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 29, 2000
[ ] 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 February 29, 2000
Common stock, par value $.05 per share 13,234,659
Transitional Small Business Disclosure Format (check one):
Yes [] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMS, Inc.
Condensed Balance Sheets (unaudited)
February 29, 2000 and August 31, 1999
February 29, August 31,
2000 1999*
---- -----
Cash $996,885 $1,057,710
Trade accounts receivable, net 530,985 574,067
Contract service work in process 447,152 415,985
Other current assets 132,617 298,018
----------- -----------
Total current assets 2,107,639 2,345,780
----------- -----------
Property and equipment 2,771,540 2,892,954
Accumulated depreciation and amortization (1,584,333) (1,590,081)
------------ -----------
Net property and equipment 1,187,207 1,302,873
----------- -----------
Capitalized software development costs, net 395,679 481,169
Other assets 458,341 286,990
----------- -----------
Total assets $4,148,866 $4,416,812
=========== ===========
Current obligation under capital leases $45,801 $66,250
Current installments of long-term debt 28,133 27,313
Accounts payable 74,758 103,341
Other current liabilities 420,940 351,712
----------- -----------
Total current liabilities 569,632 548,616
Obligation under capital leases, net of - 12,149
current installments
Long-term debt, net of current installments 267,071 282,674
----------- -----------
Total liabilities 836,703 843,439
----------- -----------
Common stock 674,331 691,031
Additional paid-in capital 11,432,842 11,501,760
Unamortized deferred compensation (18,522) (20,072)
Accumulated deficit (8,663,563) (8,488,161)
Treasury stock (112,925) (111,185)
----------- -----------
Total shareholders' equity 3,312,163 3,573,373
----------- -----------
Total liabilities and shareholders' equity $4,148,866 $4,416,812
============ ===========
*Condensed from audited financial statements.
See accompanying notes to condensed
financial statements.
<PAGE> 2
<TABLE>
<CAPTION>
TMS, Inc.
Condensed Statements of Operations
(unaudited)
Three and Six Months Ended February
29, 2000 and February 28, 1999
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
----- ----- ----- -----
Revenue:
Licensing and royalties $513,069 $894,532 $1,367,402 $1,609,462
Software development services 72,049 382,189 325,891 607,717
Document conversion services 65,814 128,348 128,664 315,207
----------- ----------- ------------ -------------
650,932 1,405,069 1,821,957 2,532,386
----------- ----------- ------------ -------------
Operating costs and expenses:
Cost of licensing and royalties 251,633 202,685 443,981 577,775
Cost of software development services 148,551 274,128 407,705 478,669
Cost of document conversion services 31,588 58,655 64,182 173,654
Selling, general and administrative 376,843 777,263 1,087,164 1,802,033
Restructuring charge - - - 70,895
----------- ----------- ------------ -------------
808,615 1,312,731 2,003,032 3,103,026
----------- ----------- ------------ -------------
Operating (loss) income (157,683) 92,338 (181,075) (570,640)
Other income (expense), net 271 791 13,155 (3,851)
----------- ----------- ------------ -------------
Income (loss) before income taxes (157,412) 93,129 (167,920) (574,491)
Income tax expense (benefit) 4,233 - 7,482 (955)
----------- ----------- ------------ -------------
Net (loss) income $(161,645) $93,129 $(175,402) $(573,536)
=========== =========== ============ =============
Basic earnings per share $ (0.01) $ 0.01 $ (0.01) $ (0.04)
=========== =========== ============ =============
Weighted average common shares 13,369,736 13,589,679 13,477,071 13,528,640
=========== =========== ============ =============
Diluted earnings per share $ (0.01) $ 0.01 $ (0.01) $ (0.04)
=========== ============ ============ =============
Weighted average common and common
equivalent shares 13,369,736 13,749,472 13,477,071 13,528,640
=========== =========== ============ =============
See accompanying notes to condensed
financial statements.
<S> <C> <C> <C> <C>
<PAGE> 3
TMS, Inc.
Condensed Statements of Cash Flows
(unaudited)
Six Months Ended February 29, 2000 and
February 28, 1999
2000 1999
----- -----
Net cash flows provided by
operating activities $251,695 $657,580
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (43,510) (44,033)
Capitalized software development costs (133,304) (122,950)
Proceeds from sale of equipment 1,015 30,733
----------- -----------
Net cash used in investing activities (175,799) (136,250)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt (14,783) (11,710)
Repayments of capital lease obligation (32,598) (29,700)
Issuance of common stock 2,000 35,601
Purchase of treasury stock, at cost (91,340) -
----------- -----------
Net cash used in financing activities (136,721) (5,809)
----------- -----------
Net (decrease) increase in cash (60,825) 515,521
Cash at beginning of period 1,057,710 491,696
----------- -----------
Cash at end of period $996,885 $1,007,217
============ ===========
See accompanying notes to condensed
financial statements.
<CAPTION>
<PAGE> 4
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 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:
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended February 29, 2000 Three Months Ended February 28, 1999
----------------------------------- ------------------------------------
Loss Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------ ---------
Basic EPS:
Net (Loss) Income $(161,645) 13,369,736 $(0.01) $93,129 13,589,679 $0.01
Effect of Common
Stock options - - 159,793
----------- ------------- --------- ---------- ------------ ---------
Diluted EPS:
Net (Loss) Income $(161,645) 13,369,736 $(0.01) $93,129 13,749,472 $0.01
=========== ============= ========= =========== ============= =========
Six Months Ended February 29, 2000 Six Months Ended February 28, 1999
------------------------------------- ------------------------------------
-
Loss Shares Per-Share Loss Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS:
Net Loss $(175,402) 13,477,071 $(0.01) $(573,536) 13,528,640 $(0.04)
Effect of Common
Stock options - - - -
----------- ------------- --------- ----------- ------------- ---------
Diluted EPS:
Net Loss $(175,402) 13,477,071 $(0.01) $(573,536) 13,528,640 $(0.04)
=========== ============= ========= =========== ============= =========
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
<PAGE> 5
Options to purchase approximately 240,000 shares and 534,000 shares of common
stock at prices ranging from $.375-$.75 per share were outstanding at February
29, 2000 and February 28, 1999, 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 128,000 options to purchase common stock at prices ranging from
$.125-$.313 were excluded from the computation of diluted loss per share for the
three and six months ended February 29, 2000, 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. Previously
reported segments "Tools & Technologies" and "End-User Applications" are
combined into a single segment, "Core Component Technologies", for this
Quarterly Report due to a change in the organizational structure and internal
reporting system of the Company. All corresponding segment information for
earlier interim periods has been restated.
Shareholders' Equity
- --------------------
The Company repurchased and subsequently retired 350,000 shares of common stock
in the second quarter of fiscal year 2000 at a cost of $87,500 in an effort to
reduce the number of outstanding shares. Another 16,000 shares were also
repurchased at a cost of $3,840 and are held in treasury to support the new
employee stock purchase plan. These purchases are in addition to the 100,000
shares repurchased in the fourth quarter of fiscal 1999 as part of the stock
repurchase program of up to 1,000,000 shares authorized by the board of
directors.
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 three month and six month periods ended February 29, 2000 and
February 28, 1999. All revenue and expenses are from non-affiliated sources:
Core Component Technologies ("CCT")
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
Revenue from external customers $513,069 $894,532 $1,367,402 $1,609,462
------------ ----------- ----------- -----------
Operating income 160,332 253,090 388,311 68,347
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
<CAPTION>
<PAGE> 6
Revenue from the CCT segment is primarily derived from the licensing of the
Company's ViewDirector, Prizm Plug-in, ScanFix, and FormFix products and related
royalties. Fiscal 2000 second quarter revenue for the CCT segment was $513,069
compared to $894,532 for the same period last year, a decrease of $381,463, or
43%. CCT revenue for the six months ending February 29, 2000 was $1,367,402
compared to $1,609,462 for the same six month period last year, a decrease of
$242,060 or 15%. Image viewing products (e.g. ViewDirector and Prizm Plug-in)
accounted for 66% and 44% of the total decline in CCT revenue for the three and
six month periods ended February 29, 2000, respectively. The decline in image
viewing products revenue during the current second quarter results from both the
continued decline of royalty-reporting revenue from ViewDirector customers and a
downturn in spending by corporate information technology departments who were
concentrating on Year 2000 ("Y2K") issues. The overall decline in image viewing
product revenue for the current six month period compared to the same period
last year consists of a 34% decrease in ViewDirector revenue offset by an 11%
increase in Prizm Plug-in revenue. The Company has focused the majority of its
product development and marketing efforts over the past three years on products
that are not resulting in adequate financial return to the Company (see a
discussion of Scan `n' Store ("SNS") and SpectrumFix Version 1.0 ("SPFX")
below). This has impacted the Company's ability to potentially benefit from
updated product releases of not only the ViewDirector product, but also the
image enhancement and forms processing products (e.g. ScanFix and FormFix,
respectively). Image enhancement products accounted for approximately 16% and
30% of the total decline in CCT revenue for the three and six month periods
ended February 29, 2000, respectively. Forms processing products accounted for
approximately 11% of the total decline in CCT revenue for the three month period
ended February 29, 2000 and partially offset the revenue declines from other
sources for the six month period ended February 29, 2000 by increasing
approximately 5% as compared to the same period in the prior year. Management
is reallocating resources from the professional services segment as the projects
are completed in order to further develop the image viewing, image enhancement
and forms processing products in an effort to make them competitive in the
current marketplace.
Approximately 12% and 10% of the CCT segment's revenue came from a single
customer during the three and six month periods ended February 29, 2000,
respectively. No single customer accounted for greater than 10% of the CCT
segment's revenue during the three and six month periods ended February 28,
1999. Approximately 41% and 57% of the CCT revenue for the three and six month
periods ended February 29, 2000, respectively, was derived from sales of
multiple licenses to individual customers compared to 44% and 42% for the same
time periods last year. Currently, the CCT segment is dependent on the ability
to secure significant sales of multiple licenses to individual customers for
profitability.
<PAGE> 7
Operating income margins for CCT were 31% and 28% for the three months ending
February 29, 2000 and February 28, 1999, respectively, and 28% and 4% for the
six months ending February 29, 2000 and February 28, 1999, respectively. The
increase in the operating margin in the current second quarter compared to the
prior year second quarter is due to the current second quarter recovery of a
previously recorded bad debt of approximately $258,000, resulting in a decrease
in general and administrative expense. This account was fully reserved at
August 31, 1999. Partially offsetting this increase to the current second
quarter operating margin was the write-down of approximately $73,000 of the
remaining unamortized capitalized software development costs for SPFX in
February 2000. The Company decided to charge-off the SPFX costs because version
1.0 of the product was not adequate for the emerging color market for document
imaging. The Company has subsequently devoted software development resources to
new technology that is expected to support the color market in document imaging.
Selling, marketing and general and administrative expenses have declined
primarily from an overall reduction in personnel, a decrease in marketing
activities and a reduction in both direct and allocated overhead costs in the
three and six month periods ended February 29, 2000 compared to the same time
periods last year. Operating income margins for the six months ended February
29, 2000 were higher than the same period last year primarily because of the
aforementioned decline in selling, marketing, and general and administrative
expense. In addition, a charge of approximately $111,000 (compared to the
$73,000 current second quarter charge) was recorded in the first quarter of last
year to write-down the remaining unamortized software development costs for SNS.
The Company decided to eliminate SNS as a separate product for sale because the
financial returns were not expected to be enough to warrant the Company
allocating additional promotional, development, and technical support resources
that would be necessary to enhance its market viability. Prior year results for
the six months ended February 28, 1999 also included a $25,000 credit in the
first quarter to re-allocate bad debt expense to the document conversion segment
for a specific write-off of a customer account.
<PAGE> 8
Professional Services ("PS")
- -----------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
Revenue from external customers $72,049 $382,189 $325,891 $607,717
----------- ----------- ----------- -----------
Operating loss (145,809) (55,829) (251,791) (199,522)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
<CAPTION>
Fiscal 2000 second quarter revenue for PS was $72,049 compared to $382,189 for
the same period last year, a decrease of $310,140 or 81%. PS revenue for the six
months ending February 29, 2000 was $325,891 compared to $607,717 for the same
six month period last year, a decrease of $281,826, or 46%. The revenue decline
was anticipated due to the Company's decision to transition out of the existing
professional service business model. For the three and six month periods ending
February 28, 1999, three customer contracts accounted for approximately 85% and
82% of total revenue, respectively. Approximately 95% of the current second
quarter revenue came from four customer contracts and 78% of the six month
revenue for the period ending February 29, 2000 came from three customer
contracts. Operating losses for PS were 202% and 15% of revenue for the three
months ending February 29, 2000 and February 28, 1999, respectively, and 77% and
33% for the six months ending February 29, 2000 and February 28, 1999,
respectively. As reported in the Company's 10-KSB for the year ended August 31,
1999, management expected that fiscal 2000 first and second quarter operating
margins would be negatively impacted by continued cost overruns on two fixed fee
projects. These projects are expected to be substantially complete within
fiscal 2000. The projects are in a loss situation, therefore the estimated costs
to complete the contracts have been recorded at February 29, 2000. Approximately
$17,000 was expensed in the current second quarter to accrue for projected
losses on these contracts. Upon completion of these projects, the Company will
allocate the remaining PS resources to other segments for product development.
PS will also provide maintenance for one of the aforementioned projects for a
period of one year after its completion.
Document Conversion ("DC")
- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
Revenue from external customers $65,814 $128,348 $128,664 $315,207
------------ ----------- ----------- -----------
Operating (loss) income (2,546) 2,421 (7,490) (169,385)
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
<PAGE> 9
Fiscal 2000 second quarter revenue for DC was $65,814 compared to $128,348 for
the same period last year, a decrease of $62,534 or 49%. DC revenue for the six
months ending February 29, 2000 was $128,664 compared to $315,207 for the same
six month period last year, a decrease of $186,543, or 59%. All of the DC
revenue for the current second quarter came from five customers and
approximately 73% of prior year second quarter revenue came from three
customers. Approximately 92% of the revenue came from four customers for the
six months ended February 29, 2000, and 73% of the six month revenue for the
period ending February 28, 1999 came from three customers. The significant
reduction in document conversion revenue was expected and results from the
Company's decision to restructure DC operations during the prior year first
quarter. Operating (loss) income margins were -4% and 2% for the quarters ended
February 29, 2000 and February 28, 1999, respectively, and -6% and -54% for the
six months ending February 29, 2000 and February 28, 1999, respectively. The
reduction in the current six month loss margin from the prior year primarily
resulted from the prior year transitional costs associated with restructuring, a
$25,000 inter-segment bad debt charge from CCT in the prior year for an
uncollectible account, and an increase in the proportion of services performed
under higher margin electronic publishing contracts.
<PAGE> 10
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 income
(loss) for the three and six month periods ending February 29, 2000 and February
28, 1999.
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
Total company revenue $650,932 $1,405,069 $1,821,957 $2,532,386
----------- ----------- ----------- ------------
Operating income (loss) for
Reportable segments 11,977 199,682 129,030 (300,560)
Unallocated corporate expenses (101,030) (107,344) (212,412) (270,080)
Research & development expense (68,630) 0 (97,693) 0
Interest income 11,702 6,177 23,297 9,381
Interest expense (5,827) (8,164) (10,838) (16,808)
Other, net (5,604) 2,778 696 3,576
Income tax (expense) benefit (4,233) 0 (7,482) 955
------------ ------------ ------------ ------------
Net (loss) income $(161,645) $93,129 $(175,402) $(573,536)
=========== =========== =========== ============
(Loss) income per share:
Basic (.01) .01 (.01) (.04)
Diluted (.01) .01 (.01) (.04)
=========== =========== =========== ============
<S> <C> <C> <C> <C>
<CAPTION>
Total revenue for the second quarter of fiscal 2000 was $650,932 compared to
$1,405,069 for the same quarter of fiscal 1999, a decrease of $754,137, or 54%.
Licensing and royalty revenue of $513,000 decreased 43% over the same quarter
last year. Revenue from the Company's Prizm product for the internet/intranet
decreased 35% and revenue from toolkits and utilities (e.g. ViewDirector,
ScanFix and FormFix) decreased 48%, representing the decrease in licensing and
royalty revenue. In addition, PS revenue decreased 81% due to the Company's
plan to only complete the current projects in process and then reallocate
resources from PS to other segments for product development. The Company is
currently engaged in research and development activities to extend portions of
its core component technologies into a more complete product solution for
scoring educational assessments. As listed in the above reconciliation table,
research and development expenses of approximately $68,000 and $97,000 for the
three and six month periods ended February 29, 2000, respectively, were incurred
for creation of a software product prototype that is expected to be delivered
and validated through testing by a prospective customer in the third quarter of
fiscal 2000. Document conversion revenue decreased as expected based on the
restructuring of the document conversion service operations in the first quarter
last year. Total Company net loss for the second quarter of fiscal 2000 was
$161,645 or $0.01 per share (basic and diluted), compared to net income of
$93,129, or $0.01 per share (basic and diluted), for the second quarter of
fiscal 1999. The decrease in revenue combined with the write-off of SPFX and
the Company's investment in research and development for the educational
assessment prototype primarily contributed to this decline in profitability. A
deferred income tax benefit of approximately $60,000 for the current second
quarter was offset by a corresponding increase to the valuation allowance for
deferred tax assets. Deferred income tax expense of approximately $35,000 for
the second quarter of fiscal 1999 was offset by a corresponding decrease of the
valuation allowance for deferred tax assets. Income tax expense recorded for
the three month period ended February 29, 2000 resulted from differences in
prior year estimates used for financial reporting compared to actual state tax
payments.
<PAGE> 11
Total revenue for the first six months of fiscal 2000 was $1,821,957 compared to
$2,532,386 for the same period in fiscal 1999, a decrease of $710,429 or 28%.
The majority of this decrease occurred in the current second quarter, as
explained above. Net loss for the first six months of fiscal 2000 was $175,402
or $0.01 per share (basic and diluted), compared to net loss of $573,536, or
$0.04 per share (basic and diluted), for the same period in fiscal 1999. This
reduction in the six month net loss is primarily due to the significant costs
incurred last year to restructure document conversion service operations and the
discontinuance of development and marketing efforts for Scan `n' Store. In
addition, the current quarter recovery of a bad debt reduced general and
administrative expense, thereby reducing the current fiscal year net loss. The
performance of the PS segment contributed to the Company's inability to post a
profit for the current fiscal year because of the continuation of significant
cost overruns on certain custom software development contracts. In addition,
the $73,000 write-off of SPFX contributed to the net loss recorded for the six
month period ended February 29, 2000. Deferred income tax benefits of
approximately $64,000 and $218,000 for the six month periods ended February 29,
2000 and February 28, 1999, 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
payments.
Deferred Income Taxes
- ---------------------
Deferred tax assets are recognized when it is more likely than not that
benefits from deferred tax assets will be realized. The Company has recognized a
net deferred tax asset of $484,500 as of February 29, 2000. The ultimate
realization of this deferred tax asset is dependent upon the Company's ability
to generate future taxable income during the periods in which those temporary
differences become deductible. Management considered the scheduled reversal of
deferred tax liabilities, 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 asset to recognize.
In order to fully realize the deferred tax asset, the Company will be required
to generate future taxable income of approximately $1,275,000 prior to the
expiration of the net operating loss and tax credit carryforwards. The valuation
allowance for the related deferred tax assets may be increased in future periods
if the Company cannot generate sufficient taxable income to recover the net
deferred tax asset.
FINANCIAL CONDITION
Working capital at February 29, 2000 was $1,538,007 with a current ratio of
3.7:1 compared to $1,797,164 with a current ratio of 4.3:1, at August 31, 1999.
Net cash provided by operations for the six months ended February 29, 2000 was
$251,695 compared to $657,580 for the same period last year. Despite the
significant reduction in the net operating loss for the current six month period
over the same period last year, the operating cash flows decreased due to timing
of cash collections in the prior year for several significant service contracts.
Net cash used in investing activities for the six months ending February 29,
2000 was $175,799 compared to $136,250 for the same period in fiscal 1999. The
increase in investing cash flows primarily relates to significantly lower
proceeds from the sale of equipment and more software development costs
capitalized during the current six month period compared to the same period in
the prior year. Net cash used in financing activities for the six months ending
February 29, 2000 was $136,721 compared to $5,809 for the same period in fiscal
1999. This increase is due to the repurchase and subsequent retirement of
350,000 shares of common stock in the second quarter of fiscal year 2000. An
additional 16,000 shares were also repurchased and are held in treasury to
support the new employee stock purchase plan. These purchases are in addition
to the 100,000 shares repurchased in the fourth quarter of fiscal 1999 as part
of the stock repurchase program of up to 1,000,000 shares authorized by the
board of directors.
During the six months ended February 29, 2000 and 1999 the Company did not
borrow against its line of credit. Currently, a maximum of $800,000 remains
available under the operating line of credit.
<PAGE> 12
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 21, 2000.
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 *
Doyle E. Cherry 11,189,258 476,740
James R. Rau, M.D. 11,189,298 476,700
Russell W. Teubner 9,377,296 2,288,702
Marshall C. Wicker 11,189,258 476,740
* Dana Allen was listed as a nominee to the Board of Directors of the Company in
the annual Proxy Statement but resigned before the annual shareholder meeting
was held. Therefore, any votes were nullified.
2) The shareholders ratified the adoption of the TMS, Inc. Employee
Stock Purchase Plan. Affirmative votes were 6,945,792; negative
votes were 1,312,741; and abstentions were 7,360.
3) The shareholders ratified the appointment of KPMG LLP as
independent public accountants for fiscal year 2000. Affirmative
votes were 11,586,112; negative votes were 58,286; and abstentions
were 21,600.
Item 5. Other Information
Effective January 19, 2000, Russell W. Teubner was appointed as Chairman of the
Board of Directors of the Company. Mr. Teubner, appointed to the board in April
1999, was elected as chairman following the resignation of Dana Allen in
January, 2000.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit No. Name of Exhibit
27 Financial Data Schedule as of and for the six-
month period
ending February 29, 2000.
Reports on Form 8-K
None
<PAGE> 13
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/ Kent E. Warkentin
---------------------
Kent E. Warkentin, Controller
<PAGE> 14
</TABLE>
<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, 2000 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 996,885
<SECURITIES> 0
<RECEIVABLES> 712,182
<ALLOWANCES> 181,197
<INVENTORY> 0
<CURRENT-ASSETS> 2,107,639
<PP&E> 2,771,540
<DEPRECIATION> 1,584,333
<TOTAL-ASSETS> 4,148,866
<CURRENT-LIABILITIES> 569,632
<BONDS> 0
0
0
<COMMON> 674,331
<OTHER-SE> 2,637,832
<TOTAL-LIABILITY-AND-EQUITY> 4,148,866
<SALES> 1,821,957
<TOTAL-REVENUES> 1821,957
<CGS> 915,868
<TOTAL-COSTS> 915,868
<OTHER-EXPENSES> 1,087,164
<LOSS-PROVISION> (255,946)
<INTEREST-EXPENSE> 10,838
<INCOME-PRETAX> (167,920)
<INCOME-TAX> 7,482
<INCOME-CONTINUING> (175,402)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (175,402)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
