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 March 31, 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)
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 May 1, 1997:22,918,331
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
INDEX
Part 1 - Financial Information:
Item 1. Financial Statements: Page No.
---------
Balance Sheets as of March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations-
Three Months Ended March 31, 1997 and March 31, 1996 4
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1997 and March 31, 1996. 5-6
Consolidated Statement of Stockholders' Equity-
Three Months Ended March 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>
March 31 December 31,
1997 1996
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ 477,754 $ 56,231
Accounts Receivable- Net 5,689,314 5,190,056
Loans Receivable-Officer 47,500 42,500
Prepaid Expenses and Other Current Assets 174,416 230,074
--------- ---------
Total Current Assets 6,388,984 5,518,861
--------- ---------
Property and Equipment-Net 83,475 74,581
--------- ---------
Other Assets:
Due from Affiliates 1,627,380 1,508,502
Customer Lists 2,782,293 2,838,535
Goodwill, Net 811,980 824,125
Covenant Not-to-Compete, Net 15,018 60,381
Deferred Offering Costs 266,451 151,307
Other Assets 41,283 22,958
Investment in Preferred Stock of Affiliate 2,100,730 2,100,730
--------- ---------
Total Other Assets 7,645,135 7,506,538
--------- ---------
Total Assets $ 14,117,594 $ 13,099,980
========== ==========
See Notes to Financial Statements
</TABLE>
<PAGE> 4
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED
Balance Sheets
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997 December 31,1996
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and Accrued Expenses $ 497,836 $ 283,356
Accrued Payroll and Related Taxes and
Expenses 2,693,046 1,784,061
Accrued Payroll Tax Penalties 160,424 77,000
Loans Payable, Asset-Based Lender 3,554,707 3,690,875
Note Payable- Other 138,230 138,230
Current Portion of Obligation -
Voluntary Settlement Agreement 183,333 300,000
--------- ---------
Total Current Liabilities 7,227,576 6,273,522
--------- ---------
Other Liabilities:
Voluntary Settlement Agreement Obligation 116,667 -0-
--------- --------
Stockholders' Equity:
Common Stock, $.01 Par Value, 50,000,000
Shares Authorized, Issued and
Outstanding [22,918,331- March 31,1997
22,901,331- December 31, 1996] 229,184 229,014
Capital in Excess of Par Value 12,696,864 12,688,534
Deferred Consulting Fees (268,255) (303,473)
Accumulated Deficit (5,884,442) (5,787,617)
----------- ----------
Total Stockholders' Equity 6,773,351 6,826,458
Total Liabilities and
Stockholders Equity $ 14,117,594 $ 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
March 31,
1997 1996
<S> <C> <C>
Revenues $ 19,249,424 $ 13,471,338
Cost of Services Provided 17,832,243 12,637,426
---------- ----------
Gross Profit 1,417,181 833,912
Selling, General and Administrative 1,218,021 1,176,071
Related Party Administrative Expenses 30,000 30,000
Amortization of Intangibles 113,800 113,800
--------- ---------
Total Operating Expenses 1,361,821 1,319,871
Operating Profit (Loss) 55,360 (485,959)
Other Income (Expenses):
Interest Expense (185,795) (159,088)
Other Income 33,610 18,462
-------- --------
Total Other Expenses- Net (152,185) (140,626)
--------- ---------
Net Loss $ ( 96,825) $ (626,585)
Net Loss Per Share of Common Stock $ .00 $ ( .10)
-------- --------
Weighted Average Number of Shares
of Common Stock 22,914,742 6,179,535
=========== =========
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss from Continuing Operations $ ( 96,825) $ (626,585)
Adjustments to Reconcile Net Loss
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 123,208 120,004
Charges from Option Exercise 35,218 79,836
Change in Assets and Liabilities:
(Increase) Decrease in Assets:
Receivables (499,258) ( 48,596)
Loans Receivable - Officer ( 5,000) -0-
Prepaid Expenses and Other Current Assets 55,658 ( 2,936)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 214,480 781,091
Accrued Payroll Taxes and Related Expenses 908,985 573,040
Accrued Payroll Tax Penalties 83,424 250,000
--------- ---------
Total Adjustments 916,715 1,752,439
--------- ---------
Net Cash Provided by Operating Activities 819,890 1,125,854
Cash Flows from Investing Activities:
Capital Expenditures ( 18,353) ( 18,692)
Net Advances to Affiliates (118,878) ( 69,509)
Other ( 18,324) 1,880
------- --------
Net Cash Used in Investing Activities $ (155,555) $( 86,321)
Cash Flows from Financing Activities:
Net Payments to Asset-Based Lender $ (136,168) $(1,037,123)
Repayment of Subordinated Debt -0- ( 300,000)
Net Advances from Affiliates -0- 80,203
Issuance of Common Stock -0- 375,000
Exercise of Stock Options 8,500 -0-
Deferred Offering Costs ( 115,144) -0-
---------- ---------
Net Cash Used in Financing Activities ( 242,812) ( 881,920)
<PAGE> 7
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) [Continued]
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
Ended March 31,
1997 1996
<S> <C> <C>
Net Increase in Cash and Cash Equivalents 421,523 157,613
Cash and Cash Equivalents at Beginning of Period 56,231 210,597
---------- --------
Cash and Cash Equivalents at End of Period $ 477,754 $ 368,210
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest 185,795 159,088
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 Three Months Ended March 31, 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
---------- -------
Balance - March 31, 1997 22,918,331 229,184
========== =======
Capital in Excess of Par Value
Balance- December 31, 1996 12,688,534
Exercise of Stock Options 8,330
Balance - March 31, 1997 $12,696,864
===========
Accumulated (deficit)
Balance December 31, 1996 $(5,787,617)
Net loss ( 96,825)
------------
Balance- March 31, 1997 $(5,884,442)
Deferred Charges
Balance December 31, 1996 $ (303,473)
Amortization of deferred consulting costs 35,218
-------
Balance- March 31,1997 $ (268,255)
========
Total Stockholders' Equity
Balance December 31, 1996 $ 6,826,458
Exercise of Stock Options 8,500
Amortization of deferred consulting cost 35,218
Net Loss (96,825)
---------
Balance- March 31, 1997 $ 6,773,351
==========
</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 March 31, 1997 and December 31, 1996 the results of its operations for
the three months ended March 31, 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 months ended March 31,1997 are not necessarily indicative of
the results for the entire for the 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 $133,000
and $173,000 of prepaid insurance at March 31,1997 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 $266,000
and $151,000 were incurred at March 31, 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 is 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.
Loss Per Share - Loss per share reflects the weighted average number of shares
outstanding for each period. The modified treasury stock method is used for
the three months ended March 31, 1997.
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 three month
period ending March 31, 1997. These same clients account for approximately
80% of the total outstanding accounts receivable as of March 31, 1997, as
well. The Company's largest clients are the Boeing Corporation, Northrop
Grumman, Lockheed Martin, Gulfstream Aerospace and Bell Helicopter Textron,
which account for 26.6%, 22.4%, 15%, 9.7% and 7.4% 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
March 31, 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 March 31, 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
March 31, 1997 and December 31, 1996 the total amount advanced by the asset-
based lender was $3,554,707 and $3,690,875 respectively. The weighted
average interest rate on this short-term borrowing outstanding as of March 31,
1997 and December 31, 1996 was approximately 10.33% 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 May 30, 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 March 31, 1997 approximately $600,000 remained on that balance,
which is to be paid in one monthly installment of $150,000 with the balance
to be paid in a second monthly installment. The Company has been granted an
additional extension with which to pay the complete balance in four monthly
installments. 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.
(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.
The Company is the guarantor of a note, of which $325,000 is outstanding at
March 31, 1997, issued by WWR to a non-affiliated lender.
(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.
There were no outstanding shares of any series of Preferred Stock at March
31, 1997.
Below Market Stock Options granted in 1996 were exercised as to 17,000 shares
during the three months ended March 31, 1997.
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 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.
The Company had revenues of $19.25 million for the three months ended March
31, 1997 reflecting a 43% increase from the revenues of $13.5 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 from one of the Company's larger clients. The
sales volume from that lost contract has been more than replaced by the first
quarter of 1997. During the three months ended March 31, 1997, approximately
81% of the Company's revenue was derived from its five largest clients. For
the three months ended March 31, 1997, the Company had a gross margin of 7.4%
as compared to 6.2% for the three months ended March 31, 1996. The increase
in margin reflects the Company's ability to provide personnel pursuant to new
contracts which have generated a higher gross margin.
Selling, general and administrative expenses were approximately $1.25 million
for the quarter ended March 31, 1997, reflecting a $42,000 or 3.5% increase
over the same period a year ago. The Company has been able to maintain a
relatively stable level of selling, general and administrative expenses
despite a significant increase in revenue.
<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 May 30, 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 March 31, 1997, such borrowings
from the asset-based lender were approximately $3.6 million. The interest
rates (exclusive of the fee) payable by the Company at March 31,1997 and 1996
were 10.5% and 10.25%, respectively. During the three months ended March 31,
1997, interest expense was $186,000, a 17.0% increase from $159,000 in the
1996 period as a result of increased borrowings and slightly higher interest
rates.
The Company has not provided for income taxes for the three months ended
March 31, 1997 and 1996 due to losses for the respective periods. Federal
and state tax benefits have not been recognized for the three months ended
March 31, 1997 and March 31, 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.
As a result of the foregoing, the Company sustained a loss of $97,000, or
less than $.01, per share, for the three months ended March 31, 1997 as
compared to a net loss of $681,000, or $.04 per share, for the three months
ended March 31, 1996. 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 when the expense is incurred although the
Company is paid by the client without regard to when payroll taxes are pay-
able 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. The Company
believes that with the increased revenues at higher gross margin levels 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.
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued]
Liquidity and Financial Position
As of March 31, 1997, the Company had a working capital deficit of
$955,000. This working capital deficiency reflects (a) $3.6 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 $500,000. 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 April 1997.
At March 31, 1997 the Company owed approximately $3.6 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 May 30, 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 and its subsidiaries have certain outstanding notes. One of these
notes, issued by WWR Technology, Inc. ("WWR") ( a former subsidiary of the
Company that has been subsequently sold to an affiliate), with an outstanding
principal amount of $325,000 at March 31, 1997, is guaranteed by certain
entities which are affiliated with a former director of the Company. The
Company and its principal stockholder have guaranteed these guarantee
obligations. The Company's obligation on its guarantee continues
notwithstanding the sale of WWR.
"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 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."
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 $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.
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued]
In August 1996, the Company entered into an agreement with the IRS to pay its
delinquent payroll taxes, interest and penalties. The Company paid $1.3
million and has agreed to pay the balance in eight equal monthly installments
of $150,000, commencing in September 1996, with the remaining balance of
$300,000 plus interest and penalties in May 1997. The Company has paid the
eight monthly installments of $150,000 and has been granted an additional
sixty days to pay the balance in two monthly installments of $150,000 with
the balance to be paid in July 1997. The IRS has agreed to subordinate its
lien to the lien of the Company's asset-based lender provided that the
Company is in compliance with current IRS regulations concerning the timely
deposit of Federal employment and withholding taxes. At May 1, 1997 the
Company owed the IRS approximately $300,000 plus interest and penalties
pursuant to its agreement with the IRS and the Company was current in its
withholding tax obligations.
<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: May 13 ,1997 Lewis S. Schiller
(Chief Executive Officer)
------------------------
Date: May 13 ,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
Ended Ended
March 31, 1997 March 31, 1996
Primary EPS Fully Diluted EPS
Net loss historical $ ( 96,825) $ (96,825) $ (626,585)
Adjustments per modified
treasury stock method 102,583 105,462
Adjusted net income, primary 5,758
Adjusted net income, fully
diluted 8,637
Loss per Share:
(Loss)per share - Note 1 $ 0.00 $ (1.48)
(Loss)per share - assuming
full dilution Note 2 $ 0.00 $ (0.49)
Note 1:
Computed by dividing the net loss by the weighted average number of common
shares outstanding (22,914,742 and 6,179,535) for the three months ended
March 31, 1997 and 1996, respectively, adjusting the number of shares and the
net loss for the 1997 period by items (i) to (v) below using the modified
treasury stock method of calculating earnings per share.
(i) Assumes that 1,335,000 1995 Stock Incentive Plan stock options
outstanding at March 31, 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
1,924,597 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.
(iii) Assumes common stock purchase warrants to purchase an aggregate of
4,900,000 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.
(vi) Assumes that stock options to purchase 18,000 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 113,950 1993 Stock Incentive Plan stock options
outstanding at March 31, 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 Schedule 1.
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1- Computation of Earnings per Share (cont'd)
Note 2:
Computed by dividing net loss by the weighted average number of common
shares (22,914,742 and 6,179,535) for the three months ended March 31, 1997
and 1996, respectively, adjusting the number of shares and the net loss for
the 1997 period by items (i) to (v) below using the modified treasury stock
method of calculating earnings per share.
(i) Assumes that 1,335,000 1995 Stock Incentive Plan stock options
outstanding at March 31, 1997 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 at March 31,
1997 as quoted on Nasdaq, retire debt and to invest the balance.
(ii) Assumes common stock purchase warrants to purchase and aggregate of
1,924,597 common shares were exercised at the beginning of the period
and that the proceeds were used to purchase treasury stock at the
market price of the Company's common stock at March 31, 1997 as quoted
on Nasdaq, retire debt and to invest the balance.
(iii) Assumes common stock purchase warrants to purchase an aggregate of
4,900,000 shares were exercised at the beginning of the period and
that the proceeds were used to purchase treasury stock at the market
price of the Company's common stock at March 31, 1997 as quoted on
Nasdaq, retire debt and to invest the balance.
(iv) Assumes that stock options to purchase 18,000 shares were exercised
at the beginning of the period and that the proceeds were used to
purchase treasury stock at the market price of the Company's common
stock at March 31, 1997 as quoted on Nasdaq, retire debt and to
invest the balance.
(v) Assumes that 113,950 1993 Stock Incentive Plan stock options out-
standing at March 31, 1997 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock
at the market price of the Company's common stock at March 31, 1997
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 Schedule 2.
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 - MARCH 31, 1997
<S> <C>
Weighted average # of shares o/s 03/31/97 22,914,742
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan - employees 1,310,000
Options pursuant to 1995 Stock Incentive Plan - dir. 2/96 15,000
Options pursuant to 1995 Stock Incentive Plan - dir. 2/97 10,000
Series A, B, C Warrants 1,924,597
Series D Warrants 4,900,000
SMACS options 18,000
Options pursuant to 1993 option plan 113,950
-------------
Total issuable 8,291,547
Total that can be reacquired:
(22,914,742 x 20%) 4,582,948
Issued not reacquired 3,708,599
Proceeds Price # of shares
<S> <C> <C> <C>
Options pursuant to 1995
Stock Incentive Plan - employees $ 1.125 1,310,000 1,473,750
Options pursuant to 1995
Stock Incentive Plan - dir. 2/96 $ 1.031 15,000 15,465
Options pursuant to 1995
Stock Incentive Plan - dir. 2/97 $ 1.875 10,000 18,750
Series A, B, C Warrants Various 1,924,597 9,704,939
Series D Warrants $ 1.250 4,900,000 6,125,000
SMACS Options $ 0.500 18,000 9,000
Options pursuant to 1993 option plan $ 2.250 113,950 256,388
--------
17,603,292
Limitation
4,582,948 shares x 1.701(avg FMV) 7,795,594
----------
Total proceeds remaining to retire debt 9,807,698
Outstanding short - term debt 7,227,576
- - A/P and accrued expenses (497,836)
- - Note payable (Gov't Printing Office) (138,230)
---------
6,591,510
Other Liabilities
- - Voluntary Settlement Agreement Obligation 116,667
-------
Remaining proceeds for cash 3,099,521
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - Computation of Earnings Per Share [Continued]
SCHEDULE 1- Primary Earnings Per Share - March 31, 1997 [Continued]
<TABLE>
<S> <C> <C>
Net income effects of debt retirement: at 02/14/97
Interest expense per P&L = 185,795 for 3 months
retired 2/14/97 = net interest expense 92,898
Cash invested in money market fund @ 2.5% interest for 1.5 months
3,099,521 @ 2.5% /8 = 9,686
P&L impact
Reduction of interest expense 92,897
Additional interest income 9,686
------
102,583
Weighted average # of shares o/s 03/31/97 22,914,742
Options and warrants not reacquired 3,708,599
----------
Total 26,623,341
==========
March 31, 1997 Net income per F/S ( 96,825)
Adjustment per modified treasury stock method 102,583
-------
Adjusted net loss 5,758
Primary EPS 5,758/26,623,341= $0.000216276387
$0.00
Total reacquired
<S> <C> <C> <C>
Options pursuant to
1995 Stock Incentive Plan - employees 1.701 1,310,000 2,228,310
Options pursuant to
1995 Stock Incentive Plan -directors 2/96 1.701 15,000 25,515
Options pursuant to
1995 Stock Incentive Plan -directors 2/97 1.701 10,000 17,010
Series A, B, C Warrants 1.701 1,924,597 3,273,739
Series D Warrants 1.701 4,900,000 8,334,900
SMACS Options 1.701 18,000 30,618
Options pursuant to 1993 option plan 1.701 113,950 193,829
----------
14,103,921
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 -Computation of Earnings Per Share [Continued]
<TABLE>
<CAPTION>
SCHEDULE 2
Fully Diluted Earnings Per Share - March 31, 1997
<S> <C>
Weighted average # of shares o/s 03/31/97 22,914,742
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan - employees 1,310,000
Options pursuant to 1995 Stock Incentive Plan - directors 15,000
Options pursuant to 1995 Stock Incentive Plan - directors 10,000
Series A, B, C Warrants 1,924,597
Series D Warrants 4,900,000
SMACS Options 18,000
Options pursuant to 1993 option plan 113,950
---------
Total issuable 8,291,547
Total that can be reacquired:
(22,914,742 x 20%) 4,582,948
Issued not reacquired 3,708,599
Proceeds Price # of shares
<S> <C> <C> <C>
Options pursuant to
1995 Stock Incentive Plan -employees $1.125 1,310,000 1,473,750
Options pursuant to
1995 Stock Incentive Plan-directors 2/96 $1.031 15,000 15,465
Optons pursuant to
1995 Stock Incentive Plan-directors 2/97 $1.875 10,000 18,750
Series A, B, C Warrants Various 1,924,597 9,704,939
Series D Warrants $1.250 4,900,000 6,125,000
SMACS options $0.500 18,000 9,000
Options pursuant to 1993 option plan $2.250 113,950 256,388
----------
17,603,292
Limitation
4,582,948 shares x1.50 (FMV at 03/31/97) 6,874,422
----------
Total proceeds remaining to retire debt 10,728,870
Outstanding short-term debt 7,227,576
- -A/P and accrued expenses (497,836)
- -Note payable (Gov't Printing Office) (138,230)
---------
6,591,510
Other Liabilities
Voluntary Settlement Agreement Obligation 116,667
Remaining proceeds for cash 4,020,693
Net income effects of debt retirement: at 2/14/97
Interest expense per P&L= 185,795 for three months
retired 2/14/97= net interest expense 92,898
Cash invested in money market fund @ 2.5% interest for 1.5 months
4,020,693 @ 2.5%/8= 12,565
<PAGE>
TRANS GLOBAL SERVICES, INC. and SUBSIDIARIES
EXHIBIT 11.1-Computation of Earnings Per Share [Continued]
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE 2 (Cont'd)
<S> <C>
P&L impact
Net loss per F/S (96,825)
Reduction of interest expense 92,897
Additional interest income 12,565
------
Adjusted net income 8,637
Weighted average # of shares o/s 03/31/97 22,914,742
Options and warrants not reacquired 3,708,599
----------
Total 26,623,341
Fully diluted EPS 8,637/26,623,341 = $0.0003
$0.00
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 477,754
<SECURITIES> 0
<RECEIVABLES> 5,689,314
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,388,984
<PP&E> 92,883
<DEPRECIATION> 9,408
<TOTAL-ASSETS> 14,117,594
<CURRENT-LIABILITIES> 7,227,576
<BONDS> 0
<COMMON> 229,184
0
0
<OTHER-SE> 6,544,167
<TOTAL-LIABILITY-AND-EQUITY> 14,117,594
<SALES> 19,249,424
<TOTAL-REVENUES> 19,249,424
<CGS> 17,832,243
<TOTAL-COSTS> 17,832,243
<OTHER-EXPENSES> 1,361,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,795
<INCOME-PRETAX> ( 96,825)
<INCOME-TAX> 0
<INCOME-CONTINUING> ( 96,825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 96,825)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
