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, 1999 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 May 1,1999: 2,669,716
<PAGE> 2
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
INDEX
Part 1 - Financial Information:
Item 1. Financial Statements: Page No.
---------
Balance Sheets as of March 31, 1999 and December 31, 1998. 3-4
Consolidated Statements of Operations-
Three Months Ended March 31, 1999 and March 31, 1998. 5
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1999 and March 31, 1998. 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. Reports on Form 8-K 11
<PAGE> 3
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31 December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ 450,922 $ 234,917
Accounts Receivable- Net of allowance 3,577,542 3,922,843
for doubtful accounts of $62,500
Loans Receivable-Officer 5,000 5,000
Tax Refund Receivable 323,451 -0-
Deferred Tax Asset -Current Portion 144,000 144,000
Deferred Loan Costs 66,816 82,266
Prepaid Expenses and Other Current Assets 163,189 214,323
--------- ---------
Total Current Assets 4,730,920 4,603,349
--------- ---------
Property and Equipment-Net 178,316 171,123
--------- ---------
Other Assets:
Due from Affiliates 1,582,462 1,615,035
Customer Lists 2,332,369 2,388,607
Goodwill, Net 714,824 726,968
Deferred Acquisition Costs 276,660 235,560
Deferred Tax Asset-Non Current 578,000 578,000
Other Assets 41,028 41,407
Investment in Preferred Stock of Affiliate 2,240,730 2,237,230
--------- ---------
Total Other Assets 7,766,073 7,822,807
--------- ---------
Total Assets $ 12,675,309 $ 12,597,279
========== ==========
See notes to consolidated financial statements
</TABLE>
<PAGE> 4
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and Accrued Expenses $ 181,070 $ 314,625
Accrued Income Taxes Payable 13,496 13,496
Accrued Payroll and Related Taxes and Expenses 1,706,502 528,574
Loans Payable, Asset-based lender 1,862,955 2,647,244
Note Payable- Other 84,269 126,767
Total Current Liabilities 3,848,292 3,630,706
Commitments and contingencies [4] -- --
-------------- --------------
Stockholders' Equity:
Common Stock, $.01 Par Value, 25,000,000
Shares Authorized, Issued and Outstanding
3,819,716 38,197 38,197
Capital in Excess of Par Value 12,887,851 12,887,851
Accumulated Deficit (4,099,031) (3,959,475)
---------- ----------
Total Stockholders' Equity 8,827,017 8,966,573
Total Liabilities and Stockholders' Equity $ 12,675,309 $ 12,597,279
========== ==========
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,
1999 1998
<S> <C> <C>
Revenue $ 11,218,307 $18,488,508
Cost of Services Provided 10,492,497 17,024,711
---------- ----------
Gross Profit 725,810 1,463,797
Selling, General and Administrative 763,750 1,272,176
Related Party Administrative Expenses -0- 40,000
Amortization of Intangibles 68,382 68,387
--------- ---------
Total Operating Expenses 832,132 1,380,563
Operating (Loss)Profit (106,322) 83,234
Other Income (Expenses):
Interest Expense ( 65,711) (183,329)
Related Party-Interest Income 30,417 32,500
Other Income (Expenses) 2,061 ( 16,940)
-------- --------
Total Other Expenses- Net ( 33,233) (167,769)
--------- ---------
Net Loss $ ( 139,555) $ ( 84,535)
=========== ===========
Basic Loss Per Share:
Net Loss $ ( .04) $ ( .02)
-------- --------
Weighted Average Number of Shares 3,819,716 3,819,716
Diluted Loss Per Share:
Incremental Shares from Assumed Conversion
of Options and Warrants 2,662 65,461
-------- ---------
Weighted Average Number of Shares
Assuming Dilution 3,822,378 3,885,177
Diluted Loss Per Share:
Net Loss $ ( .04) $ ( .02)
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------------------------
<TABLE> Three Months Ended
<CAPTION> March 31,
1 9 9 9 1 9 9 8
<S> <C> <C>
Operating Activities:
Net Income (Loss) $ ( 139,555) $ ( 84,535)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided By (Used in)
Operations:
Depreciation and Amortization 100,552 86,358
Charges from Option Exercise -0- 40,650
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Assets:
Accounts Receivable-Net 345,301 (932,514)
Tax Refund Receivable (323,451) -0-
Prepaid Expenses and Other
Current Assets 51,134 ( 8,842)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued
Expenses (133,555) ( 65,428)
Accrued Payroll and Related
Taxes and Expenses 1,177,928 1,206,455
Accrued Income Taxes Payable -0- ( 76,537)
Accrued Voluntary Settlement Agreement -0- ( 50,000)
--------- ---------
Total Adjustments 1,217,909 200,322
--------- --------
Net Cash - Operating Activities 1,078,354 115,787
--------- ---------
Forward
See notes to consolidated financial statements
</TABLE>
<PAGE> 7
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION> Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Net Cash -
Operating Activities Forwarded $ 1,078,354 $ 115,787
Investing Activities:
Capital Expenditures ( 23,914) ( 14,669)
Deferred Acquisition Costs ( 41,100) -0-
Repayments from Affiliates 32,573 -0-
Interest on Advances to Affiliates -0- ( 23,344)
Other, net 379 2,604
Investment in Preferred Stock
of Affiliate ( 3,500) -0-
--------- --------
Net Cash - Investing Activities ( 35,562) ( 35,409)
Financing Activities:
Net Payments to
Asset-Based Lender ( 784,289) ( 26,975)
Repayment of Note Payable ( 42,498) -0-
-------- ---------
Net Cash - Used in Financing Activities ( 826,787) ( 26,975)
Net Increase in Cash and
Cash Equivalents 216,005 53,403
Cash and Cash Equivalents
- Beginning of Year 234,917 328,484
Cash and Cash Equivalents
- March 31 $ 450,922 $ 381,887
=========== ===========
Supplemental Disclosures of Cash
Flow Information:
Interest $ 65,711 $ 183,329
Income Taxes $ -0- $ 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. ("the Company or Trans Global"), a Delaware
corporation, operates through two subsidiaries, Avionics Research Holdings,
Inc., formerly known as ARC Acquisition Group, Inc.["Holdings"] and Resource
Management International,Inc. ["RMI"]. The Company is engaged in providing
technical temporary staffing services throughout the United States, principally
in the aerospace and aircraft industry.
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, 1999 and
the results of its operations for the three months ended March 31, 1999 and
1998. 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,
1998. The results of operations for the three months ended March 31, 1999 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, 1998.
[3] Subsequent Events
Pursuant to the previously reported February 25, 1999 agreement between
Consolidated Technology Group Ltd. ("Consolidated"), SIS Capital Corp. ("SISC"),
a wholly-owned subsidiary of Consolidated, and the Company, on May 3, 1999,
Consolidated, through SISC, transferred 1,150,000 shares of the Company's common
stock to the Company in consideration of the cancellation of shares of
Consolidated's Series G 2% Cumulative Redeemable Preferred Stock owned by the
Company, including accrued dividends, and certain other obligations due to Trans
Global. The transfer of the 1,150,000 shares to the Company reduced
Consolidated's holdings in the Company to 379,994 shares, or approximately 14.2%
of its outstanding common stock. Prior to the transfer, Consolidated owned 40.1%
of the Company's outstanding common stock. The effect of this transaction is the
elimination of the investment in preferred stock of affiliate and the reduction
of the amount due from affiliates by $325,952, and a reduction of approximately
$2.5 million in stockholders' equity.
On May 3, 1999, the Company received the resignation of Mr. Donald Chaifetz as a
director. On May 7, 1999 Mr. Glen R. Charles was elected as a director of the
Company. Mr. Charles has been the Chief Financial Officer of the Company since
May 1995.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1999 and 1998
Revenue from technical temporary staffing services is based on the hourly cost
of payroll plus a percentage. The success of the Company's business is dependent
upon its ability to generate sufficient revenue to enable it to cover its fixed
costs and other operating expenses and to reduce its variable costs. 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 the
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 1999, Social Security taxes are payable on the first
$72,600 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's revenue is, derived principally from the aircraft and aerospace
industry. During the three month period ended March 31, 1999 (the "March 1999
Quarter")revenue was $11.2 million, a 39% decrease from the revenue earned in
the three month period ended March 31, 1998 (the "March 1998 Quarter"), which
was $18.5 million. The decrease in revenue can be attributed to the slowdown in
the aerospace industry, including the effects of reduced orders particularly
resulting from the unstable international economic conditions which have
affected that industry. These trends will impact the second quarter. During the
March 1999 and March 1998 Quarters approximately 67% and 81% respectively, of
revenue was generated from its five largest customers, which were the same both
quarters.
The Company's gross margins for the quarters ended March 31, 1999 and March 31,
1998 Quarters were 6.5% and 7.9% respectively. The reduced gross margin during
the current year is attributed to the reduction in business with some of the
Company's higher margin clients as well as a slight increase in the unemployment
experience ratings for the Company.
Selling, general and administrative expenses exclusive of related party
expenses, decreased by 40% in the March 1999 Quarter to $764,000 from $1.3
million for the March 1998 Quarter. Approximately $323,000, or 64% of the
decrease results from the Company's successful efforts in collecting contested
tax penalties which were paid in previous years to the IRS. There were no
related party expenses for the March 1999 Quarter compared to $40,000 during the
March 1998 Quarter due to the termination of the Company's management services
agreement with Consolidated Technology Group Ltd., effective April 30, 1998.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Interest expense during the three month period ended March 31, 1999 decreased by
64% compared to the three months ended March 31, 1998. This decrease is
primarily attributable to the lower financing rates payable through the
Company's credit facility with Citizens Credit and to a lesser extent by the
reduced borrowing reflecting a reduced level of revenue and accounts receivable.
As a result of the foregoing, the Company incurred a loss of approximately
$140,000, or $.04 per share, for the March 1999 Quarter, compared to a loss of
$85,000, or $.02 per share, for the March 31, 1998 Quarter.
Liquidity and Capital Resources
As of March 31, 1999, the Company had working capital of approximately $883,000
a decrease of $90,000 compared to the working capital available at December 31,
1998. The most significant current asset at March 31, 1999 was the Company's
accounts receivables, which was $3.6 million. These receivables were offset by
payroll and related expenses of $1.7 million and $1.9 million due to its
asset-based lender. 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 April 1999.
Pursuant to the previously reported February 25, 1999 agreement between
Consolidated Technology Group Ltd. ("Consolidated"), SIS Capital Corp. ("SISC"),
a wholly-owned subsidiary of Consolidated, and the Company, on May 3, 1999,
Consolidated, through SISC, transferred 1,150,000 shares of the Company's common
stock to the Company in consideration of the cancellation of shares of
Consolidated's Series G 2% Cumulative Redeemable Preferred Stock owned by the
Company, including accrued dividends, and certain other obligations due to Trans
Global.
The Company has relied primarily on its cash flow from operations and financing
from its asset-based lender to fund its operations. However, the Company must
still improve its working capital to provide certain benefits to employees. The
Company does not have any agreements with any other funding sources and its
business may be impaired if it does not maintain adequate financing.
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 critical computer software, particularly the software relating to
payroll, billing and other employee records, is presently Year 2000 compliant.
The Company is in the process of addressing other software utilized by the
Company to assure Year 2000 Compliance. Although the Company believes that it
will not incur significant expense 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 effect upon the Company.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking Statements
The 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.
In particular, statements in this Form 10-Q that state our intentions, beliefs,
expectations, strategies, predictions or any other statements relating to our
future activities or other future events or conditions are "forward-looking
statements." Forward- looking statements are subject to risks, uncertainties and
other factors, including, but not limited to, those identified under "Risk
Factors", those described in Management's Discussion and Analysis of Financial
Conditions and Results of Operations in the Company's Form 10-K for the year
ended December 31, 1998 , those described in Management's discussion and
Analysis of Financial Conditions and Results of Operations in this Form 10-Q,
and those described in any other filings by the Company with the Securities and
Exchange Commisssion, as well as general economic conditions, any one or more of
which could cause actual results to differ materially from those stated in such
statements.
Item 6. Reports on Form 8-K
Item 5. Other events - February 25, 1999
<PAGE> 12
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, 1999 Joseph G. Sicinski
(Chief Executive Officer)
------------------------
Date: May 13, 1999 Glen R. Charles
(Chief Financial Officer)
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 450,922
<SECURITIES> 0
<RECEIVABLES> 3,577,542
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,730,920
<PP&E> 711,655
<DEPRECIATION> 533,339
<TOTAL-ASSETS> 12,675,309
<CURRENT-LIABILITIES> 3,848,292
<BONDS> 0
<COMMON> 38,197
0
0
<OTHER-SE> 8,788,820
<TOTAL-LIABILITY-AND-EQUITY> 12,675,309
<SALES> 11,218,307
<TOTAL-REVENUES> 11,218,307
<CGS> 10,492,497
<TOTAL-COSTS> 10,492,497
<OTHER-EXPENSES> 799,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,711
<INCOME-PRETAX> (139,555)
<INCOME-TAX> 0
<INCOME-CONTINUING> (139,555)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,555)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
