SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 17, 2004
TMS, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 0-18250 91-1098155
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation Identification No.)
5811 Trenton Avenue
P.O. Box 1358
Stillwater, Oklahoma 74074
(405) 707-9060
(Address, including zip code, and telephone numbers, including area code, of
Principal executive offices)
206 West 6th Ave.
Stillwater, Oklahoma 74076
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (See General Instruction A.2 below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
On December 17, 2004 the Company entered into and closed an agreement with
Measurement Incorporated ("MI") pursuant to which, as a part of the Company's
plan of liquidation, the Company sold its interest in VSC Technologies, LLC in
exchange for a cash payment of $250,000 and MI agreed to indemnify and hold the
Company harmless with respect to all claims, expenses and damages arising out of
the patent infringement lawsuit involving NCS Pearson, described below.
Sale of Interest; Termination of Agreements. The Company sold to MI all of
its 50% membership interest in VSC Technologies, LLC. This resulted in MI owning
all of VSC Technologies, LLC. The Company did not retain any rights therein. As
part of this transaction, all of the existing agreements between the Company and
VSC Technologies, LLC or MI were terminated and any obligation of the Company to
repay $350,000 in development cost was also terminated. PIC Acquisition, Inc.
("Pegasus") in connection with acquiring the Company's Component Product
Technology business described in Item 2.01 below entered into new licensing
agreements and maintenance support agreements with MI and VSC Technologies, LLC
to replace those terminated.
Indemnification. The Company is a party to a lawsuit involving the Virtual
Scoring Center technology we transferred to VSC Technologies, LLC when it was
formed. We do not believe the Virtual Scoring Center technology infringes any
patents or rights of NCS Pearson, Inc. and were designed to avoid any such
infringement. Nonetheless, NCS has alleged that certain aspects of the Virtual
Scoring Center technology infringes on certain patent rights of NCS Pearson,
which we have and continue to deny. There is currently pending in the United
States District Court for the Eastern District of North Carolina a lawsuit
involving these allegations to which MI, VSC Technologies, LLC and the Company
are parties. MI agreed to indemnify and hold the Company harmless for any costs,
expenses or damages related to this suit.
Cooperation and Coordination. The Company has agreed with MI that it will
continue to have a coordinator to assist MI in the ongoing discovery and defense
of the lawsuit with NCS Pearson. In this regard, Deborah D. Mosier, the
President and Chief Financial Officer, will continue on a consulting basis to
coordinate on behalf of the Company during its winding-up in assembling and
organizing documents, responding to discovery request and identifying witnesses,
among other things.
Item 2.01 Completion of Acquisition or Disposition of Assets
At a special meeting held on December 17, 2004, our shareholders approved
the sale of the assets of our Component Product Technology division to PIC
Acquisition, Inc. ("Pegasus"), a wholly owned subsidiary of Pegasus Imaging
Corporation, and a plan of liquidation and dissolution of the Company. We also
completed the final closing of the transaction with Pegasus and the sale of our
membership interest in VSC Technologies, LLC to Measurement Incorporated on
December 17, 2004.
The final cash price paid at closing for the sale of the Component Products
Technologies business to Pegasus approximated $2,246,000, of which $1,600,000
was paid in cash, $341,000 was issued as a note receivable from Pegasus, and
$305,000 had been used to satisfy professional fees and other corporate costs
that had been incurred related to the sale of our assets and the plan of
liquidation and dissolution of the Company. In addition, Pegasus assumed certain
contractual obligations of the Company, including its office leases, customer
contracts and severance arrangements with certain employees. Upon closing the
sale of VSC Technologies, LLC to Measurement Incorporated, we received $250,000
in cash. We will use the proceeds from both transactions to make a final cash
distribution to shareholders and cover the additional costs associated with the
liquidation and dissolution of the Company.
Item 8.01 Other Events
The Company has changed it principal executive offices to:
5811 Trenton Avenue
P.O. Box 1358
Stillwater, Oklahoma 74074
The Company has also changed its telephone number to: (405) 707-9060.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements - None.
(b) Unaudited Pro Forma Financial Information.
The following includes certain unaudited pro forma financial information
related to the sale of our assets to PIC Acquisition, Inc. ("Pegasus"), a wholly
owned subsidiary of Pegasus Imaging Corporation and the sale of our membership
interest in VSC Technologies, (the "LLC") to Measurement Incorporated ("MI").
The unaudited pro forma balance sheet and the unaudited pro forma statement of
operations has been prepared on the basis that the transactions with Pegasus and
MI took place as of August 31, 2004 and the unaudited pro forma statement of
operations has been prepared on the basis that the transactions with Pegasus and
MI was consummated as of September 1, 2003, the beginning of the Company's
fiscal year ended August 31, 2004. The unaudited pro forma financial statements
should be read in conjunction with the notes thereto, our Form 10-KSB for the
fiscal year ended August 31, 2004 and our Proxy Statement filed with the
Securities and Exchange Commission on November 12, 2004.
TMS, Inc.
Unaudited Pro Forma
Balance Sheet
Historical Pro Forma
August 31, Pro Forma August 31,
2004 Adjustments 2004
---- ----------- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 1,404,542 618,492 (1) $ 2,023,034
Trade accounts receivable, net 334,377 (334,377) (7) -
Note receivable from Pegasus - 340,974 (2) 340,974
Due from related parties 42,835 (42,835) (3) -
Custom development work in process 201,981 (201,981) (7) -
Prepaid expenses and other current assets 29,028 70,968 (4) 99,996
Deferred income taxes 5,192 (5,192) -
------------- ------------- --------------
Total current assets 2,017,955 446,049 2,464,004
------------- ------------- --------------
Property and equipment:
Computer equipment 287,057 (287,057) -
Furniture and fixtures 279,247 (279,247) -
------------- ------------- --------------
566,304 (566,304) -
Less accumulated depreciation (470,130) 470,130 -
------------- ------------- --------------
Net property and equipment 96,174 (96,174) (7) -
------------- ------------- --------------
Capitalized software, net 391,496 (391,496) (7) -
Other assets 46,510 (46,510) (7) -
------------- ------------- --------------
Total other assets 438,006 (438,006) -
------------- ------------- --------------
Total assets 2,552,135 (88,131) 2,464,004
============= ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 139,980 69,584 (6),(7) 209,564
Accrued payroll expenses 140,127 (140,127) (7) -
Income taxes payable - 20,000 (6) 20,000
Deferred revenue 362,630 (362,630) (7) -
------------- ------------- --------------
Total current liabilities 642,737 (413,173) 229,564
Investment in LLC 110,839 (110,839) (7) -
Deferred income taxes 5,192 (5,192) -
------------- ------------- --------------
Total liabilities 758,768 (529,204) 229,564
------------- ------------- --------------
Shareholders' equity:
Common stock 656,083 - 656,083
Additional Paid-in capital 11,349,558 - 11,349,558
Accumulated (deficit) earnings (10,212,274) 441,073 (6),(7) (9,771,201)
------------- ------------- --------------
Total shareholders' equity 1,793,367 441,073 2,234,440
------------- ------------- --------------
Total liabilities and shareholders' equity $ 2,552,135 (88,131) $ 2,464,004
============= ============= ==============
TMS, Inc.
Unaudited Pro Forma
Statement of Operations
Historical Pro Forma
Year Ended Pro Forma Year Ended
August 31, 2004 Adjustments August 31, 2004
--------------- ----------- ---------------
Revenue:
Licensing and royalties $ 1,757,093 (1,757,093) (7) $ -
Customer support and maintenance 654,066 (654,066) (7) -
Other services 515,913 (515,913) (7) -
---------------- ---------------- --------------
2,927,072 (2,927,072) -
---------------- ---------------- --------------
Operating Costs and Expenses:
Cost of revenue 677,400 (677,400) (7) -
Selling & Marketing 703,207 (703,207) (7) -
General & Administrative 929,343 (846,011) (4),(6) 83,332
Research and development 545,457 (545,457) (7) -
Loss in equity investment 90,563 (90,563) (7) -
---------------- ---------------- --------------
2,945,970 (2,862,638) (83,332)
---------------- ---------------- --------------
Operating loss (18,898) (64,434) (83,332)
Other income (expense):
Interest income 16,878 30,972 (2),(5),(7) 47,850
Interest expense (4,811) 4,811 (7) -
Loss on sale of property (260,123) 260,123 (8) -
Other, net 2,799 (2,799) (7) -
---------------- ---------------- --------------
Loss before income taxes (264,155) 228,673 (35,482)
Income tax expense 1,415 (1,415) -
---------------- ---------------- --------------
Net loss $ (265,570) 441,073 $ (35,482)
================ ================ ==============
Basic earnings per share $ (0.02) $ 0.03 $ (0.00)
================ ================ ==============
Weighted average common shares 13,113,026 - 13,113,026
================ ================ ==============
Diluted earnings per share $ (0.02) $ 0.03 $ (0.00)
================ ================ ==============
Weighted average common and common
equivalent shares 13,113,026 - 13,113,026
================ ================ ==============
Notes to Unaudited Pro Forma Financial Statements
(1) Pro forma cash at August 31, 2004 is comprised of the following:
Proceeds from sale of assets to Pegasus $ 1,905,195
Proceeds from sale of LLC interest to MI 250,000
---------------
2,155,195
Cash paid for directors and officers discovery policy (99,996)
Cash paid for key employee severance (75,000)
Cash received from LLC for development costs 42,835
---------------
$ 2,023,034
===============
(2) The total cash price for the sale of assets to Pegasus was $2,246,149
of which $340,749 was issued as a note receivable bearing interest at
an annual rate of 5.25%. The note must be payable within 15 days after
the date of liquidation, with such liquidation date being set by the
Company in its sole and absolute discretion after January 31, 2005, or
by August 15, 2005, whichever is earlier. The pro forma statement of
operations assumes a full year of interest income under the note from
Pegasus and accordingly includes an adjustment to interest income of
$17,850.
(3) As a condition to closing the sale of our interest in the LLC to MI,
all software development costs were required to be paid. Accordingly,
such payment is included in the pro forma cash balance at August 31,
2004.
(4) The pro forma prepaid expense balance at August 31, 2004 represents a
three year directors and officers discovery insurance policy. The pro
forma statement of operations includes an adjustment for 12 months of
amortization, or $33,332, related to the insurance policy.
(5) Interest income includes a pro forma adjustment of $30,000 to reflect
earnings on an expected average cash balance of $2,000,000 during the
12 months following the sales transactions at an estimated yield of
1.5%.
(6) We estimate that professional fees, income taxes and other corporate
costs related to the sale of our assets, implementation of the plan of
liquidation and limited administrative activities for winding up the
affairs of the Company will approximate $415,000, of which $32,975 was
accrued at August 31, 2004. As discussed in Note 1, the pro forma
financial statements include a cash adjustment of $174,996 for
directors and officers insurance and key employee severance. An
additional pro forma adjustment was made to current liabilities and
accumulated deficit to reflect $176,589 and $20,000 of the remaining
professional fees or corporate costs and alternative minimum taxes
ultimately expected to be incurred and paid, respectively.
In the pro forma statement of operations, which has been prepared as
if the transactions with Pegasus and MI occurred at the beginning of
the year, $210,000 of the $415,000 in estimated total costs has been
excluded from the pro forma results because those costs are for
employee severance, completion of purchase and sale agreements, proxy
preparation and solicitation and other costs that are non-recurring in
nature. The remaining $205,000 of the total costs represents an
estimate for recurring items such as officers and directors
compensation, insurance and professional fees related to SEC
compliance and other administrative matters. Accordingly, a pro forma
adjustment of $83,332 was made to general and administrative expense
to give effect to the portion of the remaining $205,000 of estimated
recurring costs that are expected to be incurred during the first 12
months following completion of the sales transactions.
(7) Except for the pro forma adjustments discussed in Notes 1 - 6 above,
all remaining assets, liabilities and associated revenue and expenses
were included in the asset sales to Pegasus or MI and had those sales
taken place as of and for the year ended August 31, 2004, the Company
would have recognized a gain of $712,662. The effect of such gain is
included in the pro forma adjustment to accumulated deficit, but
excluded from the pro forma statement of operations because it is
nonrecurring in nature. We expect to use a portion of our $2.7 million
in tax operating loss carryforwards to offset any gains associated
with the sales.
(8) The loss on the sale of property relates to the sale of the Company's
headquarters building to a third party other than Pegasus or MI. The
pro forma statement of operations assumes that such transaction
occurred as of the beginning of the year and such amount is not
included in the pro forma financial results as the loss is
nonrecurring in nature.
(c) Exhibits.
Exhibit No. Description
- ----------- -----------
99.1 Press Release of December 20, 2004 titled "TMS Shareholders
Approve Sale of Company Assets and Plan of Liquidation"
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TMS, INC.
Date December 22, 2004 By DEBORAH D. MOSIER
Deborah D. Mosier, President
INDEX TO EXHIBITS
Exhibit
No. Description Method of Filing
--- ----------- ----------------
99.1 Press Release of December 20, 2004 Filed herewith electronically
titled "TMS Shareholders Approve
Sale of Company Assets and Plan of
Liquidation"