SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission File Number 0-23382
TRANS GLOBAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1544008
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1770 Motor Parkway, Hauppauge, NY 11788
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 582-9000
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 12
months, (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares of common stock outstanding as of August 9,1996: 12,720,091
<PAGE>
Trans Global Services, Inc.
INDEX
Part 1 - Financial Information:
Item 1. Financial Statements: Page No.
---------
Consolidated Balance Sheet - June 30, 1996 3
Consolidated Statements of Operations-
Three and Six Months Ended June 30, 1996 and June 30, 1995. 4
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1996 and June 30, 1995. 5-6
Consolidated Statement of Stockholders' Equity-
Six Months Ended June 30, 1996. 7-9
Notes to Consolidated Financial Statements 10-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-16
Part 11 Other Information
Item 6. Exhibit.11 Calculation of Earnings per Share 18-19
<PAGE> 3
Trans Global Services, Inc. and Subsidiaries Consolidated
Balance Sheet June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Current Assets:
Cash $ 174,312
Accounts receivable- net of allowance of $62,500 4,939,915
Loans receivable-officer 22,500
Prepaid expenses and other current assets 138,195
---------
Total current assets 5,274,922
---------
Furniture, fixtures and equipment, net 69,016
Other assets:
Due from affiliates 1,363,696
Goodwill, net 848,415
Covenant not to compete, net 151,107
Customer lists, net 2,951,019
Other assets 23,265
Investment in preferred stock of affiliate 2,100,730
---------
Total other assets 7,438,232
---------
Total assets $ 12,782,170
==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 621,641
Accrued payroll and related taxes and expenses 2,930,855
Accrued payroll tax penalties 1,175,000
Loans payable, asset-based lender 2,624,650
Note payable-bank 30,513
Note payable- other 138,230
---------
Total current liabilities 7,520,889
---------
Other liabilities:
Due to affiliates 293,835
---------
Commitments and contingencies
Stockholders' Equity:
Preferred Stock (10,000 shares of Series F
authorized, issued and outstanding) 100
Common stock 77,201
Capital in excess of par value 10,914,179
Deferred consulting fees (348,840)
Accumulated deficit (5,675,194)
----------
Total stockholders' equity 4,967,446
----------
Total liabilities and stockholders' equity $ 12,782,170
==========
See notes to consolidated financial statements
</TABLE>
<PAGE> 4
Trans Global Services, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $14,996,984 $15,433,972 $28,468,322 $33,233,759
Cost of revenues 13,537,426 14,168,217 26,174,852 31,356,001
---------- ---------- ---------- ----------
1,459,558 1,265,755 2,293,470 1,877,758
Selling, general and
administrative 1,136,833 822,935 2,342,904 1,571,759
Amortization of
intangibles 116,977 157,560 230,777 315,121
--------- ---------- --------- ---------
Income (loss) from
operations 205,748 285,260 (280,211) (9,122)
Other income (expense):
Interest expense (166,449) (267,644) (325,537) (581,990)
Other income 18,459 -0- 36,921 8,041
-------- -------- -------- --------
Total other expense (147,990) (267,644) (288,616) (573,949)
-------- --------- --------- ---------
Net income (loss) from
continuing operations 57,758 17,616 (568,827) (583,071)
Discontinued operations:
(Loss) from discontinued
operations -0- (94,533) -0- (94,533)
--------- -------- ---------- --------
Net income (loss) 57,758 (76,917) (568,827) (677,604)
Net income (loss) per
share of common stock $ 0.01 $ (0.03) $ (0.08) $ (0.36)
Weighted average number
of shares of common
stock 7,720,091 2,294,926 7,016,914 1,878,280
See notes to consolidated financial statements
</TABLE>
<PAGE> 5
Trans Global Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30,1996 June 30,1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss from continuing operations $ (568,827) $(583,071)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 240,479 256,089
Charges from option exercise 159,672 6,341
Change in assets and liabilities:
(Increase) in assets:
Receivables (70,799) (186,535)
Prepaid expenses and other current assets (57,229) ( 15,605)
Increase in liabilities:
Accounts payable and accrued expenses 771,126 234,180
Accrued payroll taxes and related expenses 474,591 1,050,033
Accrued payroll tax penalties 475,000 -0-
------- --------
Total adjustments 1,992,840 1,344,503
--------- ---------
Net cash provided by continuing operations 1,424,013 761,432
Net loss from discontinued operations -0- (94,533)
Adjustments to reconcile net loss to net
cash (used for) discontinued operations:
Depreciation and amortization -0- 75,061
--------- --------
Net cash used in discontinued operations -0- (19,472)
--------- --------
Net cash provided by operating activities 1,424,013 741,960
--------- --------
Cash Flows from Investing Activities:
Decrease in deferred offering
costs and other assets -0- 24,783
Capital expenditures (40,790) (75,923)
Net advances to affiliates (129,268) (422,986)
Cash of merged company -0- 504,210
Other 1,809 -0-
------- --------
Net cash (used in) provided by
investing activities (168,249) 30,084
</TABLE>
<PAGE> 6
Trans Global Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Cash Flows from Financing Activities:
Net (payments) to asset-based lender (1,054,052) (707,451)
Repayment of long-term debt -0- (78,786)
Repayment of subordinated debt (700,000) (200,000)
Net advances from affiliates 117,003 42,941
Issuance of common stock 375,000 453,900
Exercise of stock options -0- 690,500
Repayment of note payable (30,000) -0-
Loan repayment -0- (26,908)
---------- -------
Net cash (used in) and provided by financing
activities (1,292,049) 174,196
--------- --------
Net (decrease) increase in cash and cash
equivalents (36,285) 946,240
Cash and Cash Equivalents at Beginning of Period 210,597 (360,306)
-------- -------
Cash and Cash Equivalents at End of Period 174,312 585,934
======== =======
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest 325,537 553,212
Income Taxes -0- -0-
Note non-cash transaction:
During the six months ended June 30, 1996, the Company had the following
non-cash financing activities:
* Issued preferred stock with a value of $750,000 to an affiliate and
reduced amounts owed to such affiliate by $750,000 plus accrued
interest.
See notes to consolidated financial statements
</TABLE>
<PAGE> 7
Trans Global Services, Inc.
Consolidated Statement of Stockholders Equity
For the Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Shares Amounts
-------- --------
<S> <C> <C>
Preferred stock $0.01 Par Value Series "A"
Convertible participating Authorized 25,000 shares
Balance December 31, 1995 25,000 $ 250
Conversion of Series A Convertible Participating
Preferred Stock (25,000) (250)
-------- ---------
Balance June 30, 1996 0 0
======== =========
Preferred stock $0.01 Par Value Series "B" & "C"
Convertible Authorized 25,000 shares each
Balance December 31, 1995 50,000 $ 500
Exchanged for Series F Preferred Stock (50,000) (500)
-------- --------
Ending Balance June 30, 1996 0 0
====== =====
Preferred stock $.01 Par Value Series "D"
Convertible 6.25% Redeemable Authorized 20,000 shares
Balance December 31, 1995 20,000 $ 200
Exchanged for Series F Preferred Stock (20,000) (200)
-------- --------
Ending Balance June 30, 1996 0 0
======= =======
Preferred stock $0.01 Par Value Series "E"
Convertible participating Authorized 5,000 shares
Balance December 31, 1995 5,000 $ 50
Conversion of Series E Convertible Participating
Preferred Stock (5,000) $ (50)
-------- --------
Ending Balance June 30, 1996 0 0
====== ======
Balance December 31, 1995
Preferred stock $0.01 Par Value Series "F" 0 0
Convertible participating Authorized 10,000 shares 10,000 $ 100
-------- ---------
Balance June 30, 1996 10,000 $ 100
Total preferred stock - par 10,000 $ 100
====== =====
</TABLE>
<PAGE> 8
Trans Global Services, Inc.
Consolidated Statement of Stockholders Equity
For the Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Additional paid-in capital Preferred Stock
Balance December 31, 1995 $ 199,950
Conversion of Series E Convertible Participating
Preferred Stock (199,950)
Issuance of Series F Convertible Participating
Preferred Stock 750,600
---------
Balance June 30, 1996 $ 750,600
=======
Common Stock $.01 Par Value Authorized
20,000,000 Shares
Balance December 31, 1995 3,424,609 $ 34,246
Issuance of common-stock Regulation S 500,000 5,000
Conversion of Series A Convertible Participating
Preferred Stock 2,000,000 20,000
Conversion of Series E Convertible Participating
Preferred Stock 120,000 1, 200
Deferred issuance related to acquisition of Concept 615,482 6,155
Deferred issuance of Common Stock -Sale of WWR 1,060,000 10,600
--------- -------
Balance June 30, 1996 7,720,091 $ 77,201
========= ========
Additonal paid-in capital Common Stock
Balance December 31, 1995 $ 9,631,284
Issuance of common-stock Regulation S 370,000
Conversion of Series A Convertible Participating
Preferred Stock (19,750)
Conversion of Series E Convertible Participating
Preferred Stock 198,800
Deferred issuance related to acquisition of Concept (6,155)
Deferred issuance of Common Stock- Sale of WWR (10,600)
----------
Balance June 30, 1996 $10,163,579
===========
Accumulated (deficit)
Balance December 31, 1995 $(5,106,367)
Net loss ( 568,827)
------------
Balance June 30, 1996 $(5,675,194)
============
</TABLE>
<PAGE> 9
Trans Global Services, Inc.
Consolidated Statement of Stockholders Equity
For the Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Deferred Charges
Balance December 31, 1995 $ (508,512)
Amortization of deferred consulting costs 159,672
-------
Balance June 30, 1996 $ (348,840)
========
Total Stockholders' Equity
Balance December 31, 1995 $ 4,251,601
Issuance of common-stock Regulation S 375,000
Issuance of Series "F" Preferred Stock 750,000
Amortization of deferred consulting cost 159,672
Net Loss (568,827)
---------
Balance June 30, 1996 $ 4,967,446
==========
</TABLE>
<PAGE> 10
Trans Global Services, Inc.
Notes to Consolidated Financial Statements
(1) Basis of Presentation
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company
as of June 30, 1996 and the results of its operations for the three and six
months ended June 30, 1996 and 1995 and the changes in cash flows
for the six months ended June 30, 1996 and 1995.
In March 1996, the Company's certificate of incorporation was amended to
(a) change the name of the Company to Trans Global Services, Inc. and (b)
increase the authorized capital stock from 100,000 shares of Preferred Stock,
par value $.01 per share ("Preferred Stock"), and 4,000,000 shares of Common
Stock, par value $.01 per share ("Common Stock") to 2,000,000 shares of
Preferred Stock and 20,000,000 shares of Common Stock. As a result of the
filing of the certificate of amendment to the certificate of incorporation,
the 25,000 outstanding shares of Series A Participating Convertible Preferred
Stock ("Series A Preferred Stock") were automatically converted into
2,000,000 shares of Common Stock and the 5,000 outstanding shares of Series E
Participating Convertible Preferred Stock ("Series E Preferred Stock") were
automatically converted into 120,000 shares of Common Stock. See Note 5.
(2) Summary of Significant Accounting Policies
Principles of Consolidation- The consolidated financial statements include
the accounts of Trans Global Services, Inc.. and its affiliates, ARC and RMI.
All intercompany transactions have been eliminated in consolidation.
Receivables- The Company finances a majority of its receivables from an
asset-based lender under agreements entered into in August 1994. The
agreements have a maximum availability of funds of $5,500,000. Funds can be
advanced in an amount equal to 85% of the total face amount of outstanding
and unpaid receivables, with the asset-based lender having the right to
reserve 15% of the outstanding and unpaid receivables financed. The interest
rate is equal to the base lending rate of an agreed upon bank, which was
8.25% at June 30,1996 plus 2% and a commission of .3% of the receivables
financed. The asset-based lender has a security interest in all accounts
receivables, contract rights, personal property, fixtures and inventory of
the Company. At June 30,1996, the total amount advanced by the asset-based
lender was $2,624,650.
Prepaid expenses and other current assets consist of approximately $138,000
of prepaid insurance.
Property and Equipment- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line method over the estimated useful
lives of the respective assets. Estimated useful lives range from 3 to 10
years as follows:
Furniture and Fixtures 5 - 7 Years
Leasehold Improvements 5 - 10 Years
Transportation Equipment 3 - 4 Years
Equipment 5 - 10 Years
<PAGE> 11
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.
Revenue Recognition- The Company records revenue as services are provided
by personnel.
Income Taxes- The Company accounts for income taxes in accordance with SFAS
No.109, under the asset and liability method. The Company has deferred tax
assets which have been fully reserved due to uncertainty with regard to its
ultimate realization. The Statement of Operations does not reflect an income
tax benefit due to a corresponding increase in the deferred tax asset
valuation allowance.
Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk- The Company extends credit to customers which
results in accounts receivable arising from its normal business activities.
It routinely assesses the financial strength of its customers and based upon
asset-based lenders surrounding the credit risk of the customers 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 future. The Company presently has 5 clients which when combined account
for approximately 70% of the total revenues of the Company for the six month
period ending June 30, 1996. These same clients account for approximately
70% of the total outstanding accounts receivable as of June 30, 1996, as well.
No one client exceeds 25% of the total revenues or accounts receivable total.
(3) Interim Results
The results of operations for the three and six months ended June 30,1996 and
1995 are not necessarily indicative of the results to be expected for the
full year.
(4) Payroll Taxes
The Company is delinquent in the payment of certain payroll taxes amounting
to $1,575,640 for the quarter end March 31, 1996. The Company has properly
accrued these taxes as well as estimated penalties and interest of $425,000.
Additionally, the Company has accrued $750,000 of interest and penalties for
late filing of certain payroll taxes for the quarters ending June 30, 1995,
September 30, 1995 and December 31, 1995. The Company has negotiated an
agreement with the IRS, and has paid the penalties for 1995 of $753,000 and
has paid $500,000 towards the March 31, 1996 obligation. The balance is
to be paid in 8 equal monthly installments of $150,000 with the remaining
balance to be paid in a ninth installment.
The Company continues to contest the penalties and is seeking to recover the
amounts paid.
<PAGE> 12
5) Stockholders' Equity :
Preferred Stock:
The authorized capital stock of the Company is 2,000,000 shares of Preferred
Stock, and 20,000,000 shares of Common Stock. 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.
As a result of the automatic conversion of the Series A Preferred Stock and
Series E Preferred Stock into Common Stock (see Note 1), there were no
shares of Series A or E Preferred Stock outstanding at June 30, 1996.
As a result of a transaction approved by the Board of Directors on June 20,
1996, the Company issued to SISC 10,000 shares of Series F $6 Convertible
Preferred Stock and 3,200,000 Series D Common Stock Purchase Warrants in
exchange for the cancellation of $750,000 of debt (plus accrued interest)
and all of the shares of Series B,C and D Preferred Stock issued to SISC
including any rights to accrued dividends.
Series F $6 Convertible Preferred Stock - 10,000 shares were issued. Each
share is convertible into 1,000 shares of Common Stock on or after May 1,
1998 and only if the Company (a) shall have raised at least $5 million from
the sale of equity subsequent to May 1,1996, including the issuance of stock
upon exercise of warrants and options, and (b) shall have had net income for
the quarter prior to the quarter in which the Series F Preferred Stock is
converted. The number of shares of Common Stock into which the Series F
Preferred Stock is convertible is subject to adjustment in the event of
stock splits, distribution, dividends, reverse splits and other similar
recapitalizations.
Annual dividends at the rate of $6.00 per share, which is $60,000 based on
10,000 shares. Dividends are payable on April 1 of each year, commencing
April 1, 1997, to holders of record on the preceding March 15th.
The holders of the Series F Preferred Stock, voting as a single class, have
the right to elect the maximum minority of the board of directors, which
means one less than a majority of directors if there is an odd number of
directors and one less than 50% of the directors if there is an even
number of directors.
In addition, except as otherwise required by law, the holders of the Series
F Preferred Stock have the right to participate with the holders of the
Common Stock, as if the Common Stock and Series F Preferred Stock were a
single class, with the holders of the Series F Preferred Shares having the
right to vote the number of shares of Common Stock into which the Series F
Preferred Stock is convertible. Thus, if a share of Series F Preferred Stock
is convertible into 1,000 shares of Common Stock, the share shall have 1,000
votes.
The Series F Preferred Stock is not redeemable by the Company.
The Series F Preferred Stock will have a liquidation preference of $1.00 per
share. After payment of the liquidation preference, the Series F Preferred
Stock will participate with the Common Stock on an as-converted basis if
the Series F Preferred Stock and the Common Stock were a single class.
<PAGE> 13
Common Stock:
As a result of the filing of the amendment to the certificate of
incorporation increasing the authorized capital stock (see Note 1), the
Company issued 1,675,482 shares of Common Stock, and has agreed to issue an
additional 125,000 shares of Common Stock, to persons who had agreed to defer
receipt of their shares until the certificate of incorporation was amended.
Such 1,800,482 shares were included in the computation of loss per share for
1995 and the computation of earnings (loss) per share for the three and six
months ended June 30,1996. The consideration for such shares had been
included in additional paid-in capital and, upon issuance, the par value was
and will be transferred to Common Stock.
(6) Subsequent Events
In July 1996, the Company sold 5 million shares of common stock pursuant to
Regulation S of the Securities Act of 1933 and received net proceeds of
$2 million.
In August 1996, the Company entered into an agreement with the IRS to pay
its delinquent payroll taxes, interest and penalties. The Company has paid
$1,253,000 and has agreed to pay the balance in 8 equal monthly installments
of $150,000 with the remaining balance to be paid in a ninth installment. The
IRS has agreed to subordinate this obligation to the Company's asset-based
lender providing the Company is in compliance with current IRS regulations
concerning the timely deposit of Federal employment and withholding taxes.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended June 30, 1996 and 1995
For the three months ended June 30, 1996, the Company had revenues of
$15.0 million reflecting a 2.8% decrease from the revenues of $15.4 million
during the quarter ended June 30,1995. This decrease is attributed to the
loss of a contract on January 1, 1996, from one of the Company's larger
customers in the aerospace industry. By the end of the current period the
Company had increased its revenue, so that at the end of the period, the
annual rate of revenue was substantially the same as prior to the loss of
the customer. The Company's gross margin for the period ended June 30,1996
was 9.7% compared to 8.2% for the same period in 1995. The increase can be
attributed to both the higher gross margin on the new sales by the Company
and the low gross margin on the contract that was lost.
Selling, general and administrative expenses were $1,137,000 or 7.6% of
sales, for the three months ended June 30, 1996 and $823,000 or 5.3% of
revenue for the same period in 1995. This increase is primarily attributed
to penalties of $225,000 for late withholding payments and amortization
expenses of $80,000 related to the issuance of securities for consulting
services.
The Company finances its payroll obligations by borrowing from an asset-based
lender at an interest rate of 2% in excess of prime. The Company also pays a
fee of .3% of the face amount of the invoices financed. This reflects a
reduction in the financing charges resulting from a June 1995 amendment to
its borrowing agreement. Prior to the amendment, the Company paid interest at
a rate of 4% in excess of prime and a fee of 1% of its borrowings on the
borrowings relating to RMI's operations. The borrowings are secured by a
security interest in all of the Company's assets. At June 30, 1996, such
borrowings were $2.6 million. The interest rate (exclusive of the fee)
payable by the company at June 30, 1996 was 10.25%. The interest expense
decreased by 37.8% in the current period compared to the three months ended
June 30, 1995, which is a result of reduced financing rates.
Net profits for the quarter ended June 30, 1996 were approximately $58,000 or
$0.01 per share as compared to a net loss of $77,000 or $0.03 per share loss,
a year ago. The profit can be attributed to the higher gross margin for the
current period and the loss from discontinued operations for the same period
last year.
The Company believes that it can continue to generate net profits by
continuing to increase its revenues and increasing its gross margins.
Profitability is also dependent upon its ability to obtain equity financing.
In July 1996, the Company raised $2 million from the sale of Common Stock.
The Company is presently engaged in negotiations with respect to an
additional financing, however, no assurance can be given that the Company
will be successful in obtaining such financing, and the failure to obtain
necessary financing could have a materially adverse effect upon the Company.
<PAGE> 15
Six months ended June 30, 1996 and 1995
For the six months ended June 30, 1996 the Company had revenues of $28.5
million reflecting a 14.3% decrease from the revenues of $33.2 million
during the six months ended June 30,1995. This decrease is attributed to
the loss of a contract on January 1, 1996, from one of the Company's larger
customers in the aerospace industry. By the end of the current period, the
Company had increased its revenue so that at the end of the period, the
annual rate of revenue was substantially the same as prior to the loss of
the customer. The Company's gross margin for the six months ended
June 30,1996 was 8.1% compared to 5.7% for the same period in 1995. The
increase is a result of the higher gross margins on the new sales by the
Company and the low gross margin on the contract that was lost.
Selling, general and administrative expenses were approximately $2,340,000
or 8.2% of sales, for the six months ended June 30,1996 and $1,570,000 or
4.7% of revenue for the same period in 1995. This percentage increase is
primarily attributed to the lower sales volume in 1996 compared to 1995,
penalties of $475,000 for late withholding payments and amortization
expenses of $160,000 related to the issuance of securities for consulting
services. In addition, the increase in selling, general and administrative
expenses, as a percent of revenue, is reflective of the 14% decline in
revenue.
Interest expense for the six months ended June 30,1996 was approximately
$326,000 compared to $582,000 for the same period a year ago reflecting a
decrease of 44% in the current period. This decrease can be directly
attributed to the reduced financing rates the Company was able to negotiate
in June 1995 and a decrease in borrowings during the current year.
The Company has not provided for income taxes for the six months ended
June 30, 1996 due to a current period loss. Federal and state tax benefits
have not been recognized for the six months ended June 30,1996, as under
SFAS No. 109, "Accounting for Income Taxes", the Company has determined that
more likely than not the deferred tax asset will not be realized.
Liquidity and Financial Position
As of June 30, 1996, the Company had a working capital deficit of $2.2
million. Its working capital deficit reflects (a) $2.6 million due to the
Company's asset-based lender, (b) payroll taxes and related expenses of $2.9
million and (c) accounts payable and accrued expenses of $2.0 million. In
addition, at such date, the Company owed approximately $300,000 to SIS
Capital Corp ("SISC"), the Company's principal stockholder.
<PAGE> 16
At June 30, 1996, the Company required additional capital to enable it to
expand its operations. The principal source of funds, other than its asset-
based lender is from the sale of securities. In July 1996, the Company
raised $2 million from the sale of Common Stock principally to pay tax
obligations. The Company is presently engaged in negotiations with respect
to an additional financing, however, no assurance can be given that the
Company will be successful in obtaining such financing, and the failure to
obtain necessary financing could have a materially adverse effect upon the
Company.
The Company and its subsidiaries have certain outstanding notes. One of these
notes, issued by WWR Technology, Inc. ("WWR"), in the amount of $400,000, is
guaranteed by the Company, SISC and certain entities which are affiliated
with a director of the Company. The Company's obligation on its guarantee
continue notwithstanding the sale of WWR to an affiliate of SISC in September
of 1995.
In November, 1994, Resource Management International ("RMI"), a subsidiary
of the Company, purchased assets of Job Shop Technical Services ("Job Shop").
The Department of Labor ("DOL") has raised with the Company the possibility
that RMI may be liable with respect to Job Shop's ERISA liability as a
successor corporation or purchaser of plan assets, even though RMI did not
assume such obligations and paid value of those assets which it did purchase.
At November 21, 1994, the date of the purchase of the Job Shop assets, the
amount due to the Job Shop 401(k) plan was approximately $3.0 million, which
amount may have increased since such date as a result of interest and
penalties. Although the Company believes that RMI is not a successor
corporation to Job Shop and is not responsible for Job Shop's ERISA
violations, the DOL may take a contrary position. The Company and the DOL
is currently engaged in discussions. If an agreement cannot be reached by the
parties involved and the DOL prevails in court, it could have a material
adverse effect upon the operations of RMI and possibly the Company as a whole.
In May 1991, prior to the acquisition of Avionics by the Company, the
Government Printing Office wrote Avionics asking for reimbursement of
approximately $300,000 for allegedly unauthorized work on two programs.
Although the Company believes that these claims are without merit and
intends to contest these claims vigorously if reasserted, it believes that
the ultimate disposition of this matter will not have a material adverse
affect on the Company's consolidated financial position.
In August 1996, the Company entered into an agreement with the IRS to pay
its delinquent payroll taxes, interest and penalties. The Company has paid
$1,253,000 and has agreed to pay the balance in 8 equal monthly installments
of $150,000 with the remaining balance to be paid in a ninth installment. The
IRS has agreed to subordinate this obligation to the Company's asset-based
lender providing the Company is in compliance with current IRS regulations
concerning the timely deposit of Federal employment and withholding taxes.
<PAGE> 17
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Computation of Earnings per Common
Share.
<PAGE> 18
Trans Global Services, Inc.
EXHIBIT 11.1- Computation of Earnings per Share
Six Months Ended Three Months Ended
June 30, 1996 June 30, 1996
Net (loss) income (568,827) 57,758
---------- ---------
Loss per Share:
(Loss) income per share - Note 1 ($0.08) $0.01
---------- ---------
(Loss) income per share - assuming
full dilution Note 2 ($0.04) $0.00
---------- ----------
Note 1:
Computed by dividing the net (loss) income for the periods by the weighted
average number of common shares outstanding (7,016,914 and 7,720,091) for
the six and three months ended June 30,1996. No stock options or warrants
are assumed to be exercised because they are anti-dilutive for the period.
(i) Assumes that Series A and E Preferred Stock were automatically
converted at the beginning of the period into 2,120,000 shares of
Common Stock.
Note 2:
Computed by dividing net loss by the weighted average number of common
shares (7,016,914 and 7,720,091) for the six and three months ended June
30,1996 adjusting it by item (i) to (iv) below.
(i) Assumes that stock options to purchase 85,000 shares were exercised
at the beginning of the period and that all proceeds were used to
purchase treasury stock at the average market price of the Company's
common stock for the period as quoted on the NASDAQ, resulting in a
net increase in outstanding common stock of 21,330 and 24,716 for the
six and three months ended June 30, 1996.
(ii) Assumes that 1,160,000 1995 Stock Incentive Plan stock options
outstanding at June 30, 1996 were exercised at the beginning of the
period and that all proceeds were used to purchase treasury stock
at the average market price of the Company's common stock for the
period as quoted on the NASDAQ, resulting in a net increase in
outstanding common stock of 73,858 and 131,631 for the six and
three months ending June 30, 1996.
<PAGE> 19
Trans Global Services, Inc.
EXHIBIT II.I Continued
(iii) Assumes that the following convertible preferred shares were
converted to common stock at the beginning of the period as follows:
Preferred Stock Conversion Rate Common Stock
Series F Preferred 10,000 1000 10,000,000
---------
10,000,000
=========
(iv) Assumes common stock purchase warrants to purchase
an aggregate of 1,924,597 common shares were exercised at
the beginning of the period and that all proceeds were used
to purchase treasury stock at the average market price of
the Company's common stock for the period as quoted on the
NASDAQ, resulting in a net decrease in outstanding common
stock of 5,345,020 and 4,958,338 for the six and three months
ended June 30,1996.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Trans Global Services, Inc.
(Registrant)
-------------------------
Date: August 13, 1996 Lewis S. Schiller
(Chief Executive Officer)
------------------------
Date: August 13, 1996 Glen R. Charles
(Chief Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED
AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 174,312
<SECURITIES> 0
<RECEIVABLES> 4,939,915
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,274,922
<PP&E> 81,995
<DEPRECIATION> 12,979
<TOTAL-ASSETS> 12,782,170
<CURRENT-LIABILITIES> 7,520,889
<BONDS> 0
<COMMON> 77,201
0
100
<OTHER-SE> 4,890,145
<TOTAL-LIABILITY-AND-EQUITY> 12,782,170
<SALES> 28,468,322
<TOTAL-REVENUES> 28,468,322
<CGS> 26,174,852
<TOTAL-COSTS> 26,174,852
<OTHER-EXPENSES> 2,536,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325,537
<INCOME-PRETAX> (568,827)
<INCOME-TAX> 0
<INCOME-CONTINUING> (568,827)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (568,827)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.04)
</TABLE>
