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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, 1997
[ ] 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 Company as Specified in its Charter)
Delaware 62-1544008
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1393 Veterans Memorial Hwy.,
Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (516) 724-0006
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
Company (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 Company 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 Company'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 31, 1998: $9,666,860
State the number of shares outstanding of each of the Company's classes of
common stock as of March 31, 1998: 3,819,716 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 "Company"), is engaged in providing technical
temporary staffing services. In performing such services, the Company 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 Company believes that the market for outsourcing
services such as those offered by the Company results from the trend in
employment practices by major corporations in the aircraft, 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 Company 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 Company 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 Company 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 Company charges its clients
for services based upon the hourly payroll cost of the personnel. Each temporary
employee submits to the Company 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 Company also offers its clients a range of integrated logistical support
services which are performed at the Company'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 Company 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 Company will generate any
significant revenue or profit from such services.
The Company'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 Company believes that the key to profitability is to
provide a range of services to an increased customer base. In this connection,
the Company is increasing its marketing effort both through its own personnel
and in marketing efforts with other companies that offer complementary services.
3
Item 1. Business [Continued]
Forward Looking Statements
Statements in this Form 10-K that are not descriptions of historical facts may
be forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified in this Form 10-K and in other
documents filed by the Company with the Securities and Exchange Commission.
Organization of the Company
The Company is a Delaware corporation which was incorporated in September 1993
under the name Concept Technologies Group, Inc. ("Concept"). The Company's
executive offices are located at 1393 Veterans Memorial Hwy., Hauppauge, New
York 11788, telephone (516) 724-0006
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 Company. Such transaction
is referred to as the "Trans Global Transaction." In March 1996, the Company
changed its corporate name to Trans Global Services, Inc. Prior to May 1995, the
Company'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 Company's principal business became the provision
of technical temporary staffing services. As of September 30, 1995, the Company
sold the stock of WWR to an affiliated party.
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, a range of
telecommunications services, and computerized health information systems and
related services which are offered to health care providers, in addition to that
of the Company. 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 Company refer to the Company and TGS and its subsidiaries,
unless the context indicates otherwise. References to Concept relate to the
Company prior to the consummation of the Trans Global Transaction in May 1995.
At April 8, 1997, SISC was the owner of approximately 40.1% of the Company's
outstanding Common Stock. The Trinity Group, Inc., ("Trinity"), a wholly-owned
subsidiary of Consolidated, has an agreement with the Company pursuant to which
the Company pays Trinity fees of $15,000 per month through March 2000.
4
Item 1. Business [Continued]
In April 1998, Mr. Lewis S. Schiller, who was chairman of the board, chief
executive officer and a director of Consolidated, the Company and other
subsidiaries of Consolidated, resigned as an officer and director of
Consolidated and each of its present subsidiaries, including the Company.
Messrs. Norman J. Hoskin and E. Gerald Kay, who were directors of Consolidated,
the Company and other subsidiaries of Consolidated, resigned as directors of
Consolidated and such subsidiaries, including the Company. Contemporaneously
with the effectiveness of such resignations, Messrs. Edward D. Bright, Seymour
Richter and Donald Chaifetz were elected as directors to fill the vacancies
created by the resignation of Messrs. Schiller, Hoskin and Kay. Messrs. Bright,
Richter and Chaifetz were also elected as directors of Consolidated.
Markets and Marketing
The market for the Company's services is comprised of major corporations in such
industries as aircraft, 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 Company 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
Company, referrals and responses to advertisements placed by the Company in a
variety of local media, including newspapers, yellow pages, magazines and trade
publications. Part of the Company'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 Company's employees is performed at the client's premises and
under the client's direction, although the Company is the employer of record.
The Company 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 Company also conducts an ongoing program to survey and
evaluate the clients' needs and satisfaction with the Company's services, which
it uses as part of its marketing effort.
Although the Company has eight offices, including its main office in Long
Island, New York, throughout the United States, there is no limited geographic
markets for the Company's services. The Company 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 Company intends
to continue to establish new offices as necessary to meet the needs of its
customers.
5
Item 1. Business [Continued]
A client will utilize contract engineering services such as those provided by
the Company 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 Company with a
detailed job description. The Company 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 Company's recruiters, who
interview interested candidates. If a candidate is acceptable to the Company and
interested in the position, the Company refers the candidate to the client. An
employment agreement is executed with the Company prior to the commencement of
employment.
The Company serves primarily the aircraft, aerospace and electronics industries
as well as the telecommunications, banking and computer science industries and
public utilities along with numerous manufacturing companies. The Company 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
Company 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 Company 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 Company has conducted marketing efforts with Manpower International,
Inc., Adecco and Olsten Corporation.
The Company's contracts are generally terminable by the client on short notice.
Trans Global Services' largest customers for 1997 were Boeing, Northrop Grumman,
Lockheed, Gulfstream Aerospace and Bell Helicopter Textron which accounted for
approximately $20 million, $15 million, $13 million, $7 million and $6 million
or 25.9%, 19.9%, 17.4%, 8.6% and 7.5% of revenue, respectively. The Company'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 Company's revenues
in 1997, 1996 or 1995.
6
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 Company 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
Company 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 Company 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 Company competes with
other companies in attracting employees. The ability of the Company to increase
its business with existing clients or to attract other clients will be affected
by its working capital. Accordingly, the failure of the Company to increase its
working capital may adversely effect its ability to expand its business.
Government Regulations
The technical temporary staffing industry,in which the Company is engaged, does
not require licensing as a personnel or similar agency. However, as a provider
of personnel for other corporations, the Company is subject to Federal and state
regulations concerning the employment relationship, including those relating to
wages and hours and unemployment compensation. The Company also maintains a
401(k) plan for its employees and is subject to regulations concerning such
plan.
The Company does not have contracts with any government agencies. However, the
Company does have contracts with clients, including major defense contractors,
that have contracts with government agencies. The Company'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 Company'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 Company.
Employees
At December 31, 1997, the Company had 931 employees, of which 879 were contract
service employees who performed services on the clients' premises and 52 were
executive and administrative employees. Each of the Company's offices is staffed
by recruiters and sales managers. Each contract service employee enters into a
contract with the Company 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 Company's clients for any reason, the
Company 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 Company's
employees are not represented by a labor union, and the Company considers its
employee relationship to be good.
7
Item 1. Business [Continued]
Executive Officers of the Company
The following are the executive officers of the Company as of April 8, 1998:
Name Age Position with the Company
----- ---- -------------------------
Joseph G. Sicinski 66 Chief Executive Officer, President and director
Glen R. Charles 44 Chief financial officer, secretary and treasurer
Mr. Joseph G. Sicinski has been president and a director of the Company 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. He has been chief
executive oficer of the Company since April 1998. 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
Company since May 1995 and of TGS since its organization in January 1995. He has
been secretary of the Company since April 1998. Mr. Charles 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.
Item 2. Description of Property.
The Company leases approximately 7,500 square feet of office facilities at its
location 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 Company is
approximately $210,000, which is subject to annual increases. The Company
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.
In May 1991, prior to the acquisition of Avionics by the Company, the Government
Printing Office wrote the Company asking for reimbursement of approximately
$300,000 for allegedly unauthorized work on two programs. The Company believes
that these claims are without merit and intends to contest these claims
vigorously if reasserted. The Company believes that the ultimate disposition of
this matter will not have a material adverse affect on the Company's
consolidated financial position.
8
Item 1. Business [Continued]
In November 1997, an action was commenced in the Supreme Court of the State of
New York, County of Suffolk, by Ralph Corace against RMI seeking damages of
approximately $1.1 million for an alleged breach of contract by the Company. Mr.
Corace was the president of Job Shop Technical Services, Inc., from which RMI
purchased assets in November 1994. The Company believes that the action is
without merit, will vigorously contest this matter and has filed counterclaims
against Mr. Corace.
Item 4. Submission of Matters to a vote of Security Holders.
No matters were voted upon during the fourth quarter of 1997.
9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on The Nasdaq SmallCap Market under the
symbol TGSI.
On June 20, 1997, the Company effected a one-for-six reverse split in its Common
Stock. All share and per share information give effect, retroactively, to such
reverse split.
The high and low closing price for the Company's Common Stock since January 1996
are as follows:
Common Stock
---------------
High Low
1996
First Quarter 10-1/8 5-5/8
Second Quarter 10-1/2 7-5/16
Third Quarter 11-13/16 8-1/4
Fourth Quarter 13-1/2 8-5/8
1997
First Quarter 12-9/16 6-3/4
Second Quarter 9-3/16 1-5/8
Third Quarter 4-3/4 1-9/16
Fourth Quarter 6-9/16 3-7/8
1998
First Quarter 6 5
The closing price for the Common Stock on March 31, 1998 was $5 3/4 . These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
As of February 28, 1998, the Company believes that there were approximately
1,500 beneficial holders of the Common Stock.
The Company has paid no dividends on its Common Stock since inception, and does
not expect to pay any dividends for the foreseeable future.
10
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, 1997, 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,
-----------------------------
1997 1996 1995 1994
Revenue $75,725 $62,594 $63,152 $25,287
Net income/(loss) from continuing operations 1,023 (681) (4,413) (411)
Net income/(loss) 1,023 (681) (4,696) (411)
Net income/(loss) per share of Common Stock .27 ( .27) (8.88) (4.08)
Weighted average number of shares of
Common Stock outstanding 3,820 2,530 529 100
Balance Sheet Data:
December 31,
-----------------------------
1997 1996 1995 1994
Working capital (deficiency) $ 257 $ (755) $(2,401) $(1,805)
Total assets 13,942 13,100 12,763 10,345
Total liabilities 5,943 6,274 8,511 9,033
Accumulated deficit (4,765) (5,788) (5,106) (411)
Stockholders' equity 7,999 6,826 4,252 1,312
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 Company and TGS for the
periods covered. The only business conducted by the Company 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 Company prior to the Trans Global Transaction is
no longer conducted by the Company and is treated as discontinued operations.
References to the Company's operations prior to January 1995, when the company
was organized, relate to the operations of Avionics and RMI as subsidiaries of
SISC.
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
Years ended December 31, 1997, 1996 and 1995
Revenue from technical temporary staffing services is based on the hourly cost
of payroll plus a percentage. The success of the Company's business will be
dependent upon its ability to generate sufficient revenue 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 Company 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 Company'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 Company'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 Company satisfies its payroll tax
obligations, it will have a lower gross margin than after such obligations are
satisfied. Furthermore, to the extent that the Company experiences turnover in
employees, its gross margin will be adversely affected. For example, in 1998,
Social Security taxes are payable on the first $68,400 of compensation. Once
that level of compensation is paid with respect to any employee, there is no
further requirement for the Company to pay Social Security tax for such
employee. Since most of the Company's employees receive compensation in excess
of that amount, the Company'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 1997, the Company had revenue of $75.7 million reflecting an increase of 21%
over the revenue for 1996. Revenue for 1996 decreased approximately 1% from 1995
because of the loss in January 1996 of one of the Company's largest customers.
The increase in 1997 reflects the success of the Company's sales and placement
efforts, although its growth was hampered by its modest level of working
capital. The Company's revenue has been derived principally from the aerospace
industry. During 1997, approximately 63% of the Company's revenue was derived
form its three largest clients and approximately 79% of such revenue was derived
from its five largest clients. In 1996, approximately 61% of the Company's
revenue was derived from its three largest clients and approximately 75% of such
revenue was derived from its five largest clients. The same clients, all of
which are in the aerospace industry, were the Company's three and five largest
clients in both 1997 and 1996. In 1995, 62% of the Company's revenue was derived
from its largest three clients, all of which are in the aerospace industry. The
trend toward consolidation in the defense industry in general and the aerospace
industry in particular has accentuated the concentration of major clients within
the aerospace industry, and the Company may be adversely affected by any factors
which affect the defense and aerospace industries.
The Company's gross margin for 1997, 1996 and 1995 was 8.8%, 8.2% and 6.3%,
respectively. The improvement in gross margin reflects both the success of the
Company's efforts to expand its customer base to include companies in the
information technology sector, which have generated a higher gross margin than
its traditional client base, and to terminate client relationships or reduce the
scope of services for clients that did not generate an acceptable gross margin.
12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
Years ended December 31, 1997, 1996 and 1995
Selling, general and administrative expenses exclusive of related party expenses
increased by 5.7% compared to 1996 and decreased by 30.2% compared to 1995. The
increase in 1997 can be attributed to costs of $320,000 that were incurred in
connection with a proposed public offering which was not completed. The Company
is continuing its efforts to control selling, general and administrative costs.
The decrease in selling, general and administrative expenses in 1996 from the
level of such expenses in 1995 is due to the high level of expenses in 1995
resulting from the issuance of securities to consultants ($2.3 million) and
penalties for late withholding taxes ($1 million). The Company completed its
payment schedule with the Internal Revenue Service in July 1997 and is presently
current with regard to all of its taxes.
During 1995, the Company 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 Company's stockholders to enter into lock-up agreements. The
delivery of such shares of Common Stock was deferred until after the Company's
certificate of incorporation was amended to increase its authorized Common
Stock. No comparable expenses were incurred in 1997 or 1996.
The Company finances its payroll obligations by borrowing from a non-affiliated
asset-based lender at an interest rate of 2% in excess of prime. The Company
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 Company paid interest at a rate of 4% in
excess of prime and a fee of 1% of its borrowings relating to RMI's operations.
The Company's agreement with its asset-based lender continues through December
31, 1998. The borrowings are secured by a security interest in all of the
Company's assets. At December 31, 1997, such borrowings from the asset-based
lender were approximately $3.6 million. The ability of the Company to increase
profits 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,
1997 was 10.50% and at December 31, 1996 and 1995 was 10.25%. During 1997, the
interest expense was approximately $775,000 as compared to $712,000 in 1996 and
$963,000 in 1995. The increase of 8.8% from 1996 to 1997 reflects increased
borrowing during the year as a result of the increase in revenue. The decrease
in interest expense in 1996 of 20% compared to 1995 reflects the reduced
borrowing rates which were effective June 1995.
Amortization of customer lists and other intangible assets was reduced in 1997
by 26.6% as compared to 1996 and 1995 due to certain intangible assets related
to Avionics Research Holdings having been fully amortized during the year.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
During 1996 the Company established a $300,000 reserve in connection with the
claim by the DOL arising from the acquisition of Job Shop assets. In 1997, the
Company reached an agreement with the DOL and the independent trustee of the Job
Shop technical Services, Inc., 401(k) Plan (collectively "DOL"). The Company
agreed to pay the DOL an aggregate of $300,000 in 18 monthly installments, of
which $150,000, plus interest was outstanding at December 31, 1997.
Net Income (Loss)
The Company had net income from continuing operations of approximately
$1,023,000, or $.27 per share for 1997, as compared with a loss of $681,000 or
$.27 per share, in 1996 and a loss of $4.4 million, or $8.35 per share, in 1995.
The Company also incurred a loss from discontinued operations of approximately
$283,000 or $.53 per share in 1995.
Liquidity and Capital Resources
At December 31, 1997, the Company had $257,000 of working capital. The Company's
principal source of cash during 1997 was the cash flow generated from operations
and its credit facility with its asset-based lender. Cash flow from operating
activity was $1,072,461 in 1997 compared to ($1,109,899) in 1996 and $526,837 in
1995. The increased cash flow in 1997 was primarily due to the Company's net
income of $1,022,881 as compared with losses of $681,000 in 1996 and $4.7
million in 1995.
Investing and financing activities required $519,723 and $280,485, primarily for
capital expenditures of $171,288, advances to affiliates of $167,453, deferred
acquisition costs of $160,645, deferred offering costs of $168,938 and payments
to the Company's asset-based lender to reduce its outstanding loan. The advances
to affiliates was affected by rent and compensation for office space and
services rendered, that was paid by the Company for a subsidiary of SISC. Such
payments ceased during 1997.
The Company believes that as profits increase its working capital will increase
as well. However, unless the Company can improve its working capital, it may be
unable to increase its revenue from certain major clients or to attract clients
requiring greater working capital.
In the long term, the Company relies on its ability to generate sufficient cash
flows from operating activity through its asset-based lender, to fund investing
and financing requirements. The principal source funds, other than its
asset-based lender, has been from the sale of securities.
At December 31, 1997, the Company owed approximately $3.6 million to its
asset-based lender pursuant to an agreement that continues until December 31,
1998. The Company is presently in negotiations with lenders to replace the
existing lender at financing rates more favorable than the Company presently
has. However, no assurance can be given that the Company can or will be
successful in these efforts.
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
In May 1991, prior to the acquisition of Avionics by the Company, the Government
Printing Office wrote Avionics asking for reimbursement of approximately
$300,000 for allegedly unauthorized work on two programs. Although the Company
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 Company's consolidated
financial position.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year in a date
field. These programs were designed and developed without considering the impact
of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. This
issue is referred to as the "Year 2000 issue". A significant portion of the
Company's computer software, particularly the software relating to payroll and
other employee records, is performed for the Company by an outside service
company which has advised the Company that it will be year 2000 compliant. The
Company is in the process of evaluating the potential cost to it in addressing
the Year 2000 issue with respect to its other software and the potential
consequences of an incomplete or untimely resolution of the Year 2000 issue.
Although the Company believes that it will not incur significant expenses to
become Year 2000 compliant, no assurance can be given that the Company will not
incur significant cost in addressing the Year 2000 issue or that the failure to
adequately address the Year 2000 issue will not have a material adverse effect
upon the Company.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
15
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 Company.
The following table sets forth certain information concerning the directors
and the executive officers of the Company as of April 8, 1998:
Name Age Position with the Company
----- ----- -----------------------------
Joseph G. Sicinski 66 Chief executive officer, President
and director
Glen R. Charles 44 Chief financial officer, secretary and
treasurer
Edward D. Bright-1 61 Director
Donald Chaifetz-1 65 Director
Seymour Richter 61 Director
- ----------
- -1 Members of the audit and compensation committee.
Mr. Joseph G. Sicinski has been president and a director of the Company 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. He has been chief
executive officer of the Company since April 1998. 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
Company since May 1995 and of TGS since its organization in January 1995. He has
been secretary of the Company since April 1998. 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.
Mr. Edward D. Bright has been a director of the Company since April 1998. In
April 1998, Mr. Bright was also elected as chairman, secretary, treasurer and a
director of Consolidated and a director of Netsmart Technologies, Inc.
("Netsmart"), a publicly-held subsidiary of Consolidated that markets medical
information systems. From January 1996 until April 1998, Mr. Bright was an
executive officer of or advisor to Creative Socio Medics Corp. ("CSM"), a
subsidiary of Netsmart which was acquired by Netsmart from Advanced Computer
Techniques, Inc. ("ACT") in June 1994. From June 1994 until January 1996, he was
chief executive officer of Netsmart. He was a senior executive officer and a
director of CSM and ACT for more than two years prior to June 1994.
16
Item 10. Directors and Executive Officers of the Company [Continued].
Mr. Donald Chaifetz has been a director of the Company since April 1998. Mr.
Chaifetz is a principal of Maldon Co., Inc., an importing company. Mr.Chaifetz
has been in the importing business for more than the past five years.
Mr. Seymour Richter has been a director of the Company since April 1998. From
July 1995 until April 1998, Mr. Richter was employed by Patterson Travis
Operating Account Inc., a private company that makes investments for its own
account. For more than five years prior thereto, he was the chief executive
officer of Touch Base Ltd., an independent selling organization in the apparel
industry.
Messrs. Bright, Chaifetz and Richter were elected to the board following the
resignation of Messrs. Lewis S. Schiller, Norman J. Hoskin and E. Gerald Kay.
In 1997, the board of directors created audit and compensation committees. The
audit committee has the authority to approve the Company's audited financial
statements, to meet with the Company's independent auditors, to review with the
auditors and with management any management letter issued by the auditors and to
generally exercise the power normally accorded an audit committee of a public
corporation. In addition, any transactions between the Company or its
subsidiaries, on the one hand, and any officer, director or principal
stockholder or any affiliate of any officer, director or principal stockholder,
on the other hand, requires the prior approval of the audit committee.
The compensation committee serves as the stock option committee pursuant to the
Company's stock option plans. In addition, it reviews and approves any changes
in compensation for the Company's executive officers.
Directors are elected for a term of one year.
None of the Company's officers and directors are related.
The Company's Certificate of Incorporation provides that to the fullest extent
provided by Delaware law, a director shall not be liable to the Company 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.
During 1997, Mr. Lewis Schiller, Consolidated and SISC did not file Form 4 or
Form 5 pursuant to Section 16(a) of the Securities Exchange Act of 1934 with
respect to their acquisition of certain securities.
Item 11. Executive Compensation.
Set forth below is information with respect to compensation paid or accrued by
the Company for 1997, 1996 and 1995 to its chief executive officer and to each
other officer whose compensation exceeded $100,000 for 1997.
17
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 1997 -- -- -- 25,000-2
1996 -- -- -- 92,499-2
1995 -- -- -- --
Joseph G. Sicinski, President 1997 243,000 96,000 -- 90,000-3
1996 195,500 -- -- 199,999-3
1995 178,000 -- -- 41,666-3
1 Mr. Schiller resigned as an officer and director of the Company in April 1998.
Mr. Schiller has received no compensation from the Company. During the years
ended December 31, 1997, 1996 and 1995, the Company has been advised by
Consolidated that the total compensation paid or accrued by Consolidated to Mr.
Schiller was $974,000, $340,000 and $250,000, respectively.
2 Represents, in 1997, an incentive stock option to purchase 25,000 shares of
Common Stock at $3.875 per share. Represents, in 1996, warrants to purchase
66,666 shares of Common Stock at $7.50 per share, an incentive stock option to
purchase 25,000 shares of Common Stock at $6.75 per share and a nonqualified
stock option to purchase 833 shares at $6.18 per share. Such options and
warrants were granted at the fair market value on the date of grant. In April
1998, in connection with his resignation as an officer and director of the
Company, the options held by Mr. Schiller were canceled. The warrants held by
Mr. Schiller were not affected by his resignation.
3 Represents, in 1997, an incentive stock option to purchase 90,000 shares of
Common Stock at $3.875 per share. Represents, in 1996, warrants to purchase
66,666 shares of Common Stock at $7.50 per share and an incentive stock option
to purchase 133,333 shares of Common Stock at $6.75 per share. Represents, in
1995, an incentive stock option to purchase 41,666 shares of Common Stock at
$12.75 per share. The options granted in 1995 were canceled in connection with
the grant of incentive stock options in 1996. Such options and warrants were
granted at the fair market value on the date of grant.
The annual salary payable by Consolidated to Mr. Schiller pursuant to his
employment agreement with Consolidated was $250,000, subject to a cost of living
increase, prior to September 1, 1996. Effective September 1, 1996, Mr.
Schiller's annual salary from Consolidated was increased to $500,000. In
addition, Mr. Schiller's employment agreement provided him with incentive
compensation from Consolidated based on the results of Consolidated's operations
and Mr. Schiller owned 10% of Consolidated's or SISC's equity interest in each
of their operating subsidiaries and investments. Mr. Schiller has received 10%
of SISC's equity interest in the Company for nominal consideration. Mr. Schiller
has also received 10% of other securities owned by SISC, including securities of
other subsidiaries of SISC. In April 1998, in connection with his resignation as
an officer and director of Consolidated and its subsidiaries, Consolidated
purchased Mr. Schiller's employment contract, as a result of which the agreement
is no longer in effect.
18
Item 11. Executive Compensation [Continued]
In October 1997, Mr. Joseph G. Sicinski entered into a five-year employment
agreement with the Company pursuant to which he received annual compensation of
$260,000, subject to an annual cost of living increase. In addition, he is
entitled to a bonus of 5% of the Company's income before tax, all non-cash
adjustments and all payments to Consolidated, provided, that such bonus shall
not exceed 200% of his annual salary. The Company also provides Mr. Sicinski
with an automobile which he may use for personal use. This agreement replaced
his prior employment agreement dated September 1, 1996, which provided him with
an annual base salary of $234,000 and a bonus of 5% of the Company's income
before income taxes, but not more than 200% of his salary. The September 1996
agreement replaced an employment agreement dated January 1995, which provided
him with an annual base salary of $180,000 and a bonus of 5% of the Company's
income before income taxes, but not more than 200% of his salary.
The Company 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, 1997 and the year-end value of
options held by the Company'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 -- -- 209,166-3 $ ,000/
-- --
Joseph G. Sicinski -- -- 193,998-4/ ,000/
179,335 ,000
- ----------------
1 Includes options which became exercisable on January 1, 1997.
2 Based on the closing price per share of Common Stock on December 31,1997,
which was $6.00.
3 Represents warrants to purchase 158,333 shares of Common Stock at $7.50
per share, incentive stock options to purchase 25,000 shares of Common
Stock at $6.75 per share and 25,000 shares at $3.875 per share, and
nonqualified stock options to purchase 833 shares of Common Stock at $6.186
per share. The stock options were canceled in April 1998. The warrants
owned by Mr. Schiller include warrants transferred to him by SISC.
4 Represents warrants to purchase 150,000 shares of Common Stock at $7.50
per share and an incentive stock options to purchase 43,998 shares of
Common Stock at $6.75 per share, which are currently exercisable.
19
Item 11. Executive Compensation [Continued]
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 25,000 shares
of Common Stock. Options to purchase 20,683 shares of Common Stock were granted
at exercise prices of $18.00 as to 9,083 shares, $30.00 as to 2,433 shares and
$30.00 as to 9,166 shares. The exercise price of all of such options was reduced
to $13.50 per share in February 1995. As of August 31, 1996, options to purchase
1,691 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 50,833 shares of Common
Stock. At December 31, 1996, options to purchase 48,333 shares of Common Stock
were granted pursuant to the 1995 Plan, of which options to purchase 42,500
shares had been exercised and options to purchase 5,833 shares at an exercise
price of $3.00 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 83,333 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 415,388 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
Company 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 Company 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 833 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 Company until February 1997, were
non-management directors on February 1, 1996, each received an option to
purchase 833 shares of Common Stock at $6.185 per share, and Messrs. Hoskin,
Kay, and Kanter, who were nonmanagement directors on February 1, 1997, each
received an option to purchase 833 shares of Common Stock at $11.25 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 Company 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 Compensation
Committee which is presently comprised of Messrs. Edward Bright and Donald
Chaifetz administers the stock option plans.
20
Item 11. Executive Compensation [Continued].
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 Mr.Joseph G. Sicinski, who is also a director, are eligible
for awards under the 1995 Incentive Plan.
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 Company.
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 Company 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 Company, 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 Company 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 Company 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 Company granted to Mr. Joseph G. Sicinski, president of the
Company, a six-year stock option to purchase an aggregate of 41,666 shares of
Common Stock pursuant to the 1995 Plan at an exercise price of $12.75 per share,
being the fair market value on the date of grant. The option was immediately
exercisable as to 7,833 shares of Common Stock and becomes exercisable as to an
additional 7,833 shares of Common Stock on each of January 1, 1996, 1997, 1998
and 1999 and becomes exercisable as to the remaining 2,500 shares of Common
Stock on January 1, 2000.
In March 1996, the committee granted incentive stock options to purchase an
aggregate of 218,333 shares of Common Stock at $6.75 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 133,333
shares of Common Stock, Mr. Lewis S. Schiller, chairman of the board of the
Company, who received an option to purchase 25,000 shares of Common Stock, Mr.
Glen R. Charles, chief financial officer of the Company, who received an option
to purchase 16,666 shares of Common Stock and sixteen other employees who
received options to purchase an aggregate of 43,333 shares of Common Stock. In
connection with the grant to Mr. Sicinski, he agreed to the cancellation of the
previously granted incentive stock options.
21
Item 11. Executive Compensation [Continued].
The options 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 14,666 shares and become exercisable as to the remaining shares on January 1,
1997. The option granted to Mr. Sicinski is immediately exercisable as to 14,666
shares and becomes exercisable cumulatively as to an additional 14,666 shares on
January 1 of each year from 1997 to 2004 and becomes exercisable as to the
remaining 1,333 shares on January 1,2005. The options granted to Mr. Schiller
were cancelled in April, 1998 in connection with his resignation as an officer
and director of the Company.
In October 1997, the committee granted incentive stock options to purchase an
aggregate of 216,000 shares of Common Stock at $3.875 per share, being the fair
market value on the date of grant. Messrs. Schiller, Sicinski, Charles and
twenty other employees who received options to purchase 25,000, 90,000, 20,000
and 81,000 shares of Common stock respectively. All options have a five-year
term. Except for the options granted to Mr. Sicinski, all options are
immediately exercisable. The option granted to Mr. Sicinski is immediately
exercisable as to 25,000 shares and becomes exercisable cumulatively as to an
additional 25,000 shares on January 1 of each year from 1998 to 1999 and becomes
exercisable as to the remaining 15,000 shares on January 1, 2000. The options
granted to Mr. Schiller were canceled in April, 1998 in connection with his
resignation as an officer and director of the Company.
The following table sets forth information concerning options granted during the
year ended December 31, 1997 pursuant to the Company's 1995 Incentive Plan. No
SARs were granted.
Option Grants in Year Ended December 31, 1997
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 25,000 11.5% $3.875 10/22/03
Joseph G. Sicinski 90,000 41.3% 3.875 10/22/03
All current executive
officers-2 135,000 62.5% 3.875 10/22/03
All non-officer
directors 1,666-1 0.8% 11.625 1/31/07
All other employees 81,000 37.2% 3.875 10/22/03
22
Item 11. Executive Compensation [Continued].
- -------------
1: These options are automatically granted pursuant to the 1995 Incentive Plan.
2: Including Messrs. Schiller and Sicinski.
23
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Set forth below is information as of April 8, 1998 as to each person owning of
record or known by the Company, based on information provided to the Company by
the persons named below, to own beneficially at least 5% of the Company's Common
Stock and for all officers and directors as a group.
Percent of Outstanding
Name and Address-1 Shares Common Stock
- -------------------- ---------- -----------------------
SIS Capital Corp.
Consolidated Technology Group Ltd.
160 Broadway
New York, NY 10038 1,529,994 40.1%
Joseph G. Sicinski
1393 Veterans Memorial Hwy.
Hauppauge, NY 11788 468,997-2 11.7%
Lewis S. Schiller
333 Rector Place
New York, New York 10280 316,668-3 8.0%
Edward D. Bright
Netsmart Technologies, Inc.
146 Nassau Avenue
Islip, NY 11751 -- --
Donald Chaifetz
580 Fifth Avenue
New York, New York 10036 -- --
Seymour Richter
160 Broadway, Suite 901
New York, New York 10038 -- --
All directors and officers
as a group (two individuals owning
stock, warrants or options) 505,663-2,3,4 12.5%
1 Unless otherwise indicated, each person has the sole voting and sole
investment power and direct beneficial ownership of the shares.
2 Represents (a) 274,999 shares of Common Stock owned by Mr. Sicinski, (a)
43,998 shares of Common Stock issuable pursuant to an incentive stock option to
the extent that such option is presently exercisable and (b) 150,000 shares
issuable upon exercise of a warrant held by Mr. Sicinski.
3 Includes (a) 158,333 shares issuable upon the exercise of warrants held by Mr.
Schiller. Does not include 50,000 shares of Common Stock held by DLB, Inc.,
which is owned by Mr. Schiller's wife. Mr. Schiller disclaims beneficial
interest in DLB, Inc. or any securities owned by DLB, Inc.
4 Includes 36,666 shares of Common Stock issuable upon exercise of an incentive
stock option held by one other officer.
24
Item 13. Certain Relationships and Related Transactions.
The Company has an agreement dated January 1, 1995 with the Trinity Group, Inc.,
a wholly-owned subsidiary of Consolidated, pursuant to which the Company paid
Trinity $10,000 per month during 1997 for management services. Effective
February 1, 1998, the monthly payment was increased to $15,000. Neither SISC,
Consolidated nor any of their employees, including Mr. Lewis S. Schiller, who
was chairman of the board and chief executive officer of the Company until his
resignation in April 1998, received any compensation from the Company.
The Company has from time to time made advances to three subsidiaries of SISC
which are not owned or controlled by the Company (the "SISC Affiliates"). Such
advances were approximately $1.7 million and $1.5 million at December 31, 1997
and 1996 respectively. The amounts outstanding on such dates represent the
largest amounts outstanding during the respective periods ending on such dates.
The Company cannot estimate whether or when the SISC Affiliates will pay the
amounts due the Company because of their lack of available working capital, and,
accordingly, are treated as long term receivables. Advances to the SISC
Affiliates may continue. In addition, during 1997, the Company paid the
compensation and benefits of certain non-executive employees who perform
services for both the Company one of the SISC Affiliates which shared common
space with the Company. The amount, which is approximately
$150,000 per annum, is included in the amount due from the SISC Affiliates. As
of December 31, 1997, the Company was no longer providing such services. In July
1997, SISC also transferred 85,005 shares of Common Stock to key employees of
Consolidated and certain of its subsidiaries, including Ms. Grazyna B. Wnuk, who
was then the secretary of the Company, who received 40,834 shares of Common
Stock.
In connection with the resignation in April 1998 of Mr. Lewis S. Schiller as an
officer and director, Messrs. Norman J. Hoskin and E. Gerald Kay as directors
and Ms. Grazyna B. Wnuk as secretary, the Company and such persons exchanged
general releases.
The Company holds 1,000 shares of a series of preferred stock of Consolidated,
which were issued by Consolidated in September 1995 in connection with the
transfer by the Company of stock of WWR to a subsidiary of Consolidated. The
shares were issued to the Company in satisfaction of obligations of
approximately $2.1 million due by WWR to the Company. At December 31, 1997, such
shares of preferred stock were automatically convertible at September 30,2000
into such number of shares of Consolidated's common stock and has a value on
such date of $2.1 million. In March 1998, the terms of the preferred stock were
amended, with the consent of the Company, to eliminate the provision for an
automatic conversion and to provide Consolidated with the right to redeem the
preferred stock for $2.1 million and give the Company the right to require
Consolidated to redeem the preferred stock for $2.1 million.
In July 1997, SISC sold 258,333 shares of Common Stock to Mr. Sicinski for
$1.625 per share, which was the market price on the date of sale. Mr. Sicinski
issued his five-year non-recourse promissory note in payment of the shares. In
August 1997, SISC transferred to Mr. Sicinski a warrant to purchase 83,334
shares of Common Stock at $7.50 per share. SISC and Mr. Sicinski also canceled,
ab initio, an option granted by SISC to Mr. Sicinski to purchase 133,333 shares
of Common Stock from SISC at $1.50 per share.
25
PART IV
Item 14. 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
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31, 1997,
1996, and 1995
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996, and 1995
Notes to Financial Statements
(b) Financial Statement Schedules.
None
(c) Exhibits
3.1-1 Restated Certificate of Incorporation.
3.2-1 Certificate of Designation for the Series F Preferred Stock.
3.3-2 By-Laws.
10.1 Employment agreement dated October 15, 1997,, between the Company
and Joseph G. Sicinski.
10.2-2 Management services agreement dated January 1, 1995 between Trans
Global Services, Inc. and The Trinity Group, Inc.
10.3 Amendment dated February 15, 1998 to the management services agreement
between the Company and The Trinity Group, Inc.
10.4-3 1995 Long-Term Incentive Plan.
10.5-4 1993 Stock Option Plan.
10.6-4 1995 Incentive Stock Plan.
10.7-2 Agreement dated as of September 30, 1995 between SIS Capital Corp.
and the Company.
10.8-2 Form of Series A Common Stock Purchase Warrants.
10.9-1 Form of Series D Common Stock Purchase Warrants.
10.10-1 Payment agreement between the Internal Revenue Services and Resource
Management International, Inc.
10.11-1 Agreement dated February 3, 1995 between the Company and Metro Factors,
Inc. ("Metro").
10.12-1 Letter agreements dated January 29, 1997 and February 5, 1997 between
the Company and Metro.
10.13 Letter agreement dated January 29, 1998, between the Company and Metro.
10.14 Voluntary settlement agreement between Resource Management Corporation,
the Secretary of Labor and the court appointed independent trustee of
the Job Shop Technical Services, Inc. 401(k) Plan.
26
Part IV [Continued]
11.1 Computation of loss per share.
21.1-5 Subsidiaries of the Registrant
24.1 Consent of Moore Stephens, P.C.
25.1 Powers of attorney (See Signature Page).
27.1 Financial data schedule.
1 Filed as an exhibit to the Company's registration statement on
Form S-1, File No. 333-14289, and incorporated herein by reference.
2 Filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995 and incorporated herein by
reference.
3 Filed as an exhibit to the Company's definitive proxy material for
its special meeting of stockholders for November 1996 and incorporated
herein by reference.
4 Filed as an exhibit to the Company's Registration Statement on
Form SB-2, File No. 33-73178 and incorporated herein by reference.
5. Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996 and incorporated herein by reference.
(d) Reports on Form 8-K.
None
27
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TRANS GLOBAL SERVICES, INC.
Date: April , 1997 By:
Joseph G. Sicinski
President, 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 Company
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
President, Chief Executive April , 1998
Joseph G. Sicinski Officer and Director
(Principal Executive Officer)
Treasurer and Chief Financial April , 1998
Glen R. Charles Officer (Principal Financial and
Accounting Officer)
Director April , 1998
Edward D. Bright
Director April , 1998
Donald Chaifetz
Director April , 1998
Seymour Richter
28
INDEX TO FINANCIAL STATEMENTS
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES PAGE
Report of Independent Certified Public Accounts F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996,and 1995 F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-9
Notes to Financial Statements F- 12
29
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, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Trans
Global Services, Inc. and its subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
March 19, 1998
30
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1 9 9 7 1 9 9 6
Assets:
Current Assets:
Cash and Cash Equivalents $ 328,484 $ 56,231
Accounts Receivable - Net 5,470,353 5,190,056
Loans Receivable - Officer 47,500 42,500
Deferred Tax Asset-Current Portion 177,000 --
Prepaid Expenses and Other Current Assets 176,353 230,074
---------- ----------
Total Current Assets 6,199,690 5,518,861
---------- ---------
Property and Equipment - Net 194,513 74,581
---------- ---------
Other Assets:
Due from Affiliates 1,675,955 1,508,502
Customer Lists 2,613,564 2,838,535
Goodwill - Net 775,545 824,125
Covenant Not-to-Compete -- 60,381
Deferred Offering Costs -- 151,307
Deferred Acquisition Costs 160,645 --
Deferred Tax Asset-Non Current 178,000 --
Other Assets 43,232 22,958
Investment in Preferred Stock of Affiliate 2,100,730 2,100,730
---------- --------
Total Other Assets 7,547,671 7,506,538
Total Assets $ 13,941,874 13,099,980
================ ==========
See Notes to Financial Statements.
F-3
31
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1 9 9 7 1 9 9 6
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 591,614 $ 283,356
Accrued Income Taxes Payable 76,357 --
Accrued Payroll and Related Taxes and Expenses 1,416,134 1,784,061
Accrued Payroll Tax Penalties -0- 77,000
Voluntary Settlement Agreement 150,000 300,000
Loans Payable - Asset-Based Lender 3,570,828 3,690,875
Note Payable - Other 138,230 138,230
--------- --------
Total Current Liabilities 5,943,163 6,273,522
--------- --------
Commitments and Contingencies [10] -- --
--------- --------
Stockholders' Equity:
Common Stock, $.01 Par Value, 50,000,000 Shares
Authorized, Issued and Outstanding [3,819,716 -
December 31, 1997, 3,816,888 - December 31, 1996] 38,197 38,168
Capital in Excess of Par Value 12,887,851 12,879,380
Deferred Consulting Fees (162,601) (303,473)
Accumulated Deficit (4,764,736) (5,787,617)
---------- ---------
Total Stockholders' Equity 7,998,711 6,826,458
---------- --------
Total Liabilities and Stockholders' Equity $13,941,874 $ 13,099,980
=========== ==========
See Notes to Financial Statements.
F-4
32
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED 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 7 1 9 9 6 1 9 9 5
Revenues $ 75,724,759 $ 62,594,051 $ 63,151,995
Cost of Services Provided 69,077,544 57,436,052 59,157,016
---------- ---------- ----------
Gross Profit 6,647,215 5,157,999 3,994,979
---------- ---------- ----------
Operating Expenses:
Selling, General and
Administrative Expenses 4,791,674 4,396,503 6,358,030
Related Party Administrative Expenses 120,000 120,000 90,000
Amortization - Intangibles 333,995 455,200 455,197
Acquisition Expenses -- -- 528,578
--------- --------- -------
Total Operating Expenses 5,245,669 4,971,703 7,431,805
--------- --------- ---------
Operating Profit (Loss) 1,401,546 186,296 (3,436,826)
--------- --------- ---------
Other Income (Expenses):
Interest Expense (775,437) (712,289) (963,211)
Other Income (Expense) 121,409 144,743 (12,890)
Settlement Costs -- (300,000) --
--------- -------- -------
Total Other Expenses - Net (654,028) (867,546) (976,101)
--------- -------- --------
Income(Loss)From Continuing Operations 747,518 (681,250) (4,412,927)
--------- --------- ---------
Discontinued Operations:
Loss from Discontinued Operations -- -- (247,076)
Loss on Sale of Discontinued Segment -- -- (35,742)
--------- --------- ----------
Total Discontinued Operations -- -- (282,818)
--------- --------- ----------
Income(Loss)before Benefit for
income taxes 747,518 ( 681,250) (4,695,745)
Benefit for income taxes 275,363 -- --
--------- -------- ---------
Net Income (Loss) $1,022,881 (681,250) $(4,695,745)
========= =========== ===========
Basic Earnings (Loss) Per Share
Continuing Operations $ .27 $ ( .27) $ (8.35)
Discontinued Operations -- -- (.53)
--------- ---------- ----------
Net Income (Loss) $ .27 $ ( .27) $ (8.88)
Weighted Average Number of Shares 3,819,574 2,530,495 528,782
Diluted Earnings (Loss) Per Share:
Incremental Shares from Assumed
Conversion of Options and Warrants 69,415 0 0
--------- ---------- ----------
F-5
33
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS [continued]
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 7 1 9 9 6 1 9 9 5
Weighted Average Number of
Shares Assuming Dilution 3,888,989 2,530,495 528,782
Diluted Earnings Per Share
Continuing Operations $ .26 $ ( .27) $ (8.35)
Discontinued Operations -- -- ( .53)
--------- --------- ---------
Net Income (Loss) $ .26 $ ( .27) $ (8.88)
F-6
34
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
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
Balance - December 31,1994 50,000 500
Balance - December 31,1995 50,000 500
Cancelled in 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
Balance - December 31,1994 20,000 200
Balance - December 31,1995 20,000 200
Cancelled in 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
Balance - December 31,1994 -- --
Issuance of shares of Preferred Stock to Repay Debt 5,000 $ 50
------ ------
Balance - December 31,1995 5,000 50
Conversion of shares of Series "E" Preferred
Stock to Common Stock (5,000) ( 50)
------- -----
Balance - December 31,1996 0 0
======= ======
F-7
35
Trans Global Services, Inc.
Consolidated Statement of Stockholders' Equity
Shares Amounts
Preferred stock $0.01 Par Value Series "F"
Convertible participating Authorized 10,000 shares
Balance - December 31,1994 -- --
Balance - December 31,1995 -- --
Issued in SISC Recapitialization 10,000 100
Cancelled on Conversion into Common Stock (10,000) (100)
------ ----
Balance- December 31, 1996 0 0
======= ======
Common Stock $.01 Par Value Authorized
50,000,000 shares
Balance - December 31,1994 100,000 1,000
Issued on Acquisition of Concept 247,598 2,476
Exercise of Stock Options 127,833 1,278
Issuance of shares of Common Stock-Private Placement 25,216 252
Issuance of shares of Common Stock-Legend Stock 433 4
Issuance of shares of Common Stock-Regulation S 65,000 650
Issuance of shares of Common Stock-Sirrom Capital 520 5
Exercise of Stock Options 4,166 42
--------- ------
Balance - December 31,1995 570,766 5,707
Issued on Conversion of Series "A" and "E"
Preferred Stock 353,333 3,533
Issuance of shares of Common Stock -
Regulation S 916,666 9,167
Issuance of shares of Common Stock-
Sirrom Capital 1,040 10
Deferred Issuance of shares of Common Stock
Related to Acquisition Stock of Concept 123,413 1,234
Deferred Issuance of shares of Common Stock
Related to Sale of WWR 176,666 1,767
Issued on Conversion of Series F Preferred
Stock 1,666,666 16,667
Exercise of Common Stock Options 8,333 83
---------- -------
Balance - December 31, 1996 3,816,883 38,168
Exercise of Common Stock Options 2,833 29
----------- --------
Balance - December 31, 1997 3,819,716 $38,197
F-8
36
Trans Global Services, Inc.
Consolidated Statement of Stockholders' Equity
Amounts
Capital in Excess of Par Value
Balance - December 31,1994 $1,720,300
Acquisition of Concept 980,346
Exercise of Stock Options 3,232,758
Issuance of shares of Common Stock-Private Placement 453,648
Issuance of shares of Common Stock-Legend Stock ( 4)
Issuance of shares of Preferred Stock to Repay Debt 199,950
Issuance of shares of Common Stock-Regulation S 999,350
Issuance of Below Market Options 178,750
Issuance of shares of Common Stock-Sale of WWR 1,537,000
Acquisition Expenses 528,578
Issuance of shares of Common Stock-Sirrom Capital 10,525
Exercise of Stock Options 24,958
Reverse Merger Costs (117,854)
Forgiveness of Accrued Interest Prior Years 111,468
--------
Balance - December 31,1995 9,859,773
Conversion of Series "A" and "E" Preferred
Stock to Common ( 3,233)
Issuance of shares of Common Stock-Regulation S 2,315,833
Issuance of shares of Common Stock-Sirrom Capital 9,496
Deferred Issuance of shares of Common Stock related to
Acquisition Stock of Concept (1,234)
Deferred Issuance of shares of Common Stock related to
Sale of WWR ( 1,767)
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 (16,567)
Exercise of Common Stock Option 24,917
--------
Balance - December 31,1996 12,879,380
Exercise of Common Stock Options 8,471
----------
Balance - December 31, 1997 12,887,851
==========
Accumulated Deficit
Balance - December 31, 1996 (5,787,617)
Net Income 1,022,881
---------
Balance - December 31, 1997 $(4,764,736)
F-9
37
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
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)
Amortization of Deferred Consulting Costs 140,872
--------
Balance - December 31, 1997 ( 162,601)
============
Total Stockholders' Equity
Balance - December 31, 1994 1,311,628
Acquisition of Concept 982,822
Exercise of Stock Options 690,500
Issuance of shares of Common Stock-Private Placement 453,900
Issuance of shares of Preferred Stock to Repay Debt 200,000
Issuance of shares of Common Stock-Regulation S 1,000,000
Issuance of shares of Common Stock-Sale of WWR 1,537,000
Amortization of Deferred Consulting Costs 2,213,774
Acquisition Expenses 528,578
Issuance of shares 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 Year Ended December 31, 1995 (4,695,745)
---------
Balance - December 31, 1995 4,251,601
Issuance of shares of Common Stock-Regulation S 2,325,000
Issuance of shares 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 Year Ended December 31,1996 (681,250)
-------
Balance - December 31, 1996 6,826,458
Exercise of Common Stock Options 8,500
Amortization of Deferred Consulting Costs 140,872
Net Income for the Year Ended December 31, 1997 1,022,881
--------
Balance - December 31, 1997 $ 7,998,711
=========
F10
38
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED 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 7 1 9 9 6 1 9 9 5
Operating Activities:
Income (Loss) from Continuing Operations $1,022,881 $(681,250) $(4,412,927)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided By (Used in)
Continuing Operations:
Depreciation and Amortization 385,351 477,160 466,817
Provision for Doubtful Accounts -- -- 67,363
Charges from Option Exercise 140,872 230,108 2,213,774
Deferred Offering Costs 320,245 -- --
Deferred Income Taxes (178,000) -- --
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 Operating Assets and Liabilities:
(Increase) Decrease in Assets:
Accounts Receivable-Net (280,297) (320,940) 473,305
Inventories -- -- 55,226
Loan Receivable - Officer ( 5,000) (20,000) (22,500)
Deferred Tax Asset-Current Portion (177,000) -- --
Prepaid Expenses and Other
Current Assets 53,721 (149,108) (84,852)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued
Expenses 308,258 (267,738) (544,981)
Accrued Payroll and Related
Taxes and Expenses (367,927) 28,376 1,076,504
Accrued Payroll Tax Penalties ( 77,000) (623,000) 700,000
Accrued Income Taxes Payable 76,357 -- --
Accrued Voluntary Settlement Agreement (150,000) -- --
--------- ---------- --------
Total Adjustments 49,580 (428,649) 4,939,764
--------- ---------- ----------
Net Cash - Provided by (Used in)
Continuing Operations 1,072,461 (1,109,899) 526,837
---------- --------- ----------
Net Cash - Used in Discontinued Operations -- -- (97,170)
----------- ---------- --------
Net Cash - Provided by (Used in)
Operating Activities -Forward $ 1,072,461 $(1,109,899) $ 429,667
See Notes to Financial Statements.
F-11
39
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED 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 7 1 9 9 6 1 9 9 5
Net Cash - Provided by (Used in)
Operating Activities Forwarded $1,072,461 $ (1,109,899) $ 429,667
Investing Activities:
Capital Expenditures (171,288) (55,536) (110,384)
Deferred Acquisition Costs (160,645) -- --
Cash of Merged Company -- -- 504,210
Advances to Affiliates (167,453) (274,074) (791,105)
Other, net ( 20,337) 2,116 ( 46,600)
----------- --------- --------
Net Cash - Used in Investing
Activities (519,723) (327,494) (443,879)
----------- --------- ---------
Financing Activities:
Net(Payments to) Advances from
Asset-Based Lender (120,047) 12,173 (340,459)
Repayment of Long-Term Debt -- -- (125,201)
Repayment of Subordinated Debt -- (700,000) (800,000)
Payments to Affiliates -- (176,832) (201,471)
Deferred Offering Costs (168,938) (151,307) --
Issuance of shares of Common Stock -- 2,334,506 1,453,900
Expenses Related to Merged Company -- -- (117,154)
Exercise of Stock Options 8,500 25,000 715,500
Cash Overdraft -- -- (360,306)
Repayment of Note Payable -- (60,513) --
--------- ---------- ------
Net Cash - (Used in) Provided by
Financing Activities (280,485) 1,283,027 224,809
Net Increase (Decrease)in Cash and
Cash Equivalents 272,253 (154,366) 210,597
Cash and Cash Equivalents
- Beginning of Year 56,231 210,597 --
Cash and Cash Equivalents
- End of Year $ 328,484 $ 56,231 $ 210,597
=========== =========== ==========
Supplemental Disclosures of Cash
Flow Information:
Interest $ 775,437 $ 712,289 $ 909,200
Income Taxes $ -- $ -- $ --
See Notes to Financial Statements.
F-12
40
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 and warrants 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.
F-13
41
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[1] Basis of Presentation
Trans Global Services, Inc. ("the Company"), a Delaware corporation, operates
through two subsidiaries, Avionics Research Holdings, Inc. , formerly known as
ARC Acquisition Group, Inc.["Holdings"] 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 were 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, 1997 or 1996 [See Notes 7
and 15].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 formed
by SISC to acquire assets of Job Shop Technical Services in November 1994. 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. 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.
F-14
42
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 176,666 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 by Consolidated, the parent of SISC, through the
issuance of 1,000 shares, of a newly-created series of Series G 2% Cumulative
Convertible Preferred Stock, (" Series G Preferred Stock"), 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. In April 1998, Consolidated
amended its certificate of incorporation, with the consent of the Company as the
sole holder of the Series G Preferred Stock, to change the rights, preferences
and privileges of the holders of the Series G Preferred Stock. As a result of
such amendment, the conversion provisions were terminated and the Series G
Preferred Stock became subject to redemption at the option of either
Consolidated or the holders of the Series G Preferred Stock at an aggregate
redemption price of $2.1 million. The Series G Preferred Stock is reflected on
the balance sheet as Investment in Preferred Stock of Affiliate based on the
redemption price of the shares.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The 1997, 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.
Cash and Cash Equivalents - The Company considers all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents. There
were no cash equivalents at December 31, 1997 and 1996.
Prepaid Expenses and Other Current Assets - Prepaid expenses primarily consist
of approximately $144,000 and $173,000 of prepaid insurance at December 31, 1997
and 1996, 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
43
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.
Offering Costs- Deferred offering costs of $ 169,000 and $151,000 were incurred
in 1997 and 1996 with respect to a proposed public offering which was not
completed in 1997. These costs have been expensed to selling, general and
administrative in 1997.
Deferred Acquisition Costs - Deferred acquisition costs represent legal,
accounting and other costs associated with the consummation of business
acquisitions by the Company. When such acquisitions are consummated, these costs
will be added to other costs incurred in the acquisition of such businesses. If
such acquisitions are not completed in the near term, these costs will be
expensed.
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.
Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under SFAS No. 109, the asset and liability method is used to determine deferred
tax assets and liabilities based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Earnings Per Share- Earnings per share of Common Stock reflects the weighted
average number of shares outstanding for each year. On June 20, 1997, the
Company effected a one-for-six reverse split in its Common Stock. All share and
per share information in these financial statements gives effect, retroactively,
to such reverse split. The Financial Accounting Standards Board has issued
Statement of Financial Accounting standard ("SFAS") No.128, "Earnings Per
Share", which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 31, 1997, have been calculated in
accordance with SFAS No. 128. Prior years' earnings per share data have been
recalculated as necessary to conform to prior years' data to SFAS No.128.
44
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SFAS No. 128 supercedes Accounting Principles Board Opinion No.15, "Earnings Per
Share", and replaces its primary earnings per share with a new basic earnings
per share representing the amount of earnings for the period available to each
share of common stock outstanding during the reporting period. SFAS No.128 also
requires a dual presentation of basic and diluted earnings per share on the face
of the statement of operations for all companies with complex capital
structures. Diluted earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding during the reporting
period, while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have an antidulutive
effect on earnings per share (i.e., increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon the exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.
[2] Summary of Significant Accounting Policies [Continued]
Securities that could potentially dilute earnings per share in the future are
disclosed in Notes 15 and 16.
Impairment - The Company reviews certain long-term assets, including goodwill
and other intangibles to determine whether their carrying value has become
impaired, pursuant to guidance established in Statement of Financial Accounting
Standards No. 121, "Accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of." [See Note 5]
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.
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, 1997 and 1996, a significant portion of
the Company's receivables were derived from three customers [See Note 13].
45
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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, 1997, the
Company had amounts on deposit with two financial institutions which exceeded
the federally insured limit by approximately $400,000. 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, 1997 and 1996. 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 8.50% at December 31, 1997 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, 1997 and 1996, the total amount advanced by the
asset-based lender was $3,570,828 and $3,690,875. The weighted average interest
rate on this short-term borrowing outstanding for the years ended December 31,
1997 and 1996 was approximately 10.50% and 10.25%, respectively. The agreement
with its asset-based lender continues through December 31, 1998. The Company is
currently seeking alternative financing sources. However, no assurance can be
given that the Company can or will be able to obtain an alternate financing
source by December 31, 1998,, the failure of which could have a material adverse
effect upon the Company in the near term.
[4] Property and Equipment
Property and equipment at December 31, 1997 and 1996 is as follows:
1 9 9 7 1 9 9 6
Equipment $ 349,701 $ 288,337
Furniture and Fixtures 189,134 171,770
Leasehold Improvements 93,602 1,039
------- -------
Totals - At Cost 632,437 461,146
Less: Accumulated Depreciation 437,924 386,565
------- -------
Totals 194,513 $ 74,581
Depreciation expense charged to operations was $51,359 in 1997, $22,160 in 1996
and $11,820 in 1995.
46
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[5] Intangibles
The Company acquired its subsidiaries [See Note 2] during 1994. As part of the
purchase agreements, 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 1997 1996 1997 1996
Customer Lists 15 $3,374,477 $ 760,913 $535,942 $2,613,564 $2,838,535
Goodwill 20 $ 971,623 $ 196,078 $147,498 $ 775,545 $ 824,125
Covenants
Not-to-Compete 5 $ 907,257 $ 907,257 $846,876 $ 60,381 $ 60,381
Goodwill represents the excess of the acquisition costs over the fair value of
net assets of business acquired. Amortization expense is calculated on a
straight-line basis over twenty years. Other intangibles are Customer Lists and
Covenants Not-to-Compete. Customer Lists represent listings of customers
obtained through acquisitions to which the Company can market its services.
Customer Lists are recorded at cost and are amortized on a straight- line basis
over the estimated useful life of fifteen years. Covenants Not-to- Compete are
non-compete agreements signed with employees of acquired companies and are
amortized on a straight line basis over the five year lives of such agreements.
These agreements were fully amortized in 1997. The Company reviews Goodwill and
other intangibles to assess recoverability from future operations using
undiscounted cash flows. If the review indicates impairment, the Company will
incur a charge against operations to the extent that carrying value exceeds fair
value. Management has determined that fair value exceeds carrying value as
of December 31, 1997.
[6] Subordinated Debt
The Company, having been delinquent in filing certain payroll taxes during the
quarter ended March 31, 1996, entered into an agreement later that year with the
Internal Revenue Service ["IRS"] to pay those taxes, interest and penalties in
installments. At December 31, 1997 all taxes, interest and penalties had been
paid in full and the Company was current with regard to all taxes. The Company
is in the process of contesting the penalties and is seeking to recover the
amount paid.
The Company, as part of its acquisition of assets of Job Shop, agreed to assume
a certain debt for delinquent taxes owed by Job Shop 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 such Job Shop assets. The remaining $1,500,000 was
payable in 15 monthly installments of $100,000 commencing May 31, 1995. This
obligation was paid in 1996.
47
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[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 was
formed by SISC to acquire assets of Job Shop 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 Job Shop 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 Holdings 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) 166,666 shares of Common Stock, (b) 25,000 shares of
Series A Convertible Participating Preferred Stock ["Series A Preferred Stock"],
(c) 25,000 shares each of Series B and C Preferred Stock which were convertible
into an aggregate of 416,666 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.
Additionally with respect to the Trans Global Transaction, the Company issued
two-year warrants to purchase an aggregate of 83,333 shares of Common Stock at
$21.00 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
333,333 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.
In connection with the sale of WWR to an affiliate of SISC, the Company issued
to SISC 176,666 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].
The Company has a management services agreement with a wholly-owned subsidiary
of Consolidated pursuant to which the Company paid a monthly fee of $10,000
through January 1998. Commencing February 1998 such fee was increased to $15,000
through March 2000.
48
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
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 20,000 shares of Common Stock.
SISC advanced approximately $1,100,000 to the Company as of July, 1996. Pursuant
to an exchange [the "SISC Recapitalization"], the Company issued to SISC 9,900
shares of Series F Preferred Stock and warrants to purchase 533,333 shares of
Common Stock at $7.50 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 1,666,666 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 283,333 shares of Common Stock at $7.50 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 25,000 shares at $21.00 per share was terminated.
In July 1997, SISC sold 258,333 shares of Common Stock to Mr. Sicinski for
$1.625 per share, which was the market price on the date of sale. Mr. Sicinski
issued his five-year non-recourse promissory note in payment of the shares. In
August 1997, SISC transferred to Mr. Sicinski a warrant to purchase 83,334
shares of Common Stock at $7.50 per share. SISC and Mr. Sicinski also canceled,
ab initio, an option granted by SISC to Mr. Sicinski to purchase 133,333 shares
of Common Stock from SISC at $1.50 per share.
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, 1997 and 1996 was
$1,676,000 and $1,509,000, respectively. The amounts outstanding on such dates
represent the largest amounts outstanding during the respective years. Advances
to the SISC Subsidiaries may continue. The Company has accounted for interest
income from these subsidiaries of $130,000, $106,000 and $43,000 for the three
years ended December 31, 1997, 1996 and 1995 respectively.
[8] Notes Payable
Other - At December 31, 1997 and 1996, 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, 1997 and 1996 was approximately 7.4% and 7.75%,
respectively.
49
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMEN
[9] Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's net
deferred tax asset as of December 31, 1997 and 1996 are as follows:
December 31,
1997 1996
Deferred Tax Liabilities $ -- $ --
------- ---------
Deferred Tax Assets:
Allowance for Doubtful Accounts not
Currently Deductible 25,000 25,000
Net Operating Loss Carryforwards 1,482,000 2,200,000
--------- ---------
Totals 1,507,000 2,225,000
Valuation Allowance 1,152,000 2,225,000
--------- ---------
Net Deferred Tax Asset 355,000 --
Net Deferred Tax Asset - Current Portion 177,000 --
--------- ---------
Net Deferred Tax Asset - Non Current $ 178,000 $ --
========== =========
The Company has recorded a net deferred tax asset of $355,000 at December 31,
1997. The realization of the net deferred tax asset is dependent on the Company
generating sufficient taxable income in future years. Although realization is
not assured, management believes it is more likely than not that all of the net
deferred tax asset will be realized. The amount of the net deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced.
The Company's deferred tax asset valuation allowance was $1,152,000 and
$2,225,000 as of December 31, 1997 and 1996, respectively. The valuation
allowance represents the tax effects of net operating loss carryforwards and
other temporary differences which the Company does not expect to realize. The
(decrease) increase in the valuation allowance of $(1,073,000) and $300,000 for
the years ended December 31, 1997 and 1996 is comprised of the following:
50
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[9] Income Taxes [continued]
1997 1996
---- ----
Net Operating Loss Carryforwards $(1,073,000) $ 300,000
The current and deferred income tax components of the provision [benefit] for
income taxes consist of the following:
Years ended December 31,
1997 1996 1995
---- ----- -----
Current:
Federal $ -- $ -- $ --
State 79,637 -- --
------- -------- --------
Totals $ 79,637 $ -- $ --
Deferred:
Federal (277,610) -- --
State ( 77,390) -- --
--------- -------- --------
Totals $ (355,000) $ -- $ --
---------- -------- --------
Totals $ (275,363) $ -- $ --
========== ======== ========
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
Years Ended December 31,
1997 1996 1995
---- ---- ----
Federal Statutory Rate 34% (34%) (34%)
State Income Taxes, net of
federal tax 7% -- --
Federal tax benefit of net operating
loss carryforwards (30%) -- --
(Decrease )Increase in valuation allowance (48%) 34% 34%
----- ----- -----
Effective tax rate (37%) -- --
===== ===== =====
51
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
The following summarizes the operating loss carryforwards by year of expiration:
Amount Expiration Date
358,000 December 31, 2008
1,067,000 December 31, 2009
2,281,000 December 31, 2010
---------
3,706,000
[10] Commitments
The Company leases office space and several office machines under operating
leases which expire in 2002. The following is an analysis of future minimum
lease commitments as of December 31, 1997:
1998 213,717
1999 145,121
2000 112,670
2001 111,563
2002 18,750
--------
Total $ 601,821
Rent expense amounted to $211,503, $174,312 and $141,684 for the years ended
December 31, 1997, 1996 and 1995, 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.
In November 1997, an action was commenced in the Supreme Court of the State of
New York, County of Suffolk, by Ralph Corace against RMI seeking damages of
approximately $1.1 million for an alleged breach of contract by the Company. Mr.
Corace was the president of Job Shop Technical Services, Inc., from which RMI
purchased assets in November 1994. The Company believes that the action is
without merit, will vigorously contest this matter and has filed counterclaims
against Mr. Corace.
52
TRANS GLOBAL SERVICES,INC.
NOTES TO FINANCIAL STATEMENTS
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,
1997 and 1996:
Carrying Amount Fair Value
December 31, December 31,
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
Investment Preferred Stock of
Affiliate $2,100,730 $2,100,730 $2,100,730 $2,100,730
Debt Maturing Within One Year $3,859,058 $4,129,105 $3,859,058 $4,129,105
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 investment in preferred stock of affiliate is based upon the
fair value of the guarantee of fair value issued by such affiliate.
[13] Economic Dependency
In 1997, three customers of the Company, accounted for approximately $20
million, $15 million and $13 million respectively of revenue. Accounts
receivable of $2,700,000 were due from these customers collectively at December
31, 1997. Three customers of the Company, accounted for approximately $16
million, $13 million and $9 million respectively, of the revenue for 1996.
Accounts receivable of approximately $2,850,000 were due from these customers
collectively at December 31, 1996. These same three customers accounted for $20
million, $9 million and $6 million respectively of revenue for 1995.
53
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[14] Employment and Management Contracts
In October 1997, the President of Trans Global entered into a five-year
employment agreement, pursuant to which he receives annual compensation of
$260,000 subject to an annual cost of living increase. In addition, he is
entitled to an annual bonus of not less than 5% of the net income before tax and
all non-cash adjustments and expenses, including charges and fees paid to
Consolidated Technology Group, Ltd., its subsidiary and associated companies,
for TGS and its wholly or partially owned subsidiaries, currently owned and
acquired during the terms of the Agreement provided that such annual bonus shall
not exceed 200% of his annual salary. This Agreement supercedes his employment
agreement of September 1996.
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 February 1, 1998, the Company agreed to increase the monthly fee
to $15,000 per month.
[15] Stockholders Equity
At December 31, 1997, 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, 1997 and 1996, there were no shares of any series of Preferred
Stock outstanding.
See Note 7 in connection with (a) the issuance of securities in connection with
the Trans Global Transaction, (b) the issuance of shares 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 sixth of one share of Common Stock and a warrant to purchase one half
share of Common Stock at $21.00 per share. The warrants are exercisable for 45
days after the effective date of a registration statement which includes such
warrants.
In connection with the Trans Global Transaction, the Company issued an aggregate
of 35,913 shares of Common Stock and warrants to purchase an aggregate of 17,956
shares of Common Stock at $21.00 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 30,180 shares of Common Stock and warrants to purchase
15,090 shares.
Also in connection with the Trans Global Transaction, the Company issued 20,833
shares of Common Stock to an investment banking firm as a finders' fee.
54
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL SERVICES.
At December 31, 1996, there were also outstanding warrants to purchase 94,540
shares of Common Stock at $42.00 per share, which were issued in connection with
the Company's February 1994 initial public offering and expired in May 1997, and
warrants to purchase an aggregate of 49,285 shares of Common Stock at prices
ranging from $12.00 per share to $50.70 per share, of which warrants to purchase
an aggregate of 20,014 shares are held by entities who may be affiliated with a
former director of the Company.
A summary of warrant activity is as follows:
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstand-Beginning
of Years 1,137,434 $13.92 320,767 $30.26 143,827 $41.64
Granted or Sold
during the years -- -- 816,667 7.50 176,940 21.00
Cancelled during
the years -- -- -- -- -- --
Expired during
the years 224,075 (32.51) -- -- -- --
Exercised during
the years -- -- -- -- -- --
Outstanding-
End of Years 913,359 9.36 1,137,434 13.92 320,767 30.26
======= ==== ========= ===== ======= =====
Exercisable -
End of Years 837,109 8.31 1,061,784 13.41 245,117 33.11
======= ==== ========= ===== ======= =====
The following table summarizes warrant information as of December 31, 1997
Weighted Avg. Weighted Avg.
Range of Exercise Price Remaining Exercise
Shares Contractual Life Price
7.50 816,669 3.3 Years 7.50
21.00 75,650 (A) 21.00
50.70 9,166 1.2 Years 50.70
39.00 8,333 .9 Years 39.00
12.00 3,541 .7 Years 12.00
----- -- -----
913,359 3.1 Years 9.36
55
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(A) Registration is assumed to be completed December 31, 1998
[15] Stockholders Equity [Continued]
On January 2, 1996 and July 26, 1996, the Company sold 83,333 shares of common
stock and 833,333 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, 127,833 shares were granted and exercised, at an
average price of $5.40 per share, resulting in $2,543,536 of deferred charge
costs computed as follows:
Shares 127,833
Value of Stock at Date of Grant [Weighted Average] $ 25.29885
----------------
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 $140,872, $101,000 and
$2,213,774 was charged to income from operations for the years ended December
31, 1997, 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
18,333 shares of common stock, at a price of $6.00 per share. The market value
of the stock at the date of grant was $15.75 per share. The deferred charges
amount to:
Shares 18,333
Value of Stock at Date of Grant $ 15.75
-------------
288,750
Exercise Price 110,000
-------------
Total Charges Deferred at the Time of Exercise $ 178,750
=============
The option was exercised as to 4,166 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 14,166 shares unexercised. It was replaced with
a new grant to purchase 14,166 shares at $3.00 per share with an expiration date
of August 13, 1998. The market value of the stock at the date of grant was
$8.625. The deferred charges amount to:
56
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Shares 14,166
Value of Stock at Date of Grant $ 8.625
------------
122,188
Exercise Price 42,500
------------
Total Charges Deferred at the Time of Exercise $ 79,688
============
The option was exercised as to 11,166 shares of the 14,166 shares as of
December 31, 1997.
[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 25,000 shares
of Common Stock. Options to purchase 20,683 shares of Common Stock were granted
at exercise prices of $18.00 as to 9,083 shares, $30.00 as to 2,433 shares and
$30.00 as to 9,166 shares. The exercise price of all of such options was reduced
to $13.50 per share in February 1995. As of August 31, 1995, options to purchase
1,691 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 50,833 shares of Common
Stock. At August 31,1995, options to purchase 48,333 shares of Common Stock were
granted pursuant to the 1995 Plan, of which options to purchase 34,166 shares
were exercised and options to purchase 14,166 shares at an exercise price of
$6.00 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 83,333 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 415,388 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 41,666 shares of Common Stock pursuant to the 1995
Incentive Plan at an exercise price of $12.75 per share, being the fair market
value on the date of grant. The option is immediately exercisable as to 7,833
shares of Common Stock and becomes exercisable as to an additional 7,833 shares
of Common Stock on each of January 1, 1996, 1997, 1998 and 1999 and becomes
exercisable as to the remaining 2,500 shares of Common Stock on January 1, 2000.
In April 1996, the Company issued to each of Messrs. Lewis S. Schiller and
Joseph G. Sicinski a warrant to purchase 66,666 shares of Common Stock at $7.50
per share and to each of Messrs. E. Gerald Kay, Joel S. Kanter and Norman J.
Hoskin, a warrant to purchase 50,000 shares of Common Stock at $7.50 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.
57
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
In April 1996, the committee granted stock options to purchase an aggregate of
218,333 shares of common stock at $6.75 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 133,333 shares of
common stock, Mr. Lewis S. Schiller, former chairman of the board of the
Company, who received an option to purchase 25,000 shares of common stock, one
other officer, who received an option to purchase 16,666 shares of common stock,
and sixteen other employees who received options to purchase an aggregate of
43,333 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 [See Note 15].
In October 1997, the committee granted incentive stock options to purchase an
aggregate of 216,000 shares of common stock at $3.875 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 90,000
shares of common stock, Mr. Lewis S. Schiller, chairman of the board of the
Company, who received an option to purchase 25,000 shares of common stock, one
other officer, who received an option to purchase 20,000 shares of common stock
and twenty other employees who received options to purchase an aggregate of
81,000 shares of common stock. All options have a 5 year term.
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 20,683 -- --
Granted -- 48,333 41,666
Exercised -- ( 34,166) --
Expired ( 1,691) -- --
-------- --------- -------
Options Outstanding
- December 31, 1995 18,992 14,167 41,666
Granted -- 14,167 220,833
Exercised -- ( 8,333) --
Canceled -- (14,167) ( 41,666)
-------- --------- ---------
A summary of the activity under the Company's stock option plans (continued)
1993 Plan 1995 Plan 1995 Incentive Plan
Options Outstanding
- December 31, 1996 18,992 5,833 220,833
======== ========= ==========
Granted -- -- 216,000
Exercised -- -- --
Canceled -- -- --
58
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Options Exercisable
- December 31, 1997 18,992 5,833 436,833
======== ========= ==========
Weighted Average Exercise
Price $ 13.50 $ 5.28 $ 5.33
Weighted Average Remaining
Contractual Life $ 2.16 years $ 2.08 years $ 6.42 years
1997 Information
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 $538,460, $1,724,000
and $393,000 for the years ended December 31, 1997, 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 7 1 9 9 6 1 9 9 5
Net Income/(Loss) as Reported $1,022,881 $ (681,250) $(4,695,745)
========= =========== ===========
Pro Forma Net Loss $ 484,421 $(2,405,250) $(5,088,745)
========= =========== ===========
Basic Earnings (Loss)
Per Share as Reported $ .268 $ (.27) $ ($8.88)
========= =========== ===========
Pro Forma Net Earnings Per Share $ .127 $ (.95) $ ($9.62)
========= =========== ===========
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:
1997 1996 1995
Expected Life [Years] 5 2 2
Interest Rate 6.0% 5.8% 60%
Annual Rate of Dividends 0% 0% 0%
Volatility 87.61% 84.0% 83.9%
The weighted average fair value of options at date of grant using the fair value
based method during 1997, 1996, and 1995 is estimated at $2.79, $1.22 and $.73,
respectively.
[17] Employment Benefit Plans
On November 22, 1994, the Company adopted a Qualified Retirement Plan under the
Internal Revenue Code. The Plan requires employees to complete 3 months of
service and attain the age of twenty one. The employer does not make any
contributions to the plan.
59
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[18] 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.
[19] New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Financial
Accounting Standards ("SFAS") No.130, "Reporting Comprehensive Income." SFAS No.
130 is effective for fiscal year's beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative information for earlier years is to be restated. SFAS No.
131 need not be applied to interim financial statements in the initial year of
its application. SFAS No. 131 is not expected to have a material impact on the
Company.
(20) Subsequent Events
In April 1998, Mr. Lewis S. Schiller, who was chairman of the board, chief
executive officer and a director of Consolidated, the Company and other
subsidiaries of Consolidated, resigned as an officer and director of
Consolidated and each of its present subsidiaries, including the Company.
Messrs. Norman J. Hoskin and E. Gerald Kay, who were directors of Consolidated,
the Company and other subsidiaries of Consolidated, resigned as directors of
Consolidated and such subsidiaries, including the Company. Contemporaneously
with the effectiveness of such resignations, Messrs. Edward D. Bright, Seymour
Richter and Donald Chaifetz were elected as directors to fill the vacancies
created by the resignation of Messrs. Schiller, Hoskin and Kay. Messrs. Bright,
Richter and Chaifetz were also elected as directors of Consolidated.
60
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT made this 15th day of October 1997, by and among TRANS GLOBAL
SERVICES, INC., (TGS) and its subsidiary companies, Avionics Research
Corporation, Avionics Research Corporation of Fl., and Resource Management
International, Inc., collectively referred to as TGS (hereinafter referred to as
TGS) and Joseph G. Sicinski (hereinafter referred to as the ("Executive').
Whereas, TGS desires to retain the employ of the Executive as the President and
Chief Operating Officer of TGS and Executive is willing to perform the service
hereafter described upon the terms and conditions hereinafter set forth;
Now, therefore, it is mutually agreed as follows:
1.0 TERM:
The Company (TGS) hereby retains the employ of the Executive for a period of
five (5) years commencing as of the date of this Agreement and expires September
15, 2002.
2.0 DUTIES:
2.1 The Executive shall have the title of President and Chief Operating Officer
of TGS.
2.2 The Executive shall have and exercise such duties, responsibilities,
privileges, powers, and authority as are established by statute, as are set
forth in TGS by-laws and corporate minutes and as may be assigned to him by
TGS's Board of Directors; provided that such duties are reasonably consistent
with the Executive's education, experience and background.
2.3 The Executive agrees to devote substantially all of his business time,
attention, skill and efforts to the business conducted by TGS. The Executive
shall report to the Board of Directors of TGS. 2.4 As a condition of the
employment of the Executive pursuant to this Agreement, TGS agrees that all
decisions relating to distributions or dividends or other major expenditures
must be approved by the Executive as well as by a majority of the Board of
Directors of TGS.
2.5 At all times during the term of this Agreement, the Executive shall perform
his designated duties at TGS offices located in the county of Suffolk in the
State of New York.
3.0 COMPENSATION:
In consideration for the Executive entering into and executing this Agreement
and for providing services hereunder, the Executive shall be entitled to receive
the following compensation plus such additional increases in salary,
compensation or benefits as the Board of Directors may direct:
61
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 2
3.1 A Minimum base annual salary of $ 260,000 per year payable in equal weekly
installments and shall increase annually by the greater of 5% or the increase in
cost of living index.
3.2 In addition to the base salary and annual increases set forth herein, the
Executive shall be entitled to an annual bonus of not less than 5% of the net
income before tax and all non-cash adjustments and expenses including charges
and fees paid to Consolidated Technology Group, Ltd., its subsidiary and
associated companies, for TGS and its wholly or partially owned subsidiaries,
currently owned and acquired during the terms of this Agreement provided that
such annual bonus shall not exceed 200% of Executive's gross income.
3.3 REIMBURSEMENT OF ENPENSES:
The Executive is authorized to incur reasonable expenses for performing his
duties pursuant to this Agreement and TGS shall reimburse him for all actual
expenses, including entertainment, travel and other miscellaneous expenses
reasonably incurred in promoting the business of TGS and in performing his
duties as described herein.
3.4 VACATION:
The Executive shall be entitled to annual vacation time with full pay in
accordance with the TGS's policies but not less than four (4) weeks per year,
which shall be accrued if not utilized in full.
3.5 The Executive shall be provided with a company automobile. Said compensation
shall be made by payment of monthly lease or car loan payment, insurance, gas,
service and maintenance costs. At the end of the lease or loan period and at the
discretion of TGS, the car will be transferred to the Executive at a fair and
reasonable market value or lease buy back value or at the option of TGS will
lease or finance another new car comparable to the initial car provided under
this provision.
4.0 BENEFITS:
4.1 Nothing contained in this Agreement shall be construed to impair or limit
the Executive's rights to participate in all employee benefit plans of TGS of
every nature, and he shall , in fact, be entitled to participate in and be a
member of all such benefits plans in proportion to his total compensation
hereunder. "Benefit plans " shall include:
Holidays
Life Insurance
Hospitalization
Medical and Major Medical (family)
Dental insurance (family)
Stock option (s)
Stock purchase or bonus plans
Retirement programs
62
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 3
4.2 SPECIAL LIFE INSURANCE:
TGS shall maintain at its expense a life insurance policy upon the life of the
Executive in the face amount of $2,000,000; half of which is payable to TGS
($1,000,000) and the remaining ($1,000,000) payable to such beneficiary as the
Executive shall designate from time to time, in writing, and in the absence of
such designation to his estate. Such insurance may be part of such group
insurance as TGS maintains for the benefit of salaried employees generally of
the rank and status of the Executive.
5.0 TERMINATION AND SEVERANCE:
5.1 Nothing herein is intended to prohibit TGS from terminating this Agreement
for serious and willful misconduct on the part of the Executive, provided, that
in the event that the Executive's employment is terminated for cause by TGS,
nevertheless the Executive shall be entitled to receive such benefits under
TGS's employee benefit plans, in which he is a participant, or as are provided
by this Agreement.
5.2 If the employee shall become totally and permanently disabled and is unable
to work by reason of temporary or permanent disability, TGS will continue his
base salary for the full term of this Agreement at the rate as provided above
inclusive of all bonuses and incentives, including full payment of medical and
life insurance for the full term of this Agreement.
5.3 If during the term of this Agreement, TGS's Board of Directors appoints a
person other than the Executive to the position of President currently held by
the Executive at TGS, or to a position with similar duties, powers and
responsibilities, the Executive shall have the night to retire from full-service
from TGS and to render only such part-time consulting and advisory services as
TGS may reasonably request. Any such services and the conditions under which
they shall be performed shall be fully in keeping with the position or positions
the Executive held under this Agreement. The Executive shall continue to be
entitled to receive the full compensation provided for in this Agreement
including salary, bonuses and benefits for the full term of this Agreement.
5.4 Termination at will. The Board of Directors may not terminate the
Executive's employment by TGS or diminish his duties, powers and
responsibilities pursuant to this Agreement without cause as set forth herein.
5.5 Any dispute or difference of opinion between the Executive and TGS as to the
latter's right to terminate this Agreement shall be submitted to and determined
by arbitration in accordance with the provisions of Section 7.4 hereof set forth
below. TGS shall notify the Executive of said actions in writing and provide at
least 30 days to remedy such failures.
63
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 4
5.6 Non-Curable Termination For Cause: Executive's employment with TGS may be
terminated "immediately" for cause if the Executive is determined to (1)
repeatedly have acted dishonestly or engaged in deliberate misconduct; (2)
repeatedly breached a fiduciary trust for the purpose of gaining personal
profit; (3) repeatedly neglected to perform customary duties of his position
after 30 days due written notice of said omission from the President or Board of
Directors; or (4) have been convicted of the commission of a felony.
In the event of termination, the President or Board of Directors is required to
give 10 days notice in writing to the Executive, by certified or registered
mail, mailed to the Executive's last known address and the same notice by
ordinary mail or courier to the Executive's principal office at TGS.
6.0 NOTICE OF CHANGE (S) AND/OR REVISIONS(S):
Any notice, request or other communication required or permitted pursuant to
this Agreement shall be in writing and shall be deemed dully given when received
by the party to whom it shall be deemed dully given when received by the party
to whom it shall be given or three days after being mailed by certified,
registered or express mail, postage prepaid, address as follows:
If to the Company:
TRANS GLOBAL SERVICES, INC.
1393 Veterans Memorial Highway
Hauppauge, New York 11788
If to the Executive:
Joseph G. Sicinski
3 8 Woodhollow Rd.
Great River, N.Y. 11739
Any party may change the address to which communications are to be mailed given
notice of such change on the manner provided above.
7.0 SPECIAL TERMS AND CONDITIONS:
7.1 The Board of Directors of TGS reserves the right to increase the
compensations and benefits specified in this contract at any time hereafter and
no such increase (s) or adjustments(s) shall operate as cancellation of this
Agreement but merely as an amendment hereto.
7.2 REORGANIZATION:
If the Company shall at any time be merged or consolidated substantially all
assets of TGS are transferred to another corporation or entity, the provisions
of this Agreement shall survive any such transaction and shall be binding upon
and inure to the benefit of the corporation resulting from such merger or
consolidation.
64
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 5
7.3 Nothing herein contained shall in any manner modify, imperil or affect
existing or future rights or interests of the Executive to receive any employee
benefits to which he would otherwise be entitled or as a participant in the
present or any future incentive, profit-sharing or bonus plan of TGS providing
for his participation, or in any present or future stock option plan of TGS, to
the extent such plans are applicable generally to salaried employees, it being
understood and agreed that the rights and interests of the Executive to any
employee benefits or as a participant or beneficiary in or under any or all said
plans, respectively, shall not be adversely affected hereby.
7.4 ARBITRATION:
Any controversy or claim arising under this Agreement shall be settled by
binding arbitration in accordance with Rules of the American Arbitration
Association then in effect, and such arbitration shall be held either 'in Nassau
or Suffolk County. This shall be the exclusive remedy for the violation of
either party of the terms of this Agreement. The controversy or claim shall be
submitted to three arbitrators, one of whom shall be chosen by TGS, one of whom
shall be chosen by the Executive, and the third of whom shall be chosen by the
two so selected. The party desiring arbitration shall give written notice to the
other party of its desire to arbitrate the particular matter 'in question,
naming the arbitrator selected by it. If the other party shall fail within a
period of 15 days after such notice shall have been given to reply in writing
naming the arbitrator selected by it, then the party not in default may appoint
an arbitrator to fill the place so remaining vacant. The decision of any two of
the arbitrators shall be final and binding upon the parties hereto and shall be
delivered in writing, signed in triplicate by the concurring arbitrators to each
of the parties hereto. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof.
8.0 MISCELLANEOUS:
8.1 This Agreement shall become effective as of the day and date first above
written.
8.2 The heading or captions of sections or paragraphs are used for convenience
of reference merely and shall be ignored in the interpretation hereof
8.3 As used herein, terms such as "herein:, "hereof', "hereto" and similar
language shall be interpreted to refer to this entire 'instrument as not merely
the paragraph or sentence in which they appear, unless so limited by express
language.
8.4 Neither this Agreement nor any of his rights hereunder may be assigned by
the Executive without the written consent of TGS unless specifically identified
in this Agreement.
8.5 In the event of a suit or claim against the Executive arising out of his
corporate duties, TGS will provide and pay for legal counsel approved by the
Executive, and hold the Executive harmless and indemnify the Executive for any
and all costs, fees, suits, judgments and settlements arising therein.
65
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 6
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
on the day and date first above written:
Trans Global Services, Inc.
Avionics Research Corporation
Avionics Research Corporation of Fl.
Resource Management International, Inc.
by: ______________________________________
LEWIS S. SCHILLER, Chief Executive Officer
by: ______________________________________
Joseph G. Sicinski, Executive
66
EXHIBIT 10.3
Amendment dated February 15, 1998 to the management services agreement between
the Company and The Trinity Group, Inc.
The Trinity Group, Inc.
160 Broadway
New York, New York 10038
February 15, 1998
Trans Global Services, Inc.
1393 Veterans Memorial Highway
Hauppauge, NY 11788
Re: Management Services Agreement
Gentlemen:
This will confirm our agreement and understanding that, effective with the month
of February 1998, the monthly fee payable by Trans Global Services, Inc., a
Delaware corporation (the ACompany@), pursuant to the Management Services
Agreement dated January 1, 1995 between the Company and The Trinity Group, Inc.
will increase to $15,000. This amendment supersedes and terminates the amendment
dated as of January 1, 1997 to the Management Services Agreement.
THE TRINITY GROUP, INC.
By:
Lewis S. Schiller, CEO
AGREED TO:
TRANS GLOBAL SERVICES, INC.
By:
Joseph G. Sicinski, President
67
EXHIBIT 10.13
Letter agreement dated January 29, 1998, between the Company and Metro.
METRO FINANCIAL SERVICES
Walnut Glen Tower
8144 Walnut Hill Lane, Suite 1099
Dallas, Texas 75231-4316
January 29, 1998
VIA FAX: (516) 724-0039
Resource Management International, Inc.
1393 Veterans Memorial Highway
Hauppauge, New York 11788-3025
Attention: Mr. Glenn Charles, CFO
Dear Glenn:
Please be advised that Resource Management International, Inc.'s present
financial agreement with us has been approved for continuation through the
earlier of the closing of refinancing through the Bank of Tokyo or December 31,
1998. We appreciate the opportunity to work with you all these years and look
forward to working with you through this time of transition.
As always, your professional courtesy and cooperation are sincerely appreciated.
Very truly yours,
Richard G. Worthy
President
RGW:njw
68
EXHIBIT 10.14
Voluntary settlement agreement between Resource Management Corporation, the
Secretary of Labor and the court appointed independent trustee of the Job Shop
Technical Services, Inc. 401(k) Plan.
IN RE: JOB SHOP TECHNICAL SERVICES, INC.
407(k) PROFIT SHARING PLAN
VOLUNTARY SETTLEMENT AGREEMENT RESOURCE MANAGEMENT INTERNATIONAL INC.("Resource
Management formerly known as ITS MANAGEMENT CORP. ("ITS"), ROBERT B. REICH,
Secretary of Labor, United States Department of Labor, ("the Secretary") , and
JOHN BRASLOW, Court appointed Independent Trtstee of the JOB SHOP TECHNICAL
SERVICES INC. 401(K) PROFIT SHARING PLAN ("Job Shop 401(k) Plan"), agree as
follows:
WHEREAS, on August 19, 1994 ITS purchased all the assets of JOB SHOP TECHNICAL
SERVICES, INC. ("Job Shop"), Plan Sponsor of the Job Shop 401(k) Plan, and at
the time of said purchase Job Shop had failed to forward monies withheld from
employees paychecks for contribution to the Job Shop 401(k) Plan, and;
WHEREAS, the Secretary and John Braslow have asserted claims against Resource
Management relating to the August 19, 1994 purchase by ITS of the assets of Job
Shop arising under Title I of the Employee Retirement Income Security Act of
1974, as amended, ("ERISA") , 29 U.S.C. 1001, et seq., and based on theories of
successor corporate liability, and;
WHEREAS, the parties desire to resolve all potential disputes over these
questions without resort to further administrative or legal proceedings.
NOW, THEREFORE, it is mutually agreed between the Secretary, John Braslow, on
behalf of the Job Shop 401 (k) Plan, and Resource Management, that:
1. Resource Management, without admitting or denying any violation of ERISA, the
Secretary, and John Braslow, on behalf of the Job Shop 401(k)Plan, agree to this
settlement as a full and complete resolution of all claims that have been, or
could be, asserted by the Secretary or John Braslow on behalf of the Job Shop
401(k) Plan arising out of the August 19, 1994 purchase by ITS of the assets of
Job Shop. The Secretary of Labor and the Independent Trustee agree that they
will not resort to administrative, or other legal proceedings against Resource
Management with respect to these issues.
2. This settlement is not binding on any government agency other than the United
States Department of Labor.
3. Resource Management shall pay to the Job Shop 401(k) Plan the principal
amount of $300,000.00. Such payment shall be made in a Lump sum on or before
March 31, 1997. In the event however that the public offering of stock by
Resource Management is not completed, in accordance with the terms of the
offering, on or before March 31, 1997, Resource Management shall pay the
principal amount of $300,000.00 in 18 monthly installments, with interest
accruing on the balance of the principal due, beginning on April 1, 1997 at a
rate equal to the post judgment interest rate that would be applicable if this
were a judgment under 28 U.S.C. 1961.
The first installment of $16,666.78 is due and payable on April 1, 1997. The
remaining seventeen installments of $16,666.66 in principal, plus interest, are
due on the first day of each month thereafter, continuing until all payments are
made. Resource Management may pre-pay any installment.
69
EXHIBIT 10.14
Voluntary settlement agreement between Resource Management Corporation, the
Secretary of Labor and the court appointed independent trustee of the Job Shop
Technical Services, Inc. 401(k) Plan.
4. In the event that Resource Management defaults in the payment of any amount
due under this Settlement Agreement, and fails to correct said default within 20
days of the mailing by the Independent Trustee or his successor, of written
notice of such default, the entire principal amount remaining to be paid under
this Settlement Agreement shall become due and payable immediately and the
Independent Trustee may take whatever steps are necessary to exercise the Plan's
rights with respect to this agreement.
5. Resource Management shall provide the Secretary with notice of each payment
made to the Job Shop 401 (k) Plan under the terms of this Settlement Agreement
by mailing a copy of proof of each such payment to John E. Wehrum, Regional
Director, Pension Welfare Benefits Administration, 1633 Broadway, Room 226, New
York, New York 10019.
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE
Years ended December 31,
1997 1996 1995
Average shares outstanding 3,819,574 2,530,495 528,782
Dilutive effect of stock
options and warrants computed
by use of treasury stock
method 69,415 0 0
Computation of Earnings Per
Share=Net Income/Average
common and common share
equivalent shares 1,022,881 (681,252) (4,695,745)
outstanding 3,888.989 2,530,495 528,782
--------- --------- -------
Earnings Per Share 0.26 (0.27) (8.88)