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, 2000 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: (631) 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, 2000: 2,889,716
<PAGE> 2
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
INDEX
Part 1 - Financial Information:
Item 1. Financial Statements: Page No.
---------
Report of Independent Certified Public Accountants 3
Balance Sheets as of June 30, 2000 and December 31, 1999. 4-5
Consolidated Statements of Operations-
Three and Six Months Ended June 30, 2000 and June 30, 1999. 6
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 2000 and June 30, 1999. 7-9
Consolidated Statement of Stockholders' Equity - 10-11
Six Months Ended June 30, 2000
Notes to Consolidated Financial Statements 12-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
Part 11 Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
<PAGE> 3
To the Stockholders and Board of Directors of Trans Global Services, Inc.
Hauppauge, New York
We have reviewed the accompanying consolidated balance sheet of Trans Global
Services, Inc. and its subsidiaries as of June 30, 2000, and the related
consolidated statements of operations for the three and six month periods ended
June 30, 2000 and 1999, the related consolidated statement of stockholders'
equity for the six month period ended June 30, 2000 and the related consolidated
statements of cash flows for the six month periods ended June 30, 2000 and 1999.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended [ not presented herein]; and in our report dated
February 11, 2000, we expressed an unqualified opinion on those consolidated
financial statements.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
August 2, 2000
<PAGE> 4
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 35,279 $ 43,141
Accounts Receivable- Net of allowance
for doubtful accounts of $62,500 2,104,119 2,518,343
Notes Receivable- i-engineering.com, Inc. 312,389 -0-
Deferred Debt Issuance Costs - Current 139,000 -0-
Deferred Loan Costs 7,000 -0-
Prepaid Expenses and Other Current Assets 52,538 100,865
-------- ---------
Total Current Assets 2,650,325 2,662,349
Property and Equipment-Net 142,935 162,820
Other Assets:
Due from Arc Networks 993,926 1,171,673
Customer Lists 2,051,179 2,163,655
Goodwill, Net 654,104 678,392
Deferred Tax Asset-Non Current 490,000 490,000
Other Assets 38,145 36,373
Investment in i-engineering.com, Inc. 329,130 -0-
--------- ---------
Total Other Assets 4,556,484 4,540,093
--------- ---------
Total Assets $ 7,349,744 $ 7,365,262
============= ===========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 5
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and Accrued Expenses $ 194,123 $ 402,735
Accrued Payroll and Related Taxes and Expenses 628,708 359,295
Loans Payable, Asset-based lender 1,031,027 2,056,372
--------- ---------
Total Current Liabilities 1,853,858 2,818,402
Long-Term Debt 1,041,665 -0-
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.01 Par Value, 25,000,000
Shares Authorized. At December 31, 1999--
3,819,716 Shares Issued; 2,669,716 Outstanding
At June 30, 2000-- 4,089,716 Issued;
2,889,716 Outstanding
40,897 38,197
Capital in Excess of Par Value 13,499,281 12,887,851
Accumulated Deficit (6,444,275) ( 5,812,506)
----------- ------------
7,095,903 7,113,542
Less Treasury Stock, at cost
1,150,000 shares- 1999
1,200,000 shares- 2000 (2,641,682) (2,566,682)
----------- ------------
Total Stockholders' Equity 4,454,221 4,546,860
---------- -----------
Total Liabilities and Stockholders' Equity $ 7,349,744 $ 7,365,262
============ ===========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 6
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue $ 5,498,973 $ 9,477,423 $ 12,002,303 $ 20,695,730
Cost of Services Provided 4,918,659 8,719,853 10,775,978 19,212,350
---------- ---------- ---------- ----------
Gross Profit 580,314 757,570 1,226,325 1,483,380
Selling, General and Administrative 828,314 1,052,972 1,676,861 1,816,722
Amortization of Intangibles 68,382 68,382 136,764 136,764
--------- --------- ---------- ----------
Total Operating Expenses 896,696 1,121,354 1,813,625 1,953,486
Operating (Loss) ( 316,382) (363,784) ( 587,300) ( 470,106)
Other Income (Expenses):
Interest Expense ( 104,145) ( 63,326) ( 199,442) ( 129,037)
Interest Income 33,051 33,875 80,188 64,292
Other Income (Expense) 63,868 ( 42,133) 74,785 ( 40,073)
-------- -------- ---------- -----------
Total Other (Expenses)-Net ( 7,226) ( 71,584) ( 44,469) ( 104,818)
--------- --------- ---------- -----------
Net Loss $ ( 323,608) $ ( 435,368) $ ( 631,769) $( 574,924)
=========== =========== ============= ===========
Basic and Fully Diluted Loss Per Share $ ( .11) $ ( .14) $ ( .22) $( .17)
-------- -------- ------------ -----------
Weighted Average Number of Shares 2,889,716 3,048,837 2,869,936 3,432,147
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 7
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------------------------
<TABLE> Six Months Ended
<CAPTION> June 30,
2 0 0 0 1 9 9 9
<S> <C> <C>
Operating Activities:
Net (Loss) $ (631,769) $ ( 574,923)
Adjustments to Reconcile Net (Loss)
to Net Cash Provided By
Operations:
Depreciation and Amortization 173,096 202,490
Debt Issuance Costs 71,000 -0-
Changes in Operating Assets and Liabilities:
Decrease in Assets:
Accounts Receivable-Net 414,224 856,288
Prepaid Expenses and Other
Current Assets 48,327 130,831
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued
Expenses (208,612) (167,185)
Accrued Payroll and Related
Taxes and Expenses 269,413 786,155
--------- ---------
Total Adjustments 767,448 1,808,579
--------- --------
Net Cash - Operating Activities 135,679 1,233,656
--------- ---------
Forward
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 8
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION> Six Months Ended
June 30,
2000 1999
<S> <C> <C>
Net Cash -
Operating Activities Forwarded $ 135,679 $ 1,233,656
Investing Activities:
Capital Expenditures ( 16,447) ( 35,808)
Deferred Acquisition Costs -0- ( 43,938)
Repayments from Affiliates 177,747 54,273
Other, net ( 1,772) 4,444
Note Receivable ( 312,389) -0-
--------- ----------
Net Cash - Investing Activities ( 152,861) ( 21,029)
Financing Activities:
Net Payments to
Asset-Based Lender (1,025,345) ( 552,324)
Repayment of Note Payable -0- ( 84,999)
Deferred Loan Costs ( 7,000) -0-
Long Term Borrowings 1,041,665 -0-
---------- ---------
Net Cash - Financing Activities 9,320 ( 637,323)
---------- ----------
Net (Decrease) Increase in Cash ( 7,862) 571,804
Cash - Beginning of Year 43,141 234,917
---------- ----------
Cash - June 30 $ 35,279 $ 806,721
=========== ===========
Supplemental Disclosures of Cash
Flow Information:
Interest $ 157,777 $ 129,037
Income Taxes $ -0- $ -0-
</TABLE>
Supplementary Disclosure of Non Cash Investing and Financing Activities during
the six months ended June 30, 2000.
In connection with the $1,000,000 raised in January, 2000, from the sale of
subordinated notes due July 2001, the Company issued warrants to purchase
250,000 shares of the Company's common stock at $.35 per share to the investors.
In addition, the Company issued warrants to purchase 300,000 shares of the
Company's common stock at $.35 per share to the placement agent and 25,000
shares to a director for services relating to the financing. The Company
incurred a deferred charge of $210,000 which is being amortized over the maximum
life of the debt which is 18 months. This deferred charge has been credited to
capital in excess of par value.
See Notes to Consolidated Financial Statements
<PAGE> 9
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Continued
-----------------------------------------------------------------------------
Pursuant to an agreement with i-engineering.com, Inc., the Company (i) loaned
$500,000 to i-engineering.com, Inc. on a short-term basis, (ii) issued 270,000
shares of Common Stock to i-engineering.com, Inc. and (iii) acquired a minority
interest in i-engineering.com, Inc. The value of this interest was determined by
the market value of the Company's shares exchanged which was $331,830. At June
30, 2000 i-engineering.com has paid $200,000 of the loans and was in default
with respect to the remaining $300,000.
In February 2000, the Company extended the Arc Note until April 24, 2000. In
exchange for this extension, the Company received $15,000 to apply to those
expenses incurred by the Company for granting the extension and 50,000 shares of
the Company's common stock from a guarantor of the note.
See Notes to Consolidated Financial Statements
<PAGE> 10
Trans Global Services, Inc.
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Shares Amounts
<S> <C> <C>
Common Stock $.01 Par Value; Authorized
25,000,000 shares
Balance December 31, 1999 3,819,716 $38,197
Issuance of shares of Common Stock-
i-engineering.com, Inc. 270,000 2,700
---------- --------
Balance - June 30, 2000 4,089,716 $40,897
=======
Capital in Excess of Par Value
Balance - December 31, 1999 $12,887,851
Issuance of below market warrants 210,000
Issuance of shares of Common Stock-
i-engineering.com, Inc. 326,430
Purchase of Treasury Stock 75,000
----------
Balance - June 30, 2000 $13,499,281
===========
Accumulated Deficit
Balance - December 31, 1999 $(5,812,506)
Net (Loss) ( 631,769)
------------
Balance - June 30, 2000 $(6,444,275)
===========
Treasury Stock
Balance December 31, 1999 1,150,000 $(2,566,682)
Purchase of treasury stock - 2000 50,000 ( 75,000)
--------- -----------
Balance - June 30, 2000 1,200,000 $(2,641,682)
========= ============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 11
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION> AMOUNT
<S> <C>
Total Stockholders' Equity
Balance - December 31, 1999 $ 4,546,860
Issuance of Below Market Warrants 210,000
Issuance of shares of Common Stock -i-engineering.com, Inc. 329,130
Net loss for the six Months Ended June 30, 2000 ( 631,769)
-----------
Balance - June 30, 2000 $ 4,454,221
===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 12
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(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 June 30, 2000 and
the results of its operations for the three and six months ended June 30, 2000
and 1999. 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,
1999. The results of operations for the three and six months ended June 30, 2000
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, 1999.
(3) Transaction with - i-engineering.com, Inc.
Pursuant to an agreement with i-engineering.com, Inc., the Company (i) loaned
$500,000 to i-engineering.com on a short-term basis, (ii) issued 270,000 shares
of Common Stock to i-engineering.com and (iii) acquired an equity interest in
i-engineering.com. In connection with the agreement, the chief executive officer
of the Company was elected a director of i-engineering.com and the Company
agreed to include the chief executive officer of i-engineering.com as a nominee
for election as a director, and he was elected as a director at the Company's
2000 annual meeting. At June 30, 2000 i-engineering.com, Inc. has repaid
$200,000 of the short-term loan and is in default with respect to the remaining
$300,000. The Company has notified i-engineering.com, Inc., of the default.
(4) Loan Payable - Asset Based Lender
One June 7, 2000 the Company entered into a one year revolving credit agreement
with a bank. Pursuant to the credit agreement, the Company can borrow up to 85%
of its qualified accounts receivables at an interest rate of prime plus 2% with
a minimum monthly compensation of $12,000. The maximum availability on the
credit agreement is $2.5 million.
The Company terminated its agreement with its previous lender.
<PAGE> 13
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
(5) Long-Term Debt
In January, 2000 the Company raised $1 million through the issuance of 10%
subordinated promissory notes due July 2001 or earlier upon the Company's
receipt of payment of the note from Arc Networks, Inc., in the principal amount
of $994,000 as of June 30, 2000 (the "Arc Note"). In connection with the
subordinated notes, the Company issued warrants to purchase 550,000 shares of
the Company's common stock at $.35 per share to the investors, the placement
agent and others who assisted the Company in the financing, including a director
of the Company.
(6) Subsequent Event
In August 2000, the Company agreed to an extension of the maturity date of the
Arc Note from July 10, 2000 to September 10, 2000. As a condition to the
extension, Arc paid $50,000 on account of principal and interest of the Arc Note
and agreed to pay $15,000 on September 1, 2000 to reimburse the Company for its
expenses resulting from Arc's default under the Arc Note. The Company also
returned the warrants to purchase shares of the parent of Arc Networks that it
had received with the previous extension.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
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 2000, Social Security taxes are payable on the first
$76,200 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.
Three Months Ended June 30, 2000 and 1999
The Company's revenues, derived principally from the aircraft and aerospace
industry, during the three month period ended June 30, 2000 totaled $5.5
million. This reflected a decrease of 42% from the revenue earned in the three
month period ended June 30, 1999. Approximately 70% of the total revenue
generated by the Company for the three months ended June 30, 2000 was attributed
to its five largest customers, Lockheed-Martin, Bell Helicopter, Boeing,
Gulfstream and Cablevision. The overall decrease for the period is attributed to
the continuing delay of requests for personnel by the Company's multi-national
Fortune 500 clients its serves, principally in the aircraft and aerospace
industry.
The Company's gross margins for the quarters ended June 30, 2000 and June 30,
1999 were 10.6% and 8.0% respectively. The increased gross margin during the
current year is attributed to the reduction in business with some of the
Company's lower margin aircraft and aerospace clients combined with a slight
increase in revenue attributed to those clients in other industries.
Selling, general and administrative expenses decreased by $225,000, or 21.3%, to
$ 828,000 in the 2000 period. The decline reflects principally the effects of
our continued cost reduction program.
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations (Continued)
As a result of the decrease in revenue, the Company's gross profit was not
sufficient to cover its selling, general and administrative expenses, resulting
in an operating loss of $316,000 for the three months ended June 30, 2000, which
was $48,000 less than the operating loss for the three months ended June 30,
1999 as a result of the Company's cost reduction program.
Interest expense during the three month period ended June 30, 2000 increased by
$41,000 or 64.5% from the three months ended June 30, 1999. This increase is
attributable to the interest expense associated with funds raised in January
2000, as well as the amortization of debt finance costs associated with the
550,000 warrants issued in conjunction with the loan.
As a result of the foregoing, the Company incurred a loss of approximately
$324,000 or $.11 per share (basic and diluted), for the three months ended June
30, 2000, compared to a loss of $435,000 or $.14 per share (basic and diluted)
for the three months ended June 30, 1999.
Six Months ended June 30, 2000 and 1999
The Company had revenues of $12.0 million for the six months ended June 30,
2000, reflecting a 42.0% decrease from the revenues of $20.7 million for the
same period one year earlier. During the six months ended June 30, 2000 the
Company's five largest customers, Lockheed-Martin, Bell Helicopter, Boeing,
Gulfstream Aerospace and Cablevision accounted for approximately 69% of the
overall revenue of the Company compared to the six months ended June 30, 1999
when the five largest customers, Lockheed-Martin, Boeing, Bell Helicopter,
Northrop Grumman and Gulfstream Aerospace accounted for approximately 65% of the
Company's overall revenue. The gross margin increased to 10.2% in the six months
ended June 30, 2000 from 7.2% for the six months ended June 30, 1999. This
increase is attributed to the reduction in business with some of the Company's
lower margin aircraft and aerospace clients combined with a slight increase in
revenue attributed to those clients in other industries as well as additional
revenues generated from the permanent placement of technical personnel which had
no material associated cost of revenue.
Selling, general and administrative expenses decreased by $140,000, or 7.7%, in
the six months ended June 30, 2000 compared to the six months ended June 30,
1999. During the 1999 period, we collected $324,000 as the result of our
successful contesting of tax penalties paid in prior years. This collection is
reflected as a reduction in selling, general and administrative expenses. Thus,
if the effect of the refund of the tax penalties in 1999 were excluded from
selling, general and administrative expenses in the 1999 period the Company
would show a decrease in the 2000 period of 21.7% from the level of these
expenses in the 1999 period. The decline reflects principally the effects of our
continued cost reduction program.
Interest expense during the current six month period increased by approximately
$70,000 or 54.6% compared to the six months ended June 30, 1999. This increase
is primarily attributable to the interest expense associated with funds raised
in January 2000, as well as the amortization of debt finance costs associated
with the 550,000 warrants issued in conjunction with the loan.
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations (Continued)
As a result of the foregoing, the Company incurred a loss of approximately
$632,000 or .22 per share (basic and diluted), for the six months ended June
30,2000, compared to the loss of $575,000, or $.17 per share (basic and
diluted), for the six months ended June 30, 1999.
Liquidity and Capital Resources
As of June 30, 2000, the Company had working capital of approximately $796,000,
as contrasted with a working capital deficiency of $156,000 at December 31,
1999. The most significant current asset at June 30, 2000 was the Company's
accounts receivables, which was $ 2.1 million. These receivables were offset by
payroll and related expenses of $824,000 and $ 1.0 million due to the Company's
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 July 2000. During the six months ended June
30, 2000, operations generated cash flow of $136,000. Our principal source of
cash during the six month period was our credit facility with our asset-based
lenders, $1 million from the issuance of 10% subordinated promissory notes due
July 2001 or earlier upon the Company's receipt of payment of the Arc Note. The
Company utilized $500,000 of the proceeds from the subordinated loans as a loan
to i-engineering.com Inc. with an interest rate of 10% for a period of 120 days.
Current assets include a $312,000 note receivable from i-engineering.com, Inc.,
("i-engineering"). At June 30, 2000 i-engineering was in default on this loan.
At June 30, 2000, the Company held the 10% promissory note (the "Arc Note")
issued by Arc Networks, Inc. ("Arc") in the principal amount of $994,000. In
August 2000, the Company extended the Arc Note until September 10, 2000. In
connection with this extension Arc paid $50,000 on account of principal and
interest on the Arc Note. Arc is to pay the Company $15,000 on September 1, 2000
to cover expenses incurred by the Company for granting the extension and the
Company has agreed to return a warrant previously issued by Arc's parent
company.
The notes from Arc and i-engineering.com are payable in August and September.
The total payments due on such notes as of June 30, 2000 were approximately $1.3
million. When the Company, receives payment on the Arc Note, it is required to
prepay the $1.0 million in notes issued in January 2000. Since the principal
amount of the Arc Note is less than $1 million, the Company will have to use its
credit line to pay the balance due to the holders of the subordinated notes
unless it also receives the $300,000 payment from i-engineering.com, Inc. Arc
and i-engineering.com are both privately owned companies seeking private
financing and do not presently have the funds to pay their notes to the Company.
The Company's financial position may be impaired if either of them fails to pay.
During 1999 and the first six months of 2000 the Company has relied primarily on
financing from its asset-based lender and cash flow from operations to fund its
operations. Additionally, in the first quarter of 2000, the Company raised $1
million from the sale of its subordinated notes, of which $500,000 was being
used to fund operations and $500,000 was advanced to i-engineering.com, Inc..
However, the Company must still improve its working capital and stockholders'
equity in order to increase its revenue from certain major clients and to
attract clients requiring greater working capital.
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations (Continued)
The Company relies on its ability to generate cash flows from operating activity
and its borrowings to fund operations. 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.
On June 7, 2000 the Company entered into a one year revolving credit agreement
with a bank. Pursuant to the credit agreement, the Company can
borrow up to 85% of its qualified accounts receivables at an interest rate of
prime plus 2% with a minimum monthly compensation of $12,000. The maximum
availability on the credit agreement is $2.5 million. The Company terminated its
agreement with its previous asset-based lender.
The Company anticipates that it will continue to incur losses during the third
quarter of 2000 and it cannot give any assurance that losses will not continue
beyond the third quarter and 2001. If the Company is not able to either operate
profitably or find additional financing sources, the Company may have to further
reduce its operations or cease 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 this Form 10-Q, and those described in
any other filings by the Company with the Securities and Exchange Commission, 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.
<PAGE> 18
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On May 25, 2000 the Company held its 2000 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
Joseph G. Sicinski 2,632,599 3,316
Edward Bright 2,632,599 3,316
James Conway 2,632,599 3,316
Glen Charles 2,632,599 3,316
Murray Rosen 2,632,599 3,316
Naval Kapoor 2,632,599 3,316
Mr. Rosen resigned from the board on May 26, 2000.
The following proposals were approved as follows:
Broker
Proposal Votes For Votes Against Abstain Non Votes
Approval of the 1999
Long-Term Incentive Plan 2,587,520 74,967 7,851 3,316
Approval of the selection
of Moore Stephens, PC as
independent accountants
for 2000 2,644,510 21,261 4,567 3,316
Item 5. Other Information
In August 2000 the Company was notified by Nasdaq that it had affirmed the prior
decision by the Nasdaq Listing Qualifications Panel to delist the Company's
securities from the Nasdaq Small Cap Market. The Company's securities are
presently being traded on the OTC Bulletin Board.
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, 2000.
<PAGE> 19
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 14, 2000 Joseph G. Sicinski
(Chief Executive Officer)
------------------------
Date: August 14, 2000 Glen R. Charles
(Chief Financial Officer)
