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 September 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 November 6,1996:17,886,331
<PAGE>
Trans Global Services, Inc.
INDEX
Part 1 - Financial Information:
Item 1. Financial Statements: Page No.
---------
Consolidated Balance Sheet - September 30, 1996 3
Consolidated Statements of Operations-
Three and Nine Months Ended September 30, 1996
and September 30, 1995. 4
Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1996 and September 30, 1995. 5-6
Consolidated Statement of Stockholders' Equity-
Nine Months Ended September 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 September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Current Assets:
Cash $ 515,479
Accounts receivable- net of allowance of $62,500 6,405,729
Loans receivable-officer 22,500
Prepaid expenses and other current assets 181,239
---------
Total current assets 7,124,947
---------
Furniture, fixtures and equipment, net 67,521
Other assets:
Due from affiliates 1,449,785
Goodwill, net 836,270
Covenant not to compete, net 105,744
Customer lists, net 2,894,777
Other assets 24,215
Investment in preferred stock of affiliate 2,100,730
---------
Total other assets 7,411,521
---------
Total assets $ 14,603,989
==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 649,376
Accrued payroll and related taxes and expenses 3,148,766
Accrued payroll tax penalties 75,000
Loans payable, asset-based lender 3,564,862
Note payable- other 138,230
Reserve for contingency 300,000
---------
Total current liabilities 7,876,234
---------
Stockholders' Equity:
Preferred Stock (10,000 shares of $.01 par value
Series F authorized, issued and outstanding) 100
Common stock 128,514
Capital in excess of par value 12,813,934
Deferred consulting fees (338,691)
Accumulated deficit (5,876,102)
----------
Total stockholders' equity 6,727,755
----------
Total liabilities and stockholders' equity $ 14,603,989
==========
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 Nine Months Ended
September 30 September 30 September 30 September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $16,911,396 $14,934,874 $45,379,718 $48,172,197
Cost of revenues 15,387,465 13,890,370 41,562,317 45,288,653
---------- ---------- ---------- ----------
1,523,931 1,044,504 3,817,401 2,883,544
Selling, general and
administrative 1,152,721 1,249,208 3,495,625 2,888,637
Amortization of
intangibles 110,623 169,122 341,400 484,243
Acquisition expenses -0- 528,578 -0- 528,578
--------- ---------- --------- ---------
Income (loss) from
operations 260,587 (902,404) ( 19,624) (1,017,914)
Other income (expense):
Interest expense (183,151) (186,992) (508,688) (739,691)
Other income(expense) 21,655 -0- 58,576 (26,000)
Contingency reserve (300,000) (300,000)
-------- -------- -------- --------
Total other expense (461,496) (186,992) (750,112) (765,691)
-------- --------- --------- ---------
Net loss from
continuing operations (200,909) (1,089,396) (769,736) (1,783,605)
Discontinued operations:
Loss from discontinued
operations -0- (105,471) -0- (88,866)
--------- -------- ---------- --------
Net loss (200,909) (1,194,867) (769,736) (1,872,471)
Net loss per
share of common stock $ (0.02) $ (0.32) $ (0.09) $ (0.72)
Weighted average number
of shares of common
stock 11,436,744 3,760,994 8,525,227 2,591,982
See notes to consolidated financial statements
</TABLE>
<PAGE> 5
Trans Global Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30,1996 September 30,1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss from continuing operations $ (769,736) $(1,783,605)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 360,452 471,793
Charges from option exercise 111,383 258,558
Non-cash acquisition expenses related
to Trans Global Transaction -0- 528,578
Common stock issued for services rendered 9,506 -0-
Change in assets and liabilities:
(Increase) in assets:
Receivables (1,536,613) (500,897)
Loans receivable - officer -0- ( 22,500)
Prepaid expenses and other current assets (100,273) ( 34,750)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 98,282 ( 58,854)
Accrued payroll taxes and related expenses 1,393,081 1,009,389
Accrued payroll tax penalties (625,000) -0-
Accrued contingency settlement 300,000 -0-
Accrued interest -0- 53,302
--------- ---------
Total adjustments 10,818 1,704,619
--------- ---------
Net cash used in continuing operations (758,918) (78,986)
Net loss from discontinued operations -0- (88,866)
Adjustments to reconcile net loss to net
cash (used for) operating activities:
Gain on sale of discontinued segment -0- 8,923
Depreciation and amortization -0- 68,558
Other -0- (17,846)
--------- --------
Net cash used in discontinued operations -0- (29,231)
--------- --------
Net cash used in operating activities (758,918) (108,217)
--------- --------
Cash Flows from Investing Activities:
Capital expenditures (45,517) (112,072)
Net advances to affiliates (215,357) (799,571)
Cash of merged company -0- 504,210
Net cash of subsidiary sold -0- ( 46,600)
Other 859 -0-
------- --------
Net cash used in investing activities $ (260,015) $ (454,033)
----------- -----------
</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 $ (113,840) $ (172,504)
Repayment of subordinated debt (700,000) (500,000)
Net advances from and (payments to) affiliates (176,832) 236,789
Issuance of common stock 2,375,000 1,453,900
Exercise of stock options -0- 690,500
Repayment of note payable (60,513) -0-
Repayment of long-term debt -0- (373,812)
---------- -------
Net cash and provided by financing
activities 1,323,815 1,334,873
Net increase in cash and cash equivalents 304,882 772,623
Cash and Cash Equivalents at Beginning of
Period 210,597 (360,306)
-------- -------
Cash and Cash Equivalents at End of Period $ 515,479 $ 412,317
======== =======
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest 508,688 685,680
Income Taxes -0- -0-
During the nine months ended September 30, 1996, the Company had the following
non-cash investing and 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.
* A stock option granted in 1995 expired without 85,000 shares being
exercised. This resulted in a recapture of $83,507 of amortization expense.
Additional stock options were granted and incurred non-cash deferred
charges of $79,687 which will be amortized over the 2 year life of the
grant.
During the nine month period ended September 30, 1995, the Company had the
following non-cash financing activities:
* Acquired the net assets of Concept Technologies Group, Inc., through a
reverse merger. Total net assets of such entities acquired was $982,822
including cash of $504,210 at the date of acquisition.
* Issued preferred stock with a value of $200,000 to an affiliate and
reduced amounts owed to such affiliate by $200,000.
* Issued stock options and received exercise proceeds of $690,500 and
incurred non-cash deferred charges of $2,205,170.
See notes to consolidated financial statements
</TABLE>
<PAGE> 7
Trans Global Services, Inc.
Consolidated Statement of Stockholders Equity
For the Nine Months Ended September 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 September 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 September 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 September 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 September 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 September 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 Nine Months Ended September 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 September 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
Issuance of common-stock Regulation S 5,000,000 50,000
Deffered issuance related to acquisition of Concept 125,000 1,250
Issuance of common stock- Sirrom Capital 6,240 63
--------- -------
Balance September 30, 1996 $12,851,331 $ 128,514
========= ========
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)
Deferred issuance related to acquisition of Concept (1,250)
Issuance of Common Stock Regulation S 1,950,000
Issuance of Common Stock - Sirrom Capital 9,443
Expiration of below market options (138,125)
Issuance of below market options 79,687
---------
Balance September 30, 1996 $12,063,334
==========
Accumulated (deficit)
Balance December 31, 1995 $(5,106,366)
Net loss ( 769,736)
------------
Balance September 30, 1996 $(5,876,102)
</TABLE> ============
<PAGE> 9
Trans Global Services, Inc.
Consolidated Statement of Stockholders Equity
For the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Deferred Charges
Balance December 31, 1995 $ (508,512)
Amortization of deferred consulting costs 194,890
Expiration of below market options 138,125
Recapture of amortization on expired below market
options (83,507)
Issuance of below market options (79,687)
-------
Balance September 30, 1996 $ (338,691)
========
Total Stockholders' Equity
Balance December 31, 1995 $ 4,251,602
Issuance of Common Stock - Regulation S 375,000
Issuance of Series "F" Preferred Stock 750,000
Issuance of Common Stock - Regulation S 2,000,000
Issuance of Common Stock - Sirrom Capital 9,506
Amortization of deferred consulting cost 194,890
Recapture of amortization on expired below market options (83,507)
Net Loss (769,736)
---------
Balance September 30, 1996 $ 6,727,755
==========
</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 September 30, 1996 and the results of its operations for the three and
nine months ended September 30, 1996 and 1995 and the changes in cash flows
for the nine months ended September 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 subsidiaries, Avionics
Research Corp.("ARC") and Resource Management International, Inc. ("RMI").
All intercompany transactions and balances have been eliminated in
consolidation.
Receivables- The Company finances substantially all of its receivables from
an asset-based lender under an agreement 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 September 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 September 30,1996, the total amount advanced by the
asset-based lender was $3,564,862. The Company has been advised that, as a
result of a change in its general lending policies, the Company's asset-based
lender is reducing the Company's maximum borrowing availability to $1 million,
effective in late October 1996, which date has been orally extended until
January 1997. Although the Company is seeking a deferral of the effectiveness
in the reduction of the available credit and is seeking alternative financing
sources, no assurance can be given that the Company can or will be able to
obtain either an extension or an alternate financing source, the failure of
which could have a material adverse effect upon the Company.
Prepaid expenses and other current assets consist of approximately $181,000
of prepaid insurance.
<PAGE> 11
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
Office Equipment 5 - 10 Years
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 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 72% of the total revenues of the Company for the nine month
period ending September 30,1996. These same clients account for approximately
72% of the total outstanding accounts receivable as of September 30, 1996,
as well. The Company's largest clients are the Boeing Corporation and
Northrup Grumman which account for 25% and 19% of the total revenue for the
nine months ended September 30, 1996.
(3) Interim Results
The results of operations for the three and nine months ended
September 30,1996 and 1995 are not necessarily indicative of the results to
be expected for the full year.
<PAGE> 12
4) Payroll Taxes:
The Company has negotiated an agreement with the IRS for the payment of
certain payroll taxes, interest and penalties relating to the quarter ended
March 31, 1996. The Company has agreed to pay the remaining balance of
approximately $1,350,000 in 7 equal monthly installments of $150,000 with
the balance to be paid in an eighth monthly installment.All other taxes are
current. The Company continues to contest the penalties and is seeking to
recover the amounts paid.
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 September 30, 1996.
On June 30,1996, a debt and equity restructure with the Company's principal
stockholder SIS Capital Corp. ("SISC") took place, whereby SISC cancelled
$750,000 of the Company's debt and all of the shares of Series B,C and D
Preferred Stock owned by SISC, including accrued dividends due on the Series
D Preferred Stock in exchange for 9,950 shares of Series F Preferred Stock
and Warrants to purchase 3,200,000 shares of Common Stock at $.50 per share
(the "SISC Recapitalization"). As part of the SISC Recapitalization, the
Company issued 50 shares of Series F Preferred Stock to DLB, Inc. ("DLB")
which owned 5% of the Series B and C Preferred Stock. All of DLB's shares of
Series B and C Preferred Stock were cancelled as well. DLB is owned by
the wife of the chairman of the board, however the chairman disclaims
beneficial interest in DLB or any securities owned by DLB.
As a result of the SISC Recapitalization, there were no shares of the Series
B, C and D outstanding as of September 30, 1996..
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 1,800,482 shares of Common Stock, to persons who had agreed to
defer receipt of their shares until the certificate of incorporation was
amended. Such shares were included in the computation of loss per share for
1995 and the computation of earnings (loss) per share for the three
and nine months ended September 30,1996. The consideration for such shares
had been included in additional paid-in capital and, upon issuance, the par
value was transferred to Common Stock.
<Page 13>
Stock Options and Warrants:
Series D Common Stock Purchase Warrants-
Issued to SISC as part of the "SISC Recapitalization" to purchase an
aggregate of 3,200,000 shares of Common Stock. The exercise price of the Series
D Warrants is $0.50 per share.
Non-Employee Directors, Consultants and Advisors Stock Plan-
On August 14, 1996 an option was granted to a consultant to purchase 85,000
shares of Common Stock, for future services, at a price of $0.50 per share.
The value of the stock at that date of grant was $1.4375 per share. Although
the option had not been exercised the deferred charges amount to;
Shares 85,000
Value of stock at date of grant 1.4375
(Weighted average) ------
122,188
Exercise price 42,500
--------
Total charges deferred at the time of exercise $ 79,688
========
1995 Long-Term Incentive Plan-
In March 1996 the Company granted incentive stock options to employees,
pursuant to the 1995 Long Term Incentive Plan, to purchase an aggregate
of 1,310,000 shares of Common Stock at $1.125 per share, being the fair
market value on the date of grant. Such options were granted to Mr.
Joseph G. Sicinski, president of the Company, who received an option to
purchase 800,000 shares of Common Stock, Mr. Lewis S. Schiller, chairman
of the board of the Company, who received an option to purchase 50,000
shares of Common Stock, one other officer, who received an option to
purchase 100,000 shares of Common Stock, and eleven other employees
who received options to purchase an aggregate of 260,000 shares of Common
Stock.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended September 30, 1996 and 1995
Revenue from technical temporary staffing services is based on the hourly
cost of payroll plus a percentage. The success of the Company's business
will be dependent upon its ability to generate sufficient revenues to enable
it to cover its fixed costs and other operating expenses, and to reduce its
variable costs, principally its interest. Under its agreements with its
clients, the Company is required to pay its employees and pay all applicable
federal and state withholding and payroll taxes prior to receipt of payment
from the clients. Furthermore, the Company's payments from its clients are
based upon the hourly rate paid to the employee, without regard to when
payroll taxes are payable with respect to the employee. Accordingly, the
Company's cost of services are greater during the first part of the year,
when Federal Social Security taxes and state unemployment and related taxes,
which are based on a specific level of compensation, are due. Thus, until the
Company satisfies its payroll tax obligations, it will have a lower gross
margin than after such obligations are satisfied. Furthermore, to the extent
that the Company experiences turnover in employees, its gross margin will be
adversely affected. For example, in 1996 Social Security taxes are payable
on the first $62,700 of compensation. Once that level of compensation is paid
with respect to any employee, there is no further requirement for the Company
to pay Social Security tax for such employee. Since most of the Company's
employees receive compensation in excess of that amount, the Company's costs
with respect to any employee are significantly higher during the period when
it is required to pay Social Security taxes than it is after such taxes have
been paid.
For the three months ended September 30, 1996, the Company had revenues of
approximately $16.9 million reflecting a 13.2% increase from the revenues of
$14.9 million during the quarter ended September 30,1995. This increase is
attributed to additional revenues generated from the Company's existing
customer base as well as revenues generated from new customers. The gross
margin for the current period was 9.0% as compared to 7.0% for the same
period in 1995.
Selling, general and administrative expenses were $1,153,000 or 6.8% of
sales, for the three months ended September 30, 1996 and $1,249,000 or
8.4% of revenue for the three months ended September 30, 1995. This decrease
is primarily attributable to the reduction in amortization expenses 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. The borrowings are
secured by a security interest in all of the Company's assets. At
September 30, 1996, such borrowings were $3.6 million. The interest rate
(exclusive of the fee) payable by the Company at September 30, 1996 was
10.25%. Interest expense decreased by 2% in the current period compared
to the three months ended September 30, 1995, as result of slightly
reduced borrowings.
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Contd)
In connection with the November 1994 acquisition by RMI of the assets of
Job Shop Technical Services, Inc. ("Job Shop") the United States Department
of Labor and the independent trustee of the Job Shop 401(K) Plan
(collectively, the "DOL") have taken the position that RMI may have liability
with respect to Job Shop's ERISA liability, which was approximately $3.0
million in November 1994. Although the Company disputes the claims of the
DOL, at September 30,1996, it established a $300,000 reserve with respect to
such claims.
The Company sustained a loss of $ 201,000 or a $0.02 per share, for the three
months ended September 30,1996, as compared to a net loss of $1,195,000 or
$0.32 per share for the comparable period of 1995. The loss for the 1996
period reflects the factors described above, principally the $300,000 charge
relating to the claim by the DOL. The reduction in the loss from the 1995
period to the 1996 period reflects the improved revenue and gross margin as
well as the elimination of acquisition expenses which were incurred in the
1995 period.
The Company's profitability is dependent upon increasing its revenue and gross
margins decreasing its financing costs and obtaining equity capital.
Nine months ended September 30, 1996 and 1995
For the nine months ended September 30, 1996 the Company had revenues of
$45.4 million reflecting a 5.8% decrease from the revenues of $48.2 million
during the nine months ended September 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. However, by the end of the current
period, the Company had increased its revenue so that its monthly rate of
revenue was greater than prior to the loss of the customer. The Company's
gross margin for the nine months ended September 30,1996 was 8.4% compared
to 6% 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 $3,500,000
or 7.7% of sales, for the nine months ended September 30,1996 and $2,900,000
or 6% of revenue for the same period in 1995. This increase is primarily
attributed to penalties of $550,000 for late withholding payments.
Interest expense for the nine months ended September 30,1996 was approximately
$509,000 compared to $740,000 for the same period a year ago reflecting a
decrease of 31% 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 nine months ended
September 30, 1996 due to a current period loss. Federal and state tax
benefits have not been recognized for the nine months ended September 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.
<PAGE> 16
Item 2. Management's Discussin and Analysis of Financial Condition and
Results of Operations (Contd)
Liquidity and Financial Position
As of September 30, 1996, the Company had a working capital deficit of
$750,000. Its working capital deficit reflects (a) $3.6 million due to the
Company's asset-based lender, (b) payroll taxes and related expenses of $3.1
million and (c) accounts payable and accrued expenses of $ 1.1 million.
The Company has filed a registration statement with respect to a public
offering of its securities, however, no assurance can be given that the
Company will be successful in completing such an offering, 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
1995.
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.
The Company has an agreement with the IRS with respect to unpaid payroll
taxes for the quarter and March 31, 1996. The Company has agreed to pay
the balance of approximately $1,350,000 plus interest in seven monthly
installments of $150,000 with the remaining balance to be paid in an eighth
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.
In connection with the November 1994 acquisition by RMI of the assets of
Job Shop Technical Services, Inc. ("Job Shop") the United States Department
of Labor and the independent trustee of the Job Shop 401(K) Plan
(collectively, the "DOL") have taken the position that RMI may have liability
with respect to Job Shop's ERISA liability, which was approximately $3.0
million in November 1994. Although the Company disputes the claims of the
DOL, at September 30, 1996, it established a $300,000 reserve with respect
to such claims.
<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
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
Net loss $ (200,090) $ (769,736)
---------- ---------
Loss per Share:
(Loss) per share - Note 1 ($0.02) ( $0.09)
---------- ---------
(Loss) per share - assuming
full dilution Note 2 ($0.01) ( $0.04)
---------- ----------
Note 1:
Computed by dividing the net (loss) income for the periods by the weighted
average number of common shares outstanding (11,436,744 and 8,525,227) for
the three and nine months ended September 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 (11,436,744 and 8,525,227) for the three and nine months ended
September 30,1996 adjusting it by item (i) to (v) 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 59,351 and 55,527 for the
three and nine months ended September 30, 1996.
(ii) Assumes that 1,310,000 1995 Stock Incentive Plan stock options
outstanding at September 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 420,591 and 287,982 for the three and
nine months ending September 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 3,932,337 and 4,805,596 for the three and nine months
ended September 30,1996.
(v) Assumes common stock purchase warrants to purchase an aggregate of
3,200,000 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 2,234,400 and 2,090,430 for the three and nine months ending
September 30,1996.
NOTE- THIS CALCULATION IS SUBMITTED IN ACCORDANCE WITH THE SECURITIES ACT
OF 1934 RELEASE NO.9083, ALTHOUGH IT IS CONTRARY TO PARA.40 OF APB
15 BECAUSE IT MAY PRODUCE AN ANTI-DILUTIVE RESULT.
<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: November 13,1996 Lewis S. Schiller
(Chief Executive Officer)
------------------------
Date: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 515,479
<SECURITIES> 0
<RECEIVABLES> 6,405,729
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,124,947
<PP&E> 86,722
<DEPRECIATION> 19,201
<TOTAL-ASSETS> 14,603,989
<CURRENT-LIABILITIES> 7,876,234
<BONDS> 0
<COMMON> 128,514
0
100
<OTHER-SE> 6,599,141
<TOTAL-LIABILITY-AND-EQUITY> 14,603,989
<SALES> 45,379,718
<TOTAL-REVENUES> 45,379,718
<CGS> 41,562,317
<TOTAL-COSTS> 41,562,317
<OTHER-EXPENSES> 4,078,449
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508,688
<INCOME-PRETAX> (769,736)
<INCOME-TAX> 0
<INCOME-CONTINUING> (769,736)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (769,736)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.04)
</TABLE>
