TMS, Inc. Reaches Agreement to Sell Assets of Division to Pegasus Imaging Corporation

TMS, Inc. (OTC Bulletin Board: TMSS), today announced it had reached an agreement to sell the assets of its Component Product Technology division to Pegasus Imaging Corporation. The value of the transaction is estimated at $2.9 million and includes approximately $2.2 million in cash and $.7 million in assumed liabilities. The terms of the transaction, along with a plan for liquidation of TMS and a cash distribution to shareholders, will be submitted to shareholders for approval within the next thirty to sixty days.

Over the past year, the board of directors and management of TMS carefully evaluated various economic factors associated with continuing to operate as a publicly held company relative to our current size and the growth potential of our existing products and services, said Debbie Mosier, TMS president. We currently estimate that nine percent of our revenue is used to cover the costs of being publicly held and that those costs will only continue to increase as more provisions of the Sarbanes-Oxley Act of 2002 go into effect, continued Mosier. As a result of our review of the economic and operational factors, the board of directors and management engaged in a formal process to evaluate various strategic alternatives for the Company. These alternatives included: continuing to operate and attempt to grow the revenue, reducing expenses, raising additional capital to expand operations, going private, and sale of the Company or a sale of some or all of its assets. Based on that process, we determined it was in the best interest of TMS shareholders to sell the Company or substantially all its assets and began the process of looking for potential buyers. We are very pleased to have reached an agreement with Pegasus that we believe is fair and in the best interest of the shareholders.

Under the terms of the asset agreement with Pegasus, the final cash purchase price, currently estimated at $2.2 million, will be based on certain aspects of TMS financial performance through September 30, 2004 and collection of accounts receivable until the planned liquidation date. Pegasus will also assume approximately $700,000 in liabilities for non-cancelable office leases, selected employee expenses and customer support and maintenance obligations. TMS expects the final transaction with Pegasus to close in October 2004 after approval by TMS shareholders.

Interest in VSC Technologies, LLC
TMS retains its interest in VSC Technologies, LLC, an entity that it formed with Measurement Incorporated (MI) in October 2002 to jointly develop the Virtual Scoring Center image-based scoring system (VSC), however, reaching an acceptable agreement to sell its interest is a condition to closing the Pegasus transaction. TMS is currently negotiating the sale of its membership interest in the LLC to MI. Measurement Incorporated plans to use the VSC system, which is still under development, to capture and score tests in its own operations. MI founder Dr. Henry Scherich was a member of the TMS board beginning in June 2003, however he resigned as a director effective July 12, 2004.

Upon approval by its shareholders, TMS plans to use the cash proceeds from Pegasus Imaging and sale of its interest in VSC Technologies, LLC to make a one-time cash distribution to its shareholders upon liquidation. The final cash available for distribution will be net of payments and provisions for liabilities of the Company, including professional fees and other costs necessary to secure and finalize the asset sales transactions, payments made to satisfy certain TMS employee obligations, payments for professional and other costs associated with winding up the affairs of the company, and final payment of income taxes not covered by the Companys tax operating loss carryforwards. TMS plans to liquidate by December 31, 2004.