SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997 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)
1393 Veterans Memorial Highway, Hauppauge, NY 11788
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 724-0006
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 1,1997: 3,819,721
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
INDEX
Part 1 - Financial Information:
Item 1. Financial Statements: Page No.
---------
Balance Sheets as of June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations-
Three and Six Months Ended June 30, 1997
and June 30, 1996 4
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1997 and June 30, 1996. 5-6
Consolidated Statement of Stockholders' Equity-
Six Months Ended June 31, 1997 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 Sheets
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30 December 31,
1997 1996
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ 338,956 $ 56,231
Accounts Receivable- Net 5,964,303 5,190,056
Loans Receivable-Officer 47,500 42,500
Prepaid Expenses and Other Current Assets 122,102 230,074
--------- ---------
Total Current Assets 6,472,861 5,518,861
--------- ---------
Property and Equipment-Net 159,213 74,581
--------- ---------
Other Assets:
Due from Affiliates 1,619,476 1,508,502
Customer Lists 2,726,051 2,838,535
Goodwill, Net 799,835 824,125
Covenant Not-to-Compete, Net -0- 60,381
Deferred Offering Costs 284,482 151,307
Other Assets 39,822 22,958
Investment in Preferred Stock of Affiliate 2,100,730 2,100,730
--------- ---------
Total Other Assets 7,570,396 7,506,538
--------- ---------
Total Assets $ 14,202,470 $ 13,099,980
========== ==========
See Notes to Financial Statements
</TABLE>
<PAGE> 4
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED
Balance Sheets
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 December 31,1996
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and Accrued Expenses $ 511,498 $ 283,356
Accrued Payroll and Related Taxes and
Expenses 2,263,296 1,784,061
Accrued Payroll Tax Penalties 164,102 77,000
Loans Payable, Asset-Based Lender 3,811,700 3,690,875
Note Payable- Other 138,230 138,230
Current Portion of Obligation -
Voluntary Settlement Agreement 183,333 300,000
--------- ---------
Total Current Liabilities 7,072,159 6,273,522
--------- ---------
Other Liabilities:
Voluntary Settlement Agreement Obligation 66,667 -0-
--------- --------
Stockholders' Equity:
Common Stock, $.01 Par Value, 50,000,000
Shares Authorized, Issued and
Outstanding [3,819,721- June 30,1997
3,816,888- December 31, 1996] 38,197 38,168
Capital in Excess of Par Value 12,887,851 12,879,380
Deferred Consulting Fees (233,037) (303,473)
Accumulated Deficit (5,629,367) (5,787,617)
----------- ----------
Total Stockholders' Equity 7,063,644 6,826,458
Total Liabilities and
Stockholders Equity $14,202,470 $ 13,099,980
========== ==========
See notes to consolidated financial statements
</TABLE>
<PAGE> 5
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
June 30, June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 19,640,793 $ 14,996,984 $ 38,890,217 $28,468,322
Cost of Services Provided 18,036,842 13,537,426 35,869,085 26,174,852
---------- ---------- ---------- ----------
Gross Profit 1,603,951 1,459,558 3,021,132 2,293,470
Selling, General
and Administrative 1,067,307 1,106,833 2,285,328 2,282,904
Related Party
Administrative Expenses 30,000 30,000 60,000 60,000
Amortization of Intangibles 83,421 116,977 197,221 230,777
--------- --------- --------- ---------
Total Operating Expenses 1,180,728 1,253,810 2,542,549 2,573,681
Operating Profit (Loss) 423,223 205,748 478,583 (280,211)
Other Income (Expenses):
Interest Expense (197,070) (166,449) (382,865) (325,537)
Other Income 28,922 18,459 62,532 36,921
--------- --------- --------- ---------
Total Other Expenses- Net (168,148) (147,990) (320,333) (288,616)
Net Income/(Loss) $ 255,075 $ 57,758 $ 158,250 $ (568,827)
Net Income/(Loss) Per
Share of Common Stock $ .07 $ .04 $ .04 $ ( .49)
--------- --------- --------- --------
Weighted Average Number of
Shares of Common Stock 3,819,721 1,307,515 3,819,424 1,169,486
========= ========= ========= =========
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income/(Loss) from Continuing Operations $ 158,250 $ (568,827)
Adjustments to Reconcile Net Income/(Loss)
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 217,562 240,479
Charges from Option Exercise 70,436 159,672
Change in Assets and Liabilities:
(Increase) Decrease in Assets:
Receivables (774,247) ( 70,799)
Loans Receivable - Officer ( 5,000) -0-
Prepaid Expenses and Other Current Assets 107,972 ( 57,229)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 228,142 70,547
Accrued Payroll Taxes and Related Expenses 479,235 1,175,170
Accrued Payroll Tax Penalties 87,102 475,000
--------- ---------
Total Adjustments 411,202 1,992,840
--------- ---------
Net Cash Provided by Operating Activities 569,452 1,424,013
Cash Flows from Investing Activities:
Capital Expenditures ( 105,039) ( 40,790)
Advances to Affiliates ( 110,974) ( 129,268)
Other ( 16,864) 1,809
------- --------
Net Cash Used in Investing Activities $ (232,877) $ ( 168,249)
Cash Flows from Financing Activities:
Net Payments from/(to) Asset-Based Lender $ 120,825 $(1,054,052)
Repayment of Subordinated Debt -0- ( 700,000)
Advances from Affiliates -0- 117,003
Issuance of Common Stock -0- 375,000
Exercise of Stock Options 8,500 -0-
Deferred Offering Costs ( 133,175) -0-
Repayment of Note Payable -0- ( 30,000)
Payments on Voluntary Settlement Agreement ( 50,000) -0-
---------- ---------
Net Cash Used in Financing Activities ( 53,850) ( 1,292,049)
<PAGE> 7
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) [Continued]
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Net Increase/(Decrease) in Cash and
Cash Equivalents $ 282,725 $ ( 36,285)
Cash and Cash Equivalents at Beginning of Period 56,231 210,597
---------- --------
Cash and Cash Equivalents at End of Period $ 338,956 $ 174,312
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest 382,865 325,537
Income Taxes -0- -0-
See notes to consolidated financial statements
</TABLE>
<PAGE> 8
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders Equity
For the Six Months Ended June 30, 1997
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Amounts
-------- --------
<S> <C> <C>
Common Stock $.01 Par Value Authorized
50,000,000 Shares
Balance December 31, 1996 22,901,331 $ 229,014
Exercise of Stock Options 17,000 170
One-for-Six Reverse Split (19,098,610) ( 190,987)
------------ ---------
Balance - June 30, 1997 3,819,721 38,197
=========== =========
Capital in Excess of Par Value
Balance- December 31, 1996 $ 12,688,534
Exercise of Stock Options 8,330
One-for-Six Reverse Split 190,987
----------
Balance June 30, 1997 $ 12,887,851
===========
Accumulated (deficit)
Balance December 31, 1996 $ (5,787,617)
Net Income 158,250
------------
Balance- June 30, 1997 $ (5,629,367)
Deferred Charges
Balance December 31, 1996 $ (303,473)
Amortization of deferred consulting costs 70,436
-------
Balance- June 30,1997 $ (233,037)
========
Total Stockholders' Equity
Balance December 31, 1996 $ 6,826,458
Exercise of Stock Options 8,500
Amortization of deferred consulting cost 70,436
Net Income 158,250
---------
Balance- June 30, 1997 $ 7,063,644
==========
</TABLE>
<PAGE> 9
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -----------------------------------------------------------------------------
(1) Basis of Presentation
Trans Global Services,Inc, a Delaware corporation, operates through two
subsidiaries, Avionics Research Holdings, Inc. ["Holdings"], formerly ARC
Acquisition Group ["ARC"] and Resource Management International, Inc. ["RMI"].
The Company is engaged in providing technical temporary staffing services
throughout the United States. The principal stockholder of the Company is
SIS Capital Corp. ["SISC"], a wholly-owned subsidiary of Consolidated
Technology Group Ltd. ["Consolidated"], a publicly held company.
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, 1997 and December 31, 1996 and the results of its operations
for the three and six months ended June 30, 1997 and 1996. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto together with managment's discussion
and analysis of financial condition and results of operations contained in
the Company's Form 10-K for the year ending December 31, 1996. The results
of operations for the three and six months ended June 30,1997 are not
necessarily indicative of the results for the entire year or any future
interim period.
(2) Summary of Significant Accounting Policies
Principles of Consolidation- The consolidated financial statements include
the accounts of Trans Global Services, Inc. and its subsidiaries, Holdings
and RMI. All intercompany transactions and balances have been eliminated in
consolidation.
Prepaid expenses and other current assets consist of approximately $74,000
and $173,000 of prepaid insurance at June 30,1997 and December 31, 1996.
Property and Equipment- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line and accelerated methods over the estimated useful
lives of the respective assets. Estimated useful lives range from 3 to 10
years as follows:
Furniture and Fixtures 5 - 7 Years
Leasehold Improvements 5 - 10 Years
Transportation Equipment 3 - 4 Years
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.
Deferred Offering Costs- Deferred offering costs of approximately $284,000
and $151,000 were incurred at June 30, 1997 and December 31, 1996 with
respect to the Company's proposed public offering. If the offering is not
consummated, these costs will be expensed at that time.
<PAGE> 10
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -----------------------------------------------------------------------------
(2) Summary of Significant Accounting Policies [Continued]
Voluntary Settlement Agreement Obligation - The Company has entered into an
agreement with the United States Department of Labor and the independent
trustee of the Job Shop Technical Services, Inc. 401(k) Plan (collectively
"DOL") pursuant to which the Company agreed to pay the DOL an aggregate of
$300,000 in 18 monthly installments of $16,667 commencing May 1997. The
agreement represented the settlement of certain claims by the DOL arising out
of the failure of Job Shop Technical Services,Inc. ("Job Shop") to make
payments to its 401(k) plan prior to the purchase by the Company of assets
of Job Shop in November 1994.
Revenue Recognition- The Company records revenue as services are provided.
Stock Options and Similar Equity Instruments - On January 1, 1996, the
Company adopted the disclosure requirements of Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation", for stock options and similar equity instruments [collectively,
"Options"] issued to employees, however, the Company will continue to apply
the intrinsic value based method of accounting for options issued to employees
prescribed by Accounting Principles Board ["APB"] Opinion No. 25, "Accounting
for Stock Issued to Employees" rather than the fair value based method of
accounting prescribed by SFAS No. 123. SFAS No. 123 also applies to trans-
actions in which any entity issues its equity instruments to acquire goods or
services from non-employees. Those transactions must be accounted for based
on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
Earnings Per Share - Earnings per share reflects the weighted average number
of shares outstanding for each period. The modified treasury stock method is
used. On June 20, 1997, the Company effected a one-for-six reverse split in
its Common Stock. All share and per share information in these financial
statements gives effect, retroactively, to such split.
Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk- The Company extends credit to customers which
results in accounts receivable arising from its normal business activities
and does not require its customers to collateralize their payables to the
Company. It routinely assesses the financial strength of its customers and
believes that its accounts receivable credit risk exposure is limited. Such
estimate of the financial strength of such customers may be subject to change
in the near future.
<PAGE> 11
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -----------------------------------------------------------------------------
Concentration of Credit Risk [Continued] -
The Company presently has five clients which when combined account for
approximately 81% of the total revenues of the Company for the six month
period ending June 30, 1997. These same clients account for approximately
76% of the total outstanding accounts receivable as of June 30, 1997, as
well. The Company's largest clients for the six months ended June 30, 1997
were the Boeing Corporation, Northrop Grumman, Lockheed Martin, Gulfstream
Aerospace and Bell Helicopter Textron, which account for 25.8%, 22.4%, 14.5%,
10.3% and 7.6% of revenue, respectively.
[3] Accounts Receivable and Loan Payable - Asset Based Lender
Receivables are shown net of an allowance for doubtful accounts of $62,500 at
June 30, 1997 and December 31, 1996. The Company finances a majority of its
receivables from an asset-based lender under agreements entered into in
February 1995 and subsequently amended. The agreements have a maximum
availabilty of funds of $5,500,000. Funds can be advanced in an amount equal
to 85% of the total face amount of outstanding and unpaid receivables, with
the asset-based lender having the right to reserve 15% of the outstanding and
unpaid receivables financed. The interest rate is equal to the base lending
rate of an agreed upon bank, which was 8.50% at June 30, 1997 and 8.25% at
December 31, 1996 plus 2% and a fee of .3% of the receivables financed. The
asset-based lender has a security interest in all accounts receivables,
contract rights, personal property, fixtures and inventory of the Company. At
June 30, 1997 and December 31, 1996 the total amount advanced by the asset-
based lender was $3,811,700 and $3,690,875 respectively. The weighted
average interest rate on this short-term borrowing outstanding as of June 30,
1997 and December 31, 1996 was approximately 10.42% and 10.25% respectively.
The Company has been advised that, as a result of a change in its general
lending policies, the Company's asset-based lender is reducing the Company's
maximum borrowing availability to $3 million effective October 31, 1997. In
lieu of the .3% fee on the receivables financed, the asset-based lender, will
charge a flat administrative fee of $10,500 per calendar month, provided that
the outstanding receivables do not aggregate more than $10,000,000. An
additional fee will be charged on a prorata basis if such outstanding
receivables exceed $10,000,000 at any time during the month. This fee would
be $954.55 for each $1,000.000 of receivables over $ 10,000,000. Although the
Company is seeking alternative financing sources, no assurance can be given
that the Company can or will be able to obtain an alternate financing source,
the failure of which could have a material adverse effect upon the Company.
<PAGE> 12
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Notes to Financial Statements
- -----------------------------------------------------------------------------
(4) Subordinated Debt
The Company, having been delinquent in filing certain payroll taxes during the
quarter ended March 31, 1996, has entered into an agreement with the Internal
Revenue Service ["IRS"] to pay those taxes, interest and penalties in install-
ments. At June 30, 1997 approximately $164,000 remained on that balance,
which was paid on July 14, 1997. All other taxes are current. The Company
continues to contest the penalties and is seeking to recover the amount paid.
The obligations to the IRS are subordinated to the obligations to its asset
- -based lender. The Company has received the release of lien from the IRS.
(5) Contingencies
On May 14, 1991, the Government Printing Office wrote Holdings asking to be
reimbursed a total of $296,292 for "unauthorized timework" on two programs.
The Company has been in contact with the Department of Justice which has
stated that they were declining prosecution of the Company regarding this
matter. Management believes these claims are without merit and intends to
contest these claims vigorously if reasserted by the Government Printing
Office and believes that the ultimate disposition of this matter will not
have a material adverse effect on the financial position of the Company.
Due to uncertainties in the legal process it is reasonably possible that
management's view of the outcomes of the above matters may change in the
near term.
(6) Stockholders' Equity :
The authorized capital stock of the Company is 20,000,000 shares of Preferred
Stock, and 50,000,000 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.
On June 16, 1997, the Company held its annual meeting of shareholders at
which time a proposal was approved to effect a one-for-six reverse common
stock split on June 20, 1997. The effect of the reverse split was to
reduce the number of shares of common stock outstanding to 3,819,721.
There were no outstanding shares of any series of Preferred Stock at June
30, 1997.
Below Market Stock Options granted in 1996 were exercised as to 17,000 shares
during the six months ended June 30, 1997.
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended June 30, 1997 and 1996
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 1997, Social Security taxes are payable on the
first $65,400 of compensation. Once that level of compensation is paid with
respect to any employee, there is no further requirement for the Company to
pay Social Security tax for such employee. Since most of the Company's
employees receive compensation in excess of that amount, the Company's costs
with respect to any employee are significantly higher during the period when
it is required to pay Social Security taxes than it is after such taxes have
been paid.
For the three months ended June 30, 1997, the Company had revenues of $19.6
million reflecting a 31% increase in revenues over the $15.0 million
during the same period in 1996. This increase reflects the Company's
continuing recovery from the loss of a contract on January 1, 1996 with one
of the Company's larger clients. The gross margin for the quarter ended June
30, 1997 was 8.2% compared to 9.7% for the quarter ended June 30, 1996. This
decrease can be attributed to the continued increase in staffing which has a
negative impact on gross margin during periods of growth with an increase in
payroll tax obligations resulting from the additional new hires.
Selling, general and administrative expenses were $1,097,000, or 5.6%, of
revenues for the three months ended June 30, 1997 and $1,137,000, or 7.6%, of
revenues for the three months ended June 30, 1996. This reflects the
continuing effort the Company is placing on controlling costs and maximizing
efficiency.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued
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.
Pursuant to an April 1997 amendment to the agreement, on October 31, 1997,
the borrowing availability will be reduced to $3.0 million and the Company
will pay a fixed monthly fee of $10,500 to the asset-based lender. The fee
will be subject to increases to the extent that receivable in any month
exceed $10 million. The interest rate of 2% in excess of prime will not be
affected by the amendment. Such reduction in borrowing availability, if
implemented, would have a material adverse effect upon the Company. At
June 30,1997, such borrowings from the asset-based lender were approximately
$3.8 million. The interest rates (exclusive of the fee) payable by the
Company at June 30, 1997 and 1996 were 10.5% and 10.25% respectively. During
the three months ended June 30,1997 interest expense was $197,000, an 18.4%
increase from the $166,000 interest costs during the same period in 1996.
This was a result of increased borrowings due to greater revenues and slightly
higher interest rates.
Amortization of intangibles decreased by approximately $33,000 for the three
months ended June 30, 1997 compared to the three months ended June 30, 1996,
due to the completion of amortization of the covenant not to compete,
resulting from the acquisition of Avionics Research Corp.
As a result of the foregoing, the Company earned $255,075, or $.07 per share,
for the three months ended June 30, 1997, as compared to net income of
$57,758, or $.04 per share for the three months ended June 30, 1996. This
increase can be attributed to a combination of the increase in sales and a
stabilization of selling, general and administrative expenses.
Six Months Ended June 30, 1997 and 1996
The Company had revenues of $38.9 million for the six months ended June
30, 1997 reflecting a 37% increase from the revenues of $28.5 million for the
same period a year earlier. This increase is attributable to the Company's
increased sales and placement efforts and success in replacing the loss of a
contract on January 1, 1996 with one of the Company's larger clients. For the
six months ended June 30, 1997, the Company had a gross margin of 7.8% as
compared to 8.0% for the six months ended June 30, 1996. The slight decrease
in margin reflects the additional payroll taxes incurred because of the
Company's continued increase in staffing.
The Company has been able to maintain a relatively stable level of selling,
general and administrative expenses despite a significant increase in revenue.
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued]
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. Pursuant to an
April 1997 amendment to the agreement, on October 31, 1997 the borrowing
availability will be reduced to $3.0 million and the Company will pay a fixed
monthly fee of $10,500 to the asset-based lender. The fee will be subject to
increases to the extent that receivables in any month exceed $10 million. The
interest rate of 2% in excess of prime will not be affected by the amendment.
Such reduction in borrowing availability, if implemented, would have a
material adverse effect upon the Company. At June 30, 1997, such borrowings
from the asset-based lender were approximately $3.8 million. The interest
rates (exclusive of the fee) payable by the Company at June 30,1997 and 1996
were 10.5% and 10.25%, respectively. During the six months ended June 30,
1997, interest expense was $383,000, a 17.5% increase from $326,000 in the
1996 period as a result of increased borrowings and slightly higher interest
rates.
The Company had not provided for net income taxes for the six months ended
June 30, 1997 and 1996. Federal and state tax benefits have not been
recognized for the six months ended June 30, 1997 and June 30, 1996 due to
the fact that all potential loss carrybacks have been fully utilized and
under SFAS No. 109, "Accounting for Income Taxes", the Company has determined
that it is more likely than not that the deferred tax asset will not be
realized.
The Company had net income of approximately $158,000, or $.04 per share
for the six months ended June 30, 1997 as compared to a net loss of $569,000,
or $.49 per share, for the six months ended June 30, 1996. The Company
believes that with the continued increased revenues and stabilized selling,
general and administrative costs it has improved its operations. The Company
is continuing to search for ways to reduce its financing costs by seeking to
enter into agreements with other financing sources which would offer lower
financing costs. However, no assurance can be given that the Company can or
will operate profitably in the future.
Liquidity and Financial Position
As of June 30, 1997, the Company had a working capital deficit of
$599,000. This working capital deficiency reflects (a) $3.8 million due to
the Company's asset-based lender, (b) payroll taxes and related expenses of
$2.4 million, (c) accounts payable and accrued expenses of $500,000, and (d)
$300,000 with respect to other current obligations. The payroll and related
taxes and expenses relates primarily to compensation to the Company's
contract employees and related taxes, which were paid during the first week
of July 1997.
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued]
At June 30, 1997 the Company owed approximately $3.8 million to its asset-
based lender. The Company has been advised that, as a result of a change in
its general lending policies, the asset-based lender will reduce the maximum
borrowing availability to $3.0 million at October 31, 1997, or earlier at the
Company's request. Such reduction in borrowing availability, if implemented
would have a material adverse effect upon the Company.
The Company has entered into an agreement with the United States Department
of Labor and the independent trustee of the Job Shop Technical Services, Inc.
401(k) Plan (collectively "DOL") pursuant to which the Company is paying the
DOL an aggregate of $300,000 in 18 monthly installments of $16,667 which
commenced May 1997. The agreement represented the settlement of certain
claims by the DOL arising out of the failure of Job Shop Technical Services,
Inc. ("Job Shop") to make payments to its 401(k) plan prior to the purchase
by the Company of assets of Job Shop in November 1994.
In May 1991, prior to the acquisition of Avionics Research Corp. ("Avionics")
by the Company, the Government Printing Office wrote Avionics asking for
reimbursement of approximately $296,000 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.
Item 4. Submission of Matters to a Vote of Security Holders
On June 16, 1997, the Company held its 1997 Annual Meeting of Stockholders.
The number of votes is based on the voting rights of the Common Stock.
The following individuals were elected as directors:
Name Number of Votes Broker Non Votes
Lewis S. Schiller 13,647,780 8,490,779
Joseph G. Sicinski 13,647,780 8,490,779
E. Gerald Kay 13,647,780 8,490,779
Norman Hoskin 13,647,780 8,490,779
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders [Continued]
The following proposals were approved as follows:
Broker
Proposal Votes For Votes Against Abstain Non Votes
Approval of a one-for-
six reverse split of the
Company's common stock 13,644,820 17,510 200 8,490,779
Approval of the selection
of Moore, Stephens, PC
for 1997 13,649,580 11,450 0 8,492,279
Item 6. Exhibits & Reports on Form 8K
(a) Exhibit 11 - Computation of Earnings per Common Share.
<PAGE>
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 11,1997 Lewis S. Schiller
(Chief Executive Officer)
------------------------
Date: August 11,1997 Glen R. Charles
(Chief Financial Officer)
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1- Computation of Earnings per Share
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
Primary /Fully Diluted Primary/Fully Diluted
EPS EPS EPS EPS
Net income/
(loss)
historical $ 255,075 255,075 57,758 158,250 158,250 (568,827)
Adjustments
per modified
treasury stock
method 110,622 117,256 201,911 228,873
Adjusted net
income,
primary 365,697 360,161
Adjusted net
income,
fully diluted 372,331 387,123
Income/(Loss) per Share:
Income/(Loss)
per share
- - Note 1 $ 0.09 0.04 $ 0.08 (0.49)
Income/(Loss)
per share
- - assuming
full dilution Note 2 0.09 0.02 $ 0.09 (0.21)
Note 1:
Computed by dividing the net earnings by the weighted average number of common
shares outstanding (3,819,721 and 1,307,515 and 3,819,424 and 1,169,486) for
the three and six months ended June 30, 1997 and 1996, respectively,
adjusting the number of shares and the net earnings for the 1997 periods by
items (i) to (v) below using the modified treasury stock method of
calculating earnings per share.
(i) Assumes that 222,500 1995 Stock Incentive Plan stock options
outstanding at June 30, 1997 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at
the average market price of the Company's common stock for the period
as quoted on The Nasdaq Smallcap Market ("Nasdaq"), retire debt and
to invest the balance.
(ii) Assumes common stock purchase warrants to purchase an aggregate of
124,933 common shares were exercised at the beginning of the period
and that the proceeds were used to purchase treasury stock at the
average market price of the Company's common stock for the period as
quoted on Nasdaq, retire debt and to invest the balance.
<PAGE>
TRANS GLOBAL SERVICES, INC. and SUBSIDIARIES
EXHIBIT 11.1 Computation of Earnings per Share [Continued]
(iii) Assumes common stock purchase warrants to purchase an aggregate of
816,666 shares were exercised at the beginning of the period and
that the proceeds were used to purchase treasury stock at the average
market price of the Company's common stock for the period as quoted
on Nasdaq, retire debt and to invest the balance.
(vi) Assumes that stock options to purchase 3,000 shares were exercised
at the beginning of the period and that the proceeds were used to
purchase treasury stock at the average market price of the Company's
common stock for the period as quoted on Nasdaq, retire debt and
to invest the balance.
(v) Assumes that 18,991 1993 Stock Incentive Plan stock options
outstanding at June 30, 1997 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at
the average market price of the Company's common stock for the period
as quoted on Nasdaq, retire debt and to invest the balance.
The proceeds received from the above transactions would then be used to
purchase treasury stock up to 20%, retire debt and the remaining balance
invested. See Schedules 1 and 3.
Note 2:
Computed by dividing net earnings by the weighted average number of common
shares (3,819,424 and 1,169,486) for the three and six months ended June 30,
1997 and 1996, respectively, adjusting the number of shares and the net
earnings for the 1997 period by items (i) to (v) below using the modified
treasury stock method of calculating earnings per share.
(i) Assumes that 222,500 1995 Stock Incentive Plan stock options
outstanding at June 30, 1997 were exercised at the beginning of the
period and that all proceeds were used to purchase treasury stock at
the period end market price of the Company's common stock as quoted
on Nasdaq, retire debt and to invest the balance.
(ii) Assumes common stock purchase warrants to purchase and aggregate of
124,933 common shares were exercised at the beginning of the period
and that the proceeds were used to purchase treasury stock at the
period end market price of the Company's common stock as quoted
on Nasdaq, retire debt and to invest the balance.
(iii) Assumes common stock purchase warrants to purchase an aggregate of
816,666 shares were exercised at the beginning of the period and
that the proceeds were used to purchase treasury stock at the period
end market price of the Company's common stock as quoted on Nasdaq,
retire debt and to invest the balance.
(iv) Assumes that stock options to purchase 3,000 shares were exercised
at the beginning of the period and that the proceeds were used to
purchase treasury stock at the period end market price of the
Company's common stock as quoted on Nasdaq, retire debt and to
invest the balance.
<PAGE>
TRANS GLOBAL SERVICES, INC. and SUBSIDIARIES
EXHIBIT 11.1 -Computation of Earnings per Share [Continued]
(v) Assumes that 18,991 1993 Stock Incentive Plan stock options out-
standing at June 30, 1997 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock
at the period end market price of the Company's common stock as
quoted on Nasdaq, retire debt and to invest the balance.
The proceeds received from the above transactions would then be used to
purchase treasury stock up to 20%, retire debt and the remaining balance
invested. See Schedules 2 and 4.
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>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - Computation of Earnings per Share
<TABLE>
<CAPTION>
SCHEDULE 1.
PRIMARY EARNINGS PER SHARE - 3 Months
June 30, 1997
<S> <C>
Weighted average # of shares o/s 06/30/97 3,819,424
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan-employees 218,333
Options pursuant to 1995 Stock Incentive Plan- directors 2/96 2,500
Options pursuant to 1995 Stock Incentive Plan- directors 2/97 1,666
Series A and other Warrants 124,933
Series D Warrants 816,666
SMACS Options 3,000
Options pursuant to 1993 option plan 18,991
---------
Total issuable 1,186,089
Total that can be reacquired:
(3,819,424 x20%) 763,884
Issued not reacquired 422,145
Proceeds Price # of Shares
Options pursuant to 1995 Stock Incentive Plan
-employees $ 6.750 218,333 1,473,748
Options pursuant to 1995 Stock Incentive Plan
-directors 2/96 $ 6.186 2,500 15,465
Options pursuant to 1995 Stock Incentive Plan
-directors 2/97 $11.250 1,666 18,743
Series A and other Warrants Various 124,933 3,607,134
Series D Warrants $ 7.500 816,666 6,124,995
SMACS Options $ 3.000 3,000 9,000
Options pursuant to 1993 option plan $13.500 18,991 256,379
---------
11,505,464
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - Computation of Earnings Per Share [Continued]
SCHEDULE 1- Primary Earnings Per Share - June 30,1997 [Continued]
<TABLE>
<S> <C> <C>
Limitation
763,944 shares x 4.466(avg FMV) 3,411,773
----------
Total proceeds remaining to retire debt 8,093,691
Outstanding short - term debt 7,072,159
- -A/P and accrued expenses 511,498
- -Accrued payroll and related taxes and expenses 2,263,296
- - Note payable (Gov't Printing Office) 138,230
---------
4,159,135
Other Liabilities
- -Litigation settlement 66,667
-------
Remaining proceeds for cash 3,867,889
Net income effects of debt retirement: at 05/15/97
Interest expense per P&L = 197,070 for 3 months
retired 5/15/97 = net interest expense 98,535
Cash invested in money market fund @ 2.5% interest for 1.5 months
3,867,889 @ 2.5% / 12 x 1.5 = 12,087
P&L impact
Reduction of interest expense 98,535
Additional interest income 12,087
------
110,622
Weighted average # of shares o/s 06/30/97 3,819,721
Options and warrants not reacquired 422,145
----------
Total 4,241,866
==========
June 30, 1997 3 month Net income per F/S 255,075
Adjustment per modified treasury stock method 110,622
-------
Adjusted net earnings 365,697
Primary EPS 365,697/4,241,866 = $0.08621135
$0.09
<PAGE>
TRANS GLOBAL SERVICES, INC. and SUBSIDIARIES
EXHIBIT 11.1
<S> <C> <C> <C>
SCHEDULE 2
Fully Diluted Earnings per share - 3 Months
June 30, 1997
Weighted average # of shares o/s 06/30/97 3,819,424
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan-employees 218,333
Options pursuant to 1995 Stock Incentive Plan-directors 2,500
Options pursuant to 1995 Stock Incentive Plan-directors 1,666
Series A and other Warrants 124,933
Series D Warrants 816,666
SMACS options 3,000
Options pursuant to 1993 option plan 18,991
Total issuable 1,186,089
Total that can be reacquired:
(3,819,424 x 20%) 763,884
Issued not reacquired 422,205
Proceeds Price # of Shares
Options pursuant to
1995 Stock Incentive Plan - employees $ 6.750 218,333 1,473,748
Options pursuant to
1995 Stock Incentive Plan - directors $ 6.186 2,500 15,465
Options pursuant to
1995 Stock Incentive Plan - $11.250 1,666 18,743
Series A and other Warrants Various 124,933 3,607,134
Series D Warrants $ 7.500 816,666 6,124,995
SMACS Options $ 3.000 3,000 9,000
Options pursuant to 1993 option plan $13.500 18,991 256,379
----------
11,505,464
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 -Computation of Earnings Per Share [Continued]
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE 2 [Continued]
Fully Diluted Earnings Per Share - June 30, 1997
<S> <C>
Limitation
763,884, shares x 1.6875 (FMV at 06/30/97) 1,289,054
Total proceeds remaining to retire debt 10,216,410
Outstanding short-term debt 7,072,159
- -A/P and accrued expenses 511,498
- -Accrued payroll and related taxes and expenses 2,263,296
- -Note payable (Gov't Printing Office) 138,230
---------
4,159,135
Other Liabilities
Litigation Settlement 66,667
Remaining proceeds for cash 5,990,608
Net income effects of debt retirement: at 5/15/97
Interest expense per P&L= 194070 for three months
retired 5/15/97= net interest expense 98,535
Cash invested in money market fund @ 2.5% interest for 1.5 months
5,990,608 @ 2.5%/1.5/12 = 18,721
<S> <C>
P&L impact
Net income per F/S 255,075
Reduction of interest expense 98,535
Additional interest income 18,721
------
Adjusted net income 372,331
Weighted average # of shares o/s 06/30/97 3,819,424
Options and warrants not reacquired 422,145
----------
Total 4,241,569
Fully diluted EPS 372,331/4,241,569 = $0.0878
= $ 0.09
<PAGE>
TRANS GLOBAL SERVICES, INC. and SUBSIDIARIES
EXHIBIT 11.1 -Computation of Earnings per Share
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE 3
Primary Earnings per share - 6 Months
June 30, 1997
<S> <C> <C>
Weighted average # of shares o/s 06/30/97 3,819,424
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan-employees 218,333
Options pursuant to 1995 Stock Incentive Plan- directors 2/96 2,500
Options pursuant to 1995 Stock Incentive Plan- directors 2/97 1,666
Series A and other Warrants 124,933
Series D Warrants 816,666
SMACS Options 3,000
Options pursuant to 1993 option plan 18,991
Total issuable 1,186,089
Total that can be reacquired:
(3,819,424 x20%) 763,884
Issued not reacquired 422,205
Proceeds Price # of Shares
Options pursuant to 1995 Stock Incentive Plan
-employees $ 6.750 218,333 1,473,748
Options pursuant to 1995 Stock Incentive Plan
-directors 2/96 $ 6.186 2,500 15,465
Options pursuant to 1995 Stock Incentive Plan
-directors 2/97 $11.250 1,666 18,743
Series A and other Warrants Various 124,933 3,607,134
Series D Warrants $ 7.500 816,666 6,124,995
SMACS Options $ 3.000 3,000 9,000
Options pursuant to 1993 option plan $13.500 18,991 256,379
---------
11,505,464
Limitation
763,884 shares x 7.335 (avg FMV) 5,603,089
---------
Total proceeds remaining to retire debt 5,902,375
Outstanding short-term debt 7,072,159
- -A/P and accrued expenses 511,498
- -Accrued payroll and related taxes and expenses 2,263,296
- -Note payable (Gov't printing office) 138,230
Other Liabilities 4,159,135
Litigation settlement 66,667
---------
Remaining proceeds for cash 1,676,573
<PAGE>
TRANS GLOBAL SERVICES, INC. and SUBSIDIARIES
EXHIBIT 11.1 Computation of Earnings per Share
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE 3 [Continued]
<S> <C> <C> <C>
Net income effects of debt retirement: at 03/31/97
Interest expense per P&L =382,865 for 6 months
retired 3/31/97 = net interest expense 191,432
Remaining proceeds for cash 1,676,573
Cash invested in money market fund @ 2.5% interest for 3 months
1,676,573 @2.5%/4 10,479
P&L impact
Reduction of interst expense 191,432
Additional interest income 10,479
-------
201,911
Weighted average # of shares o/s 06/30/97 3,819,424
Options and warrants not reacquired 422,205
---------
Total 4,241,629
June 30,1997 6 month Net income per F/S 158,250
Adjustment per modified treasury stock method 201,911
-------
Adjusted net earnings 360,161
Primary EPS 360,161/4,241,629 = 0.084911
$0.08
<PAGE>
TRANS GLOBAL SERVICES, INC. and SUBSIDIARIES
EXHIBIT 11.1
<S> <C> <C> <C>
SCHEDULE 4
Fully Diluted Earnings per share - 6 Months
June 30, 1997
Weighted average # of shares o/s 06/30/97 3,819,424
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan-employees 218,333
Options pursuant to 1995 Stock Incentive Plan-directors 2,500
Options pursuant to 1995 Stock Incentive Plan-directors 1,666
Series A and other Warrants 124,933
Series D Warrants 816,666
SMACS options 3,000
Options pursuant to 1993 option plan 18,991
Total issuable 1,186,089
Total that can be reacquired:
(3,819,424 x 20%) 763,884
Issued not reacquired 422,205
Proceeds Price # of Shares
Options pursuant to
1995 Stock Incentive Plan - employees $ 6.750 218,333 1,473,748
Options pursuant to
1995 Stock Incentive Plan - directors $ 6.186 2,500 15,465
Options pursuant to
1995 Stock Incentive Plan - $11.250 1,666 18,743
Series A and other Warrants Various 124,933 3,607,134
Series D Warrants $ 7.500 816,666 6,124,995
SMACS Options $ 3.000 3,000 9,000
Options pursuant to 1993 option plan $13.500 18,991 256,379
----------
11,505,464
Limitation
763,884, shares x 1.6875 (FMV at 06/30/97) 1,289,054
Total proceeds remaining to retire debt 10,216,410
Outstanding short-term debt 7,072,159
- -A/P and accrued expenses 511,498
- -Accrued payroll and related taxes and expenses 2,263,296
- -Note payable (Gov't Printing Office) 138,230
---------
4,159,135
Other Liabilities
Litigation Settlement 66,667
Remaining proceeds for cash 5,990,608
Net income effects of debt retirement: at 3/31/97
Interest expense per P&L= 382,865 for six months
retired 3/31/97= net interest expense 191,432
Cash invested in money market fund @ 2.5% interest for 1.5 months
5,990,608 @ 2.5%/4 = 37,441
<PAGE>
TRANS GLOBAL SERVICES, INC. and SUBSIDIARIES
EXHIBIT 11.1 Computation of Earnings per Share
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE 4 [Continued]
<S> <C>
P&L impact
Net income per F/S 158,250
Reduction of interest expense 191,432
Additional interest income 37,441
------
Adjusted net income 387,123
Weighted average # of shares o/s 06/30/97 3,819,424
Options and warrants not reacquired 422,205
----------
Total 4,241,629
Fully diluted EPS 387,123/4,241,629 = $0.09
</TABLE>
<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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 338,956
<SECURITIES> 0
<RECEIVABLES> 5,964,303
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,472,861
<PP&E> 159,213
<DEPRECIATION> 20,341
<TOTAL-ASSETS> 14,202,470
<CURRENT-LIABILITIES> 7,072,159
<BONDS> 0
<COMMON> 38,197
0
0
<OTHER-SE> 7,025,447
<TOTAL-LIABILITY-AND-EQUITY> 14,202,470
<SALES> 38,890,217
<TOTAL-REVENUES> 38,890,217
<CGS> 35,869,085
<TOTAL-COSTS> 35,869,085
<OTHER-EXPENSES> 2,542,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (382,865)
<INCOME-PRETAX> 158,250
<INCOME-TAX> 0
<INCOME-CONTINUING> 158,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,250
<EPS-PRIMARY> .04
<EPS-DILUTED> .00
</TABLE>
