<PAGE> 1
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 29, 1996
[ ]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. EmployerIdentification 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 ot 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 29, 1996
Common stock, par value $.05 per share 8,518,351
Transitional Small Business Disclosure Format(check one):
Yes [ ] No [X]
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMS, Inc.
Condensed Balance Sheets
February 29, 1996 and August 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
February 29, August 31,
1996 1995
---- ----
<S> <C> <C>
Cash $ 182,800 114,189
Trade accounts receivable, net 786,820 912,559
Contract service work in process 227,221 87,187
Deferred income taxes 225,000 180,000
Other current assets 91,435 32,050
--------- ---------
Total current assets 1,513,276 1,325,985
--------- ---------
Property and equipment 2,089,080 2,011,271
Accumulated depreciation and
amortization (679,534) (564,497)
---------- ----------
Net property and equipment 1,409,546 1,446,774
---------- ----------
Capitalized software development
costs, net 301,047 204,984
Deferred income taxes 305,000 140,000
Other assets 12,339 13,994
---------- ----------
Total assets 3,541,208 3,131,737
========== ==========
Current liabilities 483,078 499,044
Long-term debt, net of current
installments 366,285 378,265
--------- ---------
Total liabilities 849,363 877,309
--------- ---------
Common stock 425,918 420,247
Additional paid-in capital 10,558,212 10,546,914
Unamortized deferred compensation (2,258) (3,810)
Accumulated deficit (8,290,027) (8,708,923)
----------- -----------
Total shareholders' equity 2,691,845 2,254,428
----------- -----------
Total liabilities and shareholders'
equity $ 3,541,208 3,131,737
=========== ==========
</TABLE>
See accompanying notes to condensed
financial statements.
<PAGE> 3
TMS, Inc.
Condensed Statements of Operations
Three and Six Months Ended February 29, 1996 and February 28, 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software development and
document conversion services $ 431,398 336,621 917,903 773,659
Licensing and royalties 746,952 667,024 1,560,757 1,239,547
--------- --------- --------- ---------
1,178,350 1,003,645 2,478,660 2,013,206
--------- --------- --------- ---------
Operating costs and expenses:
Software development and
document conversion services 329,366 186,508 669,443 408,364
Cost of licensing and royalties 211,279 148,896 389,147 307,778
Selling, general and administrative 570,881 450,462 1,187,391 945,623
Research and development 17,434 32,100 47,607 63,078
--------- --------- --------- ---------
1,128,960 817,966 2,293,588 1,724,843
--------- --------- --------- ---------
Operating income 49,390 185,679 185,072 288,363
Other income, net 5,515 5,830 23,824 13,867
--------- --------- --------- ---------
Income before income taxes 54,905 191,509 208,896 302,230
Income tax benefit 210,000 318,700 210,000 317,950
--------- --------- --------- ---------
Net income $ 264,905 510,209 418,896 620,180
========= ========= ========= =========
Net income per common and common
equivalent share $ 0.03 0.06 0.04 0.07
========= ========= ========= =========
Weighted average common and common
equivalent shares 9,611,008 8,975,933 9,497,654 8,999,571
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed
financial statements.
<PAGE> 4
TMS, Inc.
Condensed Statements of Cash Flows
Six Months Ended February 29, 1996 and February 28, 1995
<TABLE>
<CAPTION>
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Net cash provided by
operating activities $ 361,593 388,187
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (77,809) (487,781)
Capitalized software development
costs (145,988) (45,741)
Proceeds from sale of equipment 0 1,500
---------- ----------
Net cash used in investing activities (223,797) (532,022)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 0 100,000
Repayment of long-term debt (11,154) 0
Proceeds from short-term note
payable 468,000 0
Repayments of short-term note
payable (543,000) 0
Issuance of common stock 16,969 11,320
---------- ----------
Net cash (used in) provided by
financing activities (69,185) 111,320
---------- ----------
Net increase (decrease) in cash 68,611 (32,515)
Cash at beginning of period 114,189 239,984
---------- ----------
Cash at end of period $ 182,800 207,469
========== ==========
</TABLE>
See accompanying notes to condensed
financial statements.
<PAGE> 5
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 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-K Annual Report for the fiscal year ended
August 31, 1995.
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.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109), which requires
an asset and liability method of accounting for income
taxes.
Income tax benefit of $210,000 for the six months ended
February 29, 1996 consisted of deferred tax expense of
$46,000 and a decrease in the beginning-of-the-year
valuation allowance of $256,000. Income tax benefit of
$317,950 for the six months ended February 28, 1995
consisted of deferred tax expense of $180,000, a decrease in
the beginning-of-the-year valuation allowance of $500,000,
and Federal alternative minimum tax of $2,050.
The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and
liabilities at February 29, 1996 and August 31, 1995 are
presented below.
<TABLE>
<CAPTION>
(Unaudited)
February 29, August 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,658,000 1,760,000
Tax credit carryforwards 417,000 417,000
Employee stock options 190,000 62,000
Other 29,000 50,000
---------- ----------
Total gross deferred tax assets 2,294,000 2,289,000
Less valuation allowance 1,608,000 1,864,000
---------- ----------
Net deferred tax assets 686,000 425,000
Deferred tax liabilities:
Property and equipment (42,000) (69,000)
Capitalized software costs (114,000) (36,000)
----------- -----------
Net deferred tax assets $ 530,000 320,000
=========== ===========
</TABLE>
SFAS No. 109 provides for recognition of deferred tax assets
when it is more likely than not that benefits from deferred
tax assets will be realized. The Company increased it's
deferred tax assets from $320,000 at August 31, 1995 to
$530,000 at February 29, 1996. The ultimate realization of
these deferred tax assets is dependent upon the Company's
ability to generate future taxable income during the period
in which temporary differences become deductible.
Management considered the scheduled reversal of temporary
differences, projected future taxable income, past earnings
history, sales backlog, and net operating loss and tax
credit carryforward expiration dates in determining the
amount of deferred tax assets to recognize. In order to
<PAGE> 6
fully realize the recorded deferred tax assets, the Company
will need to generate approximately $1,400,000 in future
taxable income prior to the expiration of the net operating
loss and tax credit carryforwards. Taxable income for the
six months ended February 29, 1996 approximated $192,000.
Taxable income for the years ended August 31, 1995, 1994 and
1993 approximated $313,000, $425,000 and $559,000,
respectively.
The $1,608,000 valuation allowance provides for net
operating loss and tax credit carryforwards that, as of
February 29, 1996, are not expected to be realized prior to
expiration. At February 29, 1996, the Company's net
operating loss carryforwards and tax credit carryforwards
approximated $4,875,000 and $417,000, respectively. These
carryforwards expire during the years 1997 through 2004.
Pro Forma Financial Information
- -------------------------------
On November 9, 1995, the Company and Sequoia Data
Corporation (Sequoia) signed a merger agreement whereby the
Company will merge with Sequoia by issuing a maximum of 5.3
million shares of TMS common stock for all of the issued and
outstanding shares of Sequoia common stock and common stock
options. The merger was consummated on March 15, 1996 and
will be accounted for using the pooling-of-interests method.
Set forth below is certain unaudited pro forma financial
information with respect to the merger, including an
unaudited pro forma condensed balance sheet as of February
29, 1996 and unaudited pro forma condensed statements of
operations for the three and six months ended February 29,
1996 and February 28, 1995. The pro forma condensed balance
sheet has been prepared on the basis that the merger
occurred on February 29, 1996. The pro forma condensed
statements of operations have been prepared on the basis
that the merger occurred at the beginning of the earliest
interim period presented. The unaudited pro forma results
are not necessarily indicative of the Company's future
operations.
Pro Forma Condensed Balance Sheet:
<TABLE>
<CAPTION>
February 29, 1996
(Unaudited)
TMS Sequoia Pro Forma TMS/Sequoia
Adjustments Combined
<S> <C> <C> <C> <C>
Cash and equivalents $ 182,800 297,760 0 480,568
Trade accounts
receivable, net 786,820 339,685 (11,920)(1) 1,114,585
Contract service work
in process 227,221 0 (11,445)(1) 215,776
Deferred income
taxes 225,000 0 (28,343)(2) 196,657
Other current assets 91,435 9,317 0 100,752
---------- --------- --------- ---------
Total current assets 1,513,276 646,770 (51,708) 2,108,338
---------- --------- --------- ---------
Property and
equipment, net 1,409,546 38,943 0 1,448,489
Capitalized software
development costs,
net 301,047 117,370 0 418,425
Deferred income taxes 305,000 0 (46,951)(2) 258,049
Other assets 12,339 20,408 0 32,747
--------- -------- -------- ---------
Total assets 3,541,208 823,499 (98,659) 4,266,048
========= ======== ======== =========
Current liabilities 483,078 96,180 (51,708) 527,550
Long term debt, net
of current
installments 366,285 0 0 366,285
Other liabilities 0 46,951 (46,951) 0
--------- -------- --------- --------
Total liabilities 849,363 143,131 (98,659) 893,835
--------- -------- --------- --------
Common stock 425,918 632,086 (449,924) 608,080
Additional paid-in
capital 10,558,212 0 449,294 11,008,136
Unamortized deferred
compensation (2,258) 0 0 (2,258)
Accumulated (deficit)
earnings (8,290,027) 48,282 0 (8,241,745)
------------ -------- --------- -----------
Total shareholders'
equity 2,691,845 680,368 0 3,372,213
------------ -------- --------- -----------
Total liabilities
and shareholders'
equity $ 3,541,208 823,499 (98,659) 4,266,048
============ ======= ======== =========
</TABLE>
<PAGE> 7
Pro Forma Condensed Statements of Operations:
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
February
1996 1995
---- ----
<S> <C> <C>
Net revenue:
TMS $ 1,178,350 1,003,645
Sequoia 287,837 211,689
Pro forma adjustments (23,365)(1) 0
---------- ---------
1,442,822 1,215,334
---------- ---------
Operating costs and expenses:
TMS 1,128,960 817,966
Sequoia 234,983 134,013
Pro forma adjustments (23,365) 0
---------- ---------
1,340,578 951,979
---------- ---------
Operating income:
TMS 49,390 185,679
Sequoia 52,854 77,676
--------- ---------
102,244 263,355
--------- ---------
Other, net:
TMS 5,515 5,830
Sequoia 4,148 (407)
--------- ---------
9,663 5,423
--------- ---------
Income before income tax:
TMS 54,905 191,509
Sequoia 57,002 77,269
--------- --------
111,907 268,778
--------- --------
Income tax benefit (expense):
TMS 210,000 318,700
Sequoia (22,658) (31,378)
--------- --------
187,342 287,322
--------- --------
Net income:
TMS 264,905 510,209
Sequoia 34,344 45,891
--------- --------
Pro forma net income $ 299,249 556,100
========= ========
Pro forma net income per common
and common equivalent share $ .02 .04
========= ========
Pro forma weighted average
common and common
equivalent shares 14,333,286 12,648,869
========== ==========
(Unaudited)
Six Months Ended
February
1996 1995
Net revenue:
TMS $ 2,478,660 2,013,206 06
Sequoia 590,976 417,928
Pro forma adjustments (23,365)(1) 0
----------- ---------
3,046,271 2,431,134
----------- ---------
Operating costs and expenses:
TMS 2,293,588 1,724,843
Sequoia 505,382 255,592
Pro forma adjustments (23,365) 0
----------- ---------
2,775,605 1,980,435
----------- ---------
Operating income:
TMS 185,072 288,363
Sequoia 85,594 162,336
---------- ---------
270,666 450,699
---------- ---------
Other, net:
TMS 23,824 13,867
Sequoia 8,687 2,220
---------- --------
32,511 16,087
---------- --------
<PAGE> 7
Income before income tax:
TMS 208,896 302,230
Sequoia 94,281 164,556
---------- --------
303,177 466,786
---------- --------
Income tax benefit (expense):
TMS 210,000 317,950
Sequoia (37,569) (66,823)
---------- --------
187,342 251,127
---------- --------
Net income:
TMS 418,896 620,180
Sequoia 56,712 97,733
---------- --------
Pro forma net income $ 475,608 717,913
========== ========
Pro forma net income per common
and common equivalent share $ .03 .06
========== ========
Pro forma weighted average
common and common
equivalent shares 14,003,507 12,674,745
========== ==========
</TABLE>
______________________________
1. Adjustment reflects elimination of intercompany
software development services and related receivables and
payables.
2. Adjustment reflects the reduction of TMS' current and
non-current deferred tax assets by Sequoia's current and non-
current deferred tax liabilities.
3. Adjustment reflects the exchange of Sequoia common
shares at February 29, 1996, (1,284,180), for 2.837 shares
of TMS common shares, and the resulting increase in
additional paid-in-capital. At February 29, 1996, after
giving effect to the merger, TMS would have had outstanding
12,161,570 common shares.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The Company realized growth in total revenue for the three
and six month periods ended February 29, 1996, as compared
to the same periods a year ago. Revenue growth was more
than offset by increased operating costs and expenses,
which contributed to the decline in net income for the three
and six month periods ended February 29, 1996. Operating
costs and expenses for the first six months of 1996
increased over the same period in 1995 primarily because of
increases in the number of personnel, selling and marketing
activities, and significant non-recurring professional costs
related to the merger with Sequoia Data Corporation
(Sequoia). The merger with Sequoia was consummated on March
15, 1996. Net income for the period ended February 29,
1996, was also impacted by the recognition of $210,000 in
deferred tax benefits during the second quarter. The
Company recognized $320,000 in deferred tax benefits during
the second quarter of fiscal 1995. The deferred tax benefits
in both years are a positive indication that the Company
will, more likely than not, utilize a portion of the net
operating loss carryforwards to offset future taxable
income, and accordingly, will not pay significant amounts of
income taxes for the forseeable future.
Revenue
- -------
Total revenue for the second quarter of fiscal 1996 was
$1,178,350 compared to $1,003,645 for the same quarter of
fiscal 1995, an increase of $174,705 or 17%. Total revenue
for the first six months of fiscal 1996 increased 23% to
$2,478,660 as compared to the $2,013,206 reported for the
same period in fiscal 1995.
Licensing and royalties revenue, when compared to fiscal
1995, increased $79,928, or 12%, for the second quarter of
fiscal 1996 and $321,210, or 26%, for the first six months
of fiscal 1996. The growth in licensing and royalties is
<PAGE> 8
attributable to increased revenue from the Company's imaging
products. Revenue from the Company's imaging products
increased 30% to $680,377 for the second quarter of fiscal
1996, and increased 36% to $1,321,377 for the first six
months of fiscal 1996, when compared to the same periods in
fiscal 1995. Increased unit sales resulting from recent
releases of new or enhanced imaging products, and existing
customers who expanded their use of the Company's products
or completed a product for resale resulting in royalty
revenue for the Company, are the primary factors which
contributed to increased revenue from imaging products.
Revenue from the Company's text products decreased 53% to
$66,576 for the second quarter of fiscal 1996, and decreased
7% to $247,879 for the first six months of fiscal 1996, when
compared to the same periods in fiscal 1995. Increased
competition and the Company's emphasis on imaging technology
are the primary factors which have contributed to the
decline in text revenue.
Software development and document conversion service revenue
for the second quarter of fiscal 1996 was $431,398 compared
to $336,621 for the second quarter of fiscal 1995, an
increase of $94,777 or 28%. For the first six months of
fiscal 1996 service revenue was $917,903 compared to
$773,658 for the first six months of fiscal 1995, an
increase of $144,244 or 18%. Software development service
revenue declined 40% for the second quarter of fiscal 1996
and 42% for the first six months of fiscal 1996, when
compared to the same periods in fiscal 1995. Document
conversion service revenue increased 246% for both the
second quarter and first six months of fiscal 1996, when
compared to the same periods in fiscal 1995. The decrease
in software development service revenue was due to the
successful delivery of product to POWERCOM 2000 near the end
of fiscal year 1995. Negotiations are currently underway
with potential customers to help replace software
development service revenues previously generated for
POWERCOM 2000. Management expects certain of these
contracts to be secured early 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
is expected to continue to decline. Management is prepared
to take the appropriate cost cutting measures in the event
that software development service revenues do not increase.
The increase in document conversion service revenue is
attributable to continued service under the Toro contract
that began in the fourth quarter of fiscal 1995 and
continued through the second quarter of the current fiscal
year. Revenue from the Toro contract amounted to
approximately $121,000 or 44%, of the second quarter
document conversion service revenue, and $309,000 or 55% of
document conversion service revenue for the first six
months. Services under the Toro contract were substantially
completed during March of the current fiscal year.
Management increased document conversion marketing
activities during the second quarter in an effort to obtain
new service opportunities. Although certain document
conversion contracts have been secured, they will not
replace the level of revenue that was recognized for Toro
and 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 for Toro. Management is prepared to take the
appropriate cost cutting measures to offset a significant
decline in document conversion service revenue.
Operating Costs and Expenses
- ----------------------------
Total operating costs and expenses for the quarter ended
February 29, 1996, were $1,128,960 compared to $817,966 for
the same quarter in fiscal 1995, an increase of $310,994 or
38%. For the first six months of fiscal 1996, total
operating costs and expenses increased 33% to $2,293,588
from $1,724,843 reported for the first six months of fiscal
1995. Personnel costs accounted for approximately 56% of
the total increase for the second quarter and 58% of the
increase for the first six months. At February 29, 1996 the
Company employed 60 full-time permanent employees and 52
temporary and part-time employees compared to 53 full-time
and 18 temporary and part-time employees at February 28,
1995. The increase in temporary and part-time employees is
directly related to the increase in document conversion
service revenue generated during the first six months of the
current fiscal year.
<PAGE> 10
The cost of software development and document conversion
services increased primarily because of the additional
resources necessary to satisfy requirements under document
conversion contracts. The gross profit margin for services
for the fiscal 1996 second quarter was 24% compared to 45%
for the same quarter of fiscal 1995. The gross profit margin
for services for the first six months of fiscal 1996 was 27%
compared to 47% for the first six months of 1995. This drop
in gross profit margin reflects the change in the mix of
software development versus document conversion service
activities. Document conversion service activities have
historically generated profit margins of 20% to 25%, whereas
software development service margins generally range from
35% to 40%. Accordingly, the decrease in software
development service revenue has had the greatest impact on
the total gross profit margin for services.
The cost of licensing and royalties increased for both the
second quarter and first six months of fiscal 1996, compared
to the same periods a year ago, due to increased licensing
and royalties revenue. The gross profit margins for
licensing and royalties were 72% and 78% for the three
months ended February 29, 1996 and February 28, 1995,
respectively. For the first six months of both fiscal 1996
and fiscal 1995, the gross profit margins for licensing and
royalties were 75%. Fluctuations in gross profit margins
primarily result from the mix of product versus royalty
revenue reported, as royalties essentially result in little
or no cost to the Company.
Selling, general and administrative expenses for the second
quarter of fiscal 1996 increased $120,419 or 27% when
compared to the second quarter of fiscal 1995. For the
first six months of fiscal 1996, selling, general and
administrative expenses increased $241,768, or 26% over the
same period in fiscal 1995. Non-recurring professional fees
related to the recent merger with Sequoia, accounted for
approximately 34% of the increase for the second quarter and
44% of the increase for the first six months. The merger
with Sequoia was finalized on March 15, 1996, thus non-
recurring professional fees should significantly decline
during the third quarter. The balance of the increases for
both the second quarter and first six months of fiscal 1996
was attributable to increased costs of facilities,
advertising, investor relations and the increased operating
expenses related to the higher number of employees and
increased sales activity.
Research and development costs for the second quarter and
first six months of fiscal 1996 were minimal as the Company
continued to focus it's resources on new products and
significant enhancements to existing products that were
capitalized for financial accounting and reporting purposes.
During the first six months of fiscal 1996 and 1995, the
Company capitalized software development costs of $145,988
and $45,741, respectively.
Income Taxes
- ------------
The Company recognized deferred tax benefits of $210,000 and
$320,000, during the second quarters of both fiscal 1996 and
fiscal 1995, respectively. These deferred tax benefits, and
related deferred tax assets, are a positive indication that
the Company will, more likely than not, be able to utilize a
portion of the previously generated net operating losses to
offset future taxable income. For further discussion of
deferred income taxes, see "Income Taxes" in the notes to
the condensed financial statements.
Net Income
- ----------
Net income for the second quarter of fiscal 1996 was
$264,905 compared to $510,209 for the second quarter of
fiscal 1995, a decrease of $245,304 or 48%. For the first
six months of fiscal 1996, net income decreased 32% to
$418,896 compared to $620,180 for the same period in 1995.
The non-recurring merger costs and the lower deferred tax
benefit recognized in fiscal 1996 were the primary factors
that caused a decline in net income compared to fiscal 1995.
<PAGE> 11
FINANCIAL CONDITION
Working capital at February 29, 1996 was $1,030,198 with a
current ratio of 3.1:1 compared to $826,941, with a current
ratio of 2.7:1, at August 31, 1995. Net cash provided by
operations for the six months ended February 29, 1996 was
$361,593 compared to $388,187 for the six months ended
February 28, 1995. Despite lower profitability for the first
six months of 1996, cash flows from operations remained
comparable with the first six months of 1995 as a result of
higher turnover of receivables. Net cash used in investing
activities for the first six months of fiscal 1996 was
$223,797 compared to $532,022 for the same period in fiscal
1995. During the first six months of fiscal 1995
construction was underway on the renovation of the Company's
headquarters facilities which was the primary reason for the
higher costs last year.
During the six months ended February 29, 1996 the Company
borrowed $468,000 on its line of credit for short-term
working capital needs. The amount borrowed plus the $75,000
outstanding balance at the beginning of the fiscal year were
repaid prior to the end of the quarter. At February 29,
1996, the Company's long-term debt was $384,957. Current
obligations under the long-term debt total $18,672.
The Company believes net cash provided by operating
activities and the operating line of credit of $600,000 will
be adequate to meet its current obligations and current
operating and capital requirements. The Company expects the
$600,000 line of credit to be extended when it matures on
October 23, 1996. The funding of long-term needs is
dependent upon increased revenue and profitability and
obtaining funds through outside debt and equity sources. The
Company's long-term needs include funding for increased
product development, expanded sales staff and adequate
promotion of the Company and its products. The combined net
operating cash flow for the Company and Sequoia, and the
Company's existing line of credit, are expected to be
adequate to provide sufficient resources for operations
after the merger.
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 19, 1996.
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 7,574,246 12,177
Doyle E. Cherry 7,122,023 16,700
J. Richard Phillips 7,579,523 6,900
James R. Rau, M.D. 7,122,023 16,700
Maxwell Steinhardt 7,579,723 6,700
Marshall C. Wicker 7,121,398 17,325
2) The shareholders ratified the appointment of KPMG Peat
Marwick LLP as independent public accountants for 1996.
Affirmative votes were 7,549,155; negative votes were
16,132; and abstentions were 21,236.
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K
- -------------------
The Company filed a report on Form 8-K on April 1, 1996
regarding the merger of Sequoia Computer Corporation with
and into SCC Acquisition Corp., a wholly-owned subsidiary of
the Company.
Exhibits
Exhibit No. Name of Exhibit
27 Financial Data Schedule as of and for the three
and six month periods ending February 29, 1996.
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: April 8, 1996 /s/ Maxwell Steinhardt
Chief Executive Officer
Date: April 8, 1996 /s/ Dale E. May
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the second
quarter 10-QSB for the fiscal year ending August 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> AUG-31-1996 AUG-31-1996
<PERIOD-END> FEB-29-1996 FEB-29-1996
<CASH> 182,800 182,800
<SECURITIES> 0 0
<RECEIVABLES> 863,770 863,770
<ALLOWANCES> 76,950 76,950
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,513,276 1,513,275
<PP&E> 2,089,080 2,089,080
<DEPRECIATION> 679,534 679,534
<TOTAL-ASSETS> 3,541,208 3,541,208
<CURRENT-LIABILITIES> 483,078 483,078
<BONDS> 0 0
0 0
0 0
<COMMON> 425,918 425,918
<OTHER-SE> 2,265,927 2,265,927
<TOTAL-LIABILITY-AND-EQUITY> 3,541,208 3,541,208
<SALES> 1,178,350 2,478,660
<TOTAL-REVENUES> 1,178,350 2,478,660
<CGS> 540,645 1,058,590
<TOTAL-COSTS> 540,645 1,058,590
<OTHER-EXPENSES> 588,315 1,234,998
<LOSS-PROVISION> 19,800 44,680
<INTEREST-EXPENSE> 8,765 18,653
<INCOME-PRETAX> 54,905 208,896
<INCOME-TAX> (210,000) (210,000)
<INCOME-CONTINUING> 264,905 418,896
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 264,905 418,896
<EPS-PRIMARY> .03 .04
<EPS-DILUTED> .03 .04
</TABLE>
