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, 1998 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, 1998: 3,819,716
<PAGE> 2
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
INDEX
Part 1 - Financial Information:
Item 1. Financial Statements: Page No.
---------
Balance Sheets as of June 30, 1998 and December 31, 1997 3-4
Consolidated Statements of Operations-
Three and Six Months Ended June 30, 1998 and June 30, 1997 5
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1998 and June 30, 1997. 6-7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Part 11 Other Information
Item 6. Exhibit 11 Computation of Earnings per Share 12
<PAGE> 3
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30 December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ 326,403 $ 328,484
Accounts Receivable- Net 6,143,099 5,470,353
Loans Receivable-Officer 5,000 47,500
Deferred Tax Asset -Current Portion 177,000 177,000
Prepaid Expenses and Other Current Assets 357,607 176,353
--------- ---------
Total Current Assets 7,009,109 6,199,690
--------- ---------
Property and Equipment-Net 200,285 194,513
--------- ---------
Other Assets:
Due from Affiliates 1,600,698 1,675,955
Customer Lists 2,501,083 2,613,564
Goodwill, Net 751,256 775,545
Deferred Acquisition Costs 160,645 160,645
Deferred Tax Asset-Non Current 178,000 178,000
Other Assets 40,544 43,232
Investment in Preferred Stock of Affiliate 2,100,730 2,100,730
--------- ---------
Total Other Assets 7,332,956 7,547,671
--------- ---------
Total Assets $ 14,542,350 $ 13,941,874
========== ==========
See Notes to Financial Statements
</TABLE>
<PAGE> 4
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1998 December 31,1997
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and Accrued Expenses $ 280,624 $ 591,614
Accrued Income Taxes Payable -0- 76,357
Accrued Payroll and Related Taxes and
Expenses 2,221,797 1,416,134
Voluntary Settlement Agreement -0- 150,000
Loans Payable 3,658,239 3,570,828
Note Payable- Other 138,230 138,230
--------- ---------
Total Current Liabilities 6,298,890 5,943,163
--------- ---------
Commitments and contingencies [4] -- --
--------- --------
Stockholders' Equity:
Common Stock, $.01 Par Value, 50,000,000
Shares Authorized, Issued and
Outstanding [3,819,716- June 30,1998
and December 31, 1997] 38,197 38,197
Capital in Excess of Par Value 12,887,851 12,887,851
Deferred Consulting Fees ( 81,301) (162,601)
Accumulated Deficit (4,601,287) (4,764,736)
----------- ----------
Total Stockholders' Equity 8,243,460 7,998,711
Total Liabilities and
Stockholders Equity $ 14,542,350 $ 13,941,874
========== ==========
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
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 18,682,293 $ 19,640,793 $ 37,170,801 $ 38,890,217
Cost of Services Provided 17,050,515 18,036,842 34,075,226 35,869,085
---------- ---------- ---------- ----------
Gross Profit 1,631,778 1,603,951 3,095,575 3,021,132
Selling, General and Administrative 1,123,449 1,067,307 2,395,625 2,285,328
Related Party Administrative Expenses 45,000 30,000 85,000 60,000
Amortization of Intangibles 68,386 83,421 136,773 197,221
--------- --------- ----------- ----------
Total Operating Expenses 1,236,835 1,180,728 2,617,398 2,542,549
Operating Profit 394,943 423,223 478,177 478,583
Other Income (Expenses):
Interest Expense (150,211) (197,070) ( 333,540) ( 382,865)
Other Income 3,249 28,922 18,809 62,532
-------- -------- ----------- ----------
Total Other Expenses- Net (146,962) (168,148) ( 314,731) ( 320,333)
--------- --------- ---------- ----------
Net Income $ 247,981 $ 255,075 $ 163,446 $ 158,250
========== ========= =========== ============
Basic Income Per Share:
Net Income $ .07 $ .07 $ .04 $ .04
-------- -------- ---------- ----------
Weighted Average Number of Shares 3,819,716 3,819,716 3,819,716 3,819,424
Diluted Income Per Share:
Incremental Shares from Assumed Conversion
of Options and Warrants 16,239 -0- 44,308 -0-
-------- -------- -------- ---------
Weighted Average Number of Shares
Assuming Dilution 3,835,955 3,819,716 3,864,024 3,819,424
Diluted Income Per Share:
Net Income $ .06 $ .07 $ .04 $ .04
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,
1998 1997
<S> <C> <C>
Operating Activities:
Income from Continuing Operations $ 163,446 $ 158,250
Adjustments to Reconcile Net Loss
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 174,075 217,562
Charges from Option Exercise 81,300 70,436
Change in Assets and Liabilities:
(Increase) Decrease in Assets:
Receivables (672,746) (774,247)
Loans Receivable - Officer 42,500 ( 5,000)
Prepaid Expenses and Other Current Assets (181,254) 107,972
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses (310,990) 228,142
Accrued Payroll and Related Taxes and Expenses 805,663 479,235
Accrued Payroll Tax Penalties -0- 87,102
Accrued Income Taxes Payable ( 76,357) -0-
Accrued Voluntary Settlement Agreement (150,000) (50,000)
--------- ---------
Total Adjustments (287,809) 361,202
--------- ----------
Net Cash(Used in)Provided by Operating
Activities (124,363) 519,452
</TABLE>
<PAGE> 7
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) CONTINUED
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1998 1997
<S> <C> <C>
Net Cash - (Used in)Provided by
Operating Activities Forwarded $ (124,363) $ 519,452
Investing Activities:
Capital Expenditures ( 43,074) (105,039)
Repayments from (Advances
to) Affiliates 75,257 (110,974)
Other, net 2,688 ( 16,864)
---------- ---------
Net Cash - Provided by(Used in)
Investing Activities 34,871 (232,877)
----------- ---------
Financing Activities:
Net Advances from Asset-Based Lender 87,411 120,825
Deferred Offering -- (133,175)
Exercise of Stock Options -- 8,500
--------- ----------
Net Cash - Provided by(Used in) Financing
Activities 87,411 ( 3,850)
Net(Decrease) Increase in Cash and Cash Equivalents ( 2,081) 282,725
Cash and Cash Equivalents - Beginning of Year 328,484 56,231
Cash and Cash Equivalents - End of Year $ 326,403 $ 338,956
============ ============
Supplemental Disclosures of Cash
Flow Information:
Cash Paid For:
Interest $ 333,540 $ 382,865
Income Taxes $ 76,357 $
See notes to consolidated financial statements
</TABLE>
<PAGE> 8
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"], 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, 1998 and
December 31, 1997 and the results of its operations for the three and six months
ended June 30, 1998 and 1997. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
together with management'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, 1997. The results of operations for the three and six months ended
June 30,1998 are not necessarily indicative of the results for the entire year
or any future interim period.
(2) Summary of Significant Accounting Policies
The accounting policies followed by the Company are set forth in Note 2 to the
Company's consolidated financial statements included in the Company's Form 10-K
for the year ended December 31, 1997.
[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, 1998 and December 31, 1997. On April 28, 1998 the Company entered into
a two year revolving credit agreement with Citizens Business Credit Company, a
division of Citizen's Leasing Corporation ("Citizens")and paid the balance due
to its prior asset-based lender. Pursuant to the credit agreement with Citizens,
the Company can borrow up to 85% of its qualified accounts receivables at an
interest rate of prime plus 3/4% with a maximum availability of $7.5 million.
Citizens has a security interest in all accounts receivables, contract rights,
personal property, fixtures and inventory of the Company. At June 30, 1998 and
December 31, 1997 the total amount advanced by Citizens or the Company's prior
asset-based lender was $3,658,239 and $3,570,828 respectively. The interest rate
on this short-term borrowing as of June 30, 1998 was 9.25% and at December 31,
1997 was approximately 10.50%.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended June 30, 1998 and 1997
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 is 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 1998,
Social Security taxes are payable on the first $68,400 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 revenue of approximately $18.7 million for the three months
ended June 30, 1998 which reflects a decrease of 5% over the same period a year
ago, however, the gross margin increased over the same period. The gross margin
increased to 8.7% for the three months ended June 30, 1998 compared to 8.2% for
the three months ended June 30, 1997. This represents the Company's continued
efforts to trim those sales that generate lower gross margins. During the three
month periods for those respective years approximately 84% and 81% of the
revenue was generated from its five largest customers, Boeing Corp.,
Northrop-Grumman, Lockheed-Martin, Bell Helicopter, and Gulfstream Aerospace.
These same clients accounted for 65% and 78% of the total outstanding accounts
receivable at June 30, 1998 and 1997 respectively.
Selling, general and administrative expenses increased by $56,000 or 5% during
the 3 month period ended June 30, 1998 compared to the same period a year
earlier. Related party administrative expenses increased by $15,000 or 50% due
to the new contract entered into with SIS Capital in February 1998. Amortization
of intangibles decreased by $15,035 or 18% during the quarter ended June 30,
1998 compared to the quarter ended June 30, 1997 due to certain intangible
assets related to Avionics Research Holdings having been fully amortized in
1997.
On April 23, 1998, the Company entered into a two year revolving credit
agreement with Citizens Business Credit Company, a division of Citizen's Leasing
Corporation ("Citizens"). Pursuant to the credit agreement, the Company can
borrow up to 85% of its qualified accounts receivables at an interest rate of
prime plus 3/4% with a maximum availability of $7.5 million. The Company
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued]
terminated its lending agreement with its previous lender. The Company
anticipates that the credit agreement with Citizens will enable it to
significantly reduce its interest costs which is relfected in a 23.9% decline in
interest expense on a relatively constant level of average borrowings.
As a result of the foregoing, the Company earned $247,981, or $.07, per share
for the three months ended June 30, 1998 compared to net income of $255,075, or
$.07, per share, for the three months ended June 30, 1997.
Liquidity and Capital Resources
As of June 30, 1998, the Company had working capital of approximately $710,000,
an increase of $1,309,000 from the working capital deficit it had as of June 30,
1997. The most significant current asset at June 30, 1998 is the Company's
accounts receivables, which was $6.1 million. These receivables were offset by
payroll and related expenses of $2.2 million and $3.7 million due to Citizens.
The payroll and related taxes and expenses relate primarily to compensation to
the Company's contract employees and related taxes, which were paid during the
first week of July 1998.
During 1997 and the first six months of 1998, the Company has relied primarily
on its cash flow from operations and financing from its prior asset-based lender
and from Citizens to fund its operations. However, the Company believes that
unless the Company can improve its working capital, it may be unable to either
increase its revenue from certain major clients or attract other clients that
require the Company to have greater working capital.
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 alleged unauthorized work on two programs. Although the Company
believes these claims are without merit and intends to contest these claims
vigorously if reasserted, it believes that the ultimate disposition of the
matter will not have a material adverse affect on the Company's consolidated
financial position.
Six Months Ended June 30, 1998 and 1997
The Company had revenues of $37.2 million for the six months ended June 30, 1998
reflecting a 4% decrease from the revenues of $38.9 million for the same period
a year earlier. This decrease can be attributed to the Company's efforts during
this period to discontinue those sales that generate lower gross margins as
reflected in the increased gross margin of 8.3% during the six months ended June
30, 1998 compared to 7.8% during the six months ended June 30, 1997.
The Company has been able to maintain a relatively stable level of selling,
general and administrative expenses for the comparable periods.
Interest expense for the Company decreased by 13% in the current six month
period as compared to the six month period ending June 30, 1997. This reduction
is directly attributable to the new two year revolving credit agreement
management was able to put in place with Citizens Business Credit on April 23,
1998. The Company is presently able to borrow funds at an interest rate of 3/4%
over prime compared to 2% over prime as charged by the Company's previous
lender. The fees charged by Citizens are also significantly lower than those
charged by the previous lender. The Company expects greater savings in
subsequent periods when the new lender has been in place for the complete
period.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued]
As a result of the foregoing, the Company earned $163,446 or $.04 per share, for
the six month period ending June 30, 1998, compared to $158,250, or $.04 per
share, for the six months ended June 30, 1997, This increase can be attributed
to the increased gross margin on revenues and the reduction of interest expense
for the respective periods.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year in a date
field. These programs were designed and developed without considering the impact
of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. This
issue is referred to as the "Year 2000 issue". A significant portion of the
Company's computer software, particularly the software relating to payroll and
other employee records, is performed for the Company by an outside service
company which has advised the Company that it will be year 2000 compliant. The
Company is in the process of evaluating the potential cost to it in addressing
the Year 2000 issue with respect to its other software and the potential
consequences of an incomplete or untimely resolution of the Year 2000 issue.
Although the Company believes that it will not incur significant expenses to
become Year 2000 compliant, no assurance can be given that the Company will not
incur significant cost in addressing the Year 2000 issue or that the failure to
adequately address the Year 2000 issue will not have a material adverse effect
upon the Company.
Forward Looking Statements
Statements in this Form 10-Q that are not descriptions of historical facts may
be forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified in this Form 10-Q, the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 and in other
documents filed by the Company with the Securities and Exchange Commission.
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
EXHIBIT 11.1- Computation of Earnings per Share
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Trans Global Services, Inc.
(Registrant)
-------------------------
Date: August 13 ,1998 Joseph G. Sicinski
(Chief Executive Officer)
------------------------
Date: August 13 ,1998 Glen R. Charles
(Chief Financial Officer)
<PAGE> 14
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1- Computation of Earnings per Share
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30
1998 1997 1998 1997
Net Income 247,981 255,075 163,446 158,250
Weighted Average Number of
Shares Outstanding 3,819,716 3,819,716 3,819,716 3,819,424
Dilutive effect of stock
options and warrants computed
by use of treasury stock method 16,239 0 44,308 0
Weighted Average Number of
Shares Outstanding Assuming Dilution 3,835,955 3,819,716 3,864,024 3,819,424
--------- ---------- --------- ---------
Computation of Earnings Per
Share=Net Income/Average
common and common share
equivalent shares
outstanding
Basic Earnings Per Share $ .07 $ .07 $ .04 $ .04
----------- ------------ ----------- ----------
Diluted Earnings Per Share $ .06 $ .07 $ .04 $ .04
</TABLE>
<TABLE> <S> <C>
<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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 326,403
<SECURITIES> 0
<RECEIVABLES> 6,143,099
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,009,109
<PP&E> 675,509
<DEPRECIATION> 475,224
<TOTAL-ASSETS> 14,542,350
<CURRENT-LIABILITIES> 6,298,890
<BONDS> 0
<COMMON> 38,197
0
0
<OTHER-SE> 8,205,263
<TOTAL-LIABILITY-AND-EQUITY> 14,542,350
<SALES> 37,170,801
<TOTAL-REVENUES> 37,170,801
<CGS> 34,075,226
<TOTAL-COSTS> 34,075,226
<OTHER-EXPENSES> 2,598,587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333,540
<INCOME-PRETAX> 163,446
<INCOME-TAX> 0
<INCOME-CONTINUING> 163,446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163,446
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
