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, 2002
[ ] 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 issuer as specified in its charter)
DELAWARE 62-1544008
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8707 KATY FREEWAY, SUITE 300, HOUSTON, TEXAS 77024
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 467-4140
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
PAR VALUE $0.01
PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Itey c5
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter: $624,800.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of June 30, 2003: 15,620,000.
Documents incorporated by reference: None.
PART I
ITEM 1. BUSINESS.
Trans Global Services, Inc. provides technical temporary staffing services.
In performing such services, we provide engineers, designers and technical
personnel on a temporary contract assignment basis pursuant to contracts with
major corporations, primarily aircraft and aerospace firms. The engagement may
relate to a specific project or may cover an extended period based on the
client's requirements. It is our belief that the market for technical temporary
staffing services, such as those which we offer, results from the trend in
employment practices by major corporations principally in the aircraft and
aerospace industries as well as the electronics, energy, information technology,
telecommunications, and public utilities industries to reduce their permanent
employee staff and to supplement their staff with temporary personnel on an
as-needed basis.
We seek to offer our 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 us are on
temporary contract assignment, they work with the client's permanent employees;
however, they may receive different compensation and benefits than permanent
employees.
In providing our services, we engage the employee, pay the payroll and
related costs, including FICA, workers' compensation and similar federal and
state mandated insurance and related payments. We charge our clients for
services based upon the payroll cost of the personnel. Employees assigned to a
client submit time cards indicating services rendered. The employee is paid on
the basis of such services, and the client is billed accordingly.
Our strategy is directed at increasing our customer base, and providing
additional services such as integrated logistics support to our existing
customer base, which includes defining market niches within the existing client
base to manage and operate certain outsourced projects. These programs offer the
opportunity to provide value added services that are designed to create
differential and enhanced profit margins.
Increased marketing effort and penetration into the petrochemical arena has
contributed to our revenue growth in the first quarter of 2003. Additional
budgeting is reducing our overhead costs, which we expect will have a
significant impact by the third quarter of the year.
OUR ORGANIZATION
We are a Delaware corporation incorporated in September 1993 under the name
Concept Technologies Group, Inc. We changed our name to Trans Global Services,
Inc. in 1995. On April 3, 2003, we moved our executive offices to 8707 Katy
Freeway, Suite 300, Houston, Texas 77024. Our new telephone number is (713)
467-4140.
Our operations are conducted through our six subsidiaries, Resource
Management International, Inc., Avionics Research Corporation, Avionics Research
Corporation of Florida, Truecom, Inc., RMI Pendragon, Inc., and Phoenix
Services, Inc.
In this Form 10-K Annual Report, references to "us" refer to Trans Global
Services and our subsidiaries, unless the context indicates otherwise.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-K Annual Report may be "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, but are not limited to, statements
that express our intentions, beliefs, expectations, strategies, predictions or
any other statements relating to our future activities or other future events or
conditions. These statements are based on current expectations, estimates and
projections about our business based, in part, on assumptions made by our
management. These statements are not guarantees of future performance and
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involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may, and probably will, differ materially
from what is expressed or forecasted in the forward-looking statements due to
numerous factors, including those described above and those risks discussed from
time to time in this Form 10-K Annual Report, including the risks described
under "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in other documents which we file with
the Securities and Exchange Commission.
In addition, such statements could be affected by risks and uncertainties
related to our financial condition, factors that affect the aircraft and
aerospace industries, market and customer acceptance, competition, government
regulations and requirements and pricing, as well as general industry and market
conditions and growth rates, and general economic conditions. Any
forward-looking statements speak only as of the date on which they are made, and
we do not undertake any obligation to update any forward-looking statement to
reflect events or circumstances after the date of this Form 10-K Annual Report.
RISK FACTORS
OUR FINANCIAL POSITION HINDERS OUR OPPORTUNITY TO DEVELOP NEW CLIENTS
A number of major clients now consider financial stability as a qualifying
element when placing large programs for outsourcing. Our weak financial
position and reliance on factors for financing our cash flow requirements
creates an obstacle to business development.
RELIANCE ON ONLY ONE MAJOR BUSINESS SECTOR
A major portion of our revenue remains dependent on the aircraft and
aerospace business creating undue economic reliance on those industries.
Accordingly, we have expended considerable effort on developing petrochemical
and commercial clients in order to reduce our reliance on a single industry
element.
Our largest clients for 2002 and 2001 were in the aircraft and aerospace
industries, accounting for revenue of approximately $14.7 million, or 65 percent
of revenue, in 2002, and $20.0 million, or 74 percent of revenue, in 2002. We
have, in the past, incurred significant drops in revenue and increased losses as
a result of economic conditions in these industries. Because of the focus on new
client development, both our sales and mark-up increased in the fourth quarter
of 2002. We cannot assure you that the aircraft and aerospace industries will
not suffer slowdowns in the future. However, we are actively targeting a broader
client base to offset those slowdowns.
WE HAVE A SIGNIFICANT PAYROLL TAX LIABILITY
Our subsidiaries have an estimated payroll tax liability to the Internal
Revenue Service in the amount of $4,528,164.88 for the period beginning January
1, 2003 and ending August 31, 2003. Additional liabilities have accrued since
August 31, 2003. The federal payroll tax liability, but not the penalties and
interests, for the first two quarters of 2003 were paid in full on or about
October 17, 2003 for the following subsidiaries: Avionics Research Corporation,
Avionics Research Corporation of Florida, Phoenix Services, Inc., and Truecom,
Inc. The federal income tax liabilities for the year 2003 remain unpaid for the
following subsidiaries: Resource Management International, Inc. and RMI
Pendragon, Inc. If we are unable to either pay the amount owed or make
satisfactory arrangements with the IRS under a payment plan, the IRS could levy
on the assets of our subsidiaries in an attempt to liquidate the tax liability.
If that should happen, we would in all likelihood cease operations, and our
business could fail. As of the date of this Annual Report, we have not filed
all of the required state and federal payroll tax reports and have not made any
arrangements with the IRS nor secured any commitment from a lender to pay the
unpaid taxes. This estimated federal payroll tax liability does not include any
potential penalties and interest for non-payment and non-reporting.
WE HAVE NOT YET FILED PERIODIC REPORTS REQUIRED UNDER THE EXCHANGE ACT
We acquired certain operating contracts from Pendragon Staffing, Inc. and
Phoenix Marketing Services, Inc in January 2003 pursuant to the terms of a stock
purchase agreement under which NAG, Financial, LLC, purchased our newly issued
common stock. Pursuant to the rules under the Securities Exchange Act of 1934 we
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are required to file a periodic report on Form 8-K along with audited financial
statements of the assets acquired. We have not yet prepared the Form 8-K.
In addition, we have not yet filed our quarterly reports on Form 10-Q for
the periods ending March 31, 2003 and June 30, 2003. Consequently we have failed
to comply with the reporting requirements of the Exchange Act. Until we are in
compliance with all of the reporting requirements of the Exchange Act, we are
prohibited from filing any registration statements under the Securities Act of
1933, and may be subject to sanctions by the SEC.
WE DO NOT HAVE ADEQUATE DISCLOSURE CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer have evaluated our
disclosure controls and procedures as of December 31, 2002, and they have
concluded that these disclosure controls and procedures were effective as of
that date and the period covered by this Annual Report. However, since December
31, 2002, there have been significant changes in our internal controls and in
other factors that could significantly affect these controls. The changes
resulted from the transfer of all accounting and financial reporting functions
from our previous corporate office in New York to the new corporate office in
Houston. Since the transfer, we have informed our auditors and audit committee
members of potentially material weaknesses in our internal controls. Our
management is currently addressing the deficiencies in our internal controls by
having hired a controller to take responsibility for the accounting and
financial reporting process. Unless we can correct the deficiencies in our
internal controls, our chief executive officer and chief financial officer will
not be able to provide the necessary certifications mandated by the Exchange Act
for our periodic reports following December 31, 2002. The failure to provide
the certifications specified by the Exchange Act will put us in violation of
that Act, and subject us to potential penalties.
WE HAVE A WORKING CAPITAL DEFICIENCY, WHICH COULD IMPAIR OUR ABILITY TO CONTINUE
IN BUSINESS
At December 31, 2002, we had a deficiency in working capital of
approximately $282,000. Presently, our primary source of funds is our line of
credit from our asset-based lender. We have had limited success in raising
funds and we believe that, because of our financial condition and stock price,
we will continue to have difficulty in raising funds. The failure to raise
funds may affect our ability to continue in business.
WE INCURRED LOSSES DURING EACH OF THE PAST THREE YEARS, AND OUR LOSSES ARE
CONTINUING
We sustained a loss of $3.3 million, or $0.32 per share (basic and diluted)
for 2002. We cannot assure you that we will be able to generate profits in the
future. Our failure to generate profits could affect our ability to continue
our operations.
OUR CREDIT AGREEMENT WAS EXTENDED FOR ONE YEAR IN JANUARY 2003
Our principal source of cash during 2002 was our credit facility with our
asset-based lender. This facility was renewed on October 16, 2002, subject to a
one-year renewal option, if mutually agreed. The agreement was extended for one
year in January 2003. We require this facility in order to meet our payroll
obligations, since we pay our employees before we receive payment from our
customers. We will not be able to continue in business unless we are able to
extend our credit facility or otherwise obtain necessary financing. The terms
of any financing which may be available to us may be less favorable than the
terms of our present credit arrangement. Any equity financing would result in
substantial dilution to our stockholders.
BECAUSE OF OUR FINANCIAL CONDITION, WE MAY HAVE DIFFICULTY GENERATING BUSINESS
IN A HIGHLY COMPETITIVE INDUSTRY
The technical temporary staffing business is highly competitive with
respect to clients and employees. In order to attract both clients and
employees, we must show that we have the financial capability to meet our
obligations. Additionally, we must offer our employees the same benefits that
our competitors offer. Our financial position has in the past limited our
ability to grow. Our current financial position, particularly our lack of
working capital, may increase the difficulty in retaining existing clients and
obtaining new clients.
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OUR BUSINESS MAY BE IMPAIRED BY ANY TRENDS IN EMPLOYMENT PRACTICES WHICH RESULT
IN TEMPORARY STAFFING EMPLOYEES BEING TREATED THE SAME AS PERMANENT EMPLOYEES
Our temporary staffing business is based in part on providing employees at
a lower cost than employers would pay permanent employees. Many of the
temporary employees work with permanent employees and perform similar duties.
Our business would be impaired if temporary employees are required to be treated
like permanent employees, whether as a result of labor negotiations, court or
administrative decisions, legislation or regulation, or other factors outside of
our control.
WE NEED TO ATTRACT QUALIFIED EMPLOYEES TO SERVICE OUR CLIENTS
We are dependent upon both our ability to obtain contracts with clients and
to provide those clients with qualified employees. The market for qualified
personnel is highly competitive, and we compete with other companies in
obtaining contracts with potential clients and in attracting employees. Our
financial condition impairs our ability to attract qualified employees.
WE MAY BE HELD LIABLE FOR THE ACTIONS OF OUR EMPLOYEES WHEN ON ASSIGNMENT
Although our client agreements disclaim responsibility for the conduct of
our employees, we may be exposed to liability with respect to actions taken by
our employees while on assignment, such as damages caused by their errors,
misuse of client proprietary information or theft of client property. We
maintain general liability insurance and umbrella coverage to mitigate such
damages. Our risk is limited to claims in excess of our extended coverage. Due
to the nature of our assignments, we cannot assure you that we have no liability
as a result of our employees being on assignment.
WE ARE DEPENDENT UPON OUR MANAGEMENT
Our business is dependent upon our senior executive officers, principally,
Arthur P. Grider III, our president and chief executive officer, who is
responsible for our operations, including marketing and business development.
Although we have an employment agreement with Mr. Grider, the agreement does not
guarantee that he will continue his employment with us. Our business may be
adversely affected if any of our key officers left our employ.
WE MAY CONSIDER A MERGER OR ACQUISITION
We are seeking to address our lack of liquidity through a merger or
acquisition. Any such transaction may result in a change of control and
substantial dilution to our stockholders. In addition, such transaction may
also result in a significant change in our business. We cannot assure you that
we will be able to complete any such transaction on terms that are favorable to
our stockholders or us and/or will result in increased liquidity or profitable
operations. Specifically, we cannot take any action requiring a vote of our
stockholders until we have filed all of the periodic reports required by the
Exchange Act.
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK
The rights of the holders of our common stock may be impaired by the
potential issuance of preferred stock. Our certificate of incorporation gives
our board of directors the right to create series of preferred stock. As a
result, the board of directors may, without stockholder approval, issue
preferred stock with voting, dividend, conversion, liquidation or other rights,
which could adversely affect the voting power and equity interest of the holders
of our common stock. The preferred stock, which could be issued with the right
to more than one vote per share, could be utilized as a method of discouraging,
delaying or preventing a change of control. The possible impact on takeover
attempts could adversely affect the price of our common stock.
5
OUR COMMON STOCK IS SUBJECT TO THE SEC'S PENNY-STOCK RULES
Our common stock is subject to the SEC's penny-stock rules, which impose
additional sales practice requirements on broker-dealers which sell our stock to
persons other than established customers and institutional accredited investors.
These rules may affect the ability of broker-dealers to sell our common stock
and may affect the ability of our stockholders to sell any common stock they may
own.
In addition, due to our failure to timely file this Annual Report, as of
May 23, 2003, we are no longer eligible to have our shares of common stock
quoted on the OTC Bulletin Board. Our shares are now quoted in the "pink
sheets," a factor which may reduce the marketability of our shares. Before our
shares of common stock can once again be quoted on the OTCBB, we will have to
submit an application for qualification to the NASD. We cannot predict when we
will qualify to have our shares quoted on the OTCBB, if ever. See Item 5 of this
Annual Report.
SHARES MAY BE ISSUED PURSUANT TO OPTIONS AND WARRANTS
We may issue stock upon the exercise of options granted up to an aggregate
of 110,000 shares of our common stock pursuant to our long-term incentive plans
and warrants to purchase an aggregate of 75,650 shares. Any shares issued would
cause a dilution of our current stockholders.
MARKETS AND MARKETING
The market for our services is comprised of major corporations in such
industries as aircraft, aerospace, electronics, energy, engineering, computer
services and telecommunications, where the use of technical temporary staffing
has become an important method of cost reduction. Typically, a client enters
into an agreement with one or a small number of companies to locate, recruit,
assign and serve as employer of record for its temporary staff. Temporary
employees are hired on an as-required basis and utilization may fluctuate
without significant notice. Additionally, major clients may elect to outsource
special projects that are assigned to a single vendor. Outsource programs
normally have scheduled performance criteria with predictable revenue streams.
We maintain a computerized database of technical personnel based upon their
qualifications and experience. The current database, which contains more than
108,000 applicants, has been generated through previous employees, referrals and
responses to media advertisements. Our responsibilities for employee engagement
include locating, recruiting, screening, initial technical interview, resume
verification, reference checks, schedule client interviews (when required),
hiring, and maintaining each employee throughout the assignment. The majority of
work performed by our employees is performed at the client's premises and under
the client's direction, although we are the employer of record.
We also conduct an ongoing program to survey and evaluate our clients'
needs and satisfaction with our services, which we use as part of our marketing
effort.
Although we have six offices throughout the United States, including our
main office in Houston, Texas, there are no limited geographic markets for our
services. We have in the past established offices in new locations when we
receive a contract in the area and cannot effectively service the contract from
our existing offices. We intend to continue to establish new offices as
necessary to meet the needs of our customers.
A client will utilize technical temporary staffing services, such as those
which we provide, 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 us with a detailed
job description. We then conduct an electronic search in our computerized resume
database 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 our recruiters, who interview interested candidates.
If a candidate is acceptable to us and interested in the position, we refer the
candidate to the client. An employment agreement is executed with us prior to
the commencement of employment.
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We serve primarily the aircraft and aerospace industries as well as the
electronics, energy, telecommunications, computer science and public utilities.
We are seeking to expand our efforts to address the general trend of temporary
staffing by major corporations on a national basis. In the last quarter of 2002,
we generated $0.5 million in new client billings. Our contracts are generally
terminable by the client on short notice.
There is no seasonality to our business.
The following table shows the revenue and the percentage of our total
revenue from those clients that accounted for at least five percent of our
revenue in 2002:
CLIENT REVENUE PERCENT
----------------------- ------------ --------
Lockheed-Martin $6.1 million 27.2 %
Bell Helicopter Textron $4.7 million 20.8 %
Gulfstream Aerospace $2.1 million 9.6 %
DCR, Inc. $1.8 million 8.1 %
The following table shows the revenue and the percentage of our total
revenue from our largest clients in 2001:
CLIENT REVENUE PERCENT
----------------------- ------------ --------
Lockheed-Martin $7.9 million 29.2%
Bell Helicopter Textron $4.6 million 17.0%
Boeing $4.2 million 15.5%
Gulfstream Aerospace $3.3 million 12.2%
The following table shows the revenue and the percentage of our total
revenue from our largest clients in 2000:
CLIENT REVENUE PERCENT
----------------------- ------------ --------
Lockheed-Martin $5.7 million 24.5%
Bell Helicopter Textron $4.1 million 17.6%
Boeing $3.6 million 15.5%
Gulfstream Aerospace $2.2 million 9.4%
Because of our financial condition, Boeing is no longer giving us any new
assignments, although it is continuing to use our personnel on existing
engagements.
COMPETITION
The business of providing employees on either a permanent or temporary
basis is highly competitive and is typically local in nature. We compete 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 than
we have. However, we believe that developing operating niches (i.e., tooling
and manufacturing engineers) creates opportunities to differentiate and add
value to our services. The profile and reputation of our marketing
representatives and recruiters is more technical than many of our competitors
and accordingly offer more opportunities for us to develop outsourced programs.
The ability to demonstrate a pattern of assigning and keeping qualified
employees is an integral aspect of our new business development. The market for
qualified personnel is highly competitive, and we vie with other companies to
attract qualified candidates.
Our ability to increase our business with existing clients or to attract
other clients has been affected by our working capital. However, improved health
insurance and 401(k) plans, and our new direct deposit program have improved our
closure rate.
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GOVERNMENT REGULATIONS
Temporary technical staffing, not to be confused with the employee leasing,
does not require licensing. However, we are subject to federal and state
regulations concerning the employment relationship, including those relating to
wages and hours and unemployment compensation. We also maintain a 401(k) plan
for our employees and we are subject to regulations concerning such plan.
We do not have contracts with any governmental agencies. However, our
clients include major defense contractors that have contracts with governmental
agencies.
Several of our clients' contracts with governmental agencies are subject to
renegotiation or cancellation for the convenience of the government. Since the
staffing needs of each of our clients are based on the clients' own requirements
and the clients' needs are affected by any modification in requirements, any
reduction or increase in staffing by a client resulting from cancellation or
modification of government contracts could impact our business.
EMPLOYEES
At December 31, 2002, we had 288 employees, 210 of whom were contract
service employees who performed services on our clients' premises and 18 who
were executive and administrative employees. Each of our offices is staffed by
technical recruiters and/or sales personnel. Accounting and payroll departments
have been relocated to located in our Houston office. Each contract service
employee enters into an agreement with us that details the engagement, including
worksite, pay rate, benefits, reimbursed expenses and per diem when appropriate.
When an employee completes his assignment, we have no further obligation to the
employee except COBRA obligations. Although assignments can be for as short as
90 days, in some cases, they have run for several years. The average assignment
is six to nine months. The majority of our employees are not represented by a
labor union, and we consider our employee relationships to be good.
ITEM 2. DESCRIPTION OF PROPERTY.
Beginning January 1,2003, we are leasing approximately 6,000 square feet of
office facilities in Houston, Texas, where we maintain our executive offices.
We also rent office space in New York on Long Island, which we currently have
listed for sub-lease. We also rent modest office space in Phoenix, Arizona,
Carlsbad, New Mexico, Palmdale, California, Arlington, Texas, and Orlando,
Florida. Our aggregate annual rent is approximately $391,200, but will be
reduced substantially if we are successful in sub-leasing the New York office
space. The existing leases are subject to annual increases. We believe that
our present office space is adequate for our present needs and that additional
office space is readily available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
In November 1997, an action was commenced in the Supreme Court of the State
of New York, County of Suffolk, by Ralph Corace against our subsidiary, Resource
Management International, Inc. seeking damages of approximately $1.1 million for
an alleged breach of contract by us. Mr. Corace was the president of Job Shop
Technical Services, Inc., from which we, through Resource Management
International, Inc., purchased assets in November 1994. We believe that the
action is without merit, we are contesting this matter and we have filed
counterclaims against Mr. Corace.
On April 1, 2003, a group of our stockholders comprising approximately 55
percent of the outstanding voting shares of the company took certain actions in
lieu of a stockholder's meeting. Included in this group of stockholders were
persons and entities affiliated with the president. The actions taken included
removing the chairman and chief financial officer from their positions as
directors. On April 4, 2003, the remaining directors met and removed the
chairman and chief financial officer from their positions as officers. On April
7, 2003 Arthur Grider, the president, suspended the former chairman and former
chief financial officer.
We filed suit against the former chairman and former chief financial
officer in a case in Harris County, Texas.
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On or about the July 3, 2003 a settlement was reached between the parties
and an agreement was executed settling all matters in the case. Under the terms
of the settlement agreement, Phoenix Marketing Services, Inc. ("Phoenix") shall
pay a total sum of $261,000 to the former chairman and former chief financial
officer, to be allocated as agreed between the defendants. Phoenix paid the
defendants the sum of $101,400 on July 7, 2003. We paid or shall also pay
$55,600 to the defendants at the rate of $6,950 per week with payments beginning
on June 27, 2003 and continuing on July 4, 2003, July 11, 2003, July 18, 2003,
July 25, 2003, August 1, 2003, August 8, 2003, with the last $6,950 payment
being made on August 15, 2003. Thereafter, Phoenix or Trans Global Services
shall pay defendants the sum of $1,000 per week commencing on Friday, August 22,
2003 and continuing for a period of 103 weeks. Phoenix shall execute a
promissory note in the amount of $104,000 bearing interest at the rate of two
percent per annum payable to the defendants. We, RMI, and Avionics executed
guarantees of the promissory note.
We and the defendants executed releases of each other.
Phoenix is an affiliate of our president. Phoenix is the holder of
1,000,000 shares of our common stock. The transaction described in this
paragraph creates a liability from us to Phoenix. It is anticipated that this
liability will be satisfied by issuing additional shares of common stock to
Phoenix at the then appropriate market valuation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On Tuesday, December 3, 2002 we held an annual meeting of our stockholders
of record as of October 28, 2002, for the purpose of:
- - Electing six directors to serve until the 2003 annual meeting of
stockholders;
- - Approving our 2002 long-term incentive plan; and
- - Approving the appointment of Moore Stephens, P.C. as our independent
certified public accountants for 2002.
The six persons nominated as directors were Joseph G. Sicinski, Arthur P.
Grider III, Joseph E. Link, Paul E. McManus, General J. B. Davis, and Ashraf M.
H. Ghonima. All of such persons were elected. However, on April 1, 2003, we
removed Messrs. Sicinski and Link as directors. See, Item 9 and Item 10 of this
Annual Report. As of April 1, 2003, we had only four directors, Messrs. Grider,
McManus, and Ghonima, and General Davis. We do not have any present plans to
increase our board membership before our next annual meeting of stockholders.
On October 2, 2003, Mr. McManus and General Davis resigned as directors due
to their concerns over our lack of internal controls and our failure to pay our
payroll taxes, while Mr. Ghonima resigned on October 3, 2003 citing similar
reasons. We received notification of the resignations on October 6, 2003. See,
Item 14 of this Annual Report.
Our 2002 long-term incentive plan was approved by our stockholders.
Moore Stephens, P.C. was approved as our independent certified public
accountants for 2002. However, on April 8, 2003, Moore Stephens, P.C. resigned
as our auditors. We engaged Malone & Bailey, PLLC on May 27, 2003. See Item 9 of
this Annual Report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Until May 23, 2003, our common stock was quoted on the OTC Bulletin Board
under the symbol "TGSI." However, as of May 23, 2003, we were no longer
eligible for quotation on the OTCBB, inasmuch as we had failed to file this
Annual Report in a timely fashion. Since that date, our shares have been quoted
in the "pink sheets" maintained by Pink Sheets LLC, a provider of pricing and
financial information for the over-the-counter securities markets. Before our
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shares of common stock can once again be quoted on the OTCBB, we will have to
reapply for quotation in accordance with the Exchange Act. There is no
assurance that we will be able satisfy the requirements established by the
OTCBB.
Prior to March 16, 2000, our common stock was traded on the Nasdaq SmallCap
Market.
The high and low closing bid quotations for our common stock since January
2001 are as follows:
HIGH LOW
----- -----
2003
----
First Quarter $0.07 $0.04
Second Quarter $0.07 $0.04
2002
----
First Quarter $0.99 $0.10
Second Quarter $0.21 $0.06
Third Quarter $0.42 $0.06
Fourth Quarter $0.25 $0.10
2001
----
First Quarter $0.44 $0.13
Second Quarter $0.29 $0.10
Third Quarter $0.14 $0.05
Fourth Quarter $0.50 $0.05
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
As of June 30, 2003, we believe that there were approximately 1,600
beneficial holders of our common stock.
We have not paid dividends on our common stock since inception, and we do
not expect to pay any dividends for the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
See Item 12 of this Annual Report.
RECENT SALES OF UNREGISTERED SECURITIES
During 2002, 2001, and 2000, we issued the following equity securities.
On January 21, 2000, we loaned $500,000 to i-engineering.com on a
short-term basis, issued 270,000 shares of our common stock to
i-engineering.com, and acquired a minority interest in i-engineering.com. The
value of this interest was determined by the market value of our shares
exchanged, which was $329,135.
On December 5, 2000, following the failure of i-engineering.com, Inc. to
make a timely payment of principal and interest of $223,951, we extended the
payment of the note in exchange for the 270,000 shares of our common stock
previously issued to i-engineering.com, and we returned to i-engineering.com the
shares we had received from i-engineering.com. During 2001 and 2000, we
collected $477,552 from i-engineering.com on the principal and interest owed
pursuant to its note. In 2002, we wrote-off the remaining $22,448 as a bad debt
expense.
In January 2000, we raised $1 million through the issuance of 10 percent
subordinated promissory notes due July 2001 or earlier upon our receipt of
payment of the note from Arc Networks, Inc., one of our clients. In connection
with the subordinated notes, we issued warrants to purchase 575,000 shares of
10
our common stock at $0.35 per share to the investors, the placement agent and
others who assisted us in the financing, including one of our directors.
Pursuant to an agreement dated November 15, 2001, we issued 5,000,000
shares of our common stock to The Finx Group, Inc. In exchange, Finx issued
2,500,000 shares of its common stock to us, and further agreed to invest
$1,000,000, for which we were to issue shares of our preferred stock, which were
convertible into 3,000,000 shares of our common stock. In December 2001, Finx
invested $250,000 and received our preferred stock convertible into 750,000
shares of our common stock.
In March 2002, the agreement with Finx was terminated. Consequently, Finx
returned to us 4,000,000 shares of our common stock that were previously issued,
and we returned to Finx the 2,500,000 shares of the Finx common stock issued to
us. All of our preferred stock and all obligations by us to issue additional
shares of our preferred stock to Finx pursuant to the November 2001 agreement
were cancelled.
The net effect of the transaction was the issuance by us of 1,000,000
shares of our common stock to designees of Finx for $250,000. The designees of
Finx included the children of Lewis S. Schiller, one of our previous officers
and directors.
In July 2002, pursuant to a verbal agreement, we sold 1,000,000 shares of
our common stock, for a purchase price of $100,000, to Phoenix Marketing
Services, Inc., an affiliate of Arthur P. Grider III, our current president,
chief executive officer and director, but not affiliated with us at the time.
The agreement was entered into in anticipation of a more comprehensive agreement
between us and Phoenix, which we agreed to in August 2002. As part of the July
agreement, Joseph G. Sicinski, our president at the time, agreed that if the
subsequent transaction with Phoenix was not consummated, he would purchase the
shares we issued to Phoenix from Phoenix for $100,000.
In August 2002, we and NAG Financial, LLC, a Texas limited liability
company and an affiliate of Phoenix, and by extension an affiliate of Mr.
Grider, entered into a verbal agreement pursuant to which:
- - NAG or its designees purchased 7,000,000 shares of our common stock for
$740,000, to be payable in installments. The purchase was completed during
September 2002. A portion of the shares was purchased by a note in the
amount of $61,687, which was paid in December 2002.
- - NAG or its associates transferred to us contracts or contract rights
relating to temporary staffing or other similar or related services.
- - We agreed to pay to NAG or Phoenix Marketing Services, Inc. a fee of two
percent of net collections, as defined in the agreement, from the contracts
assigned to us, up to a maximum of $1,000,000.
- - We also agreed to issue one share of a newly created series of preferred
stock for each $0.21 of gross profit generated from the assigned contracts
through June 30, 2005, up to a maximum of 2,000,000 shares of our preferred
stock. Each of the shares of our preferred stock would be convertible into
two shares of our common stock and would have the right to vote with the
common stock, with each share of the preferred stock having two votes.
- - Mr. Sicinski and Mr. Link agreed to vote their shares of common stock in
accordance with NAG's instructions until NAG or its designees shall have
purchased 5,250,000 shares of common stock. The voting obligations of Mr.
Sicinski and Mr. Link terminated on August 21, 2002, when the purchase
threshold was achieved. At the same time, Mr. Sicinski's obligation to
purchase the Phoenix shares pursuant to the July 2002 agreement terminated.
As a result of the issuance of the 8,000,000 shares to Phoenix and NAG, as
affiliates of Mr. Grider pursuant to the July and August 2002 agreements, we had
a change of control. The 8,000,000 shares of our common stock issued to Phoenix
and NAG constituted 56.5 percent of our common stock.
11
In 2002, options to purchase 668,705 shares of our common stock were
exercised for $46,816. The options were exercised by Colleen McGuire on July 20,
2002, Joseph Sicinski, Joseph Link, John Pizzo, Deborah Rocklein, Kenneth
Scotto, and Robert Schein on May 29, 2002, Sidney Glazer on August 14, 2002 and
Jean Cunningham on August 21, 2002.
February 20, 2002, we issued 297,000 shares of common stock to Stephen
Drescher, an outside consultant, in exchange for accrued liabilities totaling
$150,000.
The issuance of all shares of our common stock was pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act and
related state private offering exemptions. All of the investors took their
shares for investment purposes without a view to distribution and had access to
information concerning Trans Global Services and our business prospects, as
required by the Securities Act.
In addition, there was no general solicitation or advertising for the
purchase of our shares. Our securities were sold only to persons with whom we
had a direct personal preexisting relationship, and after a thorough discussion.
Further, our securities were sold to less than 35 Non-Accredited Investors. All
certificates for our shares contained a restrictive legend. Finally, our stock
transfer agent has been instructed not to transfer any of such shares, unless
such shares are registered for resale or there is an exemption with respect to
their transfer.
INTENTIONALLY LEFT BLANK
12
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 Trans Global
Services for the years ended December 31, 2002, 2001, 2000, 1999, and 1998. The
selected financial data for the years ended December 31, 2002, 2001 and 2000
have been derived from the financial statements, which appear elsewhere in this
Annual Report. The data for the years ended December 31, 1999 and 1998 have
been derived from our audited financial statements that are not included in this
Annual Report. This data should be read in conjunction with our financial
statements and the related notes that are included elsewhere in this Annual
Report.
STATEMENT OF OPERATIONS DATA
----------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- -------
Revenue $22,694 $27,127 $23,325 $36,015 $67,244
Net (loss)income (3,344) (1,816) (1,923) (1,853) 805
Net (loss)income per share of common
stock (basic) (0.32) (0.54) (0.67) (0.61) 0.21
Weighted average number of shares of
common stock outstanding 10,486 3,387 2,861 3,048 3,820
Net (loss) income per share of common
stock (diluted) (0.32) (0.54) (0.67) (0.61) 0.21
Weighted average number of shares of
common stock outstanding 10,486 3,387 2,861 3,048 3,831
BALANCE SHEET DATA
------------------
YEAR ENDED DECEMBER 31
-------------------------------------------------
2002 2001 2000 1999 1998
--------- -------- -------- -------- --------
Working capital (deficiency) $ (282) $ (365) $ 102 $ (156) $ 972
Total assets 1,551 3,898 4,794 7,365 12,597
Total liabilities 1,738 2,616 1,960 2,818 3,630
Accumulated deficit (12,895) (9,551) (7,735) (5,813) (3,959)
Stockholders' equity (187) 1,282 2,834 4,547 8,967
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our Consolidated Financial Statements and Notes
thereto included elsewhere in this Annual Report. Historical results are not
necessarily indicative of trends in operating results for any future period.
The statements contained in this Annual Report that are not historical
facts are forward-looking statements that involve a number of risks and
uncertainties. The actual results of the future events described in such
forward-looking statements in this Annual Report could differ materially from
those stated in such forward-looking statements.
13
Revenue from technical temporary staffing services is based on the employee
labor rate plus a percentage. The success of our business is dependent upon our
ability to generate sufficient revenue to enable us to cover our fixed costs and
other operating expenses, and to reduce our variable costs. Under our agreements
with our clients, we are required to pay our employees and pay all applicable
federal and state withholding and payroll taxes prior to the receipt of payment
from the clients. Furthermore, our payments from our clients are based upon the
hourly rate paid to the employees, without regard to when payroll taxes are
payable with respect to the employees.
In determining the pricing of the markup component of the gross billings,
we take into consideration our estimates of the costs directly associated with
our worksite employees, including payroll taxes, benefits and workers'
compensation costs, plus an acceptable gross profit margin. The gross billings
are invoiced concurrently with each periodic payroll of our worksite employees.
Our costs 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 we satisfy
our payroll tax obligations, we will have a lower gross margin than after such
obligations are satisfied. Furthermore, to the extent that we experience
turnover in employees, our gross margin will be adversely affected. For
example, in 2002, social security taxes were payable on the first $84,900 of
compensation. Once that level of compensation was paid with respect to any
employee, there was no further requirement for us to pay social security tax for
such employee. Since many of our employees received compensation in excess of
that amount, our costs with respect to any employee were significantly higher
during the period when we were required to pay social security taxes than it was
after such taxes had been paid.
Our revenue is derived principally from the aircraft and aerospace
industries. In 2002, revenue totaled approximately $23 million. This reflected a
decrease of 16.3 percent from the revenue in 2001. In 2001, we experienced a
16.3 percent increase from the revenue in 2000. The changes over the past two
years continues to be directly related to the fluctuations in the aircraft and
aerospace industries and the continuing delay of requests for personnel by the
multi-national Fortune 500 clients we serve. During 2002, approximately $14.7
million, or 65 percent of our revenue, was generated from our four largest
clients, Lockheed-Martin, Bell Helicopter Textron, Gulfstream Aerospace, and
DCR, Inc. During 2001, approximately $20 million, or 74 percent of our revenue
was derived from our four largest clients, Lockheed-Martin, Bell Helicopter
Textron, The Boeing Companies and Gulfstream Aerospace. In 2000, approximately
$16 million, or 67 percent, of our revenue was derived from our four largest
clients, Lockheed-Martin, Bell Helicopter Textron, The Boeing Companies, and
Gulfstream Aerospace.
In the first quarter of 2002, Boeing advised us that it will no longer
engage us for new assignments, although it will continue to use us for personnel
who we have already placed with Boeing. Since Boeing was one of our largest
clients in each of the past four years, the loss of potential new business from
Boeing could have an adverse effect upon our ongoing business. We believe this
action by Boeing is based on our financial condition and our failure to raise
additional funding. We cannot assure you that other clients will not reduce or
discontinue our services for the same reason.
Selling, general and administrative expenses in 2002 decreased by 6.3
percent from 2001, which was a decrease of 11.9 percent from those expenses in
2000, excluding, related party expenses. Selling, general and administrative
expenses were $2.6 million in 2002, $2.8 million in 2001 and $3.2 million in
2000. The decline reflects principally the effect of our cost reduction programs
necessitated by the significant drop in revenue.
We reviewed goodwill and other intangibles to assess recoverability from
future operations using undiscounted cash flows. The 2002 and 2001 reviews
indicated impairment, which resulted in charges against operations. In 2002,
due to the continued significant losses from operations, negative cash flows
from operations and projected future negative cash flows from operations,
management determined the remaining value of our customer list was impaired.
Therefore, we recorded a provision for asset impairment in 2002 totaling
$1,500,000. In 2001, management determined that there was no continuing market
value to the goodwill and wrote-off $581,240 in 2001. In addition, management
determined that the estimated fair value of our customer lists was less than
their carrying value as of December 31, 2001, due in part to the action taken by
the Boeing Company in not engaging us in new assignments, and impaired the
intangible by approximately $210,000 to reflect the estimated fair value at
December 31, 2001.
14
As a result of the decrease in revenue, gross profit and the impairment
charge in 2002 and the decrease in revenue and gross profit in 2001, our gross
profit was not sufficient to cover our selling, general and administrative
expenses, resulting in operating losses of approximately $3.1 million in 2002
and $1.5 million in 2001.
Interest expense for 2002, which was $262,000, decreased by approximately
$50,000, or 16 percent, over interest expenses of $312,000 for 2001.
Our net loss before income taxes was $3.3 million in 2002 compared with a
net loss before income taxes of $1.8 million in 2001 and a net loss before
income taxes of $1.9 million for 2000. In 2002, the net loss was $3.3 million or
$0.21 per share (basic and diluted); in 2001 our net loss was $1.8 million, or
$0.54 per share (basic and diluted); and in 2000 the net loss was $1.9 million,
or $0.67 per share (basic and diluted).
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, we had a deficiency in working capital of
approximately $282,000. Our working capital is barely sufficient to meet our
most immediate needs, and our failure to increase our working capital is
impairing our ability to continue our operations.
During 2002, our operations utilized cash flow of $34,433. Our principal
source of cash during 2002 was our credit facility with our asset-based lender.
This facility was renewed in October 2002 and was extended for a period of one
year in January 2003. The most significant current assets at December 31, 2002
were our accounts receivable, which were approximately $1.4 million. These
receivables were offset by payroll and related expenses of approximately $1.3
million and $685,000 due to our asset-based lender.
Pursuant to our credit agreement, we can borrow up to 85 percent of our
qualified accounts receivable at an interest rate of prime plus 2.5 percent and
a fee of 0.7 percent of the receivables financed. The minimum monthly fee on the
credit agreement is $12,000 per month. The maximum availability on the credit
agreement is $2.5 million. The maximum available under our borrowing formula was
$1,815,000 at December 31, 2002.
Because of our present stock price, it is highly unlikely that we will be
able to raise funds through the sale of our equity securities, and our financial
condition prevents us from issuing debt securities. Moreover, inasmuch as we
have not timely filed our periodic reports required by the Exchange Act, we
cannot currently raise any capital pursuant to a registration statement under
the Securities Act.
We raised gross proceeds of $840,000 through the sale of our equity
securities to Phoenix Marketing Services, Inc. and NAG Financial, LLC, and, as a
result of the agreements with Phoenix and NAG and the other agreements described
in this Annual Report, and the issuance of such shares, Arthur P. Grider III,
who is the controlling person for Phoenix and NAG has become our controlling
stockholder. See, Item 10 and Item 13 of this Annual Report.
Financial Reporting Release No. 60, which was recently issued by the
Securities and Exchange Commission, requires all registrants to discuss critical
accounting policies or methods used in the preparation of financial statements.
Note 2 to our consolidated financial statements includes a summary of the
significant accounting policies and methods used in the preparation of our
consolidated financial statements. In the opinion of management, we do not have
any individual accounting policy, which is critical to the preparation of our
consolidated financial statements. In most instances, we must use an accounting
policy or method because it is the only policy or method permitted under
accounting principles generally accepted in the United States of America ("U.S.
GAAP").
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
15
ITEM 8. FINANCIAL STATEMENTS.
The audited financial statements required by Item 8 are set forth on pages
F-1 through F-18 of this Form 10-K.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following unaudited selected quarterly results of operations data for
the last quarter have been derived from our unaudited consolidated financial
statements, which in the opinion of management, have been prepared on the same
basis as the audited financial statements and reflect all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
information for the quarters presented. This information should be read in
conjunction with the financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included as part of this Form 10-K Annual Report. The operating
results for the quarters presented are not necessarily indicative of the
operating results for any future period.
INTENTIONALLY LEFT BLANK
16
------------------------------------------------------
QUARTER ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------------ ------------ ------------ ------------
YEAR ENDED DECEMBER 31, 2002:
Revenues $ 5,206,452 $ 5,532,220 $ 5,729,262 $ 6,225,574
Cost of goods Sold (4,865,993) (5,116,301) (5,275,684) (5,685,534)
------------ ------------ ------------ ------------
Gross Profit $ 340,459 $ 415,919 $ 453,578 $ 540,040
Operating Loss (978,105) (292,399) (227,196) (1,635,952)
Net Loss (1,047,248) (301,357) (302,131) (1,693,447)
Basic and diluted loss per share (0.21) (0.05) (0.03) (0.10)
------------------------------------------------------
QUARTER ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------------ ------------ ------------ ------------
YEAR ENDED DECEMBER 31, 2001:
Revenues $ 6,678,193 $ 7,274,485 $ 7,098,087 $ 6,076,506
Cost of Goods Sold (6,200,753) (6,594,798) (6,470,384) (5,448,032)
------------ ------------ ------------ ------------
Gross Profit $ 477,440 $ 679,687 $ 627,703 $ 628,474
Operating Loss (359,926) (125,704) (120,224) (886,693)
Net Loss (400,343) (187,650) (191,720) (1,036,005)
Basic and diluted loss per share (0.15) (0.06) (0.06) (0.28)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On Tuesday, April 8, 2003, our auditors, Moore Stephens, P.C., resigned by
sending an e-mail to Mr. Ashraf M. H. Ghonima, the chairman of our audit
committee. The resignation of the auditors was accepted.
Our audit reports for the accounting years 2000 and 2001 contained a
standard qualifying paragraph emphasizing doubt about our continuation as a
"going concern." Other than this, there were no other qualifications or adverse
language in the auditors' reports.
On Friday, April 4, 2003 at 5:52 p.m., Houston, Texas time, Moore Stephens,
P.C. had e-mailed a report to Mr. Ghonima. The report was based on audit work
conducted the previous week. In the report, the auditors alleged that funds were
commingled between one of our subsidiaries and companies related to Arthur P.
Grider III, our president and chief executive officer, which the auditors
asserted should have resulted in a "positive cash flow" to one of our
subsidiaries of approximately $110,000. The April 4th report also alleged that
17
certain payroll tax obligations were unpaid for the 4th Quarter of 2002.
Although not included in the scope of their audit, the auditors alleged that
such practices continued into 2003.
We took issue with these allegations and believed that the audit
procedures, which led to the auditors' findings, were suspect. The auditors
alleged that we had an $110,000 "positive cash flow." However, the auditors did
not properly apply additional expenditures such as workers' compensation, state
withholdings, employee drug screenings, staff overhead and other related
expenses. After these expenses were deducted, there was no surplus or "positive
cash flow" with respect to Trans Global Services. Therefore, any related party
transactions did not have a material effect on our financial statements.
The chairman of our audit committee sent a response to Moore Stephens, P.C.
concerning our dissatisfaction with the auditing procedures and unsubstantiated
allegations made in the report submitted.
As a result of the report submitted by the auditors, we filed with the
Securities and Exchange Commission a Notice Pursuant to Section 10A of the
Exchange Act. In the Notice, we averred that the auditors' conclusions were
incorrect and based on unsubstantiated claims and incomplete evidence.
The required majority of stockholders removed Joseph Link and Joseph
Sicinski as directors on April 1, 2003. The board of directors suspended Joseph
Link as chief financial officer on April 4, 2003 and replaced him with Dr. James
C. Riviere. The board also suspended Mr. Sicinski on that date. The employment
of Messrs. Link and Sicinski was terminated by agreement, effective August 15,
2003.
We have consolidated all accounting functions in our Houston headquarters
and integrated accounting systems and personnel as required. On Tuesday, April
14, 2003, we received a copy of a letter from our former auditors addressed to
the SEC in response to the Form 8-K filed by us on April 11, 2003. Pursuant to
Item 304 of Regulation S-K, we filed with the SEC a copy of the letter from our
former auditors. The letter filed with the SEC by our former auditors raised new
issues that were not in the Notice.
On Tuesday, May 6, 2003, our audit committee approved the engagement of
Malone & Bailey, PLLC as our new independent auditors and certifying
accountants. On Tuesday, May 27, 2003, the chairman of our audit committee
executed an engagement letter with Malone & Bailey. The purpose of the
engagement was for Malone & Bailey to audit our consolidated financial
statements to be included in our Form 10-K as of December 31, 2002, and for the
three years then ended, and to evaluate the fairness of presentation of our
financial statements in conformity with generally accepted accounting principles
in the United States. Malone & Bailey will also perform quarterly reviews for us
for the year ending December 31, 2003 under appropriate review standards.
Prior to our engagement of Malone & Bailey, we did not consult with them
with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our financial statements, or any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K
and the related instructions to said item) or a reportable event (as described
in Item 304(a)(1)(v) of Regulation S-K.) Consequently, no written report or oral
advice was provided to us that Malone & Bailey concluded was an important factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue.
Malone & Bailey, PLLC has reviewed this Annual Report before its filing
with the SEC and has been offered the opportunity to provide a letter addressed
to the SEC containing any new information, clarification of our expression of
Malone & Bailey's views, or the respects in which Malone & Bailey does not agree
with the statements made by us in this Annual Report. Malone & Bailey, PLLC has
not provided any such letter.
Since the engagement of Malone & Bailey, PLLC, we have permitted Moore
Stephens, P.C. to respond fully to the inquiries of the successor auditors
concerning the subject matter of any disagreements.
We contested the characterization by Moore Stephens, P.C. with respect to
the movement of accounts as a "transfer" when it fact each account moved
constituted a sale. An affiliate of Mr. Grider, our chief executive officer, and
Pendragon Staffing, an affiliate of Phoenix Marketing Services, Inc., was to
receive payment for selling these accounts to us or our subsidiaries in the form
18
of preferred stock and commissions. See, Item 13 of this Annual Report. However,
it should be noted that the account that created the accounting question was a
spin-off company of an existing Pendragon Staffing account, thus making it
subject to the August 2002 agreement between us and NAG. See, Item 10, "Change
of Control," of this Annual Report. As of the date of this Annual Report, we
have not made any payment to NAG or its affiliates for any of the accounts that
we purchased.
We acknowledged that proper accounting methods were not fully implemented,
due to the accelerated transition difficulties. However, all transactions were
properly recorded in the general ledger of RMI Pendragon. While Moore Stephens,
P.C. accounted for an $110,000.00 cash surplus, the actual balance was $27,661,
which is reflected as due from affiliate on the consolidated balance sheet at
December 31, 2002.
We filed reports on Form 8-K with respect to the termination of Moore
Stephens, P.C. and the engagement of Malone & Bailey, PLLC, and the accounting
issues raised by Moore Stephens, P.C.
The filing of the Notice Pursuant to Section 10A of the Exchange Act has
led to an informal inquiry by the SEC of the events surrounding the resignation
of Moore Stephens, P.C. and the issues raised by our former auditors as outlined
in the 10A Notice and the Form 8-Ks relating thereto and filed by us. On
October 21, 2002, Mr. Grider met with the SEC to discuss those issues and to
answer the questions posed by the SEC. As of the date of this Annual Report, we
have not been informed by the SEC of any contemplated action by it. The SEC has
requested, and we have provided a letter detailing our proposed remedial actions
with respect to the resolution of internal control and accounting issues. We
have assured the SEC of our willingness to voluntarily cooperate in any ongoing
inquiries which may be presented. As of the date of this Annual Report, we are
not aware of any such additional inquiries.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the directors
and the executive officers of the Company as of June 30, 2003:
NAME AGE POSITION POSITION HELD SINCE
- -------------------- -------- ----------------------------------------------- -------------------
Arthur P. Grider III 64 President, Chief Executive Officer and Director August 12, 2002
General J. B. Davis 67 Director August 26, 2002
Chairman of the Board July 15, 2003
Ashraf M. H. Ghonima 70 Director September 30, 2002
Paul E. McManus 65 Director August 26, 2002
Dr. James C. Riviere 62 Chief Financial Officer and Treasurer April 4, 2003
Tara D. Dunn 27 Secretary May 7, 2003
Except for the employment agreement with respect to Mr. Grider discussed
below, our board of directors elects our executive officers annually. Tara Dunn
is the stepdaughter of Arthur P. Grider III. Otherwise, there are no family
relationships among our directors and executive officers.
Arthur P. Grider III has been our president and chief executive officer
since August 12, 2002. Mr. Grider is also a manager of NAG Financial LLC, a
private investor, and the chief executive officer of Phoenix Marketing Services,
Inc., which is a staffing company. Affiliates of Mr. Grider hold controlling
interests in Phoenix Marketing Services, Inc. and NAG Financial LLC, who are
controlling stockholders of Trans Global Services.
General J. B. Davis concluded a 35-year career with the U.S. Air Force in
1993 as Chief of Staff, Supreme Headquarters Allied Powers, Europe (NATO).
During his career, he also served as Commander, Pacific Air Forces; Commander,
U.S. Forces-Japan and 5th Air Force; and Commander, U.S. Air Force Military
Personnel Center. In NATO, he was the chief negotiator with the North Atlantic
Council and the U.N. for NATO's participation in the Yugoslavian conflict.
General Davis' post-retirement activities include Commissioner on the 1995 Base
Closure Commission and the Service Members and Veterans Transition Commission.
General Davis also was selected by the Secretary of Defense to participate in
the recent V-22 Osprey study. As the safety czar for ValuJet Airlines he was
principally responsible in directing its recovery and return to revenue. General
Davis has a B.S. degree in Engineering from the U.S. Naval Academy and a Masters
degree in Public Administration from Auburn University.
Ashraf M. H. Ghonima is a business and management consultant specializing
in the petrochemical, utility and services industries. Mr. Ghonima has more than
40 years experience in engineering, project management, operations management,
business development and executive management. He is a retired executive with
Bechtel, Inc. Career highlights include: petroleum and chemical business
development and executive positions in Indonesia, Egypt, North Africa and other
Eastern Mediterranean and Middle East locations. In addition, he served as the
19
project manager for Habshan-Fujairah Pipeline and Khuff Offshore Gas Field
Development in Abu Dhabi for ADNOC; Chevron platform for the Gail Field
Development at Duck Island, North Slope; and the Yanbu NGL pipeline system for
the development of the Shaybah oil field in Saudi Arabia. Mr. Ghonima holds a
B.S. degree in Mechanical Engineering from Alexandria University, Egypt.
Paul E. McManus is a founding partner, chairman, and chief executive
officer of the Spectrum Group, a consulting firm, a position he has held since
1993. Mr. McManus has served in a number of key management positions, including
Chief of the House Liaison Office, where he acted as the Air Force spokesman
with the United States House of Representatives and served as advisor on
congressional activities to the Secretary of the Air Force, the Chief of Staff,
and senior military and civilian leaders. As vice president of the Hazeltine
Corporation, a defense contractor, Mr. McManus was principal advisor to the
chairman, providing corporate liaison with the administration, all federal
agencies, and the private sector. Mr. McManus has served on the Air Force
Retiree Council, is a director of the Falcon Foundation of the United States Air
Force Academy, and is president and a board member of the Foundation for
Veterans Health Care. Mr. McManus holds a B.S. degree from the College of the
Holy Cross and an M.S. degree in Public Administration from Shippensburg State
College.
James C. Riviere, Ph.D. has been our chief financial officer and treasurer
since April 4, 2003. He replaced Joseph E. Link. Dr. Riviere, a consultant and
logistician, retired from the U.S. Government in 2002 after 11 years of service
in Washington D.C. Prior to federal service, Dr. Riviere was vice president of
planning and logistics for Burroughs Corporation in Detroit (now Unisys); was
vice president of operations, System Development Corporation, Santa Monica; and
with the Boeing Company in Seattle and New Orleans. He has an MBA from American
Graduate University and a Ph.D. in Industrial Engineering from Pacific Western
University.
Tara Dunn was elected as our corporate secretary on May 7, 2003. Ms. Dunn
is member of the State Bar of Texas. She has a B.A. in Political Science from
Texas Christian University and a J.D. from the University of Houston Law Center.
On April 1, 2003, by an action in consent, the stockholders removed Joseph
G. Sicinski as our chairman of the board and Joseph E. Link as a director. On
April 4, 2003, our board of directors suspended Joseph E. Link as our chief
financial officer. On August 15, 2003, we terminated the employment agreements
we had with Messrs. Sicinski and Link. See Item 3 of this Annual Report.
On November 12, 2001, just prior to the November 15, 2001 agreement with
The Finx Group, Inc. discussed in Item 13 of this Annual Report, Edward D.
Bright and James L. Conway resigned as directors. In February 2002, Glen R.
Charles resigned as a director and our chief financial officer.
Lewis S. Schiller, Lee Wingeier and Storm Morgan were elected as directors
in December 2001, and Mr. Schiller was also elected as chief executive officer
at that time. Messrs. Wingeier and Morgan resigned as directors in January 2002
and Mr. Schiller resigned in March 2002 as part of the termination of the
November 15, 2001 agreement with the Finx Group discussed in Item 13 of this
Annual Report.
On October 6, 2003, we received notice that Messrs. McManus, and Ghonima,
and General Davis resigned as directors due to their concerns over our lack of
internal controls and our failure to pay our payroll taxes. See, Item 14 of this
Annual Report. Dr. Riviere resigned as our chief financial officer and treasurer
on October 7, 2003. Mr. Grider was elected as our chief financial officer and
treasurer, on October 7, 2003.
As of the date of this Annual Report, we have not decided who will replace
the persons who have resigned as our directors and financial officers.
BOARD COMMITTEES
Audit Committee. Our board of directors has created an audit committee
which is directly responsible for the appointment, compensation, and oversight
of the work of any registered public accounting firm employed by us (including
resolution of disagreements between our management and the auditor regarding
financial disclosure) for the purpose of preparing or issuing an audit report or
related work. Our board adopted a written charter for the audit committee, a
20
copy of which is attached to this Annual Report as Attachment A. The audit
------------
committee reviews and evaluates our internal control functions. All of the
members of the audit committee have resigned.
Compensation Committee. Our board of directors has created a compensation
committee, but it currently has no members. The compensation committee makes
recommendations to the board of directors concerning salaries and compensation
for our executive officers and employees. Our board adopted a written charter
for the compensation committee, a copy of which is attached to this Annual
Report as Attachment B.
------------
Executive Committee. We do not have an executive committee, although our
board of directors is authorized to create one.
CHANGE IN CONTROL
In July 2002, pursuant to a verbal agreement, we sold 1,000,000 shares of
our common stock, for a purchase price of $100,000, to Phoenix Marketing
Services, Inc., an affiliate of Arthur P. Grider III, our current president,
chief executive officer and director. Mr. Grider was not an affiliate of Trans
Global Services at the time of the agreement. The agreement was entered into in
anticipation of a more comprehensive agreement between us and Phoenix, which we
agreed to in August 2002. As part of the July agreement, Joseph G. Sicinski,
our president at the time, agreed that if the subsequent transaction with
Phoenix was not consummated, he would purchase the shares we issued to Phoenix
from Phoenix for $100,000.
In August 2002, we and NAG Financial, LLC, a Texas limited liability
company and an affiliate of Phoenix, and by extension an affiliate of Mr.
Grider, entered into a verbal agreement pursuant to which:
- - NAG or its designees purchased 7,000,000 shares of our common stock for
$740,000, to be payable in installments. The purchase was completed during
September 2002. A portion of the shares were purchased by a note in the
amount of $61,687, which was paid in December 2002.
- - NAG or its associates transferred to us contracts or contract rights
relating to temporary staffing or other similar or related services.
- - We agreed to pay to NAG or Phoenix Marketing Services, Inc. a fee of two
percent of net collections, as defined in the agreement, from the contracts
assigned to us, up to a maximum of $1,000,000.
- - We also agreed to issue one share of a newly created series of preferred
stock for each $0.21 of gross profit generated from the assigned contracts
through June 30, 2005, up to a maximum of 2,000,000 shares of our preferred
stock. Each of the shares of our preferred stock would be convertible into
two shares of our common stock and would have the right to vote with the
common stock, with each share of the preferred stock having two votes.
- - Mr. Sicinski and Mr. Link agreed to vote their shares of common stock in
accordance with NAG's instructions until NAG or its designees shall have
purchased 5,250,000 shares of common stock. The voting obligations of Mr.
Sicinski and Mr. Link terminated on August 21, 2002, when the purchase
threshold was achieved. At the same time, Mr. Sicinski's obligation to
purchase the Phoenix shares pursuant to the July 2002 agreement terminated.
- - Arthur P. Grider III was elected as president, chief executive officer and
a director, and Mr. Sicinski retained his position as chairman of the
board.
- - Mr. Sicinski and Mr. Link entered into new employment agreements.
As a result of the issuance of the 8,000,000 shares to Phoenix and NAG, as
affiliates of Mr. Grider pursuant to the July and August 2002 agreements, we had
a change of control. The 8,000,000 shares of our common stock issued to Phoenix
and NAG constituted 56.5 percent of our common stock. Since we had a change of
21
control, certain of our available net operating loss carry-forwards may be
limited in accordance with the regulations of the Internal Revenue Service.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive
officers and persons who own more than 10 percent of a registered class of our
equity securities, to file with the SEC initial reports of ownership and reports
of changes in ownership of our equity securities. Officers, directors and
greater than 10 percent stockholders are required by SEC regulation to furnish
us with copies of all Section 16(a) forms they file. Three of our former
directors, Lee Wingeier, Steve Morgan, and Lewis S. Schiller did not file a Form
3.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The code of ethics is
designed to deter wrongdoing and to promote:
- - Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- - Full, fair, accurate, timely, and understandable disclosure in reports and
documents that we file with, or submits to, the SEC and in other public
communications made by us;
- - Compliance with applicable governmental laws, rules and regulations;
- - The prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code; and
- - Accountability for adherence to the code.
A copy of our code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions is attached to this Annual
Report as Attachment C. We have filed with the SEC a copy of the code of ethics
------------
attached hereto;
We will provide to any person without charge, upon request, a copy of our
code of ethics. Any such request should be directed to our corporate secretary
at 8707 Katy Freeway, Suite 300, Houston, Texas 77024 or fax (713) 467-5025.
INTENTIONALLY LEFT BLANK
22
CUMULATIVE TOTAL SHAREHOLDER RETURN
The following graph compares the changes in the cumulative total
shareholder returns of (i) Trans Global Services, (ii) the Standard &Poor's 500
Stock Index, and (iii) a peer group comprised of a weighted index of a group of
other companies in our industry. The peer group is comprised of Kelly Services,
Inc., Adecco, Spherion Corporation, and Manpower, Inc. The graph assumes that
$100 was invested on December 31, 1997, in each of our common shares, the S&P
500, and the peer group, and that all dividends were reinvested.
[GRAPHIC OMITTED]
December December December December December December
1997 1998 1999 2000 2001 2002
- --------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Peer Group $ 100.00 $ 93.73 $ 108.15 $ 89.61 $ 81.37 $ 74.16
- --------------------------- -------------- -------------- -------------- -------------- -------------- --------------
S&P 500 Index $ 100.00 $ 125.00 $ 150.00 $ 125.00 $ 99.00 $ 100.00
- --------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Trans Global Services, Inc. $ 100.00 $ 33.01 $ 8.00 $ 1.67 $ 7.50 $ 1.17
- --------------------------- -------------- -------------- -------------- -------------- -------------- --------------
PEER GROUP
- ---------------------------------------------------------------------------------------------------------------------------
Kelly Services, Inc. $ 30.00 $ 31.00 $ 25.00 $ 23.00 $ 22.00 $ 25.00
- --------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Adecco 7.00 12.00 19.00 15.00 13.00 9.00
- --------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Spherion Corporation 25.00 23.00 24.00 12.00 10.00 6.00
- --------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Manpower Inc. 35.00 25.00 37.00 37.00 34.00 32.00
- --------------------------- -------------- -------------- -------------- -------------- -------------- --------------
Average $ 24.25 $ 22.75 $ 26.25 $ 21.75 $ 19.75 $ 18.00
============== ============== ============== ============== ============== ==============
23
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the named executive officers (determined as of the end of
the last fiscal year) for services rendered in all capacities to Trans Global
Services and our subsidiaries for the fiscal years ended December 31, 2002, 2001
and 2000. No other officer had compensation of $100,000 or more for 2002, 2001,
and 2000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------------------------ --------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ---------------------- ------ -------- ------------- -------- ------------- -------- ------------- ----------
Joseph G. Sicinski, 2002 326,688 -0- -0- -0- -0- -0- -0-
CEO (1) 2001 266,847 -0- -0- -0- -0- -0- -0-
2000 268,038 -0- -0- -0- -0- -0- -0-
Lewis S. Schiller, 2002 -0- -0- -0- -0- -0- -0- -0-
CEO (2)
Arthur P. Grider III, 2003 132,000 -0- -0- -0- -0- -0- -0-
CEO and CFO (3)
(1) Mr. Sicinski's employment was terminated effective August 15, 2003. Mr.
Sicinski's salary for 2002 included compensation from Resource Management
International, Inc. and Avionics Research Corporation, two of our
subsidiaries.
(2) Mr. Schiller was chief executive officer from December 21, 2001 until March
4, 2002, for which he received no compensation.
(3) Mr. Grider was elected our president and chief executive officer on August
12, 2002. He signed an employment agreement with us on May 1, 2003 that
provides for an annual base salary of $200,000 with discretionary bonuses
calculated by our board of directors. Because of our poor cash flow, Mr.
Grider's salary has been reduced to $132,000.00 per annum. On October 7,
2003, Mr. Gider was elected as our chief financial officer and treasurer
following the resignation of Dr. Riviere from those positions on that same
date.
STOCK OPTION AND STOCK APPRECIATION RIGHTS
There were grants of stock options to executive officers during the fiscal
year ended December 31, 2002. Lewis Schiller was granted an option to purchase
800,000 shares while Joseph Sicinski received an option to purchase 348,705
shares.
OPTION EXERCISES AND HOLDINGS
There were stock options held by Lewis Schiller and Joseph Sicinski during
the fiscal year ended December 31, 2002, and there were stock options exercised
by the named executive officers during the fiscal year ended December 31, 2002.
We have one long-term incentive plan, pursuant to which options to purchase
an aggregate of shares of common stock may be issued. At December 31, 2002, we
had issued an aggregate 925,000 shares of common stock, available for grant. At
December 31, 2002, options to acquire 95,000 shares of stock were outstanding
under the plans.
The board of directors or a stock option committee, if appointed, has the
authority to grant the following types of awards under the option plan:
incentive or non-qualified stock options; stock appreciation rights; restricted
stock; deferred stock; stock purchase rights and/or other stock-based awards.
The option plans are designed to provide us with broad discretion to grant
incentive stock-based rights. All officers, including Arthur P. Grider III, who
is also a director, are eligible for awards under the option plans. In
accordance with the 2002 Long-Term Incentive Plan approved by the Shareholders,
24
a non-employee director receives an option grant to purchase 25,000 shares of
common stock with immediate vestment as of the date of his/her election. Each
year following a non-employee director's initial election, he/she will receive
option grants of 15,000 shares of common stock as long as he/she serves on the
Board. Tax consequences of awards provided under the option plans are dependent
upon the type of award granted. The grant of an incentive or non-qualified stock
option does not result in any taxable income to the recipient or deduction to
us. Upon exercise of a non-qualified 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 we receive a corresponding tax
deduction.
In the case of an incentive stock option, no income is recognized by the
employee, and no deduction is available to us, 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 we
receive 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 we receive 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 may be made with respect to the payment of
withholding tax.
COMPENSATION OF DIRECTORS
We pay directors who are not also our employees a fee of $3,000 per quarter
for their services to Trans Global Services as directors. We do not compensate
any of our employee directors. Effective May 3, 2003, each non-employee
director is to receive $5,000 per regular board meeting, $2,000 per emergency
board meeting, $500 per telephonic board meeting with quorum, $1,000 per
committee meeting, and $3,000 per stockholders' meeting.
We reimburse all of our directors for expenses incurred in attending board
meetings. In accordance with the 2002 Long-Term Incentive Plan approved by our
stockholders, a non-employee director receives an option grant to purchase
25,000 shares of common stock with immediate vestment as of the date of his/her
election. Each year following a non-employee director's initial election, he/she
will receive option grants of 15,000 shares of common stock on April 1st of each
year.
EMPLOYMENT AGREEMENTS
In keeping with our August 2002 verbal agreement with NAG, on August 12,
2002, Joseph G. Sicinski and Joseph E. Link entered into new three-year
employment agreements with us, pursuant to which they were to receive an annual
minimum base salary of $260,000 and $160,000, respectively, subject to an annual
increase of not less than five percent. Mr. Sicinski was to continue as
chairman of our board of directors and Mr. Link was to continue as our as chief
financial officer.
In October 1997, Mr. Joseph G. Sicinski entered into a five-year employment
agreement with us pursuant to which he received minimum annual compensation of
$260,000, subject to an annual increase equal to the greater of the increase in
the cost of living index or five percent. In March 1999, the term of the
agreement was extended until September 30, 2005. In addition, Mr. Sicinski was
entitled to a bonus of five percent of our income before taxes, all non-cash
adjustments and all payments to our former parent, provided, that his maximum
bonus did not exceed 200 percent of his annual salary. We also provided Mr.
Sicinski with an automobile allowance for the use of his personal automobile.
Mr. Sicinski was also entitled to severance payments in the event of a
termination of his employment following a change of control, which would equal
the greater of five times his annual compensation or his annual compensation
multiplied by the number of years remaining in the term.
25
In June 2000, Mr. Sicinski agreed to defer a portion of his salary until
such time as our board of directors determined that sufficient working capital
was available to us to reinstate his agreed upon salary. The amount shown in the
Summary Compensation Table reflects the reduced rate of compensation for 2001
and 2000.
However, on April 4, 2003, our board of directors suspended the employment
agreements of Messrs. Sicinski and Link due to management differences. On April
1, 2003, we also removed Messrs. Sicinski and Link from our board.
On May 1 2003, we entered into an employment agreement with Arthur P.
Grider III, our new president and chief executive officer for the term of two
years. The annual compensation under the agreement is a base salary of $200,000
with discretionary bonuses calculated by our board of directors. Because of our
poor cash flow, Mr. Grider's salary has been reduced to $132,000.00.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table presents information regarding the beneficial ownership
of all shares of our common stock as of the record date by:
- - Each person who beneficially owns more than five percent of the outstanding
shares of our common stock;
- - Each of our directors;
- - Each of our named executive officers; and
- - All directors and officers as a group.
SHARES BENEFICIALLY
OWNED(2)
--------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- --------------------------------------- ----------- --------
Arthur P. Grider III (3). . . . . . . . 8,015,476 55.0%
General J. B. Davis (3) (4) . . . . . . 92,857 0.06%
Ashraf M. H. Ghonima. . . . . . . . . . -0- -0-
Paul E. McManus . . . . . . . . . . . . -0- -0-
Rebecca Dunn (3) (5). . . . . . . . . . 1,100,000 7.7%
Dr. James C. Riviere (6). . . . . . . . 142,857 0.99%
Tara Dunn (7) . . . . . . . . . . . . . -0- -0-
- ---------------
(1) Unless otherwise indicated, the address for each of these stockholders is
c/o Trans Global Services, Inc., 8707 Katy Freeway, Suite 300, Houston,
Texas 77024. Also, unless otherwise indicated, each person named in the
table above has the sole voting and investment power with respect to his
shares of our common stock beneficially owned.
(2) Beneficial ownership is determined in accordance with the rules of the SEC.
(3) The 8,000,000 shares of our common stock owned beneficially by Mr. Grider
include: (a) 4,160,714 shares owned by NAG Financial LLC, of which Mr.
Grider is chief executive officer and which is controlled by Mr. Grider;
(b) 1,000,000 shares owned by Phoenix Marketing Services, Inc., of which
Mr. Grider is the president and chief executive officer; Phoenix Marketing
Services is owned by a family limited partnership of which Mr. Grider is
the sole limited partner; (c) 1,100,000 shares owned by Rebecca Dunn, Mr.
Grider's wife, as to which he disclaims beneficial interest but as to which
he has voting rights pursuant to a voting agreement; the shares owned by
Rebecca Dunn are described below; (d) 92,857 shares owned by General J. B.
Davis, as to which Mr. Grider has voting rights pursuant to a voting
agreement; (e) an aggregate of 1,746,427 shares owned by other stockholders
who purchased their shares as designees of NAG Financial and who entered
into a voting agreement with Mr. Grider; and (f) 15,746 shares purchased on
the open market by Mr. Grider. On October 6, 2003, we received notice that
General Davis had resigned as a director.
(4) Mr. Grider has voting rights with respect to these shares pursuant to a
voting agreement. See, Note 3, above.
(5) Rebecca Dunn is the wife of Mr. Grider. Of the shares beneficially owned
Ms. Dunn, 1,000,000 shares are owned by her individually, an aggregate of
50,000 shares are owned by her as custodian under the uniform gift to
minors act for the benefit of five of her grandchildren and 50,000 shares
owned by her in trust for one of her daughters. Ms. Dunn entered into a
voting agreement with Mr. Grider with respect to all of these shares. The
shares owned by Ms. Dunn do not include the 7,000,000 shares beneficially
owned by Mr. Grider.
(6) Dr. James C. Riviere is the controlling stockholder of ParagonLogistix,
Inc., a Florida entity that holds 142, 857 shares of our common stock. He
resigned as our chief financial officer and treasurer on October 7, 2003.
Mr. Grider replaced Dr. Riviere as our chief financial officer and
treasurer on that date.
(7) Ms. Dunn is the stepdaughter of Mr. Grider.
26
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of the end of the most recently
completed fiscal year with respect to compensation plans (including individual
compensation arrangements) under which equity securities of the registrant are
authorized for issuance, aggregated as follows:
- - All compensation plans previously approved by security holders; and
- - All compensation plans not previously approved by security holders.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE UNDER EQUITY COMPENSATION
OUTSTANDING OPTIONS, WARRANTS PRICE OF OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
PLAN CATEGORY (a) (b) (c)
Equity compensation plans
approved by security holders 95,000 -0- 925,000
Equity compensation plans not
approved by security holders 125,650 -0- -0-
------- -------
Total 220,650 -0- 925,000
======= =======
CHANGES IN CONTROL
We do not know of any agreements, the operation of which may at a
subsequent date result in a change in control of Trans Global Services, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to an agreement dated November 15, 2001, we issued 5,000,000
shares of our common stock to The Finx Group. In exchange, Finx issued
2,500,000 shares of its common stock to us, and further agreed to invest
$1,000,000, for which we were to issue shares of our preferred stock, which were
convertible into 3,000,000 shares of our common stock. In December 2001, Finx
invested $250,000 and received our preferred stock convertible into 750,000
shares of our common stock.
In March 2002, the agreement with Finx was terminated. Consequently, Finx
returned to us 4,000,000 shares of our common stock, which were previously
issued, and we returned to Finx the 2,500,000 shares of the Finx common stock
issued to us. All of our preferred stock and all obligations by us to issue
additional shares of our preferred stock to Finx pursuant to the November 2001
agreement were cancelled.
The net effect of the transaction was the issuance by us of 1,000,000
shares of our common stock to designees of Finx for $250,000. The designees of
Finx include Lewis S. Schiller and members of his family.
In connection with the Finx agreement, in December 2001, we elected Lewis
S. Schiller as our chief executive officer and a director, and Lee Wingeier and
Steve Morgan as directors. Messrs. Wingeier and Morgan resigned in January 2002.
Mr. Schiller resigned as our chief executive officer and director in March 2002
in connection with the termination agreement with Finx. We exchanged mutual
releases with Mr. Schiller.
On November 12, 2001, just prior to the November 15, 2001 agreement with
the Finx Group, Messrs. Edward D. Bright and James L. Conway resigned as
directors. We exchanged mutual releases with them.
In July 2002, pursuant to a verbal agreement, we sold 1,000,000 shares of
our common stock, for a purchase price of $100,000, to Phoenix Marketing
Services, Inc. ("Phoenix") an affiliate of Arthur P. Grider III, our current
president, chief executive officer and director, but not affiliated with us at
the time. The agreement was entered into in anticipation of a more comprehensive
agreement between us and Phoenix, which we agreed to in August 2002. As part of
27
the July agreement, Joseph G. Sicinski, our president at the time, agreed that
if the subsequent transaction with Phoenix was not consummated, he would
purchase the shares from Phoenix for $100,000.
In August 2002, we and NAG Financial, LLC ("NAG"), a Texas limited
liability company and an affiliate of Phoenix, and by extension an affiliate of
Mr. Grider, entered into a verbal agreement pursuant to which:
- - NAG or its designees purchased 7,000,000 shares of our common stock for
$740,000, to be payable in installments. The purchase was completed during
September 2002. A portion of the shares was purchased by a note in the
amount of $61,687, which was paid in December 2002.
- - NAG or its associates transferred to us contracts or contract rights
relating to temporary staffing or other similar or related services.
- - We agreed to pay to NAG or Phoenix Marketing Services, Inc. a fee of two
percent of net collections, as defined in the agreement, from the contracts
assigned to us, up to a maximum of $1,000,000.
- - We also agreed to issue one share of a newly created series of preferred
stock for each $0.21 of gross profit generated from the assigned contracts
through June 30, 2005, up to a maximum of 2,000,000 shares of our preferred
stock. Each of the shares of our preferred stock would be convertible into
two shares of our common stock and would have the right to vote with the
common stock, with each share of the preferred stock having two votes.
- - Mr. Sicinski and Mr. Link agreed to vote their shares of common stock in
accordance with NAG's instructions until NAG or its designees shall have
purchased 5,250,000 shares of common stock. The voting obligations of Mr.
Sicinski and Mr. Link terminated on August 21, 2002, when the purchase
threshold was achieved. At the same time, Mr. Sicinski's obligation to
purchase the Phoenix shares pursuant to the July 2002 agreement terminated.
- - Arthur P. Grider III was elected as president, chief executive officer and
a director, and Mr. Sicinski retained his position as chairman of the
board.
- - Mr. Sicinski and Mr. Link entered into new employment agreements.
- - We granted registration rights with respect to the shares of common stock
issued pursuant to the NAG agreement and any shares of common stock
issuable upon conversion of any share of our preferred stock, which may be
issued under the August 2002 agreement.
As a result of the issuance of the 8,000,000 shares to Phoenix and NAG, as
affiliates of Mr. Grider pursuant to the July and August 2002 agreements, we had
a change of control. The 8,000,000 shares of our common stock issued to Phoenix
and NAG constituted 56.5 percent of our common stock. Since we had a change of
control, certain of our available net operating loss carry-forwards may be
limited in accordance with the regulations of the Internal Revenue Service.
However, on April 4, 2003, our board of directors terminated the employment
agreements of Messrs. Sicinski and Link due to the accounting problems described
in Item 9 of this Annual Report. On April 1, 2003, we also removed Messrs.
Sicinski and Link from our board.
Beginning in 2003, we lease our Houston office space, software, equipment
and vehicles from Phoenix. As of the date of this Annual Report, we have not
executed any formal lease agreement with Phoenix; however, Phoenix issued an
invoice in the amount of $25,089.00 to RMI Pendragon, one of our subsidiaries,
for the first quarter of 2003 for the use of the Houston office space and
equipment. That invoice was paid on May 8, 2003.
ITEM 14. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer evaluated our
disclosure controls and procedures as of December 31, 2002, and they have
concluded that these disclosure controls and procedures were effective at that
time.
28
CHANGES IN INTERNAL CONTROLS
There were significant changes in internal controls and in other factors
that could significantly affect our controls subsequent to December 31, 2002.
The changes resulted from the transfer of all of our accounting and financial
reporting functions from our former corporate office in New York to the new
corporate office in Houston. Since the transfer, we have informed our auditors
and audit committee members of the following reportable conditions that could be
considered material weaknesses in our internal controls:
- - Subsidiary ledgers have not been reconciled to the general ledger;
- - Bank reconciliations have not been performed from March 2003 through June
2003;
- - Financial statements are not available for our most recent quarter end,
June 30, 2003 or for the quarter ended March 31, 2003;
- - Cash receipts have not been posted to the accounts receivable subsidiary
ledger, nor have differences between amounts collected versus amounts
received been reconciled, resolved and posted to the subsidiary ledger;
- - Cash receipts are not being reconciled with our factors' monthly
statements;
- - We have not filed all of our federal and state payroll tax reports with the
proper taxing authorities in 2003; and
- - The payroll process is midway through a conversion that enables seamless
integration of human resources and payroll data to the General Ledger.
During this conversion, there is a lack of segregation of duties between
the payroll function and information technology management personnel. This
issue is anticipated to be resolved prior to the end of the fourth quarter
2003.
Our management is currently addressing the above deficiencies in internal
controls by having hired a controller to take responsibility for the accounting
and financial reporting process. Under the supervision of the controller, we
have dedicated our internal resources toward implementation of procedures to
remedy any internal controls issues. To further expedite the process, we have
retained additional temporary, project-based personnel who have already begun to
complete the above listed tasks. We continue to make progress toward elimination
of deficiencies and reinforcement of internal controls.
Our efforts to implement proper internal controls and accounting procedures
include the following:
- - Bank Account Reconciliations. The major depository and disbursing accounts
have been reconciled through September 30, 2003. The major payroll
disbursing accounts are reconciled through April 30, 2003 and the May
reconcilement is near completion. Numerous minor and low activity accounts
have been reconciled through August 2003. Overall, the work to complete
reconcilements through September 30, 2003 is 60 percent complete. Bank
reconcilements procedures have been installed.
- - Payable to Factor. We have reconciled the accounting for accounts
receivable and cash receipts transactions with the factoring agent through
September 30, 2003.
- - Accounts Receivables. We are in the process of reconciling the factor's and
our aging schedules and reconciling those schedules to the general ledger
balances. This work is approximately 40 percent completed. Adequate cash
application procedures have been developed and will be permanently
installed effective November 1, 2003 in order to balance daily cash
postings to cash receipts amounts.
- - General Ledger and Charts of Account. The previously utilized general
ledger system has been replaced with one that efficiently integrates
transactions generated through the payroll and sales invoicing systems.
Transactions for 2003 from the previously used system have been entered
into the new general ledger. Daily accounts are being updated and
reconciled in order to employ financial controls over depository,
prepayment, accounts payable and other liability account transactions. The
charts of account are being reviewed and expanded in order to provide more
accurate initial accounting document recording, and employees are being
trained to accurately identify and code transactions.
- - Information Technology Systems Updates. In order to facilitate the
implementation of our accounting procedures, additional CYMA and SQL
licenses were purchased. In addition, there will be a CYMA upgrade
installed within three weeks that will enhance the existing system.
- - Internal Controls. Accounting, cash receipts procedures and cash disbursing
procedures are now supervised directly or functionally by accounting
management. Accounting systems management performed by IT personnel is now
functionally supervised by accounting management. The payroll computation
and sales invoicing personnel are now supervised directly by accounting
management.
We have a Significant Payroll Tax Liability. Our subsidiaries have an
estimated payroll tax liability to the Internal Revenue Service in the amount of
$4,528,164.88 for the period beginning January 1, 2003 and ending August 31,
2003. Additional liabilities have accrued since August 31, 2003. The federal
payroll tax liability, but not the penalties and interests, for the first two
quarters of 2003 were paid in full on or about October 17, 2003 for the
following subsidiaries: Avionics Research Corporation, Avionics Research
Corporation of Florida, Phoenix Services, Inc., and Truecom, Inc. The federal
income tax liabilities for the year 2003 remain unpaid for the following
subsidiaries: Resource Management International, Inc. and RMI Pendragon, Inc. If
we are unable to either pay the amount owed or make satisfactory arrangements
with the IRS under a payment plan, the IRS could levy on the assets of our
subsidiaries in an attempt to liquidate the tax liability. If that should
happen, we would in all likelihood cease operations, and our business could
fail. As of the date of this Annual Report, we have not filed all of the
required state and federal payroll tax reports and have not made any
arrangements with the IRS nor secured any commitment from a lender to pay the
unpaid taxes. This estimated federal payroll tax liability does not include any
potential penalties and interest for non-payment and non-reporting.
ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
The aggregate fees billed by Malone & Bailey, PLLC for professional
services rendered for the audit of our annual financial statements for fiscal
year 2000, 2001 and 2002 were $57,000.
29
AUDIT-RELATED FEES
The aggregate fees billed by Malone & Bailey, PLLC for professional
services rendered for the audit of our annual financial statements for fiscal
year 2000, 2001 and 2002 were $8,700.
ALL OTHER FEES
There were no other fees billed by Malone & Bailey, PLLC for professional
services rendered, other than as stated under the captions Audit Fees,
Audit-Related Fees, and Tax Fees.
INTENTIONALLY LEFT BLANK
30
PART IV
ITEM 16. 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:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5/F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-7/F-8
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9/F-18
(b) Financial Statement Schedules.
None
(c) Exhibits
EXHIBIT IDENTIFICATION OF EXHIBIT
- ------- -------------------------
NO.
---
3.1 * Restated Certificate of Incorporation. Filed as an exhibit to Trans Global Services, Inc. registration
statement on Form S-1, File No. 333-14289.
3.2 * By-Laws. Filed as an exhibit to Trans Global Services, Inc. Form 10-K Annual Report for the year ended
December 31, 1995.
10.1 * Employment Agreement dated October 15, 1997, between Trans Global Services, Inc. and Joseph G.
Sicinski, as amended. Filed as an exhibit to Trans Global Services, Inc. Annual Report for the year ended
December 31, 1999.
10.2 * 1995 Long-Term Incentive Plan. Filed as an exhibit to Trans Global Services, Inc. definitive proxy
statement for its special meeting of stockholders for November 1996.
10.3 * 1998 Long-Term Incentive Plan. Filed as an exhibit to Trans Global Services, Inc. definitive proxy
statement for its 1998 annual meeting of stockholders for August 1998.
10.4 * 1999 Long-Term Incentive Plan. Filed as an exhibit to Trans Global Services, Inc. definitive proxy
statement for its 2000 annual meeting of stockholders held in May 2000.
10.5 * Form of Series A Common Stock Purchase Warrants. Filed as an exhibit to Trans Global Services, Inc.
Form 10-K Annual Report for the year ended December 31, 1995.
10.7 * Credit Agreement dated June 7, 2000 between Trans Global Services, Inc. and Sterling National Bank
10.8 * Credit Agreement dated October 16, 2001 between Trans Global Services, Inc. and Metro Factors. Filed
as an exhibit to Trans Global Services, Inc. Form 8K dated October 16, 2001, File No. 000-23382.
10.9 * Agreement dated November 15, 2001 between Trans Global Services, Inc. and The Finx Group, Inc.
10.10 * Termination agreement dated March 7, 2002 between Trans Global Services, Inc. and The Finx Group,
Inc.
10.11 * 2002 Non-Qualified Stock Option Plan. Filed as an exhibit to Trans Global Services, Inc. registration
statement on Form S-8, File No. 333-81792.
10.12 ** Employment Agreement dated May 1, 2003 between Trans Global Services, Inc. and Arthur P. Grider III
21.1 ** Subsidiaries of the Registrant.
31.1 ** Certification of Arthur P. Grider III, President and Chief Executive Officer of Trans Global Services, Inc.,
pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
31.2 ** Certification of Arthur P. Grider III, Chief Financial Officer and Treasurer of Trans Global Services,
Inc., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002.
31
32.1 ** Certification of Arthur P. Grider III, President and Chief Executive Officer of Trans Global Services, Inc.,
pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002
32.2 ** Certification of Arthur P. Grider III, Chief Financial Officer and Treasurer of Trans Global Services,
Inc., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002.
- --------------
* Previous Filed
** Filed Herewith
(d) Reports on Form 8-K.
Form 8-K filed on April 11, 2003 with respect to changes in the
registrant's certifying accountant and termination of two directors.
Form 8-K/A filed on April 16, 2003 with respect to changes in the
registrant's certifying accountant and termination of two directors.
Form 8-K/A filed on May 7, 2003 with respect to changes in the registrant's
certifying accountant and termination of two directors.
Form 8-K/A filed on May 16, 2003 with respect to changes in the
registrant's certifying accountant and termination of two directors.
Form 8-K filed on May 29, 2003 with respect to appointment of the
registrant's new certifying accountant.
Form 8-K filed on October 9, 2003 with respect to the resignation of
directors and the registrant's chief financial officer and treasurer.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRANS GLOBAL SERVICES, INC.
Date: October 27, 2003
By /s/ Arthur P. Grider III
-------------------------------------
Arthur P. Grider III,
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------ ------------------------------------------------ ----------------
/s/ Arthur P. Grider III President, Chief Executive Officer and Director October 27, 2003
- ------------------------ (Principal Executive Officer)
Arthur P. Grider III
32
INDEX TO FINANCIAL STATEMENTS
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . PAGE
Independent Auditors Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5/F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-7/F-8
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9/F-18
INTENTIONALLY LEFT BLANK
F-1
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors,
Trans Global Services, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of Trans
Global Services, Inc. and its subsidiaries as of December 31, 2002, and 2001,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2002. 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 auditing standards generally
accepted in the United States of America. 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, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that Trans Global Services, Inc. will continue as a going concern. As
discussed in Note 3 to the consolidated financial statements, the Company has
suffered recurring losses from operations, has a working capital deficiency and
an accumulated deficit that raise substantial doubt about it's ability to
continue as a going concern. Management's plans in regard to that matter also
are described in Note 3. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/S/ MALONE & BAILEY, PLLC
Houston, Texas
May 30, 2003
F-2
TRANS GLOBAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
ASSETS 2002 2001
- -------------------------------------------------------------------- ------------- ------------
CURRENT ASSETS:
Cash $ 46,079 $ 58,695
Accounts receivable, net of allowance for doubtful accounts of
$ 62,500 1,344,521 2,116,793
Note receivable - i-engineering.com, Inc. - 22,448
Due from affiliate 27,661 -
Other current assets 37,472 52,781
------------- -------------
TOTAL CURRENT ASSETS 1,455,733 2,250,717
PROPERTY AND EQUIPMENT, NET 51,554 92,644
OTHER ASSETS 43,573 54,922
INTANGIBLE ASSETS, NET - 1,500,000
------------- -------------
TOTAL ASSETS $ 1,550,860 $ 3,898,283
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 213,144 $ 506,065
Accrued payroll and related taxes and expenses 840,034 504,318
Loan payable, Asset - based lender 684,753 1,527,847
Notes payable, Outside investors - 77,819
------------- -------------
TOTAL CURRENT LIABILITIES 1,737,931 2,616,049
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Preferred stock, $.01 par value, 5,000,000 shares authorized, none
issued - -
Common stock, $.01 par value; 25,000,000 shares
authorized,15,620,000 and 5,854,295 shares issued and
outstanding 156,200 58,543
Additional paid-in capital 15,526,332 13,837,173
Treasury stock (2,970,812) (2,970,812)
Stock subscription receivable (3,531) (91,593)
Accumulated deficit (12,895,260) (9,551,077)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (187,071) 1,282,234
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,550,860 $ 3,898,283
============= =============
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-3
TRANS GLOBAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
------------ ------------ ------------
REVENUES $22,693,508 $27,127,271 $23,325,194
COST OF GOODS SOLD 20,943,512 24,713,967 20,975,439
------------ ------------ ------------
GROSS PROFIT 1,749,996 2,413,304 2,349,755
OPERATING EXPENSES:
Selling, General and Administrative Expenses 2,633,648 2,837,332 3,220,718
Provision for asset impairment 1,500,000 794,991 -
Amortization of intangibles - 273,528 273,528
Non - cash stock compensation 750,000 - -
------------ ------------ ------------
4,883,648 3,905,581 3,494,246
------------ ------------ ------------
Loss from operations (3,133,652) (1,492,547) (1,144,491)
OTHER INCOME (EXPENSE):
Interest expense (261,518) (311,674) (471,544)
Interest income 22 6,997 110,036
Other 50,965 (18,494) 73,146
------------ ------------ ------------
Loss before income taxes (3,344,183) (1,815,718) (1,432,853)
INCOME TAXES - - (490,000)
------------ ------------ ------------
NET LOSS $(3,344,183) $(1,815,718) $(1,922,853)
============= =========== ============
BASIC AND DILUTED LOSS PER SHARE $ (.32) $ (.54) $ (.67)
============= =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
Basic and diluted 10,486,115 3,386,733 2,860,700
============= =========== ============
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-4
TRANS GLOBAL SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
COMMON STOCK
------------ ADDITIONAL PAID- TREASURY
SHARES AMOUNT IN CAPITAL STOCK
---------- -------- ----------- ------------
BALANCE, December 31, 1999 3,819,716 $ 38,197 $12,887,851 $(2,566,682)
Issuance of below market warrants - - 210,000 -
Issuance of common stock to I-
engineering.com, Inc. 270,000 2,700 326,430 -
Purchase of treasury stock, I-
engineering.com, Inc. - - 75,000 (404,130)
Net loss - - - -
---------- -------- ----------- ------------
BALANCE, December 31, 2000 4,089,716 40,897 13,499,281 (2,970,812)
Adjustment, variable price options - 3,827 -
Cost of warrants issued for professional
services - - 6,139 -
Exercise of stock options 764,579 7,646 87,926 -
Issuance of common stock - The Finx
Group, Inc. 1,000,000 10,000 240,000 -
Stock subscription receivable, options
Net loss - - - -
---------- -------- ----------- ------------
BALANCE, December 31, 2001 5,854,295 58,543 13,837,173 (2,970,812)
Exercise of options 668,705 6,687 40,129 -
Issuance of below market warrants 800,000 8,000 742,000 -
Issuance of common stock for debt 297,000 2,970 147,030 -
Sale of common stock 8,000,000 80,000 760,000 -
Stock subscription receivable, options - - - -
Net loss - - - -
---------- -------- ----------- ------------
BALANCE, December 31, 2002 15,620,000 $156,200 $15,526,332 $(2,970,812)
========== ======== =========== ============
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-5
TRANS GLOBAL SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
SUBSCRIPTION ACCUMULATED
RECEIVABLE DEFICIT TOTAL
------------ ------------- ------------
BALANCE, December 31, 1999 $ - $ (5,812,506) 4,546,860
Issuance of below market warrants - - 210,000
Issuance of common stock to I-engineering.com, Inc. - - 329,130
Purchase of treasury stock, I-engineering.com, Inc. - - (329,130)
Net loss - (1,922,853) (1,922,853)
------------ ------------- ------------
BALANCE, December 31, 2000 - (7,735,359) 2,834,007
Adjustment, variable price options - - 3,827
Cost of warrants issued for professional services - - 6,139
Exercise of stock options - - 95,572
Issuance of common stock - The Finx Group, Inc. - - 250,000
Stock subscription receivable, options (91,593) - (91,593)
Net loss - (1,815,718) (1,815,718)
------------ ------------- ------------
BALANCE, December 31, 2001 (91,593) (9,551,077) 1,282,234
Exercise of options - - 46,816
Issuance of below market warrants - - 750,000
Issuance of common stock for debt - - 150,000
Sale of common stock - - 840,000
Stock subscription receivable 88,062 - 88,062
Net loss - (3,344,183) (3,344,183)
------------ ------------- ------------
BALANCE, December 31, 2002 $ (3,531) $(12,895,260) $ (187,071)
============ ============= ============
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-6
TRANS GLOBAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
------------ ------------ ------------
OPERATING ACTIVITIES:
NET LOSS $(3,344,183) $(1,815,718) $(1,922,853)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 45,577 552,873 344,194
Write-off note receivable 22,448 - -
Issuance of below market options 750,000 - -
Customer list impairment 1,500,000 - -
Goodwill impairment - 581,240 -
Change in market value of variable price options - 3,827 -
Warrants issued for services - 6,139 -
Deferred income taxes - - 490,000
Debt issuance costs - - 210,000
Changes in operating assets and liabilities:
Accounts receivable 772,272 (413,795) 815,345
Other assets 26,658 22,418 25,666
Accounts payable and accrued expenses (142,921) 40,084 63,246
Accrued payroll and related expenses 335,716 27,164 117,859
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (34,433) (995,768) 143,457
INVESTING ACTIVITIES:
Capital expenditures (4,487) (44,555) (21,529)
Repayments from ARC Networks - - 1,171,673
Note receivable, I-engineering, Inc. - - (500,000)
Repayments from I-engineering, Inc. - 203,003 274,549
Other - (5,058) (13,491)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (4,487) 153,390 911,202
FINANCING ACTIVITIES:
Asset-based lender (843,094) 675,812 (1,204,337)
Proceeds from sale of common stock 840,000 250,000 -
Note payable - outside investors - - 1,000,000
Repayment note payable - outside investors (77,819) (87,181) (835,000)
Exercise of stock options 46,816 3,979 -
Collection of stock subscription receivable 88,062 - -
------------ ------------ ------------
Due from affiliate (27,661) - -
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (61,758) 842,610 (1,039,337)
NET INCREASE (DECREASE) IN CASH (12,616) 232 15,322
CASH, BEGINNING OF PERIOD 58,695 58,463 43,141
------------ ------------ ------------
CASH, END OF PERIOD $ 46,079 $ 58,695 $ 58,463
============ ============ ============
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-7
TRANS GLOBAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDING DECEMBER 31st
----------------------------
2002 2001 2000
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest $245,326 $302,466 $244,741
======== ======== ========
Taxes $ - $ - $ -
======== ======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
- --------------------------------------------
In 2002, the Company issued 297,000 shares of common stock in exchange for
$150,000 in accrued liabilities due to an outside consultant.
In the first quarter of 2001, in exchange for $95,572 of non-recourse notes
receivable the Company issued 764,597 shares of common stock upon the exercise
of stock options. At December 31, 2001, $3,979 of these notes had been
collected.
In connection with the issuance in January 2000 of subordinated notes in
the principal amount of $1,000,000, the Company issued warrants to purchase
250,000 shares of the Company's common stock at $.35 per share to the investors.
In addition, the Company issued warrants to purchase 300,000 shares of the
Company's common stock at $.35 per share to the placement agent and 25,000
shares to a director for services relating to the financing. The Company
incurred a charge of $210,000. This charge has been credited to capital in
excess of par value. The Company used $500,000 of the proceeds of the loan to
make a loan to i-engineering.com, as described in Note 6 of Notes to Financial
Statements, and the Company agreed to transfer to the lenders 10% of the shares
of i-engineering.com, which it acquired.
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
F-8
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Trans Global Services, Inc. (the "Company" or "Trans Global"), a Delaware
corporation, operates through six subsidiaries, Avionics Research Corporation,
["Avionics"], Avionics Research Corporation of Florida [Avionics Florida"],
Resource Management International, Inc. ["RMI"], RMI Pendragon, Inc. ["RMI
Pendragon"], Phoenix Services, Inc. ["Phoenix Services"], and Truecom, Inc.
("Truecom"). During 2002, the Company created two new subsidiaries, RMI
Pendragon and Phoenix Services, Inc. The Company is engaged in providing
technical temporary staffing services throughout the United States, principally
in the aircraft and aerospace industries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Trans Global Services, Inc. and its subsidiaries. All
intercompany transactions have been eliminated in consolidation.
Segment Reporting - The Company operates in one reportable segment under
the Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures
about Segments of an Enterprise and Related Information due to its centralized
structure.
Revenue and Direct Cost Recognition - The Company's revenues are derived
from its gross billings, which are based on the payroll cost of its worksite
employees plus a markup, which is most cases is computed as a percentage of the
payroll cost. The gross billings are invoiced at the time payroll is processed.
Revenues are recognized during the period the worksite employees perform the
services. Revenues that have been recognized but not invoiced are included in
accounts receivable on the Company's Consolidated Balance Sheets because the
amounts are not material to the consolidated financial statements.
Historically, the Company has included both components of its gross
billings in revenues (gross method) due primarily to the assumption of
significant contractual rights and obligations associated with being an
employer, including the obligation for the payment of the payroll costs of its
worksite employees. The Company is the sole employer and assumes the payroll
obligations regardless of whether the Company collects its gross billings.
The Company takes into consideration its estimates of the costs directly
associated with its worksite employees, including payroll taxes, benefits and
workers' compensation costs, plus an acceptable gross profit margin in gross
billings. As a result, the Company's operating results are significantly
impacted by the Company's ability to accurately estimate, control and manage its
direct costs relative to the revenues derived from the markup component of the
Company's gross billings.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
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, 2002 and 2001.
Property and Equipment - Property and Equipment is 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. Amortization of leasehold improvements is
provided using the straight-line method over the term of the respective lease or
the useful life of the asset, whichever period is less. Estimated useful lives
range from 3 to 5 years.
F-9
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.
Impairment - The Company reviews certain long-lived assets, including
goodwill and other intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. [See Note 7]
Stock Options and Similar Equity Instruments - At December 31, 2002, the
Company has one stock-based employee compensation plan, which is described more
fully in Note 10. The Company accounts for these plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. During 2002, the
Company recorded compensation expense totaling $750,000 upon the issuance of
stock options at below market value. In 2001 and 2000, no stock-based
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant.
The following table illustrates the effect on net income and earnings per
share if they had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
YEARS ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
------------ ------------ ------------
Net loss, as reported $(3,344,183) $(1,815,718) $(1,922,853)
Deduct: Total stock-based employee
compensation expense determined under the
fair value based method for all awards (30,239) (4,772) (42,300)
------------ ------------ ------------
Pro forma net loss $(3,374,422) $(1,820,490) $(1,965,153)
============ ============ ============
Loss per share:
Basic and diluted - as reported $ (0.32) $ (0.54) $ (0.67)
============ ============ ============
Basic and diluted - pro forma $ (0.32) $ (0.54) $ (0.69)
============ ============ ============
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2002 and 2001 and 2000: no dividend yield and
expected volatility of 200%, 201% and 127%, respectively; risk-free interest
rate of 4.0% &, 4.8% and 6.2%, respectively and expected lives of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
the Company's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Income Taxes - The Company accounts for income taxes under 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 basis 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 - The Company is required to provide basic and dilutive
earnings (loss) per common share information. The basic net loss per common
share is computed by dividing the net loss applicable to common stockholders by
the weighted average number of common shares outstanding. Diluted net loss per
common share is computed by dividing the net loss applicable to common
stockholders, adjusted on an "as if converted" basis, by the weighted average
number of common shares outstanding plus potential dilutive securities. For the
F-10
years ended December 31, 2002, 2001 and 2000, potential dilutive securities had
an anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
Fair Value of Financial Instruments - The carrying amounts of cash, trade
receivables and payables, and short-term debt approximate fair value because of
the short term maturities of these instruments.
Concentration of Credit Risk - The Company extends credit to customers,
which results in accounts receivable arising from its normal business
activities. The Company does not require collateral or other security to support
financial instruments subject to credit risk. 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. At December 31, 2002 and
2001, a significant portion of the Company's receivables were derived from four
customers (See Note 14).
New Accounting Pronouncements - In April 2002, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 requires that gains and losses from extinguishment of debt be
classified as extraordinary items only if they meet the criteria in Accounting
Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of
Opinion No. 30 will distinguish transactions that are part of an entity's
recurring operations from those that are unusual and infrequent and meet the
criteria for classification as an extraordinary item. SFAS No. 145, which is to
be applied to all periods presented, is effective for the Company beginning
January 1, 2003. The adoption of SFAS No. 145 did not have an impact on the
Company's consolidated statements of operations or consolidated balance sheets.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses accounting and
reporting for costs associated with exit or disposal activities, such as
restructurings, involuntarily terminating employees, and consolidating
facilities initiated after December 31, 2002. SFAS No. 146, which requires that
costs related to exiting an activity or to a restructuring not be recognized
until the liability is incurred, is effective for the Company beginning January
1, 2003 and is to be applied on a prospective basis.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and requires fair value method
pro forma disclosures to be displayed more prominently and in a tabular format.
Additionally, SFAS No. 148 requires similar disclosures in interim financial
statements. The transition and disclosure requirements of SFAS No. 148 were
adopted by the Company in 2002.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplates continuation of the Company as a going concern and realization of
assets and settlement of liabilities and commitments in the normal course of
business. For the year ended December 31, 2002, the Company had a loss from
operations of $3,344,183, a working capital deficiency of approximately
$282,000, and an accumulated deficit of approximately $12,895,000, that raise
substantial doubt about the Company's ability to continue as a going concern.
Management plans to seek additional financing through equity issuances, mergers
and/or acquisitions consistent with its original business plan, although it has
no agreements or understandings with respect to any financing, merger or
acquisition and it may not be successful in securing such agreement or
understanding. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
NOTE 4 - ACCOUNTS RECEIVABLE AND LOAN PAYABLE - ASSET BASED LENDER
On October 16, 2002, we entered into a one-year asset-based lending
agreement with Metro Factors, Inc., which provides the Company with a maximum
F-11
availability of $2.5 million. Funds can be advanced in an amount equal to 85%
of the total face value of the eligible accounts receivables, with the
asset-based lender having the right to hold in reserve 15% of the outstanding
and unpaid receivables financed. The interest rate is equal to prime plus 2.5%
on the borrowed funds plus a fee of .7% of the receivables financed. The
minimum monthly fees payable to the asset-based lender is $12,000. The
asset-based lender has a security interest in all of the Company's assets
including accounts receivables, contract rights, personal property, and
fixtures. This facility replaced an agreement with the prior asset-based
lender. At December 31, 2002 and 2001, borrowings were $684,753 and $1,527,847,
respectively. The interest rate (exclusive of any fees) payable by the Company
at December 31, 2002 was 6.75%. In January 2003, the agreement was extended for
one year.
NOTE 5 - PROPERTY AND EQUIPMENT
Property, plant and equipment consisted of the following as of December
31,:
2002 2001
---------- ----------
Equipment $ 508,804 $ 504,956
Furniture and fixtures 213,087 212,446
Leasehold improvements 100,510 100,510
---------- ----------
822,401 817,912
Less: accumulated depreciation and amortization (770,847) (725,268)
---------- ----------
Net property, plant and equipment $ 51,554 $ 92,644
========== ==========
Depreciation expense charged to operations was $ 45,577 in 2002, $65,594 in
2001 and $70,666 in 2000.
NOTE 6 - NOTE RECEIVABLE - I-ENGINEERING.COM
At December 31, 2001, the Note Receivable from I-engineering.com, Inc. is
shown net of an allowance of $27,552. During 2002, the Company wrote-off the
remaining balance of the note.
NOTE 7 - INTANGIBLES
The Company acquired its major subsidiaries during 1994. As part of the
purchase agreements, the Company acquired customer lists and goodwill. Goodwill
represented the excess of the acquisition costs over the fair value of net
assets of business acquired. Amortization expense was calculated on a
straight-line basis over twenty years until 2002 when the Company adopted SFAS
142, Goodwill and Other Intangible Assets. SFAS 142 eliminated amortization of
goodwill, which would have resulted in a decrease in the net loss of $48,581 in
2001 and 2000.
Customer Lists represent listings of customers obtained through
acquisitions to which the Company can market its services. Customer Lists were
recorded at cost and are amortized on a straight - line basis over the estimated
useful life of fifteen years. The original value of the customer list was
$3,374,477 with accumulated amortization of $1,660,726 at December 31, 2001.
The Company reviewed Goodwill and other intangibles to assess
recoverability from future operations using undiscounted cash flows. The 2002
and 2001 reviews indicated impairment, which resulted in charges against
operations. In 2002, due to the continued significant losses from operations,
negative cash flows from operations and projected future negative cash flows
from operations, management determined the remaining value of the customer list
was impaired. Therefore, the Company recorded a provision for asset impairment
in 2002 totaling $1,500,000. In 2001, management determined that there was no
continuing market value to the goodwill and wrote-off $581,240 in 2001. In
addition, management determined that the estimated fair value of the customer
lists was less than its carrying value as of December 31, 2001, due in part to
the action taken by the Boeing Company in not engaging us in new assignments,
and impaired the intangible by approximately $210,000 to reflect the estimated
fair value at December 31, 2001.
F-12
NOTE 8 - INCOME TAXES
Due to losses generated during the periods prior to and including December
31, 2002, the Company has available a net operating loss carryforward of
approximately $8,000,000. In view of this loss and the limitations of Section
382 of the Internal Revenue Code resulting from change in ownership in 2002,
management has estimated the Company's deferred tax asset and current tax
liability to be zero. The current estimated net operating losses will expire in
the years 2009 through 2022.
The estimated net deferred taxes consist of the following at December 31,
2002 and 2001:
Deferred tax asset $ - $2,721,000
Deferred tax asset valuation allowance (3,350,000) (2,721,000)
Deferred tax liability - -
------------ ------------
- -
============ ============
During 2002 and 2001, the Company had no provision for income taxes.
During 2000, the Company had deferred state income tax expense of $108,000 and
deferred federal income tax expense of $382,000.
NOTE 9 - STOCKHOLDERS EQUITY
At December 31, 2002, the authorized capital stock of the Company consisted
of 5,000,000 shares of preferred stock, par value $.01 per share, and 25,000,000
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.
In July 2002, the Company sold 1,000,000 shares of Common Stock to Phoenix
Marketing Services, Inc. ("Phoenix") an unaffiliated company, for a purchase
price of $100,000.
In August 2002, the Company and NAG Financial, LLC ("NAG"), a Texas limited
liability company and an affiliate of Phoenix, purchased 7,000,000 share of
common stock for $740,000. NAG or its associates agreed to transfer to the
Company contracts or contract rights relating to temporary staffing or other
similar or related services. The Company agreed to pay NAG a fee of 2% of net
collections from the contracts assigned to it, up to a maximum of $1,000,000. In
addition, the Company will issue one share of a newly created series of
preferred stock for each $.21 of gross profit generated from the assigned
contracts through June 30, 2005, up to a maximum of 2,000,000 shares of the
preferred stock. Each of the shares of preferred stock will be convertible into
two shares of common stock and would have the right to vote with the common
stock, with each share of the preferred stock having two votes.
The 8,000,000 shares of Common Stock issued to Phoenix and NAG constitute
56.5% of the Company's Common Stock resulting in a change in control. The
majority stockholder of Phoenix and NAG became the President and Chief Executive
Officer of the Company.
In 2002 options to purchase 668,705 shares of Common Stock were exercised
for $46,816.
In February 2002, the Company issued 297,000 shares of common stock to an
outside consultant in exchange for accrued liabilities totaling $150,000.
On November 15, 2001, the Company issued 5,000,000 shares of common stock
to The Finx Group, Inc. ("Finx"), in exchange for 2,500,000 shares of Finx
common stock. Also, Finx agreed to invest $1,000,000, for shares of preferred
stock, which were convertible into 3,000,000 shares of Common Stock. In December
2001, Finx invested $250,000 and received preferred stock convertible into
750,000 shares of Common Stock. On March 7, 2002, the agreement was terminated,
Finx returned to the Company 4,000,000 shares of Common Stock, the Company
returned to Finx the 2,500,000 shares of Finx Common Stock and all of the shares
of preferred stock that were issued or issuable pursuant to the November 2001
agreement were cancelled. The effects of the cancellation are reflected
F-13
retroactively in the consolidated financial statements for the year ended
December 31, 2001. The net effect of the transaction was the issuance by the
Company of 1,000,000 shares of Common Stock to designees of Finx for $250,000,
which is reflected in the consolidated financial statements. Designees of Finx,
including Mr. Lewis S. Schiller and members of his family, hold the 1,000,000
shares. Mr. Schiller was the Company's chief executive officer and chairman of
the Company's board of directors from December 2001 until March 2002.
In 2000, the Company (i) loaned $500,000 to i-engineering.com on a
short-term basis, (ii) issued 270,000 shares of Common Stock to
i-engineering.com and (iii) acquired a minority interest in i-engineering.com.
The value of this interest was determined by the market value of the Company's
shares exchanged which was $329,135.
On December 5, 2000, following the failure of i-engineering.com, Inc. to
make a timely payment of principal and interest of $223,951, the Company
extended the payment of the note in exchange for 270,000 shares of Common Stock,
and the Company returned to i-engineering.com the shares it received from
I-engineering.com. During 2001 and 2000, the Company collected $477,552. In
2002, the Company wrote-off the remaining $22,448 as bad debt expense.
In January 2000, the Company raised $1 million through the issuance of 10%
subordinated promissory notes due July 2001 or earlier upon the Company's
receipt of payment of the note from Arc Networks, Inc. In connection with the
subordinated notes, the Company issued warrants to purchase 575,000 shares of
the Company's common stock at $.35 per share to the investors, the placement
agent and others who assisted the Company in the financing, including a director
of the Company. The Company incurred a financing charge of $210,000, which was
credited to paid in capital for the fair value of the warrants. The Company also
agreed to transfer to the lenders 10% of its equity interest in
i-engineering.com (See Notes 6 and 8). At December 31, 2002 and 2001, the unpaid
balance of these notes, including accrued interest, is approximately $0 and
$78,000.
NOTE 10 - STOCK OPTION AND WARRANTS
Warrants - At December 31, 2002 there was a warrant outstanding to purchase
50,000 shares of common stock at .125 which has a remaining life of four years
and warrants to purchase 75,650 shares of common stock at $21 per share which
were exercisable immediately upon issuance and expire 45 days after the
effective date of the first registration statement under the Securities Act of
1933, as amended, in which the holders of the warrants are given the opportunity
to include the shares of Common Stock issuable upon exercise of the warrants.
Options - In January 2002, the Company's board of directors approved the
Year 2002 Non-Qualified Stock Option Plan, pursuant to which non-qualified stock
options could be granted for 3,500,000 shares. Pursuant to this plan, the chief
executive officer granted options to purchase a total of 3,100,000 shares of
common stock at an exercise price of $.05 per share. All of such options were
exercised in January and February 2002. The grants included a grant of an option
to purchase 2,500,000 shares to a non-affiliated consultant who exercised such
option in full, and subsequently cancelled the exercise and returned to the
Company 2,300,000 of the shares. As a result of the grant of the options at an
exercise price, which was below the then current market price, the Company
recognized a non-cash charge to earnings of approximately $750,000, on the
800,000 shares of the Company's common stock issued.
On April 12, 2002, the board of directors terminated the 1998 and 1999
incentive stock option plans. At such date, there were outstanding options to
purchase 20,000 shares of Common Stock, which remain outstanding. On that date,
the board of directors granted options to purchase 758,705 shares of Common
Stock under the Company's 2002 Non-Qualified Stock Option Plan to employees at
$.07 per share, which was the fair market value on such date. In 2002 options to
purchase 668,705 shares of Common Stock were exercised.
On December 3, 2002, the board of directors and stockholders approved the
2002 Long-Tem Incentive Plan covering 1,000,000 shares of common stock. The
option plan will be administered by the compensation committee of the Company's
board of directors. Options may be issued to key employees, including officers
and directors and consultants. The plan provides for automatic grants to each
non-employee director to purchase 15,000 shares of common stock on April 1st of
each year, commencing April 1, 2003. In any non-employee director is first
elected to the board after April 1st in any year, the director will receive the
automatic grant on an option to purchase 25,000 shares of common stock with an
exercise price equal to the fair market value on the date of grant. The
F-14
non-employee director options vest immediately and have a life of five years. On
December 3, 2002, 75,000 shares were automatically granted as a result of the
election of three outside directors.
On January 10, 2001, the board of directors reduced the exercise price of
all outstanding stock options (covering approximately 785,000 shares) granted
under the stock option plans to $.125 per share, the fair market value at that
time. As a result of this amendment to the options, the options are treated as
variable-price options, and the Company incurred compensation expense for each
period equal to the increase in the value of the underlying common stock from
the date of the amended option exercise price or the beginning of the period, as
the case may be, to the market price on the date the option is exercised or the
last day of the period. If the stock price declines, the Company will recognize
compensation income, which will be treated as a reduction in general and
administrative expenses, based on the decline in the market price. All but
20,750 of the options were exercised on April 12, 2001 on which date the market
price was $.13 per share. Accordingly, we recognized a non-cash compensation
expense equal to the difference between the strike price ($.125) and the market
price at April 12, 2001 ($.13). This amount ($3,827) was included in general and
administrative expenses. This charge was credited to capital in excess of par
value. Also, on January 10, 2001, the board of directors agreed to accept as
payment for the exercise price, non-interest bearing non-recourse notes due
January 10, 2006, from the exercising option holders. The remaining 20,750
shares expired in 2001.
These notes receivable are to be paid from the proceeds of any sales of the
shares. These shares are being held by the Company as security for payment. The
exercising option holder will have the right to vote the shares, such right to
terminate if the note is not paid at maturity. During December 2001, notes in
the principal amount of $3,979 were paid, and in January 2002, notes in the
principal amount of $71,237 were paid principally by applying the accrued but
unpaid salaries due several of the option holders. As of December 31, 2002 and
2001, $3,531and $91,593, respectively, was outstanding related to these notes
and is presented as contra-equity.
Except as described in the preceding paragraphs, 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:
Outstanding, January 1, 2000 $777,321
Granted 67,333
Canceled or expired (59,825)
Exercised -
------------
Outstanding, December 31, 2000 784,829
============
Exercisable at December 31, 2000 784,829
============
Weighted-average fair value of options, granted during
the year $ .712
============
Outstanding, January 1, 2001 $ 784,829
Granted 20,000
Canceled or expired (20,250)
Exercised (764,579)
------------
Outstanding, December 31, 2001 20,000
============
Exercisable at December 31, 2001 20,000
============
Weighted-average grant-date fair value of options,
granted during the year $ .0125
============
F-15
Outstanding, January 1, 2002 $ 20,000
Granted 1,633,705
Canceled or expired (90,000)
Exercised (1,468,705)
Outstanding, December 31, 2002 95,000
============
Exercisable at December 31, 2002 95,000
============
Weighted-average grant-date fair value of options,
granted during the year $ .07
============
Weighted-average remaining, years of contractual life 5
============
NOTE 11 - EMPLOYMENT BENEFIT PLANS
The Company sponsors a Qualified Retirement Plan under section 401(k) of
the Internal Revenue Code. Employees become eligible for participation after
completing three months of service and attaining the age of twenty-one. The
Company has the option to make a matching contribution to the Plan; however, for
the years ended December 31, 2002, 2001, and 2000, it has not made any matching
contributions to the Plan.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company leases office space under operating leases, which expire in
various years through 2012. On February 1, 2002, the Company entered into a
ten-year lease for the office space used by the Company's New York operations.
In addition to the base rent, the Company will also pay any increase in real
estate taxes over the base year that relate to the square footage occupied by
the Company.
The following is an analysis of future minimum lease commitments as of
December 31, 2002:
2003 $ 172,000
2004 178,000
2005 184,000
2006 177,000
2007 179,000
Thereafter 996,000
--------
$1,886,000
==========
Rent expense amounted to $302,194, $231,693 and $208,717, for the years
ended December 31, 2002, 2001 and 2000, respectively.
The Company had employment agreements with its former chief executive
officer and former chief financial officer, which were set to expire in 2005.
Pursuant to the agreements, the officers were to receive minimum annual
compensation of $260,000 and $160,000, respectively, subject to an annual
increase equal to the greater of the increase in the cost of living index or 5%.
The officers were to be entitled to a bonus of 5% of the Company's income before
taxes. The officers were also potentially entitled to severance payments in the
event of a termination of their employment.
In April 2003, the Company's Board of Directors suspended the Chief
Executive Officer and Chief Financial Officer. The Company filed a lawsuit
seeking a judicial declaration that these two officers can be terminated for
cause. The two officers filed counterclaims against the Company for payment
under the terms of their employment agreements. (See Note 16)
In May 2003, the Company entered into an employment agreement with its new
President for the term of two years. The annual compensation under the
agreement is a base salary of $200,000 with discretionary bonuses calculated by
F-16
the Company's board of directors. Because of the company's poor cash flow, Mr.
Grider's compensation has been reduced to $132,000.
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 the
Company, through a subsidiary, purchased assets in November 1994. We believe
that the action is without merit, we are contesting this matter and we have
filed counterclaims against Mr. Corace.
Although the company is a party to certain legal proceedings that have
occurred in the ordinary course of business, the Company does not believe such
proceedings to be of a material nature with the exception of the above suit. Due
to the uncertainties in the legal process it is reasonably possible that
management's view of the outcome of this may change in the near term.
NOTE 13 - RELATED PARTY TRANSACTIONS
During 2002, the Company had a change in control as a result of the sale of
common stock sold to a group on investors controlled by the new President (see
note 10). During the fourth quarter 2002, the Company entered into a new
contract with a customer to provide staffing through a newly formed subsidiary,
RMI Pendragon. Because of the Company's poor cash flow the payroll related costs
incurred during the fourth quarter related to this contract were initially
funded through a bank account of a corporation controlled by the new President
and majority stockholder of the Company. In addition, all deposits received
from the new customer were deposited in a bank account of a corporation owned by
the President. The President also incurred other operating expenses on behalf
of the subsidiary, which were charged back to the Company. The net balance due
from the corporation owned by the president at December 31, 2002 was $27,661 and
is included in due from affiliates.
NOTE 14 - MAJOR CUSTOMERS
In 2002, four customers accounted for net revenues of approximately $15.0
million, or 66% of the Company's net revenue. In 2001, these four customers
accounted for net revenue of approximately $20.0 million, or 74% of the
Company's total revenue. In 2000, these four customers accounted for net
revenue of approximately $ 16.0 million or 67% of the Company's total revenue.
Accounts receivable of $ 590,000 and $1,363,000 was due from these customers
collectively at December 31, 2002 and 2001, respectively.
F-17
NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
------------ ------------ ------------ ------------
Year ended December 31, 2002:
Revenues $ 5,206,452 $ 5,532,220 $ 5,729,262 $ 6,225,574
Cost of goods Sold (4,865,993) (5,116,301) (5,275,684) (5,684,534)
------------ ------------ ------------ ------------
Gross Profit $ 340,459 $ 415,919 $ 453,578 $ 540,040
Operating Loss (978,105) (292,399) (227,196) (1,635,952)
Net Loss (1,047,248) (301,357) (302,131) (1,693,447)
Basic and diluted loss per share (.21) (.05) (.03) (.10)
Quarter Ended
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
------------ ------------ ------------ ------------
Year ended December 31, 2001:
Revenues $ 6,678,193 $ 7,274,485 $ 7,098,087 $ 6,076,506
Cost of Goods Sold (6,200,753) (6,594,798) (6,470,384) (5,448,032)
------------ ------------ ------------ ------------
Gross Profit $ 477,440 $ 679,687 $ 627,703 $ 628,474
Operating Loss (359,926) (125,704) (120,224) (886,693)
Net Loss (400,343) (187,650) (191,720) (1,036,005)
Basic and diluted loss per share (.15) (.06) (.06) (.28)
NOTE 16 - SUBSEQUENT EVENTS (UNAUDITED)
On January 1, 2003, the majority stockholder assigned most of the customers
from his privately owned entities over to the Registrant. These customers will
be accounted for under the RMI Pendragon subsidiary. The majority stockholder
will receive 2% of gross revenues up to a maximum of $1,000,000 as consideration
for the assigned customers as well as one share of a newly created series of
preferred stock for each $0.21 of gross profit generated from the assigned
contracts through June 30, 2005, up to a maximum of 2,000,000 shares of our
preferred stock. Each of the shares of our preferred stock would be convertible
into two shares of our common stock and would have the right to vote with the
common stock, with each share of the preferred stock having two votes.
On or about the July 3, 2003 a settlement was reached between Trans Global
and the former Chairman and CFO and an agreement was executed. Under the terms
of the settlement agreement a corporation owned by the majority stockholder will
pay a total sum of $261,000 to the former Chairman and former CFO, to be
allocated as agreed between the Defendants. The Defendants were paid the sum of
$101,400 on July 7, 2003. Trans Global paid or shall also pay $55,600 to the
individuals at the rate of $6,950 per week with payments beginning on June 27,
2003 and continuing on July 4, 2003, July 11, 2003, July 18, 2003, July 25,
2003, August 1, 2003, August 8, 2003, with the last $6,950 payment being made on
August 15, 2003. Thereafter, Trans Global shall pay Defendants the sum of
$1,000.00 per week commencing on Friday, August 22, 2003 and continuing for a
period of 103 weeks. The Company owned by the majority stockholder executed a
Promissory Note in the amount of $104,000 bearing interest at the rate of 2% per
annum payable to the Defendants. Trans Global will reimburse the Company owned
by the majority stockholder the funds paid on behalf of Trans Global.
F-18
Subsequent to December 31, 2002, Trans Global has suffered significant
cashflow problems. As result, Trans Global's subsidiaries did not pay the
majority of their payroll tax obligations from January 1, 2003 through August
31, 2003. The estimated liability at August 31, 2003 is approximately $4,
528,164.88. Estimated penalties and interest for non-payment and non filing
could be as high as $3,150,000.00 if the Company is unable to negotiate any
relief.
F-19
ATTACHMENT A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF TRANS GLOBAL SERVICES, INC.
Audit Committee Purpose. The Audit Committee of the Board of Directors of
------------------------
Trans Global Services, Inc., a Delaware corporation, (the "Company") is
appointed by the Board of Directors to assist the Board of Directors in
fulfilling its oversight responsibilities. The Audit Committee's primary duties
and responsibilities are to:
- - Monitor the integrity of the Company's financial reporting process.
- - Provide systems of internal controls regarding finance, accounting, and
legal compliance.
- - Monitor the independence and performance of the Company's independent
auditors.
- - Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary in the performance of its
duties.
Audit Committee Composition and Meetings. Audit Committee members shall
----------------------------------------
meet the requirements of the National Association of Securities Dealers and the
criteria set forth in the Appendix 1 attached hereto. The Audit Committee shall
be comprised of two or more directors as determined by the Board of Directors,
each of whom shall be independent non-executive directors, free from any
relationship that would interfere with the exercise of his independent judgment.
All members of the Audit Committee shall have a basic understanding of finance
and accounting and be able to read and understand fundamental financial
statements, and at least one member of the Audit Committee shall have accounting
or related financial management expertise.
Audit Committee members shall be appointed by the Board of Directors on
recommendation of a nominating committee. If an audit committee Chairman is not
designated or present, the members of the Audit Committee may designate a
Chairman by majority vote of the Audit Committee membership.
The Audit Committee shall meet at least three times annually, or more
frequently as circumstances dictate. The Audit Committee Chairman shall prepare
and/or approve an agenda in advance of each meeting. The Audit Committee should
meet privately in executive session at least annually with management, the
independent auditors and as a committee to discuss any matters that the Audit
Committee or each of these groups believes should be discussed.
AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES.
- -----------------------------------------------
Review Procedures.
------------------
- - Review and reassess the adequacy of this Charter at least annually. Submit
the charter to the Board of Directors for approval and have the document
published at least every three years in accordance with the Securities and
Exchange Commission regulations.
- - Review the Company's annual audited financial statements prior to filing or
distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices and judgments.
In consultation with the management and the independent auditors, consider
the integrity of the Company's financial reporting processes and controls.
Discuss significant financial risk exposures and the steps management has taken
to monitor, control and report such exposures. Review significant findings
prepared by the independent auditors together with management's responses
including the status of previous recommendations.
1
Independent Auditors. The independent auditors are ultimately accountable
---------------------
to the Audit Committee and the Board of Directors. The Audit Committee shall
review the independence, and performance of the auditors and annually recommend
to the Board of Directors the appointment of the independent auditors or approve
any discharge of auditors when circumstances warrant.
- - Approve the fees and other significant compensation to be paid to the
independent auditors.
- - On an annual basis, the Audit Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
- - Review the independent auditors' audit plan, and discuss scope, staffing,
locations, reliance upon management and internal audit and general audit
approach.
- - Prior to releasing the year-end earnings, discuss the results of the audit
with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with the American Institute
of Certified Public Accountants Statement of Auditing Standards No. 61.
- - Consider the independent auditors' judgment about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
Legal Compliance. On at least an annual basis, review with the Company's
-----------------
counsel, any legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with applicable
laws and regulations, inquiries received from regulators or governmental
agencies.
OTHER AUDIT COMMITTEE RESPONSIBILITIES.
- ------------------------------------------
- - Annually prepare a report to stockholders as required by the Securities and
Exchange Commission. The report should be included in the Company's annual
proxy statement.
- - Perform any other activities consistent with this Charter, the Company's
Bylaws and governing law, as the Audit Committee or the Board of Directors
deems necessary or appropriate.
- - Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
- - Establish, review and update periodically a Code of Ethical Conduct and
ensure that management has established a system to enforce this Code.
- - Periodically perform self-assessment of audit committee performance.
- - Review financial and accounting personnel succession planning within the
Company.
- - Annually review policies and procedures as well as audit results associated
with directors' and officers' expense accounts and perquisites. Annually
review a summary of directors' and officers' related party transactions and
potential conflicts of interest.
By Order of the Board of Directors,
By /s/ Arthur Grider
-----------------------------------
Arthur Grider, President
Dated October 13, 2003
2
APPENDIX 1
TRANS GLOBAL SERVICES, INC.
DEFINITION OF INDEPENDENCE AS IT PERTAINS
TO AUDIT COMMITTEE MEMBERS
To be considered independent, a member of the Audit Committee cannot:
1. Have been an employee of the Company or its affiliates within the last
three years;
2. Have received compensation from the Company or its affiliates in excess
of $60,000 during the previous fiscal year, unless for board service, in the
form of a benefit under a tax-qualified retirement plan, or non-discretionary
compensation;
3. Be a member of the immediate family of an executive officer of the
Company or any of its affiliates, or someone who was an executive officer of the
Company or any of its affiliates within the past three years;
4. Be a partner, controlling stockholder, or executive officer of a for
profit organization to which the Company made, or from which the Company
received payments (other than those arising solely from investments in the
Company's securities) in any of the past three years in excess of the greater of
$200,000 or five percent of the consolidated gross revenues for that year of
either organization; or
5. Be employed as an executive of another entity where any of the Company's
executives serves on that other entity's compensation committee.
Subject to compliance with the listing requirements of The Nasdaq Stock
Market or any applicable stock exchange and the regulations of the Securities
and Exchange Commission, and under the limited circumstances set forth in such
listing requirements and regulations, one person (who is not a current employee
or family member of an employee) not meeting the foregoing criteria may be
appointed to the Audit Committee if the Board of Directors (i) determines that
the best interests of the Company and its stockholders so require, and (ii)
discloses, in the next annual proxy statement subsequent to such determination,
the nature of the relationship and the reasons for that determination.
ATTACHMENT B
CHARTER OF
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
OF TRANS GLOBAL SERVICES, INC.
Committee Composition. The Compensation Committee (the "Committee") of the
---------------------
Board of Directors (the "Board") of Trans Global Services, Inc., a Delaware
corporation (the "Company"), will be comprised of at least two members of the
Board who are not employees of the Company. The members of the Committee,
including the Committee Chairman, will be annually appointed by and serve at the
discretion of the Board.
Functions and Authority. The operation of the Committee will be subject to
------------------------
the Articles of Incorporation of the Company and applicable Delaware laws and
any other applicable laws, rules or regulations, as in effect from time to time.
The Committee will have the full power and authority to carry out the following
responsibilities:
1. To recommend the salaries, bonuses and incentives, and all cash, equity
and other forms of compensation (the "total compensation") paid to the President
and Chief Executive Officer of the Company, other members of the management of
the Company as may be required under Delaware law, and advise and consult with
the Chief Executive Officer regarding the compensation scheme for all executive
officers.
2. To advise and consult with management to establish policies, practices
and procedures relating to the Company's employee stock, option, cash bonus and
incentive plans and employee benefit plans and, as may be required under
applicable law, and administer any such plans.
3. To administer the Company's employee stock option plan and perform the
functions contemplated to be performed by the management with respect to the
President and Chief Executive Officer and all plan participants who may be
deemed "officers" for purposes of Section 16 of the Securities Exchange Act of
1934, as amended.
4. To advise and consult with management regarding managerial personnel
policies and compensation schemes.
5. To review and make recommendations to the full Board concerning any fees
and other forms of compensation paid to members of the Board for Board and
committee service.
6. To exercise the authority of the Board concerning any policies relating
to the service by the President and Chief Executive Officer, or any other member
of management or executive officer, as a director of any unrelated company,
joint venture or other enterprise.
7. At the Committee's sole discretion, to review all candidates for
appointment to senior managerial or executive officer positions with the Company
and provide a recommendation to the Board.
8. At the Committee's sole discretion, to annually or periodically
interview all officers who directly report to the President and Chief Executive
Officer.
9. To administer the annual performance review of the President and Chief
Executive Officer this is completed by the full Board. The Committee Chairman
together with the Chairman of the Board shall review the results of the
performance evaluation with the Chief Executive Officer.
10. To perform such other functions and have such other powers as may be
necessary or convenient in the efficient discharge of the foregoing
responsibilities and as may be delegated by the Board from time to time.
11. To regularly report to the Board the activities of the Committee, or
whenever it is called upon to do so.
1
Meetings. The Committee will hold regular meetings each year as the
--------
Committee may deem appropriate. The President and Chief Executive Officer and
Chairman of the Board, and any other invited employees and outside advisers, may
attend any meeting of the Committee, except for portions of the meetings where
his or their presence would be inappropriate, as determined by the Committee
Chairman.
Minutes and Reports. The Committee will keep minutes of each meeting and
-------------------
will distribute the minutes to each member of the Committee, and to members of
the Board who are not members of the Committee and the Secretary of the Company.
The Committee Chairman will report to the Board the activities of the Committee
at the Board meetings or whenever so requested by the Board.
By Order of the Board of Directors,
By /s/ Arthur Grider
------------------------------------
Arthur Grider, President
Dated October 13, 2003.
2
ATTACHMENT C
CODE OF ETHICS FOR SENIOR EXECUTIVE
OFFICER AND SENIOR FINANCIAL OFFICERS
In addition to the Code of Business Conduct and Ethics of Trans Global
Services, Inc. (the "Company") that apply to all employees and directors of the
Company, the CEO and all financial officers, including the principal financial
officer and the principal accounting officer, are bound by the provisions set
out below. Collectively the Officers of the Company to whom this Code of Ethics
applies are called "the Officers".
1. The Officers are responsible for full, fair, accurate, timely and
understandable disclosure in all periodic reports and financial disclosures
required to be filed by the Company with the SEC or disclosed to shareholders
and/or the public.
2. Therefore, the Officers shall immediately bring to the attention of the
Audit Committee, [or Disclosure Compliance Officer], any material information of
which the employee becomes aware that affects the disclosures made by the
Company in its public filings and assist the Audit Committee [or Disclosure
Compliance Officer] in fulfilling its responsibilities for full, fair, accurate,
timely and understandable disclosure in all periodic reports required to be
filed with the SEC.
3. Each of the Officers shall immediately bring to the attention of the
Audit Committee [or Disclosure Compliance Officer] any information he may have
concerning:
(a) defects, deficiencies, or discrepancies related to the design or
operation of internal controls which may affect the Company's ability to
accurately record, process, summarize, report and disclose its financial data or
(b) any fraud, whether or not material, that involves management or
other employees who have influential roles in the Company's financial reporting,
disclosures or internal controls.
4. The Officers shall promptly notify the Company's General Counsel, or the
CEO as well as the Audit Committee of any information he or she may have
concerning any violation of the Company's Code of Ethics, including any actual
or apparent conflicts of interest between personal and professional
relationships, involving any management or other employees who have a
significant role in the Company's financial reporting, disclosures or internal
controls.
5. The Officers shall immediately bring to the attention of the General
Counsel or the CEO and the Audit Committee any information he or she may have
concerning evidence of a material violation of the securities or other laws,
rules or regulation applicable to the Company and the operation of its business,
by the Company or any agent of the Company.
6. The Board of Directors shall determine, or designate appropriate persons
to determine, the appropriate actions to be taken in the event of a reported
violation of the Code of Ethics. The actions taken shall be designed to deter
wrongdoing and to promote accountability for adherence to the Code of Ethics.
Such action may include a written notice to the individual involved that the
Board has determined that there has been a violation, censure by the Board,
demotion or re-assignment of the individual involved, suspension without pay or
benefits (as determined by the Board) and termination of employment.
In determining what action should be taken, the Board, or its designee,
shall take into account all relevant information, including
- - the nature and severity of the violation,
- - whether the violations was a single occurrence or repeated occurrences,
2
- - whether the violation appears to have been intentional or inadvertent,
- - whether the individual in question had been advised prior to the violation
as to the proper course of action and
- - whether or not the individual in question has committed other violations in
the past.