-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FT5dZTjP8FGDuduuQcVSvuLgSKq/9G4TvVmZlcvjS/GtIRWY7ifLnqwcXbB8KpU5 xV9NRPPTWteZc7YgtLhNIA== 0000835412-00-000003.txt : 20000202 0000835412-00-000003.hdr.sgml : 20000202 ACCESSION NUMBER: 0000835412-00-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TMS INC /OK/ CENTRAL INDEX KEY: 0000835412 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 911098155 STATE OF INCORPORATION: OK FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-22780-NY FILM NUMBER: 507593 BUSINESS ADDRESS: STREET 1: 206 WEST SIXTH AVENUE STREET 2: P O BOX 1358 CITY: STILLWATER STATE: OK ZIP: 74076 BUSINESS PHONE: 4053770880 MAIL ADDRESS: STREET 1: 206 W. 6TH AVE. , P.O. BOX 1358 CITY: STILLWATER STATE: OK ZIP: 74076-1358 FORMER COMPANY: FORMER CONFORMED NAME: TMS INC DATE OF NAME CHANGE: 19920703 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: November 30, 1999 [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to __________ Commission File Number 0-18250 TMS, Inc. (Exact name of small business issuer as specified in its charter) Oklahoma 91-1098155 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 206 West Sixth Street Post Office Box 1358 Stillwater, Oklahoma 74076 (Address of principal executive offices) Issuer's telephone number, including area code: (405) 377-0880 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] No [X] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Title of Each Class Outstanding at November 30, 1999 Common stock, par value $.05 per share 13,597,659 Transitional Small Business Disclosure Format (check one): Yes [] No [X] PART I - FINANCIAL INFORMATION Item 1. Financial Statements TMS, Inc. Condensed Balance Sheets (unaudited) November 30, 1999 and August 31, 1999 November 30, August 31, 1999 1999* _____ ______ Cash $990,037 $1,057,710 Trade accounts receivable, net 776,989 574,067 Contract service work in process 380,785 415,985 Other current assets 295,764 298,018 ____________ __________ Total current assets 2,443,575 2,345,780 ____________ __________ Property and equipment 2,914,219 2,892,954 Accumulated depreciation and amortization -1,664,152 -1,590,081 ____________ __________ Net property and equipment 1,250,067 1,302,873 ____________ __________ Capitalized software development costs, net 456,667 481,169 Other assets 286,355 286,990 ____________ __________ Total assets $4,436,664 $4,416,812 ============ ========== Current obligation under capital leases 62,283 66,250 Current installments of long-term debt 27,698 27,313 Accounts payable 88,325 103,341 Other current liabilities 420,937 351,712 ____________ __________ Total current liabilities 599,243 548,616 Obligation under capital lease, net of - 12,149 current installments Long-term debt, net of current installments 274,305 282,674 ____________ __________ Total liabilities 873,548 843,439 ____________ __________ Common stock 691,831 691,031 Additional paid-in capital 11,502,635 11,501,760 Unamortized deferred compensation -19,297 -20,072 Accumulated deficit -8,501,918 -8,488,161 Treasury stock -110,135 -111,185 ____________ __________ Total shareholders' equity 3,563,116 3,573,373 ____________ __________ Total liabilities and shareholders' equity $4,436,664 $4,416,812 ============ ========== *Condensed from audited financial statements. 2 See accompanying notes to condensed financial statements. TMS, Inc. Condensed Statements of Operations (unaudited) Three Months Ended November 30, 1999 and 1998 1999 1998 _____ _____ Revenue: Licensing and royalties $854,333 $712,105 Software development services 253,842 228,353 Document conversion services 62,850 186,858 ____________ __________ 1,171,025 1,127,316 ____________ __________ Operating costs and expenses: Cost of licensing and royalties 192,348 375,090 Cost of software development services 259,154 207,114 Cost of document conversion services 32,594 112,426 Selling, general and expenses 710,321 1,024,770 administrative Restructuring costs - 70,895 ____________ __________ 1,194,417 1,790,295 ____________ __________ Operating loss -23,392 -662,979 Other income (expense), net 12,884 -4,641 ____________ __________ Loss before income taxes -10,508 -667,620 Income tax expense (benefit) 3,249 -955 ____________ __________ Net loss $-13,757 $-666,665 ============ ========== Net loss per share: Basic $0.00 $-0.05 Diluted $0.00 $-0.05 ============ ========== Weighted average shares Basic 13,584,406 13,467,602 Diluted 13,584,406 13,467,602 ============ ========== See accompanying notes to condensed financial statements. 3 TMS, Inc. Condensed Statements of Cash Flows (unaudited) Three Months Ended November 30, 1999 and 1998 1999 1998 _____ _____ Net cash flows provided by (used in) operating activities $33,129 $-53,584 ____________ __________ Cash flows from investing activities: Purchases of property and equipment -21,262 -37,419 Capitalized software development costs -58,165 -83,454 Proceeds from sale of equipment - 17,522 ____________ __________ Net cash used in investing activities -79,427 -103,351 ____________ __________ Cash flows from financing activities: Repayments of long-term debt -7,984 -5,781 Repayments of capital lease obligation -16,116 -14,684 Issuance of common stock 1,675 33,151 Issuance of treasury stock, at cost 1,050 - ____________ __________ Net cash (used in) provided by financing activities -21,375 12,686 ____________ __________ Net decrease in cash -67,673 -144,249 Cash at beginning of period 1,057,710 491,696 ____________ __________ Cash at end of period $990,037 $347,447 ============ ========== See accompanying notes to condensed financial statements. TMS, Inc. Notes to Condensed Financial Statements (unaudited) Unaudited Interim Condensed Financial Statements ________________________________________________ The unaudited interim condensed financial statements and related notes were prepared by TMS, Inc. (the Company). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to rules and regulations established by the Securities and Exchange Commission (SEC). The accompanying unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's Form 10-KSB Annual Report for the fiscal year ended August 31, 1999. The unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods presented. Except for a restructuring charge reported in the prior year first quarter ended November 30, 1998 and described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" below, all adjustments are normal and recurring. Interim results are subject to year-end adjustments and audit by independent auditors. The financial data for the interim periods may not necessarily be indicative of the results expected for the year. Net Loss Per Share __________________ Following is a reconciliation of the numerators and the denominators of the basic and diluted per-share computations for the current and prior year quarters ending November 30.
November 30, 1999 November 30, 1998 ______________________________________________________________________ Per- Per- Loss Shares Share Loss Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic EPS: Net loss $-13,757 13,584,406 $0.00 $-666,665 13,467,602 $-0.05 Effect of Common stock options - - ______________________________________________________________________ Diluted EPS: Net loss $-13,757 13,584,406 $0.00 $-666,665 13,467,602 $-0.05 ======================================================================
5 Options to purchase approximately 511,000 shares and 331,000 shares of common stock at prices ranging from $.31-$.75 per share were outstanding at November 30, 1999 and 1998 respectively, but were not included in the computation of diluted net loss per share because the options' exercise prices were greater than the average market price of common shares. Additionally, approximately 18,000 options to purchase common stock at prices ranging from $.125-$.1875 were excluded from the computation of diluted loss per share during the current year first quarter, because of their anti-dilutive effect. All options expire during periods through the year 2007. Reportable Segments ___________________ Interim period disclosures in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) are included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" below. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements because of certain risks and uncertainties, such as those inherent generally in the computer software industry and the impact of competition, pricing, and changing market conditions. As a result, the reader is cautioned not to place undue reliance on these forward-looking statements. Following is selected financial information for each of the Company's reportable segments for the first quarter ended November 30, 1999 and 1998. All revenue and expenses are from non-affiliated sources: Tools & Technologies ("TNT") ____________________________ 1999 1998 _____ _____ ______________________________________________________ Revenue from external customers $479,037 486,218 ______________________________________________________ Operating income $100,217 170,750 ______________________________________________________ 6 Revenue from the TNT product segment is primarily derived from the licensing of the Company's ViewDirector, ScanFix, and FormFix products and related royalties. Fiscal 2000 first quarter revenue for TNT was $479,037 compared to $486,218 for the same period last year, a decrease of $7,181 or 1%. Approximately 29% of the current first quarter revenue resulted from a multiple licensing transaction to a single customer. Revenue from ViewDirector royalty-reporting customers continues to decline. The Company believes that the continued decline has resulted from a reduction in both the population of royalty-reporting customers and the number of units utilized by customers. Additionally, over the past three years the Company has emphasized product development and marketing of application-oriented products (e.g. Scan"n"Store, Prizm). This has impacted the competitive features of the ViewDirector product. The decline in revenue from royalty reporting customers was somewhat offset by an increase in revenue from multiple licensing transactions for all TNT products whereby customers prepay for non-refundable software units in order to achieve volume pricing discounts and/or eliminate periodic royalty reporting requirements. Approximately 48% of current year TNT first quarter revenue was derived from multiple licensing transactions compared to 20% for the same quarter last year. Currently, the TNT segment is dependent on the ability to secure significant multiple licensing transactions for profitability. Operating income margins for TNT were 21% and 35% for the quarters ended November 30, 1999 and 1998, respectively. The decline in operating income resulted from a 46% increase in selling, marketing, and general and administrative expense. The increase in expense resulted from higher sales commissions associated with the increase in direct sales of multiple licensing transactions referred to above. Additionally, the Company increased advertising for image enhancement products and hired a vice-president for marketing early in the first quarter. Prior year first quarter results also included a $25,000 credit to re-allocate bad debt expense to the document conversion segment for a specific write-off of a customer account. 7 End-user Applications ("EUA") _____________________________ 1999 1998 _____ _____ ______________________________________________________________ Revenue from external customers $375,296 225,887 ______________________________________________________________ Operating income (loss) $127,761 -358,319 ______________________________________________________________ Fiscal 2000 first quarter revenue for end-user applications (EUA) was $375,296 compared to $225,887 for the same period last year, an increase of $149,409 or 66%. All of the revenue growth resulted from increased sales of the Prizm product. Approximately 48% of the current fiscal year revenue was attributable to multiple licensing transactions to four separate customers, each accounting for at least 10% of the total EUA revenue. No one customer accounted for greater than 10% of the EUA segment's revenue during the first quarter of last year. Operating income (loss) margins for EUA were 34% and -159% for the fiscal quarters ended November 30, 1999 and 1998, respectively. The improved margin primarily resulted from the prior year first quarter non-recurring charge of approximately $111,000 to write-down the remaining unamortized software development costs for Scan `n' Store (SNS), and the $179,000, or 54%, reduction in selling, marketing, general and administrative expenses in the current first quarter. The elimination of SNS had the most significant impact on the decrease in expenses because of an overall reduction in personnel, a decrease in marketing activities and a reduction in both direct and allocated overhead costs. The Company decided to eliminate SNS as a separate product for sale because financial returns from the product were not expected to be enough to warrant the Company allocating additional promotion, development, and technical support resources necessary to enhance its market viability. Professional Services ("PS") ____________________________ 1999 1998 _____ _____ ______________________________________________________________ Revenue from external customers $253,842 228,353 ______________________________________________________________ Operating loss $-135,045 -143,440 ______________________________________________________________ PS revenue was $253,842 and $228,353 at November 30, 1999 and 1998, respectively, an increase of $25,489, or 11%. Approximately 80% of the current first quarter revenue came from three customer contracts and approximately 56% of the prior year first quarter revenue came from one customer contract. Operating loss margins for PS were -53% and -63% for the three months ended November 30, 1999 and 1998, respectively. As reported in the Company's 10-KSB for the year ended August 31, 1999, management expected that fiscal 2000 first quarter operating margins would be negatively impacted by continued cost overruns on two fixed fee projects. Management expects that cost overruns on those projects will continue to negatively impact operating results into the second quarter of the current fiscal year. The Company is currently in the process of redefining the business model for PS and expects to realize benefit from this transition during the second half of the current fiscal year. 8 Document Conversion ("DC") __________________________ 1999 1998 _____ _____ ___________________________________________________ Revenue from external customers $62,850 186,858 ___________________________________________________ Restructuring costs - 70,895 ___________________________________________________ Operating loss $-4,943 -169,233 ___________________________________________________ Revenue for DC was $62,850 and $186,858 for the quarters ended November 30, 1999 and 1998, respectively, a decrease of $124,008, or 66%. Approximately 39% of total DC revenue for the first quarter of the current year came from one customer and approximately 57% of prior year first quarter revenue came from another customer. The significant reduction in document conversion revenue was expected and the results from the Company's decision to restructure DC operations during the prior year first quarter. Operating loss margins were -8% and -91% for the quarters ended November 30, 1999 and 1998, respectively. The reduction in the loss margin over the prior year primarily resulted from non- recurring transitional costs associated with restructuring, a $25,000 inter- segment bad debt charge from TNT for an uncollectible account, and an increase in the proportion of services performed under higher margin electronic publishing contracts. Total Company Operating Results _______________________________ Following is a report of total company revenue and a reconciliation of reportable segments' operating income (loss) to the Company's total net loss for the quarters ended November 30, 1999 and 1998. 1999 1998 _____ _____ Total company revenue $1,171,025 1,127,316 __________ __________ Operating income (loss) for reportable segments 87,990 -500,242 Unallocated corporate expenses (111,382) (162,737) Interest income 11,595 3,204 Interest expense (5,011) (8,644) Other, net 6,300 799 Income tax (expense) benefit (3,249) 955 __________ __________ Net loss $-13,757 -666,665 ========== ========== Loss per share: Basic $0.00 -0.05 Diluted $0.00 -0.05 ========== ========== 9 Total revenue for the first quarter of fiscal 2000 was $1,171,025 compared to $1,127,316 for the same quarter of fiscal 1999, an increase of $43,709 or 4%. Licensing and royalty revenue of $854,000 increased 20% over the same quarter last year. Revenue from the Company's Prizm product for the Internet/intranet increased 66%, representing substantially all of the growth in licensing and royalties revenue. The Company's 20% growth in licensing and royalties revenue was partially offset by an expected decrease in document conversion services revenue. The Company restructured document conversion service operations during the first quarter last year. Total Company net loss was $13,757, or $.00 per share (basic and diluted) and $666,665 or $.05 loss per share (basic and diluted) for the quarters ended November 30, 1999 and 1998, respectively. The 20% growth in licensing and royalties revenue coupled with significant costs incurred last year to restructure document conversion service operations and discontinue development and marketing efforts for Scan 'n Store are primary factors contributing to the significant reduction in the net loss. The performance of the PS segment contributed to the Company's inability to post a profit during the quarter because of the continuation of significant cost overruns on certain custom software development contracts. Deferred income tax benefits of approximately $4,000 and $254,000 for the periods ended November 30, 1999 and 1998, respectively, were offset by corresponding increases to the valuation allowance for deferred tax assets. Income tax expense (benefit) reported for each of the two periods resulted from differences in prior year estimates used for financial reporting compared to actual state tax returns. Impact of Year 2000 Issue The Company formed an oversight committee in fiscal year 1998 to determine year 2000 (Y2K) readiness of all internal computer systems, applications and business processes. The Y2K committee took three primary steps to validate systems readiness: (1) obtained a vendor readiness statement, (2) internal testing of all critical systems, and (3) third-party validation of its software. Subsequent to January 1, 2000 the Company has not experienced any significant issues associated with any internal computer systems, applications, business processes or third-party software. Additionally, the Company has not experienced significant issues with its own products for sale. The Company did not incur any material incremental costs associated with performing Y2K readiness activities as existing employees were utilized for the process. The Company does not expect to incur additional significant costs associated with Y2K. FINANCIAL CONDITION Working capital at November 30, 1999 was $1,844,332 with a current ratio of 4.1:1 compared to $1,797,164 with a current ratio of 4.3:1, at August 31, 1999. Net cash provided by operations for the three months ended November 30, 1999 was $33,129 compared to net cash used in operations of $53,584 for the same period last year. The improvement in the fiscal year 2000 first quarter operating cash flow is primarily due to the significant reduction in net operating loss over the same period last year and was also impacted by the timing of customer collections. Net cash used in investing activities for the first three months of fiscal 2000 was $79,427 compared to $103,351 for the same period in fiscal 1999. The decrease in investing activities primarily relates to fewer company equipment purchases and capitalized software costs compared to the prior year first quarter. 10 During the quarter ended November 30, 1999 and 1998, respectively, the Company did not borrow against its line of credit. Currently, a maximum of $800,000 remains available under the operating line of credit. PART II - OTHER INFORMATION Item 5. Other Information Effective January 12, 2000, Mr. Dana Allen resigned as Chairman and member of the Company's board of directors. Subsequent to Mr. Allen's resignation, current board member Russell W. Teubner was elected Chairman. Item 6. Exhibits and Reports on Form 8-K Exhibits ________ Exhibit No. Name of Exhibit 27 Financial Data Schedule as of and for the three-month period ending November 30, 1999 Reports on Form 8-K ___________________ None 11 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. TMS, Inc. Date: ____________________ /s/ Deborah D. Mosier Deborah D. Mosier, President Date: ____________________ /s/ Anita Kunneman Anita Kunneman, Principal Accounting Officer 12 EX-27 2
5 This schedule contains summary financial information extracted from the first quarter 10-QSB for the fiscal year ending August 31, 2000 and is qualified in its entirety by reference to such financial statements. 3-MOS AUG-31-2000 NOV-30-1999 990,037 0 1,231,122 454,133 0 2,443,575 2,914,219 1,664,152 4,436,664 599,243 0 0 0 691,831 2,871,285 4,436,664 1,171,025 1,171,025 484,096 484,096 710,321 8,346 12,884 (10,508) 3,249 (13,757) 0 0 0 (13,757) 0.00 0.00
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