares of Common Stock issuable
upon exercise of such option.
The Registrant pays its non-management directors a fee of $500 per month.
The following table sets forth information concerning the exercise of options
and warrants during the year ended December 31, 1996 and the year-end value
of options held by the Registrant's officers named in the remuneration table.
No SARs have been granted.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Value
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Fiscal Options at Fiscal
Year End -1 Year End - 2
Shares Acquired Value Exercisable/ Exercisable/
Name Upon Exercise Realized Unexercisable Unexercisable
- ------------------- --------------- -------- ------------- -------------
Lewis S. Schiller -- -- 555,000 $272,969/
-- --
Joseph G. Sicinski -- -- 47,000/ 382,000/
203,000 486,000
- ----------------
1 Includes options which became exercisable on January 1, 1997.
2 Based on the closing price per share of Common Stock on December 31,1996,
which was $1.875.
21
Item 11. Executive Compensation [Continued]
During 1996, the board of directors approved the repricing of incentive stock
options granted to Mr. Joseph Sicinski in 1995, by the cancellation of
incentive stock options to purchase 250,000 shares at $2.125 per share and
the grant of an incentive stock option to purchase 800,000 shares of Common
Stock at $1.125 per share. The grant of the new option and cancellation of
the old option were based on the Registrant's improving results
notwithstanding the decline in the stock price. Set forth below is
information concerning the repricing of such options. Information is not
included with respect to repricing of options granted to Mr. Milton E.
McNally, who was chief executive officer of the Registrant prior to the
consummation of the Trans Global Transaction in May 1995. In February 1995,
the Registrant reduced to $2.25 per share the exercise price of outstanding
options to purchase an aggregate of 92,500 shares of Common Stock from $3.00,
as to 50,000 shares, $5.00 as to 30,000 shares and $6.40 as to 12,500 shares.
Option Repricings
Number of
Securities Market Price Exercise Length of
Underlying of Stock at Price at Original Term
Options Time of Time of New Remaining at
Repriced or Repricing or Repricing Exercise Date of
Amended Amendment or Price Repricing or
Name/Date Amendment Amendment
Joseph B. Sicinski
3/18/96 250,000 $1.125 $2.125 $1.125 Five years/
shares-1 five months
1 In addition, in April 1996, SISC granted Mr. Sicinski an option to purchase
800,000 shares of Common Stock at $.25 per share. In August 1995, SISC had
granted Mr. Sicinski an option to purchase 200,000 shares of Common Stock
at $1.625 per share. This option was canceled in connection with the April
1996 grant.
Stock Option Plans
The Registrant has three stock option plans. In 1993, the Registrant adopted
the 1993 Stock Incentive Plan (the "1993 Plan"), covering an aggregate of
150,000 shares of Common Stock. Options to purchase 124,100 shares of Common
Stock were granted at exercise prices of $3.00 as to 54,500 shares, $5.00 as
to 14,600 shares and $5.00 as to 55,000 shares. The exercise price of all of
such options was reduced to $2.25 per share in February 1995. As of August
31, 1996, options to purchase 10,150 shares had expired unexercised. No
options under the 1993 Plan had been exercised. In January 1995, the board of
directors adopted the 1995 Stock Incentive Plan (the "1995 Plan"), pursuant
to which stock options and stock appreciation rights can be granted with
respect to 305,000 shares of Common Stock. At December 31, 1996, options to
purchase 290,000 shares of Common Stock were granted pursuant to the 1995
Plan, of which options to purchase 255,000 shares had been exercised and
options to purchase 35,000 shares at an exercise price of $.50 per share
were outstanding.
22
Item 11. Executive Compensation [Continued].
In May 1995, the board of directors adopted, and, in March 1996, the
stockholders approved the 1995 Long Term Incentive Plan (the "1995 Incentive
Plan"), initially covering 500,000 shares of Common Stock. In April 1996, the
board of directors approved, and in November 1996, the stockholders approved,
an amendment to the 1995 Incentive Plan which increased the number of shares
of Common Stock currently subject to the 1995 Incentive Plan to 2,492,332
shares. The number of shares of Common Stock subject to the 1995 Incentive
Plan automatically increased by 5% of any shares of Common Stock issued by
the Registrant other than shares issued pursuant to the 1995 Incentive Plan.
Awards under the Plans may be made to key employees, including officers, and
directors of the Registrant and its subsidiaries. Members and alternate
members of the stock option committee are not eligible for options under the
1995 Incentive Plan, except that the 1995 Incentive Plan provides for the
automatic grant to outside directors of non-qualified options to purchase
5,000 shares on February 1st of each year, commencing February 1, 1996.
Messrs. E. Gerald Kay and Norman J. Hoskin are the directors who qualify as
non-management directors under the 1995 Plan. Pursuant to the 1995 Incentive
Plan, Messrs. Schiller, Kay and Joel S. Kanter, who was a director of the
Registrant until February 1997, were non-management directors on February 1,
1996, each received an option to purchase 5,000 shares of Common Stock at
$1.031 per share, and Messrs. Hoskin, Kay, and Kanter, who were non-
management directors on February 1, 1997, each received an option to purchase
5,000 shares of Common Stock at $1.875 per share. The Plans impose no limit
on the number of officers and other key employees to whom awards may be made.
The Plans are administered by a committee of at least two disinterested
directors appointed by the board (the "Committee"). Any member or alternate
member of the Committee shall not be eligible to receive options or stock
under the 1995 Incentive Plan (except as to the automatic grant of options
to directors) or under any plan of the Registrant or any of its affiliates.
The Committee has broad discretion in determining the persons to whom stock
options or other awards are to be granted and the terms and conditions of the
award, including the type of award, the exercise price and term and
restrictions and forfeiture conditions. If no committee is appointed, the
functions of the committee shall be performed by the board of directors. The
Committee is presently comprised of Messrs. Norman J. Hoskin and E. Gerald
Kay.
The Committee has the authority to grant the following types of awards under
the 1995 Incentive Plan: incentive or non-qualified stock options; stock
appreciation rights; restricted stock; deferred stock; stock purchase rights
and/or other stock-based awards. The 1995 Incentive Plan is designed to
provide the Committee with broad discretion to grant incentive stock-based
rights. All officers, including Messrs. Lewis S. Schiller and Joseph G.
Sicinski, who are also directors, are eligible for awards under the 1995
Incentive Plan.
23
Item 11. Executive Compensation [Continued].
Tax consequences of awards provided under the 1995 Plan are dependent upon
the type of award granted. The grant of incentive or nonqualified stock
options does not result in any taxable income to the recipient or deduction
to the Registrant. Upon exercise of a nonqualified stock option, the
recipient recognizes income in the amount by which the fair market value on
the date of exercise exceeds the exercise price of the option, and the
Registrant receives a corresponding tax deduction. In the case of incentive
stock options, no income is recognized to the employee, and no deduction is
available to the Registrant, if the stock issued upon exercise of the option
is not transferred within two years from the date of grant or one year from
the date of exercise, whichever occurs later. However, the exercise of an
incentive stock option may result in additional taxes through the application
of the alternative minimum tax. In the event of a sale or other disqualifying
transfer of stock issued upon exercise of an incentive stock option, the
employee realizes income, and the Registrant receives a tax deduction, equal
to the amount by which the lesser of the fair market value at the date of
exercise or the proceeds from the sale exceeds the exercise price. The
issuance of stock pursuant to a stock grant results in taxable income to the
recipient at the date the rights to the stock become nonforfeitable, and the
Registrant receives a deduction in such amount. However, if the recipient of
the award makes an election in accordance with the Internal Revenue Code of
1986, as amended, the amount of his or her income is based on the fair market
value on the date of grant rather than the fair market value on the date the
rights become nonforfeitable. When compensation is to be recognized by the
employee, appropriate arrangements are to be made with respect to the pay-
ment of withholding tax.
In August 1995, the Registrant granted to Mr. Joseph G. Sicinski, president
of the Registrant, a six-year incentive stock option to purchase an aggregate
of 250,000 shares of Common Stock pursuant to the 1995 Plan at an exercise
price of $2.125 per share, being the fair market value on the date of grant.
The option was immediately exercisable as to 47,000 shares of Common Stock
and becomes exercisable as to an additional 47,000 shares of Common Stock on
each of January 1, 1996, 1997, 1998 and 1999 and becomes exercisable as to
the remaining 15,000 shares of Common Stock on January 1, 2000.
In March 1996, the committee granted incentive stock options to purchase an
aggregate of 1,310,000 shares of Common Stock at $1.125 per share, being the
fair market value on the date of grant. Such options were granted to Mr.
Joseph G. Sicinski, president of the Registrant, who received an option to
purchase 800,000 shares of Common Stock, Mr. Lewis S. Schiller, chairman of
the board of the Registrant, who received an option to purchase 150,000
shares of Common Stock, Mr. Glen R. Charles, chief financial officer of the
Registrant, who received an option to purchase 100,000 shares of Common Stock
and sixteen other employees who received options to purchase an aggregate
of 260,000 shares of Common Stock. In connection with the grant to Mr.
Sicinski, he agreed to the cancellation of the previously granted incentive
stock options. The option granted to Messrs. Schiller and Sicinski have a
ten-year term, and the other options have five year terms. Except for the
options granted Messrs. Schiller, Sicinski and Charles, all options are
immediately exercisable. The options granted to Messrs. Schiller and Charles
are immediately exercisable as to 88,000 shares and become exercisable as to
the remaining shares on January 1, 1997. The option granted to Mr. Sicinski
is immediately exercisable as to 88,000 shares and becomes exercisable
cumulatively as to an additional 88,000 shares on January 1 of each year from
1997 to 2004 and becomes exercisable as to the remaining 8,000 shares on
January 1,2005.
24
Item 11. Executive Compensation [Continued].
The following table sets forth information concerning options granted during
the year ended December 31, 1996 pursuant to the Registrant's 1995 Incentive
Plan. No SARs were granted.
Option Grants in Year Ended December 31, 1996
Percent of
Number of Total Options
Shares Granted to
Underlying Employees in Exercise Price
Options Fiscal Year Per Share Expiration
Name Granted Date
- ----------- ---------- ------------- -------------- ---------
Lewis S. Schiller 150,000 11.3% $1.125 3/17/06
5,000-1 .03% 1.031 1/31/06
Joseph G. Sicinski-2 800,000 60.4% 1.125 3/17/06
All current executive
officers-3 950,000 71.7% 1.125 3/17/06
100,000 7.5% 1.125 3/17/01
All non-officer
directors 10,000-1 0.8% 1.031 1/31/06
All other employees 260,000 19.6% 1.125 3/17/01
- -------------
1:
These options are automatically granted pursuant to the 1995 Incentive Plan.
2:
In addition, in April 1996, SISC granted Mr. Sicinski an option to purchase
800,000 shares of Common Stock at $.25 per share. In August 1995, SISC had
granted Mr. Sicinski an option to purchase 200,000 shares of Common Stock
at $1.625 per share. This option was canceled in connection with the April
1996 grant.
3:
Including Messrs. Schiller and Sicinski.
25
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Set forth below is information as of March 15, 1997 as to each person owning
of record or known by the Registrant, based on information provided to the
Registrant by the persons named below, to own beneficially at least 5% of the
Registrant's Common Stock and for all officers and directors as a group.
Percent of Outstanding
Name and Address-1 Shares Common Stock
- -------------------- ---------- -----------------------
Lewis S. Schiller-2
160 Broadway
New York, NY 10038 15,610,000-3 59.7%
SIS Capital Corp.
Consolidated Technology Group Ltd.
160 Broadway
New York, NY 10038 14,004,500-4 54.5%
Joseph G. Sicinski
1770 Motor Parkway
Hauppauge, NY 11788 1,476,000-5 6.3%
E. Gerald Kay
225 Long Avenue
Hillside, NJ 07205 305,000-6 1.3%
Norman J. Hoskin
2200 Corporate Blvd.
Boca Raton, FL 33431 300,000-7 1.3%
All directors and officers
as a group (seven individuals
owning stock or warrants) 17,241,000-3,5,6,7,8 62.3%
1 Unless otherwise indicated, each person has the sole voting and sole
investment power and direct beneficial ownership of the shares.
2 Mr. Schiller is the chairman of the board and chief executive officer of
Consolidated and chief executive officer of SISC. Accordingly, he has the
right to vote the shares owned by SISC.
3 Includes (a) 297,500 shares of Common Stock issuable upon the exercise of
warrants held by Mr. Schiller, (b) 5,000 shares issuable upon exercise of
an option held by Mr. Schiller, (c) 150,000 shares pursuant to an incentive
stock option held by Mr. Schiller; (d) 11,187,000 shares of Common Stock
owned by SISC, and (e) 2,817,500 shares of Common Stock issuable upon
exercise of warrants held by SISC.
4 Includes 2,817,500 shares of Common Stock issuable upon exercise of
warrants held by SISC. SISC has granted Mr. Joseph G. Sicinski an option
to purchase 800,000 of its shares of Common Stock which may be shares owned
by SISC or issuable upon exercise of warrants owned by SISC.
26
Item 12. Security Ownership of Certain Beneficial Owners and Management
[Continued].
5 Includes (a) 176,000 shares of Common Stock issuable pursuant to an
incentive stock option, (b) 100,000 shares issuable upon exercise of a
warrant held by Mr. Sicinski and (c) 800,000 shares of Common Stock
issuable pursuant to an option granted by SISC to Mr. Sicinski.
6 Represents 300,000 shares of Common Stock issuable upon exercise of a
warrant and 5,000 shares issuable upon exercise of an option held by Mr.
Kay.
7 Represents 300,000 shares of Common Stock issuable upon exercise of a
warrant held by Mr. Hoskin.
8 Includes 100,000 shares of Common Stock issuable upon exercise of an
incentive stock option held by one other officer and 250,000 shares of
Common Stock issuable upon exercise of a warrant held by another officer.
Item 13. Certain Relationships and Related Transactions.
The Trans Global Transaction
On May 8, 1995, the Registrant acquired all of the issued and outstanding
capital stock of TGS and issued (a) 1,000,000 shares of Common Stock, (b)
25,000 shares of Series A Convertible Participating Preferred Stock ("Series
A Preferred Stock"), (c) 25,000 shares of Series B Preferred Stock which are
convertible into an aggregate of 1,000,000 shares of Common Stock if net
income before income taxes, as defined, is either $500,000 for 1995 or $1.5
million for either 1996 or 1997, (d) 25,000 shares of Series C Preferred
Stock which are convertible into an aggregate of 1,500,000 shares of Common
Stock if net income before income taxes, as defined, is $1.5 million for
either 1996 or 1997, and (e) 20,000 shares of Series D 6.25% Redeemable
Cumulative Preferred Stock ("Series D Preferred Stock"), which are not
convertible, but which have an aggregate redemption price of approximately
$1.7 million. In addition, in connection with the Trans Global Transaction,
the Registrant issued two-year warrants to purchase an aggregate of 500,000
shares of Common Stock at $3.50 per share. As a result of the March 1996
amendment to the Registrant's certificate of incorporation increasing the
authorized Common Stock to 20,000,000 shares, the 25,000 shares of Series A
Convertible Preferred Stock were automatically converted into 2,000,000
shares of Common Stock.
As a result of, and at the time of, the Trans Global Transaction, SISC
owned approximately 32.2% of the outstanding Common Stock, and 59.3% of the
voting rights on all matters, including the election of directors, except
where the holders of Common Stock are required by law to vote as a single
class. As a result, SISC had the power to elect all of the directors of the
Registrant. Mr. Lewis S. Schiller, chairman of the board, chief executive
officer and a director of the Registrant, is the chairman of the board, chief
executive officer and a director of Consolidated and SISC. Accordingly, both
Consolidated and Mr. Schiller may be deemed control persons with respect to
the Registrant.
27
Item 13. Certain Relationships and Related Transactions [Continued].
Sale of WWR
At June 30, 1995, the Registrant owed SISC approximately $1.1 million.
Subsequent to June 30, 1995, the Registrant repaid $225,000 to SISC, and SISC
advanced $275,000 to the Registrant and WWR to enable the Registrant to pay a
$275,000 debenture due to Klipsch, Inc. ("Klipsch"), the company from which
WWR purchased its loudspeaker business. The debenture became due on June 30,
1995. The advance was required because the Registrant and WWR did not have
the cash to make the payment. As of September 30, 1995, the Registrant
transferred the stock of WWR to an affiliate of SISC in consideration for
which SISC released the Registrant from its obligations with respect to the
$275,000 advance. In connection with the transaction, the Registrant issued
1,060,000 shares of Common Stock to SISC; however, the actual issuance of the
shares has been deferred until the number of authorized shares of the
Registrant's Common Stock was increased. WWR had, at the time of the
transaction, a deficiency in stockholders'equity of approximately $1.4
million. Among WWR's liabilities was approximately $2.1 million payable to
the Registrant, which, based upon WWR's historical and current cash flow, was
not likely to be paid in the near future. This payable was satisfied through
the issuance by Consolidated of shares of a newly created series of preferred
stock which converts on September 30, 2000 into such number of shares of
Consolidated's common stock, as has a value equal to $2.1 million. The
directors believed that the transaction was in the best interest of the
Registrant because it removed a $1.4 million net deficit from the
Registrant's balance sheet, the business of WWR was not related to the
business of the Registrant, and the Registrant has no experience in
manufacturing operations. During the period from the completion of the
Trans Global Transaction until the sale of WWR, the operations of WWR had
been supervised by personnel of SISC and its affiliates and not by the
Registrant. Furthermore, WWR was a defendant in litigation commenced by
Klipsch, Inc. claiming that the license agreement pursuant to which WWR has
the right to use the Klipsch name and certain patents has terminated. At
December 31, 1996, WWR owed $325,000 to a nonaffiliated lender. The note
matures in June 1997 and is guaranteed by Walnut and the Kanter Foundation.
The Kanter Foundation and Walnut are affiliated with Mr. Joel S. Kanter, who
was a director of the Registrant until February 1997. The Registrant, SISC
and Consolidated have guaranteed the guarantee obligations of the Kanter
Foundation and Walnut. In addition, the Registrant is required to issue to
the lender 520 shares per month of Common Stock as long as the note is
outstanding.
Loan and Equity Transactions With SISC
TGS was organized by SISC in January 1995 to hold all of the stock of
Holdings, which was acquired by SISC in December 1993, and RMI, which was
acquired by SISC in November 1994. At the time of the organization of TGS,
TGS issued to SISC, in consideration for the shares of Consolidated common
stock issued in connection with the acquisitions of Holdings and RMI assets,
500 shares of TGS' redeemable preferred stock. The Registrant also issued
to SISC warrants to purchase shares of its common stock. The TGS stock and
warrants were issued to SISC in consideration for the transfer of the stock
of Holdings and RMI and the advances made by SISC. In connection with the
organization of TGS, TGS also issued a 3.4% interest to Mr. Joseph G.
Sicinski, president of TGS, in exchange for certain rights Mr. Sicinski has
with respect to the stock of Holdings.
28
Item 13. Certain Relationships and Related Transactions [Continued].
In connection with the organization of TGS in January 1995, SISC transferred
a 5% interest in its common stock and warrants in TGS to DLB, in exchange
for DLB's 10% interest in Avionics. DLB is owned by the wife of Mr. Lewis
S. Schiller, chairman of the board and chief executive officer of the
Registrant; however, Mr. Schiller disclaims beneficial ownership in DLB or
any securities owned by DLB.
The Trans Global Agreement provides SISC and DLB with certain registration
rights with respect to their warrants and the underlying Common Stock and
provides Mr. Sicinski with certain registration rights with respect to the
100,000 shares of Common Stock issued to him pursuant to the Trans Global
Agreement.
Trinity, a wholly-owned subsidiary of Consolidated, is a party to a
management services agreement dated as of January 1, 1995, pursuant to which
Trinity will receive a monthly fee of $10,000 through March 2000, which
monthly fee will increase to $25,000 commencing with the month in which its
proposed public offering is completed. Neither SISC, Consolidated nor any of
their employees, including Mr. Lewis S. Schiller, chairman of the board and
chief executive officer of the Registrant, have received any compensation
from the Registrant or TGS. None of such persons provided significant
services to Holdings or RMI prior to 1995.
During the years ended December 31, 1996, 1995 and 1994, the largest amount
due to SISC was $1.1 million, $1.1 million and $885,000, respectively. These
advances were incurred for working capital and in connection with the
acquisition of Job Shop assets. The Registrant's advances from SISC bore
interest at 10% per annum. Prior to the SISC Recapitalization, the
Registrant owed SISC approximately $1.1 million. During 1996, pursuant to
the SISC Recapitalization, the Registrant issued to SISC 9,900 shares of
Series F Preferred Stock and warrants to purchase 3,200,000 shares of Common
Stock at $1.25 per share in exchange for the cancellation of $750,000
principal amount of the Registrant's debt to SISC and all of the shares of
Series B, C and D Preferred Stock owned by SISC, including accrued dividends
due on the Series D Preferred Stock. The 9,900 shares of Series F Preferred
Stock were convertible into 9,900,000 shares of Common Stock. As a result
of the SISC Recapitalization, the Registrant's obligations to SISC were
reduced to $300,000, which was paid in 1996.
Pursuant to Mr. Schiller's employment agreement with Consolidated, Mr.
Schiller acquired 10% of SISC's interest in its subsidiaries
and investments, including the Registrant's Common Stock, Preferred Stock
and warrants held by SISC, at 110% of SISC's cost. At the closing of the
Trans Global Transaction, Mr. Schiller exchanged such right for a right to
purchase 10% of the common stock, convertible preferred stock and warrants
of the Registrant owned by SISC. Mr. Schiller has exercised his right to
purchase 393,000 shares of Common Stock, warrants to purchase 47,500 shares
of Common Stock and 2,500 shares of Series B and C Preferred Stock. In
connection with the SISC Recapitalization, SISC transferred to Mr. Schiller
1,000 shares of Series F Preferred Stock, and Mr. Schiller's shares of
Series B and C Preferred Stock were canceled. Also in connection with the
SISC Recapitalization, DLB exchanged its shares of Series B and C Preferred
Stock for 100 shares of Series F Preferred Stock.
29
Item 13. Certain Relationships and Related Transactions [Continued].
In October 1996, SISC converted 5,000 shares of Series F Preferred Stock
into 5,000,000 shares of Common Stock, and in December 1996, SISC converted
the remaining 3,900 shares of Series F Preferred Stock into 3,900,000 shares
of Common Stock, and Mr. Schiller and DLB converted their 1,000 and 100
shares of Series F Preferred Stock into 1,000,000 and 100,000 shares of
Common Stock, respectively.
The Registrant has from time to time made advances to three SISC Subsidiaries
which are not owned or controlled by the Registrant. Such advances were
approximately $1.5 million, $1.2 million and $274,000 at December 31, 1996,
1995 and 1994, respectively. The amounts outstanding on such dates
represent the largest amounts outstanding during the respective periods
ending on such dates. The Registrant cannot estimate whether or when the
SISC Subsidiaries will pay the amounts due the Registrant because of their
lack of available working capital, and, accordingly, are treated as long
term receivables at December 31, 1996. Advances to the SISC Subsidiaries
may continue. In addition, the Registrant pays the compensation and
benefits of certain non-executive employees who perform services for both
the Registrant and one of the SISC Subsidiaries and share common space and
other office expenses. The amount allocated to such SISC Subsidiary, which
is approximately $150,000 per annum, is added to the obligations of the SISC
Subsidiary to the Registrant.
As of June 30, 1995, SISC converted $200,000 of the Registrant's obligations
to SISC into 5,000 shares of Series E Preferred Stock. In March 1996, as a
result of the amendment to the Registrant's certificate of incorporation
increasing its authorized common stock, the 5,000 shares of Series E
Preferred Stock were automatically converted into 120,000 shares of Common
Stock.
Other Related Party Transactions
The Registrant was organized in September 1993 as Concept Technologies
Group, Inc. to acquire the stock of three companies, each of which was
controlled by Walnut. Walnut may be deemed a promoter of the Registrant.
Following the acquisition of such subsidiaries and until the Trans Global
Transaction, Walnut may be deemed a controlling stockholder of the
Registrant. As a result of family relationships, the Kanter Foundation,
The Holding Company and Windy City, as well as certain members of the
Kanter family may be deemed affiliates of the Registrant. Mr. Joel Kanter,
who was a director of the Registrant until February 1997, is president and
a director of Windy City and Kanter Foundation. Since February 1995, he has
been president of Walnut, to which he was a consultant prior to that date.
Mr. Joshua Kanter, who was secretary of the Registrant prior to May 1995,
is vice president of Windy City and the Kanter Foundation. Mr. Burton
Kanter, the father of Joel and Joshua Kanter, is chief executive officer
of Walnut and president and a director of The Holding Company. While there
is little or no common beneficial ownership of Walnut, Windy City, the
Kanter Foundation and The Holding Company, members of the Kanter family have
varying degrees of control over these entities.
30
Item 13. Certain Relationships and Related Transactions [Continued].
In connection with the Trans Global Transaction, the Registrant requested
certain holders of restricted securities to agree to a one year lockup from
the effective date of the first registration statement filed by the
Registrant following the closing of the Trans Global Transaction. Walnut,
Windy City, the Kanter Foundation and The Holding Company received an
aggregate of 181,080 shares of Common Stock and warrants to purchase 90,540
shares of Common Stock at $3.50 per share in consideration for agreeing to
such lockups, which related to an aggregate of 362,160 shares of Common
Stock.
In October 1995, the Registrant authorized the issuance to each of Messrs.
E. Gerald Kay and Joel S. Kanter a warrant to purchase 75,000 shares of
Common Stock at $3.50 per share. In April 1996, the Registrant issued to
each of Messrs. Lewis S. Schiller and Joseph G. Sicinski a warrant to
purchase 400,000 shares of Common Stock at $1.25 per share and to each of
Messrs. E. Gerald Kay, Joel S. Kanter and Norman J. Hoskin, a warrant to
purchase 300,000 shares of Common Stock at $1.25 per share. In connection
with such grants, Messrs. Kay and Kanter agreed to waive the right to
receive the previously authorized warrants, which had not been issued.
During 1994 and 1995 the Registrant engaged Plaza Street Holdings, Inc.
("Plaza Street") to perform consulting services in connection with possible
acquisition or merger candidates for the Registrant. Plaza Street is
wholly-owned by Mr. Michael Alan Faber, who is a vice president of Walnut.
Plaza Street received $50,000 for services rendered during 1994 (of which
$15,000 was paid in 1995) and 1995.
Prior to completion of the Registrant's initial offering in February 1994,
the Registrant borrowed funds on an unsecured, short term basis from Walnut
for working capital. The borrowing did not exceed $90,000, bore interest
at 10% per annum and was repaid from the proceeds of the Issuer's initial
public offering.
The Registrant believes that the transactions with related parties were made
on terms that were no less favorable to the Registrant that would have been
available from non-affiliated third parties under similar circumstances.
31
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements.
The following financial statements are filed as part of this Form 10-K:
Trans Global Services, Inc. and Subsidiaries
Report of Independent Certified Public Accountants
Balance Sheets as of and December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996,1995 and 1994
Statements of Changes in Stockholders' Equity for the years ended December
31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994
Notes to Financial Statements
(b) Financial Statement Schedules.
None
(c) Exhibits
2.1-2 Agreement (the "Agreement") dated as of March 31, 1995, by and among
SIS Capital Corp., DLB, Inc., Joseph G. Sicinski and Concept
Technologies Group, Inc., including exhibits thereto.
2.2-2 The Concept Disclosure Letter delivered pursuant to the Agreement.
2.3-2 The Trans Global Disclosure Letter delivered pursuant to the Agreement.
2.4-3 Asset purchase agreement dated August 19, 1994, among ITS Management
Corp., Job Shop Technical Services, Inc. ("Job Shop") and Ralph Corace.
2.5-3 Disclosure letter of Job Shop dated August 19, 1994, as supplemented
on September 10, 1994.
3.1-1 Restated Certificate of Incorporation.
3.2-1 Certificate of Designation for the Series F Preferred Stock.
3.4-3 By-Laws.
10.1-1 Employment agreement dated September 1, 1996, between the Registrant
and Joseph G. Sicinski.
10.2-3 Management services agreement dated January 1, 1995 between Trans
Global Services, Inc. and The Trinity Group, Inc.
10.3-4 1995 Long-Term Incentive Plan.
10.4-5 1993 Stock Option Plan.
10.5-5 1995 Incentive Stock Plan.
10.6-3 Agreement dated as of September 30, 1995 between SIS Capital Corp.
and the Registrant.
10.7-3 Agreement dated as of September 30, 1995 between Consolidated
Technology Group Ltd., WWR Technology, Inc. and the Registrant.
10.8-3 Form of Series A Common Stock Purchase Warrants.
10.9-3 Form of Series B Common Stock Purchase Warrants.
10.10-3 Form of Series C Common Stock Purchase Warrants.
10.11-5 Form of Callable Common Stock Purchase Warrants issued in the
Registrant's initial public offering.
10.12-5 Form of Registrant's Warrant.
10.13-5 Form of August Financing Warrants.
10.14-5 Form of October Bridge Financing Warrants.
10.15-5 Form of Consulting Warrant.
10.16-1 Form of Subscription Agreement.
32
Part IV [Continued]
10.17-1 Form of Offshore Securities Subscription Agreement.
10.18-1 Form of Series D Common Stock Purchase Warrant.
10.19-1 Payment agreement between the Internal Revenue Service and
Resource Management International, Inc.
10.20-1 Amendment dated as of January 1, 1997 between the Registrant and
The Trinity Group, Inc.
10.21-1 Agreement dated February 3, 1995 between the Registrant and Metro
Factors, Inc.
10.22-1 Letter agreements dated January 29, 1997 and February 5, 1997
between the Registrant and Metro.
11.1 Computation of loss per share.
21.1 Subsidiaries of the Registrant
23.1 Consent of Moore Stephens P.C. Pg. 33.1
24.1 Powers of attorney (See Signature Page).
27.1 Financial data schedule.
1 Filed as an exhibit to the Registrant's registration statement on
Form S-1, File No. 333-14289, and incorporated herein by reference.
2 Filed as an exhibit to the Current Report on Form 8-K of Consolidated
Technology Group Ltd., Commission File No. 0-4186, for the report
date of April 19, 1995 and incorporated herein by reference.
3 Filed as an exhibit to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1995 and incorporated herein by
reference.
4 Filed as an exhibit to the Registrant's definitive proxy material for
its special meeting of stockholders for November 1996 and incorporated
herein by reference.
5 Filed as an exhibit to the Registrant's Registration Statement on
Form SB-2, File No. 33-73178 and incorporated herein by reference.
(d) Reports on Form 8-K.
None
33.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements:
[Reg. No. 33-88682] on Form S-8, [Reg.No.33-92228] on Form S-8 and [File No.
333-07045] on Form S-8 of Trans Global Services, Inc. and subsidiaries of our
report dated March 3, 1997, relating to the consolidated balance sheets of
Trans Global Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the period ended December 31, 1996, which report appears in the Trans
Global Services, Inc. annual report on Form 10-K.
MOORE STEPHENS, P.C.
Certified Public Accounts
Cranford, New Jersey
March 1997
33.2
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRANS GLOBAL SERVICES, INC.
Date: March 28, 1997 By:
Lewis S. Schiller
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated. Each
person whose signature appears below hereby authorizes Lewis S. Schiller
and Joseph G. Sicinski or either of them acting in the absence of the
others, as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign any and all amendments to this
report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission.
Signature Title Date
Chairman of the Board, Chief March 28 , 1997
Lewis S. Schiller Executive Officer and Director
(Principal Executive Officer)
Treasurer and Chief Financial March 28 , 1997
Glen R. Charles Officer (Principal Financial and
Accounting Officer)
Director March 28 , 1997
Joseph G. Sicinski
Director March 28 , 1997
E. Gerald Kay
Director March 28 , 1997
Norman J. Hoskin
34
INDEX TO FINANCIAL STATEMENTS
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES PAGE
Report of Independent Certified Public Accounts F-3
Balance Sheets as of December 31, 1996 and 1995 F-4
Statements of Operations for the years ended December 31,
1996, 1995 and 1994 F-6
Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996,1995,and 1994 F-7
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 F-9
Notes to Financial Statements F- 12
35
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Trans Global Services, Inc.
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of Trans Global
Services, Inc. and its subsidiaries as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trans Global Services, Inc.
and its subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
March 3, 1997
36
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS
December 31,
1 9 9 6 1 9 9 5
[Consolidated] [Consolidated]
Assets:
Current Assets:
Cash and Cash Equivalents $ 56,231 $ 210,597
Accounts Receivable - Net 5,190,056 4,869,116
Loans Receivable - Officer 42,500 22,500
Prepaid Expenses and Other Current Assets 230,074 80,966
---------- ----------
Total Current Assets 5,518,861 5,183,179
---------- ---------
Property and Equipment - Net 74,581 41,205
---------- ---------
Other Assets:
Due from Affiliates 1,508,502 1,234,428
Customer Lists 2,838,535 3,063,503
Goodwill - Net 824,125 872,705
Covenant Not-to-Compete 60,381 241,833
Deferred Offering Costs 151,307 --
Other Assets 22,958 25,074
Investment in Preferred Stock of Affiliate 2,100,730 2,100,730
---------- --------
Total Other Assets 7,506,538 7,538,273
Total Assets $ 13,099,980 $ 12,762,657
=========== ==========
See Notes to Financial Statements.
37
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS
December 31,
1 9 9 6 1 9 9 5
[Consolidated] [Consolidated]
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 283,356 $ 551,094
Accrued Payroll and Related Taxes and Expenses 1,784,061 1,755,685
Accrued Payroll Tax Penalties 77,000 700,000
Accrued Litigation Settlement 300,000 -
Loans Payable - Asset-Based Lender 3,690,875 3,678,702
Notes Payable - Bank -- 60,513
Note Payable - Other 138,230 138,230
Subordinated Debt Current Portion - IRS Debt -- 700,000
--------- --------
Total Current Liabilities 6,273,522 7,584,224
--------- --------
Other Liability:
Due to Affiliates -- 926,832
--------- --------
Commitments and Contingencies [10] -- --
--------- --------
Stockholders' Equity:
Preferred Stock, $.01 Par Value, 20,000,000
Shares Authorized Issued and Outstanding
[None - December 31, 1996, 25,000
Shares each of Series A, B and C, 20,000 Shares of
Series D [Liquidation Preference of $1,700,000]
and 5,000 Shares of Series E -December 31, 1995] -- 1,000
Common Stock, $.01 Par Value, 50,000,000 Shares
Authorized, Issued and Outstanding [22,901,331 -
December 31, 1996, 3,424,609 - December 31, 1995] 229,014 34,246
Capital in Excess of Par Value 12,688,534 9,831,234
Deferred Consulting Fees (303,473) (508,512)
Accumulated Deficit (5,787,617) (5,106,367)
---------- ---------
Total Stockholders' Equity 6,826,458 4,251,601
---------- --------
Total Liabilities and Stockholders' Equity $13,099,980 $ 12,762,657
=========== ==========
See Notes to Financial Statements.
38
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 6 1 9 9 5 1 9 9 4
[Consolidated] [Consolidated] [Combined]
Revenues $ 62,594,051 $ 63,151,995 $25,287,089
Cost of Services Provided 57,436,052 59,157,016 23,704,230
---------- ---------- ----------
Gross Profit 5,157,999 3,994,979 1,582,859
---------- ---------- ----------
Operating Expenses:
Selling, General and
Administrative Expenses 4,396,503 6,358,030 997,122
Related Party Administrative Expenses 120,000 90,000 -
Amortization - Intangibles 455,200 455,197 308,974
Acquisition Expenses -- 528,578 -
--------- --------- -------
Total Operating Expenses 4,971,703 7,431,805 1,306,096
--------- --------- ---------
Operating Profit [Loss] 186,296 (3,436,826) 276,763
--------- --------- ---------
Other Income [Expenses]:
Interest Expense (712,289) (963,211) (696,129)
Other Income [Expense] 144,743 (12,890) 8,744
Settlement Costs (300,000) -- -
--------- -------- -------
Total Other [Expenses] - Net (867,546) (976,101) (687,385)
--------- -------- --------
Loss From Continuing Operations (681,250) (4,412,927) (410,622)
--------- --------- -------
Discontinued Operations:
Loss from Discontinued Operations -- (247,076) --
Loss on Sale of Discontinued Segment -- (35,742) --
--------- --------- -------
Total Discontinued Operations -- (282,818) --
--------- --------- -------
Net Loss $ (681,250) $ (4,695,745) $ (410,622)
========= =========== ========
Loss Per Share of Common Stock:
Continuing Operations $ (.04) $ (1.39) $ (.68)
Discontinued Operations -- (.09) --
-------- ---------- -------
Totals $ (.04) $ (1.48) $ (.68)
======== ========== =======
Weighted Average Number of Shares
of Common Stock 15,182,970 3,172,696 600,000
========== ========== =======
See Notes to Financial Statements.
39
Trans Global Services, Inc.
Consolidated Statement of Stockholders Equity
Shares Amounts
Preferred stock $0.01 Par Value Series "A"
Convertible participating Authorized 25,000
shares
Issuance of Stock at Inception 25,000 $ 250
Balance - December 31,1994 25,000 250
Balance - December 31,1995 25,000 250
Conversion of Series "A" Preferred Stock
to Common (25,000) (250)
-------- -------
Balance - December 31,1996 0 0
======== =======
Preferred Stock $.01 Par Value Series
"B" & C"
Convertible Authorized 25,000 shares each
Issuance of Stock at Inception 50,000 $ 500
Balance - December 31,1994 50,000 500
Balance - December 31,1995 50,000 500
SISC Recapitalization (50,000) (500)
------- -----
Balance - December 31,1996 0 0
====== =====
Preferred stock $.01 Par Value Series "D"
Convertible 6.25% Redeemable Authorized 20,000 shares
Issuance of Stock at Inception 20,000 $ 200
Balance - December 31,1994 20,000 200
Balance - December 31,1995 20,000 200
SISC Recapitalization (20,000) (200)
------- -----
Balance December 31, 1996 0 0
======= ======
Preferred stock $0.01 Par Value Series "E"
Convertible participating Authorized 5,000 shares
Issuance of Stock at Inception -- --
Balance - December 31,1994 -- --
Issuance of Preferred Stock to Repay Debt 5,000 50
------ ------
Balance - December 31,1995 5,000 50
Conversion of Series "E" Preferred
Stock to Common (5,000) ( 50)
------- -----
Balance - December 31,1996 0 0
======= ======
Preferred stock $0.01 Par Value Series "F"
Convertible participating Authorized 10,000 shares
Issuance of Stock at Inception -- --
Balance - December 31,1994 -- --
Balance - December 31,1995 -- --
SISC Recapitialization 10,000 100
Conversion of Series F Preferred Stock to
Common Stock (10,000) (100)
------ ----
Balance- December 31,1996 0 0
====== =====
40
Trans Global Services, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Shares Amount
Common Stock $.01 Par Value Authorized
20,000,000 Shares
Issuance of Stock at Inception 600,000 $ 6,000
------- -----
Balance - December 31,1994 600,000 6,000
Acquisition of Concept 1,485,589 14,856
Exercise of Stock Options 767,000 7,670
Issuance of Common Stock -Private Placement 151,300 1,513
Issuance of Common Stock -Legend Stock 2,600 26
Issuance of Common Stock -Regulation S 390,000 3,900
Issuance of Common Stock -Sirrom Capital 3,120 31
Exercise of Stock Options 25,000 250
--------- ------
Balance - December 31,1995 3,424,609 $ 34,246
Conversion of Series "A" and "E"
Preferred Stock to Common 2,120,000 21,200
Issuance of Common Stock -
Regulation S 5,500,000 55,000
Issuance of Common Stock-
Sirrom Capital 6,240 63
Deferred Issuance of Common Stock
Related to Acquisiton Stock of Concept 740,482 7,405
Deferred Issuance of Common Stock
Related to Sale of WWR 1,060,000 10,600
Conversion of Series F Preferred
Stock to Common Stock 10,000,000 100,000
Exercise of Common Stock Options 50,000 500
---------- -------
Balance - December 31, 1996 22,901,331 $229,014
========== ========
41
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS EQUITY
SHARES AMOUNT
Capital in Excess of Par Value
Issuance of Stock at Inception $ 1,715,300
---------
Balance - December 31,1994 1,715,300
Acquisition of Concept 967,966
Exercise of Stock Options 3,226,366
Issuance of Common Stock-Private Placement 452,387
Issuance of Common Stock -Legend Stock (26)
Issuance of Preferred Stock to Repay Debt 199,950
Issuance of Common Stock -Regulation S 996,100
Issuance of Below Market Options 178,750
Issuance of Common Stock -Sale of WWR 1,537,000
Acquisition Expenses 528,578
Issuance of Common Stock -Sirrom Capital 10,499
Exercise of Stock Options 24,750
Reverse Merger Costs (117,854)
Forgiveness of Accrued Interest Prior Years 111,468
--------
Balance - December 31,1995 $ 9,831,234
Conversion of Series "A" and "E" Preferred
Stock to Common (20,900)
Issuance of Common Stock -Regulation S 2,270,000
Issuance of Common Stock- Sirrom Capital 9,443
Deferred Issuance of Common Stock related to
Acquisition Stock of Concept (7,405)
Deferred Issuance of Common Stock related to
Sale of WWR (10,600)
SISC Recapitalization 750,600
Expiration of Below Market Options (138,125)
Issuance of Below Market Options 79,687
Conversion of Series F Preferred Stock to Common (99,900)
Exercise of Common Stock Option 24,500
--------
Balance - December 31,1996 $ 12,688,534
==========
Accumulated Deficit
Net [Loss] for the Period Ended December 31,1994 $ (410,622)
--------
Balance - December 31, 1994 (410,622)
Net [Loss] for the Period Ended December 31, 1995 (4,695,745)
---------
Balance - December 31,1995 (5,106,367)
Net [Loss] for the Period Ended December 31, 1996 (681,250)
---------
Balance - December 31, 1996 $ (5,787,617)
=========
42
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS EQUITY
SHARES AMOUNT
Deferred Charges
Balance - December 31, 1994 $ --
Exercise of Stock Options (2,543,536)
Issuance of Below Market Options (178,750)
Amortization of Deferred Consulting Costs 2,213,774
---------
Balance - December 31, 1995 $ (508,512)
Amortization of Deferred Consulting Costs 230,108
Expiration of Below Market Options 138,125
Issuance of Below Market Options ( 79,687)
Recapture of Amortization on Expired Below
Market Options ( 83,507)
---------
Balance - December 31, 1996 $ ( 303,473)
============
Total Stockholders' Equity
Issuance of Stock at Inception $ 1,722,250
Net [Loss] for the Period Ended December 31,1994 (410,622)
--------
Balance - December 31, 1994 1,311,628
Acquisition of Concept 982,822
Exercise of Stock Options 690,500
Issuance of Common Stock -Private Placement 453,900
Issuance of Preferred Stock to Repay Debt 200,000
Issuance of Common Stock -Regulation S 1,000,000
Issuance of Common Stock -Sale of WWR 1,537,000
Amortization of Deferred Consulting Costs 2,213,774
Acquisition Expenses 528,578
Issuance of Common Stock -Sirrom Capital 10,530
Exercise of Stock Options 25,000
Reverse Merger Costs (117,854)
Forgiveness of Accrued Interest Prior Years 111,468
Net [Loss] for the Period Ended December 31, 1995 (4,695,745)
---------
Balance - December 31, 1995 $ 4,251,601
Issuance of Common Stock -Regulation S 2,325,000
Issuance of Common Stock -Sirrom Capital 9,506
SISC Recapitalization 750,000
Amortization Deferred Consulting Costs 230,108
Recapture of Amortization on Expired Below
Market Options (83,507)
Exercise of Common Stock Options 25,000
Net [Loss] for the Period Ended December 31,1996 (681,250)
-------
Balance - December 31, 1996 $ 6,826,458
=========
43
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 6 1 9 9 5 1 9 9 4
[Consolidated] [Consolidated] [Combined]
Operating Activities:
Loss from Continuing Operations $ (681,250) $ (4,412,927) $ (410,622)
Adjustments to Reconcile Net Loss
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 477,160 466,817 316,253
Provision for Doubtful Accounts -- 67,363 --
Loss on Disposal of Property and
Equipment -- -- 2,542
Charges from Option Exercise 230,108 2,213,774 --
Recapture of Amortization on
Expired Below Market Options (83,507) -- --
Settlement Costs 300,000 -- --
Non-Cash Expenses Related to
Trans Global Transaction -- 528,578 --
Common Stock Issued for Services
Rendered -- 10,530 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Receivables (320,940) 473,305 (271,498)
Work in Process -- -- 22,600
Inventories -- 55,226 --
Loan Receivable - Officer (20,000) (22,500) --
Prepaid Expenses and Other
Current Assets (149,108) (84,852) 25,897
Increase [Decrease] in:
Accounts Payable and Accrued
Expenses (267,738) (544,981) (535,841)
Accrued Payroll and Related
Taxes and Expenses 28,376 1,076,504 (242,033)
Accrued Payroll Tax Penalties (623,000) 700,000 --
--------- ---------- --------
Total Adjustments (428,649) 4,939,764 (683,080)
--------- ---------- --------
Net Cash - Continuing Operations (1,109,899) 526,837 (1,093,702)
---------- --------- ----------
Loss from Discontinued Operations -- (282,818) --
Adjustments to Reconcile Net Loss
to Net Cash Used for Discontinued
Operations:
Gain on Sale of Discontinued Segment -- -- --
Depreciation and Amortization -- 149,906 --
Loss on Sale of Discontinued Segments -- 35,742 --
Other -- -- --
----------- ---------- --------
Net Cash - Continuing Operations -- (97,170) --
----------- ---------- --------
Net Cash -Operating Activities
-Forward $ (1,109,899) $ 429,667 $(1,093,702)
See Notes to Financial Statements.
44
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 6 1 9 9 5 1 9 9 4
[Consolidated] [Consolidated] [Combined]
Net Cash - Operating Activities
Forwarded $ (1,109,899) $ 429,667 $(1,093,702)
Investing Activities:
Capital Expenditures (55,536) (110,384) (2,095)
Cash of Merged Company -- 504,210 --
Net [Advances to] and
Repayments to Affiliates (274,074) (791,105) 459,241
Net Cash of Subsidiary Sold -- (46,600) --
Proceeds on Sale of Property
and Equipment -- -- 1,300
Other 2,116 -- --
----------- --------- --------
Net Cash - Investing Activities (327,494) (443,879) 458,446
----------- --------- ---------
Financing Activities:
Net Advances from and [Payments]
to Asset-Based Lender 12,173 (340,459) 550,443
Repayment of Long-Term Debt -- (125,201) (144,837)
Repayment of Subordinated Debt (700,000) (800,000) --
Net [Payments] to Affiliates (176,832) (201,471) --
Issuance of Common Stock 2,334,506 1,453,900 --
Expenses Related to Merged Company -- (117,154) --
Exercise of Stock Options 25,000 715,500 --
Deferred Offering Costs (151,307) -- --
Cash Overdraft -- (360,306) 229,650
Repayment of Note Payable (60,513) -- --
--------- ---------- ------
Net Cash - Financing Activities 1,283,027 224,809 635,256
Net [Decrease] Increase in Cash and
Cash Equivalents (154,366) 210,597 --
Cash and Cash Equivalents
- Beginning of Years 210,597 -- --
Cash and Cash Equivalents
- End of Years $ 56,231 $ 210,597 $ --
=========== =========== ==========
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the years for:
Interest $ 712,289 $ 909,200 $ 696,129
Income Taxes $ -- $ -- $ --
See Notes to Financial Statements.
45
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the year ended December 31, 1996, the Company had the following:
Issued preferred stock to an affiliate and reduced amounts owed to such
affiliate by $750,000 plus accrued interest.
A stock option granted in 1995 expired without having been exercised as to
85,000 shares. This resulted in a recapture of $83,507 of amortization
expense. Additional stock options were granted and non-cash deferred
charges of $79,687 were incurred which will be amortized over the 2 year
life of the option.
During the year ended December 31, 1995, the Company had the following:
Acquired the net assets of Concept Technologies Group, Inc. through a
reverse merger. Total net assets of such entities acquired was $982,822
including cash of $504,210 at the date of acquisition.
Issued preferred stock with a value of $200,000 to an affiliate and reduced
amounts owed to such affiliate by $200,000 plus accrued interest.
Issued stock options and received exercise proceeds of $715,500 and
incurred non-cash deferred charges of $2,213,774.
An affiliate forgave $111,468 of accrued interest payable which has been
recorded as a contribution to capital.
See Notes to Financial Statements.
46
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[1] Basis of Presentation
Trans Global Services, Inc., a Delaware corporation, operates through two
subsidiaries, Avionics Research Holdings, Inc. ["Holdings"], formerly ARC
Acquisition Group ["ARC"] and Resource Management International,Inc. ["RMI"].
The Company is engaged in providing technical temporary staffing services
throughout the United States. The principal stockholder of the Company is SIS
Capital Corp. ["SISC"], a wholly-owned subsidiary of Consolidated Technology
Group Ltd. ["Consolidated"], a publicly held company.
On May 8, 1995, the Company acquired all of the issued and outstanding capital
stock of TGS Services, Inc., ["Trans Global"] and issued (a) 1,000,000 shares
of Common Stock, (b) shares of a series of preferred stock that, upon the
filing of a certificate of amendment to the Company's certificate of
incorporation increasing the authorized Common Stock, were converted into
2,000,0000 shares of Common Stock, (c) shares of two series of preferred
stock which were convertible into an aggregate of 2,500,000 shares of Common
Stock if certain levels of net income before income taxes for 1995 and 1996
are attained and (d) shares of a series of preferred stock which were not
convertible, but which had an aggregate redemption price of approximately
$1.7 million, and was payable from 50% of the net proceeds received by the
Company from the sale of equity securities. None of such preferred stock was
outstanding at December 31, 1996 [See Note 14]. The transactions by which the
Company acquired the stock of Trans Global is referred to as the "Trans Global
Transaction."
The Trans Global transaction was accounted for as a reverse merger, with Trans
Global being the surviving company. Trans Global was formed by SISC in
January 1995, to hold the stock of Holdings which was acquired by SISC in
December 1993, and RMI, which was acquired by SISC in November 1994. In
accounting for the reverse merger, the equity of Trans Global, as the
surviving corporation, and Concept Technologies Group, Ltd., which, when
referred to as the acquired corporation is referred to as "Concept", was
recapitalized as of March 31, 1995. The recapitalization included the
reclassification of Concept's accumulated deficit of $11,060,479 as a
reduction of capital in excess of par value-common stock and the
reclassification of Trans Global's March 31, 1995 preferred stock and common
stock to capital in excess of par value-common stock.
The Company's principal business [the "Concept business"] prior to the Trans
Global Transaction was the ownership and operation of WWR Technology, Inc.
["WWR"], which conducted the Klipsch professional loudspeaker business, which
has been discontinued.
47
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
As of September 30, 1995, the Company sold all of the issued and outstanding
shares of capital stock of WWR to an affiliate, SISC, in consideration for
which SISC released the Company from its obligations with respect to a
$275,000 advance made to the Company and WWR in order to enable WWR to pay an
outstanding debenture. As part of the transaction, the Company issued to SISC
1,060,000 shares of Common Stock. WWR had, at the time of the transaction, a
deficiency in stockholders' equity of approximately $1.4 million. Among
WWR's liabilities was approximately $2.1 million, payable to the Company,
which, based upon WWR's historical and current cash flow, would not likely be
paid in the near future. This payable was satisfied through the issuance of
1,000 shares by Consolidated, the parent of SISC, of a newly-created series of
Consolidated preferred stock, with a stated value of $2,100 per share, which
automatically converts on September 30, 2000 into such number of shares of
Consolidated's common stock as has a value equaling $2.1 million. This
preferred stock is reflected on the balance sheet as investment in Preferred
Stock of Affiliate.
The results of operations and cash flows for the years ended December 31, 1996,
1995 and 1994 reflect the operations of Trans Global from the beginning of the
period.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The 1996 and 1995 consolidated financial
statements include the accounts of Trans Global Services, Inc. and its
subsidiaries, Holdings and RMI. All intercompany transactions have been
eliminated in consolidation.
Principles of Combination - The 1994 combined financials include the accounts
of Trans Global and its affiliates Holdings and RMI. The combined financial
statements reflect the results of operations and cash flows of Holdings from
January 1, 1994 to December 31, 1994 and of RMI from November 22, 1994 [period
of acquisition] to December 31, 1994. All intercompany transactions have been
eliminated in combination.
Prepaid Expenses and Other Current Assets - Prepaid expenses consist of
approximately $173,000 and $78,000 of prepaid insurance at December 31, 1996
and 1995, respectively.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line and accelerated methods over the estimated useful
lives of the respective assets. Estimated useful lives range from 3 to 10
years as follows:
Furniture and Fixtures 5 - 7 years
Leasehold Improvements 5 - 10 years
Transportation Equipment 3 - 4 years
Equipment 5 - 10 years
48
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Expenditures for maintenance and repairs, which do not improve or extend the
life of the respective assets are expensed currently while major repairs are
capitalized.
Deferred Offering Costs - Deferred offering costs of $151,000 were incurred
with respect to the Company's proposed public offering. If the offering is
not consummated, these costs will be expensed at that time.
Revenue Recognition - The Company records revenue as services are provided.
Stock Options and Similar Equity Instruments - On January 1, 1996, the Company
adopted the disclosure requirements of Statement of Financial Accounting
Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation," for
stock options and similar equity instruments [collectively, "Options"] issued
to employees, however, the Company will continue to apply the intrinsic value
based method of accounting for options issued to employees prescribed by
Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for Stock
Issued to Employees" rather than the fair value based method of accounting
prescribed by SFAS No.123. SFAS No. 123 also applies to transactions in which
an entity issues its equity instruments to acquire goods or services from non-
employees. Those transactions must be accounted for based on the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable.
Loss Per Share - Loss per share reflects the weighted average number of
shares outstanding for each period. The modified treasury stock method is used
for the year ended December 31, 1996. With respect to the year ended December
31, 1995, additional shares were to be issued by the Company, but the persons
to whom such shares were to be issued agreed to defer receipt of the shares
until the Company increased its authorized common stock. The total number of
shares to be so issued was 1,800,482 of which 1,460,000 were issuable to SISC.
Such shares which are treated as outstanding from the date such shares were to
be issued, were issued following the March 1996 amendment to the Company's
certificate of incorporation increasing the authorized capital stock. The
consideration for such shares is included in additional paid-in capital. Upon
the issuance of the shares, the par value of the shares was transferred from
additional paid-in capital to common stock. Common Stock equivalents,
consisting of warrants and options are not included in the computation since
their effect would be anti-dilutive.
[2] Summary of Significant Accounting Policies [Continued]
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
49
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Concentration of Credit Risk - The Company extends credit to customers which
results in accounts receivable arising from its normal business activities and
does not require its customers to collateralize their payables to the Company.
It routinely assesses the financial strength of its customers and believes that
its accounts receivable credit risk exposure is limited. Such estimate of the
financial strength of such customers may be subject to change in the near term.
For each of the years ended December 31, 1996 and 1995, a significant portion
of the Company's receivables were derived from three customers [See Note 13].
Due to the nature of its operations, the Company deposits, on a monthly basis,
amounts in excess of the federally insured limit in financial institutions for
the payment of payroll costs. Such amounts are reduced below the federally
insured limit as payroll checks are presented for payment. Such reduction
generally occurs over three to four business days. At December 31,1996, the
Company had amounts on deposit with two financial institutions which
exceeded the federally insured limit by approximately $750,000. The Company
has not experienced any losses and believes it is not exposed to any
significant credit risk from cash and cash equivalents.
[3] Accounts Receivable and Loan Payable - Asset Based Lender
Receivables are shown net of an allowance for doubtful accounts of $62,500 at
December 31, 1996 and 1995. The Company finances a majority of its receivables
from an asset-based lender under agreements entered into in February 1995 and
subsequently amended. The agreements have a maximum availability of funds of
$5,500,000. Funds can be advanced in an amount equal to 85% of the total face
amount of outstanding and unpaid receivables, with the asset-based lender
having the right to reserve 15% of the outstanding and unpaid receivables
financed. The interest rate is equal to the base lending rate of an agreed
upon bank, which was 8.25% at December 31, 1996 plus 2% and a fee of .3% of
the receivables financed. The asset-based lender has a security interest in
all accounts receivables, contract rights, personal property, fixtures and
inventory of the Company. At December 31, 1996 and 1995, the total amount
advanced by the asset-based lender was $3,690,875 and $3,678,702,
respectively. The weighted average interest rate on this short-term
borrowing outstanding as of December 31, 1996 and 1995 was approximately
10.25% and 11%, respectively.
The Company has been advised that, as a result of a change in its general
lending policies, the Company's asset-based lender is reducing the Company's
maximum borrowing availability to $3 million effective April 1, 1997. The
Company is negotiating with the asset-based lender with respect to a deferral
of the date on which the reduction of availability becomes effective and has
received oral advice from such lender granting a reasonable extension. In
lieu of the .3% fee on the receivables financed, the asset-based lender, will
charge a flat administrative fee of $10,500 per calendar month, provided that
the outstanding receivables do not aggregate more than $10,000,000. An
additional fee will be charged on a prorata basis if such outstanding
receivables exceed $10,000,000 at any time during the month. This fee would
be $954.55 for $1,000,000 of receivables over $10,000,000. Although the
Company is seeking alternative financing sources, no assurance can be given
that the Company can or will be able to obtain an alternate financing source,
the failure of which could have a material adverse effect upon the Company.
50
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[4] Property and Equipment
Property and equipment at December 31, 1996 and 1995 is as follows:
1 9 9 6 1 9 9 5
Equipment $ 288,337 $ 253,279
Furniture and Fixtures 171,770 180,452
Leasehold Improvements 1,039 1,039
------- -------
Totals - At Cost 461,146 434,770
Less: Accumulated Depreciation 386,565 393,565
Totals $ 74,581 $ 41,205
Depreciation expense charged to operations was $22,160 in 1996 and $11,820 in
1995 and $5,973 in 1994.
[5] Intangibles
The Company acquired its subsidiaries [See Note 2] during 1994. As part of
the purchase agreement, the Company acquired customer lists, a restrictive
covenant and goodwill. The intangible assets acquired and the related
amortization on the straight-line method are summarized as follows:
Accumulated Amortization Net of Amortization
Life December 31, December 31,
Years Cost 1996 1995 1996 1995
Customer Lists 15 $3,374,477 $535,942 $310,974 $2,838,535 $3,063,503
Goodwill 20 $ 971,623 $147,498 $ 98,918 $ 824,125 $ 872,705
Covenants
Not-to-Compete 5 $ 907,257 $846,876 $665,424 $ 60,381 $ 241,833
On January 1, 1996, the Company adopted SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 established accounting standards for the impairment of
long-lived assets and certain identifiable intangibles, and goodwill related
to those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of.
Management has determined that expected future cash flows [undiscounted and
without interest charges] exceed the carrying value of the intangibles at
December 31, 1996 and believes that no impairment of these assets has
occurred. It is at least reasonably possible that management's estimate of
expected future cash flows may change, in the near term.
51
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[6] Subordinated Debt
The Company, having been delinquent in filing certain payroll taxes during the
quarter ended March 31, 1996, has entered into an agreement with the Internal
Revenue Service ["IRS"] to pay those taxes, interest and penalties in
installments. At December 31, 1996 approximately $900,000 remained on that
balance, which is to be paid in four monthly installments of $150,000 with the
balance to be paid in a fifth monthly installment. All other taxes are
current. The Company continues to contest the penalties and is seeking to
recover the amount paid. The obligations to the IRS are subordinated to the
obligations to its asset-based lender.
The Company, as part of its acquisition of RMI, agreed to assume a certain
debt for delinquent taxes owed to the IRS. The total outstanding amount of
the debt was $2,000,000, of which $500,000 was paid at the closing of the
acquisition of RMI. The remaining $1,500,000 was payable in 15 monthly
installments of $100,000 commencing May 31, 1995. This obligation was paid in
1996.
[7] Related Party Transactions
Trans Global was organized by SISC in January 1995 to hold all of the stock of
Holdings, which was acquired by SISC in December 1993, and RMI, which was
acquired by SISC in November 1994. At the time of the organization of Trans
Global, Trans Global issued to SISC, in consideration for the shares of
Consolidated common stock issued in connection with the acquisitions of
Holdings and RMI assets, shares of a redeemable preferred stock. Trans Global
also issued to SISC warrants to purchase shares of its common stock. The Trans
Global stock and warrants were issued to SISC in consideration for the
transfer of the stock of Holding and RMI and the advances made by SISC.
In connection with the organization of Trans Global, Trans Global also issued a
3.4% interest to the president of TGS, in exchange for certain rights he had
with respect to the stock of Holdings. Also in connection with the
organization of Trans Global, SISC transferred a 5% interest in its common
stock and warrants in Trans Global to DLB, Inc. ["DLB"] in exchange for DLB's
10% interest in Avionics. DLB is owned by the wife of the chairman of the
board and chief executive officer of the Company, however, the chairman
dislaims beneficial ownership in DLB or any securities owned by DLB.
Pursuant to the Trans Global Transaction [See Note 1], the Company issued to
SISC, the president of the Company and DLB, who were the stockholders of Trans
Global, in exchange for the common stock, preferred stock and warrants of
Trans Global, an aggregate of (a) 1,000,000 shares of Common Stock, (b)
25,000 shares of Series A Convertible Participating Preferred Stock ["Series
A Preferred Stock"], (c) 25,000 shares of each of Series B and C Preferred
Stock which were convertible into an aggregate of 2,500,000 shares of Common
Stock if certain levels of income before income taxes are attained, and (d)
20,000 shares of Series D 6.25% Redeemable Cumulative Preferred Stock ["Series
D Preferred Stock"], which were not convertible, but which had an aggregate
redemption price of approximately $1.7 million. In addition, in connection
with the Trans Global Transaction, the Company issued two-year warrants to
purchase an aggregate of 500,000 shares of Common Stock at $3.50 per share.
As a result of the March 1996 amendment to the Company's certificate of
incorporation increasing the authorized Common Stock, the 25,000 shares of
Series A Convertible Preferred Stock were automatically converted into
2,000,000 shares of Common Stock. The former stockholders of Trans Global
have certain registration rights with respect to securities issued pursuant to
the Trans Global Transaction.
52
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
In connection with the sale of WWR to an affiliate of SISC, the Company issued
to SISC 1,060,000 shares of Common Stock. In connection with such transaction,
WWR satisfied its obligation to pay approximately $2.1 million due to the
Company through the issuance of preferred stock of Consolidated, the parent of
SISC [See Note 1]. At the time of the transfer, WWR owed a non-affiliated
lender $530,000, and at December 31, 1996, the principal amount of such note
was $325,000. Certain companies which are affiliated with a person who was a
director of the Company until February 1997 have guaranteed this note. The
Company, SISC and Consolidated have guaranteed the guarantee obligations of
such guarantors. In addition, the Company is required to issue to the lender
520 shares of Common Stock each month that the loan is outstanding.
The Company has a management services agreement with a wholly-owned subsidiary
of Consolidated pursuant to which the Company pays a monthly fee of $10,000
through March 2000. The monthly fee will increase to $25,000 upon completion
of its proposed public offering.
At June 30, 1995, SISC converted $200,000 of the Company's obligations to SISC
into 5,000 shares of Series E Preferred Stock. In March 1996, as a result of
amendment to the Company's certificate of incorporation increasing its
authorized common stock, the 5,000 shares of Series E Preferred Stock was
automatically converted into 120,000 shares of Common Stock.
[7] Related Party Transactions [Continued]
SISC has advanced approximately $1,100,000 to the Company. Pursuant to an
exchange [the "SISC Recapitalization"], the Company issued to SISC 9,900
shares of Series F Preferred Stock and warrants to purchase 3,200,000 shares
of Common Stock at $1.25 per share in exchange for the cancellation of
$750,000 principal amount of the Company's debt to SISC and all of the shares
of Series B, C, and D Preferred Stock owned by SISC, including accrued
dividends due on the Series D Preferred Stock. As part of the SISC
Recapitalization, the Company issued 100 shares of Series F Preferred Stock
to DLB, which owned 5% of the Series B and C Preferred Stock. The 10,000
shares of Series F Preferred Stock were converted into 10,000,000 shares of
Common Stock in October and December 1996. As a result of the SISC
Recapitalization, the Company's obligations to SISC was reduced to $300,000,
which was paid in 1996.
In April 1996, the Company issued to its directors warrants to purchase an
aggregate of 1,700,000 shares of Common Stock at $1.25 per share. The warrants
which are the same as those issued to SISC pursuant to the SISC
Recapitalization, expire on April 1, 2001 and provide the holders with certain
registration rights. In connection with the issuance of such warrants, the
obligation of the Company to issue to two directors warrants to purchase an
aggregate of 150,000 shares at $3.50 per share was terminated. Such warrants
were authorized in October 1995, but the warrants were never issued.
53
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has from time to time made advances to three subsidiaries of SISC
[the "SISC Subsidiaries"] which are not owned or controlled by the Company.
The aggregate amount of such advances outstanding on December 31, 1996 and
1995 was $1,509,000 and $1,235,000, respectively. The amounts outstanding on
such dates represent the largest amounts outstanding during the respective
years. Advances to the SISC Subsidiaries may continue. In addition, the
Company pays the compensation and benefits of certain non-executive employees
who perform services for both the Company and one of the SISC Subsidiaries
and share common space and other office expenses. The amount allocated to
such SISC Subsidiary, which is approximately $150,000 per annum, is added to
the obligations of the SISC Subsidiary to the Company.
[8] Notes Payable
Bank - At December 31, 1995, a note payable to the bank in the amount of
$60,513, bearing interest at 9.45%, was payable on demand. During the year
ended December 31, 1996, the Company paid the bank note in full.
Other - At December 31, 1996 and 1995, a note payable to former stockholders
of an acquired subsidiary due September 1996 with interest at 7% remained
outstanding. The payment of principal and interest on this note has been
suspended pending the outcome of the Government Printing Office contingency
[See Note 11].
The weighted average interest rate on the above short-term borrowings
outstanding as of December 31, 1996 and 1995 was approximately 7.4% and 7.75%,
respectively.
[9] Income Taxes
For financial reporting purposes at December 31, 1996, the Company has net
operating loss carryforwards of approximately $5,500,000 expiring by 2011.
The Internal Revenue Code of 1986 includes provisions which may limit the net
operating loss carryforwards available for use in any given year if certain
events occur including significant changes in stock ownership.
The expiration dates of net operating loss carryforwards are as follows:
December 31, Amount
2009 $ 400,000
2010 4,400,000
2011 700,000
Total $ 5,500,000
A deferred tax asset arising primarily from the benefits of net operating loss
carryforwards of approximately $2,200,000 is offset by a valuation allowance
of $2,200,000. The valuation allowance increased by $300,000 in 1996.
54
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[10] Commitments
The Company leases office space and several office machines under operating
leases which expire in 1999. The following is an analysis of commitments as
of December 31, 1996:
1997 $ 97,974
1998 57,222
1999 810
Thereafter --
--------
Total $ 156,006
Rent expense amounted to $174,312, $141,684 and $67,776 for the years ended
December 31, 1996, 1995 and 1994, respectively.
[11] Contingencies
On May 14, 1991, the Government Printing Office wrote Holdings asking to be
reimbursed a total of $296,292 for "unauthorized timework" on two programs.
The Company has been in contact with the Department of Justice which has
stated that they were declining prosecution of the Company regarding this
matter. Management believes these claims are without merit and intends to
contest these claims vigorously if reasserted by the Government Printing
Office and believes that the ultimate disposition of this matter will not
have a material adverse effect on the financial position of the Company.
The United States Department of Labor and the independent trustees
[collectively "DOL"] have filed complaints against Job Shop Technical
Services, Inc. ["Job Shop"] and its principal stockholder [both are
non-affiliates of the Company] for civil violations of ERISA resulting from
the failure of Job Shop to deposit employee contributions to Job Shop's
401[k] retirement plan. A similar complaint was filed by former employees of
Job Shop against Job Shop, its principal stockholder and others. At November
21, 1994, the amount due to the Job Shop 401[k] plan was approximately $3.0
million, which amount may have increased since such date as a result of
interest and penalties. Neither the Company nor RMI, which is the subsidiary
which acquired assets and assumed certain obligations of Job Shop in November
1994, has been named as a defendant in either of such actions. The DOL has
raised with the Company the possibility that RMI may be liable with respect
to Job Shop's ERISA liability as a successor corporation or purchaser of plan
assets, even though RMI did not assume such obligations and paid value for
those assets which it did purchase. Although the Company believes that RMI is
not a successor corporation to Job Shop and is not responsible for Job Shop's
ERISA violations, it has negotiated an agreement with the DOL for payment in
the amount of $300,000 to settle this matter. Such amount has been accrued
at December 31, 1996.
The Company is the guarantor of a note, of which $325,000 is outstanding at
December 31, 1996, issued by WWR to a non-affiliated lender.
55
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS,
[11] Contingencies [Continued]
Due to the uncertainties in the legal process it is reasonably possible that
management's view of the outcomes of the above matters may change in the near
term.
[12] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards ["SFAS"] No. 107, which requires disclosing fair value to
the extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
disclosed therein is not necessarily representative of the amount that could
be realized or settled, nor does the fair value amount consider the tax
consequences or realization or settlement. The following table summarizes
financial instruments by individual balance sheet accounts as of December 31,
1996 and 1995:
Carrying Amount Fair Value
December 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
Investment Preferred Stock of
Affiliate $2,100,730 $2,100,730 $2,100,730 $2,100,730
Debt Maturing Within One Year $4,129,105 $4,577,445 $4,129,105 $4,577,445
Long-Term Debt $ -- $ 926,832 $ -- $ 926,832
For certain financial instruments, including cash and cash equivalents, trade
receivables and payables, and short-term debt, it was assumed that the
carrying amount approximated fair value because of the near term maturities of
such obligations. The fair value of long-term debt is based on current rates
at which the Company could borrow funds with similar remaining maturities.
The carrying amount of long-term debt approximates fair value. The investment
in preferred stock of affiliate is based upon the fair value of the guarantee
of fair value issued by such affiliate. The Company is contingently liable
for a debt arrangement totaling $325,000 at December 31, 1996. The Company
knows of no event of default which would require it to satisfy this guarantee
and, therefore, the fair value of this contingent liability is considered
immaterial.
[13] Economic Dependency
In 1996, three customers of the Company, accounted for approximately
$16,000,000, $13,000,000 and $9,000,000, respectively of sales. Accounts
receivable of $2,850,000 were due from these customers collectively at
December 31, 1996. Three customers of the Company accounted for approximately
$20,000,000, $9,000,000 and $6,000,000, respectively, of the sales for 1995.
Accounts receivable of approximately $1,350,000 were due from these customers
collectively at December 31, 1995.
56
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[14] Employment and Management Contracts
In September 1996, the President of Trans Global entered into a five-year
employment agreement pursuant to which he receives annual compensation of
$234,000, subject to an annual cost of living increase. In addition, he is
entitled to a bonus equal to 5% of Trans Global's income before income taxes,
but not more than 200% of his salary. This agreement supersedes his
employment agreement of January 1995.
In January 1995, the Company entered into a consulting agreement through March
31, 2000 with the Trinity Group, Inc. ["Trinity"], a wholly owned subsidiary
of Consolidated. Trinity is engaged in the business of providing management
services to businesses and has been providing such services to the Company on
an ongoing basis. Trinity is receiving monthly compensation at the rate of
$10,000 per month. On January 1, 1997, the Company agreed to increase the
monthly fee to $25,000 per month, effective during the month in which the
Company receives the proceeds from its proposed public offering.
[15] Stockholders Equity
At December 31, 1996, the authorized capital stock of the Company consisted of
20,000,000 shares of Preferred Stock, par value $.01 per share, and 50,000,000
shares of Common Stock, par value $.01 per share. The Board of Directors has
the right to create and to define the rights, preferences and privileges of
the holders of one or more series of Preferred Stock.
At December 31, 1996, there were no shares of any series of Preferred Stock
outstanding. At December 31, 1995, there were five series of Preferred Stock
outstanding-- the Series A, B, C, D, and E Preferred Stock. The Series A, B,
C and D Preferred Stock were issued in connection with the Trans Global
Transaction [See Notes 1 and 7]. The Series E Preferred Stock was issued in
exchange for the cancellation of debt by SISC [See Note 7].
The Series A and E Preferred Stock were automatically converted into 2,000,000
and 120,000 shares of Common Stock, respectively, upon the March 1996
amendment to the Company's certificate of incorporation which increased the
authorized capital stock. The Series B and C Preferred Stock were convertible
into Common Stock if certain earnings levels were attained. The Series E
Preferred Stock was not convertible and was redeemable for $1.7 million.
See Note 7 in connection with (a) the issuance of securities in connection
with the Trans Global Transaction, (b) the issuance of Common Stock in
connection with the sale of WWR, (c) the SISC Recapitalization and (d) the
issuance of warrants to directors of the Company.
In May 1995, contemporaneously with the Trans Global Transaction, the Company
issued in a private placement 151,300 units for $3.00 per unit or an aggregate
of $453,900. Net proceeds from such offering were $428,300. Each unit
consisted of one share of Common Stock and a warrant to purchase three shares
of Common Stock at $3.50 per share. The warrants are exercisable for 45 days
after the effective date of a registration statement which includes such
warrants.
57
TRANS GLOBAL SERVICES,INC.
NOTES TO FINANCIAL STATEMENTS
[15] Stockholders Equity [Continued]
In connection with the Trans Global Transaction, the Company issued an
aggregate of 215,482 shares of Common Stock and warrants to purchase an
aggregate of 107,740 shares of Common Stock at $3.50 per share in exchange for
the agreement of certain holders of restricted securities to a lock-up with
respect to such shares. The warrants expire in May 1997. Entities which may
be affiliated with a former director received 181,080 shares of Common Stock
and warrants to purchase 90,540 shares.
Also in connection with the Trans Global Transaction, the Company issued
125,000 shares of Common Stock to an investment banking firm as a finders'
fee.
At December 31, 1996, there were also outstanding warrants to purchase
567,245 shares of Common Stock at $7.00 per share, which were issued in
connection with the Company's February 1994 initial public offering and expire
in May 1997, and warrants to purchase an aggregate of 295,712 shares of Common
Stock at prices ranging from $2.00 per share to $8.45 per share, of which
warrants to purchase an aggregate of 120,087 shares are held by entities who
may be affiliated with a former director of the Company.
Outstanding warrants as of December 31, 1996 is as follows:
No. of No. of
Warrants Exercise FMV at Warrants
Date of Grant Issued Price Date of Exercised
Grant Expiration Date
April 1996 4,900,000 1.25 1.25 -- April 2001
May 1995 453,900 3.50 3.00 -- [A]
May 1995 107,740 3.50 3.00 -- May 1997
May 1995 500,000 3.50 3.00 -- May 1997
February 1994 567,245 7.00 6.50 -- May 1997
February 1994 55,000 8.45 6.50 -- February 1999
February 1994 169,462 7.00 6.50 -- May 1997
November 1993 50,000 6.50 6.50 -- November 1998
August 1993 21,250 2.00 2.00 -- August 1998
---------
Total 6,824,597
=========
[A] Exercisable for 45 days after the effective date of a registration
statement which includes such warrants.
In April 1996, the Company issued 3,200,000 warrants to a related party
pursuant to an equity transaction with such related party. In April 1996, the
Company issued 1,700,000 warrants to directors at an exercise price of $1.25
which was equal to their fair value at that date. At December 31, 1996, none
of the above warrants issued were canceled and all warrants are exercisable.
At December 31, 1996, their are no additional warrants subject to grant.
58
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATMENTS
[15] Stockholders Equity [Continued]
On January 2, 1996 and July 26, 1996, the Company sold 500,000 shares of
common stock and 5,000,000 shares of common stock pursuant to Regulation S of
the Securities Act of 1933 and received net proceeds of $375,000 and
$2,000,000, respectively.
Non-Employee Directors, Consultants and Advisors Stock Plan - During the year
ended December 31, 1995, the Company authorized a stock option plan for Non-
Employee Directors, Consultants and Advisors to provide compensation for
services rendered to the Company in lieu of cash payments. At various times,
the Company has registered and granted shares pursuant to the plan. During
the year ended December 31, 1995, 767,000 shares were granted and exercised,
at an average price of $.90 per share, resulting in $2,543,536 of deferred
charge costs computed as follows:
Shares 767,000
Value of Stock at Date of Grant [Weighted Average] $ 4.216475
----------------
3,234,036
Exercise Price (690,500)
----------------
Total Charges Deferred at the Time of Exercise $ 2,543,536
================
In accordance with the agreements relating to the various parties involved,
amortization of the deferred portion in the amount of $101,000 and $2,213,774
was charged to income from operations for the years ended December 31, 1996
and 1995, respectively. The unamortized deferred consulting expense is
recorded in the equity section of the balance sheet. Such deferred charges
are being amortized over four years, based on the terms of the related
contracts.
Below Market Stock Options - On August 14, 1995, an option was granted under
the Company's 1995 stock incentive plan [See Note 16] to a consultant to
purchase 110,000 shares of common stock, at a price of $1.00 per share. The
market value of the stock at the date of grant was $2.625 per share. The
deferred charges amount to:
Shares 110,000
Value of Stock at Date of Grant $ 2.625
-------------
288,750
Exercise Price 110,000
-------------
Total Charges Deferred at the Time of Exercise $ 178,750
=============
The option was exercised as to 25,000 shares of 110,000 shares on October 9,
1995. Such exercise was made by a reduction in the Company's indebtedness to
SISC. This option expired on August 14, 1996 with 85,000 shares unexercised.
It was replaced with a new grant to purchase 85,000 shares at $.50 per share
with an expiration date of August 13, 1998. The market value of the stock at
the date of grant was $1.4375. The deferred charges amount to:
59
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL SERVICES.
[15] Stockholders Equity [Continued]
Shares 85,000
Value of Stock at Date of Grant $ 1.4375
------------
122,188
Exercise Price 42,500
------------
Total Charges Deferred at the Time of Exercise $ 79,688
============
The option was exercised as to 50,000 shares of the 85,000 shares as of
December 31, 1996.
[16] Stock Option Plans
The Company has three stock option plans. In 1993, the Company adopted the
1993 Stock Incentive Plan [the "1993 Plan"], covering an aggregate of 150,000
shares of Common Stock. Options to purchase 124,100 shares of Common Stock
were granted at exercise prices of $3.00 as to 54,500 shares, $5.00 as to
14,600 shares and $5.00 as to 55,000 shares. The exercise price of all of
such options was reduced to $2.25 per share in February 1995. As of August
31, 1995, options to purchase 10,150 shares had expired unexercised. No
options under the 1993 Plan had been exercised. In January 1995, the board of
directors adopted the 1995 Stock Incentive plan [the "1995 Plan"], pursuant to
which stock options and stock appreciation rights can be granted with respect
to 305,000 shares of Common Stock. At August 31,1995, options to purchase
290,000 shares of Common Stock were granted pursuant to the 1995 Plan, of
which options to purchase 205,000 shares were exercised and options to
purchase 85,000 shares at an exercise price of $1.00 per share were
outstanding. In May 1995, the board of directors adopted, and, in March 1996,
the stockholders approved the 1995 Long Term Incentive Plan [the "1995
Incentive Plan"], initially covering 500,000 shares of Common Stock.
In April and November 1996, the board of directors and stockholders approved
an amendment to the 1995 Incentive Plan which increased the number of shares
of Common Stock currently subject to the 1995 Incentive Plan to 2,492,332
shares. The number of shares of Common Stock subject to the 1995 Incentive
Plan automatically increases by 5% of any shares of Common Stock issued by the
Company other than shares issued pursuant to the 1995 Incentive Plan.
In August 1995, the Company granted to an officer six-year incentive stock
options to purchase an aggregate of 250,000 shares of Common Stock pursuant to
the 1995 Incentive Plan at an exercise price of $2.125 per share, being the
fair market value on the date of grant. The option is immediately exercisable
as to 47,000 shares of Common Stock and becomes exercisable as to an
additional 47,000 shares of Common Stock on each of January 1, 1996, 1997,
1998 and 1999 and becomes exercisable as to the remaining 15,000 shares of
Common Stock on January 1, 2000.
60
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[16] Stock Option Plans [Continued]
In April 1996, the Company issued to each of Messrs. Lewis S. Schiller and
Joseph G. Sicinski a warrant to purchase 400,000 shares of Common Stock at
$1.25 per share and to each of Messrs. E. Gerald Kay, Joel S. Kanter and
Norman J. Hoskin, a warrant to purchase 300,000 shares of Common Stock at
$1.25 per share. In connection with such grants, Messrs. Kay and Kanter
agreed to waive the right to receive previously authorized warrants, which
had not been issued.
In April 1996, the committee granted incentive stock options to purchase an
aggregate of 1,310,000 shares of common stock at $1.125 per share, being the
fair market value on the date of grant. Such options were granted to Mr.
Joseph G. Sicinski, president of the company, who received an option to
purchase 800,000 shares of common stock, Mr. Lewis S. Schiller, chairman of
the board of the Company, who received an option to purchase 150,000 shares
of common stock, one other officer, who received an option to purchase
100,000 shares of common stock, and sixteen other employees who received
options to purchase an aggregate of 260,000 shares of common stock. In
conncetion with the grant to Mr. Sicinski, he agreed to the cancellation of
the previously granted incentive stock options. The option granted to Messrs.
Schiller and Sicinski have a ten year term, and the other options have five
year terms [See Note 15].
No compensation cost was recognized for stock-based employee awards.
A summary of the activity under the Company's stock option plans is as
follows:
1993 Plan 1995 Plan 1995 Incentive Plan
Options Outstanding
- January 1, 1995 124,100 -- --
Granted -- 290,000 250,000
Exercised -- (205,000) --
Expired (10,150) -- --
-------- --------- -------
Options Outstanding
- December 31, 1995 113,950 85,000 250,000
Granted -- 85,000 1,325,000
Exercised -- (50,000) --
Canceled -- (85,000) (250,000)
-------- --------- ---------
Options Outstanding
- December 31, 1996 113,950 35,000 1,325,000
======== ========= ==========
Options Exercisable
- December 31, 1996 113,950 35,000 1,325,000
======== ========= ==========
Weighted Average Exercise
Price $ 2.25 $ 0.88 $ 1.28
Weighted Average Fair
Value at Date of Grant $ 2.25 $ 0.88 $ 1.28
61
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[16] Stock Option Plans [Continued]
If the Company had accounted for the issuance of all options and compensation
based warrants pursuant to the fair value based method of SFAS No. 123, the
Company would have recorded compensation expense totaling $1,724,000 and
$393,000 for the years ended December 31, 1996 and 1995, respectively, and the
Company's net loss and net loss per share would have been as follows:
Years ended
December 31,
1 9 9 6 1 9 9 5
Net Loss as Reported $ (681,250) $(4,695,745)
============= ============
Pro Forma Net Loss $ (2,405,250) $(5,088,745)
============= ============
Net Loss Per Share as Reported $ (.04) $ (1.48)
============= ============
Pro Forma Net Loss Per Share $ (.16) $ (1.60)
============= ============
The fair value of options and warrants [See Note 15] at date of grant was
estimated using the fair value based method with the following weighted
average assumptions:
Expected Life [Years] 2
Interest Rate 5.8%
Annual Rate of Dividends 0%
Volatility 84.0%
The weighted average fair value of options at date of grant using the fair
value based method during 1996 and 1995 is estimated at $1.22 and $.73,
respectively.
[17] Discontinued Segment
During the year ended December 31, 1995, the Company disposed of a segment of
the business that was unrelated to its present line. The revenues generated
by that segment amounted to $1.5 million. The loss relating to the
discontinued operations was $247,000.
[18] Proposed Public Offering
In October 1996, the Company filed a registration statement with respect to a
proposed public offering of its securities.
62
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[19] New Authoritative Accounting Pronouncement
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS
No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. The
provisions of SFAS No. 125 must be applied prospectively; retroactive
application is prohibited, and early application is not allowed. SFAS No.
125 supersedes SFAS No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse". While both SFAS No.125 and SFAS No. 77 required a
surrender of "control" of financial assets to recognize a sale, the SFAS No.
125 requirements of sale are generally more stringent. SFAS No. 125 is not
expected to have a material impact on the Company because they haven't been
recognizing sales under SFAS No. 77 and will also not be under SFAS No.125.
Some provisions of SFAS No.125, which are unlikely to apply to the Company,
have been deferred by the FASB.
The FASB has issued SFAS No.128 "Earnings Per Share" and SFAS No. 129
"Disclosure of Information About Capital Structure." Both are effective for
financial statements issued for periods ending after December 15,1997. SFAS
No.128 simplifies the computation of earning per share by replacing the
presentation of primary earnings per share with a presentation of basic
earnings per share. The statement requires dual presentation of basic and
diluted earnings per share by entities with complex capital structures. Basic
earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity similar
to fully diluted earnings per share.
While the Company has not analyzed SFAS No. 128 sufficiently to determine its
long-term impact on per share reported amounts, SFAS No. 128 should not have a
significant effect on historically reported per share loss amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
63
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE
Years ended Years ended
December 31, 1996 December 31,
Primary EPS Fully Diluted EPS 1 9 9 5 1 9 9 4
Net Loss -Historical $ (681,250) $ (681,250) $(4,695,745) $(410,622)
Adjustments Per
Modified Treasury
Stock Method 448,289 440,238
-------- --------
Adjusted Net Loss
- Primary $ (232,961)
=========
Adjusted Net Loss
- Fully Diluted $ (241,012)
===========
Loss Per Share:
Loss Per Share-Note 1 $ (0.01) $ (1.48) $ (0.68)
=========== ========= =========
Loss Per Share-
Assuming Full
Dilution - Note 2 $ (0.01) $ (0.49) $ (0.68)
=========== ========= =========
Note 1: Computed by dividing net loss by the weighted average number of
common shares (15,182,970, 3,172,696 and 600,000) for the years ended
December 31, 1996, 1995 and 1994 respectively adjusting it by items (i) to
(v) below using the modified treasury stock method of calculating earnings
per share.
(i) Assumes that 1,325,000 1995 Stock Incentive Plan stock options
outstanding at December 31, 1996 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at the
average market price of the Company's common stock for the period as
quoted on the NASDAQ, retire debt and to invest the balance.
(ii) Assumes common stock purchase warrants to purchase an aggregate of
1,924,597 common shares were exercised at the beginning of the period
and that the proceeds were used to purchase treasury stock at the
average market price of the Company's common stock for the period as
quoted on the NASDAQ, retire debt and to invest the balance.
(iii) Assumes common stock purchase warrants to purchase an aggregate of
4,900,000 shares were exercised at the beginning of the period and that
the proceeds were used to purchase treasury stock at the average market
price of the Company's common stock for the period as quoted on the
NASDAQ, retire debt and to invest the balance.
(iv) Assumes that stock options to purchase 35,000 shares were exercised at
the beginning of the period and that the proceeds were used to purchase
treasury stock at the average market price of the Company's common stock
for the period as quoted on the NASDAQ , retire debt and to invest the
balance.
64
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 -COMPUTATION OF EARNINGS PER SHARE
Note 1 [Continued]
(v) Assumes that 113,950 1993 Stock Incentive Plan stock options
outstanding at December 31, 1996 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at the
average market price of the Company's common stock for the period as
quoted on the NASDAQ, retire debt and to invest the balance.
The proceeds received from the above transactions would then be used to
purchase treasury stock up to 20%, retire debt and the remaining balance
invested. See Schedule 1.
Note 2: Computed by dividing net loss by the weighted average number of common
shares (15,182,970, 3,172,696 and 600,000) for the years ended December 31,
1996, 1995 and 1994 respectively adjusting it by items (i) to (v) below using
the modified treasury stock method of calculating earnings per share.
(i) Assumes that 1,325,000 1995 Stock Incentive Plan stock options
outstanding at December 31, 1996 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at
the market price of the Company's common stock at December 31, 1996 as
quoted on the NASDAQ, retire debt and to invest the balance.
(ii) Assumes common stock purchase warrants to purchase an aggregate of
1,924,597 common shares were exercised at the beginning of the period
and that the proceeds were used to purchase treasury stock at the
market price of the Company's common stock at December 31, 1996 as
quoted on the NASDAQ, retire debt and to invest the balance.
(iii) Assumes common stock purchase warrants to purchase an aggregate of
4,900,000 shares were exercised at the beginning of the period and that
the proceeds were used to purchase treasury stock at the market price
of the Company's common stock at December 31, 1996 as quoted on the
NASDAQ, retire debt and to invest the balance.
(iv) Assumes that stock options to purchase 35,000 shares were exercised
at the beginning of the period and that the proceeds were used to
purchase treasury stock at the market price of the Company's common
stock at December 31, 1996 as quoted on the NASDAQ , retire debt and to
invest the balance.
(v) Assumes that 113,950 1993 Stock Incentive Plan stock options
outstanding at December 31, 1996 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at
the market price of the Company's common stock at December 31, 1996 as
quoted on the NASDAQ, retire debt and to invest the balance.
The proceeds received from the above transactions would then be used to
purchase treasury stock up to 20%, retire debt and the remaining balance
invested. See Schedule 2.
Note: This calculation is submitted in accordance with the Securities Act of
1934 Release No. 9083, although it is contrary to Para. 40 of APB 15
because it may produce an anti-dilutive result.
65
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE [Continued]
SCHEDULE 1.
PRIMARY EARNINGS PER SHARE - DECEMBER 31, 1996
Weighted average # of shares o/s 12/31/96 15,182,970
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan - employees 1,310,000
Options pursuant to 1995 Stock Incentive Plan - directors 15,000
Series A, B, C Warrants 1,924,597
Series D Warrants 4,900,000
SMACS options 35,000
Options pursuant to 1993 option plan 113,950
--------
Total issuable 8,298,547
Total that can be reacquired:
(15,182,970 x 20%) 3,036,594
---------
Issued not reacquired 5,261,953
Proceeds Price # of shares
Options pursuant to 1995
Stock Incentive Plan - employees $ 1.125 1,310,000 1,473,750
Options pursuant to 1995
Stock Incentive Plan - directors $ 1.031 15,000 15,465
Series A, B, C Warrants Various 1,924,597 9,704,939
Series D Warrants $ 1.250 4,900,000 6,125,000
SMACS options $ 0.500 35,000 17,500
Options pursuant to 1993 option plan $ 2.250 113,950 256,388
--------
17,593,042
Limitation
3,036,594 shares x 1.5379(avg FMV) 4,669,978
----------
Total proceeds remaining to retire debt 12,923,064
Outstanding short - term debt 6,273,522
- - A/P and accrued expenses 283,356
- - Note payable (Gov't printing ofce) 138,230
- - Accrued litigation settlement 300,000
5,551,936
Net income effects of debt retirement: at 7/1/96
Interest expense per P&L = 712,289 for full year
retired 7/1/96 = net interest expense 356,150
Remaining proceeds for cash 7,371,128
---------
Cash invested in money market fund @ 2.5% interest for 6 months
7371128 @ 2.5% /2 92,139
66
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 -COMPUTATION OF EARNINGS PER SHARE [Continued]
SCHEDULE 1- PRIMARY EARNINGS PER SHARE - DECEMBER 31, 1996 [continued]
P&L impact
Reduction of interest expense 356,150
Additional interest income 92,139
-------
448,289
Weighted average # of shares o/s 12/31/96 15,182,970
Options and warrants not reacquired 5,261,953
---------
Total 20,444,923
==========
December 31, 1996 Net income per F/S (681,250)
Adjustment per modified treasury stock method 448,289
-------
Adjusted net loss (232,961)
Primary EPS -232961/20,444,923= -0.011394564802
($0.01)
Total reacquired
Options pursuant to
1995 Stock Incentive Plan - employees 1.53788 1,310,000 2,014,623
Options pursuant to
1995 Stock Incentive Plan - directors 1.53788 15,000 23,068
Series A, B, C Warrants 1.53788 1,924,597 2,959,799
Series D Warrants 1.53788 4,900,000 7,535,612
SMACS options 1.53788 35,000 53,826
Options pursuant to 1993 option plan 1.53788 113,950 175,241
----------
Total proceeds remaining to retire debt 12,762,169
67
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 -COMPUTATION OF EARNINGS PER SHARE [Continued]
SCHEDULE 2
FULLY DILUTED EARNINGS PER SHARE - DECEMBER 31, 1996
Weighted average # of shares o/s 12/31/96 15,182,970
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan - employees 1,310,000
Options pursuant to 1995 Stock Incentive Plan - directors 15,000
Series A, B, C Warrants 1,924,597
Series D Warrants 4,900,000
SMACS options 35,000
Options pursuant to 1993 option plan 113,950
--------
Total issuable 8,298,547
Total that can be reacquired:
(15,182,970 x 20%) 3,036,594
Issued not reacquired 5,261,953
Proceeds Price # of shares
Options pursuant to
1995 Stock Incentive Plan - employees $1.125 1,310,000 1,473,750
Options pursuant to
1995 Stock Incentive Plan - directors $1.031 15,000 15,465
Series A, B, C Warrants Various 1,924,597 9,704,939
Series D Warrants $1.250 4,900,000 6,125,000
SMACS options $0.500 35,000 17,500
Options pursuant to 1993 option plan $2.250 113,950 256,388
---------
17,593,042
3,036,594 shares x 1.750( FMV at 12/31/96) 5,314,040
----------
Total proceeds remaining to retire debt 12,279,002
Outstanding short - term debt 6,273,522
- - A/P and accrued expenses 283,356
- - Note payable (Gov't printing ofce) 138,230
- - Accrued litigation settlement 300,000
-------- 5,551,936
---------
Remaining proceeds for cash 6,727,066
Net income effects of debt retirement: at 7/1/96
Interest expense per P&L = 712,289 for full year
retired 7/1/96 = net interest expense 356,150
Cash invested in money market fund @ 2.5% interest for 6 months
6727066@ 2.5%/2 84,088
68
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE [Continued]
P&L impact
Net loss per F/S (681,250)
Reduction of interest expense 356,150
Additional interest income 84,088
---------
Adjusted net loss (241,012)
Weighted average # of shares o/s 12/31/96 15,182,970
Options and warrants not reacquired 5,261,953
---------
Total 20,444,923
Fully diluted EPS -241012/20,444,92 = ($0.0118)
69
TRANS GLOBAL SERVICES, INC.
EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT
State of
Company Incorporation
- ------------------- --------------
TGS Services Corp. Delaware
Resource Management International, Inc. Delaware
d/b/a The RMI Group
Avionics Research Holdings, Inc. Delaware
Avionics Research Corp. New York
Avionics Research Corp. of Florida Florida