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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended August 31, 1999
[ ] 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: 000-18250
TMS, Inc.
(name of small business issuer in its charter)
Oklahoma 91-1098155
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 West 6th Avenue
P.O. Box 1358
Stillwater, Oklahoma 74076
(Address of principal executive offices) (Zip Code)
(405)377-0880
(Issuer's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.05
par value
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 at least the past 90 days.
YES[X] NO__
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
YES__ NO[X]
The Issuer's revenues for its most recent fiscal year were $4,956,137
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As of October 31, 1999 the aggregate market value of voting stock held by
nonaffiliates of such stock was $2,777,162 (based on the average bid and ask
price of such common equity on such date).
As of October 31, 1999 there were 13,580,659 share of Common Stock, $.05
par value, outstanding.
Documents Incorporated By Reference
Following is a list of documents incorporated by reference and the Part of
the Form 10-KSB into which the document is incorporated:
The Company's Proxy Statement in connection with its Annual Meeting of
Shareholders to be held on January 21, 2000 is incorporated by reference in
Part III, Items 9, 10, 11, and 12.
Transitional Small Business Disclosure Format: YES__ NO[X]
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___________
Form 10-KSB
for the fiscal year ended August 31, 1999
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Table of Contents PAGE
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PART I 2
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Item 1. Business 2
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II 7
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Item 5. Market for Common Equity and Related Stockholder Matters 7
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 7. Financial Statements 11
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 11
PART III 12
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Item 13. Exhibits and Reports on Form 8-K 12
Signatures 12
Index to Financial Statements and Financial Statement Schedule F1
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Companies and products named in this document may be trademarks of the
respective companies with which they are associated.
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Part I
ITEM 1. BUSINESS
General Development of Business
TMS, Inc., doing business as TMSSequoia (the "Company") is an Oklahoma
corporation, which has been engaged in the computer software business since
1981. During fiscal 1996, the Company acquired Sequoia Computer Corporation
("Sequoia"), a California corporation, through the merger of a subsidiary of the
Company with and into Sequoia. Sequoia, founded in 1987, developed and marketed
innovative software products in document image processing, image enhancement,
and forms processing. The resulting company, TMSSequoia, licenses computer
software products and provides services to enable businesses to use document
imaging to solve critical business problems. Typically, businesses wish to solve
these problems by electronically publishing and disseminating information. The
Company offers the following imaging technology solutions and services to attain
these objectives:
. Document imaging tools and utilities for:
Image Viewing
Image Enhancement
Forms Processing
. End-user applications for Internet/intranet image display
. Consulting and integration services
. Data capture and conversion services
Products
TMSSequoia's software product offerings include software development tools and
utilities, and end-user applications. The Company receives license fees and/or
royalties from the sales of these products.
Software development tools and utilities offer customers the core "building
block" technologies necessary for developing new software applications or
enhancing existing applications. In particular, the Company's tools and
utilities provide the fundamental technologies necessary for creating successful
document imaging and forms processing applications.
An end-user application is stand-alone software that installs directly on
the user's system or on the server in a client/server environment. The software
may function independently of any other software or may be closely associated
with another software package. Programming knowledge is not required to use an
end-user application.
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Tools and Technologies
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Customers use the Company's tools and utilities products to create custom
applications to meet critical business needs that pre-packaged end-user
applications often cannot achieve. They may wish to capture and display
digitized images such as engineering drawings, legal or financial transaction
documents, reference or regulatory documents, and photographs on many kinds of
computer workstations or personal computers, local area networks (LANs),
corporate intranets, or the Internet. Users may transmit the images to other
computers or facsimile machines, share the images with other users, and
manipulate, modify or print the images. Following are the Company's primary
tools and utilities products.
Image Viewing
ViewDirector(TM) The ViewDirector products are software development tools that
provide image display for black/white and color imaging applications. The tools
are typically used for image-enabling existing applications or for creating
custom applications. ViewDirector provides fast image display and a large suite
of image display tools (i.e., magnifiers, rotation, hyperlinking, annotations).
It is available as cross-platform C libraries or as an ActiveX component. The
Company licenses ViewDirector to Value Added Resellers ("VARs"), system
integrators, software developers and government agencies, as well as companies
who use the software internally. See "Product Markets". The Company receives a
royalty for each computer workstation utilizing the product.
RasterView(TM) RasterView is a simple, yet high performance image viewer for
even novice computer users. Suitable for image-enabling databases of scanned
images or other Windows applications, it may be used stand-alone or connected
via DDE links. It displays both black/white and color images and includes handy
magnifiers, image quality adjustments, image list file support, etc.
Image Enhancement
ScanFix(R) The ScanFix software technology automatically enhances scanned images
by removing specks, lines, shading, broken characters, etc., for greatly
enhanced images. It is used in virtually all types of document imaging
applications, especially where optical character recognition (OCR) processing is
required. ScanFix is licensed to original equipment manufacturers (OEMs) such as
IBM, Minolta, Ricoh and Xerox as well as corporate customers, government
organizations, and individual end-users. The Company receives a royalty for each
computer workstation utilizing the product. The ScanFix technology is offered as
cross-platform C Libraries or ActiveX toolkit, and as an end-user application.
In addition to direct sales, the Company periodically bundles and/or co-
markets its application with companies like Caere, Minolta and Xerox.
Eight patents were awarded for technology methods incorporated in the
ScanFix product in fiscal years 1997 and 1998. See "Copyrights, Patents,
Proprietary Information, Trademarks and Licenses."
SpectrumFix(TM) SpectrumFix, released in Fiscal 1999, is new software technology
developed by the Company for creating superior black and white (bitonal) images
originating from color or grayscale scanners. Color and grayscale documents and
forms have historically been very difficult to automatically process through
OCR. The SpectrumFix technology allows organizations to process color documents
by selectively converting specific colors to black or white and dropping out any
unwanted colors, leaving only the desired information for further data
processing. Previously this color dropout process could only be accomplished
using computer hardware, typically by changing the color of the bulb in the
scanner. Ideal applications for this technology include conversion of carbonless
forms, color registration forms, and other color or gray documents.
SpectrumFix is available as an end-user application and is scheduled to be
released as a software development toolkit (ActiveX) and TWAIN filter in Fiscal
2000. The Company expects to license SpectrumFix to VARs, OEMs, system
integrators, software developers and government agencies, as well as companies
who may use the software internally.
Forms Processing Solutions
FormFix(R) TMSSequoia markets its FormFix(R) developer's toolkit to highly-
skilled customers developing custom applications for high volume data capture
systems. Customers can create custom forms processing applications with the
FormFix development tool. Users can automatically identify a specific form and
extract typed or handwritten text, which can be read by OCR systems and
converted for use in relational databases, billing systems, and other high
volume data storage and retrieval systems. Examples include tax forms, medical
administration/billing, financial transactions and insurance claims. The product
is available as a C library. The Company licenses FormFix to VARs, system
integrators, software developers and government agencies, as well as companies
which use the software internally. See "Marketing". The Company receives a
royalty for each computer workstation utilizing the FormFix product.
End-User Applications
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Customers use the Company's applications products to display digitized images
such as engineering drawings, legal or financial transaction documents,
reference or regulatory documents, and photographs on many kinds of computer
workstations or personal computers, local area networks (LANs), corporate
intranets, or the Internet. Users may transmit the images to other computers or
facsimile machines, share the images with other users, and manipulate, modify or
print the images. Our application products are typically used in conjunction
with other corporate applications such
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as intranet-based document management systems. Following are the Company's
primary application products.
Internet/Intranet Image Display
The Company has developed a line of technologies to allow customers to view and
manage images on corporate intranets and the Internet using Internet browsers
such as Netscape(R) Navigator/Communicator or Microsoft(R) Internet
Explorer(TM). Similar to retrieving information over the Internet, users of
corporate intranet access corporate documents using standard web browsers. These
pages may reference scanned document images such as engineering drawings,
technical manuals, financial documents, or human resource information. Most
standard web browsers do not have the capability to display these scanned images
without additional third party technology. The Company's Prizm technologies
address this need and allow users the ability to view plus manipulate these
images inside their web browsers. The Prizm technology is available for all
major computer operating systems using traditional computing methods and new
Java(TM) technology. The Company's intranet imaging products include the
following.
Prizm(TM) Plug-in The Prizm Plug-in is an application that greatly extends the
capabilities of browsers such as Netscape Navigator/Communicator or Microsoft
Internet Explorer by providing document image viewing, manipulation and printing
of TIFF, JPEG and other compressed images. It offers image annotation,
hyperlinking and magnifying capabilities at each end-user's desktop. The Company
sells a unit of the product for each individual user. It is sold in both
standard and personal versions for multiple platforms. Free demonstration
versions are available on the Company's website (http://www.tmssequoia.com).
Netscape's free plug-in page listing for Prizm
(http://home.netscape.com/plugins/image_viewers.html) provides the Company with
a major source of leads for the product. The Prizm Plug-in was the Company's top
selling product for Fiscal 1999.
Prizm(TM) Image Server with Java(TM) Client Prizm Image Server is a Java-based
product that provides "thin client" document imaging viewing in Netscape and
Microsoft browsers. Thin client computing means that no software is required to
be installed on each end-user system. The Prizm Image Server Java technology is
temporarily and automatically downloaded from web servers only when needed,
which makes it an easy, economical way to provide intranet image display for
large groups. It has a server-side optimized imaging engine that supports
platform-independent Java clients. The Company sells the product on a per server
basis.
Prizm(TM) ActiveX Prizm ActiveX provides document image viewing, manipulation,
and printing in Microsoft Internet Explorer running on Windows 95, Windows 98
and Windows NT. As Internet Explorer's share of the web browser market grew in
Fiscal 1999, the demand for ActiveX controls accompanied that growth. The
Company sells the product on a per server basis.
Product Markets
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The primary market for the Company's products are large corporations, system
integrators, OEMs, VARs, and branches of the federal government desiring to more
cost-effectively and time-effectively use their information. The Company's
products span industry boundaries with customers including financial
institutions, law firms, pharmaceutical companies, transportation and aerospace
companies, insurance companies, software companies, private and public
utilities, manufacturers, engineering firms and defense agencies. The increasing
use of the World Wide Web and the Internet also offers marketing opportunities
to these customers who often have little or no expertise with the Internet or
corporate intranet development.
TMSSequoia's marketing efforts are conducted primarily through print
advertising, Internet advertising, direct mail, telemarketing, exhibits at trade
shows and conventions and making field sales calls with demonstrations. The
Company reduced it's trade show expenditures during Fiscal 1999 as compared to
1998. The large amount of information now available on the Internet has
generally reduced attendance at computer industry trade shows and the Company
has focused its marketing efforts on other areas.
Many of the Company's products are listed in the General Services
Administration ("GSA") contract schedule, to enable all agencies and branches of
the federal government and government contractors to easily purchase products,
training and technical support directly from the Company.
Currently, the Company employs 8 people in the marketing and sales of its
products. The Company has marketing and sales offices in Stillwater, Oklahoma
and Burlingame, California.
Product Distribution Methods
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The Company distributes its products through a direct sales force, domestic and
international resellers, online Internet-based stores, and firms creating and
selling turnkey solutions.
Product Competition
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The computer software field is highly competitive with many companies in the
industry. TMSSequoia competes with a number of companies that have greater
financial, technical and marketing resources. The Company believes that the
primary competitive factors with respect to its products are the features of its
products, the technical capabilities of the Company's personnel, quality of
service, and price. The Company believes that it can compete favorably with
respect to all of these factors and is focusing on markets when it believes that
it can achieve a leadership position.
The Company has competitors in each of the basic imaging tools and end-user
applications markets to which it supplies products. These companies, which
include AccuSoft, Pixel Translations, Snowbound Software, Kofax, Lead
Technologies, Seaport Imaging,
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Visionshape, FormWare, and TIS are selling products aimed at the Company's
customer base. Additionally, Eastman Software (formerly a division of Wang)
markets a basic imaging capability to purchasers of the Microsoft Windows(R)
operating systems.
Consulting and Integration Services
TMSSequoia offers a variety of services (referred to as Software Development
Services or Professional Services in the "Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") for analyzing business and information management processes as well
as integrating business solutions. Customers who do not have in-house technical
staff or expertise in a particular area seek outsourcing services as a cost-
efficient way to meet their needs. In particular, the services the Company
offers include:
. Requirements analysis
. System design
. Systems integration
. Custom development
. System maintenance
The Company charges for projects on a time and materials or flat-fee basis.
On occasion, some of the Company's toolkit customers contract for services.
Additionally, customers who do not have in-house technical staff may purchase
ongoing maintenance services from the Company.
Service Markets
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The Company's service division is focusing on two specific vertical markets for
providing document imaging and management solutions. The first vertical market
pertains to county governments. In fiscal 1999, the Company completed the
development and deployment of a turnkey land records document management system
for Oklahoma County and a similar turnkey system is currently being deployed for
Tulsa County in the state of Oklahoma. In 1999, the Company was, once again, one
of three finalists in the document management category of the Microsoft and
KMWorld Industry Solution Awards for the land records system provided to
Oklahoma County. The Company has submitted another land records management bid
to a large county in Virginia and has recently hired a full-time business
development professional that will aggressively pursue selling into county
governments nationwide. The second vertical market for software development
service offerings pertains to educational testing. The Company has participated
in a few pilot/proof of concept projects over the last year and is currently in
negotiations with potential partners for the development of a document imaging
and management system.
The Company continues to maintain its status as a Microsoft Certified
Solution Provider (MCSP). The MCSP status is an indication to the market in
general that company personnel are trained and proficient in state-of-the-art
technologies. The Company is also a certified PC-DOCS reseller. The products
from PC-DOCS/Fulcrum provide core document management technology from which
solutions can be built.
Services Competition
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TMSSequoia's Consulting and Integration Services division competes with both
regional and national companies some of whom have greater size and resources
than the Company. The Company is focusing on market areas where it believes that
the competition is minimized.
Data Capture and Conversion Services
TMSSequoia also provides data capture and conversion services (referred to
as "Document Conversion Services" in the "Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") for customers desiring the ability to use electronic data for
online information retrieval, intranet or Internet distribution, permanent
archives, electronic publishing or printing on demand. It offers a variety of
ways to capture plus enhance data for electronic delivery including:
. Data capture -- for converting paper documents and information to
electronic forms (using high speed scanning, OCR/ICR (intelligent
character recognition), forms processing, etc.)
. Indexing -- for large volume searching
. Hyperlinking -- for navigating complex sets of information
. Document markup -- for Internet/intranet document delivery or third
party retrieval products
TMSSequoia'a Document Conversion division was dramatically scaled back
during fiscal 1999. The Company has decided not to actively pursue additional
document conversion work. The Company will continue to do conversion work for
existing customers: Pennwell Publishing, TORO, ARI, US Coast Guard and Nissan
Diesel America.
Backlog
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As of October 31, 1999, there was a backlog of software development and document
conversion services revenue of approximately $360,000 compared to approximately
$1,250,000 as of October 31, 1998.
Copyrights, Patents, Proprietary Information, Trademarks and Licenses
The copyright laws permit the Company to copyright many aspects of its software.
TMSSequoia has obtained copyright registrations for its software products and
expects to apply for additional registrations in the future as appropriate.
Patent applications relating to the Company's ScanFix product were filed in
the United States Patent and Trademark Office. These
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applications have resulted to date in the Patent Office awarding eight patents.
The awarded patents cover the following technology areas: image processing,
image line removal, detection of scanned page skew, a method of deskewing
(incremental digital image rotation), document registration, dot shaded removal,
image despecking, horizontal and vertical line removal, line intersection
repair, automatic correction of inverted (white) text and general methods of
high speed image manipulation. The patents cover most of the key elements of the
ScanFix product line. The patents expire during the years 2011 through 2015. The
scope and extent of patent rights protecting computer software is evolving;
therefore, the Company cannot be assured that the issuance of such patents will
be upheld as valid or will prevent the development of competing products.
The Company is not aware of any claims of infringement of patents or other
intellectual property belonging to others which would have a material effect on
the Company's operations or financial condition.
The Company treats as proprietary any software it develops, and protects
its software through licensing and distribution agreements. In addition, the
Company requires written undertakings of confidentiality from all of its
employees as well as in all customer agreements, including license agreements,
which prohibit unauthorized duplication.
TMSSequoia has developed, through use, common law trademark rights in
ViewDirector, MasterView, ScanDirector, Prizm Plug-In, Prizm Image Server with
Java Client, Scan 'n Store, GrayFix, TMSFAX, CD-VU, ShowFax, TIFF Utilities,
BlackTIE, RasterView, CompressDirector, and Prizm ActiveX as used in connection
with the Company's software products. The Company has registered trademarks on
the ScanFix, FormFix and SpectrumFix products.
The Company grants its customers a non-exclusive, non-transferable license
for the ViewDirector, ScanFix, and FormFix toolkit products for use on computers
used by personnel or customers of licensees. The Company typically receives an
initial license fee for the toolkit and offers an optional annual maintenance
fee for such products. Licenses of the Company's toolkits entitle licensees to
develop custom applications using the toolkits, then distribute the software to
users inside their organization, or to their end customers, and the Company
receives a royalty for each computer workstation on which the software is used.
The duration of license agreements generally ranges from one to five years.
Research and Development
TMSSequoia recognizes the need to continually develop new and improved products.
Current plans include efforts to further enhance the Internet products, to
improve the features and functions of its ViewDirector product, to expand the
adoption of TWAIN Filter(TM) and COM technology in its products, and to increase
color imaging and forms processing technology. Pursuing these efforts will
necessitate further improvements in the Company's core technologies. The Company
also creates new products through its Software Development Services projects.
Customers bring conceptual ideas for products to the Company for development,
thus supplementing the Company's own research and development.
In fiscal years 1999 and 1998, the Company capitalized software development
costs of $350,626 and $487,021, respectively, related to new products and
product enhancements. The Company intends to maintain the level of expenditures
for research and development; however, the extent to which such levels can be
maintained will be dependent upon available working capital. With the Company's
decrease in service work backlog there may be engineering staff available to
assist in the development of new products and product enhancements.
Employees
At August 31, 1999, the Company had 42 full-time employees and 4 hourly
employees for a total of 46 employees. The Company's business is dependent in
large part on its ability to attract and retain qualified technical, marketing
and management personnel, and the Company must compete with larger and more
established companies for such persons.
Customers
The Tinker Small Business Innovation Research grant contract ("SBIR") accounted
for approximately $495,000, or 10%, of the Company's total revenue in fiscal
1999. The SBIR project was substantially completed during the first quarter of
fiscal 2000. Management has secured additional service contracts, but not at the
level of revenue reported for the SBIR contract. The Oklahoma County Government
("OK County") accounted for approximately $853,000, or 12%, of the Company's
total revenue in fiscal 1998. The Company has continued to develop strategic
relationships with large firms to produce revenue opportunities for both
products and services.
Sales to Foreign Customers
Approximately 13% and 7% of total revenues for fiscal 1999 and 1998,
respectively, are attributable to sales to foreign customers. See Note 8 to the
Financial Statements.
ITEM 2. PROPERTIES
The Company's headquarters consist of approximately 14,700 square feet of office
space located at 206 West Sixth Avenue in Stillwater, Oklahoma. The Company
purchased the building in fiscal 1994 and occupied the space in fiscal 1995
after renovation was complete. The Company secured a mortgage on the building in
fiscal 1995 (see Note 2 to the Financial Statements for additional information).
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The Company has offices in Burlingame, California and Tulsa, Oklahoma.
Collectively these offices amount to approximately 3,000 square feet and monthly
rentals approximate $5,600.
The Company believes its facilities will meet capacity requirements for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding which, if decided adversely
to the Company, would have a material impact on the Company's business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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Part II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market, and prices
are quoted by the National Quotation Bureau, Incorporated ("NQB") on the "pink
sheets," and the NASD Non-NASDAQ OTC Bulletin Board. The following table sets
forth the quarterly range of high and low bid prices of the Company's Common
Stock for fiscal years 1999 and 1998. The quotations are inter-dealer prices
without retail markups, markdowns, or commissions and may not represent actual
transactions. The source of such quotations is the NQB.
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BID PRICES
FISCAL 1999 HIGH LOW
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First Quarter $.375 .260
Second Quarter .380 .260
Third Quarter .350 .290
Fourth Quarter .340 .260
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FISCAL 1998 HIGH LOW
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First Quarter $.562 .406
Second Quarter .500 .312
Third Quarter .687 .312
Fourth Quarter .593 .343
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The Company has not declared nor paid any cash dividends since its
incorporation, nor does it anticipate that it will pay dividends in the
foreseeable future. Any earnings realized by the Company are expected to be
reinvested in the Company's business; however, the declaration and payment of
dividends in the future will be determined by the Board of Directors in light of
conditions then existing, including, among others, the Company's earnings, its
financial condition and capital requirements (including working capital needs),
and any arrangements restricting the payment of dividends. The Company has
approximately 1,700 shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This analysis of the Company's results of operations and financial condition
should be read in conjunction with the financial statements, description of the
Company's business and other information included elsewhere herein. Except for
the historical information contained herein, this Form 10-KSB contains certain
forward-looking statements regarding the Company's business and prospects that
are based upon numerous assumptions about future conditions which may ultimately
prove to be inaccurate and actual events and results may materially differ from
anticipated results described in such statements. The Company's ability to
achieve such results is subject to certain risks and uncertainties, such as
those inherent generally in the computer software industry and the impact of
competition, pricing and changing market conditions. The Company disclaims,
however, any intent or obligation to update these forward-looking statements. As
a result, the reader is cautioned not to place reliance on these forward-looking
statements.
Tools and Technologies
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1999 1998
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Revenue:
Image viewing $ 733,945 1,395,905
Image enhancement 688,653 943,109
Forms processing 353,254 326,475
Other 254,346 516,941
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Total revenue 2,030,198 3,182,430
Cost of revenue 366,980 473,689
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Gross profit 1,663,218 2,708,741
Selling and marketing expense 552,811 574,045
General and administrative expense 540,498 630,331
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Operating income $ 569,909 1,504,365
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Fiscal 1999 revenue for Tools and Technologies (TNT) was $2,030,198
compared to $3,182,430 for fiscal 1998, a decrease of $1,152,232, or 36%. Image
viewing products (e.g. ViewDirector) decreased 47% in fiscal 1999, which
accounted for the majority of the total TNT revenue decline. Substantially all
of the image viewing revenue decrease came from a decline in the number of units
reported/purchased from royalty reporting customers. The Company believes that
the population of image viewing royalty-reporting cus-
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tomers is slowly declining and the number of units utilized by customers is also
declining. Revenue from image viewing toolkit direct sales and related royalty
unit purchases has declined because of increased competition. Over the last 3
years, the Company focused the majority of its development efforts on image
enhancement, forms processing and Internet viewing and image management
products. This has affected the Company's ability to maintain a competitive
position with regard to features and functions of its image viewing products.
Image enhancement products (e.g. ScanFix) declined approximately 27% from fiscal
1998 to fiscal 1999. The decline in image enhancement products is primarily due
to fewer direct sales as compared to the prior year. The Company believes that
fewer sales employees and inadequate promotion of the image enhancement product
line are the primary reasons for the decline in image enhancement direct sales
revenue. Late in the fourth quarter the company hired a vice president of
marketing who has technology related business development and strategic
marketing experience. She will oversee all aspects of the TNT product
management, sales and marketing. Fiscal year 1999 forms processing revenue
increased 8% over fiscal year 1998. One customer accounted for 56% of forms
processing revenue for fiscal year 1999. The decline in "other" TNT revenue
resulted from text product royalty streams. The Company no longer develops text
products for sale, but continues to benefit from royalties from customers that
purchased text products in the early to mid 1990's. Variability from this
revenue source is entirely dependent on customer usage/distribution of the
Company's text technology and is expected to continue to decline over time.
Gross profit margins for TNT were 82% and 85% for the fiscal year ending
August 31, 1999 and 1998, respectively. The lower gross profit margin in fiscal
year 1999 is almost entirely a result of the decline in revenue.
Selling and marketing expenses declined only 4% despite the significant
decrease in TNT revenue. The decrease in revenue primarily resulted from a lower
royalty stream that essentially has no variable selling costs.
General and administrative expense declined 14% over the prior year. The
decline in general and administrative costs for the fiscal year ending August
31, 1999, resulted from a re-allocation of management attention and related
costs to other segments, and a $25,000 credit to re-allocate bad debt expense to
the document conversion segment for a specific write-off of a customer account.
The overall decline in general and administrative costs was partially offset by
a $130,000 charge to write-off another specific uncollectible customer account.
Operating income margins for TNT were 28% and 47% for fiscal year ended
1999 and 1998, respectively. The 36% decline in TNT revenue was the primary
factor that resulted in lower operating margins in fiscal 1999.
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End-user Applications
1999 1998
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Revenue:
Internet/intranet $1,162,559 1,120,450
Other 67,686 48,599
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Total revenue 1,230,245 1,169,049
Cost of revenue 518,581 433,783
- -------------------------------------------------------
Gross profit 711,664 735,266
Selling and marketing expense 493,114 595,537
General and administrative
expense 406,292 513,835
- -------------------------------------------------------
Operating loss $ (187,742) (374,106)
- -------------------------------------------------------
</TABLE>
Fiscal 1999 revenue for end-user applications (EUA) was $1,230,245 compared
to $1,169,049 for the same period last year, an increase of $61,196 or 5%.
Approximately 10% of the current fiscal year EUA revenue came from a multiple
licensing arrangement of Internet/intranet products (e.g. Prizm Plug-in) to a
single customer. In fiscal 1998, 16% of the revenue was attributed to a multiple
licensing arrangement with a different customer. The flat revenue trend is
mainly due to the lack of marketing efforts during fiscal 1999. As mentioned in
the Tools and Technologies section, a vice president of marketing was hired late
in the fiscal year to focus on strategic marketing for the Company. "Other"
revenue includes customer support/maintenance contracts. The 39% increase over
the prior year resulted from an increased emphasis on selling
support/maintenance contracts to corporate customers.
Gross profit margins for EUA were 58% and 63% for the fiscal year ending
1999 and 1998, respectively. During the fiscal 1999 first quarter, the Company
charged approximately $111,000 to cost of revenue for a non-recurring write-down
of the remaining unamortized development costs for Scan `n' Store (SNS). The SNS
write-down was the primary reason for the lower gross profit margin as compared
to the same period last year. During fiscal 1999, the Company decided to
eliminate SNS as a separate product for sale because financial returns from the
product were not expected to be enough to warrant the Company allocating
additional promotion, development, and technical support resources that would be
required to enhance its market viability. The Company believes that because of
certain competitive strengths, devoting the majority of its resources on
expanding Internet/intranet products, image and forms processing technologies
and custom software development solutions, will result in better financial
returns than SNS. In conjunction with the elimination of SNS, the Company
incurred approximately $30,000 in non-recurring selling, general and
administrative costs during the year for employee severance, closing down a
remote sales office, and contractual technical support obligations with VARs who
have already purchased the product.
<PAGE>
Selling and marketing expense declined 17% during fiscal year 1999.
Additionally, general and administrative expenses declined 21% for the same time
period. The elimination of SNS had the most significant impact on the decrease
because of an overall reduction in personnel, a decrease in marketing activities
and a reduction in both direct and allocated overhead costs.
<TABLE>
<CAPTION>
Professional Services
1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Revenue:
Software development services $1,204,403 1,271,668
Cost of revenue 1,022,538 857,977
- ------------------------------------------------------------
Gross profit 181,865 413,691
Selling and marketing expense 240,071 320,502
General and administrative expense 383,836 351,569
- ------------------------------------------------------------
Operating loss $ (442,042) (258,380)
- ------------------------------------------------------------
</TABLE>
Fiscal 1999 revenue for Professional Services (PS) was $1,204,403 compared
to $1,271,668 for fiscal 1998, a decrease of $67,265, or 5%. Approximately 65%
of fiscal year 1998 revenue came from one customer contract. For fiscal year
1999, three customer contracts accounted for approximately 84% of service
revenue. As of August 31, 1999, the PS segment had an estimated revenue backlog
of approximately $470,000. This backlog is less than the direct labor capacity
that is projected to be available through the Company's second quarter.
The Company has recently revised its operational structure and has
incorporated processes for resource contingency planning should the Company not
be able to secure additional PS backlog in the near-term.
Gross profit margins for PS were 15% and 33% for fiscal year ending 1999
and 1998, respectively. In addition to revenue shortfalls experienced during the
first quarter of the current fiscal year, gross profit and operating margins
were negatively impacted by unanticipated cost overruns in the Oklahoma County
(OK County) project. The OK County project was the predominant source of revenue
throughout fiscal 1998. The Company estimates that this overrun cost the PS
segment approximately $130,000 during fiscal 1999. The Company received final
acceptance from OK County late in fiscal year 1999 and does not expect to incur
additional significant costs. Gross profit margins were also negatively impacted
by cost overruns on two other fixed fee projects that accounted for
approximately 44% of fiscal 1999 PS revenue. In late August, the Company
significantly increased the number of hours estimated to complete these two
projects, and in the fiscal 1999 fourth quarter recorded a revenue adjustment of
approximately $105,000 to accurately reflect the low gross margins that the
Company expects to continue to record through the completion of these projects
into the first and second quarters of fiscal year 2000. One other PS service
project that accounted for approximately 40% of fiscal 1999 revenue contributed
to low gross profit margins for the segment because it was contracted on a time
and materials basis at below market rates. This project was substantially
completed during the Company's fiscal 2000 first quarter.
Selling and marketing expense declined 25% for fiscal 1999; whereas,
general and administrative expenses increased 9% for the same time period. The
decline in selling and marketing expenses primarily resulted from two fewer
sales employees in the segment and less direct marketing dollars dedicated to
advertising and tradeshows because historical investments in direct marketing
efforts have not provided adequate returns. The increase in general and
administrative expenses primarily relates to the cost restructuring within the
Company (See "Total Company Operating Results" below) resulting in more
management time and costs being dedicated to a formal process for continuous
improvement of customer contracting and management, project planning and
management, and quality control of software development processes.
<TABLE>
<CAPTION>
Document Conversion
1999 1998
- -----------------------------------------------------------
<S> <C> <C>
Revenue:
Data capture $ 190,361 1,157,756
Electronic publishing 300,930 573,776
- -----------------------------------------------------------
Total revenue 491,291 1,731,532
- -----------------------------------------------------------
Cost of revenue 274,536 1,100,960
- -----------------------------------------------------------
Gross profit 216,755 630,572
Selling and marketing expense 20,386 187,137
General and administrative expense 312,048 356,199
Restructuring charge 70,895 --
- -----------------------------------------------------------
Operating (loss) income $(186,574) 87,236
- -----------------------------------------------------------
</TABLE>
Fiscal 1999 revenue for Document Conversion (DC) was $491,291 compared to
$1,731,532 for fiscal 1998, a decrease of $1,240,241 or 72%. The most
significant portion of business development and contract conversion work in the
prior year focused on large back-file conversion of documents for imaging and
database management. This revenue is classified as "Data capture" in the above
table. Because of the low margins and competitive nature of back-file jobs that
became evident throughout the prior fiscal year, the Company made a decision in
late May 1998, to discontinue pursuit of large back-file conversion/data capture
activities and focus its efforts on electronic publishing of documents.
Electronic publishing has traditionally resulted in higher margins for the
Company and is more in line with the Company's core competencies. In October of
fiscal 1999, the Company decided to restructure DC operations and only continue
to support customer relationships which primarily relate to electronic
publishing activities and for which there are contractual obligations. Many of
these customers are using technology that is unique to the Company which thus
makes the
<PAGE>
Company a sole source provider. The Company's DC segment strategy is to retain
the current customer contracts that are more profitable and not actively seek
new customers. There are no selling or marketing efforts currently being
undertaken for the DC segment. During 1999, the Company charged $70,895 to
operations to restructure the DC segment. The restructuring charge includes
approximately $53,000 of equipment write-downs, $15,000 of employee severance
costs, and $3,000 for closing down the leased DC facility. All remaining DC
employees were relocated to the Company's headquarters building. In addition to
the non-recurring restructuring charge, general and administrative expense
includes a $55,000 non-recurring write-off of a portion of a customer account,
of which $25,000 was an internal reallocation of bad debt expense from the TNT
segment. During the year, the Company was notified by a customer that it would
be phasing out the Company's services through December of 1999. This customer
accounted for approximately 82% of the Data Capture revenue during the current
fiscal year. The data capture activity that is currently being performed for
this customer results in very low margins. Accordingly, phasing out this
contract is not expected to have a significant impact on future operating
results.
Total Company Operating Results
Following is a report of total company revenue and a reconciliation of
reportable segments' operating (loss) income to the Company's total net (loss)
income for fiscal year ending 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------
<S> <C> <C>
Total company revenue $4,956,137 7,354,679
- --------------------------------------------------------
Operating (loss) income for
reportable segments (246,449) 959,116
Unallocated corporate expenses (448,475) (481,379)
Interest income 25,971 13,160
Interest expense (31,793) (41,756)
Other, net 17,964 (7,045)
- --------------------------------------------------------
Income tax (expense) benefit (3,702) 46,887
- --------------------------------------------------------
Net (loss) income $ (686,484) 488,983
- --------------------------------------------------------
(Loss) income per share:
Basic $ (0.05) 0.04
Diluted (0.05) 0.04
- --------------------------------------------------------
</TABLE>
Total revenue for fiscal 1999 was $4,956,137 compared to $7,354,679 for
fiscal 1998, a decrease of $2,398,542, or 33%. Net loss for the fiscal year
ending 1999 was $686,484, or $0.05 loss per share (basic and diluted), compared
to net income of $488,983, or $0.04 income per share (basic and diluted), for
fiscal 1998. The net loss of $686,484 reported for the fiscal year ending 1999
is primarily the result of the revenue and related operating margin shortfalls
described above in the individual reportable segment discussions, combined with
an approximate $111,000 write-off for the elimination of SNS, $71,000 of DC
segment restructuring costs and a $130,000 additional charge to provide a 100%
reserve against an uncollectible customer account. In addition to the DC segment
restructuring charge, the Company implemented other actions during the year to
help reduce costs. These actions included additional reductions to the Company's
work force and elimination of other in-process product development projects that
were not expected to result in significant returns on investments and/or are not
core to on-going operations. The Company also incurred costs of approximately
$40,000 during the current fiscal year in an effort to acquire certain
intellectual properties that would provide more complete end-user solutions to
entities requiring high volume forms processing. The Company was unsuccessful in
a competitive bidding process to acquire those assets, but plans to pursue other
opportunities that might strengthen the Company's Internet/intranet imaging,
image and forms processing and custom software development services offerings.
The Company's income tax expense rate was 1% for fiscal 1999 compared to an
11% effective income tax benefit rate for fiscal 1998. The effective income tax
rates for both fiscal years 1999 and 1998 differed from the "expected" Federal
tax expense rate of 34%, primarily because of a change in the valuation
allowance provided against the Company's deferred tax assets. Deferred tax
assets are primarily the result of the Company's net operating loss
carryforwards. See "Income Taxes" in Note 3 to the Financial Statements.
Impact of Year 2000 Issue
The Company is addressing the need to ensure that its operations will not be
adversely impacted by software or other system failures related to year 2000
(Y2K). The Company has formed an oversight committee and has developed a plan to
coordinate the identification, evaluation and implementation of any necessary
changes to internal computer systems, applications and business processes. As of
December 31, 1998, the Y2K committee had identified and prioritized the
Company's information technology and non information technology systems that
could potentially be impacted by Y2K. The Company is currently in the process of
determining Y2K readiness for all identified systems and expects to be completed
by the end of November 1999. The Y2K committee is undertaking three primary
steps to validate systems readiness: (1) obtaining a vendor readiness statement,
(2) internal testing, and (3) third-party validation through an authorized
organization that has already tested the systems. The Company plans to perform
the procedures described in steps (1) and (2) for all systems that are not
already validated through a third-party authorized organization. Additionally,
internal testing will be performed on all critical systems prior to the end of
November 1999. The Company has developed a detailed schedule
<PAGE>
of events that will be required to correct Y2K problems. The Company has begun
implementing solutions for any systems identified to have a Y2K problem. This
phase includes applying solutions, verifying that solutions make the system(s)
Y2K ready, and developing a contingency plan for any critical system that is not
deemed Y2K compliant. The Company plans to have completed all Y2K readiness and
contingency planning by November 1999. The Company anticipates that the Y2K
processes discussed above will be performed utilizing existing employees. The
Company does not track the internal costs incurred for the Y2K project since
such costs are principally related to the payroll costs for its employees.
Accordingly, the Company has not incurred any material incremental costs and has
not identified any significant incremental future costs associated with Y2K
activities. Upon completion of the systems readiness phase in November, the
Company will evaluate whether incremental costs will need to be incurred for
systems that are critical to the organization and not deemed to be Y2K
compliant. The Company has not identified the most reasonably likely worst case
scenario in the event the Company does not obtain Y2K readiness. This will be
performed during contingency planning.
No assurances can be given that the Company will be able to completely
identify or address all year 2000 compliance issues, or that third parties with
whom the Company does business will not experience system failures as a result
of the year 2000 issue, nor can the Company fully predict the consequences of
noncompliance.
The Company has reviewed all of its software products for sale and
determined them to be year 2000 compliant and accordingly, does not believe it
will be adversely impacted by year 2000 issues as it relates to compliance for
its own products for sale. However, it is possible many companies may
temporarily ban purchases and deployment of software products as they finalize
their own Y2K readiness. This could have an impact on the company's revenue in
the first and second quarters of fiscal year 2000, but the potential outcome is
not estimable at this time.
Financial Condition
Working capital, at August 31, 1999, was $1,797,164 with a current ratio of
4.3:1 compared to $2,096,032 with a current ratio of 4.2:1, at August 31, 1998.
Net cash provided by operations for the fiscal year ending 1999 was $1,023,821
compared to $998,664 for fiscal year ending 1998. Despite the significant
operating loss reported for the current fiscal year, operating cash flow was
strong because of improved customer collection processes and final acceptance of
several significant service contracts resulting in current year payments for
revenue recognized in the prior fiscal year. Net cash used in investing
activities for fiscal year ending August 31, 1999 was $384,158 compared to
$788,836 for the same period in fiscal 1998. The decrease in investing
activities primarily relates to additional equipment secured in the prior year
to meet requirements under document conversion service contracts.
During the prior fiscal year, the Company borrowed $340,000 against its
$800,000 line of credit for general operating purposes and repaid $418,000
during the same fiscal year. This resulted in a balance of $0 outstanding
against the line of credit at August 31, 1998. The Company also entered into
$186,000 of capital lease obligations during the fiscal year 1998 to obtain the
scanners needed to meet requirements under document conversion contracts. No
borrowings were required during fiscal year 1999, and a maximum of $800,000
remains available under the operating line of credit.
During the current year, the Company took significant actions to reduce its
operating cost structure. Specific actions included a head count reduction, the
closing down of three offices and elimination of products/services that were not
expected to produce significant financial returns for the Company. These changes
are expected to have a positive impact on operating cash flow and accordingly,
the Company believes that operating cash flow and the $800,000 operating line of
credit will be adequate to meet its current obligations and current operating
and capital requirements. The funding of long-term needs is dependent upon
increased revenue and profitability and obtaining funds through outside debt and
equity sources. The funding for long-term needs includes funding for increased
product development, for expanded marketing and promotion of the Company and its
products, and for potential merger/acquisition activities.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes standards for accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for changes in fair value of a derivative depends on the intended use
of the derivative and the resulting designation. Adoption of SFAS No. 133 is not
expected to impact the Company because the Company does not own derivative
instruments.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this Item are set forth beginning on page
F1 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
Part III
Information required in response to Items 9-12 shall appear in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A within 120
days of the fiscal year end covered hereby, and shall be incorporated herein by
reference when filed.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits The following exhibits are included with this report; all
employment contracts and compensatory plans are marked with an asterisk (*):
Exhibit Name of Exhibit
- -------------------------------------------------------------------------------
2.1 Amended Plan of Reorganization and Agreement of Merger (the "Merger
Agreement") dated November 7, 1995, incorporated herein by reference
to Exhibit No. 2.1 to Amendment No. 2 to Form S-4 as filed with the
Securities and Exchange Commission on February 6, 1996.
2.2 Amendment No. 1 to the Merger Agreement, dated December 6, 1995,
incorporated herein by reference to Exhibit No. 2.2 to Amendment No. 2
to Form S-4 as filed with the Commission on February 6, 1996.
3.1 Certificate of Incorporation of the Registrant, as amended,
incorporated herein by reference to Exhibit No. 3.1 to the
Registrant's Form 10-K for the fiscal year ended August 31, 1995.
3.2 Bylaws of the Registrant, as amended, incorporated herein by reference
to Exhibit No. 3.1 to the Registrant's Form 8-K Current Report dated
June 4, 1993.
10.1* Employee Stock Option Plan, incorporated herein by reference to
Exhibit No. 10.1 to the Registrant's Form 10 Registration Statement,
filed with the Commission on January 15, 1990 (the "Form 10").
10.2* Senior Employee Stock Option Plan, incorporated herein by reference to
Exhibit No. 10.2 to the Registrant's Form 10.
10.3* Employee Incentive Stock Option Plan, incorporated herein by reference
to Exhibit No. 10.3 to the Registrant's Form 10.
10.4 Form of Engineering Services Agreement between the Registrant and The
Toro Company, incorporated herein by reference to Exhibit No. 10.4 to
the Registrant's Form 10-K for the fiscal year ended August 31, 1995.
10.5 Form of Engineering Services Agreement between the Registrant and
POWERCOM-2000, Inc. ("POWERCOM"), incorporated herein by reference to
Exhibit No. 10.7 to the Registrant's Form 10-K for the fiscal year
ended August 31, 1994.
10.6 Form of Value Added Reseller Agreement/Software Product License
Agreement between the Registrant and POWERCOM, incorporated herein by
reference to Exhibit No. 10.8 to the Registrant's Form 10-K for the
fiscal year ended August 31, 1994.
10.7 Form of Engineering Services Agreement (Document Conversion) between
the Registrant and POWERCOM, incorporated herein by reference to
Exhibit No. 10.9 to the Registrant's Form 10-K for the fiscal year
ended August 31, 1994.
10.8 Engineering Services Agreement between the Registrant and the Oklahoma
County Government incorporated herein by reference to Exhibit No. 10.8
to the Registrant's Form 10-KSB for the fiscal year ended August 31,
1998.
10.9* TMS, Inc. Employee Stock Purchase Plan
10.10* TMS, Inc. 1996 Stock Option Plan, incorporated herein by reference to
Exhibit No. 99 to the Registrant's Form S-4 as filed with the
Commission on May 16, 1996.
10.11 Contract number F34601-98-C-0145 between the Registrant and the
Department of the Air Force.
23.1 Consent of KPMG LLP
27.0 Financial Data Schedule
(b) Reports on Form 8-K No Form 8-K Current Reports were filed by the Company
during the last quarter of fiscal 1999.
________________
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT: TMS, INC.
- -----------------------------------------------------------------------------
Date: 11/20/99 BY: /s/ Deborah D. Mosier
-----------------------------------------------------
Deborah D. Mosier, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: 11/20/99 BY: /s/ Dana R. Allen
-----------------------------------------------------
Dana R. Allen
Date: 11/20/99 BY: /s/ Doyle E. Cherry
-----------------------------------------------------
Doyle E. Cherry
Date: 11/20/99 BY: /s/ Deborah D. Mosier
-----------------------------------------------------
Deborah D. Mosier, President
Date: 11/20/99 BY: /s/ James R. Rau, M.D.
-----------------------------------------------------
James R. Rau, M.D., Director
Date: 11/20/99 BY: /s/ Russell W. Teubner
-----------------------------------------------------
Russell W. Teubner, Director
Date: 11/20/99 BY: /s/ Marshall C. Wicker
-----------------------------------------------------
Marshall C. Wicker, Director
Date: 11/20/99 BY: /s/ Anita Kunneman
-----------------------------------------------------
Anita Kunneman, Principal Accounting Officer
<PAGE>
Index to Financial Statements and Financial Statement Schedule PAGE
- -------------------------------------------------------------------------------
Independent Auditors' Report F1
Financial Statements
Balance Sheets: August 31, 1999
and 1998 F2and F3
Statements of Operations: Years Ended
August 31, 1999 and 1998 F4
Statements of Shareholders' Equity:
Years Ended August 31, 1999 and 1998 F5
Statements of Cash Flows: Years Ended
August 31, 1999 and 1998 F6
Notes to Financial Statements:
August 31, 1999 and 1998 F7 through F14
Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts: 1999 and
Years Ended August 31, 1998 F14
All other schedules are omitted as they are inapplicable or not required, or the
required information is included in the Financial Statements or Notes to
Financial Statements.
Independent Auditors' Report
The Board of Directors and Shareholders TMS, Inc.:
We have audited the financial statements of TMS, Inc. (dba TMSSequoia) as listed
in the accompanying index. In connection with our audits of the financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TMS, Inc. as of August 31,
1999 and 1998 and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG LLP
Oklahoma City, Oklahoma
October 15, 1999
<PAGE>
Balance Sheets
August 31, 1999 and 1998
<TABLE>
<CAPTION>
TMS, Inc. (dba TMSSequoia) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,057,710 491,696
Trade accounts receivable, net of
allowance for doubtful accounts
of $395,069 in 1999 and
$190,000 in 1998 574,067 1,293,921
Contract service work in process 415,985 597,345
Deferred income taxes 242,701 275,248
Prepaid expenses and other current assets
55,317 89,802
- -------------------------------------------------------------------------------
Total current assets 2,345,780 2,748,012
- -------------------------------------------------------------------------------
Property and equipment:
Land 111,000 111,000
Building 747,634 753,826
Computer equipment 1,662,954 1,934,913
Furniture and fixtures 371,366 387,668
- -------------------------------------------------------------------------------
Less accumulated depreciation and 2,892,954 3,187,407
amortization (1,590,081) (1,527,528)
- -------------------------------------------------------------------------------
Net property and equipment 1,302,873 1,659,879
- -------------------------------------------------------------------------------
Other assets:
Capitalized software development costs,
net of accumulated amortization of
$645,004 in 1999 and $848,280 in 1998 481,169 620,539
Deferred income taxes 241,799 209,252
Other assets 45,191 47,901
- -------------------------------------------------------------------------------
Total other assets 768,159 877,692
- -------------------------------------------------------------------------------
Total assets $ 4,416,812 5,285,583
- -------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current obligations under
capital leases $ 66,250 60,763
Current installments of long-term debt 27,313 23,631
Accounts payable 103,341 147,844
Accrued payroll expenses 236,070 319,99
Deferred revenue 115,642 99,747
- -------------------------------------------------------------------------------
Total current liabilities 548,616 651,980
- -------------------------------------------------------------------------------
Obligations under capital leases, net
of current installments 12,149 78,651
Long-term debt, net of current
installments 282,674 309,986
- -------------------------------------------------------------------------------
Total liabilities 843,439 1,040,617
- -------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, $.01 par value.
Authorized 1,000,000 shares;
none issued -- --
Common stock, $.05 par value. Authorized
50,000,000 shares; 13,820,622
shares issued and 13,578,659
outstanding in 1999
and 13,466,109 shares issued and
13,319,146 outstanding in 1998 691,031 673,305
Additional paid-in capital 11,501,760 11,476,190
Unamortized deferred
compensation (20,072) (23,967)
Accumulated deficit (8,488,161) (7,801,677)
Treasury stock, at cost,
241,963 shares in 1999
and 146,963 shares in 1998 (111,185) (78,885)
- -------------------------------------------------------------------------------
Total shareholders' equity 3,573,373 4,244,966
- -------------------------------------------------------------------------------
Commitments (Notes 2 and 7)
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,416,812 5,285,583
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Statements of Operations
Years Ended August 31, 1999 and 1998
<TABLE>
<CAPTION>
TMS, Inc. (dba TMSSequoia) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Licensing and royalties $ 3,260,443 4,351,479
Software development services 1,204,403 1,271,668
Document conversion services 491,291 1,731,532
- -------------------------------------------------------------------------------
4,956,137 7,354,679
- -------------------------------------------------------------------------------
Operating costs and expenses:
Cost of licensing and royalties 885,561 907,472
Cost of software development services 1,022,538 857,977
Cost of document conversion services 274,536 1,100,960
Selling, general and administrative 3,397,531 4,010,533
Restructuring charge 70,895 --
- -------------------------------------------------------------------------------
5,651,061 6,876,942
- -------------------------------------------------------------------------------
Operating (loss) income (694,924) 477,737
Other income (expense), net 12,142 (35,641)
- -------------------------------------------------------------------------------
(Loss) income before income taxes (682,782) 442,096
Income tax expense (benefit) 3,702 (46,887)
- -------------------------------------------------------------------------------
Net (loss) income $ (686,484) 488,983
- -------------------------------------------------------------------------------
Net (loss) income per share
Basic $ (0.05) 0.04
Diluted $ (0.05) 0.04
- -------------------------------------------------------------------------------
Weighted average shares:
Basic 13,570,605 13,299,280
Diluted 13,570,605 13,840,614
- -------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Statements of Shareholders' Equity
Years Ended August 31, 1999 and 1998
<TABLE>
<CAPTION>
ADDITIONAL UNAMORTIZED TOTAL
COMMON STOCK PAID-IN DEFERRED ACCUM. TREASURY SHAREHOLDERS'
TMS, Inc. (dba TMSSequoia) SHARES AMOUNT CAPITAL COMPENSATION DEFICIT STOCK EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1997 13,431,049 $ 671,552 11,473,561 (30,048) (8,290,660) (78,885) 3,745,520
Exercise of stock options 35,060 1,753 2,629 -- -- -- 4,382
Amortization of deferred
compensation -- -- -- 6,081 -- -- 6,081
Net income -- -- -- -- 488,983 -- 488,983
- -----------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1998 13,466,109 673,305 11,476,190 (23,967) (7,801,677) (78,885) 4,244,966
Exercise of stock options 354,513 17,726 25,570 -- -- -- 43,296
Issuance of common stock
held in treasury -- -- -- -- -- 2,700 2,700
Purchase of common stock
held in treasury -- -- -- -- -- (35,000) (35,000)
Amortization of deferred
compensation -- -- -- 3,895 -- -- 3,895
Net loss -- -- -- -- (686,484) -- (686,484)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1999 13,820,622 $ 691,031 11,501,760 (20,072) (8,488,161) (111,185) 3,573,373
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statements of Cash Flows
Years Ended August 31, 1999 and 1998
<TABLE>
<CAPTION>
TMS, Inc. (dba TMSSequoia) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (686,484) 488,983
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization 660,604 733,990
Deferred income tax benefit -- (53,852)
Loss on disposal of equipment 65,218 6,774
Loss on write-off of software development costs 157,251 --
Employee compensation -- Stock Options 3,895 6,081
Provision for returns & doubtful accounts 178,674 128,680
Net change in:
Accounts receivable 541,180 (198,440)
Work in process 181,360 (18,208)
Prepaid expenses and other assets 34,656 3,025
Accounts payable (44,503) (99,280)
Accrued payroll expenses (83,925) 9,298
Deferred revenue 15,895 (8,387)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,023,821 998,664
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (72,011) (300,392)
Proceeds from disposal of equipment 38,479 758
Capitalized software development costs (350,626) (487,021)
Patent costs -- (2,181)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (384,158) (788,836)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (23,630) (23,935)
Repayment of capital lease (61,015) (46,753)
Proceeds from short-term note payable -- 340,000
Repayment of short-term note payable -- (418,000)
Issuance of common stock 43,296 4,382
Issuance of treasury stock, at cost 2,700 --
Purchase of treasury stock, at cost (35,000) --
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (73,649) (144,306)
- -----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 566,014 65,522
Cash and cash equivalents at beginning of year 491,696 426,174
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,057,710 491,696
- -----------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for interest $ 31,793 41,756
Cash paid for income taxes 7,600 6,683
Purchase of computer equipment of capital leases -- 186,167
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements August 31, 1999 and 1998
Note 1: Summary of Significant Accounting Policies
Organization
The Company is involved in the research, design, development, and marketing of
software tools and applications for document capture, image enhancement, image
viewing, forms processing, intranets and the Internet. The Company also provides
software development and document conversion services to corporations and
government organizations to assist them in migrating from paper to electronic
information systems.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid money market
accounts with an original maturity of three months or less and overnight
investments carried at cost plus accrued interest, which approximates fair
value.
Computer Software Costs
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed" (SFAS No. 86),
requires capitalization of software development costs incurred subsequent to
establishment of technological feasibility and prior to the availability of the
product for general release to customers. The Company capitalized $350,626 and
$487,021 of software development costs, which primarily includes personnel
costs, in 1999 and 1998, respectively.
Systematic amortization of capitalized costs begins when a product is
available for general release to customers and is computed on a product-by-
product basis at a rate not less than straight-line over the product's remaining
estimated economic life. The Company amortized $332,744 and $365,927 of software
development costs in 1999 and 1998, respectively. The Company compares the
unamortized capitalized software development costs to the estimated net
realizable values of its products on a periodic basis. If the estimated net
realizable values fall below the unamortized costs, the excess costs are charged
directly to operations. During fiscal 1999, the Company charged approximately
$111,000 to cost of revenue to write-down the unamortized development costs for
Scan 'n Store.
Property and Equipment
Property and equipment are stated at cost. Depreciation on the building is
calculated using the straight-line method over thirty-nine years. Depreciation
on equipment and furniture, which includes amortization for equipment held under
capital leases, is calculated using the straight-line method over periods
ranging from three to ten years, but not less than the estimated useful life of
the leased property.
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Patent Costs
Included in other assets at August 31, 1999 and 1998, are $35,552 and $38,091,
respectively, of unamortized capitalized costs associated with obtaining patent
rights for certain software products. Various patents were approved during
fiscal 1996 through 1998 and the capitalized costs are amortized using the
straight-line method over the seventeen year life of the patents.
Revenue
Effective September 1, 1998, the Company adopted the provisions of Statement of
Position (SOP) 97-2 "Software Revenue Recognition" which superseded SOP 91-1,
"Software Revenue Recognition." SOP 91-1 was the basis for the Company's
software licensing and royalties revenue recognition prior to September 1, 1998.
In general, software licensing and royalties revenue was recognized in both
years after the software was delivered, all significant obligations of the
Company were fulfilled, and all significant uncertainties regarding customer
acceptance had expired. The most significant change in accounting under SOP 97-2
is the requirement to unbundle multiple elements in software transactions and to
allocate pricing to each element based upon vendor
<PAGE>
specific objective evidence of fair values. The Company offers multiple element
arrangements to its customers, mostly in the form of technical phone support and
product maintenance, for fees that are deferred and recognized in income ratably
over the applicable technical support period. At August 31, 1999 and 1998,
deferred technical support and product maintenance revenue was $37,647 and
$68,770, respectively. The Company also, on occasion and as part of the initial
contract price, offers delivery of enhanced versions of future products to
customers on a when-and-if-available basis. SOP 97-2 generally requires that the
promise for future product deliveries be treated as separate elements and
deferred from revenue recognition until produced, delivered and accepted by the
customer. At August 31, 1999, the Company had deferred revenue of $42,013
representing software products and/or enhancements expected to be delivered in
the Company's fiscal year 2000. The Company also deferred $18,482 of software
product revenue at August 31, 1999, because of uncertainties surrounding
customer acceptance.
Revenue for software development services and document conversion services
is recognized as the services are performed using the percentage-of-completion
method and is deferred to the extent that customer billings or payments exceed
the percentage complete. Deferred revenue under service contracts was $17,500
and $30,977 at August 31, 1999 and 1998, respectively. Contract service work in
process of $415,985 and $597,345 at August 31, 1999 and 1998, respectively,
represented costs and related profits recognized on a percentage-of-completion
basis in excess of customer billings. Contract costs primarily include direct
labor. Provisions for losses on contracts are recorded in full at the time such
losses are known. Amounts for contracts in process at August 31, 1999 will be
billed pursuant to contractual terms and are expected to be collected during
fiscal 2000.
Net Income (Loss) Per Share
Basic EPS is computed by dividing net income available to common shareholders by
the weighted-average number of shares of common stock outstanding during the
period. Diluted EPS recognizes the potential dilutive effects of the future
exercise of common stock options.
Employee Compensation--Stock Options
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
No. 25), and related Interpretations. Accordingly, the Company has recorded
expense in an amount equal to the excess of the quoted market price on the grant
date over the option price. Such expense is recognized at the grant date for
options fully vested. For options with a vesting period, the expense is deferred
and recognized over the vesting period. The amount of expense recognized in 1999
and 1998 related to employee stock options was $3,895 and $6,081, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized at the enacted tax rates for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Allowance for Doubtful Trade Accounts Receivables
The Company extends credit to customers in accordance with normal industry
standards and terms. Credit risk arises as customers default on trade accounts
receivable owed to the Company. The Company has established an allowance for
doubtful accounts based on known factors surrounding the credit risk of specific
customers, historical trends and other information.
Under certain circumstances, the Company requires that a portion of the
estimated billings be paid prior to delivering products or performing services.
In addition, the Company may revoke customer contracts if outstanding amounts
are not paid.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, trade accounts receivable,
contract service work in process, accounts payable, accrued expenses and other
liabilities approximate fair value because of the short maturity of these
financial instruments. The carrying value of notes payable and long-term debt
approximates fair value because the current rates approximate market rates
available on similar instruments.
Comprehensive Income
In 1998 the Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of "comprehensive income" and its components in a set of financial
statements. It requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
<PAGE>
in a financial statement that is displayed at the same prominence as other
financial statements. The company currently does not have any components of
comprehensive income that are not included in net earnings.
Reclassifications
Certain 1998 amounts have been reclassified to conform to the 1999 financial
statement presentation.
Note 2: Note Payable and Long-Term Debt
At August 31, 1999, the Company had an $800,000 operating line of credit with a
bank which bears interest at .75% above prime (9.00% and 9.25% at August 31,
1999 and 1998) and expires on November 3, 1999. No balance was outstanding
against the line of credit at August 31, 1999 or 1998. The Company had $309,987
and $333,617 outstanding under a long-term note payable to a bank August 31,
1999 and 1998, respectively. The note bore interest at 5.57% and 6.25% at August
31, 1999 and 1998, respectively, and is due January 1, 2009. The interest rate
is based on an Oklahoma small business program and may be adjusted at the end of
each two year period, beginning on June 30, 1996. The aggregate maturities of
long-term debt for each of the five years subsequent to August 31, 1999 and
thereafter are as follows: 2000, $27,313; 2001, $28,943; 2002, $30,620; 2003,
$32,395; 2004, $34,245; thereafter, $156,471. The line of credit and long-term
note are secured by all accounts receivable, equipment, furniture and fixtures,
and real property of the Company.
Note 3: Income Taxes
Income tax expense for fiscal 1999 was $3,702. The significant components of the
1999 expense include: deferred tax benefit, $255,370; increase in the valuation
allowance for deferred tax assets, $260,634; state income tax refund, $2,943;
and expense for correction of prior year estimates, $1,381. Income tax benefit
for fiscal 1998 was $46,887. The significant components of the 1998 benefit
include: deferred tax expense, $142,669; decrease in the valuation allowance for
deferred tax assets, $196,521; alternative minimum taxes, $6,683; and state
income tax, $282. Income tax expense (benefit) for 1999 and 1998 differed from
the amounts computed by applying the U.S. Federal income tax rate of 34% to
pretax income from operations as a result of the following:
1999 1998
- ------------------------------------------------------------------------------
Computed "expected" tax (benefit) expense (34.0%) 34.0%
Change in the tax assets valuation allowance 38.0% (45.0%)
State income tax, net of Federal income tax benefit (4.0%) 4.0%
Other 1.0% (4.0%)
- ------------------------------------------------------------------------------
Effective income tax expense (benefit) 1.0% (11.0%)
- ------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at August 31, 1999 and 1998
are presented in Table 3a.
________________
Table 3a
1999 1998
- -------------------------------------------------------------------------
Deferred tax assets:
Tax operating loss carryforwards $1,554,621 1,288,319
Tax credit carryforwards 79,152 79,152
Accounts receivable 149,968 72,124
Other 43,821 93,966
- -------------------------------------------------------------------------
Total gross deferred tax assets 1,827,562 1,533,561
Less valuation allowance 1,114,267 749,485
- -------------------------------------------------------------------------
Net deferred tax assets 713,295 784,076
- -------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment (46,143) (64,020)
Capitalized software costs (182,652) (235,556)
- -------------------------------------------------------------------------
Net deferred tax assets $ 484,500 484,500
- -------------------------------------------------------------------------
Deferred tax assets are recognized when it is more likely than not that
benefits from deferred tax assets will be realized. The Company had recognized a
net deferred tax asset of $484,500 at August 31, 1999. 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. Taxable loss for the year ended
August 31, 1999 approximated $388,000 compared to a financial loss of
approximately $682,000. In fiscal 1999, the differences in the tax and financial
losses primarily resulted from timing differences associated with the
deductibility of capitalized software and bad debt estimates compared to the
recognition of related expenses in accordance with generally accepted accounting
principles ("GAAP"). Taxable income for the year ended August 31, 1998
approximated $468,000. In fiscal 1998, differences in the Company's taxable
income of approximately $468,000 when compared to financial income of
approximately $532,000 primarily resulted from timing differences associated
with the
<PAGE>
deductibility of capitalized software for income tax purposes and recognition of
related expense in accordance with GAAP.
The $1,114,267 valuation allowance provides for net operating loss and tax
credit carryforwards that, as of August 31, 1999, are not expected to be
realized prior to expiration. At August 31, 1999 the Company's tax net operating
loss carryforwards, investment tax credit carryforwards, and research and
experimental tax credit carryforwards approximated $4,100,000, $39,000 and
$40,000, respectively. These carryforwards expire during the years 2000 through
2014. Approximately $2,500,000, or 61%, of the net operating loss carryforwards
expire by the end of fiscal year 2001. The benefits from these carryforwards
could also be limited under Internal Revenue Service Code Section 382 due to
changes in ownership.
Note 4: Stock Options
In 1985, the Company's board of directors approved an employee incentive stock
option plan ("1985 Plan"). Options to purchase 1,000,000 shares of the Company's
common stock at a price of $.125 per share were granted under this plan. The
options are exercisable after one year of continued employment with the Company
following the grant date, and expire ten years after the grant date.
In 1989, the Company adopted an employee stock option plan and a senior
employee stock option plan. Options to purchase 1,150,000 shares of the
Company's common stock at $.125 per share were granted under the employee stock
option plan and options to purchase 850,000 shares of the Company's common stock
at $.125 per share were granted under the senior employee stock option plan. The
options become exercisable over a five year period, beginning one year after the
grant date.
Pursuant to the Company's merger with Sequoia Data Corporation (Sequoia) in
fiscal 1996, the Company adopted a 1996 stock option plan ("1996 Plan") for all
Sequoia employee, officer and director options (Sequoia options) in effect at
the time of the merger to be converted into options for the right to purchase
1,164,651 shares of the Company's common stock. The Sequoia options were
converted to TMS options at a rate of 2.837:1 and a price of 35.24% of the
original Sequoia option price. The conversion factors resulted in Sequoia option
holders receiving TMS common stock options of corresponding value at the time of
the plan of merger.
Pursuant to resolutions by the board of directors, options to purchase the
Company's common stock have been issued to certain directors and key employees
of the Company. Such options are generally exercisable at a price equal to or
greater than the market price of the stock at the date of the grant. The Company
has adopted the disclosure-only provisions of SFAS No. 123. Accordingly,
compensation cost has been recognized using the intrinsic value method
prescribed in APB No. 25, and related Interpretations. Had compensation cost for
the Company's stock
________________
Table 4a
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE OPTION AVERAGE
SHARES EXERCISE PRICE PRICE RANGE FAIR VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares under option:
- ---------------------------------------------------------------------------------------------
At August 31, 1997 1,537,418 $ 0.35 $ 0.13-$ 0.75
Options granted 262,500 $ 0.31 $ 0.31 $ 0.21
Options exercised (35,060) $ 0.13 $ 0.13
Options cancelled (269,649) $ 0.47 $ 0.13-$ 0.53
- ---------------------------------------------------------------------------------------------
At August 31, 1998 1,495,209 $ 0.32 $ 0.13-$ 0.75
- ---------------------------------------------------------------------------------------------
Options granted 385,000 $ 0.54 $ 0.40-$0.75 $ 0.16
Options exercised (354,513) $ 0.13 $ 0.13
Options cancelled (776,982) $ 0.44 $ 0.13-$ 0.75
- ---------------------------------------------------------------------------------------------
At August 31, 1999 748,714 $ 0.41 $ 0.13-$ 0.75
- ---------------------------------------------------------------------------------------------
</TABLE>
_________________
Table 4b
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE WEIGHTED OPTIONS WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
OPTION PRICES AT 8/31/99 CONTRACT LIFE EXERCISE PRICE AT 8/31/99 EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.13-$ 0.31 348,240 4.7 Years $0.28 343,040 $0.28
- ----------------------------------------------------------------------------------------------------------------------
$0.38-$ 0.75 400,474 4.2 Years $0.52 140,474 $0.55
- ----------------------------------------------------------------------------------------------------------------------
$0.13-$ 0.75 748,714 4.5 Years $0.41 483,514 $0.23
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
_____________________
Table 5a
<TABLE>
<CAPTION>
FISCAL YEAR 1999 FISCAL YEAR 1998
-------------------------------------------------------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS: $(686,484) 13,570,605 $(0.05) $488,983 13,299,280 $0.04
- --------------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
Common stock options -- 541,334
- --------------------------------------------------------------------------------------------------------------------------
Diluted EPS: $(686,484) 13,570,605 $(0.05) $488,983 13,840,614 $0.04
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
option grants in fiscal years 1999 and 1998 been based on the fair value method
prescribed by SFAS No. 123, net loss would have been increased by $16,118, in
1999, with no effect on loss per share, and in 1998, net income and net income
per share would have been reduced by $33,367 and $.01, respectively. The fair
values of each option grant was estimated using the Black-Scholes option-pricing
model with the following weighted-average assumptions: dividend yield of 0%;
expected volatility of 76.95% and 81.57% in 1999 and 1998, respectively; risk-
free interest rate of 6%; and expected lives of approximately 3.5 to 6 years.
Pro forma net earnings reflects only options granted after September 1,
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to September 1,
1995 is not considered. See Table 4a for a summary of stock option transactions.
Table 4b summarizes information about stock options outstanding at August 31,
1999.
Note 5: Earnings Per Share
Table 5a is a reconciliation of the numerators and the denominators of the basic
and diluted per-share computations for income available to common shareholders.
Options to purchase approximately 401,000 and 493,000 shares of common
stock at prices ranging from $.38-$.75 per share were outstanding at August 31,
1999 and 1998, but were not included in the computation of EPS because the
options' exercise price was greater than the average market price of common
shares. Additionally, approximately 348,000 options to purchase common stock at
prices ranging from $.125-$.310 were excluded from the per share computation for
fiscal 1999, because of their anti-dilutive effect. All options expire during
periods through the year 2007.
Note 6: Employee Benefit Plan
The Company sponsors a defined contribution benefit plan for substantially all
employees for the purpose of accumulating funds for retirement. Participation in
the plan is based on one year of service and a minimum of 1,000 hours of annual
service. The Company matches 50% of employee contributions in an amount up to 6%
of employees' total compensation. The cost of employer matching approximated
$62,000 and $67,000 in 1999 and 1998, respectively. Employees vest in employer
matching contributions at a rate of 20% per year after two years of service.
Note 7: Leases
The Company leases office space and equipment under operating leases. Rent
expense was approximately $77,000 and $79,000 for 1999 and 1998, respectively.
The Company has non-cancelable future minimum lease obligations of $52,844 in
fiscal 2000. In November 1997, the Company entered into two capital lease
agreements for scanning equipment and related software. The leases have a three
year term and provide for the Company to either relinquish the equipment and
software to the leasing company at the end of the lease or purchase the
equipment and software at fair market value. Assets under capital leases are
included in the Company's balance sheet as follows:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer equipment $ 165,003 $186,187
Less: accumulated amortization (102,569) (49,332)
- ----------------------------------------------------------------------------------------------------------------
$ 62,434 $136,855
Future minimum payments, by year and in the aggregate, under capital leases follow:
- ----------------------------------------------------------------------------------------------------------------
2000 85,413
2001 15,722
- ----------------------------------------------------------------------------------------------------------------
101,135
- ----------------------------------------------------------------------------------------------------------------
Less: estimated executory costs
included in capital leases 16,330
- ----------------------------------------------------------------------------------------------------------------
Net minimum lease payments
under capital leases 84,805
- ----------------------------------------------------------------------------------------------------------------
Less: amount representing interest 6,406
- ----------------------------------------------------------------------------------------------------------------
Present value of net minimum
lease payments under capital lease 78,399
- ----------------------------------------------------------------------------------------------------------------
Less: current portion 66,250
- ----------------------------------------------------------------------------------------------------------------
Obligations under capital leases 12,149
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
During fiscal 1999 and 1998, depreciation expense included $53,237 and
$49,332, respectively for amortization of assets held under capital lease. In
fiscal 1999, the Company entered into an operating sublease for certain computer
equipment and software held under capital lease. The company received $19,000 in
rental payments under the sublease in fiscal 1999. The initial $100,000 cost of
the subleased computer equipment and software differed from the August 31, 1999,
$26,000 carrying amount due to a $21,000 write-down of the assets to fair value
and accumulated depreciation of $53,000. The $21,000 write-down occurred in
conjunction with the restructuring of the Company's Document Conversion segment
and was based on the present value of discounted future cash flows expected to
be received under the operating sublease. The operating sublease expires the
earlier of 30 days written notice or November 1, 2000.
Note 8: Business and Credit Concentrations
In 1998, the Oklahoma County Government accounted for 12% and 11% of the
Company's total revenue and trade accounts receivable, respectively. In 1999,
the Tinker Small Business Innovation Research Grant Services contract accounted
for 10% of the Company's total revenue. Information regarding the Company's
operations by geographic area as of and for the years ended August 31, 1999 and
1998, follows:
Revenue: 1999 1998
- ------------------------------------------------------------------
United States $4,317,397 6,806,622
Europe (export sales) 381,398 269,117
Asia (export sales) 104,330 118,211
Australia (export sales) 50,281 102,194
Canada (export sales) 83,602 51,673
Other (export sales) 19,129 6,862
- ------------------------------------------------------------------
$4,956,137 7,354,679
- ------------------------------------------------------------------
Accounts receivable (gross): 1999 1998
- ------------------------------------------------------------------
United States $ 922,984 1,310,588
Europe 20,807 72,707
Asia 872 65,304
Australia 18,223 32,102
Canada 6,250 --
Other -- 3,220
- ------------------------------------------------------------------
$ 969,136 1,483,921
- ------------------------------------------------------------------
Note 9: Reportable Segments
The Company's reportable segments are determined by its products and services
and include: Tools and Technologies (TNT), End-user Applications (EUA),
Professional Services (PS) and Document Conversion (DC) Services. The TNT
segment develops core image viewing, image enhancement and forms processing
software products that are necessary for developing new software applications or
enhancing existing software applications. The Company's TNT products are
primarily licensed to developers, system integrators, value added resellers
(VARs) and/or companies who use the software internally. The Company generally
receives royalties for each workstation/system that utilizes the product. The
EUA segment develops software products that may function independently from any
other software package or may be closely associated with other software
packages. These products install directly on a user's system or on a server in a
client/server environment. The applications are primarily licensed to entities
that require the capability to view and manipulate images through their Internet
or intranet web browsers. The PS segment offers a variety of consulting and
integration services for business and information management processes. In
general, the professional service projects focus on an entity's need for
document imaging solutions. The Company charges for projects on a time and
materials or fixed fee basis. The DC segment primarily offers services for
electronic publishing of documents. These services include indexing -- for large
volume searching of on-line information; hyperlinking -- for navigating through
complex sets of on-line information; and document markup -- for electronic
publishing of documents on CD-Rom and the Internet/intranet. Document conversion
also participates in a limited amount of data capture activities -- converting
paper documents to electronic forms.
Direct costs are charged to the segments and certain selling, general and
administrative expenses for corporate services (i.e. marketing, accounting,
information systems, facilities administration et. al.) are allocated to the
segments based on various factors such as segment full-time equivalent
employees, segment revenue or segment costs. Financial results are measured in
accordance with the manner in which management assesses segment performance and
allocates resources. Except for capitalized software development costs,
financial results do not include separately identifiable balance sheet assets
for each segment, as this is not a common measure that management uses to assess
segment performance or allocate resources. In the software development business,
the most important assets are the employees. Performance measures of the
employees are included in the derivation of operating income and loss. Revenue
for the PS segment includes a fiscal 1999 fourth quarter adjustment of
approximately $105,000 to reflect cost overruns on two fixed fee contracts that
represented 44% of fiscal 1999 PS revenue. See Table 9a for the results of
operations for each reportable segment for fiscal year ending 1999 and 1998. All
revenue and expenses are from unaffiliated sources.
<PAGE>
________________
Table 9a
<TABLE>
<CAPTION>
TOOLS & END USER PROFESSIONAL DOCUMENT
1999 TECHNOLOGIES APPLICATIONS SERVICES CONVERSION TOTALS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue to external customers 2,030,198 1,230,245 1,204,403 491,291 4,956,137
- -----------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 44,016 56,298 66,744 98,475 265,533
- -----------------------------------------------------------------------------------------------------------------------------
Restructuring charge -- -- -- 70,895 70,895
- -----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 569,909 (187,742) (442,042) (186,574) (246,449)
- -----------------------------------------------------------------------------------------------------------------------------
Other significant noncash items:
Amorization of capitalized software
development costs 191,994 140,750 -- -- 332,744
Write-off of capitalized software
development costs 32,253 124,998 -- -- 157,251
- -----------------------------------------------------------------------------------------------------------------------------
Identifiable segment assets:
Capitalized software development costs, net 302,135 179,034 -- -- 481,169
- -----------------------------------------------------------------------------------------------------------------------------
Expenditures for capitalized software
development costs 216,040 134,586 -- -- 350,626
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOOLS & END USER PROFESSIONAL DOCUMENT
1998 TECHNOLOGIES APPLICATIONS SERVICES CONVERSION TOTALS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue to external customers 3,182,430 1,169,049 1,271,668 1,731,532 7,354,679
- -----------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 34,557 86,247 72,960 122,525 316,289
- -----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1,504,365 (374,106) (258,380) 87,236 959,115
- -----------------------------------------------------------------------------------------------------------------------------
Other significant noncash items:
Amorization of capitalized
software development costs 260,566 105,361 -- -- 365,927
- -----------------------------------------------------------------------------------------------------------------------------
Identifiable segment assets:
Capitalized software development costs, net 310,198 310,341 -- -- 620,539
- -----------------------------------------------------------------------------------------------------------------------------
Expenditures for capitalized software
development costs 200,739 286,282 -- -- 487,021
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Table 9b is a reconciliation of segment operating (loss) income to the
total company fiscal 1999 and 1998 net (loss) income.
_______________
Table 9b
1999 1998
- --------------------------------------------------------
Operating income (loss) for
reportable segments (246,449) 959,115
Unallocated corporate
expenses (448,475) (481,378)
Interest income 25,971 13,160
Interest expense (31,793) (41,756)
Other, net 17,964 (7,045)
Income tax (expense) benefit (3,702) 46,887
- --------------------------------------------------------
Net (loss) income $(686,484) 488,983
- --------------------------------------------------------
Note 10: Restructuring
In October of fiscal 1999, the Company restructured DC operations to support
only customer relationships which primarily relate to electronic publishing
activities and for which there are contractual obligations. Many of these
customers are using technology that is unique to the Company which thus makes
the Company a sole source provider. The Company's longer-term objective is to
sell these customer contracts and other assets to a third-party and/or gain
better internal efficiencies by more closely integrating document conversion
activities as a true support function for the document management and imaging
projects that are being contracted through the PS segment. The
<PAGE>
restructuring charge of $70,895 incurred in fiscal 1999 includes approximately
$53,000 of equipment write-downs, $15,000 of employee severance costs, and
$3,000 for closing down the leased DC facility. All remaining DC employees were
relocated to the Company's headquarters building. At August 31, 1999, there were
no outstanding liabilities associated with the restructuring of DC.
_______________
Schedule II
Valuation And Qualifying Accounts
<TABLE>
<CAPTION>
TMS, Inc. (dba TMSSequoia)
BALANCE AT ADDITIONS CHARGED TO DEDUCTIONS-- BALANCE AT
BEGINNING COSTS & WRITE-OFF END
Classification OF PERIOD EXPENSES OF ACCOUNTS OF PERIOD
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended August 31, 1999:
Allowance for doubtful accounts $ 190,000 267,131 62,062 $ 395,069
Year ended August 31, 1998:
Allowance for doubtful accounts $ 100,130 128,680 38,810 $ 190,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.9
TMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
The TMS, Inc. Employee Stock Purchase Plan (the "Plan") is intended to
provide the eligible employees of TMS, Inc. (the"Company") and its qualifying
subsidiaries a convenient means of purchasing shares of the Company's common
stock, par value $.05 per share (the "Stock"). The Plan is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"), and shall be administered, interpreted
and construed in a manner consistent with the requirements of that section of
the Code.
ARTICLE I
DEFINITIONS
-----------
1.1. "Account" means the book keeping account established on behalf of
each participant by the Administrator to record payroll deduction contributions
made by such Participant and shares of Stock purchased on his behalf.
1.2. "Administrator" means the individual or committee appointed pursuant
to Article VIII to administer the Plan.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Business Day" means each day on which the Exchange (as defined in
Section 4.2) is open for business.
1.5. "Compensation" means all regular salary, wages or earnings, including
but excluding overtime, commissions, bonuses, amounts realized from the exercise
of a qualified or non-qualified stock option and other special incentive
payments, fees or allowances.
1.6. "Effective Date" means August 1, 1999, subject to the provisions of
Section 9.8 of the Plan.
1.7. "Employee" means any person who is employed by the Company except an
employee whose customary employment is:
(a) less than 20 hours per week; or
(b) less than 5 months a year.
For the purpose of determining whether an individual is an Employee, the
definition of Company shall also include the Company's subsidiaries, if any, as
defined under Code section 424(f).
1.8. "Entry Date" means October 15, January 15, April 15, July 15 of each
Plan Year.
<PAGE>
1.9. "Offering Commencement Date" means the first Business Day of each
Offering Period.
1.10. "Offering Period" means each three month period.
1.11. "Offering Termination Date" means the last Business Day of each
Offering Period.
1.12. "One Month of Service" means a one-month period during which an
individual was an Employee.
1.13. "Participant" means an Employee who has met the eligibility
requirements of Article II and who has elected to participate pursuant to an
election under Section 3.1.
1.14. "Plan Year" means the 12-month period ending December 31.
1.15. "Shares" means shares of Stock that have been allocated to a
Participant's Account.
ARTICLE II
ELIGIBILITY
-----------
2.1. Eligibility. Except as provided in Section 3.6, an Employee who has
completed One Month of Service prior to the Effective Date and who continues to
be employed by the Company shall be eligible to participate in the Plan as of
the Effective Date. All other Employees, except as provided in Section 3.6,
shall be eligible to participate in the Plan as of the Entry Date coinciding
with or next following the completion of One Month of Service.
2.2. Eligibility Restrictions. A Participant who elects to terminate
participation in the Plan in accordance with Section 3.5 shall be prohibited
from participating in the Plan until the Entry Date next following the date of
such termination.
ARTICLE III
PARTICIPATION
-------------
3.1. Commencement of Participation. An eligible Employee may become a
Participant in the Plan on any Entry Date by completing an enrollment and
payroll deduction form and delivering it to the Company in accordance with
procedures established by the Administrator.
3.2. Payroll Deduction. At the time a Participant files his enrollment
and payroll deduction form, he shall elect to have after-tax deductions made
from his Compensation by a whole percentage that is not less than 1% nor more
than 10% of his Compensation.
2
<PAGE>
3.3. Participants' Accounts. All payroll deductions made from a
Participant's Compensation shall be credited to his Account and used to purchase
shares of Stock in accordance with Article V. Contributions credited to a
Participant's Account shall not accrue interest or earnings during the period
prior to being used to purchase shares of Stock in accordance with Article V.
3.4. Changes in Payroll Deductions. The percentage designated by a
Participant as his rate of contribution under Section 3.2 shall automatically
apply to increases and decreases in his Compensation. Except as provided in
Section 3.5, a Participant may elect to change the rate of his contributions to
any other permissible rate effective as of the first day of the first payroll
period of any Offering Period provided the Participant files written notice with
the Administrator of an election to change his contribution rate at least ten
(10) Business Days before the effective date of the election.
3.5. Suspension and Resumption of Payroll Deductions. A Participant may
terminate contributions under the Plan as of the first day of any payroll period
by filing written notice thereof with the Administrator at least ten (10)
Business Days before the effective date of the termination. A Participant who
has terminated his participation in the Plan in accordance with the preceding
provisions, shall be prohibited from resuming contributions under the Plan until
the following Entry Date. A Participant whose contributions have been terminated
in accordance with the preceding provisions, may resume contributions under the
Plan in accordance with Section 2.2.
3.6. Restrictions on Participation. Notwithstanding any provisions of the
Plan to the contrary, no Employee shall be granted an option to participate in
the Plan under the following conditions:
(a) No Employee shall be granted an option if, immediately after the
grant, such Employee would own stock, and/or hold outstanding options to
purchase stock, possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company (for purposes of this
paragraph, the rules of Section 424(d) of the Code shall apply in
determining stock ownership of any Employee); or
(b) No Employee shall be granted an option which permits his rights
to purchase Stock under the Plan and all other employee stock purchase
plans (as described in Section 423 of the Code) of the Company to accrue at
a rate which exceeds $25,000 of fair market value of such Stock (determined
at the time such option is granted) for each calendar year in which such
option is outstanding at any time. For purposes of this Section 3.6(b):
(i) the right to purchase Stock under an option accrues when the
option (or any portion thereof) first becomes exercisable during the
calendar year;
(ii) the right to purchase Stock under an option accrues at the
rate provided in the option, but in no case may such rate exceed
$25,000 of fair market
3
<PAGE>
value of such Stock (determined at the time such option is granted)
for any one calendar year; and
(iii) a right to purchase Stock which has accrued under one
option granted pursuant to a plan may not be carried over to any other
option.
ARTICLE IV
OFFERINGS
---------
4.1. Quarterly Offerings. The Plan shall be implemented through quarterly
offerings of the Company's Stock. Each Offering Period shall begin on the
Offering Commencement Date and shall end on the Offering Termination Date;
provided, however, if the first Offering Period commences prior to stockholder
approval of the Plan, the Offering Termination Date for such initial Offering
Period shall not occur until the end of the quarter in which stockholder
approval of the Plan is secured.
4.2. Purchase Price. The "Purchase Price" per share of Stock with respect
to each Offering Period shall be the lesser of:
(a) Eighty-five percent (85%) of the official average of the bid and
ask price of the Stock on the Offering Termination Date on the Nasdaq OTC
Market (or on such other national securities exchange upon which the Stock
may then be listed, hereinafter referred to as the "Exchange") or if no
sale of Stock occurred on such date, the official average of the bid and
ask price on the preceding Business Day; or
(b) Eighty-five percent (85%) of the official average of the bid and
ask price of the Stock on the Offering Commencement Date on the Exchange
(or if no sale of Stock occurred on such date, the closing price on the
preceding business day).
4.3. Maximum Offering. The maximum number of shares of Stock which shall
be issued under the Plan, subject to adjustment upon changes in capitalization
of the Company as provided in Section 9.3, shall be 1,000,000 shares. At the
beginning of each Offering Period, the Board shall specify a maximum number of
shares which may be purchased by any Employee as well as a maximum aggregate
number of shares which may be purchased by all eligible Employees pursuant to
such quarterly offering. If the total number of shares which would be purchased
during any Offering Period exceeds the maximum number of available shares, the
Administrator shall make a pro rata allocation of the available shares in a
manner that it determines to be equitable and the balance of payroll deductions
credited to the Accounts of Participants shall be returned to such Participants
as soon as administratively practicable.
4
<PAGE>
ARTICLE V
PURCHASE OF STOCK
-----------------
5.1. Automatic Exercise. On each Offering Termination Date, each
Participant shall automatically and without any act on his part be deemed to
have purchased Stock to the full extent of the payroll deductions credited to
his Account during the Offering Period ending on such Offering Termination Date.
5.2. Fractional Shares. Fractional shares of Stock may not be purchased
under the Plan.
5.3. Acquisition of Stock. The Company may acquire Stock for use under the
Plan from authorized but unissued shares, treasury shares, in the open market or
in privately negotiated transactions.
5.4. Accounting for Purchased Stock. All shares of Stock purchased
pursuant to Section 5.1 shall be allocated as Shares to the appropriate
Participant's Account as of the Offering Termination Date on which such shares
are purchased.
ARTICLE VI
ACCOUNTING
----------
6.1. General. The Administrator shall establish procedures to account for
payroll deductions made by a Participant, the number of Shares of Stock
purchased on a Participant's behalf and the number of Shares allocated to a
Participant's Account.
6.2. Registration of Stock. Shares of Stock allocated to a Participant's
Account shall be registered in the name of the Company or its nominee for the
benefit of the Participant on whose behalf such shares were purchased.
6.3. Accounting for Distributions. Shares of Stock distributed or sold
from a Participant's Account shall be debited from his Account on a first-in,
first-out basis.
6.4. Account Statements. Each Participant shall receive at least semi-
annual statements of all payroll deductions and shares of Stock allocated to his
Account together with all other transactions affecting his Account.
ARTICLE VII
WITHDRAWALS AND DISTRIBUTIONS
-----------------------------
7.1. Withdrawal of Shares. A Participant may elect to withdraw any number
of Shares allocated to his Account by providing notification to the Company in
accordance with procedures established by the Administrator. As soon as
administratively practicable following notification of a
5
<PAGE>
Participant's election to withdraw Shares, the Administrator shall cause a
certificate representing the number of Shares to be withdrawn to be delivered to
the Participant.
7.2. Distribution Upon Termination. As soon as administratively
practicable after a Participant's termination of employment with the Company or
a participating subsidiary for any reason, a certificate representing all of
such Participant's Shares shall be distributed to him (or his executor, in the
event of his death).
7.3. Distribution of Payroll Deductions. In the event a Participant
terminates his employment with the Company or a participating subsidiary or his
participation in the Plan is terminated pursuant to Section 3.5, any payroll
deductions allocated to his Account and not yet applied to purchase Stock in
accordance with Section 5.1 shall be distributed to him in a cash lump sum as
soon as administratively practicable thereafter.
ARTICLE VIII
ADMINISTRATION
--------------
8.1. Appointment of Administrator. The Board shall appoint an individual
or committee comprised of so many members as the Board shall determine to
administer the Plan. The Board may from time to time, if the Plan is
administered by a committee, appoint members to the committee in substitution
for or in addition to members previously appointed and may fill vacancies,
however caused, in the committee.
8.2. Authority of Administrator. The Administrator shall have the
exclusive power and authority to administer the Plan, including, without
limitation, the right and power to interpret the provisions of the Plan and make
all determinations deemed necessary or advisable for the administration of the
Plan. All such actions, interpretations and determinations which are done or
made by the Administrator in good faith shall be final, conclusive and binding
on the Company, the Participants and all other parties and shall not subject the
Administrator to any liability.
8.3. Administrator Procedures. The Administrator shall hold its meetings
at such times and places as it shall deem advisable and may hold telephone
meetings. In the event that the Administrator is a committee, a majority of its
members shall constitute a quorum and all determinations shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by the Administrator shall be as fully effective as if it had been made
by a majority vote at a meeting duly called and held. The Administrator may
appoint a secretary and shall make such rules and regulations for the conduct of
its business as it shall deem advisable.
8.4. Expenses. The Company will pay all expenses incident to the operation
of the Plan, including the costs of record keeping, accounting fees, legal fees
and the costs of delivery of stock certificates to Participants.
6
<PAGE>
ARTICLE IX
MISCELLANEOUS
-------------
9.1. Transferability. Neither payroll deductions credited to a
Participant's Account nor any rights with regard to the purchase of Stock under
the Plan may be assigned, transferred, pledged or otherwise disposed of in any
way by the Participant other than by will or the laws of descent and
distribution.
9.2. Status as Owner. Each Participant shall be deemed to legally own all
shares of Stock allocated to his Account and shall be entitled to exercise all
rights associated with ownership of the shares, including, without limitation,
the right to vote such shares in all matters for which Stock is entitled to
vote, receive dividends, if any, and tender such shares in response to a tender
offer.
9.3. Adjustment Upon Changes in Capitalization. In the event of a
reorganization, recapitalization, stock split, spin-off, split-off, split-up,
stock dividend, combination of shares, merger, consolidation or any other change
in the corporate structure of the Company, or a sale by the Company of all or
part of its assets, the Board may make appropriate adjustments in the number and
kind of shares which are subject to purchase under the Plan and in the exercise
price applicable to outstanding options.
9.4. Amendment and Termination. The Board shall have complete power and
authority to terminate or amend the Plan (including without limitation the power
and authority to make any amendment that may be deemed to affect the interests
of any Participant adversely); provided, however, that the Board shall not,
without the approval of the shareholders of the Company (i) increase the maximum
number of shares which may be offered under the Plan (except pursuant to Section
9.3); (ii) modify the requirements as to eligibility for participation in the
Plan; or (iii) in any other way cause the Plan to fail the requirements of
Section 423 of the Code.
The Plan and all rights of Employees hereunder shall terminate: (i) at any
time, at the discretion of the Board, in which case any cash balance in
Participants' Accounts shall be refunded to such Participants as soon as
administratively possible; or (ii) on the Offering Termination Date on which
Participants become entitled to purchase a number of shares of Stock that
exceeds the maximum number of shares available under the Plan.
9.5. No Employment Rights. The Plan does not, directly or indirectly,
create in any Employee any right with respect to continuation of employment by
the Company and it shall not be deemed to interfere in any way with the
Company's right to terminate, or otherwise modify, an Employee's terms of
employment at any time.
7
<PAGE>
9.6. Withholding. To the extent any payments or distributions under this
Plan are subject to Federal, state or local taxes, the Company is authorized to
withhold all applicable taxes. The Company may satisfy its withholding
obligation by (i) withholding shares of Stock allocated to a Participant's
Account, (ii) deducting cash from a Participant's Account, or (iii) deducting
cash from a Participant's other compensation. A Participant's election to
participate in the Plan authorizes the Company to take any of the actions
described in the preceding sentence.
9.7. Use of Funds. All payroll deductions held by the Company under this
Plan may be used by the Company for any corporate purpose and the Company shall
not be obligated to hold such payroll deductions in trust or otherwise segregate
such amounts.
9.8. Shareholder Approval. Notwithstanding the provision of Section 1.6 of
the Plan, the Plan shall not take effect until approved by the shareholders of
the Company.
9.9. Choice of Law. Except to the extent superseded by Federal law, the
laws of the State of Oklahoma will govern all matters relating to the Plan.
To record the adoption of the Plan, TMS, Inc. has caused its authorized
officers to affix its Corporate name and seal this 29th day of June, 1999.
TMS, INC.
(SEAL) By: /s/ Dana R. Allen
-------------------------------------------------
Dana R. Allen, President and Chief Executive
Officer
ATTEST:
By: /s/ Marshall C. Wicker
----------------------
Secretary
8
<PAGE>
EXHIBIT 10.11
<TABLE>
<CAPTION>
BIDDER/OFFEROR TO COMPLETE BLOCKS 11,13,15,21,22&27.
UNDER DPAS (15 CFR 350) DO A1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. CONTRACT NO. 3. AWARD/EFFECTIVE 4. SOLICITATION NUMBER 5. SOLICITATION TYPE 6.SOLICITAION
DATE DATE
F34601-98-C-0145 98 JUN 26 F34601-98-R-60771 [_] SEAL BID [_] NEGOTIATED
(FB) (RFP)
- ------------------------------------------------------------------------------------------------------------------------------------
7. ISSUED BY CODE FA8103 8. THIS ACQUISITION IS
--------
DEPARTMENT OF THE AIR FORCE [_] UNRESTRICRED [_] LABOR SURPLUS AREA CONCEP
OC-ALC/DIR CONTRACTING/COMODITIES
3001 STAFF DR STE 2AH77A [_] SET ASIDE: % FOR [_] COMBINED SMALL BUSINESS &
TINKER AIR FORCE BASE OK 73145-3028 [_] SMALL BUSINESS LABOR SURPLUS AREA CONCEP
SIC: [X] OTHER RESTRICTED
BUYER: RICK CRICKLIN/LIDAB/[405]739-4468 SIZE STANDARD:
NO COLLECT CALLS
- ------------------------------------------------------------------------------------------------------------------------------------
9. SOLICITATION: N/A
- ------------------------------------------------------------------------------------------------------------------------------------
10. ITEMS TO BE PURCHASED (BRIEF DESCRIPTION)
[_] SUPPLIES [_] SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
11. IF OFFER IS ACCEPTED BY THE GOVERNMENT WITHIN ___________ 12. ADMINISTERED BY CODE S4402
CALENDAR DAYS (60 CALENDAR DAYS UNLESS R OFFEROR -----
INSERTS A DIFFERENT PERIOD) FROM THE DATE SET DCMC DALLAS
FORTH IN BLK 9 ABOVE, THE CONTRACTOR 1200 MAIN ST
AGREES TO HOLD ITS OFFERED PRICES FIRM DALLAS TX7 5202-4399
FOR THE ITEMS SOLICITED HEREIN AND TO
ACCEPT ANY RESULTING CONTRACT SUBJECT
TO THE TERMS AND CONDITIONS STATE HEREIN.
- ------------------------------------------------------------------
13. CONTRACTOR OFFEROR CODE ONR09 FACILITY PAS#: NONE SCD:0
-------- CODE ---------------------------------------------------------------------------
14. PAYMENT WILL BE MADE BY CODE HQ039
TMS INC DFAS-CO-JW -------
PO BOX 1358 WEST ENTITLEMENT OPERATIONS
STILLWATER OK 74076 1358 PO BOX 182381
COLUMBUS OH 43218-2381
TELEPHONE NO
[_] CHECK IF REMITTANCE IS DIFFERENT AND PUT SUCH
ADDRESS IN OFFER
SIZE CODE: J SUBMIT INVOICES TO ADDRESS SHOWN IN BLOCK: 14
- ------------------------------------------------------------------------------------------------------------------------------------
15. PROMPT PAY DISCOUNT 16. AUTHORITY FOR USING OTHER THAN 10 U.S.C. 2304 41 U.S.C.25
NET 30 CALENDAR DAYS FULL AND OPEN COMPETITION [_](C)( ) [_] (C)( )
- ------------------------------------------------------------------------------------------------------------------------------------
17. 18. 19. 20. 21. 22.
ITEM NO. SCHEDULE OF SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
SEE SCHEDULE
ESTIMATED
- ------------------------------------------------------------------------------------------------------------------------------------
23. ACCOUNTING AND APPROPRIATION DATA 24. TOTAL AWARD AMOUNT (FOR GOVERNMENT USE)
SEE SECTION G $694,030.18
- ------------------------------------------------------------------------------------------------------------------------------------
25. CONTRACTOR IS REQUIRED TO SIGN THIS DOCUMENT AND 26. AWARD OF CONTRACT: YOUR OFFER ON SOLICITATION NUMBER
[_] RETURN COPIES TO ISSUING OFFICE. CONTRACTOR [_] SHOWN IN BLOCK 4 INCLUDING ANY ADDITIONS OR CHANGES
AGREES TO FURNISH AND DELIVER ALL ITEMS SET WHICH ARE SET FORTH HEREIN, IS ACCEPTED AS TO ITEMS:
FORTH OR OTHERWISE IDENTIFIED ABOVE AND ON ANY
CONTINUATION SHEETS SUBJECT TO THE TERMS AND
CONDITIONS SPECIFIED HEREIN.
- ------------------------------------------------------------------------------------------------------------------------------------
27. SIGNATURE OF OFFEROR/CONTRACTOR 28. UNITED STATES OF AMERICA (CONTRACTING OFFICER)
SIGNED BY ART CROTZER SIGNED BY DAVID R. CRICKLIN
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND TITLE OF SIGNER (TYPE OR PRINT) DATE SIGNED NAME OF CONTRACTING OFFICER DATE SIGNED
/s/ ART CROTZER, CEO 6/15/98 /s/ DAVID R. CRICKLIN 26 JUN 98
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 2 OF 8
CONTRACT NUMBER F34601-98-C-0145
PART I - THE SCHEDULE
SECTION B
SUPPLIES OR SERVICE AND PRICES/COSTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ITEM SUPPLIES/SERVICES QTY UNIT UNIT PRICE AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COST PLUS FIXED FEE
- --------------------
0001 Research and Development 1 LOT $694,030.18 $694,030.18
effort for Phase II Small
Business Innovation
Research (SBIR) Topic
No. AF97-239 titled
"The Digital Automation
of Legacy Data"
IAW TMS Sequoia, Inc,
Proposal dated 21 Nov 97
(Attachment "A").
0002 Data and Reports to be 1 LOT NSP NSP
furnished IAW Requirements
set forth on DD Forms 1423
(Exhibit "A" Attached)
</TABLE>
ALLOWABLE COST, FIXED FEE AND PAYMENT. Contractor shall be reimbursed
-------------------------------------
for performance of this contract in accordance with the contract clauses
and the following additional terms:
(a) The estimated cost of performance is $630,936.53
-----------
(b) The fixed fee for performance is $63,093.65
----------
(c) The estimated total cost and fixed fee is $694,030.18
-----------
(d) The Government presently has available for payment and allotted
to this contract $300,000.00 to fund Item 0001 for an estimated
-----------
period of nine (9) months. The parties contemplate that the
Government will allot additional funds incrementally to the
contract up to the full estimated cost to the Government
specified in the schedule.
(e) Vouchers requesting payment for cost reimbursement items under
this contract shall be submitted by contractor to:
Defense Contract Audit Agency (DCAA)
Oklahoma City Sub Office
215 Dean A. McGee Ave. Suite 331
Oklahoma City, OK 73102-3423
ADDITIONAL INFORMATION APPLICABLE TO ALL ITEMS
----------------------------------------------
APPL: N/A IM CODE: DWB
P/R: FD 2030-97-60771
P/R LI: ALL
FOB: Destination
QTY VAR: O% OVER O% UNDER
ACRN: AA
PQA/INSP SITE: Destination ACCEPTANCE: Destination
<PAGE>
PAGE 3 OF 8
CONTRACT NUMBER F34601-98-C-0145
SHIP TO/MARK FOR:
OC-ALC/TIET CODE: FB2039
ATTN: Edwin Kincaid
3001 Staff Drive, Suite 2AF69
TINKER AFB OK 73145-3080
MARK/FOR: Contract: F34601-98-C-0145
----------------
DELIVERY:
- ---------
All deliveries will be as set forth on DD Forms 1423 and 1423-1 (Exhibit "A")
attached.
TOTAL $694,030.18
B-1. CLAUSES AND PROVISIONS
(a) Clauses and provisions from the Federal Acquisition Regulation (FAR)
and supplements thereto are incorporated in this document by
reference and in full text. Those incorporated by reference have the
same force and effect as if they were given in full text.
(b) Clauses and provisions in this document will be numbered in
sequence, but will not necessarily appear in consecutive order.
(c) By signature on this contractual document, Contractor certifies that
their Section K, Representations and Certifications previously
submitted or returned herewith are current and applicable. They are
hereby incorporated by reference.
PART I - THE SCHEDULE
SECTION C
DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
C-1. SPECIFICATIONS, STANDARDS AND DRAWINGS
(IAW FAR 10.008)
Specifications, standards or drawings (as applicable) are
furnished/listed below:
ITEM NR SPECIFICATIONS, STANDARDS AND/OR ATTACHMENTS
- ------- --------------------------------------------
ALL ITEMS TMS Sequoia, Inc Proposal "The Digital Automation of Legacy
Data" dated 21 Nov 97
(Attachment "A")
PART I - THE SCHEDULE
SECTION D
PACKAGING AND MARKING
D-1. PRESERVATION, PACKAGING, PACKING REQUIREMENTS
(IAW FAR 14.201-2(d), and 15.406-2(d))
If AFMC Form 158 is attached hereto all items shall be preserved,
packaged and packed in accordance with said AFMC Form 158.
PART I - THE SCHEDULE
SECTION E
INSPECTION AND ACCEPTANCE
E-11. 52.246-8 INSPECTION OF RESEARCH AND DEVELOPMENT--COST- APR 1984
REIMBURSEMENT
(IAW FAR 46.308)
E-22. 52.246-16 RESPONSIBILITY FOR SUPPLIES APR 1984
(IAW FAR 46.316)
E-34. INSPECTION AND ACCEPTANCE
(IAW FAR 46.401(b) and 46.503)
Inspection and acceptance will be at destination(s) specified in Section
"B" hereof.
E-240. 252.246-7000 MATERIAL INSPECTION AND RECEIVING REPORT DEC 1991
(IAW DFARS 246.370)
<PAGE>
PAGE 4 OF 8
CONTRACT NUMBER F34601-98-C-0145
E-460. 5352.246-9000 MATERIAL INSPECTION AND RECEIVING REPORT JUL 1997
(0MB No. 0704-0248) (AFMC)
(IAW AFMCFARS 5346.370(90))
(a) As specified by DFARS, Appendix F, Table 2, a copy of DD Forms 250
shall be forwarded to the following address:
(1) Forward the purchasing office copy to:
OKLAHOMA CITY AIR LOGISTICE CENTER/PKZD
3001 STAFF DRIVE, SUITE 2AE79A
TINKER AFB, 0K 73145-9103
(2) For shipments involving Military Assistance Program (MAP),
Grant Aid (GA), and Foreign Military Sales (FMS) requirements, an
additional copy shall be sent to:
OC-ALC/FMIBSAM
3350 D AVE STE P26
TINKER AFB 0K 73145-9103
(3) Additional distribution of DD Forms 250 is to be made to the
following address(es):
NONE
(b) These special instructions shall be included in any subcontract
hereunder where the items purchased from the subcontractor are to be
shipped directly to the U.S. Government or to a foreign destination.
(c) If delivery of MAP, GA, or FMS items to foreign destinations is
required, the copies of DD Forms 250 required by DFARS, Appendix F, Table
2, Material Inspection and Receiving Report, Special Distribution, shall
be forwarded to the "ship to" address designated in the contract.
PART I - THE SCHEDULE
SECTION F
DELIVERIES OR PERFORMANCE
F-12. PERIOD OF PERFORMANCE
(IAW FAR 11.401(a))
Performance under this contract shall be from 19 Jun 98 thru 19 Jun 00.
--------- ---------
F-26. 52.242-15 STOP-WORK ORDER AUG 1989
(IAW FAR 42.1305(b)(1))
F-29. 52.242-17 GOVERNMENT DELAY OF WORK APR 1984
(IAW FAR 42.1305(d))
F-36. 52.247-34 F.0.B. DESTINATION NOV 1991
(IAW FAR 47.303-6(c))
PART I - THE SCHEDULE
SECTION G
CONTRACT ADMINISTRATION DATA
G-1. ACCOUNTING AND APPROPRIATION DATA
AA: 5783600 298 4753 663005 1T0483 00000 65502F 503000 OBLIGATE
$300,000.00 ADVICE # HAIRLG98720511
PART I - THE SCHEDULE
SECTION H
SPECIAL CONTRACT REQUIREMENTS
H-333. 5253.235-9000 SCIENTIFIC/TECHNICAL INFORMATION (STINFO) MAY 1996
(IAW AFFARS 5335.010-90)
If not already registered, the contractor shall register for Defense
technical Information Center (DTIC) service by contacting the following:
Defense Technical Information Center, DTC/BCS
8725 John J. Kingman Road, Suite 0944
Fort Belvoir, VA 22060-6218
(703) 767-8273
<PAGE>
PAGE 5 OF 8
CONTRACT NUMBER F34601-98-C-0145
PART II - CONTRACT CLAUSES
SECTION I
CONTRACT CLAUSES
FAR 52.252-2 CLAUSES INCORPORATED BY REFERENCE FEB 1998
(IAW FAR 52.107(b))
The full text of a clause may be accessed electronically at this/these
address(es):
Regulations URLs: (Click on the appropriate regulation.)
http://farsite.hill.af.mil/reghtml/far1toc.htm
http://farsite.hill.af.mil/reghtml/dfar1toc.htm
http://farsite.hill.af.mil/reghtml/affar1toc.htm
http://farsite.hill.af.mil/reghtml/afmc1toc.htm
NOTE: After selecting the appropriate regulation above, at the "Table of
Contents" page conduct a search for the desired regulation reference,
using your browser's FIND function. When located, click on the regulation
reference (hyperlink).
NO. FAR PARA CLAUSE TITLE DATE
I-11. 52.202-1 DEFINITIONS OCT 1995
(IAW FAR 2.201)
I-19. 52.203-3 GRATUITIES APR 1984
(IAW FAR 3.202)
I-20. 52.203-5 COVENANT AGAINST CONTINGENT FEES APR 1984
(IAW FAR 3.404)
I-22. 52.203-7 ANTI-KICKBACK PROCEDURES JUL 1995
(IAW FAR 3.502-3)
I-23. 52.203-8 CANCELLATION, RESCISSION, AND RECOVERY JAN 1997
OF FUNDS FOR ILLEGAL OR IMPROPER ACTIVITY
(IAW FAR 3.104-9(a))
I-25. 52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR JAN 1997
IMPROPER ACTIVITY
(IAW FAR 3.104-9(b))
I-25C. 52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE CERTAIN JUN 1997
FEDERAL TRANSACTIONS
(IAW FAR 3.808(b))
I-39. 52.204-4 PRINTING/COPYING DOUBLE-SIDED ON RECYCLED PAPER JUN 1996
(IAW FAR 4.304)
I-78. 52.209-6 PROTECTING THE GOVERNMENTIS INTEREST WHEN JUL 1995
SUBCONTRACTING WITH CONTRACTORS DEBARRED,
SUSPENDED, OR PROPOSED FOR DEBARMENT
(IAW FAR 9.409(b))
I-102. 52.211-15 DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS SEP 1990
(IAW FAR 11.604(b))
I-133C.52.215-10 PRICE REDUCTION FOR DEFECTIVE COST OR OCT 1997
PRICING DATA
(IAW FAR 15.408(b))
I-135C 52.215-12 SUBCONTRACTOR COST OR PRICING DATA OCT 1997
(IAW FAR 15.408(d))
I-139C.52.215-15 TERMINATION OF DEFINED BENEFIT PENSION PLANS OCT 1997
(IAW FAR 15.408(g))
1-146. RESERVED
I-147J.52.215-19 NOTIFICATION OF OWNERSHIP CHANGES OCT 1997
(IAW FAR 15.408(k))
I-214. 52.219-8 UTILIZATION OF SMALL, SMALL DISADVANTAGED AND JUN 1997
WOMEN-OWNED SMALL BUSINESS CONCERNS
(IAW FAR 19.708(a))
I-247. 52.222-3 CONVICT LABOR AUG 1996
(IAW FAR 22.202)
I-263E 52.222-21 PROHIBITION OF SEGREGATED FACILITIES APR 1984
(DEVIATION)
(IAW FAR 22.810(a)(1). and DP(DAR) Ltr dated
11 FEB 98 (DAR Tracking #98-00002))
<PAGE>
PAGE 6 OF 8
CONTRACT NUMBER F34601-98-C-0145
<TABLE>
<S> <C> <C>
I-264. 52.223-26 EQUAL OPPORTUNITY APR 1984
(DEVIATION)
(IAW FAR 22.810(e), and DP(DAR) Ltr dated
11 FEB 98 (DAR Tracking #98-00002))
I-274. 52.222-35 AFFIRMATIVE ACTION FOR SPECIAL DISABLED AND APR 1984
VIETNAM ERA VETERANS
(IAW FAR 22.1308(a)(1). and DFARS 222.1308(a)(1))
I-276. 52.222-36 AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS APR 1984
(IAW FAR 22.1408(a))
I-278. 52.222-37 EMPLOYMENT REPORTS ON SPECIAL DISABLED VETERANS JAN 1988
AND VETERANS OF THE VIETNAM ERA
(IAW FAR 22.1308(b))
I-292. 52.223-2 CLEAN AIR AND WATER APR 1984
(IAW FAR 23.105(b))
1-295. 52.223-6 DRUG-FREE WORKPLACE JAN 1997
(IAW FAR 23.505)
I-312. 52.225-11 RESTRICTIONS ON CERTAIN FOREIGN PURCHASES OCT 1996
(IAW FAR 25.702)
I-315. 52.227-1 AUTHORIZATION AND CONSENT JUL 1995
(IAW FAR 27.201-2(a))
I-316. 52.227-1 AUTHORIZATION AND CONSENT -- ALTERNATE I APR 1984
(IAW FAR 27.201-2(b))
I-317. 52.227-2 NOTICE AND ASSISTANCE REGARDING PATENT AND AUG 1996
COPYRIGHT INFRINGEMENTS
(IAW FAR 27.202-2)
I-327. 52.227-11 PATENT RIGHTS--RETENTION BY THE CONTRACTOR JUN 1997
(SHORT FORM)
(IAW FAR 27.303(a)(1))
I-332M. 52.227-20 RIGHTS IN DATA--SBIR PROGRAM MAR 1994
(IAW FAR 27.409(1))
I-354. 52.229-5 TAXES--CONTRACTS PERFORMED IN U.S. POSSESSIONS APR 1984
OR PUERTO RICO
(IAW FAR 29.401-5)
I-392. 52.232-9 LIMITATION ON WITHHOLDING OF PAYMENTS APR 1984
(IAW FAR 32.111(c)(2))
I-403. 52.232-17 INTEREST JUN 1996
(IAW FAR 32.617(a), and 32.617(b))
I-408. 52.232-22 LIMITATION OF FUNDS APR 1984
(IAW FAR 32.705-2(c))
I-409. 52.232-23 ASSIGNMENT OF CLAIMS JAN 1986
(IAW FAR 32.806(a)(1))
I-412. 52.232-25 PROMPT PAYMENT JUN 1997
(IAW FAR 32.908(c))
For the purposes of this clause the blank(s) are completed as follows:
(a)(5)(i) 7th
(b)(1) 30th
I-416F. 52.232-33 MANDATORY INFORMATION FOR ELECTRONIC FUNDS AUG 1996
TRANSFER PAYMENT
(IAW FAR 32.1103(a), and 32.1103(c))
I-417. 52.233-1 DISPUTES OCT 1995
(IAW FAR 33.215)
I-419. 52.233-3 PROTEST AFTER AWARD AUG 1996
(IAW FAR 33.106(b))
I-541. 52.242-13 BANKRUPTCY JUL 1995
(IAW FAR 42.903)
I-570. 52.244-2 SUBCONTRACTS (COST-REINBURSEMENT AND OCT 1997
LETTER CONTRACTS)
(IAW FAR 44.204(b))
(e) Even if the Contractor's purchasing system has been approved, the
Contractor shall obtain the Contracting Officer's written consent before
placing subcontracts identified below:
N/A
I-574. 52.244-6 SUBCONTRACTS FOR COMMERCIAL ITEMS AND OCT 1995
COMMERCIAL COMPONENTS
(IAW FAR 44.403)
</TABLE>
<PAGE>
PAGE 7 OF 8
CONTRACT NUMBER F34601-98-C-0145
<TABLE>
<S> <C> <C>
I-627. 52.246-23 LIMITATION OF LIABILITY FEB 1997
(IAW FAR 46.805)
I-671. 52.248-1 VALUE ENGINEERING MAR 1989
(DEVIATION)
(IAW FAR 48.201(b), and DDP Memo dated 27 Jun 97,
DAR Tracking #97-00005)
I-692. 52.249-6 TERMINATION (COST-REIMBURSEMENT) SEP 1996
(IAW FAR 49.503(a)(1))
I-733. 52.252-6 AUTHORIZED DEVIATIONS IN CLAUSES APR 1984
(IAW FAR 52.107(f))
For the purposes of this clause the blank(s) is/are completed as follows:
(b) Defense Federal Acquisition Regulation Supplement (48 CFR Chapter 2)
------------------------------------------------- -
I-750. 52.253-1 COMPUTER GENERATED FORMS JAN 1991
(IAW FAR 53.111)
I-775. 5352.235-9003 SMALL BUSINESS INNOVATION RESEARCH (SBIR) FEB 1996
PHASE I AND PHASE II CONTRACT REQUIREMENTS
(IAW AFMCFARS 5335.003(90)(e)
The following requirements of the FY 98 Department of Defense (DOD) solicitation
for the Small Business Innovation Research (SBIR) program are incorporated herein
by reference:
(a) A minimum of one-half of the research and/or analytic effort required to
perform the work specified in the statement of work (or contractor's proposal, if
incorporated by reference) shall be performed by the contractor.
(b) The primary employment of the principal investigator must be with the small
business firm at the time of contract award. Primary employment means that more
than one-half of the pricipal investigator's time is spent with the small
business.
(c) It is the sense of Congress that an entity that is awarded a contract under
the SBIR Program of a Federal Agency under section 9 of the Small Business Act
possible in keeping with the overall purposes of that program.
IA-22. 252.203-7001 SPECIAL PROHIBITION ON EMPLOYMENT JUN 1997
(IAW DFARS 203.570-5)
IA-31. 252.204-7000 DISCLOSURE OF INFORMATION DEC 1991
(IAW DFARS 204.404-70(a))
IA-33. 252.204-7003 CONTROL OF GOVERNMENT PERSONNEL WORK PRODUCT APR 1992
(IAW DFARS 204.404-70(b))
IA-40. 252.205-7000 PROVISION OF INFORMATION COOPERATIVE AGREEMENT DEC 1991
HOLDERS
(IAW DFARS 205.470-2)
IA-90. 252.209-7000 ACQUISITION FROM SUBCONTRACTORS SUBJECT TO NOV 1995
ON-SITE INSPECTION UNDER THE INTERMEDIATE-RANGE
NUCLEAR FORCES (INF) TREATY
(IAW DFARS 209.103-70)
IA-152. 252.215-7000 PRICING ADJUSTMENTS DEC 1991
(IAW DFARS 215.804-8)
IA-157. 252.215-7002 COST ESTIMATING SYSTEM REQUIREMENTS JUL 1997
(IAW DFARS 215.811-70(h))
(The Balance of Payments Program is not applicable when the estimated cost of the
product or service is at or below the Simplified Acquisition Threshold)
(The Balance of Payments Program is not applicable when the estimated cost of the
product or service is at or below the Simplified Acquisition Threshold)
IA-293. 252.225-7012 PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES SEP 1997
(IAW DFARS 225.7002-3(a))
IA-312C.252.225-7026 REPORTING OF CONTRACT PERFORMANCE OUTSIDE THE MAR 1998
UNITED STATES
(IAW DFARS 225.7203)
IA-312H.252.225-7031 SECONDARY ARAB BOYCOTT OF ISRAEL JUN 1992
(IAW DFARS 225.770-5)
IA-335. RESERVED
</TABLE>
<PAGE>
PAGE 8 OF 8
CONTRACT NUMBER F34601-98-C-0145
<TABLE>
<S> <C>
IA-338. 252.227-7018 RIGHTS IN NONCOMMERCIAL TECHNICAL DATA AND COMPUTER JUN 1995
SOFTWARE--SMALL BUSINESS INNOVATION RESEARCH
(SBIR) PROGRAM
(IAW DFARS 227.7104(a))
IA-346. RESERVED
IA-347. 252.227-7030 TECHNICAL DATA--WITHHOLDING OF PAYMENT OCT 1988
(IAW DFARS 227.7103-6(e)(2) or 227.7104(e)(4))
For the purposes of this clause, the Contracting Officer may withhold ten percent
-----------
(10%) of the total contract price.
-----
IA-351. 252.227-7034 PATENTS--SUBCONTRACTS APR 1984
(IAW DFARS 227.304-4)
IA-353. 252.227-7037 VALIDATION OF RESTRICTIVE MARKINGS ON TECHNICAL NOV 1995
DATA
(IAW DFARS 227.7102-3(c), 227.7103-6(e)(4),
227.7104(e)(6), or 227.7203-6(f))
IA-355. 252.227-7039 PATENTS--REPORTING OF SUBJECT INVENTIONS APR 1990
(IAW DFARS 227.303(a))
IA-399. 252.231-7000 SUPPLEMENTAL COST PRINCIPLES DEC 1991
(IAW DFARS 231.100-70)
IA-420. 252.232-7004 DOD PROGRESS PAYMENT RATES FEB 1996
(IAW DFARS 232.502-4-70(b)), and 232.502-4-70(c))
IA-632. 252.242-7000 POSTAWARD CONFERENCE DEC 1991
(IAW DFARS 242.570)
IA-633. RESERVED
IA-648. 252.243-7001 PRICING OF CONTRACT MODIFICATIONS DEC 1991
(IAW DFARS 243.205-71)
IA-649. 252.243-7002 CERTIFICATION OF REQUESTS FOR EQUITABLE MAR 1998
ADJUSTMENT
(IAW DFARS 243.205-72)
(b) I certify that the request is made in good faith, and that the supporting
data are accurate and complete to the best of my knowledge and belief.
(Official's Name)
(Title)
IA-745. 252.247-7023 TRANSPORTATION OF SUPPLIES BY SEA NOV 1995
(IAW DFARS 247.573(b)
IA-746. 252.247-7024 NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA NOV 1995
(IAW DFARS 247.573(c))
IB-320. 5352.223-9000 ELIMINATION OF USE OF CLASS I OZONE MAY 1996
DEPLETING SUBSTANCES (ODS)
(IAW AFFARS 5323.890-7)
For the purposes of this clause the blank(s) is/are completed as follows:
Substance Application/Use Quantity (lbs)
NONE
----
</TABLE>
IB-430. RESERVED
PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS
SECTION J
LIST OF ATTACHMENTS
(All listed attachments are at the end of this document)
--------------------------------------------------------
<TABLE>
<CAPTION>
FORM NR TITLE DATE NR OF PAGES
------- ----- ---- -----------
<S> <C> <C> <C>
Attach "A" TMS Sequoia, Inc Phase II 21 Nov 97 32
SBIR Proposal titled "The
Digital Automation of
Legacy Data"
DD Form 1423-1 Exhibit "A" Contract Data 4 May 98 3
Requirements List
</TABLE>
<PAGE>
APPENDIX
U.S. DEPARTMENT of DEFENSE
SMALL BUSINESS INNOVATION RESEARCH (SBIR) PROGRAM
PROPOSAL COVER SHEET
Failure to fill in all appropriate
spaces may cause your proposal to be disqualified
TOPIC NUMBER: AF97-239
PROPOSAL TITLE: The Digital Automation of Legacy Data
FIRM NAME: TMSSequoia
MAIL ADDRESS: 206 West 6th Avenue
P.O. Box 1358
CITY: TMSSequoia STATE: OK ZIP: 74076
PROPOSED COST: $ 694,030.18 PHASE I OR II: II PROPOSED DURATION: 22
PROPOSAL IN MONTHS
BUSINESS CERTIFICATION:
Are you a small business as described in paragraph 2.2? YES
Are you a socially and economically disadvantaged business as defined in
paragraph 2.3? (Collected for statistical purposes only) No
Are you a woman-owned small business as described in paragraph 2.4?
(Collected for statistical purposes only) No
Have you submitted proposals or received awards containing a significant
amount of essentially equivalent work under other DOD or federal program
solicitations? If yes, list the name(s) of the agency or DOD component,
submission date, and Topic Number in the spaces below. No
Number of employees including all affiliates (average for preceding 12
months): 70
PROJECT MANAGER/PRINCIPAL INVESTIGATOR CORPORATE OFFICIAL (BUSINESS)
NAME: Coy Housman NAME: Art Crotzer
TITLE: Senior Software Engineer TITLE: President
TELEPHONE: (918) 610-5198 TELEPHONE: (405) 377-0880
For any purpose other than to evaluate the proposal, this data except Appendix A
and 8 shall not be disclosed outside the Government and shall not be duplicated,
used or disclosed in whole or in part, provided that if a contract is awarded to
this proposer as a result of or in connection with the submission of this data,
the Government shall have the right to duplicate, use or disclose the data to
the extent provided in the funding agreement. This restriction does not limit
the Government's right to use information contained in the data if it obtained
from another source without restriction. The data subject to this restriction is
contained on the pages of the proposal listed on the line below.
PROPRIETARY INFORMATION:
<TABLE>
<S> <C> <C> <C>
Signed by Coy Housman 11/21/97 Signed by Art Crotzer 11/21/97
SIGNATURE OF PRINCIPAL INVESTIGATOR DATE SIGNATURE OF CORPORAT BUSINESS OFFICIAL DATE
</TABLE>
Nothing on this page is classified or proprietary information/data
<PAGE>
APPENDIX
U.S. DEPARTMENT OF DEFENSE
SMALL BUSINESS INNOVATION RESEARCH (SBIR) PROGRAM
PROJECT SUMMARY
Failure to fill in all appropriate
spaces may cause your proposal to be disqualified
TOPIC NUMBER: AF97 - 239
PROPOSAL TITLE: The Digital Automation of Legacy Data
FIRM NAME: TMSSequoia
PHASE I or II PROPOSAL: Phase II
- --------------------------------------------------------------------------------
Technical Abstract (Limit your abstract to 200 words with no classified or
proprietary information/data.)
TMSSequoia proposes to develop a software system for Tinker Air Force Base that
will allow the conversion of paper and microfilm based legacy engineering
drawings, technical manuals and reports, to digital format. This process will
include automatic extraction of data from scanned images that will be used as
input into the currently installed Configuration Management Information System
(CMIS) for storage, query and retrieval. Using software tools and applications
identified in the SBIR Phase I feasibility research, TMSSequoia will bring these
technologies together utilizing current software engineering staff into a
complete EDMS solution for document scanning identification of document type,
extraction of index data from the image, data validation, storage into CMIS, and
ultimate retrieval and viewing of the images. Phase II will pursue advanced
development of the software system to provide Digital Automation for legacy
data. The development of the software application will consist of two main
phases, a low level technical design phase that will progress into the coding of
the application.
- --------------------------------------------------------------------------------
Anticipated Benefits/Potential Commercial Applications of the Research or
Development.
The expectation is that the software system to provide Digital Automation for
legacy data will meet the current and future needs for Tinker Air Force Base.
The application will allow for generic type data to be defined by the government
or commercial entities to use their specific data type as input and support
electronic data storage, searching and retrieval. The completed application
could be used in other branches of the military as well as the commercial and
industrial environments.
- --------------------------------------------------------------------------------
List a maximum of 8 Key Words or short (2-3 word) phrases that describe the
Project.
Digital Automation Document Imaging
Forms Processing Document Conversion
Document Recognition Database Retrieval
Data Extraction Image Viewing
Nothing on this page is classified or proprietary information/data
<PAGE>
<TABLE>
<S> <C>
1. IDENTIFICATION & SIGNIFICANCE OF THE PROBLEM OR OPPORTUNITY............. 4
1.1 Current System.................................................. 4
1.2 Problem with Current System..................................... 4
1.3 Desired Solution................................................ 5
1.3.1 Convert Legacy Data to Electronic Knowledge Base.......... 5
1.3.2 Combination of Manual and Automated Processes............. 5
2. PHASE II TECHNICAL OBJECTIVES........................................... 6
2.1 SBIR Phase II Technical Objectives.............................. 6
3. PHASE II WORK PLAN...................................................... 7
3.1 TASK 1 Kickoff Meeting.......................................... 7
3.1.1 TASK 1.2 Preliminary Design Phase (SBIR Phase 1).......... 7
3.2 TASK 2 Detailed Design.......................................... 7
3.3 Task 3 Forms Definer............................................ 7
3.4 Task 4 Input Data Types......................................... 7
3.4.1 Paper/Mylar............................................... 8
3.4.2 JEDMICS Files............................................. 8
3.4.3 Microfilm................................................. 8
3.4.4 Vector Files.............................................. 9
3.5 Task 5 Output Data Types........................................ 9
3.6 Task 6 Image Processing......................................... 10
3.7 Task 7 Combining Microfilmed Images............................. 10
3.8 Task 8 Dividing Microfilmed Images.............................. 10
3.9 Task 9 Forms Identification..................................... 11
3.10 Task 10 Stationary Data Extraction............................. 11
3.11 Task 11 Text Locator (Moving).................................. 11
3.12 Task 12 Grid and Table Locator................................. 11
3.13 Task 13 Context Adder.......................................... 12
3.14 Task 14 Optical Character Recognition ("OCR").................. 12
3.15 Task 15 Data Correction........................................ 12
3.16 Task 16 Storage/Query/Retrieval................................ 13
3.17 Task 17 Prepare/Assemble Detail Design Document................ 13
3.18 Task 18 Send Detail Design Document to Tinker Air Force Base... 14
3.19 Task 19 Conduct Detailed Design Review......................... 14
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
3.20 Task 20 Incorporate DDR Changes................................ 14
4. SOFTWARE DEVELOPMENT.................................................... 15
4.1 Coding and Computer Software Unit ("CSU") Testing............... 15
4.2 Forms Definer................................................... 15
4.3 Input Data Types................................................ 15
4.4 Output Data Types............................................... 15
4.5 Image Processing................................................ 15
4.6 Combining Microfilmed Images.................................... 15
4.7 Dividing Microfilmed Images..................................... 16
4.8 Forms Identification............................................ 16
4.9 Stationary Data Extraction...................................... 16
4.10 Text Locator................................................... 16
4.11 Grid and Table Locator......................................... 16
4.12 Context Adder.................................................. 16
4.13 Optical Character Recognition.................................. 16
4.14 Data Correction................................................ 16
4.15 Storage/Query/Retrieval........................................ 17
4.16 Computer Software Component ("CSC") Integration and Testing.... 17
4.17 Computer Software Configured Item ("CSCI") Testing............. 17
4.18 Final Report................................................... 17
</TABLE>
2
<PAGE>
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3
<PAGE>
1. Identification & Significance of the Problem or Opportunity
- ----------------------------------------------------------------
1.1 Current System
The Phase I SBIR project studied and demonstrated the feasibility of
extraction of data from a paper based system for populating an electronic
library of data. Although some user interaction will be required in the
automated system, the goal is to build a product with intelligence to
automatically recognize forms and data then extract the relevant
information out of the forms.
This Phase II project of extracting data will automate the conversion from
paper based data such as engineering drawings and documents to the Large
Scale Knowledge Base Technology. All government agencies and commercial
organizations desiring to update their older document and data management
systems to an electronic, on-line system will benefit from this project.
This technology will dramatically increase the efficiency of converting
paper based data to an electronic form that can be searchable and
retrievable.
The current document management system is in the process of being updated
to the Large Scale Knowledge Base Technology. This knowledge base will
allow for a more robust storage, query and retrieval of information. Joint
Engineering Data Management Information and Control System (JEDMICS)
currently stores a limited set of data. JEDMICS provides the means to
convert, store, protect, process, locate, receive, and output information
previously contained on aperture cards and paper media. Large engineering
drawings and related text are scanned and stored on network-accessible
optical media, providing online access at distributed workstations.
Although not always available, aperture cards could store up to eighty
characters of information about the contained microfilmed image. All other
information which JEDMICS can store is entered manually. JEDMICS does not
allow the storage of additional information. The Large Scale Knowledge Base
Technology effort requires huge amounts of data and manually entering this
data into the knowledge base would require considerable time and effort.
1.2 Problem with Current System
All of the information needed for the Large Scale Knowledge Base effort
does not exist electronically. Manual entry of the data is the only method
that currently exists. JEDMICS does not contain all the information
required for a knowledge base system. Engineering drawings and technical
data are located, visually identified, and scanned for the required
information. The current retrieval of information from paper based legacy
data is time consuming and cumbersome. The data must be manually entered
into the knowledge base system which requires considerable manual effort.
Putting the data into a single knowledge
4
<PAGE>
base system will aid in the retrieval of information, but manually
inserting this data could be cost prohibitive.
1.3 Desired Solution
This SBIR Phase II project indicates that the current method of handling
data insertion must be improved. An intelligent and automatic system
providing for image scanning, automatic capture of data, computer assisted
verification of captured data, and network storage of technical data will
dramatically improve overall efficiency. Any governmental agency or
commercial business could benefit from a system providing quicker, more
robust data retrieval. The solution suggested provides a method of
automatically extracting data from various input formats and automatically
entering this data into a knowledge base system.
1.3.1 Convert Legacy Data to Electronic Knowledge Base
Modern databases provide for the electronic data storage, organization, and
retrieval. The storage of information of product history, current data, and
production information is needed for Product Data Management (PDM). PDM
tools rely on large amounts of information organized into a special type of
database called a knowledge base. Paper based legacy data contains much of
this information. The challenge lies in transferring this data from a paper
based media to an electronic system.
The first step in the conversion process is to get the data from printed
media to an electronic "picture", a raster image. Next, this image is
processed to identify the image type and to locate the data. Optical
Character Recognition/Intelligent Character Recognition (OCR/ICR) software
processes the applicable parts of the image and converts the information to
text. The extracted data must have context added to become meaningful.
Context algorithms use data type, location, and content to intelligently
add context to the extracted data. The data will then be ready for
insertion into a knowledge base.
1.3.2 Combination of Manual and Automated Processes
The ability to accept random images and automatically recognize data types,
does not currently exist. As development progresses in Phase II, the
outcome is not expected to totally eliminate the manual processes. However,
the vast majority of images will be converted completely by automatic
processes. Human intervention will be inevitable for initial setup and to
process special situations, unrecognized data types, and images of poor
quality. These manual processes will include applications to define image
recognition parameters, to correct data, to manually identify data, and to
extract regions of data.
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2. Phase II Technical Objectives
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2.1 SBIR Phase II Technical Objectives
The objective of this project is to develop a software system that was
researched during phase I of this SBIR project. TMSSequoia's objective is
to develop the software system to allow conversion of paper-based and
microfilm legacy engineering drawings, technical manuals, and reports, to a
digital format. This process will include automatic extraction of data from
scanned images that can be used as input into the Configuration Management
Information System (CMIS) currently installed at Tinker Air Force Base for
data storage, query, and retrieval.
This problem has been studied by others in the industry, however no
adequate solutions has been perfected and made available. Based on the
findings and success of our Phase I research on topic number AF97-239, "The
Digital Automation of Legacy Data", we propose to develop the application
using the current products and services offered by TMSSequoia.
Section 3, Phase II Work Plan describes the different tasks required to
design and develop the required software solution to accomplish the goals
set forth by Tinker Air Force Base.
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3. Phase II Work Plan
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3.1 TASK 1 Kickoff Meeting
This task of SBIR phase II will begin with a kickoff meeting between the
project team and the project officers. This meeting could be conducted at
TMSSequoia or Tinker Air Force Base, or some other location at the
discretion of the project monitor. The purpose of the kickoff meeting is to
help the project leaders of the SBIR phase II obtain a better understanding
of the USAF SBIR program and requirements so that product development can
be directed towards satisfying specific USAF needs and mission.
3.1.1 TASK 1.2 Preliminary Design Phase (SBIR Phase I)
The object of this task is to summarize the technical research that was
preformed in the SBIR phase I into a preliminary design review ("PDR")
format, and make that advanced copy available to Tinker Air Force Base
project contracting officer. In this phase TMSSequoia will also conduct a
PDR and incorporate these changes in the final report to Tinker Air Force
Base.
3.2 TASK 2 Detailed Design
This task will develop detailed specifications for the development of the
Digital Automation of Legacy Data application. These specifications will
define the different modules that make up the data recognition and the
processes used to manipulate the data.
3.3 Task 3 Forms Definer
In this task TMSSequoia will design a windows application to allow a user
to define forms for identification and data extraction. The user shall have
the ability to select form characteristics to be used for identification.
Those characteristics shall include height and width of form, lines, text,
objects (such as company logos), and engineering drawing title block
styles. These characteristics will be saved for use in identification. The
application will also allow the user to define data extraction zones. These
zones shall include stationary zones of fixed size, stationary zones of
varying lengths (left, top, and right stationary, bottom of zone varies),
and zones whose location varies on the page. The more stationary the data
zone, the higher the zone recognition and higher the read rate. The Form
Definer will have the ability to detect duplicate form definitions.
3.4 Task 4 Input Data Types
The objective in this task is to design procedures for handling data types
from varying input sources. These sources will include printed legacy data
(paper and
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mylar), JEDMICS files, aperture cards containing microfilm, and vector
files. Printed legacy data and aperture cards will require a scanning
process to convert the media to a standard raster image file format. The
JEDMICS and vector files will require a conversion program to convert these
image formats to a standard raster image format. The following are examples
of the types for data input.
3.4.1 Paper/Mylar
Much of the Air Force Legacy Data originated as paper copies or mylar
prints and is still in these formats. The Air Force has scanners in place
to convert this data to an electronic image format. The scanning process
will be integrated into the Legacy Data conversion process to provide a
quicker, more efficient process. For general commercial use, special
consideration of the mylar media must be taken when selecting scanners.
A set of Air Force engineering drawings were evaluated to determine the
best resolution for scanning, extracting, and storing of data. Paper/Mylar
can be scanned at a high resolution for data extraction then that image
could be rescaled to a lower resolution for storage. Resolutions of up to
800 dots per inch (dpi) were evaluated. The research was aimed at
determining the best resolution for data extraction. Higher resolutions
store more information about images. This additional information did not
provide enough additional OCR accuracy to justify the increased effort of
scanning and converting the images. Other Air Force systems store the image
at 200 dpi. Preliminary research indicates no reason to scan paper/mylar
data electronically at a higher resolution than 200 dpi.
3.4.2 JEDMICS Files
JEDMICS is an image system that can output images in numerous formats. The
distinction is in the electronic image header. This header is configured
for custom data that sometimes contain the data from an aperture card. This
data includes part number, revision information, microfilm frame
information, and more. This data will be used directly without the need for
OCR to extract certain information. The image itself is a raster image and
will be treated the same as a scanned paper image.
3.4.3 Microfilm
The Air Force has received a large amount of their Legacy Data on microfilm
media. The microfilm is placed in an aperture card along with at most
eighty characters of information about the image contained. During the
microfilming process, the original drawing may not fit in a single
microfilm frame. This causes the original data to be divided into several
microfilm frames and then placed on multiple aperture cards. Additionally,
some data may be smaller than a frame. Four pages of data may be captured
in a single microfilm frame. Aperture cards
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can be scanned into an electronic image format. The characters on the
aperture cards can be maintained in the image header. Multi-framed images
are awkward to use when printed or viewed in their hard copy form. It is
not uncommon to see multi-framed images printed then the paper copies cut,
stapled, and taped together in an attempt to recreate the original
engineering drawing. An area of research will be to intelligently recombine
the image for processing, viewing, and printing.
3.4.4 Vector Files
Some of the Legacy Data for engineering drawings is in vector file format.
These formats are used by engineering applications. These formats differ
from raster image formats in that they include textual information. To
extract textual data from a raster image the data must be processed by OCR
software. In a vector image the data is already in text format. This
presents two potential processing paths. The first method will convert the
vector images to raster images and then process them through the same
processes as all the other raster images. Processing vector images will
involve a vector to raster conversion process. This path has the positive
benefit of reusing the raster image processes, but a negative benefit of
potentially losing some text accuracy. The second method will be to use the
textual data directly from the vector image. This path has the positive
benefit of maintaining textual accuracy, but a negative benefit of having
separate sets of processes for different input data types. Additional
research will determine which of the two methods will provide the best
solution.
3.5 Task 5 Output Data Types
In this task TMSSequoia will design and include in the application design
the ability to save images in JEDMICS format. TMSSequoia products already
support standard raster image formats. The purpose of having output data
types is to provide access to the extracted data. To provide flexibility,
multiple output data types will be provided. This will allow the maximum
number of external applications to access the extracted data. This will
reduce the need for the Large Scale Knowledge Base and other external
applications to be modified. This will also provide for future growth.
There are two primary methods to output the data. One is to output the data
to a file and the other is to provide a software interface.
The processing flow of outputting the data to a file will be as follows. An
external process will request the data in a specified file format. The data
will be sent to a temporary file using the specified file format. Then the
external process will get the data from the temporary file. After the
external process is finished with the temporary file, the file could be
deleted. There will be multiple file formats that could be specified. These
file formats will be a combination of industry standard formats and custom
formats. For example, the industry standard formats could be: a flat ASCII
file, a comma separated values (CSV) file, or a database file. The custom
formats could be: an already existing format defined by an external
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process, a new format agreed upon by both the external and internal
processes, or a custom database file.
The programming interface used in the development phase will be a set of
built in function calls. The function calls could be implemented as a 'C'
dynamic link library (DLL) or as an object linking and embedding (OLE)
object. The functions will return the data as a memory object to the
calling (external) process. The data could be returned one item at a time
or as a list of items. For example, 'GetFirstNote()' and 'GetNextNote()' or
'GetPartsList()'. This interface will be used to support a knowledge base
loader function written for COTS applications.
3.6 Task 6 Image Processing
This design task will incorporate TMSSequoia's award winning, patented
image processing tools into the application. The application shall accept
an image and allow the user to selectively straighten the image, remove
noise, darken light images, and complete lines and text. Cleaner images
also improve storage efficiency by providing access to higher levels of
data compression. FormFix provides the power to automatically locate image
features such as the drawing numbers and drawing titles, and the ability to
isolate sections of an image for custom image processing.
3.7 Task 7 Combining Microfilmed Images
In this task TMSSequoia will design a utility to recognize when an
engineering drawing has been divided into multiple frames for microfilming.
The purpose of combining images that have been divided into multiple frames
is to aid in the identification of images and the extraction of data. It
also makes it more convenient to view and print a single image versus
multiple frames that make up a drawing. The utility will then reconstruct
the image in its original size. This process will aid in the recognition of
forms and in data extraction by creating a single point of reference for
the drawing. For example the title block which is always in the lower right
corner of engineering drawings can be specified as lower right instead of
lower right of the highest numbered frame. Creating multiple frames also
duplicates some areas of the drawing which could mislead the data
extraction algorithms to declare the existence of two zones when in fact
there is only one. An additional benefit of this utility would viewing
images online would be much easier. The user would not be required to look
at four or more images just to view a single engineering drawing.
3.8 Task 8 Dividing Microfilmed Images
The objective in this task will be to design a utility to recognize and
divide microfilm images of multiple pages. The purpose of dividing the four
sheets of a Parts List into separate individual images is to make it easier
to view, extract, group, print and handle the sheets. Standard size paper,
8'/2" by 11", is often microfilmed four pages per microfilm frame. This
utility shall recognize the multiple pages, divide the image, and save the
sub-images which contain the
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image of each original document. Additional benefits will be processing the
image through a clean up routine. Data extraction of single sheets will not
have the overhead of processing a varying range of sheets.
3.9 Task 9 Forms Identification
Using form definitions in this task created by the Form Definer, TMSSequoia
will design an application to recognize forms. An image will be checked
against the form definitions until a match is determined or no match can be
found. Size, lines, objects, text, and title blocks will be used to
determine when an image matches a form definition.
3.10 Task 10 Stationary Data Extraction
In this task TMSSequoia will design the application to extract data from
stationary zones using location information form the Form Definer. The data
extraction process identifies the data type and reads the information by
applying form definitions to the images. Once identified, the data zones
are read and loaded into the internal database. The information in the
database would be provided to external applications through the output data
types.
3.11 Task 11 Text Locator (Moving)
In this task TMSSequoia will design methods to locate information that
varies in location from image to image. There are two types of text to be
found. Text that should be at a specific location (predefined area) on the
image and 'free' text that could be anywhere on the image. The normal
process of finding text will be to look at specific areas on the image.
These areas will be defined in the Recognition/Forms Definer that includes
a context definition setup process.
Once located the date will be extracted by the same method as stationary
data is extracted. The Text Locator algorithm will search an image for
attributes of the text and then OCR the data. This feature could be used
for locating procedures and specifications. For example, Military
Standards, MIL-STD-XXXX, could be automatically found anywhere on an
engineering drawing. This will allow this type of information to be
located, read, and inserted into an electronic database with minimal user
effort.
3.12 Task 12 Grid and Table Locator
TMSSequoia will design a utility to locate, recognize, and extract data
from grids and tables. Two unique characteristics of a Grid or Table are
horizontal lines and vertical lines. These lines should be approximately
the same length. Using this knowledge, algorithms will be created to
recognize grids and tables. The algorithm will start with either the left
or right vertical border line. Then it will find each vertical line as it
traverses the page. It will collect data such as the beginning, ending, and
length of lines. Once this data is collected an evaluation of the data will
determine any vertical lines with similar lengths. Then, repeating
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this process for horizontal lines. It will start at the top or bottom
border and find each horizontal line as it traverses the page. It will
collect the data such as the begin and end points and the length. After
this data is collected it will evaluate the data to see if there were any
horizontal lines with similar lengths. Then the algorithm will use the
begin and end point data to find the vertical and horizontal lines in the
same area. Once these vertical and horizontal lines are determined a
grid/table will be declared. This algorithm may find the core or the
center sections of a grid or table do to the fact some lines may be partly
missing or other imperfections. The user will use the Form Definer to turn
on grid and table detection on a given form type. This utility will then
check if an image contains a grid or table and provide the exact location
data to the Stationary Data Extractor. This will allow tables contained in
Legacy data to be read and inserted into a database with minimal user
intervention.
3.13 Task 13 Context Adder
In this task TMSSequoia will design methods to use information set in the
Form Definer to qualify text, grids, and tables. The purpose of the
Context Adder is to add textual context (meaning) to the data being
extracted. In the Recognition/Forms Definer, the user defined how to
identify a certain form. The user also defined characteristics of certain
areas of data and what those areas (data zones) mean. Once an image has
been recognized as being of a certain predefined form type, the predefined
data zones can be extracted. While the data zones are being extracted,
context or meaning will be added. Using this context, the data will be
stored in the appropriate locations in the internal database.
3.14 Task 14 Optical Character Recognition ("OCR")
In this design task TMSSequoia will use existing Optical Character
Recognition ("OCR") software packages to read textural information from
legacy data. OCR software involves reading text from paper and translating
the images into a form that the computer can manipulate (for example, into
ASCII codes). Multiple OCR software packages may be used to obtain the
best overall read rates. A voting algorithm may be developed to read the
same data zones by multiple OCR packages then determining the correct
results from all of the OCR packages. This algorithm then chooses the
correct result and assigns a confidence value. The confidence value is
adjustable by the user. This creates a method for the user adjust the
sensitivity of the data extraction process. This will create the best data
extraction rates and minimize user correction of the data prior to
entering the data into a database.
3.15 Task 15 Data Correction
In this phase TMSSequoia will design an application to correct data once
an image has been identified by the automated processes and read by OCR.
The results from the OCR process will be stored in an internal database
and from there the data will be loaded in a text window for data
verification. The area of
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the image where the data is located will be displayed. The user will have
the option to correct or accept this data. This process will be a manual
process in which the user will visually inspect the image and correct the
data. This process will also provide a very good method to enter data
manually. If the user does not want to run the automated processes or the
process completely fails on an image, the data can be entered manually.
3.16 Task 16 Storage/Query/Retrieval
The objective of this task is for TMSSequoia to design an interface to
allow other programs to submit images and obtain results for the legacy
data. The process will be Application Program Interface ("API") function
calls to a TMSSequoia Dynamic Link Library to initialize, input an image,
recognize the image, read data, return data, and close the interface. An
internal database will also be developed to hold the data to support batch
processing and/or bulk loading of a database. The two main purposes of the
internal database are to store and provide access to the extracted data.
Both internal and external processes will be able to access the extracted
data. The internal processes will access the data through normal database
methods. Any external processes will use a defined interface to retrieve
and query the data. The defined interface could be in the form of 'C' DLL
function calls, a flat ASCII file, or a defined database format. For ease
of use and implementation, a Microsoft 'Jet' (Access) database could be
used. Open Database Connectivity (ODBC) is another possibility for
implementing the connection to the database. This will add the flexibility
to change to other databases in the future. The database will have several
predefined tables and indexes. For example there will be a table for
storing 'Parts List', 'Identification Information', and 'Keyword' text.
The tables will be filled in as each piece of text is processed and
recognized. After the data has been corrected and verified, any external
processes could retrieve and query the data. Additional functionality
implemented in the database will be to store the physical image
coordinates of each piece of text. This will be used as input for
algorithms to group the text together. This will be the distinction
between grouped text (Notes, Revision, etc.) and un-grouped text (MIL-S-,
NSN, etc.)
3.17 Task 17 Prepare/Assemble Detail Design Document
In this task TMSSequoia will prepare and assemble a detailed design
document for the submission to Tinker Air Force Base for review and
approval. This detail design document will cover all the task listed in
section 5 of the Phase II Work Plan. The detailed design document will be
written in a technical language which is understandable by any technical
personnel related to the phase II project, which will also be used as the
technical specification for the actual programming development.
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The detailed design document will specify all fields, processes to be
followed in the system, interactions between processes, etc.; as well as
all hardware and software needed, and any other information needed to
understand the system.
3.18 Task 18 Send Detail Design Document to Tinker Air Force Base
In this task TMSSequoia will provide the detailed document to the
contracting officer at Tinker Air Force Base by mail, or by hand delivery.
3.19 Task 19 Conduct Detailed Design Review
This task is for TMSSequoia to spend time reviewing the comments and
suggestions from the contracting officer at Tinker Air Force Base related
to the phase II project design document. This time will also include
meetings and discussions related to the detailed design document on and
off-site.
3.20 Task 20 Incorporate DDR Changes
The objective in this task is for TMSSequoia to incorporate any and all
requested changes related to the detailed design document from the project
manager at Tinker Air Force Base.
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4. Software Development
- --------------------------------------------------------------------------------
4.1 Coding and Computer Software Unit ("CSU") Testing
In this phase of the project the detailed design document has been approved
and finalized by the project leaders from both the contracting firm and the
contracting officer from Tinker Air Force Base.
Each task listed is the same task that was listed and described in section
5 of the Phase II Work Plan. The task will be listed only to represent the
detailed implementation of each task.
4.2 Forms Definer
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.3 Input Data Types
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.4 Output Data Types
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.5 Image Processing
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.6 Combining Microfilmed Images
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
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4.7 Dividing Microfilmed Images
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.8 Forms Identification
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.9 Stationary Data Extraction
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.10 Text Locator
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.11 Grid and Table Locator
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.12 Context Adder
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.13 Optical Character Recognition
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
4.14 Data Correction
In this development phase, the task will be to implement the findings from
the task in the design phase and incorporate this functionality into the
final application.
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4.15 Storage/Query/Retrieval
In this development phase, the task will be to implement the findings
from the task in the design phase and incorporate this functionality into
the final application.
4.16 Computer Software Component ("CSC") Integration and Testing
In this development/testing phase, TMSSequoia will be testing each task
and how it interacts with the complete application.
4.17 Computer Software Configured Item ("CSCI") Testing
In this phase TMSSequoia will be testing the installed version of the
application at Tinker Air Force Base, OKC. Testing of the application
will include interaction with existing applications and the Metaphase
data base currently installed at Tinker Air Force Base.
4.18 Final Report
This phase reserves time and resources to completing a final document
that will be given to Tinker Air Force, that address the over all
completion goals of the project. Focus will be in the performance gains
obtained through the installed software by TMSSequoia, and how well the
installed software performs on the given data provided by Tinker Air
Force.
Other areas of interest will be in the;
. Installation of the software
. What degree of accuracy the application is achieving during forms
recognition and OCR of the drawings
. What limitations does the custom application have
. How TMSSequoia and Tinker Air Force Base can expand the custom
application to perform additional functions that Tinker would be
interested in.
. How the custom application could be expanded to integrate into the
commercial industry.
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CONTRACT DATA REQUIREMENTS LIST Form Approved
(2 Date Items) OMB No. 0704-0188
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The public reporting burden for this collection of information is estimated to
average 220 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
reviewing the collection of information. Send comments regarding this burden
estimate or any other aspect of this collection of information, including
suggestions for reducing the burden, to Department of Defense, Washington
Headquarters Services, Directorate for Information Operations and Reports (0704-
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Respondents should be aware that notwithstanding any other provision of law, no
person shall be subject to any penalty for failing to comply with a collection
of information if it does not display a currently valid OMB control number.
Please DO NOT RETURN your form to the above address. Send completed form to the
Government Issuing Contracting Officer for the Contract/PR No.
listed in Block E.
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A. CONTRACT LINE ITEM NO. B. EXHIBIT C. CATEGORY:
0002 "A" TDP ________ TM ________ OTHER ______________
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D. SYSTEM/ITEM E. CONTRACT/PR NO. F. CONTRACTOR
F34601-98-C-0145 TMSSequoia
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1. DATA ITEM NO. 2. TITLE OF DATA ITEM 3. SUBTITLE
AOO1 PROGRAM PLAN
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4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE 6. REQUIRING OFFICE
DI-MGMT-80909 SBIR Phase II Proposal Par 3.2 OC-ALC/TIET
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LT REQUIRED 1 See Blk 16 ------------------------------------------
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Reg Repro
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16. REMARKS ------------------------------------------
Blk 12: 30 days after contract award. OC-ALC/TIET 2
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Blk 13: Updates as required. OC-ALC/LIDAB 1
Contractor format may be used. ------------------------------------------
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15. TOTAL ------> 3
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1. DATA ITEM NO. 2. TITLE OF DATA ITEM 3. SUBTITLE
A002 Scientific and Technical Report Detailed Design Document
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4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE 6. REQUIRING OFFICE
DI-MISC-80711 SBIR Phase II Proposal par 3.17 OC-ALC/TIET
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7. DO 250 REQ 9. DIST STATEMENT 10. FREQUENCY 12. DATE OF FIRST SUBMISSION 14. DISTRIBUTION
LT REQUIRED 1 See Blk 16 ------------------------------------------
- -------------- ---------------------------------------- b. COPIES
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSEQUENT a. ADDRESSEE ----------------------
N/A N/A N/A SUBMISSION Final
See Blk 16 Draft ---------------
Reg Repro
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16. REMARKS ------------------------------------------
Blk 12: 60 Days after contract award.
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Blk 13: Updates as required. OC-ALC/TIET 2
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Contractor format may be used. OC-ALC/LIDAB 1
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15. TOTAL ------> 3
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G. PREPARED BY H. DATE I. APPROVED BY J. DATE
/s/ [ILLEGIBLE] 4 June 98 /s/ [ILLEGIBLE] 4 June 98
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DD FORM 1423-2, AUG 96 (EG) PREVIOUS EDITION MAY BE USED. Page of Pages
</TABLE>
<PAGE>
CONTRACT DATE REQUIREMENTS LIST Form Approved
(2 Data Items) OMB No. 0704-0188
The public reporting burden for this collection of information is estimated to
average 220 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing the burden, to Department of Defense,
Washington Headquarters Services, Directorate for Information Operations and
Reports (0704-0188), 1215 Jefferson Davis Highway, Suite 1204, Arlington. VA
22202-4302. Respondents should be aware that notwithstanding any other provision
of law, no person shall be subject to any penalty for failing to comply with a
collection of information if it does not display a currently valid OMB control
number. Please DO NOT RETURN your form to the above address. Send completed form
to the Government Issuing Contracting Officer for the Contract/PR No. listed in
Block E.
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A. CONTRACT LINE ITEM NO. B. EXHIBIT C. CATEGORY:
0002 "A" TDP__________ TM ______ OTHER _________________
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D. SYSTEM/ITEM E. CONTRACT/PR NO. F. CONTRACTOR
F34601-98-C-0145 TMS Sequoia
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1. DATA ITEM NO. 2. TITLE OF DATA ITEM 3. SUBTITLE
A003 Scientific and Technical Report Design Document Report Changes
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4. AUTHORITY (Date Acquisition Document No.) 5. CONTRACT REFERENCE 6. REQUIRING OFFICE
DI-MISC-80711 SBIR Phase II Proposal par 3.20 OC-ALC/TIET
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8. APP CODE 11. AS OF DATE 13. DATE OF SUBSEQUENT a. ADDRESSEE Final
------------
SUBMISSION Draft
N/A N/A N/A See Blk 16 Reg Repro
- -----------------------------------------------------------------------------------------------------------------------------------
16. REMARKS _________________________________________
Blk 12: 30 days after A002 Acceptance. _________________________________________
OC-ALC/TIET 2
Blk 13: Updates as required. -----------------------------------------
_________________________________________
Contractor format may be used. OC-ALC/LIDAB l
-----------------------------------------
_________________________________________
_________________________________________
_________________________________________
_________________________________________
_________________________________________
_________________________________________
_________________________________________
_________________________________________
15. TOTAL 3
- -----------------------------------------------------------------------------------------------------------------------------------
1. DATA ITEM NO. 2. TITLE OF DATA ITEM 3. SUBTITLE
A004 Software Test Description
- -----------------------------------------------------------------------------------------------------------------------------------
4. AUTHORITY (Date Acquistion Document No.) 5. CONTRACT REFERENCE 6. REQUIRING OFFICE
DI-IPSC-81439 SBIR Phase II Proposal par 4.16 OC-ALC/TIET
- -----------------------------------------------------------------------------------------------------------------------------------
7. DD 250 REQ 9. DIST STATEMENT 10. FREQUENCY 12. DATE OF FIRST SUBMISSION 14. DISTRIBUTION
-----------------------------------------
LT REQUIRED 1 See Blk 16 b. COPIES
- ------------- ----------------------------------------------- --------------------
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSEQUENT a. ADDRESSEE Final
------------
SUBMISSION Draft
N/A N/A N/A See Blk 16 Reg Repro
- -----------------------------------------------------------------------------------------------------------------------------------
16. REMARKS _________________________________________
Blk 12: As Specified in A001 approved Program Plan _________________________________________
OC-ALC/TIET 2
Blk 13: Updates as required. -----------------------------------------
_________________________________________
Contractor format may be used. OC-ALC/LIDAB l
-----------------------------------------
_________________________________________
_________________________________________
_________________________________________
_________________________________________
_________________________________________
_________________________________________
_________________________________________
_________________________________________
15. TOTAL 3
- -----------------------------------------------------------------------------------------------------------------------------------
G. PREPARED BY H. DATE I. APPROVED BY J. DATE
/s/ [ILLEGIBLE]^^ 4 JUNE 98 /s/ [ILLEGIBLE]^^ 4 June 98
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DD FORM 1423-2, AUG 96 (EG) PREVIOUS EDITION MAY BE USED Page of Pages
<PAGE>
CONTRACT DATA REQUIREMENTS LIST Form Approved
(2 Date Items) OMB No. 0704-0188
- ------------------------------------------------------------------------------
The public reporting burden for this collection of information is estimated to
average 220 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
reviewing the collection of information. Send comments regarding this burden
estimate or any other aspect of this collection of information, including
suggestions for reducing the burden, to Department of Defense, Washington
Headquarters Services, Directorate for Information Operations and Reports (0704-
0188), 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302.
Respondents should be aware that notwithstanding any other provision of law, no
person shall be subject to any penalty for failing to comply with a collection
of information if it does not display a currently valid OMB control number.
Please DO NOT RETURN your form to the above address. Send completed form to the
Government Issuing Contracting Officer for the Contract/PR No.
listed in Block E.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
A. CONTRACT LINE ITEM NO. B. EXHIBIT C. CATEGORY:
0002 "A" TDP ________ TM ________ OTHER ______________
- ------------------------------------------------------------------------------------------------------------------------------------
D. SYSTEM/ITEM E. CONTRACT/PR NO. F. CONTRACTOR
F34601-98-C-0145 TMSSequoia
- ------------------------------------------------------------------------------------------------------------------------------------
1. DATA ITEM NO. 2. TITLE OF DATA ITEM 3. SUBTITLE
A005 Software Test Report
- ------------------------------------------------------------------------------------------------------------------------------------
4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE 6. REQUIRING OFFICE
DI-IPSC-81440 SBIR Phase II Proposal Par 4.17 OC-ALC/TIET
- ------------------------------------------------------------------------------------------------------------------------------------
7. DO 250 REQ 9. DIST STATEMENT 10. FREQUENCY 12. DATE OF FIRST SUBMISSION 14. DISTRIBUTION
LT REQUIRED 1 See Blk 16 ------------------------------------------
- -------------- --------------- ----------------------------- b. COPIES
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSEQUENT a. ADDRESSEE ----------------------
N/A N/A N/A SUBMISSION Final
See Blk 16 Draft ---------------
Reg Repro
- ------------------------------------------------------------------------------------------------------------------------------------
16. REMARKS ------------------------------------------
Blk 12: As Specified in A001 approved Program Plan. OC-ALC/TIET 2
------------------------------------------
------------------------------------------
Blk 13: Updates as required. OC-ALC/LIDAB 1
Contractor format may be used. ------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
15. TOTAL ------> 3
- ------------------------------------------------------------------------------------------------------------------------------------
1. DATA ITEM NO. 2. TITLE OF DATA ITEM 3. SUBTITLE
A006 Scientific and Technical Report Final Report
- ------------------------------------------------------------------------------------------------------------------------------------
4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE 6. REQUIRING OFFICE
DI-MISC-80711 SBIR Phase II Proposal par 4.18 OC-ALC/TIET
- ------------------------------------------------------------------------------------------------------------------------------------
7. DO 250 REQ 9. DIST STATEMENT 10. FREQUENCY 12. DATE OF FIRST SUBMISSION 14. DISTRIBUTION
LT REQUIRED 1 See Blk 16 ------------------------------------------
- -------------- ---------------------------------------- b. COPIES
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSEQUENT a. ADDRESSEE ----------------------
N/A N/A N/A SUBMISSION Final
See Blk 16 Draft ---------------
Reg Repro
- ------------------------------------------------------------------------------------------------------------------------------------
16. REMARKS ------------------------------------------
Blk 12: 12 months after contract award.
------------------------------------------
Blk 13: Updates as required. OC-ALC/TIET 2
------------------------------------------
------------------------------------------
Contractor format may be used. OC-ALC/LIDAB 1
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
15. TOTAL ------> 3
- ------------------------------------------------------------------------------------------------------------------------------------
G. PREPARED BY H. DATE I. APPROVED BY J. DATE
/s/ [ILLEGIBLE] 4 June 98 /s/ [ILLEGIBLE] 4 June 98
- ------------------------------------------------------------------------------------------------------------------------------------
DD FORM 1423-2, AUG 96 (EG) PREVIOUS EDITION MAY BE USED. Page of Pages
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TMS, Inc.:
We consent to incorporation by reference in the registration statement
(no. 333-03909) on Form S-8 of TMS, Inc. of our report dated October 15, 1999,
relating to the balance sheets of TMS, Inc. as of August 31, 1999 and 1998, and
the related statements of operations, shareholders' equity, and cash flows for
the years then ended, and the related financial statement schedule, which report
appears in the August 31, 1999, annual report on Form 10-KSB of TMS, Inc.
KPMG LLP
Oklahoma City, Oklahoma
November 18, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-KSB FOR THE FISCAL YEAR ENDING AUGUST 31,1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 1,057,710
<SECURITIES> 0
<RECEIVABLES> 969,136
<ALLOWANCES> 395,069
<INVENTORY> 0
<CURRENT-ASSETS> 2,345,780
<PP&E> 2,892,954
<DEPRECIATION> 1,590,081
<TOTAL-ASSETS> 4,416,812
<CURRENT-LIABILITIES> 548,616
<BONDS> 0
0
0
<COMMON> 691,031
<OTHER-SE> 2,882,342
<TOTAL-LIABILITY-AND-EQUITY> 4,416,812
<SALES> 4,956,137
<TOTAL-REVENUES> 4,956,137
<CGS> 2,182,635
<TOTAL-COSTS> 5,651,061
<OTHER-EXPENSES> 3,468,426
<LOSS-PROVISION> 178,674
<INTEREST-EXPENSE> 31,793
<INCOME-PRETAX> (682,782)
<INCOME-TAX> 3,702
<INCOME-CONTINUING> (686,484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (686,484)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
