-----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, SAR1V31cIIbExHf9UOkaykiO97l5VBuk7Hab671k4N+rvRpS77cqT+OKQnaX/2Z0 vSu37abtHXXbb1u7yTfEhg== 0000835412-97-000008.txt : 19970411 0000835412-97-000008.hdr.sgml : 19970411 ACCESSION NUMBER: 0000835412-97-000008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970410 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 033-22780-NY FILM NUMBER: 97577848 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: February 28, 1997 [ ] 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 74075 (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 [X] No [ ] 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 February 28, 1997 Common stock, par value $.05 per share 13,423,049 Transitional Small Business Disclosure Format(check one): Yes [ ] No [X] 1 PART I - FINANCIAL INFORMATION Item 1. Financial Statements TMS, Inc. Condensed Balance Sheets February 28, 1997 and August 31, 1996
February 28, August 31, 1997 1996 Cash $ 622,648 546,745 Trade accounts receivable, net 1,147,779 1,374,079 Contract service work in process 389,091 209,583 Other current assets 357,889 350,157 ----------- ----------- Total current assets 2,517,407 2,480,564 ----------- ----------- Property and equipment 2,478,553 2,384,267 Accumulated depreciation and amortization (1,028,705) (901,928) ----------- ----------- Net property and equipment 1,449,848 1,482,339 ----------- ----------- Capitalized software development costs, net 507,337 509,867 Other assets 238,121 235,615 ----------- ----------- Total assets 4,712,713 4,708,385 =========== =========== Current liabilities 577,794 642,383 Long-term debt, net of current installments 344,797 355,801 ---------- ----------- Total liabilities 922,591 998,184 ---------- ----------- Common stock 671,659 660,692 Additional paid-in capital 11,472,456 11,416,680 Unamortized deferred compensation (32,194) (32,970) Accumulated deficit (8,321,799) (8,334,201) ----------- ----------- Total shareholders' equity 3,790,122 3,710,201 ----------- ----------- Total liabilities and shareholders' equity $ 4,712,713 4,708,385 =========== ===========
See accompanying notes to condensed financial statements. 2 TMS, Inc. Condensed Statements of Operations Three and Six Months Ended February 28, 1997 and February 29, 1996
Three Months Ended Six Months Ended 1997 1996 1997 1996 ---- ---- ---- ---- Revenue: Licensing and royalties $ 917,161 992,199 1,567,682 2,078,275 Software development services 416,928 174,508 846,266 404,675 Document conversion services 133,960 276,136 258,997 563,321 --------- ---------- --------- --------- 1,468,049 1,442,843 2,672,945 3,046,271 Operating costs and expenses: Cost of licensing and royalties 261,198 271,622 512,437 502,284 Cost of software development services 218,560 127,780 425,014 276,826 Cost of document conversion services 84,559 212,083 191,640 418,601 Selling, general and administrative expenses 744,388 729,093 1,552,759 1,577,889 --------- --------- --------- --------- 1,308,705 1,340,578 2,681,850 2,775,600 --------- --------- --------- --------- Operating income (loss) 159,344 102,265 (8,905) 270,671 Other income, net 10,222 9,665 22,107 32,511 --------- --------- --------- --------- Income before income taxes 169,566 111,930 13,202 303,182 Income tax expense (benefit) - (187,342) 800 (172,430) --------- --------- --------- --------- Net income $ 169,566 299,272 12,402 475,612 ========= ========= ========= ========= Net income per common and common equivalent share $ 0.01 0.02 0.00 0.03 ========= ========= ========= ========= Weighted average common and common equivalent shares 14,092,438 14,297,244 14,124,600 13,985,486 ========== ========== ========== ==========
See accompanying notes to condensed financial statements. 3 TMS, Inc. Condensed Statements of Cash Flows Six Months Ended February 28, 1997 and February 29, 1996
1997 1996 ---- ---- Net cash flows provided by operating activities $ 270,963 402,994 --------- --------- Cash flows from investing activities: Purchases of property and equipment (99,934) (70,043) Capitalized software development costs (152,550) (168,583) Patent costs (6,223) (17,814) Proceeds from sale of equipment 7,245 3,635 ---------- --------- Net cash used in investing activities (251,462) (252,805) ---------- --------- Cash flows from financing activities: Repayment of long-term debt (10,341) (11,154) Proceeds from short-term note payable - 468,000 Repayments of short-term notes payable - (543,000) Issuance of common stock 66,743 16,969 ---------- --------- Net cash provided by (used in) financing activities 56,402 (69,185) ---------- --------- Net increase in cash 75,903 81,004 Cash at beginning of period 546,745 404,238 ---------- --------- Cash at end of period $ 622,648 485,242 ========== =========
See accompanying notes to condensed financial statements. 4 TMS, Inc. Notes to Condensed Financial Statements Unaudited Interim Condensed Financial Statements - ------------------------------------------------ The unaudited interim condensed financial statements and related notes were prepared by TMS, Inc.(the Company). Certain information and 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, 1996. The unaudited interim financial statements reflect all adjustments which 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. 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS This analysis of the Company's results of operations and financial condition contains certain forward-looking statements regarding the Company's business and prospects that are based upon numerous assumptions about future conditions which may ultimately prove to be inaccurate and actual events and results may materially differ from anticipated results described in such statements. The Company's ability to achieve such results is subject to certain risks and uncertainties, such as those inherent generally in the computer software industries and the impact of competition, pricing and changing market conditions. The Company disclaims, however, any intent or obligation to update these forward-looking statements. As a result, the reader is cautioned not to place reliance on these forward-looking statements. Revenue - ------- Total revenue for the second quarter of fiscal 1997 was $1,468,049 compared to $1,442,843 for the same period in fiscal 1996, an increase of $25,206 or 2%. Total revenue for the first six months of fiscal 1997 decreased 12% to $2,672,945 as compared to the $3,046,271 reported for the same period in fiscal 1996. Licensing and royalties revenue, when compared to fiscal 1996, decreased $75,038, or 8%, for the second quarter of fiscal 1997, and $510,593, or 25%, for the first six months of the current year. Second quarter text product revenue was fairly consistent for both the current and prior year second quarter, while text product revenue for the first six months of fiscal 1997 decreased $105,281, or 43%, from the same period last year. As mentioned in the Company's 10-KSB for the year ended August 31, 1996, revenue from text products is expected to continue to decline because future development of this technology will occur on a customer contract basis and be reported as software development service revenue. For the second quarter of the current year, revenue from imaging products (e.g. ViewDirector) decreased $92,525, or 7%, while revenue from image enhancement products (e.g. FormFix, ScanFix) remained flat at approximately $250,000 for both quarters. For the first six months of the current year, revenue from imaging products decreased $392,631, or 30%, and revenue from image enhancement products decreased $36,100, or 7%, over the same period last year. Competition and price erosion has had the biggest impact on the overall decline in revenue from imaging products. The potential for near-term growth in imaging revenue is primarily expected to come from the Company's ViewDirector Plug-in products. Markets for the plug-in products include all internet and corporate intranet users. Growth in image enhancement product revenue has been hindered by a shortage in personnel available to process sales leads. Near the end of the second quarter, the Company hired two additional salespeople on the west coast to focus on image enhancement product sales. 5 Software development service revenue for the second quarter of fiscal 1997 was $416,928 compared to $174,508 for the same period last year, an increase of $242,420, or 139%. For the first six months of the current year software development service revenue of $846,266 increased $441,591, or 109%, over the same period last year. The increase in software development services revenue over the prior year is attributable to the group operating at full capacity throughout the first six months of the current fiscal year. In the prior year, the Company was in the process of rebuilding its software development service business after the successful completion and delivery to a significant customer, Powercom 2000. Contract services to one customer, Learjet, accounted for approximately 33% of the total fiscal 1997 second quarter service revenue, and 40% of the total current year six month service revenue. Significant services under the Learjet contract are expected to end during the third quarter of the current fiscal year. Negotiations are currently underway with potential customers to help replace the level of revenue generated under the Learjet contract. Management expects certain new contracts to be secured in the third quarter of the current fiscal year, although there can be no assurance as to when or if any of these software development service contracts will be finalized. If the aforementioned negotiations are not successful or other new contracts can not be secured, revenue from software development services may decline. Management is prepared to take the appropriate cost cutting measures in the event that software development service revenues do not increase. Document conversion service revenue for the second quarter of fiscal 1997 was $133,960 compared to $276,136 for the second quarter of fiscal 1996, a decrease of $142,176 or 51%. For the first six months of the current year, document conversion service revenue was $258,997 compared to $563,321 for the same period last year, a decrease of $304,324, or 54%. During the first six months of fiscal 1996, service under the Toro contract, which was substantially completed during March of 1996, accounted for approximately $309,000 or 55% of the total document conversion service revenue. The Company has secured new document conversion service contracts, but not at the level of revenue provided under the Toro contract. The Company has a sales and marketing plan in process to obtain additional document conversion service opportunities, but there can be no assurance as to when additional document conversion service contracts will be secured, or if revenues from any new contracts will replace the level of revenue recognized from Toro. Management continues to adjust the number of document conversion employees to a level that is commensurate with service contract demand and is prepared to make additional adjustments as necessary. Operating Costs and Expenses - ---------------------------- Total operating costs and expenses for the second quarter ended February 28, 1997, were $1,308,705 compared to $1,340,578 for the same quarter in fiscal 1996, a decrease of $31,873 or 2%. For the first six months of the current year, operating costs and expenses were $2,681,850 compared to $2,775,600 for the same period last year, a decrease of $93,750, or 3%. The cost of licensing and royalties decreased $10,424, or 4%, for the second quarter of fiscal 1997, and increased $10,153, or 2%, for the first six months of fiscal 1997 compared to the same periods a year ago. The gross profit margin for licensing and royalties approximated 72% for the current and prior year second quarters. For the first six months of the current year the gross profit margin for licensing and royalties was 67% compared to 76% for the same period last year. The decrease in gross profit margin is primarily attributable to the 25% decrease in licensing and royalty revenue. The cost of software development services increased $90,780, or 71%, for the second quarter of fiscal 1997, and increased $148,188, or 54%, for the first six months of fiscal 1997, compared to the same periods a year ago. The gross profit margins for software development services were 48% and 27% for the current and prior year second quarters, respectively. For the first six months of the current year the gross profit margin was 50% compared to 32% for the same period last year. The increased cost of software development services is primarily attributable to the additional personnel needed to satisfy contract requirements. Improved gross margins are a direct result of the engineering service group operating at full capacity throughout the first six months of the current year. 6 The cost of document conversion services, when compared to the prior year, decreased $127,524, or 60%, for the second quarter of fiscal 1997, and decreased $226,961, or 54%, for the first six months of fiscal 1997. The gross profit margins for document conversions services were 37% and 23% for the current and prior year second quarters, respectively. For the first six months of both the current and prior year, the gross profit margin was 26%. The decrease in costs is the direct result of management adjusting the number of document conversion employees to help offset the decline in revenues. Gross margins for the current year second quarter were higher than last year because of the type of projects being serviced and a more experienced staff. Selling, general and administrative expenses for the second quarter of fiscal 1997 increased $15,295, or 2%, and for the first six months decreased $25,130, or 2%, when compared to the same periods last year. The Company incurred approximately $172,000 in non-recurring legal, accounting and other professional fees during the first six months of the prior year related to the merger with Sequoia Data Corporation. The 100% decrease in merger costs over the prior year was partially offset by increased investments in tradeshow, advertising and other marketing activities, and a shift in certain employee responsibilities from service providers to managerial and business development positions. Income Taxes - ------------ Deferred tax expense of approximately $5,000 for the six months ended February 28, 1997, was offset by deferred tax benefits of approximately $5,000 attributable to the decrease in the valuation allowance for deferred tax assets. The Company assesses the realizability of deferred tax assets at least quarterly, and adjusts the valuation allowance to reflect the future benefits that will more likely than not be realized from those deferred tax assets. At the end of the prior year second quarter the Company decreased it's valuation allowance for deferred tax assets by $210,000 to give additional recognition to net operating loss carryforwards that the Company has available to offset income tax liabilities. The current tax expense of $800 recognized in the current year represents state taxes paid. FINANCIAL CONDITION Working capital at February 28, 1997 was $1,939,613 with a current ratio of 4.3:1 compared to $1,838,181, with a current ratio of 3.9:1, at August 31, 1996. Net cash provided by operations for the six months ended February 28, 1997 was $270,963 compared to net cash provided by operations of $402,994 for the six months ended February 29,1996. Lower current year net income and slower customer billing cycles associated with custom software services were the primary factors that adversely affected operating cash flows as compared to last year. Net cash used in investing activities for the first six months of fiscal 1997 was $251,462 compared to $252,805 for the same period in fiscal 1996. During the first six months ended February 28, 1997, the Company did not borrow against it's $800,000 line of credit. At February 28, 1997, the Company's long-term debt was $344,797. Current obligations under the long- term debt total $21,488. 7 The Company believes that operating cash flow and the $800,000 operating line of credit will be adequate to meet its current obligations and current operating and capital requirements. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders a) The Company held its annual meeting of shareholders on January 17, 1997. b) The following matters were voted upon at the annual meeting: 1) Following are the directors elected at the annual meeting and the tabulation of votes related to each nominee.
Affirmative Votes Withheld Dana R. Allen 11,163,428 250,895 Doyle E. Cherry 11,281,907 132,416 James R. Rau, M.D. 11,281,907 132,416 Maxwell Steinhardt 11,357,728 56,595 Marshall C. Wicker 11,281,907 132,416
2) The shareholders ratified the appointment of KPMG Peat Marwick LLP as independent public accountants for 1997. Affirmative votes were 11,359,376; negative votes were 30,547; and abstentions were 24,400. Item 6. Exhibits and Reports on Form 8-K Reports on Form 8-K - ------------------- None Exhibits - -------- Exhibit No. Name of Exhibit 27 Financial Data Schedule as of and for the six month period ending February 28, 1997. 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. April 10, 1997 /s/ Maxwell Steinhardt Date: ____________________ _______________________ Maxwell Steinhardt Chief Executive Officer April 10, 1997 /s/ Deborah D. Mosier Date: ____________________ _______________________ Deborah D. Mosier Chief Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from the second quarter 10-QSB for the fiscal year ending August 31, 1997 and is qualified in its entirety by reference to such financial statements. 6-MOS AUG-31-1997 FEB-28-1997 622,648 0 1,281,725 133,946 0 2,517,407 2,478,553 1,028,705 4,712,713 577,794 0 0 0 671,659 3,118,463 4,712,713 2,672,945 2,672,945 1,129,091 1,129,091 1,552,759 32,200 11,704 13,202 800 12,402 0 0 0 12,402 0.00 0.00
-----END PRIVACY-ENHANCED MESSAGE-----