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: May 31, 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.
(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
(Address of principal executive offices)
(405) 707-9060
(Issuer's telephone number)
(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 June 30, 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
May 31, 2005
-------------
Assets
Cash and cash equivalents $ 1,713,728
Amounts due from purchaser 348,202
-------------
Total Assets $ 2,061,930
=============
Liabilities
Accounts payable and accrued liabilities $ 14,874
Estimated costs of liquidation 121,086
-------------
Total Liabilities 135,960
-------------
Net Assets in Liquidation $ 1,925,970
=============
See accompanying notes to financial statements.
TMSS Liquidation, Inc.
Statement of Changes in Net Assets in Liquidation
Period from December 17,
2004 through May 31, 2005
-------------------------
Net Increase in Net Assets in Liquidation
Interest income $ 20,913
--------------
Net Increase in Net Assets in Liquidation 20,913
Net Assets in Liquidation at December 17, 2004 $ 1,905,057
--------------
Net Assets in Liquidation at May 31, 2005 $ 1,925,970
==============
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
Note receivable -
Accrued interest receivable -
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
-----------
Total assets $ 2,552,135
===========
Accounts payable $ 139,980
Accrued income taxes payable -
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 May Nine Months Ended May
December 17, 2004 31, 2004 31, 2004
----------------- -------- --------
Revenue:
Licensing and royalties $ 322,653 380,138 1,156,039
Customer support and maintenance 154,093 168,140 496,297
Other services 89,520 168,106 268,900
------------ ------------ ------------
566,266 716,384 1,921,236
------------ ------------ ------------
Operating costs and expenses:
Cost of revenue 224,818 167,649 448,816
Selling, general and administrative 841,272 390,748 1,249,216
Research and development 147,338 106,544 441,827
Loss in limited liability company 18,772 15,296 63,699
------------ ------------ ------------
1,232,200 680,237 2,203,558
------------ ------------ ------------
Operating (loss) income (665,934) 36,147 (282,322)
Other (expense) income:
Gain on sale of business 734,349 - -
Loss on disposal of property - - (260,123)
Interest income 14,620 3,994 12,835
Interest expense - - (4,811)
Other, net (4,420) - 3,904
------------ ------------ ------------
Income (loss) before income taxes 78,615 40,141 (530,517)
Income tax expense 10,000 1,415 1,415
------------ ------------ ------------
Net income (loss) $ 68,615 38,726 (531,932)
============ ============ ============
Basic income (loss) per share $ 0.01 0.00 (0.04)
============ ============ ============
Weighted average common shares 13,121,659 13,112,659 13,112,659
============ ============ ============
Diluted income (loss) per share $ 0.01 0.00 (0.04)
============ ============ ============
Weighted average common shares and
potentially dilutive securities 13,121,659 13,112,659 13,112,659
============ ============ ============
See accompanying notes to financial statements.
TMSS Liquidation, Inc.
Condensed Statements of Cash Flows (unaudited)
Period from
September 1, 2004
through December 17, Nine Month Ended
2004 May 31, 2004
----------- ------------
Net cash flows used in
operating activities $ (18,699) 24,463
----------- -----------
Cash flows from investing activities:
Proceeds from sale of business 517,426 -
Proceeds from sale of building - 431,226
Capitalized software development costs (7,654) (222,363)
Investment in limited liability company (45,615) (120,702)
Distribution from limited liability company - 154,922
Other, net - (27,402)
----------- -----------
Net cash provided by investing activities 464,157 215,681
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt - (198,270)
----------- -----------
Net cash used in financing activities - (198,270)
----------- -----------
Net increase in cash 445,458 41,874
Cash at beginning of period 1,404,542 1,129,470
----------- -----------
Cash at end of period $ 1,850,000 1,171,344
============ ===========
Noncash investing activities:
Issuance of note receivable for sale
of discontinued operations $ 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 nine months ended May
31, 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.
The Company is still determining its ultimate liabilities, which make it
impracticable to predict the aggregate net value that may ultimately be
distributable to stockholders, at this time. 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.
At May 31, 2005, the Company had accrued $121,086 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 $ 42,516
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 24,570
Record storage fees, telephone services, supplies and other
administrative costs 24,000
----------
$ 121,086
==========
Legal Proceedings
- -----------------
The Company was a party to a lawsuit involving the Virtual Scoring Center
technology transferred to VSC Technologies, LLC. In May 2005, a final agreement
was reached between the Company, MI and NCS Pearson, to resolve the patent
infringement lawsuit. The final 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
was not required to pay any amounts to NCS Pearson as part of the settlement.
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 May 31, 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, 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 May 31, 2005 such additional
costs are estimated at approximately $121,000. 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 nine month periods ended May 31, 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.
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 was a party to a lawsuit involving the Virtual Scoring Center
technology transferred to VSC Technologies, LLC. In May 2005, a final agreement
was reached between the Company, MI and NCS Pearson, to resolve the patent
infringement lawsuit. The final 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
was not required to pay any amounts to NCS Pearson as part of the settlement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31 Certification of Principal Executive and Financial Officer Pursuant to SEC
Rule 13a-14
32 Certification of Principal Executive and Financial Officers Pursuant to 18
U.S.C. Section 1350
(b) Reports on Form 8-K
The Company announced by a press release dated May 9, 2005 the final settlement
of a patent infringement lawsuit pending in the Eastern District of North
Carolina. See "Legal Proceedings" above for additional information.
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: TMS, Inc.
Date: July 6, 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-14
32 Certification of Principal Executive Filed herewith electronically
and Financial Officers Pursuant to 18
U.S.C. Section 1350