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, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File Number 0-18250
TMSS Liquidation, Inc.
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(Exact name of small business issuer as specified in its charter)
OKLAHOMA 91-1098155
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5811 Trenton Ave
Post Office Box 1358
Stillwater, Oklahoma 74076
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(Address of principal executive offices)
(405) 707-9060
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(Issuer's telephone number)
TMS, Inc.
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(Former name, former address and former fiscal year if changed from last report)
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 April 14, 2005
Common stock, par value $.05 per share 13,121,659
Transitional Small Business Disclosure Format (check one):
Yes [] No [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMSS Liquidation, Inc.
Statement of Net Assets in Liquidation
February 28, 2005
-----------------
Assets
Cash and cash equivalents $ 1,724,963
Amounts due from purchaser 344,554
Other receivables 1,432
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Total Assets $ 2,070,949
================
Liabilities
Accounts payable and accrued liabilities $ 7,692
Estimated costs of liquidation 149,927
----------------
Total Liabilities 157,619
----------------
Net Assets in Liquidation $ 1,913,330
================
See accompanying notes to financial statements.
TMSS Liquidation, Inc.
Statement of Changes in Net Assets in Liquidation
Period from
December 17, 2004
through February 28, 2005
-------------------------
Net Increase in Net Assets in Liquidation
Interest income $ 8,273
--------------------------
Net Increase in Net Assets in Liquidation 8,273
Net Assets in Liquidation at December 17, 2004 $ 1,905,057
--------------------------
Net Assets in Liquidation at February 28, 2005 $ 1,913,330
==========================
See accompanying notes to financial statements.
TMSS Liquidation, Inc.
Condensed Balance Sheets
August 31, 2004
August 31,
2004*
-----------
Cash $ 1,404,542
Trade accounts receivable, net 334,377
Due from related parties 42,835
Contract service work in process 201,981
Prepaid expenses and other current assets 29,028
Deferred income taxes 5,192
-----------
Total current assets 2,017,955
-----------
Property and equipment 566,304
Accumulated depreciation and amortization (470,130)
-----------
Net property and equipment 96,174
-----------
Capitalized software development costs, net 391,496
Other assets 46,510
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Total assets $ 2,552,135
===========
Accounts payable $ 139,980
Accrued payroll expenses 140,127
Deferred revenue 362,630
-----------
Total current liabilities 642,737
Investment in limited liability company 110,839
Deferred income taxes 5,192
-----------
Total liabilities 758,768
-----------
Common stock 656,083
Additional paid-in capital 11,349,558
Accumulated deficit (10,212,274)
-----------
Total shareholders' equity 1,793,367
-----------
Total liabilities and shareholders' equity $ 2,552,135
===========
________________
*Condensed from audited financial statements.
See accompanying notes to financial statements.
TMSS Liquidation, Inc.
Condensed Statements of Operations (unaudited)
Period from
September 1, 2004
through Three Months Ended Six Months Ended
December 16, 2004 February 29, 2004 February 29, 2004
----------------- ----------------- -----------------
Revenue:
Licensing and royalties $ 322,653 441,452 775,902
Customer support and maintenance 154,093 159,120 328,156
Other services 89,520 92,950 100,794
------------ ------------ ------------
566,266 693,522 1,204,852
------------ ------------ ------------
Operating costs and expenses:
Cost of revenue 224,818 174,907 281,167
Selling, general and administrative 483,060 425,031 858,468
Research and development 147,338 189,653 335,283
Loss in limited liability company 18,772 23,763 48,403
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873,988 813,354 1,523,321
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Operating loss (307,722) (119,832) (318,469)
Other (expense) income:
Loss on disposal of property - 6,414 (260,123)
Interest income 14,620 4,730 8,841
Interest expense - (1,161) (4,811)
Other, net (4,420) 2,323 3,904
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Loss before income taxes (297,522) (107,526) (570,658)
Income tax expense - - -
------------ ------------ ------------
Net loss $ (297,522) (107,526) (570,658)
============ ============ ============
Basic loss per share $ (0.02) (0.01) (0.04)
============ ============ ============
Weighted average common shares 13,121,659 13,121,659 13,112,659
============ ============ ============
Diluted loss per share $ (0.02) (0.01) (0.04)
============ ============ ============
Weighted average common shares and
potentially dilutive securities 13,121,659 13,121,659 13,112,659
============ ============ ============
See accompanying notes to financial statements.
TMSS Liquidation, Inc.
Condensed Statements of Cash Flows (unaudited)
Period from
September 1, 2004
through Six Months Ended
December 16, 2004 February 29, 2004
------------------ -----------------
Net cash flows used in operating activities $ (18,669) (63,102)
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Cash flows from investing activities:
Proceeds from sale of substantially all assets 517,396 -
Proceeds from sale of building - 431,226
Capitalized software development costs (7,654) (156,251)
Investment in limited liability company (45,615) (78,178)
Distribution from limited liability company - 154,922
Other, net - (24,423)
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Net cash provided by investing activities 464,127 327,296
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Cash flows from financing activities:
Repayments of long-term debt - (198,270)
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Net cash used in financing activities - (198,270)
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Net increase in cash 445,458 65,924
Cash at beginning of period 1,404,542 1,129,470
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Cash at end of period $ 1,850,000 1,195,394
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Noncash investing activities:
Issuance of notes receivable for sale of assets $ 340,974 -
=========== ==========
See accompanying notes to condensed financial statements.
TMSS, Liquidation Inc.
Notes to Financial Statements (unaudited)
Unaudited Interim Financial Statements
- --------------------------------------
The unaudited interim financial statements and related notes were prepared by
TMSS Liquidation, Inc. Certain information and disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to rules and regulations established by the Securities and Exchange Commission.
The accompanying unaudited financial statements should be read in conjunction
with the audited financial statements and related notes included in our Form
10-KSB Annual Report for the fiscal year ended August 31, 2004.
The unaudited 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.
Sale of Substantially All Assets and Accounting Basis
- -----------------------------------------------------
At a special meeting held on December 17, 2004, the Company's shareholders
approved the sale of the assets of our Component Product Technology ("CPT")
division to PIC Acquisition, Inc. ("Pegasus"), a wholly owned subsidiary of
Pegasus Imaging Corporation, and approved a plan of liquidation and dissolution
of the Company. The Company also completed the final closing of the transaction
with Pegasus and the sale of our membership interest in VSC Technologies, LLC
("VSC") to Measurement Incorporated ("MI").
In connection with the adoption of the plan of liquidation and dissolution of
the Company, we adopted the liquidation basis of accounting effective December
17, 2004. The accompanying condensed balance sheet as of August 31, 2004, and
the condensed statements of operations and cash flows for the period from
September 1, 2004 to December 16, 2004 and the three and six months ended
February 29, 2004 have been presented on a going concern basis comparable to
prior periods, which assumes the realization of assets and the liquidation of
liabilities in the normal course of business. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable cash value and
liabilities are stated at their anticipated settlement amounts. Upon changing to
the liquidation basis of accounting, the Company recorded a $409,212 increase to
net assets, which included an increase of $734,349 for the gain on sale of
assets to Pegasus and MI, and decreases of $99,966 for directors and officers
insurance, and $225,171 of accrued costs of liquidation representing the
estimate of the costs to be incurred during dissolution; however actual costs
could vary from those estimates.
Uncertainties as to the ultimate amount of our liabilities make it impracticable
to predict the aggregate net value that may ultimately be distributable to
stockholders. Claims, liabilities and future expenses for operations will
continue to be incurred with execution of the plan. These costs will reduce the
amount of net assets available for ultimate distribution to stockholders.
Although we do not believe that a precise estimate of those expenses can
currently be made, we believe that available net assets will be adequate to
provide for our obligations, liabilities, operating costs and claims, and to
make cash distributions to stockholders. If available cash are not adequate to
provide for our obligations, liabilities, operating costs and claims, estimated
future distributions of cash to our stockholders will be reduced.
At February 28, 2005, the Company had accrued $149,927 of costs of liquidation
which includes the following:
Estimated Costs of Liquidation:
Professional fees for preparation of tax returns, SEC filings and
other related services associated with implementation of plan of
liquidation $ 58,357
Costs of cash distribution to shareholders at time of liquidation 30,000
Compensation to officers and directors for services related to the
oversight and implementation of the plan of liquidation 26,570
Alternative minimum taxes 10,000
Record storage fees, telephone services, supplies, and other
administrative costs 25,000
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$ 149,927
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Legal Proceedings
- -----------------
The Company is a party to a lawsuit involving the Virtual Scoring Center
technology transferred to VSC Technologies, LLC. On October 23, 2002, the
Company, along with VSC Technologies, LLC and MI, filed an action in the United
States District Court for the Eastern District of North Carolina against NCS
Pearson, Inc. In the complaint, the Company and the other plaintiffs seek a
declaratory judgment that the Virtual Scoring Center technology owned by VSC
Technologies, LLC and marketed by MI and the Company does not infringe twenty
patents belonging to NCS Pearson. On June 3, 2003, NCS filed their answer to the
complaint, along with a set of counterclaims that assert infringement of
thirteen of their patents. The Company carefully designed and developed the
technology to avoid infringement and the Company has and continues to deny any
infringement of the NCS Pearson patents.
In March 2005, a tentative agreement was reached between the Company, MI and NCS
Pearson, to resolve the patent infringement lawsuit. The tentative settlement
provides for dismissal of the Company from the lawsuit and a complete release of
the Company and any of its affected customers from any claims of infringement
related to the lawsuit. The Company will not be required to pay any amounts to
NCS Pearson as part of the settlement. The parties anticipate a final settlement
by April 20, 2005.
Net Loss Per Share
- ------------------
Options to purchase 364,500 shares of common stock at prices ranging from $.27
to $.40 per share and 413,974 shares of common stock at prices ranging from
$.125 to $.40 per share were outstanding at December 17, 2004 and February 29,
2004, 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. Options to purchase 202,000 shares of common
stock at prices ranging from $.27 to $.3125 expired on March 17, 2005. The
remaining 162,500 of the options outstanding at December 17, 2005 will expire if
not exercised prior to the earlier of liquidation and dissolution of the Company
or June 6, 2006.
Item 2. Management's Discussion and Analysis or Plan of Operation
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Our actual results could differ materially from those set forth in the
forward-looking statements because of certain risks and uncertainties. Factors
that could cause actual results to differ materially from those described herein
include, without limitation, delays in the final settlement with NCS Pearson and
unexpected or greater than expected expenses associated with winding up the
affairs and liquidation the Company, as well as any unexpected and unknown
obligations or liabilities that are determined". As a result, you should not
rely on these forward-looking statements.
Upon sale of substantially all of the assets of the Company on December 17,
2004, we ceased normal operations and began the process of winding up the
affairs of the Company. As a result, we changed our basis of accounting to the
liquidation basis as of December 17, 2004. Under the liquidation basis of
accounting, assets and liabilities are reflected at the estimated amounts to be
paid or received, however actual costs could differ from those estimates. The
proceeds from the sale of our assets will be used to make a final cash
distribution to shareholders and cover the additional costs associated with the
liquidation and dissolution of the Company. At February 28, 2005 such additional
costs are estimated at approximately $150,000. See the "Notes to the Financial
Statements" for a detailed description of such costs. Distributions ultimately
made to stockholders upon liquidation will differ from the "net assets in
liquidation" recorded in the accompanying Statement of Net Assets in Liquidation
as a result of future changes in estimated investment income, settlement of
liabilities and obligations, and final costs of liquidation. The accompanying
historical Balance Sheet as of August 31, 2004 and Statements of Operations and
Cash Flows for the periods from September 1, 2004 - December 16, 2004 and for
the three and six month periods ended February 29, 2004 have been presented on a
going concern basis comparable to prior periods, which assumes the realization
of assets and the liquidation of liabilities in the normal course of business.
It is our intention to settle our outstanding obligations and convert our
remaining assets to cash as expeditiously as possible. Final dissolution of the
Company and distribution to stockholders will occur upon obtaining final
resolution on all liquidation issues and final settlement of the lawsuit with
NCS Pearson. See "Legal Proceedings" in the accompanying "Notes to the Financial
Statements".
Item 3. Controls and Procedures
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rule 13a-14 under the Securities Exchange
Act of 1934). Based upon that evaluation, the President and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective to allow timely decisions regarding required disclosure, however,
since the sale of substantially all of our assets on December 17, 2004, we have
been in the process of winding down our operations and we no longer have any
employees. The accounting and administrative functions are being performed by
Deborah D. Mosier, President and Chief Financial Officer on a part-time contract
basis along with our outside legal and accounting professional service
providers. As a result, the Company has limitations on its ability to provide
common internal control practices, including adequate segregation of duties.
While the activities of the Company are being monitored by the Board of
Directors, our inability to provide adequate segregation of duties and other
mitigating controls may be considered a material weakness in internal controls
over financial reporting.
PART II - Other Information
Item 1. Legal Proceedings
The Company is a party to a lawsuit involving the Virtual Scoring Center
technology transferred to VSC Technologies, LLC. On October 23, 2002, the
Company, along with VSC Technologies, LLC and MI, filed an action in the United
States District Court for the Eastern District of North Carolina against NCS
Pearson, Inc. In the complaint, the Company and the other plaintiffs seek a
declaratory judgment that the Virtual Scoring Center technology owned by VSC
Technologies, LLC and marketed by MI and the Company does not infringe twenty
patents belonging to NCS Pearson. On June 3, 2003, NCS filed their answer to the
complaint, along with a set of counterclaims that assert infringement of
thirteen of their patents. The Company carefully designed and developed the
technology to avoid infringement and the Company has and continues to deny any
infringement of the NCS Pearson patents.
In March 2005, a tentative agreement was reached between the Company, MI and NCS
Pearson, to resolve the patent infringement lawsuit. The tentative settlement
provides for dismissal of the Company from the lawsuit and a complete release of
the Company and any of its affected customers from any claims of infringement
related to the lawsuit. The Company will not be required to pay any amounts to
NCS Pearson as part of the settlement. The parties anticipate a final settlement
by April 20, 2005.
Item 4. Submission of Matters to a Vote of the Security Holders
On December 17, 2004 we held a special meeting in which our shareholders
approved the sale of our Component Product Technologies business to Pegasus and
a plan of liquidation and dissolution of the Company. Following are the final
results of the shareholder voting from the special meeting:
1. Approve the sale of the Company's Component Products Technologies business to
Pegasus Imaging Corporation and the Asset Purchase Agreement entered into by the
Company, Pegasus, and PIC Acquisition, Inc., a subsidiary of Pegasus.
FOR AGAINST ABSTAIN
9,850,486 359,450 16,863
2. Approve the Plan of Liquidation and Dissolution.
FOR AGAINST ABSTAIN
9,797,092 406,950 22,757
Item 6. Exhibits
31 Certification of Principal Executive and Financial Officer Pursuant to SEC
Rule 13a-14
32 Certification of Principal Executive and Financial Officer Pursuant to 18
U.S.C. Section 1350
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Registrant: TMSS Liquidation, Inc.
Date: April 14, 2005 /s/ Deborah D. Mosier
Deborah D. Mosier, President and
Chief Financial Officer
Principal Executive and Financial Officer
INDEX TO EXHIBITS
Exhibit
No. Description Method of Filing
--- ----------- ----------------
31 Certification of Principal Executive Filed herewith electronically
and Financial Officer Pursuant to
SEC Rule 13a-17
32 Certification of Principal Executive Filed herewith electronically
and Financial Officer Pursuant to
U.S.C. Section 1350