SECURITIES AND EXCHANGE COMMISSION
			     Washington, D.C. 20549

				   FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 
OF 1934
		     For the fiscal year ended August 31, 1996


			  Commission File Number: 0-18250

				    TMS, Inc.
	      (Exact name of registrant as specified 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                       405/377-0880
 (Address of Principal Executive Offices)    (Registrant'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
				       (Title of Class)

	Indicate by check mark whether the Registrant (1) has filed all reports 
	required to be filed by Section 13 or 15(d) of the Securities Exchange 
	Act of 1934 during the preceding 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___

	Indicate by check mark if disclosure of delinquent filers pursuant to 
	Item 405 of Regulation S-B is not contained herein, 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 $5,612,576

Aggregate market value of voting stock held by nonaffiliates as of October 22, 
1996:  $7,765,828

Number of shares outstanding of each of the Registrant's classes of common 
stock, as of October 22, 1996:

		       Common Stock, $.05 par value:  13,297,604

			  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 17, 1997 is incorporated by reference in 
Part III, Items 9, 10, 11, and 12.
	
Transitional Small Business Disclosure Format:   YES___ NO _X_




			TMS, Inc. and Subsidiary (dba TMSSequoia)


					FORM 10-KSB

			For the fiscal year ended August 31, 1996

				    TABLE OF CONTENTS

	
										
								                                                      PAGE
PART I                                                           1      

	Item 1.         Business                                        1
	Item 2.         Properties                                      8
	Item 3.         Legal Proceedings                               8
	Item 4.         Submission of Matters to a Vote of 
			                Security Holders                              8


PART II                                                          8
	Item 5.         Market for Registrant's Common Equity 
			               and Related Stockholder Matters                8
	Item 6.         Management's Discussion and Analysis 
			               of Financial Condition and Results 
			               of Operations                                  9
	Item 7.         Consolidated Financial Statements              11
	Item 8.         Changes In and Disagreements With 
			               Accountants on Accounting and 
			               Financial Disclosure                          12


PART III                                                        12
	Item 13.        Exhibits and Reports on Form 8-K               12


Signatures                                                      13

Index to Consolidated Financial Statements and Financial 
  Statement Schedule                                           F-1


Companies and products named in this document may be trademarks 
of the respective companies with which  they are associated.



<PAGE>     1
PART 1

ITEM 1.  BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

	
	On March 15, 1996, the Company's board of directors and the board of 
directors and shareholders of  Sequoia Computer Corporation ("Sequoia"), a 
California corporation, approved the merger of a subsidiary  of the Company 
with and into Sequoia which resulted in Sequoia becoming a wholly-owned 
subsidiary of the  Company. See "Merger" in Note 2 to the Consolidated 
Financial Statements. Sequoia, founded in 1987,  developed and marketed 
innovative software products in the document image processing, image 
enhancement,  forms processing, and data entry industries. The merger 
qualifies as a tax-free reorganization and was  accounted for as a pooling of 
interests. Accordingly, the Company's consolidated financial statements  have 
been restated to include the results of Sequoia for all periods presented. On 
September 1, 1996,  Sequoia merged with and into the Company.   
	
	The Company licenses computer software products and provides software 
development and document  conversion services to enable information delivery 
through electronic publishing and electronic image  management.

PRODUCTS AND SERVICES

	The Company's operations include developing and marketing software 
products and services to  corporations, governments and large institutions. 
The Company receives service fees, license fees and  royalties from its 
customers.  The Company's products are primarily document image viewing, 
document  image capture and enhancement, and document image processing 
"software toolkits". These toolkits offer  customers the core technology 
necessary for developing new software applications or customizing existing  
applications. Customers find toolkits desirable because they are easy to adapt 
to changing user needs. As  more companies become technically adept by 
employing their own technical staff of programmers, toolkits  will provide an 
attractive alternative for in-house development and maintenance of electronic 
information  systems. In addition, the Company offers off-the-shelf products 
for customers that do not have software  development resources. 

	Some toolkit customers contract for the Company's custom programming or 
design services. The Company  benefits by selling its services as well as its 
products. Furthermore, customers that do not have in- house technical staff 
may desire to purchase ongoing maintenance services from the Company.   

	DOCUMENT IMAGE VIEWING PRODUCTS.  The Company's principal electronic 
document image viewing product  is ViewDirector. ViewDirector is a software 
technology for adding document image viewing and management  capabilities to 
new or existing applications. It allows a customer 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),  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. 
	
<PAGE>     2
	The ViewDirector technology is provided to customers in several forms 
to reach customers with  varying skills and needs:  (1) the ViewDirector 
developer's toolkit allows of highly-skilled customers to  develop custom 
software applications using ViewDirector's full suite of features; (2) the 
ViewDirector  ActiveX Control allows the larger market of highly-to-moderately 
skilled customers to easily develop  custom software applications and; (3) the 
ViewDirectorPro Imaging Plug-in allows customers to view and  manage document 
images on corporate intranets or on the Internet using Internet browsers such 
as Netscape  Navigator or Microsoft Internet Explorer.

	ViewDirector continues to be competitive due to its combination of 
performance, supported feature  set, and ease of integration. The Company also 
believes that detailed and thorough customer service, as  well as timely and 
successful implementation of the customer's objectives have also contributed 
to the  product's competitive advantage. Several enhancements were made to the 
ViewDirector technology during  1996 as well as creating new forms of the 
technology to enter new markets. 

	VIEWDIRECTOR DEVELOPER'S TOOLKIT. During 1996, product enhancement of 
the ViewDirector toolkit  included the release of a significant new version of 
the product for the Microsoft Windows environment.  The new release included 
the addition of support for vector images, raster/vector image overlay  
capabilities, support of more color raster image file formats, better memory 
management, and faster image  display speeds. Historically, a strength of 
ViewDirector has been its ability to work effectively with  large bitonal 
raster images often used in engineering drawings. With the addition of support 
for some  major vector image formats, the product can now support a broader 
range of customer needs. The new  version of the ViewDirector toolkit is 
compatible with Microsoft Windows 95, Microsoft Windows NT and  Microsoft 
Windows 3.1. The Company expects to release the new version for the UNIX 
environment during  fiscal 1997.  
	
	In a networked environment or for a mission critical corporate 
application, customers commonly need  to provide imaging capabilities 
compatible with a variety of different computer systems connected to a  host 
system. ViewDirector's support for a variety of computer systems or platforms 
makes product  development or integration faster and easier for the customer, 
and makes the customer's product support,  training and maintenance less 
demanding. ViewDirector is available for the most popular system platforms  
including Microsoft Windows 3.1, Microsoft Windows 95, Microsoft Windows NT, 
Apple Macintosh, SunOS  4.1.X, Solaris 2.3, HP 9000, OS/2, and IBM RS/6000; it 
is also available as a class library for Informix- NewEra.      

	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  "Marketing". The Company 
receives a royalty for each computer workstation utilizing the product.         

	VIEWDIRECTOR ACTIVEX CONTROL. The Company began developing the 
ViewDirector ActiveX Control in 1996  to meet the document imaging needs of 
two types of customers: those who need a developer's toolkit  requiring less 
extensive programming expertise, and those who will be using Microsoft 
Internet Explorer.  The Control adheres to Microsoft's precepts for OLE 
(Object Linking & Embedding) and is fully suitable  for downloading along with 
HTML documents (pages displayed by Internet browsers) which reference the  
Control. The product is the next generation of the currently available 
ViewDirector VBX product, and is  significant because it will be a foundation 
for the Company's development of other ActiveX Controls.  ViewDirector ActiveX 
Control is expected to be released in the first quarter of fiscal 1997.         

	VIEWDIRECTOR PRO IMAGING PLUG-IN FOR THE INTERNET.  During 1996 the 
Company created the  ViewDirectorPro Imaging Plug-in for the Internet. The 
Plug-in product was developed to allow customers to  view and manage images on 
corporate intranets or on the Internet using Internet browsers such as 
Netscape  Navigator or Microsoft Internet Explorer. Large corporations use 
intranets for intra-company  communication. They create Web pages or internal 
documents that are similar to pages found on the public  Internet; users 
access the secure corporate pages using Internet browsers. These pages often 
contain  images; ViewDirectorPro Imaging Plug-in allows users to view the 
images quickly. Corporate intranet users  often need to view engineering 
drawings, technical manuals, financial documents, human resource  information 
and many other documents commonly shared within a company. The Company sells a 
unit of the  product for each individual corporate user accessing the 
documents. The Plug-in was developed for the  Windows 3.1x, Windows 95, and 
Windows NT environments. The Company expects to release a second version of  
the product in the first quarter of fiscal 1997, and also develop versions for 
the Macintosh and UNIX  environments in future periods.         

<PAGE>     3
	ViewDirectorPro is competitive due to its fast image display, wide 
assortment of display tools such  as scale-to-gray, color smoothing, 
magnifying glasses, and its support for annotations that allow users  to add 
electronic "sticky notes" and share them with others at locations around the 
world.          

	RASTERVIEW APPLICATION. The Company completed development of an off-
the-shelf document image viewer,  RasterView,  in the first quarter of fiscal 
1996. The new product is based upon the ViewDirector toolkit  and is designed 
as a low cost, simple high-performance image viewer for Windows users. It 
allows  customers without software programming knowledge to easily add imaging 
capabilities to databases or other  Windows applications.       

	DOCUMENT IMAGE CAPTURE AND ENHANCEMENT PRODUCTS.  The Company's 
document image capture and  enhancement product line includes ScanDirector,  
ScanFix and GrayFix.  ScanDirector provides a value- added programming 
interface to raster scanning devices and is used as a fundamental component in 
building  image capture applications. ScanFix and GrayFix are used in forms 
intensive businesses such as insurance  and health care to improve the speed 
and efficiency of data processing. The products are primarily used  to enhance 
or clean up electronic images and thus improve the accuracy of data obtained 
from the images  which are processed with OCR (Optical Character Recognition) 
and ICR (Intelligent Character Recognition)  systems. In addition to improving 
the visual appearance and processing of images, the technology also  reduces 
the size of the resulting images, which reduces the requirements for physical 
data storage and  network or Internet transfer times. Six technology methods 
incorporated in the ScanFix product received  patent approvals in 1996 or have 
pending patent applications. See "Copyrights, Patents, Proprietary  
Information, Trademarks and Licenses". ScanDirector, ScanFix and GrayFix 
products are sold as end-user  applications or toolkits which are licensed to 
original equipment manufacturers ("OEMs") such as Ricoh,  Caere, Fujitsu, and 
Hewlett-Packard as well as corporate customers, and government organizations.  
	
	SCANDIRECTOR ACTIVEX CONTROL. ScanDirector provides scanning support 
for creating Windows 95 and  Windows NT custom scanning applications. The 
software supports scanners sold by Hewlett-Packard, Fujitsu,  Bell & Howell,  
Ricoh and Panasonic, and provides a TWAIN interface. As a competitive 
advantage, the  ScanDirector toolkit includes the Company's CompressDirector 
product to offer customers an industry  standard compression alternative.   
	
	SCANFIX DEVELOPER'S TOOLKIT.  ScanFix is an image enhancement toolkit 
that cleans and enhances  electronic images. It removes specks, straightens, 
removes lines, and removes shaded areas which results  in improved accuracy of 
future data capture and processing systems. The Company provided product  
enhancements to the developer's toolkit during 1996. The toolkit is available 
for the most popular system  platforms including Microsoft Windows 3.1, 
Microsoft Windows 95, Microsoft Windows NT, SunOS 4.1.X,  Solaris 2.3, HP 
9000, OS/2, and IBM RS/6000, Silicon Graphics, DEC Alpha NT, and MS-DOS. 
	
	The Company licenses ScanFix to VARs, OEMs, 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 product.

	SCANFIX END-USER APPLICATION.  The Company began developing a new 
version of the ScanFix product during fiscal 1996 and released beta copies of 
it during the last quarter. The new version, which  includes several 
performance enhancements and a completely redesigned end-user interface, is 
expected to  be released in early fiscal 1997. The ScanFix end-user 
application is available for Windows 3.1, Windows  95, Windows NT, MS-DOS, 
ISIS, Keyfile, Wordscan Pro and Lite, and Millenium Series Pro.         

	SCANFIX ACTIVEX CONTROL. The Company developed and released an initial 
ScanFix ActiveX Control during 1996. The product provides the full range of 
image clean-up and enhancement capabilities of the  toolkit, but is packaged 
in the "developer-friendly" structure of an ActiveX Control.    

	GRAYFIX.  The Company often markets the GrayFix product in conjunction 
with ScanFix. GrayFix provides dynamic grayscale thresholding for removing 
gray or shaded areas from documents. It is available  as a developer's 
toolkit.        

<PAGE>     4
	DOCUMENT IMAGE PROCESSING PRODUCT. The Company's document image 
processing product, FormFix, is sold as a developer's toolkit to highly 
skilled customers developing custom applications for high volume data  capture 
systems.        

	FORMFIX DEVELOPER'S TOOLKIT.  FormFix is an image and forms processing 
toolkit which provides a number of capabilities to recognize and process the 
information content of images and forms. FormFix can  automatically identify a 
specific form and extract just the typed or handwritten text. This data can 
then  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 FormFix product contains a number of 
processing modules  which may be sold separately or bundled. These include 
image clean-up and enhancement, fundamental image  object recognition, form 
recognition, field extraction, and forms removal among others. Enhanced 
versions  of the product were released in fiscal 1996 with additional 
enhancements expected in fiscal 1997. FormFix  is available for Microsoft 
Windows 3.1, Microsoft Windows 95, Microsoft Windows NT, SunOS 4.1.X, Solaris 
2.3, and HP 9000.       

	The competitive strengths of FormFix are its combination of 
capabilities supporting multiple levels of usage, its adaptability to address 
multiple forms processing problems, and its leveraging of the  underlying 
ScanFix technology, which allows cleaner images and provides smaller image 
file sizes  resulting in reduced storage capacity requirements.

	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. 
	
	TEXT PRODUCTS.  The Company primarily uses its MasterView technology in 
offering the Company's custom development services for designing and 
developing electronic publishing applications. The  technology has been 
successfully applied for large customers such as Learjet, who desire 
sophisticated  text and image retrieval systems for technical manuals, service 
and repair bulletins, and other large  reference documents.

	Due to price erosion and increased competition, the Company has shifted
its strategic direction with the technology from being product oriented to
service oriented. The Company will continue to sell and  receive royalties from
the product,although it expects the product revenue will decline in the future.
Future technology enhancements will be integrated into custom solutions from
customer contracts and  revenue will be reported as software development 
service revenue.        

	CUSTOM DEVELOPMENT SERVICES, CONSULTING AND DOCUMENT CONVERSION 
SERVICES. The Company offers custom software development services, consulting, 
and document conversion services to help customers develop  complete 
applications, augment projects, and bolster internal resources. The Company 
charges for projects  on a time and materials basis as well as a flat fee 
basis. The Company's expertise and experience provide  many software 
engineering and custom programming opportunities. Customers who do not have 
in-house  technical staff or expertise in a particular area seek services as a 
cost-efficient way to meet their  needs.        

	The types of services the Company provides are determined by the 
customer's capabilities and the  project requirements. Some customers seek the 
Company's services initially, then eventually assume  responsibility for their 
projects based upon the foundation technology the Company has provided. 
However,  there are a number of customers which continue to contract for 
maintenance and document conversion  services on a long-term basis.     

<PAGE>     5
	The Company specializes in automated forms processing, document 
imaging, database applications, CD- ROM product application development, 
intranet and Internet product customization, and document conversion  
services. The Company is also certified as a Microsoft Solution Provider with 
the ability to market  products and services for Microsoft's suite of Office 
and BackOffice products. This certification enables  the Company to reach a 
wider market by utilizing referrals from Microsoft Corporation.         

	AUTOMATED FORMS PROCESSING.  Many business transactions are form-based 
and customers seek methods for automating this process to reduce costs and 
improve efficiency. The Company offers services to assist  in design and 
implementation of forms processing systems including electronic forms 
identification, automatic forms removal and data extraction, electronic 
document enhancement, and custom forms  application development.        

	DOCUMENT IMAGING.  The Company offers a variety of services for 
document imaging including requirements analysis, application design and 
specification including graphical user interface  development, image-enabling 
of relational database products, image capture and clean-up, and image  
retrieval integration for document management, workflow, intranet or other 
applications. 
	
	DATABASE APPLICATIONS.  Services related to database applications 
include requirements analysis, application design and specification including 
graphical user interface development, creation of  relational database 
management systems and intranet applications such as order entry, workflow,  
litigation support, claims processing, engineering document management 
systems, product catalogs, human  resource records and image retrieval 
integration of new or existing databases.       

	INTERNET/INTRANET AND CD-ROM APPLICATION CUSTOMIZATION.  The growing 
number of corporations using intranets to publish information offers both 
product and service opportunities for the Company. Services  include HTML page 
markup and Web page design, hypertext linking and consulting. The Company also  
continues to offer its services for CD-ROM product application design for 
publishing textual  documentation and complex images. The knowledge and 
experience to effectively apply full-text indexing  and searching technology 
has been a traditional strength of the Company and continues to be a strength 
in  the services area.          

	DOCUMENT CONVERSION SERVICES.  The Company provides in-house data 
processing for the conversion of legacy data and new data into formats 
acceptable for electronic delivery. Typical document conversion  services 
include image enhancement, data capture through OCR and ICR, raster scanning, 
SGML markup and  DTD creation. Customers who need document conversion services 
often have the Company build custom  retrieval software or license retrieval 
and/or imaging software from the Company. The Company believes  that its 
extensive experience in providing information retrieval solutions, which 
offers customers the  ability to map conversion to retrieval applications, is 
a competitive advantage.

MARKETS

	The primary market for the Company's products and services are VARs, 
OEMs, system integrators, large corporations and branches of the federal 
government desiring to convert large databases and other printed  materials to 
an electronically retrievable form. Customers generally are 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.         

	As a Microsoft Solutions Provider, the Company receives referrals from 
Microsoft Corporation to provide services for its customers using Microsoft 
Office and BackOffice products. In addition, the  Company has partner 
relationships with Fulcrum Technologies, Inc.,  Informix Software, Inc.,  and 
Oracle  Corporation.    

	The Company's marketing efforts are conducted primarily through 
exhibits at trade shows and conventions, print advertising, Internet 
advertising, seminars, direct mail, telemarketing, and making  field sales 
calls with demonstrations.      

	InnerView, ViewDirector, BlackTIE, TMSFAX, ScanDirector, MasterView and 
RasterView are listed in the General Services Administration ("GSA") contract 
schedule, to enable all agencies and branches of the  federal government to 
purchase products directly from the Company. The Company will be applying for 
GSA listing for ScanFix, FormFix and ViewDirectorPro in fiscal year 1997.  
	
	Currently, the Company employs fourteen (14) people in the marketing 
and sales of its products. The Company has marketing and sales offices in 
Stillwater, Oklahoma; Burlingame, California; Groton,  Connecticut; and 
Sudbury, Massachusetts. The Company intends to employ additional marketing 
personnel as  resources and circumstances warrant. 

<PAGE>     6
DISTRIBUTION METHODS

	The Company distributes is products through a direct sales force, 
domestic and international  resellers, and firms creating and selling turnkey 
solutions.

COMPETITION

	The computer software development field is highly competitive with many 
companies in the industry, and a great number of the companies with which the 
Company competes have greater financial, technical and  marketing resources.  
	
	The Company has competitors in each of the imaging marketplace arenas 
in which it supplies products. These companies, including AccuSoft, Pixel 
Translations, Wang, Lead Technologies, Seaport Imaging,  Visionshape, and TIS, 
are selling products aimed at the Company's customer base. Additionally, Wang  
markets a basic imaging capability to purchasers of the Microsoft Windows 95 
product. This Wang/Microsoft  product represents significant increased 
competition to the Company's imaging products.          

	The Company believes that the primary competitive factors with respect 
to its products and services 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.  

COPYRIGHTS,PATENTS, PROPRIETARY INFORMATION, TRADEMARKS AND LICENSES    

	The copyright laws permit the Company to copyright many aspects of its 
software. The Company 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 
applications have resulted to date in the Patent Office issuing a Notice of  
Allowance, with formal patent award pending. The patents cover the following 
technology areas: general  processing of images, reduction of skew, horizontal 
line removal, document registration, unshading dot  shaded matter, and reverse 
invert text. The scope and extent of patent rights respecting 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. 
	
	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.    

	The Company has developed, through use, common law trademark rights in 
the marks ViewDirector, MasterView, ScanDirector, ViewDirectorPro, GrayFix, 
CD-VU, ShowFax, TIFF Utilities, BlackTIE, RasterView,  and CompressDirector as 
used in connection with the Company's software products. The Company has  
registered trademarks on the ScanFix and FormFix products.      

	The Company grants its customers a non-exclusive, non-transferable 
license for the ViewDirector, ScanFix, FormFix, ScanDirector, GrayFix and 
MasterView 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.   

<PAGE>     7
RESEARCH AND DEVELOPMENT        

	The Company recognizes the need to continually develop new and improved 
products. Current plans  include efforts to develop products for the 
intranet/Internet marketplace, to further the Company's  support for ActiveX 
Control technology, and extend its capabilities in image and forms processing.  
Pursuing these efforts will necessitate further improvements in the Company's 
core technologies. The  Company also experiences new product development 
through its Custom Development Services projects.  Customers bring conceptual 
ideas for products to the Company for development, thus supplementing the  
Company's own research and development. 
	
	During fiscal 1996, the Company's research and development program 
concentrated on the development of new products, particularly imaging 
products. Resources were also devoted to improving and enhancing  the 
Company's existing products. In fiscal years 1996 and 1995, the Company 
capitalized development costs  of $345,050 and $321,849, respectively, related 
to new products and product enhancements, and expensed  $85,615 and $103,760, 
respectively, on research and development. 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 growth in service work  requiring a greater use of 
the engineering staff's available time, the Company may have to add personnel  
to maintain the current level of research and development.  

EMPLOYEES       

	At August 31, 1996, the Company had 74 full-time employees and 27 part-
time employees. All of the part-time employees are employed in the Document 
Conversion Services division. 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       

	POWERCOM-2000, Inc. ("POWERCOM"), a wholly-owned subsidiary of Briggs & 
Stratton, accounted for approximately $607,000 or 11% of the Company's total 
revenue in fiscal 1996. During fiscal 1996, the  Company continued to perform 
document conversion services for POWERCOM, principally the conversion of  
parts and maintenance manuals for lawn and garden products into an electronic 
format. Document conversion  services accounted for approximately $482,000 or 
79% of the total POWERCOM revenue in 1996. As reported  in fiscal year 1995, 
the Company expected a decline in future revenue from POWERCOM. In fiscal 
1996,  service revenue from POWERCOM approximated $110,000 compared to 
$621,000 in fiscal 1995. Although this  customer has ongoing service 
requirements, primarily for document conversion, management cannot project  
the level of revenue that could result from this customer in fiscal 1997. In 
fiscal 1995, POWERCOM  accounted for 22% of the Company's total revenue, the 
only customer to account for 10% or more of total  revenues for that year. To 
offset the expected decline in POWERCOM revenues, 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 12% and 15% of total revenues for fiscal 1996 and 1995, 
respectively, are attributable to sales to foreign customers. See Note 8 to 
Consolidated Financial Statements.  

BACKLOG         
	
	As of August 31, 1996, there was a backlog of software development 
services amounting to approximately $741,000 as compared to approximately 
$450,000 as of August 31, 1995.  

<PAGE>     8
ITEM 2. PROPERTIES      

	The Company's headquarters consist of approximately 14,655 square feet 
of office space located at 206 West Sixth Avenue in Stillwater, Oklahoma. The 
Company purchased the building in fiscal year 1994 and  occupied the space in 
fiscal year 1995 after renovation was complete.         

	The Company leases approximately 7,000 square feet of space located at 
110 West Third Street in Stillwater, Oklahoma. The lease expires on June 1, 
1997, with monthly aggregate rental payments of $1,750  per month. This space 
is occupied by the Document Conversion Services division.       

	The Company has offices in Burlingame, California; Sudbury, 
Massachusetts; and Groton, Connecticut. Collectively these offices amount to 
approximately 1,200 square feet and monthly rentals approximate  $3,800. 

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.

PART II

ITEM 5. MARKET FOR REGISTRANT'S 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 1996 and 1995. The quotations are 
inter-dealer prices without  retail mark-ups, markdowns, or commissions and 
may not represent actual transactions. The source of such  quotations is the 
NQB.
<TABLE>
<CAPTION>
       _________________________________________
					  Bid Prices
	      Fiscal 1996              High        Low
	      _________________________________________
       <S>                     <C>         <C>
	      First Quarter           $1 5/32       3/8
	      Second Quarter           1  1/2       5/8
	      Third Quarter            1  3/8     15/32
	      Fourth Quarter              7/8       5/8


	      Fiscal 1995              High        Low
	      _________________________________________

	      First Quarter          $    1/4      1/8
	      Second Quarter             5/16      1/8
	      Third Quarter            1           1/8
	      Fourth Quarter           1          5/16
	      _________________________________________
</TABLE>

	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.

<PAGE>     9
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 consolidated 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 retail and computer software industries 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.  

RESULTS OF OPERATIONS   

	The Company realized growth in total revenue for the fiscal year ended 
August 31, 1996 as compared  to fiscal year 1995. Revenue growth was more than 
offset by increased operating costs and expenses, which  contributed to the 
decline in net income for fiscal year 1996. Operating costs and expenses for 
fiscal  year 1996 increased over fiscal year 1995 primarily because of 
increases in the number of personnel,  selling and marketing activities, and 
non-recurring costs related to the merger with Sequoia Computer  Corporation. 
See "Merger" in Note 2 to the Consolidated Financial Statements. Net income 
for fiscal years  1996 and 1995 was also impacted by recognition of a deferred 
tax benefit related to the reduction in the  Company's valuation allowance 
provided against deferred tax assets. The deferred tax benefits in both  years 
are a positive indication that the Company will, more likely than not, utilize 
a portion of the net  operating loss carryforwards to offset future taxable 
income, and accordingly, will not pay significant  amounts of income taxes in 
the forseeable future.          

	REVENUE. Total revenue for fiscal year 1996 was $5,612,576 compared to 
$5,210,069 for fiscal year 1995, an increase of $402,507 or 8%. Licensing and 
royalties revenue increased $310,573, or 9% in fiscal  year 1996. The growth 
in licensing and royalties is attributable to increased revenue from the 
Company's  imaging products. Revenue from the Company's imaging products was 
$3,216,330 for fiscal year 1996, an  increase of 13%, or $376,336, from the 
$2,839,994 reported for fiscal year 1995. Increased unit sales  resulting from 
recent releases of new or enhanced imaging products, and existing customers 
who expanded  their use of the Company's products or completed a product for 
resale resulting in royalty revenue for  the Company, are the primary factors 
which contributed to increased revenue from imaging products in  fiscal year 
1996. Revenue from the Company's text products in fiscal year 1996 decreased 
14%, or $65,763,  when compared to fiscal year 1995. Increased competition and 
the Company's emphasis on imaging technology  are the primary factors which 
have contributed to the decline in text revenue. The Company expects that  
licensing revenue from text products will continue to decline because future 
development of this  technology will occur on a customer contract basis and be 
reported as software development service  revenue.      

	Software development and document conversion service revenue for fiscal 
year 1996 was $1,981,606 compared to $1,889,672 for fiscal year 1995, an 
increase of $91,934 or 5%. Software development service  revenue of $1,014,261 
for fiscal year 1996 declined 27%, or $366,126, from the $1,380,387 reported 
for  fiscal year 1995. The decrease in software development service revenue 
was due to the successful delivery  of product to POWERCOM near the end of 
fiscal year 1995. As reported in fiscal 1995, the Company expected  a decline 
in fiscal year 1996 software development service revenue from POWERCOM. In 
fiscal year 1996,  POWERCOM accounted for approximately 11%, or $110,000 of 
software development service revenue as compared  to 45%, or $621,000 of 
software development service revenue reported in fiscal 1995. During the first
three quarters of fiscal year 1996, negotiations were under way with potential 
customers to replace  software development service revenues previously 
generated by POWERCOM. During the third and fourth  quarters of fiscal year 
1996, significant contracts for software development services were secured and 
at  August 31, 1996, the Company had a software development service revenue 
backlog of approximately  $741,000. The Company continues to market and 
negotiate software development service contracts, but there  can be no 
assurance that the Company will continue to secure enough new contracts to 
consistently  maintain the level of backlog reported at August 31, 1996. 

<PAGE>     10
	Document conversion service revenue of $967,345 increased 90%, or 
$458,060, over the $509,285 reported for fiscal year 1995. The increase in 
document conversion service revenue is attributable to The  Toro Company 
("Toro") contract that began in the fourth quarter of fiscal year 1995 and 
continued into  the third quarter of fiscal year 1996. Revenue from the Toro 
contract amounted to approximately $406,000,  or 42%, of fiscal year 1996 
document conversion service revenue. Services under the Toro contract were  
substantially completed during March of 1996. Management increased document 
conversion marketing  activities during the current fiscal year in an effort 
to obtain new service opportunities. Although  certain document conversion 
contracts have been secured, they will not replace the level of revenue that  
was recognized for Toro and there can be no assurance as to when additional 
document conversion service  contracts will be secured, or if revenues from 
any new contracts will replace the level of revenue  recognized for Toro. 
Management is prepared to take the appropriate cost cutting measures to offset 
any  future significant declines in document conversion service revenue.    
	

	OPERATING COSTS AND EXPENSES.  Total operating costs and expenses for 
fiscal year 1996 were $5,440,649 compared to $4,425,632 in fiscal year 1995, 
an increase of $1,015,017 or 23%. Personnel and  non-recurring costs related 
to the merger with Sequoia accounted for approximately 57% and 23% of the  
total increase, respectively. At August 31, 1996 the Company employed 74 full-
time employees and 27 part- time employees compared to 65 full-time and 14 
part-time employees at August 31, 1995. The part-time  employee count reached 
55 for several months during fiscal year 1996 because of the additional 
resources  needed to support the growth in document conversion services. Non-
recurring costs primarily included  legal and accounting costs incurred to 
complete the merger with Sequoia. See "Merger" in Note 2 to the  Consolidated 
Financial Statements.   

	The cost of licensing and royalties for fiscal year 1996 increased 
$203,523 or 28% over costs reported for fiscal year 1995. The gross profit 
margins for licensing and royalties were 74% and 78% for  fiscal years 1996 
and 1995, respectively. Competitive pressures have affected pricing structures 
downward  which contributed to lower margins. Additionally, fluctuations in 
gross profit margins result from the  mix of product versus royalty revenue 
reported, as royalties essentially result in little or no cost to  the 
Company.

	The cost of software development and document conversion services 
increased primarily because of the additional resources necessary to satisfy 
requirements under document conversion contracts. The combined  software 
development and document conversion gross profit margin for fiscal year 1996 
was 32% compared to  50% reported for fiscal year 1995. This decline in gross 
profit margin primarily reflects the change in  the mix of software 
development versus document conversion service revenue. The gross profit 
margin  related to document conversion service revenue was 23% for fiscal year 
1996 compared to 31% for fiscal  year 1995. The decrease in document 
conversion gross profit margin primarily resulted from additional  personnel, 
facilities and equipment depreciation costs incurred to support the Toro 
contract. The gross  profit margin related to software development services 
was 41% for fiscal year 1996 compared to 57% for  fiscal year 1995. The cost 
of software development services approximated $600,000 for both fiscal years  
1996 and 1995, thus, the decline in software development service gross profit 
margins resulted entirely  from the decrease in software development service 
revenue.        

	Selling, general and administrative expenses for fiscal year 1996 
increased $432,795 or 16% when compared to fiscal year 1995. Non-recurring 
costs associated with the Sequoia merger accounted for  $234,000 or 
approximately 54% of the increase. The balance of the increase in selling, 
general and  administrative expense for fiscal year 1996 was attributable to 
increased costs of facilities,  advertising, investor relations and increased 
operating expenses related to the higher number of  employees and increased 
sales activity.         

	Research and development costs for both fiscal years 1996 and 1995 were 
minimal as the Company continued to focus its resources on new products and 
significant enhancements to existing products that  were capitalized for 
financial accounting and reporting purposes. The Company capitalized software  
development costs of $345,050 and $321,849, in fiscal years 1996 and 1995, 
respectively.   

<PAGE>     11
	INCOME TAX BENEFIT.  The Company's effective income tax benefit rate 
was 81% for fiscal year 1996 compared to 21% for fiscal year 1995. The 
effective income tax benefit rates for both fiscal years 1996  and 1995 differ 
from the "expected" Federal tax expense rate of 34%, primarily because of the 
deferred  tax benefits recorded to reduce the valuation allowance provided 
against the Company's deferred tax  assets. These deferred tax benefits and 
related deferred tax assets are an indication that the Company  will, more 
likely than not, be able to utilize a portion of the previously generated net 
operating losses  to offset future taxable income. For further discussion of 
income taxes, see "Income Taxes" in Note 4 to  the Consolidated Financial 
Statements.

	NET INCOME.  Net income for fiscal year 1996 was $383,153 compared to 
$984,006 for fiscal year 1995, a decrease of $600,853 or 61%. The non-
recurring merger costs, lower software development and document  conversion 
service gross profit margins, and the lower deferred tax benefit recognized in 
fiscal 1996  were the primary factors that caused a decline in net income when 
compared to fiscal year 1995.   

FINANCIAL CONDITION

	Working capital at August 31, 1996 was $1,838,180 with a current ratio 
of 3.9:1 compared to  $1,325,320, with a current ratio of 3.4:1, at August 31, 
1995. Net cash provided by operating activities  for fiscal year 1996 was 
$389,585 compared to $916,024 for fiscal year 1995. The overall decrease in 
the  Company's profitability for fiscal year 1996 was the primary factor that 
caused operating cash flow to  decline. Net cash used in investing activities 
for fiscal year 1996 was $603,126 compared to $1,303,166  for fiscal year 
1995. During fiscal year 1995 construction was under way to renovate the 
Company's  headquarters facilities, which was the primary reason for the 
higher expenditures in fiscal year 1995.        

	During fiscal year 1996 the Company borrowed $468,000 on its line of 
credit for short-term working capital needs. The amount borrowed plus the 
$75,000 outstanding balance at the beginning of the fiscal  year were repaid 
prior to the end of the second quarter. During the fourth quarter of fiscal 
year 1996,  the Company generated approximately $325,000 in cash from the 
issuance of common stock to former Sequoia  shareholders exercising their 
options to purchase the Company's stock.        

	The Company believes net cash provided by operating activities and the 
operating line of credit of $600,000 will be adequate to meet its current 
obligations and current operating and capital requirements.  The line of 
credit expires on November 3, 1996. The Company anticipates the line of credit 
will be  increased to $800,000 and extended when it matures. The funding of 
long-term needs is  dependent upon increased revenue and profitability and 
obtaining funds through outside debt and equity  sources. The Company's long-
term needs include funding for increased product development, expanded sales  
staff and adequate promotion of the Company and its products. The net 
operating cash flow and the  Company's existing line of credit are expected to 
be adequate to provide sufficient resources for  operations in future periods.  

IMPACT OF RECENTLY ISSUES ACCOUNTING STANDARDS          

	In 1995, the Financial Accounting Standard Board issued Statement of 
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based 
Compensation". SFAS 123 provides companies with the option  of expensing the 
"fair value" of stock options granted. With regard to the Company's stock 
options, no  accounting is made until such time as the options are exercised 
unless the option price is less than the  fair value of Company stock on the 
grant date. The Company does not intend to change its current  accounting 
method regarding stock options. Therefore, SFAS 123 will not impact future 
operating results.  The Company will adopt the expanded stock option 
disclosure requirements of SFAS 123 in its 1997 fiscal  year.   

	No other recently issued accounting standards are expected to have a 
material impact on the  Company's financial position or future results of 
operations. 

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

    The financial statements required by this Item are set forth beginning on 
page F-l hereof.

<PAGE>     12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND       
	FINANCIAL DISCLOSURE

    None.

PART III

	In accordance with General Instruction E(3), a presentation of 
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 No.     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 ToroCompany, 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.        
       10.10*   TMS, Inc. 1996 Stock Option Plan, incorporated herein by      
              		reference to Exhibit No. 99 to the Registrant's Form S-8 as   
              		filed with the Commission on May 16, 1996.
        23.1    Consent of KPMG Peat Marwick 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 year 1996. 

<PAGE>     13
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:   10/31/96                By:   /s/  Maxwell Steinhardt                 
				                            ___________________________________________
			                            	Maxwell Steinhardt, Chief Executive Officer

 
Date:   10/31/96                By:   /s/  Deborah D. Mosier                  
                           				 __________________________________________
                           				 Deborah D. Mosier, Chief Financial Officer


	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:   10/31/96                 By:   /s/  Maxwell Steinhardt                
                            				 ______________________________________________
                            				 Maxwell Steinhardt, Chairman of the Board and
                         				    Chief Executive Officer


Date:   10/31/96                 By:   /s/  Dana R. Allen                     
                            				 _____________________________________________ 
                           				  Dana R. Allen, Executive Vice President and 
                          				   Director


Date:   10/31/96                 By:   /s/  Marshall C. Wicker               
                            				 _____________________________________________
                           				  Marshall C. Wicker, Director
 

Date:   10/31/96                 By:   /s/  Doyle E. Cherry                   
                            				 _____________________________________________
                           				  Doyle E. Cherry, Director


Date:   10/31/96                 By:   /s/  James R. Rau, M.D.               
                            				 ____________________________________________
                           				  James R. Rau, M.D., Director

<PAGE>     F-1
              		    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                   			     FINANCIAL STATEMENT SCHEDULE

              		      TMS, Inc. and Subsidiary (dba TMSSequoia)


										
                                                           								PAGE
Independent Auditors' Report                                       F-2

Financial Statements:
  Consolidated Balance Sheets -  August 31, 1996 and 1995       F-3 and F-4
  Consolidated Statements of Operations - Years Ended
	   August 31, 1996 and 1995                                       F-5
  Consolidated Statements of Shareholders' Equity - Years 
	   Ended August 31, 1996 and 1995                                 F-6
  Consolidated Statements of Cash Flows - Years Ended
	   August 31, 1996 and 1995                                       F-7
  Notes to Consolidated Financial Statements - 
	   August 31, 1996 and 1995                                 F-8 through F-14
			
Financial Statement Schedule:

	Schedule II - Valuation and Qualifying Accounts - 
	   Years Ended   August 31, 1996 and 1995                        F-15


All other schedules are omitted as they are inapplicable or not required, or 
the required information is  included in the Consolidated Financial Statements 
or Notes to Consolidated Financial Statements. 

<PAGE>     F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TMS, Inc.:

	We have audited the consolidated financial statements of TMS, Inc. (dba 
TMSSequoia) and its subsidiary as  listed in the accompanying index. In 
connection with our audits of the consolidated financial statements,  we also 
have audited the financial statement schedule as listed in the accompanying 
index. These  consolidated financial statements and financial statement 
schedule are the responsibility of the  Company's management. Our 
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above 
present fairly, in all material  respects, the financial position of TMS, Inc. 
and its subsidiary as of August 31, 1996 and 1995, and the  results of their 
operations and their 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 
consolidated financial statements taken as a whole, presents fairly,  in all 
material respects, the information set forth therein.                   
							
						KPMG Peat Marwick LLP

Oklahoma City, Oklahoma
October 4, 1996


<PAGE>     F-3
TMS, Inc. and Subsidiary (dba TMSSequoia)

Consolidated Balance Sheets
August 31, 1996 and 1995
<TABLE>
<CAPTION>
______________________________________________________________________________
                                        						  1996                  1995
______________________________________________________________________________
<S>                                         <C>                    <C>
ASSETS

Current assets:

  Cash and cash equivalents                 $  542,072               404,238
  Trade accounts receivable, net of 
    allowance for doubtful accounts of 
    $100,000 in 1996 and $99,318 in 
    1995                                     1,370,367             1,143,537
   Contract service work in process            209,583                87,187
   Deferred income taxes                       265,938               207,623
   Prepaid expenses and other current assets    92,603                45,750
______________________________________________________________________________
 Total current assets                        2,480,563             1,888,335
______________________________________________________________________________

Property and equipment:
   Land                                        111,000               111,000
   Building                                    739,744               701,850
   Computer equipment                        1,207,510             1,012,288
   Furniture and fixtures                      326,012               324,835
______________________________________________________________________________
                                  					      2,384,266             2,149,973
   Less accumulated depreciation               901,927               666,866
______________________________________________________________________________
   Net property and equipment                1,482,339             1,483,107
______________________________________________________________________________

Other assets:
   Capitalized software development costs, 
     net of accumulated amortization of 
     $168,657 in 1996 and  $168,346 
     in 1995                                   509,867               339,562
   Deferred income taxes                       190,223                76,796
   Deposits                                     45,393                31,563
______________________________________________________________________________
Total other assets                             745,483               447,921
______________________________________________________________________________

Total assets                                $4,708,385             3,819,363
==============================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>     F-4
______________________________________________________________________________
                                       						    1996                 1995
______________________________________________________________________________
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                        <C>                     <C>
Current liabilities:        

   Note payable                              $        -               75,000  
   Current installments of long-term debt        20,825               17,846
   Accounts payable                             186,634              103,663
   Accrued payroll expenses                     272,623              253,952
   Deferred revenue                             147,360               93,013
   Other liabilities                             14,941               19,541
______________________________________________________________________________
Total current liabilities                       642,383              563,015
______________________________________________________________________________

   Long-term debt, net of current installments  355,801              378,265
______________________________________________________________________________
Total liabilities                               998,184              941,280
______________________________________________________________________________

Shareholders' equity:
   Preferred stock, $.01 par value. 
     Authorized 1,000,000 shares; 
     none issued                                   -                    -       
   Common stock, $.05 par value. Authorized
     50,000,000 shares; issued and 
     outstanding 13,213,837 shares in 
     1996 and 12,048,167 shares 
     in 1995                                    660,692              602,408
   Additional paid-in capital                11,416,680           10,996,839
   Unamortized deferred compensation            (32,970)              (3,810) 
   Accumulated deficit                       (8,334,201)          (8,717,354)
______________________________________________________________________________
Total shareholders' equity                    3,710,201            2,878,083
______________________________________________________________________________

Commitments (Notes 3 and 7)
______________________________________________________________________________

Total liabilities and shareholders' equity $  4,708,385            3,819,363
==============================================================================
</TABLE>

<PAGE>     F-5
TMS, Inc. and Subsidiary (dba TMSSequoia)

Consolidated Statements of Operations
Years Ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
______________________________________________________________________________
                                      						     1996                 1995
______________________________________________________________________________
<S>                                         <C>                   <C>
Revenue:
   Licensing and royalties                  $  3,630,970            3,320,397
   Software development and                                
    document conversion services               1,981,606            1,889,672
______________________________________________________________________________
                                   					       5,612,576            5,210,069
______________________________________________________________________________

Operating costs and expenses:
   Cost of licensing and royalties               934,979              731,456
   Software development and
     document conversion services              1,345,036              948,192 
   Selling, general and administrative         3,075,019            2,642,224
   Research and development                       85,615              103,760
______________________________________________________________________________
                                   					       5,440,649            4,425,632
______________________________________________________________________________

Operating income                                 171,927              784,437

Other income (expense):
   Interest income                                15,584               14,407  
   Interest expense                              (30,867)             (11,305)
   Other, net                                     55,567               25,928
______________________________________________________________________________
Income before income taxes                       212,211              813,467  

Income tax benefit                               170,942              170,539
______________________________________________________________________________
Net income                                  $    383,153              984,006
==============================================================================
Net income per common
  and common equivalent share               $       0.03                 0.08
==============================================================================
Weighted average common and
   common equivalent shares                   14,015,948           13,091,519
==============================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>     F-6
TMS, Inc. and Subsidiary (dba TMSSequoia) 

Consolidated Statements of Shareholders' Equity
Years Ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
______________________________________________________________________________
     			                            Additional Unamortized  Accumu-
		                 Common Stock       Paid-in   Deferred    lated      Total
		                Shares   Amount     Capital Compensation  Deficit   Equity
______________________________________________________________________________
<S>            <C>        <C>        <C>        <C>      <C>         <C>
Balance at August 
 31, 1994      11,822,764 $591,138   10,963,899 (6,963)  (9,701,360) 1,846,714
Exercise of 
 stock options    225,403   11,270       32,940    -          -         44,210
Amortization of 
  deferred
  compensation       -         -          -      3,153        -          3,153
Net income           -         -          -        -        984,006    984,006
______________________________________________________________________________

Balance at August 
 31, 1995      12,048,167  602,408   10,996,839 (3,810)  (8,717,354) 2,878,083
Exercise of 
 stock options  1,165,670   58,284      387,576    -          -        445,860
Capital contri-
 bution from
 granting of 
 employee stock 
 options              -         -        32,265    -          -         32,265
Less: deferred 
  compensation
  expense             -         -          -   (32,265)       -       (32,265)
Amortization of 
 deferred
 compensation         -         -          -     3,105        -          3,105
Net income            -         -          -       -       383,153     383,153
______________________________________________________________________________
Balance at August 
 31, 1996       13,213,837  $660,692 11,416,680(32,970) (8,334,201)  3,710,201
==============================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>     F-7
TMS, Inc. and Subsidiary (dba TMSSequoia) 

Consolidated Statements of Cash Flows
Years Ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
______________________________________________________________________________
                                          						  1996                1995   
______________________________________________________________________________
<S>                                           <C>                 <C>
Cash flows from operating activities:
   Net income                                 $ 383,153              984,006
     Adjustments to reconcile net income
      to net cash provided by 
      operating activities:
      	Depreciation and amortization            418,450              283,763
      	Deferred income tax benefit             (171,742)            (175,499) 
      	Employee compensation-stock options        3,105                3,153   
       Provision for returns and doubtful 
       	accounts                                142,535              109,268 
       (Gain) loss on sale of equipment            (346)               2,624
       Realized loss of sale of short-term 
      	investments                                   -                 1,957
       (Increase) decrease in:
	        Trade accounts receivable             (369,365)            (324,077)
	        Contract service work in process      (122,396)             (87,187)
    	    Prepaid expenses and other assets      (45,198)               3,650
      	Increase (decrease) in:
      	  Accounts payable                        82,971               13,283
      	  Accrued payroll expenses                18,671               88,306  
      	  Other liabilities                       (4,600)              13,975
      	  Deferred revenue                        54,347               (1,198)
______________________________________________________________________________
      Net cash provided by operating activities 389,585              916,024
______________________________________________________________________________

Cash flows from investing activities:
  Purchases of property and equipment          (248,248)          (1,053,057)
  Capitalized software development costs       (345,050)            (321,849)
  Proceeds from sale of equipment                 5,955                1,500
  Proceeds from sale of short-term 
   investments                                       -                78,043
  Patent costs                                  (15,783)              (7,803)
______________________________________________________________________________
      Net cash used in investing activities    (603,126)          (1,303,166)
______________________________________________________________________________

Cash flows from financing activities:
  Proceeds from long-term debt                       -               407,017
  Repayment of long-term debt                   (19,485)             (10,906)
  Proceeds from short-term note payable         468,000              175,000
  Payments on short-term note payble           (543,000)            (100,000)
  Issuance of common stock                      445,860               35,210
______________________________________________________________________________
      Net cash provided by financing activities 351,375              506,321
______________________________________________________________________________

Net increase in cash and cash equivalents       137,834              119,179
Cash and cash equivalents at beginning of year  404,238              285,059
______________________________________________________________________________
Cash and cash equivalents at end of year      $ 542,072              404,238
==============================================================================

Supplemental Cash Flow Information:
  Cash paid for interest                      $  30,867               11,305
  Cash paid for income taxes                  $     800                2,768
==============================================================================
Noncash increase in additional paid-in 
  capital and unamortized deferred 
  compensation for granting of 
  stock options                               $  32,265                   -
==============================================================================
</TABLE>

See accompanying notes to consolidated financial statements

<PAGE>     F-8
TMS, Inc. and Subsidiary (dba TMSSequoia)

Notes to Consolidated Financial Statements
August 31, 1996 and 1995

(1)     Summary of Significant Accounting Policies

ORGANIZATION

The accompanying consolidated financial statements include the accounts of 
TMS, Inc. (TMS) and its wholly-owned subsidiary Sequoia Computer Corporation 
(Sequoia) (collectively, the Company).  The Company is currently doing 
business as TMSSequoia. All material intercompany transactions  have been 
eliminated in consolidation. On March 15, 1996, Sequoia was merged with and 
into a  subsidiary of TMS which resulted in Sequoia becoming a wholly-owned 
subsidiary of TMS (see Note  2). On September 1, 1996, Sequoia merged with and 
into TMS.  

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, CD-ROM,  intranets and the Internet. The Company 
also provides software development and document  conversion services to 
corporations and government organizations worldwide to assist them in  
migrating from paper to electronic information systems.  

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS  

The preparation of consolidated 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 consolidated 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 carried at cost 
plus accrued interest, which  approximates market. 

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 
$345,050 and $321,849 of software development costs, which primarily includes  
personnel costs, in 1996 and 1995, 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  $174,745 and $86,228 
of software development costs in 1996 and 1995, 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 income.

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 computer equipment, furniture and  fixtures is calculated using the 
straight-line method over periods ranging from three to ten  years. 

<PAGE>     F-9
PATENT COSTS

Included in other assets at August 31, 1996 and 1995, are $33,352 and $17,569, 
respectively, of capitalized costs associated with obtaining patent rights for 
certain software products. The  patents were approved at the end of fiscal 
1996 and the capitalized costs will be amortized using  the straight-line 
method over the 17 year life of the patents.  

REVENUE

Revenue is recognized on an accrual basis and pursuant to various contractual 
terms. Revenue under non-refundable fixed fee contracts for software products 
is recognized after the software  has been delivered, all significant 
obligations of the Company have been fulfilled, and all  significant 
uncertainties regarding customer acceptance have expired. The portion of the 
fixed  fee revenue related to customer support is unbundled, deferred, and 
recognized ratably over the  contract period. At August 31, 1996 and 1995, 
deferred customer support revenue pursuant to non- refundable fixed fee 
contracts was $30,125 and $24,667, respectively. The Company also contracts  
with customers for maintenance. Revenue pursuant to maintenance contracts is 
deferred and  recognized ratably over the contract period. Deferred revenue 
under maintenance contracts at  August 31, 1996 and 1995 totaled $17,210 and 
$33,546, respectively.

Licensing and royalties revenue is recognized as additional copies or 
workstations are utilized by customers, or as the related software product is 
sold to third parties. 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 $100,025  and $34,800 at August 31, 1996 and 1995, 
respectively.     

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Net income per common and common equivalent (common stock options) share was 
determined by dividing net income by the weighted average number of shares of 
common stock and common stock  equivalents outstanding during the period, 
determined by the treasury stock method.

EMPLOYEE COMPENSATION - STOCK OPTIONS

In connection with stock options issued under employee stock option plans, 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 requiring 
a vesting period, the expense is deferred and recognized over the vesting  
period. The amount of expense recognized in 1996 and 1995 related to employee 
stock options was  $3,105 and $3,153, respectively. 

INCOME TAXES

The Company accounts for income taxes using the asset and liability method in 
accordance with Statement of Financial Accounting Standards No. 109 (SFAS No. 
109). 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 RECEIVABLE

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.

<PAGE>     F-10
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.   

RECLASSIFICATIONS

Certain 1995 amounts have been reclassified to conform with the 1996 financial 
statement presentation. 

(2)     Merger

On March 15, 1996, the TMS board of directors and the Sequoia Computer 
Corporation board of directors and shareholders approved the merger of a 
subsidiary of TMS with and into Sequoia which  resulted in Sequoia becoming a 
wholly-owned subsidiary of TMS. Sequoia, founded in 1987, develops  and 
markets innovative software products in the document image processing, image 
enhancement,  forms processing, and data entry industries. Under the terms of 
the agreement, Sequoia  shareholders received 2.837 shares of TMS common stock 
for each Sequoia share. Accordingly, TMS  issued 3,643,220 shares of its 
common stock for all of the outstanding shares of Sequoia common  stock. 
Additionally, outstanding options and warrants to acquire Sequoia common stock 
were  converted to options to acquire 1,641,651 shares of TMS common stock. 

The merger qualifies as a tax-free reorganization and was accounted for as a 
pooling of interests.  Accordingly, the Company's consolidated financial 
statements have been restated to  include the results of Sequoia for all 
periods presented. Combined and separate results of TMS  and Sequoia during 
the periods preceding the merger were as follows: 
<TABLE>
<CAPTION>
______________________________________________________________________________
                   			TMS        Sequoia     Eliminations    Consolidated
______________________________________________________________________________

Six months ended
  February 29, 1996 
   (unaudited)                                   
<S>                <C>           <C>           <C>             <C>
    Net revenue    $2,478,660    590,976       (23,365)        3,046,271
    Net income        418,896     56,712            -            475,608

Fiscal year ended
  August 31, 1995                         
    Net revenue    $4,221,120    988,949            -          5,210,069      
    Net income        771,481    212,525            -            984,006
______________________________________________________________________________
</TABLE>

The combined financial results presented above include reclassification 
adjustments made to conform the accounting policies of the two companies. 
There were no adjustments that impacted net  income. All material intercompany 
transactions were eliminated in consolidation.  

In connection with the merger, the Company expensed non-recurring transaction 
costs of approximately $234,000 in the second and third quarters of fiscal 
1996. These transaction costs  primarily include legal and accounting fees.  

<PAGE>     F-11
(3)     Note Payable and Long-Term Debt

At August 31, 1996, the Company had a $600,000 operating line of credit with a 
bank which bears interest at 1.0% above prime and expires on November 3, 1996. 
At August 31, 1996, there was no balance  outstanding against the line of 
credit. The Company had a note payable of $75,000 outstanding against  the 
line of credit at August 31, 1995. The Company anticipates the line of credit 
will be increased to  $800,000 and extended when it matures. 

At August 31, 1996 and 1995,  the Company had $376,626 and $396,111 
outstanding under a long-term note payable to a bank. The note bears interest 
at 6.25% 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, 1996, and 
thereafter, are as follows: 1997, $20,825; 1998, $22,184; 1999,  $23,631; 
2000, $25,119; 2001, $26,822; thereafter, $258,045. 

The line of credit and long-term note are secured by all accounts, equipment, 
furniture and fixtures, and real property of the Company.   

(4)     Income Taxes

Income tax benefit for fiscal year 1996 was $170,942. The significant 
components of the 1996 benefit include: deferred tax expense, $163,910; 
decrease in the beginning-of-the-year balance in  the valuation allowance for 
deferred tax assets, $335,652; and state income tax, $800. Income tax  benefit 
for fiscal year 1995 was $170,539. The significant components of the 1995 
benefit  include: deferred tax expense, $319,501; decrease in the beginning-
of-the-year balance in the  valuation allowance for deferred tax assets, 
$495,000; state income tax, $800; and Federal  alternative minimum tax, 
$4,160. Income tax benefit (expense) for 1996 and 1995 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:                
<TABLE>
<CAPTION>
	_______________________________________________________________________                         
                                       							 1996           1995
	_______________________________________________________________________
 <S>                                          <C>            <C>
	Computed "expected" tax expense              (34.0%)        (34.0%)
	Change in the beginning-of-the-year 
	 deferred tax assets valuation allowance     158.0%          61.0%
	Merger costs not deductible                  (40.0%)           -
	State income tax, net of Federal income 
	 tax benefit                                 (4.0%)         (4.0%)
	Other                                          1.0%          (2.0%)
	_______________________________________________________________________
	Effective income tax benefit rate             81.0%          21.0%
	=======================================================================
</TABLE>

<PAGE>     F-12
The tax effects of temporary differences that give rise to significant 
portions of the deferred tax assets and liabilities at August 31, 1996  and 
1995 are presented in the following table.
<TABLE>
<CAPTION>
	_______________________________________________________________________
                                          							1996           1995
	_______________________________________________________________________
 <S>                                         <C>             <C>
	Deferred tax assets:
	    Net operating loss carryforwards        $1,777,671      1,855,864       
	    Tax credit carryforwards                   417,000        417,000 
	    Employee stock options                     134,496         62,501
	    Other                                       47,502         58,552
	_______________________________________________________________________
	      Total gross deferred tax assets        2,376,669      2,393,917
	      Less valuation allowance               1,545,469      1,864,000
	_______________________________________________________________________
	      Net deferred tax assets                  831,200        529,917
	
       Deferred tax liabilities:
	    Property and equipment                     (55,670)       (68,502)
	    Capitalized software costs                (193,546)       (99,204)
	    Cash method of accounting for Sequoia's
	      income tax                              (125,823)       (77,792)
	_______________________________________________________________________
	      Net deferred tax asset (liability)    $  456,161        284,419
	=======================================================================
</TABLE>

SFAS No. 109 provides for recognition of deferred tax assets 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 $456,161 at August 31, 
1996. 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, 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 need to generate future taxable income of approximately 
$1,200,000 prior to the  expiration of the net operating loss and tax credit 
carryforwards. Taxable income for the years  ended August 31, 1996 and 1995 
approximated $214,000 and $478,000, respectively.    

The $1,545,649 valuation allowance provides for net operating loss and tax 
credit carryforwards that, as of August 31, 1996, are not expected to be 
realized prior to expiration. At August 31,  1996 the Company's net operating 
loss carryforwards, investment tax credit carryforwards, and  research and 
experimental tax credit carryforwards approximated $5,000,000, $47,000 and 
$370,000,  respectively. These carryforwards expire during the years 1998 
through 2004. The benefits from  these carryforwards could also be limited 
under Internal Revenue Service Code Section 382 due to  changes in ownership.  

(5)     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. During fiscal year 1996, 27,000 
previously-expired options were re-granted to employees at  an exercise price 
of $.125 per share. The market price on the grant date was $1.30 per share. 

<PAGE>     F-13
Pursuant to the merger with Sequoia (see Note 2), 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 TMS 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. The following table 
includes the effect of the 1996 Plan as if it was adopted at the  beginning of 
the earliest period presented.    

Pursuant to resolutions by the board of directors, options to purchase the 
Company's common stock have been issued to certain directors 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 following is a summary of stock option transactions:
<TABLE>
<CAPTION>
___________________________________________________________________________
                            					       Shares       Price/Share
___________________________________________________________________________

Shares under option:
<S>                                   <C>             <C>
At August 31, 1994                    3,209,527       $.125-$.75
	Options granted                        347,476       $.53
	Options exercised                     (225,403)      $.53
	Options cancelled                     (285,235)      $.32-$.44
___________________________________________________________________________
At August 31, 1995                    3,046,365       $.125-$.75
	Options granted                         27,000       $.125
	Options exercised                   (1,165,670)      $.125-$.53
	Options cancelled                     (149,021)      $.125-$.53
___________________________________________________________________________
At August 31, 1996                    1,758,674       $.125-$.75
===========================================================================
</TABLE>

<TABLE>
<CAPTION>
Options exercisable (cumulative)
 <S>     <C>             <C>
	1995    2,577,869       $.125-$.75
	1996    1,580,210       $.125-$.75
</TABLE>

<TABLE>
<CAPTION>
Options becoming exercisable
  during the years ending August 31:
 <S>     <C>             <C>
	1997    146,864         $.125-.53
	1998    15,400          $.125
	1999    5,400           $.125
	2000    5,400           $.125
	2001    5,400           $.125
</TABLE>

In 1995, the Financial Accounting Standard Board issued Statement of Financial 
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based 
Compensation". SFAS 123 provides  companies with the option of expensing the 
"fair value" of stock options granted. With regard to  the Company's stock 
options, no accounting is made until such time as the options are exercised  
unless the option price is less than the fair value of Company stock on the 
grant date. The  Company does not intend to change its current accounting 
method regarding stock options.  Therefore, SFAS 123 will not impact future 
operating results. The Company will adopt the expanded  stock option 
disclosure requirements of SFAS 123 in its 1997 fiscal year.  

<PAGE>     F-14
(6)     Capital Stock

Of the Company's 13,213,837 shares of common stock outstanding at August 31, 
1996, approximately 2,947,844 shares are restricted securities as defined by 
Rule 144 under the Securities Act of  1933, as amended.

(7)     Operating Leases

The Company leases office space and various equipment under operating leases. 
Rent expense was approximately $76,000 and $78,000, for 1996 and 1995, 
respectively. Operating leases for office  space expire during fiscal year 
1997. 

(8)     Business and Credit Concentrations

In 1996 and 1995, one customer, POWERCOM-2000, Inc., a wholly-owned subsidiary 
of Briggs & Stratton, accounted for 11% and 22% of the Company's total 
revenue, respectively. POWERCOM-2000  also accounted for 8% and 13% of net 
trade accounts receivable at August 31, 1996 and 1995,  respectively.

Information regarding the Company's operations by geographic area as, of and 
for the years ended August 31, 1996 and 1995, follows: 
<TABLE>
<CAPTION>
	_______________________________________________________________
	Revenue:                                  1996           1995
	_______________________________________________________________
   <S>                                 <C>             <C>
	  United States                       $4,915,612      4,443,472
	  Europe/Asia (export sales)             494,082        403,957
	  Australia (export sales)               120,516        242,754
	  Canada (export sales)                   32,266         65,381
	  Other (export sales)                    50,100         54,505
	_______________________________________________________________
                            					      $5,612,576      5,210,069
	===============================================================
	_______________________________________________________________
	Accounts receivable (gross)               1996           1995
	_______________________________________________________________
	  United States                       $1,364,951      1,038,675
	  Europe/Asia                             68,526         89,520
	  Australia                               28,400         91,395
	  Canada                                   7,490          8,790
	  Other                                    1,000         14,475
	_______________________________________________________________
                            					      $1,470,367      1,242,855
	===============================================================
</TABLE>

<PAGE>     F-15
Schedule II

TMS, Inc. and Subsidiary (dba TMSSequoia)

Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
______________________________________________________________________________
            		   Balance at   Additions Charged To   Deductions-   Balance at
		               Beginning     Costs &    Other       Write-off       End
 Classification  of Period     Expenses  Accounts    of Accounts   of Period
______________________________________________________________________________
<S>               <C>            <C>          <C>        <C>          <C>
Year ended August 
  31, 1996:     
   Allowance for 
    doubtful 
    accounts      $  99,318      142,535      -          141,853      100,000

Year ended August 
  31, 1995:
   Allowance for 
    doubtful 
    accounts      $ 115,299      109,268      -          125,249       99,318
______________________________________________________________________________
</TABLE>

<PAGE>     F-16										
								                                                          Exhibit 23.1
Independent Auditor's Consent

The Board of Directors
TMS, Inc.:

We consent to incorporation by reference in the Registration Statement on Form 
S-8 filed by the Company on May 16, 1996, of  TMS, Inc. of our report dated 
October 4, 1996, relating to the consolidated balance sheets of TMS, Inc.  and 
subsidiary as of August 31, 1996 and 1995, and the related consolidated 
statements of operations,  shareholders' equity, and cash flows for the years 
then ended, which report appears in the August 31,  1996, annual report on 
Form 10-KSB of TMS, Inc.                                                        
		
                          					      KPMG Peat Marwick LLP

Oklahoma City, Oklahoma
October 28,1996