UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                 FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT Under section 13 or 15(d)of The Securities Exchange Act
of 1934
                                    For the fiscal year ended August 31, 2002

[ ] TRANSITION REPORT Under section 13 or 15(d)of The Securities Exchange Act
of 1934
                    For the transition period from          to

                         Commission File Number: 000-18250

                                     TMS, Inc.
                  (Name of small business issuer in its charter)
            Oklahoma                                        91-1098155
     (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                       Identification No.)


                           206 West 6th Avenue
                              P.O. Box 1358
                         Stillwater, Oklahoma        74076
     (Address of principal executive offices)        (Zip Code)


                                  (405) 377-0880
                             (Issuer's telephone number)


Securities registered under section 12(b) of the exchange Act: None
Securities registered under section 12(g) of the exchange Act: Common Stock,
$.05 par value

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for at least the past
90 days.
                                YES[  X  ] NO

Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes____  No__X__


<PAGE>

The Issuer's revenues for its most recent fiscal year were $3,327,846

As of October 31, 2002 the aggregate market value of voting stock held by
nonafiliates of such stock was  $1,861,147 (based on the average bid and
asked price of such common equity on such date).

As of October 31, 2002 there were 13,112,659 shares of Common Stock, $.05
par value, outstanding.

                       Documents Incorporated By Reference

Following is a list of documents incorporated by reference and the part of
the Form 10-KSB into which the document is incorporated:

     The Company's Proxy Statement in connection with its 2003 Annual
     Meeting of Shareholders is incorporated by reference in Part III,
     Items 9, 10, 11 and 12.

     Transitional Small Business Disclosure Format: YES      NO[  X  ]



Form 10-KSB for the fiscal year ended August 31, 2002

Table of Contents                            page
PART I                                       2
Item 1.    Description of Business           2
Item 2.    Description of 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 Common Equity and
           Related Stockholder Matters       8
Item 6.    Management's Discussion and
           Analysis or Plan of Operation     9
Item 7.    Financial Statements              12
Item 8.    Changes In and Disagreements
           With Accountants on Accounting
           and Financial Disclosure          13
PART III                                     13
Item 13.   Exhibits and Reports on Form 8-K  13
Item 14.   Controls and Procedures           13
Signatures                                   13
Certifications                               14
Index to Financial Statements and
Financial Statement Schedule                 F1


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

<PAGE>

Part I
ITEM 1. DESCRIPTION OF BUSINESS

General Development of Business
We have been engaged in the computer software business since 1981 and became
incorporated in 1990.  We license computer software products to enable
businesses to use document imaging to solve critical business problems.
Typically, businesses wish to solve these problems by electronically publishing
and disseminating information.  We offer or have offered customers the following
imaging technology solutions and services:


Component Product Technologies
     Software toolkits for:
          *   Image Viewing
          *   Image Enhancement
          *   Forms Processing
          *   Color Image Processing
     Software applications for:
          *   Web-based Image Viewing
          *   Image Enhancement for Black and White Images
          *   Image Enhancement for Color and Grayscale Images
Assessment Scoring Products
          *   Virtual Scoring Center
          *   Digital Mark Recognition
Services
          *   Consulting and Integration Services
          *   Data Capture and Conversion Services

In October 2002, we acquired a 50% ownership interest in VSC Technologies, LLC,
a new entity that we formed with Measurement Incorporated, a provider of writing
and performance assessment hand-scoring services.  VSC Technologies, LLC, was
formed to further develop the Virtual Scoring Center technology and license it
to those in the education market that can benefit from using image-based
technology to score tests. We assigned all of our rights in the Virtual Scoring
Center technology upon formation of the new entity.

Component Product Technologies
______________________________
We sell software development toolkits and applications and receive license
fees and/or royalties from the sales of these products.
     Software development toolkits include the core "building block"
technologies necessary for a customer to develop new software applications or
enhance existing applications.  In particular, our toolkits provide the
fundamental technologies necessary for creating document imaging and forms
processing applications.  Programming knowledge is required to implement the
functionality in our software toolkits.
Applications are stand-alone software programs that install directly on the
user's system or on the server in a client/server environment.  This software
may function independently of any other software or may be closely associated
with another software package.  Typically a customer will not need to have
programming knowledge to use our software applications.

<PAGE>  2


    Some customers use our toolkit products to create custom applications to
address critical business needs not otherwise available in pre-packaged software
applications.  Others use our enabling technologies to add functionality to
packaged workflow applications.  Our toolkit products may be used to capture,
display, magnify and enhance 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, corporate intranets, the Internet or extranets via secure or
authenticated servers.
    Customers use our application products to enhance or optimize images
through a stand-alone interface, and to display, annotate or extract text from
digitized images and Portable Document Format (PDF) documents using optical
character recognition technology through a browser-based interface. Our
applications apply to many types of digitized images and documents such as
engineering drawings, legal or financial transaction documents, reference or
regulatory documents and photographs that may be accessed via many kinds of
computer workstations or personal computers, local area networks, corporate
intranets, the Internet and/or extranets via secure or authenticated servers.
Users may transmit the images to other computers or facsimile machines, share
the images with other users, and manipulate, modify or print the images and
documents.

Image Viewing Toolkits
______________________
ViewDirector (TM) imaging toolkit-ViewDirector (TM) products are software
development tools that provide image display capabilities for black and white
and color imaging applications.  The ViewDirector tools are typically used to
enable existing applications to display images or for creating custom
applications for the document management industry.  ViewDirector functionality
includes rapid image display and an extensive suite of image display tools
including magnifiers, rotation, hyperlinking and annotations.  It is available
as cross platform C/C++ libraries or as an ActiveX control.  We license
ViewDirector toolkits to a wide variety of document imaging, workflow and
document management solution providers including value-added resellers, system
integrators, independent software vendors, original equipment manufacturers,
government agencies and corporations who use the product internally to develop
proprietary software. Users agree to pay us a royalty for each computer
workstation or server on which they use the product.

Prizm(R) ActiveX Control-Prizm(R) ActiveX control provides a core subset of the
document image viewing, manipulation and printing functionality available with
the ViewDirector ActiveX control.  However, Prizm ActiveX control includes
technology designed specifically to facilitate viewing via a web server in the
Microsoft Internet Explorer web browser environment.  The Prizm ActiveX control
is licensed on a per web server basis rather than by developer seat with an
associated runtime royalty agreement as the product is used for web-enabled
image viewing.  Similar to retrieving information over the Internet, users of
corporate intranets or extranets access corporate image documents using standard
web browsers.  Most standard web browsers do not have the ability or flexibility
to display and manipulate these scanned images without the assistance of
additional third-party technology such as the Prizm ActiveX control or the Prizm
plug-in described below.

Image Viewing Applications
__________________________
Prizm(R) plug-in-- The Prizm(R) plug-in is an application that extends the
capabilities of Microsoft Internet Explorer and Netscape browsers, delivering
the ability to view, manipulate annotate and print even the largest TIFF, JPEG
and other compressed images. In November 2002, we released the Prizm plug-in
with accelerated printing for Postscript Printers and support for PDF files.
Now the Prizm plug-in will allow users to view, manipulate, annotate and print
PDF files using the same interface they currently use for TIFF and other
document image types.  Users can also save document images as PDF files to share
with others.  The plug-in offers image batch printing, virtual multi-page
documents, image annotation and optical character recognition for text
extraction, hyperlinking and magnifying capabilities at each user's desktop.  We
sell a unit of the product for each individual user.  Units are sold both to
corporate users in high volumes and on a single copy basis through our web site.
The product is supported on the Windows, Macintosh and UNIX platforms.

Image Enhancement Toolkits
__________________________
ScanFix(R) bitonal image enhancement toolkit-ScanFix(R) software technology
automatically enhances black and white scanned images by removing specks, lines,
shading, broken characters, and black borders.  It also deskews scanned images.
The ScanFix C/C++ libraries and ActiveX control are used in virtually all types
of document imaging applications, especially where optical character recognition
processing is required to create smaller file sizes, and higher OCR read rates.
We license the ScanFix toolkit to original equipment manufacturers such as IBM,
Minolta, Ricoh, Panasonic and Xerox as well as corporate customers, government
organizations and service bureaus.  Users agree to pay
us a royalty for each computer workstation on which they use the product.

Image Enhancement Application
_____________________________
ScanFix(R) bitonal image optimizer-- The ScanFix(R) bitonal image optimizer is a
stand-alone application that offers service bureaus, corporate clients, small
office/home office and individual users the functionality of the ScanFix toolkit
for black and white images.  We primarily sell the ScanFix bitonal image
optimizer through a direct sales channel and we also bundle and co-market this
product with original equipment manufacturers and other independent software
vendors.

Forms Processing Toolkit
_____________________________
FormFix(R) forms processing toolkit-- We market the FormFix(R) toolkit to
customers that have highly-skilled development staffs to develop custom
applications for high volume data capture systems, as well as to independent
software vendors who provide forms processing tailored to specific vertical
markets such as the healthcare market. Customers can create custom forms
processing applications for black and white scanned images with the FormFix
development tool. Users can automatically identify a specific form and extract
typed or handwritten text, which can then be read by optical character
recognition 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.

<PAGE>  3

    FormFix technology was used in the 2000 Decennial Census the largest data
capture project in history, as well as the 2001 British Census. The product is
available as a C library with an optional Visual Basic wrapper. We license
FormFix technology to value-added resellers, system integrators, software
developers and government agencies, as well as companies that use the software
internally. Users agree to pay us a royalty for each computer workstation on
which they use the FormFix product.

Color Image Processing Toolkits
_______________________________
Prizm(R) color Image Processing toolkit-- We launched the Prizm(R) color IP
C/C++ toolkit in December 2000, and the Prizm color IP COM/ActiveX toolkit in
May 2001. The product is employed by independent software vendors and service
bureaus to deskew, crop, drop and extract colors from color and grayscale
document images. The Prizm color IP toolkit also includes a module specifically
designed for color and grayscale forms processing which extends the feature set
available in our current FormFix product to include color and grayscale form
identification, registration and removal.
    In August 2002, BancTec released its new eCap image based wholesale
lockbox solution using Prizm forms recognition technology to automatically
process remittance advices quickly and efficiently.   The Prizm color IP toolkit
allows users to take advantage of the additional information available in color
images to streamline their workflow, reduce exception images and provide more
accurate optical character recognition and intelligent character recognition.
These features are present even if the end user does not require a color image
for archival purposes or does not plan to convert the color image used for
processing to a black and white image for long-term storage.

Grayscale Image Processing Application
______________________________________
Prizm(R) Gray--  We launched the Prizm(R) application in November 2002,
targeting service bureaus who convert microfilm and microfiche to digital
images.  The Prizm Gray application is an integrated system, built on the Prizm
Color IP toolkit, that provides the ability to efficiently manipulate and
process continuous tone (grayscale and color) images, with a feature set
targeted at users converting microfiche and microfilm to image. The Prizm Gray
application is designed to replace on-scanner enhancement processes that slow
microfilm and microfiche scanners down, reducing throughput. We sell the Prizm
Gray application through a direct sales channel and we also bundle and co-market
this product with original equipment manufacturers and scanner distributors.

Component Product Technologies Markets
______________________________________
    The primary markets for our component products are financial institutions
law firms, pharmaceutical companies, transportation, energy, engineering and
aerospace companies, insurance companies, software companies, private and public
utilities, manufacturers, and defense agencies. The increasing use of the World
Wide Web, the Internet and secure and authenticated servers offers us the
opportunity to market our products to customers looking to exploit the
opportunity for distributed scanning and document handling. We market our
products primarily through cultivating strategic partnerships with industry-

leading original equipment manufacturers, distributors, value-added resellers
and software developers, tradeshow marketing, field sales calls, telemarketing,
direct mail, print and Internet advertising.
    Many of our products are listed in a General Services Administration
contract schedule to enable all agencies and branches of the federal government
and government contractors to easily purchase products, training and technical
support directly from us.
    We currently employ seven people in the marketing and sale of our
component products, and we have marketing and sales offices in Stillwater and
Tulsa, Oklahoma.

Component Product Competition
_____________________________
The computer software field is highly competitive with many companies in the
industry and is characterized by rapid changes in technology and frequent
introductions of new platforms and features.  We compete with a number of
companies that have greater financial, technical and marketing resources. We
believe the primary competitive factors with respect to our products are the
features of our products, the technical capabilities of our personnel, quality
of services and price. We believe we can compete favorably with respect to all
of these factors and are focusing on markets where we believe we can achieve a
leadership position; however, there can be no assurance that we will be able to
continue to compete effectively in our market, that competition will not
intensify or that future competition will not have a material adverse effect on
our business, operating results, cash flows and financial condition.
    We have competitors in each of the basic imaging tools and end user
applications markets to which we supply products. These companies, which include
AccuSoft, Medical Informatics Engineering, Inc., Cartesian, Inc., Accordex,
Pixel Translations, Snowbound Software, Swiftview Inc., Kofax Image Products,
Lead Technologies, Spicer, Seaport Imaging and Visionshape, sell products aimed
at our customer base in the black and white image enhancement and forms
processing, Internet/intranet image viewing and toolkit markets. As we move
forward with color image processing and enhancement software, Dunord
Technologies, J&K Imaging LP, Kofile Inc., Tower Technologies and Picture
Elements will be among our competitors. We expect that additional companies will
enter the color image enhancement toolkit and application markets with the
increased sales of production level color scanners.

Assessment Scoring Products
___________________________
During fiscal 2000, we created a new operating segment to develop technologies
that will improve the overall process of scoring large-scale assessment tests
for grades K-12 in the education marketplace, leveraging our core competencies
in forms recognition, image processing, viewing and enhancement.

<PAGE>  4


Web-based Scoring
_________________
VSC(R) Virtual Scoring Center-- The VSC system is an integrated system that
provides the ability to efficiently score large-scale student assessments using
imaging technology. Designed to replace traditional paper-based scoring
processes, the VSC system consists of two primary modules: a workstation-based
system for scanning documents and capturing student demographic information
and selected response (i.e. multiple choice, true/false) test items, and a
web-based system for scoring handwritten student responses (i.e. essay, short
answer, proofs and diagrams for mathematics and science, etc.). Imaging
technology is used throughout the system to efficiently process student
assessment documents.

Digital Mark Recognition
________________________
DMR(R) engine-- The Digital Mark RecognitionT ("DMR") engine is patent-pending
software designed to replace the need for traditional hardware-based optical
mark recognition technology.  High-end optical mark recognition is typically
performed using specialized hardware that measures the light reflectivity of
paper to determine if a pencil-lead mark is present in any of the pre-defined
response locations.  Optical mark recognition is generally employed in scoring
"bubble tests." Using our core imaging technology and expertise, we have created
software-based imaging technology that we believe rivals the output of the
mechanical optical mark recognition scanners. This technology analyzes digital
grayscale or color images in computer memory rather than optically measuring
reflectivity directly from the paper. The analysis of the digital images results
in substantially similar results compared to the mechanical reflectivity
scanners, using commercially available grayscale or color scanners and forms
printed from a variety of print sources.  We believe our DMR technology will
enable large service bureaus to offer outsourced scanning and scoring facilities
for the major scoring vendors, allowing them to take advantage of variable costs
during peak scoring seasons.
    DMR technology offers a viable alternative to hardware based scoring
systems that cannot take advantage of imaging technology.  Inherent in
traditional hardware-based "bubble test" scoring systems are costly and precise
printing requirements, paper-based labor-intensive correction of data, and
paper-based storage and retrieval of tests.  DMR technology allows for
flexibility in printing, automated data correction, and image-based storage;
thus providing scoring vendors the ability to more cost effectively scale up
their scoring operations to keep up with the expected continued growth in the
number of assessments being given and scored.  In the event that scoring vendors
wish to continue the use of their current technologies and processes, DMR
technology will allow service bureaus to offer assessment scoring vendors an
outsourcing option to support growing volumes on a variable cost basis.

Assessment Scoring Product Markets
__________________________________
The Virtual Scoring Center product is offered in the education market through
VSC Technologies, LLC, a company that we own jointly with Measurement
Incorporated ("MI").  MI typically contracts with state departments of
education, other educational agencies, and private businesses to develop and
score educational tests.  It specializes in the development and hand scoring
of essay exams and open-ended performance test items for students in
kindergarten through college and at the professional level. VSC Technologies,
LLC licenses the Virtual Scoring Center product to MI for its own internal
use and MI will remit royalties to the newly formed venture for that use.
Additionally, MI will work with us to market the Virtual Scoring Center
product to individual state departments of education, and other education
scoring vendors at a time when the market appears poised for growth.


    In January 2001 Congress passed the "No Child Left Behind" Act of 2001
requiring America's schools to describe their success in terms of what each
student accomplishes.  Beginning in the 2002-03 school year, schools must
administer tests in reading and mathematics in each of three grade spans: grades
3-5, grades 6-9, and grades 10-12 in all schools. Beginning in the
2005-06 school year, the tests must be administered every year in grades 3
through 8. Beginning in the 2007-08 school year, science achievement must also
be included in the testing.  We believe the `No Child Left Behind' program will
cause a significant increase in the volume of test items scored over the next
several years.
    We are also creating strategic marketing alliances with commercial service
bureaus to offer scanning services, that include the use of our DMR technology,
to organizations that score large volumes of "bubble tests" in the K-12
educational marketplace. We believe that the combination of increased test
volumes and increased pressure on scoring organizations to report student test
scores on a timelier basis will create an opportunity for commercial service
bureaus to use our DMR technology and offer variable-cost based services to
scoring organizations who can benefit from offloading some or all of their
expected increase in test volumes.

<PAGE>  5

Assessment Scoring Product Competition
______________________________________
The education assessment field is highly competitive and includes many scoring
vendors with an already established presence in providing services, equipment
and/or tools for scoring tests.  Those vendors include entities such as Harcourt
Educational Measurement, Educational Testing Services, NCS Pearson, CTB-McGraw
Hill, Measured Progress, Riverside Publishing and Scan-Optics. Most of these
vendors provide both test development and scoring services, and some provide the
ability for educational entities to use their own teachers for scoring at
regional centers throughout the United States. Some of these companies have also
developed their own computerized assessment scoring systems to facilitate their
scoring services.
     We believe that the Virtual Scoring Center and the DMR engine address
critical needs in the educational assessment marketplace, but there can be no
assurance that we will be able to compete successfully against our current and
future competitors, many of which have larger technical staffs, greater brand
name recognition and market presence, more established and larger marketing and
sales organizations and substantially greater financial resources. Further, we
cannot assure that the competitive pressures we face will not have a material
adverse effect on our business, operating results, cash flows and financial
condition.

Services
________
Consulting and Integration Services-- We have historically offered a variety of
services for analyzing business and information management processes as well as
integrating business solutions. During fiscal year 2000, we transitioned out of
our existing professional service business model, and substantially completed
projects for all of our remaining customer contracts. During fiscal year 2002,
we renewed a system maintenance obligation for one customer, and will continue
to fulfill maintenance obligations for that customer in fiscal 2003.

Data Capture and Conversion Services -- We have also historically provided data
capture and conversion services for customers desiring the ability to use
electronic data for online information retrieval, intranet or Internet
distribution, permanent archives, electronic publishing or printing on demand.
During fiscal year 1999, we decided to scale back our Data Capture and
Conversion Services and in fiscal year 2001 completed all contracts and ceased
offering data capture and conversion services.

Backlog
_______
As of October 31, 2002, we had a backlog of component product and assessment
scoring product and software maintenance revenue of approximately $325,953.

<PAGE>  6

Copyrights, Patents, Proprietary Information, Trademarks and Licenses
_____________________________________________________________________
The copyright laws permit us to copyright many aspects of our software. We have
obtained copyright registrations for our software products and we expect to
apply for additional registrations in the future as appropriate.
    We hold eight patents awarded by the United States Patent and Trademark
office relating to our ScanFix product. These patents cover the following
technology areas: image processing, image line removal, detection of scanned
page skew, a method of deskewing (incremental digital image rotation), document
registration, dot shading removal, image despecking, horizontal and vertical
line removal, line intersection repair, automatic correction of inverted (white)
text and general methods of high speed image manipulation. The patents cover
most of the key elements of the ScanFix product line. The patents expire during
the years 2011 through 2015. The scope and extent of patent rights protecting
computer software is evolving; therefore, we cannot be assured that the issuance
of such patents will be upheld as valid or will prevent the development of
competing products.
    In addition we have applied with the United States Patent and Trademark
office for patents covering technology developed in connection with the Digital
Mark Recognition engine. We do not believe that any of our products or soon to
be released products present questions of patent infringement or violations of
any other intellectual property rights belonging to others, although we cannot
assure you that claims of infringement of the intellectual property rights of
others will not arise that could require us to procure licenses for the use of
third-party technology, to make additional investments to modify or replace
technologies to remove the basis for an allegation of infringement, or to
discontinue use of technology accused of infringement, any of which could have
a material adverse effect on our operations or financial condition.
    We also cannot assure you that third parties will not infringe on our
intellectual property rights or that we will have the financial or other
resources available to adequately enforce infringement of our intellectual
property rights.
    We treat as proprietary any software we develop and protect our software
through licensing and distribution agreements. In addition, we require written
undertakings of confidentiality from all of our employees as well as in all
customer agreements, including license agreements, which prohibit unauthorized
duplication of our software.
    We have registered trademarks on the ScanFix FormFix DMR and Prizm marks
when used in association with the Company's products. We have also developed,
through use, common law trademark rights in RasterView, InnerView and
MasterView.
     We grant our customers a non-exclusive, non-transferable license for the
ViewDirector, ScanFix, Prizm and FormFix toolkit products for use on computers
used by personnel or customers of licensees. We typically receive an initial
license fee for the toolkit and a required annual maintenance fee for such
products. Licenses of our toolkits entitle licensees to develop custom
applications using the toolkits, and then distribute the software to users
inside their organization or to their end customers. We then receive a royalty
for each computer workstation on which the software is used. The duration of
license agreements generally ranges from one to five years.

Research and Development
________________________
We recognize the need to continually develop new and improved products. Current
plans include:
*    adding PDF viewing, manipulation, annotation and printing support in the
     Prizm plug-in product and the development of a new thin client viewing
     product that will contain a similar robust feature set to the Prizm plug-
     in and which will support multiple platforms
*    offering a web server based product to manage annotations generated with
     our Prizm plug-in product; this application will expand functionality
     currently provided as web server samples and offer annotation, redaction
     and image overlay functionality.
*    marketing a color and grayscale document image processing application that
     takes advantage of the functionality available in the Prizm color IP
     toolkit to crop, enhance and threshold color document images, as well as
     to continue to add functionality to the Prizm color IP toolkit
*    updating the ScanFix application, adding improved thresholding technology
*    developing document imaging products related to improving the efficiency
     and economics of scoring large-scale standardized tests for K-12 public
     schools.

   During the first quarter of fiscal 2003 we began two equating studies for
our Digital Mark Recognition engine, in which DMR results were directly compared
to optical mark recognition results generated by optical mark recognition
scanners.  This allowed scoring vendors the opportunity to evaluate the results
generated by our technology. We plan to use knowledge gained in these activities
to generate further improvements in a commercial release of the Digital Mark
Recognition product which will necessitate further improvements in our core
technologies and new technology development.
     In fiscal years 2002 and 2001, we spent approximately $742,000 and
$1,014,000, respectively, in research and development costs.  Additionally, we
capitalized software development costs of $388,000 and $495,000, respectively,
related to new products and existing product enhancements.  In fiscal 2002 we
secured financial commitments for funded development from a customer to add and
enhance features to the Prizm plug-in product and from Measurement Incorporated
to further develop the Virtual Scoring Center technology.  Approximately
$298,000 of those funded development dollars were applied against research and
development costs or capitalized software during fiscal year 2002.

Employees
_________
At August 31, 2002, we had 29 full-time salaried employees and 3 part-time
hourly employees for a total of 32 employees.  Our business depends in large
part on our ability to attract and retain qualified technical, marketing and
management personnel, and we must compete with larger and more established
companies for such persons.

Customers
_________
One customer accounted for 13% of our total revenue in fiscal year 2002.  No one
customer accounted for greater than 10% of our revenue in fiscal 2001.

Sales to Foreign Customers
__________________________
Approximately 19% and 18% of total revenues for fiscal 2002 and 2001,
respectively, are attributable to sales to foreign customers.

<PAGE>  7

ITEM 2. DESCRIPTION OF PROPERTY

Our headquarters consist of approximately 14,700 square feet of office space
located at 206 West Sixth Avenue in Stillwater, Oklahoma. We purchased the
building in fiscal 1994. The building is mortgaged with outstanding principal at
August 31, 2002, of $227,375.  We have approximately 3,100 square feet of office
space in Tulsa, Oklahoma with a monthly rental of approximately $3,600.

ITEM 3. LEGAL PROCEEDINGS

We are a party to a lawsuit involving the Virtual Scoring Center technology we
transferred to VSC Technologies, LLC.  On October 23, 2002, we, along with VSC
Technologies, LLC and Measurement Incorporated, filed an action in the United
States District Court for the Eastern District of North Carolina against NCS
Pearson, Inc.  In the complaint, we and the other plaintiffs seek a declaratory
judgment that the Virtual Scoring Center technology owned by VSC Technologies,
LLC and marketed by Measurement Incorporated and us does not infringe the
patents of NCS Pearson.  We believe that the Virtual Scoring Center technology
does not infringe those patents, and it was designed to carefully avoid
infringement, but we cannot assure you that we will be successful in that claim.
NCS Pearson has not filed an answer to our complaint and we do not yet know what
their response will be.  At present, we can say only that if we are not
successful, then the court would not rule that the Virtual Scoring Center is
free of the court would not rule that the Virtual Scoring Center is free of
infringement.  Such an outcome could be severely damaging to our business and
plans to exploit the Virtual Scoring Center technology.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Part II
     ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information
__________________
Our common stock is traded in the over-the-counter market, and prices are quoted
by Pink Sheets LLC (formerly the National Quotation Bureau, Incorporated) 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 our Common Stock
for fiscal years 2002 and 2001. The quotations are inter-dealer prices without
retail markups, markdowns, or commissions and may not represent actual
transactions. The source of such quotations is Pink Sheets LLC.
<TABLE>
<CAPTION>

<S>                 <C>             <C>
                          Bid Prices
Fiscal 2002         High           Low
First Quarter     $ .26            .16
Second Quarter      .26            .18
Third Quarter       .23            .16
Fourth Quarter      .18            .12

Fiscal 2001         High           Low
First Quarter     $ .28            .16
Second Quarter      .28            .16
Third Quarter       .23            .12
Fourth Quarter      .31            .16


</TABLE>
<PAGE>  8

Dividends
___________
We have not declared nor paid any cash dividends since our incorporation, nor do
we anticipate that we will pay dividends in the foreseeable future. Any earnings
we realize are expected to be reinvested in our 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, our earnings, our financial condition and capital requirements
(including working capital needs), and any arrangements restricting the payment
of dividends.

Shareholders
____________
As of October 31, 2002, there were approximately 700 shareholders of record
according to the records of our transfer agent.  As of that date, we had
approximately 970 shareholders including beneficial owners holding shares in
nominee.
     ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This analysis of our results of operations and financial condition should be
read in conjunction with the financial statements, description of our business
and other information included elsewhere herein. Except for the historical
information contained herein, this Form 10-KSB contains certain forward-looking
statements regarding our 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. Our ability to achieve such results is subject to
certain risks and uncertainties, such as those inherent generally in the
computer software industry and the impact of competition, pricing and changing
market conditions. We disclaim, 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.

Component Product Technologies Segment
                                               2002               2001
Revenue from external customers           $ 3,193,913          3,159,529
Operation Income                          $   599,329            767,850


Revenue from the component product technologies segment is primarily derived
from licensing, royalties, and the customer support and maintenance of our
Prizm(R) plug-in, ScanFix(R), Prizm(R) color image processing, ViewDirector(TM)
and FormFix(R) products.  Revenue for this segment for the year ended August 31,
2002 was $3,193,913 compared to $3,159,529 last year, an increase of $34,384, or
1%.  During the fourth quarter of fiscal year 2002, we recorded $440,000 in
license revenue as a result of a settlement that was reached in the multi-year
dispute with Hummingbird USA, Inc.  If the settlement revenue were excluded from
fiscal year 2002 segment results, total revenue for the segment would have
decreased $405,616, or 14%, when compared to fiscal year 2001.

     The decrease in fiscal year 2002 component product revenue (excluding the
$440,000 in settlement revenue) occurred across all product lines. This decline
was in large part attributable to the delay, during the first quarter of the
current fiscal year, by several of our customers in closing the purchase of
certain licenses or reducing the number of licenses purchased, both of which we
believe to be indirect results of the events of September 11, 2001 and the
general uncertainty of the national economy. Partially offsetting the decline in
licensing revenue for the current fiscal year was an approximate $157,000, or
49%, increase in customer support and maintenance revenue over last year.  The
increase in customer support and maintenance revenue resulted from a change in
our policy in fiscal 2001, which requires that customers purchase support and
maintenance as part of the standard licensing arrangement for certain products.


<PAGE>  9

     Although our sales and monthly revenue totals have improved since the
events of September 11, 2001, we continue to experience longer sales cycles and
many customers continue to purchase licenses in smaller quantities. We also
believe that revenue for this segment has been impacted by the early market
status of our new Prizm color image processing toolkit.  Although we have sold
multiple copies of our Prizm color toolkit since its release last year, timing
more widespread adoption rates in the emerging market for color-based document
management solutions is difficult.

     Operating income for the segment was 19% and 24% of revenue for the years
ended August 31, 2002 and 2001, respectively.  The decline in operating margins
over the prior year was almost entirely attributable to our fiscal first quarter
revenue decline. Partially offsetting the revenue decline was lower personnel
and related overhead expenses that resulted after the implementation of a
workforce reduction near the end of the current year first quarter and the
approximate $75,000 positive contribution to operating income resulting from the
settlement with Hummingbird USA, Inc. during the current year fourth quarter.
We recorded approximately $379,000 of litigation and arbitration expenses
related to the Hummingbird dispute in the current year fourth quarter.

     The profitability of this segment often depends on our ability to secure
significant sales of multiple licenses to individual customers.  However, with
the exception of the $440,000 license fee from our former customer Hummingbird
USA, Inc which represented approximately 13% of the total revenue for this
segment, no one customer accounted for more than 5% of the total segment revenue
in fiscal years 2002 or 2001.  Over the past two years, we have restructured our
sales and marketing activities in an effort to increase the volume of customers
and reduce our reliance on a few significant transactions to achieve profitable
results.  There can be no assurance, however, that we will not have to continue
to rely on significant sales transactions in the future or that our ability to
increase the volume of customers and/or obtain sufficient large sales
transactions will continue. Our inability to continue to secure such
transactions could have a material adverse effect on our business, operating
results and financial position.

Assessment Scoring Technologies Segment
                                                2002               2001
Revenue from external customers           $    101,571            221,180
Operating loss                            $   (907,635)          (705,244)



This segment includes costs associated with the continued development and
marketing of the Virtual Scoring Center(TM) web-based assessment scoring system
and our Digital Mark Recognition(TM) technology that are designed to target the
market for scoring K-12 tests. The initial version of the Virtual Scoring Center
was created for a specific customer and was installed during fiscal 2001.
Although there was a $119,609 decline in revenue, we did not fully develop this
product until fiscal 2002 and fiscal 2001 revenue was essentially related to our
initial customer installation during that year.

     On October 10, 2002, we entered into an agreement with Measurement
Incorporated, a provider of writing and performance assessment hand-scoring
services, to further develop the Virtual Scoring Center technology and bring it
to market through a new entity, VSC Technologies, LLC.  We transferred our
rights in the Virtual Scoring Center technology to the new entity in exchange
for one-time cash payment of $250,000 and a 50% ownership interest.  Measurement
Incorporated holds the remaining 50% ownership interest. The effects of the
transaction with Measurement Incorporated will be included in our fiscal 2003
first quarter financial results.

     We plan to jointly market the Virtual Scoring Center product in the
education market to educational testing companies, private and governmental
departments of education, colleges, universities and other similar educational
institutions which conduct testing, surveys or otherwise collect and/or archive
information in or for education systems or institutions.  In addition to revenue
that may be directly generated from Virtual Scoring Center product license fees,
we will be required to remit royalties to the new entity for license of the
Virtual Scoring Center technology outside of the education market and
Measurement Incorporated will be required to remit royalties to the new entity
for its own internal use of the Virtual Scoring Center product.  We will share
software development and other direct marketing and administrative costs equally
with Measurement Incorporated, and cash flows will generally be distributed in
proportion to our respective revenue and capital contributions.

    The first commercial version of the Virtual Scoring Center product was
 released prior to the end of the current fiscal year and was installed for
internal use at Measurement Incorporated. The Virtual Scoring Center now
includes, as an optional feature, our Digital Mark Recognition technology for
reading "fill-in-the-bubble" marks on image-based documents.  We did not
transfer our ownership rights to the Digital Mark Recognition technology upon
creating the new entity with Measurement Incorporated, however the new entity
and Measurement Incorporated both have certain rights to use and/or license the
Digital Mark Recognition Technology.

<PAGE>  10

    The increase in segment operating losses over prior year was primarily
attributable to the decrease in revenue as explained above, one-time costs
related to severance payments made as part of the total company workforce
reduction that occurred during the first quarter of the current fiscal year,
professional fees associated with completing the transaction with Measurement
Incorporated, and software amortization expense that began as a result of the
first release of the Virtual Scoring Center product in the latter part of the
prior fiscal year.

Other Services Segment
                                                 2002             2001
Revenue from external customers              $  32,362           260,893
Operating income                             $  27,065           109,791


  The "Other Services" segment includes combined financial results for the
winding down of operational activities related to the Professional Services and
Document Conversion Services segments. Early in fiscal year 2000, we decided to
transition out of these service activities.  Approximately 78% of fiscal year
2001 segment revenue came from document conversion services. We completed our
final document conversion service activities during fiscal 2001, thus no revenue
or expenses are included for document conversion services in fiscal year 2002.
The remaining revenue and operating income for fiscal years 2002 and 2001
relates to one professional service customer support and maintenance contract,
which was renewed for another year during the fourth quarter of fiscal year
2002.

<TABLE>
<CAPTION>

Total Company Operating Results
Following is a report of total company revenue and a reconciliation of
reportable segments' operating (loss) income to our total net loss for fiscal
years ending 2002 and 2001.
<S>                                                <C>                <C>
                                                      2002               2001
Total company revenue                           $  3,327,846          3,641,602
Operating (loss) income for reportable segments  $  (281,241)           172,397
Unallocated corporate expenses                      (214,763)          (310,804)
Interest income                                      100,863             51,206
Interest expense                                     (18,356)           (17,733)
Other, net                                            (6,963)               632
Income tax benefit                                     4,320                  -
Net loss                                        $   (416,140)          (104,302)
Loss per share:
   Basic                                        $      (0.03)             (0.01)
   Diluted                                      $      (0.03)             (0.01)


</TABLE>

Total revenue for the year ended August 31, 2002 was $3,327,846 compared to
$3,641,602 for fiscal year 2001, a decrease of $313,756 or 9%. The principal
factors for this decrease were the delays in closing licensing contracts or
reductions in the number of licenses purchased during the first quarter of the
current year, which we believe were the indirect result of the events of
September 11, 2001 and the general uncertainty of the national economy, a
$189,000 Virtual Scoring Center license fee associated with a prior year
customized installation of the product, and no revenue from Document Conversion
Services during the current year as a result of the complete winding down of
that operation in August of 2001.

Our net loss for year ended August 31, 2002 was $416,140 or $0.03 loss per share
(basic and diluted), compared to net loss of $104,302 or $0.01 loss per share
(basic and diluted) in fiscal 2001. The declines in component product and
assessment scoring technology revenue, as described above, had the most
significant impact on the decline in our current year results when compared to
last year.  The decline in revenue was partially offset by lower personnel and
related overhead costs associated with the workforce reduction that was
implemented near the end of the current year first quarter and the approximate
$75,000 positive operating income contribution and $85,000 positive interest
income contribution resulting from the settlement with Hummingbird USA, Inc.
during the current year fourth quarter

Our effective income tax rate was a 1% benefit for fiscal 2002 and 0% for fiscal
year 2001. The effective income tax rates for both fiscal years 2002 and 2001
differed from the "expected" Federal tax rate of 34%, primarily because of a
change in the valuation allowance provided against our deferred tax assets.
Deferred tax assets are primarily the result of our net operating loss
carryforwards. See "Income Taxes" in Note 3 to the financial statements.

Financial Condition
Working capital at August 31, 2002 was $805,049 with a current ratio of 2.0:1,
compared to $1,029,555 with a current ratio of 2.3:1 at August 31, 2001.  We
received a total cash payment of $562,000 during the fourth quarter of the
current fiscal year as a result of reaching a settlement for a multi-year
dispute with Hummingbird USA, Inc.  This settlement payment partially offset the
declines in working capital and current ratio that occurred as a result of lower
revenue and increased operating losses compared to last year.

Net cash provided by operations for the year ended August 31, 2002 was $551,756
compared to $4,596 for fiscal year 2001.  The increase in operating cash flow is
almost entirely attributable to receipt of the Hummingbird USA, Inc. settlement
payment.  Net cash used in investing activities for the year ended August 31,
2002 was $415,389 the majority of which represented our investment in new and
enhanced software products.  Net cash used in financing activities was $22,104
in fiscal year 2002.

During the first quarter of fiscal year 2002 we secured a line of credit with a
bank that provides for maximum borrowing of up to $1,000,000 and is secured by
all trade accounts receivable. There was no balance outstanding against the line
of credit at August 31, 2002.   We expect to renew the line of credit, which
expired in October of 2002, prior to the end of the fiscal year 2003 first
quarter.   We anticipate that operating cash flows and the line of credit will
be adequate to meet our current obligations and current operating and capital
requirements.  The funding of long-term needs (including funding for increased
product development, expanded marketing and promotion of our products, and for
potential merger/acquisition activities) is dependent upon increased revenue and
profitability and obtaining funds through outside debt and equity sources.


Factors Affecting Business
     The computer software industry is subject to rapid change that could
result in significant additional costs or our products and services becoming
obsolete.

The markets for our products are characterized by rapid technological advances
and can be significantly affected by new product introductions and changing
customer requirements.  Our future success will depend upon our ability to
continue to improve existing products and to develop and introduce products with
new or enhanced capabilities that address the increasingly sophisticated needs
of our customers and keep pace with technological and competitive developments.
We cannot assure you that we will be able to successfully develop and market new
or enhanced products or respond effectively to technological changes or new
product announcements by others.  Any failure by us to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could result in a
material adverse effect on our business, operating results, cash flows and
financial condition.

     Our markets are highly competitive, and if we do not compete effectively,
we could suffer price reductions and loss of market share.

The computer software and education assessment fields are highly competitive
with many competing companies in those industries.  The computer software field
is characterized by rapid changes in technology and frequent introductions of
new platforms and features.  Competitors in this market include AccuSoft, Pixel
Translations, Snowbound Software, Kofax Image Products, Lead Technologies,
Seaport Imaging and Visionshape.  As we move forward with color image processing
and enhancement software, Dunord Technologies, J&K Imaging LP, Kofile Inc.,
Tower Technologies and Picture Elements can also be considered competitors.
Certain of our competitors for our component products have greater financial,
technical and marketing resources than we do.  We believe that the primary
competitive factors with respect to our component products are the features of
our products, the technical capabilities of our personnel, quality of services
and price.  We believe that we can compete favorably with respect to all of
these factors and are focusing on markets where we believe we can achieve a
leadership position; however, we cannot assure you that we will be able to
continue to compete effectively in our market, that competition will not
intensify or that future competition will not have a material adverse effect on
our business, operating results, cash flows and financial condition.
     The education assessment market includes many vendors with an already
established presence in providing services for the scoring of open-ended
assessments and "bubble tests." Those vendors include entities such as Harcourt
Educational Measurement, Educational Testing Services, NCS Pearson, CTB-McGraw
Hill, Measured Progress, Riverside Publishing and Scan-optics. We believe that
the Virtual Scoring Center and the Digital Mark Recognition software products
that address critical needs in the educational assessment marketplace, but there
can be no assurance that we will be able to compete successfully against current
and future competitors, many of which have larger technical staffs, greater
brand name recognition and market presence, more established and larger
marketing and sales organizations and substantially greater financial resources
than us. There can also be no assurances that the competitive pressures we face
will not have a material adverse effect on our business, operating results, cash
flows and financial condition.

<PAGE>  11

     If we are unable to protect our intellectual property we may lose a
valuable asset, experience reduced market share or incur costly litigation to
protect our rights.

We rely on a combination of patent rights, copyright and trademark laws,
nondisclosure agreements and other contractual provisions and technical measures
to protect our intellectual property rights. We do not believe that any of our
products or soon to be released products present questions of patent
infringement or violations of any other intellectual property rights belonging
to others.  We cannot assure you, however, that claims of infringement of the
intellectual property rights of others will not arise that could require us to
procure license for the use of third-party technology, to make additional
investments to modify or replace technologies to remove the basis for an
allegation of infringement, or to discontinue use of technology allegedly the
subject of infringement, any of which could have a material adverse effect on
our operations or financial condition.  We also cannot assure you that others
will not infringe on our intellectual property rights or that we will have
financial or other resources available to adequately enforce infringement of our
intellectual property rights. We cannot assure you that a third party will not
assert that our technology violates its intellectual property rights in the
future. As the number of products in our target markets increases and the
functionality of these products further overlap, developers may become
increasingly subject to infringement claims. Any such claims, with or without
merit, can be time consuming and expensive to defend. There can be no assurance
that third parties will not assert infringement claims against us in the future
with respect to our current or future products or that any such assertion will
not require us to enter into royalty arrangements or litigation that could be
costly to us.

Defects in our products could result in claims against us that could cause
unanticipated losses.

Our license agreements with our customers typically contain provisions designed
to limit our exposure to potential product liability claims. It is possible,
however, that the limitation of liability provisions contained in our license
agreements may not be effective under the laws of certain state and foreign
jurisdictions. The sale and support of our products by us and by retailers and
other resellers may entail the risk of such claims, and there can be no
assurance that we will not be subject to such claims in the future. A product
liability claim brought against us could have a material adverse effect upon our
business, results of operations and financial condition.

     Our operating results and financial condition could suffer if we are
unable to continue to secure significant sales of multiple licenses to
individual customers.

We have historically relied upon large sales transactions with individual
customers to achieve positive operating results.  In fiscal 2002 and 2001, a
single customer accounted for 13% and 6%, respectively, of our total revenue.
There can be no assurance that we will continue to obtain such large sales
transactions on a consistent basis and, as such, our inability to obtain
sufficient large sales could have a material adverse effect on our business,
operating results and financial position.

ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this Item are set forth beginning on page
F1 hereof.

<PAGE>  12

     ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.

Part III
Information required in response to Items 9-12 shall appear in our 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 ("*"):

EXHIB  NAME OF EXHIBIT
IT
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,
       19990 (the "Form 10").
10.2*  Employee Incentive Stock Option Plan,
       incorporated herein by reference to
       Exhibit No. 10.3 to the Registrant's
       Form 10.
10.    TMS, Inc. Employee Stock Purchase
3*     Plan, incorporated herein by reference
       to Exhibit No. 4.2 to the Registrant's
       Form S-8 as filed with the Commission
       on July 23, 2001.
10.4   Agreement for Contract Services, North
       Dakota Department of Public
       Instruction, incorporated herein by
       reference to Exhibit No. 10.1 to the
       Registrant's Form 10-QSB for the
       quarterly period ended February 28,
       2001.
10.5   Software Licensing Agreement entered
       into by and between the Registrant and
       the State of North Dakota, Department
       of Public Instruction, incorporated
       herein by reference to Exhibit No.
       10.2 to the Registrant's Form 10-QSB
       for the quarterly period ended
       February 28, 2001.
10.6   Corporate Software License Agreement
       between the Registrant and The Boeing
       Company, incorporated herein by
       reference to Exhibit No. 10.1 to the
       Registrant's Form 10-QSB for the
       quarterly period ended May 31, 2000.
10.7   Development Agreement between the
       Registrant and The Boeing Company,
       incorporated herein by reference to
       Exhibit No. 10.2 to the Registrant's
       Form 10-QSB for the quarterly period
       ended May 31, 2000.
10.8   Purchase Contract number @ 311305
       between the Registrant and the Boeing
       Company, incorporated herein by
       reference to Exhibit No. 10.3 to the
       Registrant's Form 10-QSB for the
       quarterly period ended May 31, 2000.
23.1   Consent of KPMG LLP

(b) Reports on Form 8-K.   We filed no Form 8-K Current Reports during the last
quarter of fiscal year 2002.

ITEM 14.  CONTROLS AND PROCEDURES

     Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including our President and our Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon that evaluation, the President and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. No significant changes were made in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.


Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

     REGISTRANT: TMS, INC.

Date:     11/21/02  BY:   /s/  Deborah L. Klarfeld
                               --------------------
                               Deborah L. Klarfeld, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

Date:     11/21/02  BY:   /s/  Rudy J. Alvarado
                               ----------------
                               Rudy J. Alvarado, Director

Date:     11/21/02  BY:   /s/  Doyle E. Cherry
                               ----------------
                               Doyle E. Cherry, Director

Date:     11/21/02  BY:   /s/  Deborah L. Klarfeld
                               -------------------
                               Deborah L. Klarfeld, President
                               Principal Executive Officer

Date:     11/21/02  BY:   /s/  Deborah D. Mosier
                               -----------------
                               Deborah D. Mosier, Chief Financial Officer
                               Principal Financial Officer

Date:     11/21/02  BY:   /s/  James R. Rau, M.D.
                               ------------------
                               James R. Rau, M.D., Director

Date:     11/21/02  BY:   /s/  Russell W. Teubner
                               ------------------
                               Russell W. Teubner, Director

Date:     11/21/02  BY:   /s/  Marshall C. Wicker
                               ------------------
                               Marshall C. Wicker, Director


<PAGE>  13

CERTIFICATIONS:

I, Deborah L. Klarfeld, certify that:

1. I have reviewed this annual report on Form 10-KSB of TMS, Inc.

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c)presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 21, 2002
                              /s/ Deborah L. Klarfeld
                              -----------------------
                              Deborah L. Klarfeld
                              President

<PAGE>  14

I, Deborah D. Mosier, certify that:

1. I have reviewed this annual report on Form 10-KSB of TMS, Inc.

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 21, 2002
                              /s/ Deborah D. Mosier
                              ---------------------
                              Deborah D. Mosier
                              Chief Financial Officer

<PAGE>  15

Index to Financial Statements and
Financial Statement Schedule                         page
-----------------------------------------------------------
Independent Auditors' Report                         F1
Financial Statements
Balance Sheets: August 31, 2002 and 2001             F2 and F3
Statements of Operations: Years Ended
August 31, 2002 and 2001                             F4
Statements of Shareholders' Equity:
Years Ended August 31, 2002 and 2001                 F5
Statements of Cash Flows: Years Ended
August 31, 2002 and 2001                             F6
Notes to Financial Statements:
August 31, 2002 and 2001                             F7 through F14
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts:
Years Ended August 31, 2002 and 2001                 F15


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



Independent
Auditors' Report

The Board of Directors and Shareholders
TMS, Inc.:

We have audited the financial statements of TMS, Inc. (dba TMSSequoia) as listed
in the accompanying index. In connection with our audits of the financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 and schedule presentation. We believe that our audits
provide a reasonable basis for our opinion.
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TMS, Inc. as of August 31,
2002 and 2001 and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.

KPMG LLP

Oklahoma City, Oklahoma
October 11, 2002


<PAGE>  F1




<TABLE>
<CAPTION>



<C>                                          <S>                   <S>
Balance Sheets
August 31, 2002 and 2001

TMS, Inc. (dba TMSSequoia)                       2002                 2001
Assets

Current assets:
 Cash and cash equivalents                 $    783,550               669,287
 Trade accounts receivable, net of              594,499             1,007,839
   allowance for doubtful accounts of
   $16,204 in 2002 and $36,715 in 2001
 Deferred income taxes                          165,623                60,921
 Prepaid expenses and other current              74,677                95,212
 assets
 Total current assets                         1,618,349             1,833,259
Property and equipment
 Land                                           111,000               111,000
 Building                                       744,372               744,372
 Computer equipment                           1,274,586             1,353,575
 Furniture and fixtures                         362,567               362,554
                                              2,492,525             2,571,501
 Less accumulated depreciation and           (1,638,067)           (1,608,480)
   amortization
 Net property and equipment                     854,458               963,021
Other assets:
 Capitalized software development costs,        715,365               709,384
   net of accumulated amortization of
   $648,099 in 2002 and $266,270 in 2001
 Deferred income taxes                          318,877               423,579
 Other assets                                    45,394                52,427
 Total other assets                           1,079,636             1,185,390
Total assets                               $  3,552,443             3,981,670

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

<PAGE>  F2





                                                2002                   2001
Liabilities and Shareholders' Equity

Current liabilities:
 Current installments of long-term debt    $     29,106                  27,016
 Accounts payable                               128,502                 231,311
 Accrued payroll expenses                       223,788                 264,382
 Deferred revenue                               431,904                 280,995
 Total current liabilities                      813,300                 803,704
Long-term debt, net of current                  198,269                 227,376
installments
 Total liabilities                            1,011,569               1,031,080
Shareholders' equity:
 Preferred stock, $.01 par value.                     -                       -
   Authorized 1,000,000 shares; none
   issued
 Common stock, $.05 par value.                   655,633                655,133
   Authorized               50,000,000
   shares; 13,112,659 shares issued and
   outstanding in 2002 and 13,102,659
   shares issued and 13,072,333
   outstanding in 2001
 Additional paid-in capital                   11,348,883             11,347,872
 Accumulated deficit                          (9,463,642)            (9,040,887)
 Treasury stock, at cost, 0 shares in                  -                (11,528)
   2002 and 30,326 shares in 2001
 Total shareholders' equity                    2,540,874              2,950,590
Commitments (Note 8)
Total liabilities and shareholders'        $   3,552,443              3,981,670
equity

</TABLE>

<PAGE>  F3


<TABLE>
<CAPTION>

<S>                                                                          <C>                          <C>
Statements of Operations
Years Ended August 31, 2002 and 2001

TMS, Inc. (dba TMSSequoia)                                                   2002                         2001
Revenue:
   Licensing and royalties                                             $   2,724,221                    3,029,794
   Customer support and maintenance                                          508,054                      345,514
   Other                                                                      95,571                      266,294
                                                                           3,327,846                    3,641,602
Operating costs and expenses:
   Cost of revenue                                                           651,506                      489,542
   Selling, general and administrative                                     2,430,742                    2,276,770
   Research and development                                                  741,602                    1,013,697
                                                                           3,823,850                    3,780,009
Operating loss                                                              (496,004)                    (138,407)
Other income, net                                                             75,544                       34,105
Loss before income taxes                                                    (420,460)                    (104,302)
Income tax benefit                                                             4,320                     -
Net loss                                                               $    (416,140)                    (104,302)
Net loss per share:
   Basic                                                               $       (0.03)                       (0.01)
   Diluted                                                             $       (0.03)                       (0.01)
Weighted average shares:
   Basic                                                                  13,104,320                    13,080,624
   Diluted                                                                13,104,320                    13,080,624

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


</TABLE>

<PAGE>  F4

<TABLE>
<CAPTION>

<S>                                       <C>                   <C>           <C>           <C>           <C>        <C>
Statements of Shareholders' Equity
Years Ended August 31, 2002 and 2001
                                                                Additional    Unamortized                            Total
TMS, Inc. (dba TMSSequoia)                    Common Stock       Paid-in       Deferred      Accum.     Treasury  Shareholders'
                                          Shares      Amount     Capital     Compensation    Deficit     Stock      Equity
Balance at August 31, 2000               13,490,659  $674,533  $11,422,299     $(1,809)   $(8,884,719)  (94,027)   $3,116,277
Issuance of common stock to employees        12,000       600        6,527           -              -         -         7,127
Sales of common stock held in treasury            -         -            -           -        (51,866)   82,499        30,633
Purchase and retirement of common stock    (400,000)  (20,000)     (80,000)          -              -         -      (100,000)
Amortization of deferred compensation             -         -            -         855              -         -           855
Forfeiture of stock options                       -         -         (954)        954              -         -             -
Net loss                                          -         -            -           -       (104,302)        -      (104,302)
Balance at August 31, 2001               13,102,659   655,133    11,347,872          -     (9,040,887)  (11,528)    2,950,590
Issuance of common stock to employees        10,000       500         1,011          -              -         -         1,511
Sales of common stock held in treasury            -         -             -          -         (6,615)   11,528         4,913
Net loss                                          -         -             -          -       (416,140)        -      (416,140)
Balance at August 31, 2002               13,112,659   $655,633  $11,348,883   $      -    $(9,463,642)        -     2,540,874

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


</TABLE>

<PAGE>  F5
<TABLE>
<CAPTION>
Statements of Cash Flows
Years Ended August 31, 2002 and 2001
  <S>                                                 <C>                    <C>
TMS, Inc. (dba TMSSequoia)                                2002                   2001
Cash flows from operating activities:
  Net loss                                             (416,140)              (104,302)
                                                    $
  Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Depreciation and amortization                      515,477                358,509
     Loss on disposal of equipment                        4,528                  5,052
     Employee stock-based compensation                    1,511                  7,982
     Provision for returns and doubtful accounts         87,500                 (5,000)
     Net change in:
       Accounts receivable                              325,840               (463,884)
       Prepaid expenses and other assets                 25,534                109,424
       Accounts payable                                (102,809)               150,432
       Accrued payroll expenses                         (40,594)               (47,100)
       Deferred revenue                                 150,909                 (6,517)
  Net cash provided by operating activities             551,756                  4,596
Cash flows from investing activities:
  Purchases of property and equipment                   (27,116)               (77,920)
  Proceeds from disposal of equipment                        35                  3,170
  Capitalized software development costs               (387,811)              (494,511)
  Patent costs                                             (497)               (14,953)
  Net cash used in investing activities                (415,389)              (584,214)
Cash flows from financing activities:
  Repayment of long-term debt                           (27,017)               (27,007)
  Repayment of capital lease                                  -                (14,413)
  Proceeds from short-term note payable                  96,000                      -
  Repayment of short-term note payable                  (96,000)                     -
  Sale of treasury stock                                  4,913                  30,633
  Purchase of treasury stock                                  -                (100,000)
  Net cash used in financing activities                 (22,104)               (110,787)
Net increase (decrease) in cash and cash                114,263                (690,405)
equivalents
Cash and cash equivalents at beginning of year          669,287               1,359,692
Cash and cash equivalents at end of year            $   783,550                 669,287
Supplemental cash flow information:
  Cash paid for interest                            $    18,356                  17,733
  Cash paid for income taxes                        $         -                       -

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

</TABLE>

<PAGE>  F6


Notes to Financial Statements August 31, 2002 and 2001

Note 1: Summary of Significant Accounting Policies


Organization

The Company is involved in the research, design, development, and marketing of
software tools and applications for document capture, image enhancement, image
viewing and forms processing.  The Company is also developing technologies to
improve the overall process of scoring standardized tests in the educational
marketplace. Subsequent to August 31, 2002, the Company and Measurement
Incorporated, a leading provider of educational scoring services, formed VSC
Technologies, LLC to continue to develop and market certain scoring-related
technologies (See "Note 10").  During fiscal year 2001 the Company also provided
document conversion services to corporations and government organizations to
assist them in migrating from paper to electronic information systems. At August
31, 2001, the Company had completed all outstanding document conversion projects
and discontinued offering document conversion services.

Use of Estimates in the Preparation
of Financial Statements

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those estimates.


Cash and Cash Equivalents

Cash and cash equivalents consist primarily of highly liquid money market
accounts with an original maturity of three months or less and overnight
investments carried at cost plus accrued interest, which approximates fair
value.

Computer Software Costs

Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed" (SFAS No. 86),
requires capitalization of software development costs incurred subsequent to
establishment of technological feasibility and prior to the availability of the
product for general release to customers. The Company capitalized $387,811 and
$494,511 of software development costs, which primarily includes personnel
costs, in 2002 and 2001, respectively.  Funding received from customers for the
development of products is first applied against the capitalized software
development costs and any remaining funding is recognized as revenue upon
product acceptance.  The Company applied approximately $121,000 of customer
funding against capitalized software costs in both fiscal 2002 and 2001.  In
fiscal 2002, the Company also received approximately $177,000 in funding from
Measurement Incorporated (see "Note 11") of which $152,000 was applied against
capitalized software and $25,000 was credited against research and development
expense.

     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 using a straight-line rate over the product's remaining
estimated economic life. The Company amortized $381,829 and $173,385 of software
development costs in 2002 and 2001, respectively. The Company compares the
unamortized capitalized software development costs to the estimated net
realizable values of its products on a periodic basis. If the estimated net
realizable values fall below the unamortized costs, the excess costs are charged
directly to operations. No such costs were charged to operations in either
fiscal 2002 or fiscal 2001.

Property and Equipment

Property and equipment are stated at cost. Depreciation on the building is
calculated using the straight-line method over thirty-nine years. Depreciation
on equipment and furniture is calculated using the straight-line method over
periods ranging from three to ten years, but not less than the estimated useful
life of the property.

     The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

<PAGE>  F7

Patent Costs

Included in other assets at August 31, 2002 and 2001, are $43,408 and $45,442,
respectively, of unamortized capitalized costs associated with obtaining patent
rights for certain software products. Various patents were approved during
fiscal 1996 through 1998 and the capitalized costs are amortized using the
straight-line method over the seventeen-year life of the patents.  In fiscal
2002 and 2001, the Company incurred and capitalized $497 and $14,953,
respectively, related to the acquisition of new patents.  Such costs will be
amortized over the lives of the patents, once the patents have been approved.

Revenue

Statement of Position (SOP) 97-2 "Software Revenue Recognition" requires
software licensing and royalties revenue to be recognized only after the
software is delivered, all significant obligations of the Company are fulfilled,
and all significant uncertainties regarding customer acceptance have expired.
SOP 97-2 also requires the unbundling of multiple elements in software
transactions and the allocation of pricing to each element based upon vendor
specific objective evidence of fair values. The Company offers multiple element
arrangements to its customers, mostly in the form of technical phone support and
product maintenance, for fees that are deferred and recognized in income ratably
over the applicable technical support period. At August 31, 2002 and 2001,
deferred technical support and product maintenance revenue was $315,094 and
$277,655, respectively. The Company also, on occasion and as part of the initial
contract price, offers delivery of enhanced versions of future products to
customers on a when-and-if-available basis. SOP 97-2 generally requires that the
promise for future product deliveries be treated as separate elements and
deferred from revenue recognition until produced, delivered and accepted by the
customer. At August 31, 2002 there was $116,810 in product revenue attributable
to software products for which we are waiting on customer acceptance.  In fiscal
2001, there was no deferred revenue attributable to software products and/or
enhancements expected to be delivered or accepted in the future.

     Funding received from customers for the development of products is first
applied against the capitalized software development costs and any remaining
funding is recognized as revenue upon product acceptance.  In fiscal 2002 and
2001, the Company recognized revenue of approximately $38,000 and $71,000,
respectively, that represented the excess of customer funding over the cost of
the product development.

Net Loss Per Share

Basic EPS is computed by dividing net income available to common shareholders by
the weighted-average number of shares of common stock outstanding during the
period. Diluted EPS recognizes the potential dilutive effects of the future
exercise of common stock options.

Stock-based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
No. 25), and related Interpretations. Accordingly, compensation cost for stock-
based awards is expensed in an amount equal to the excess of the quoted market
price on the grant date over the exercise price. Such expense is recognized at
the grant date for awards fully vested. For awards with a vesting period, the
expense is deferred and recognized over the vesting period. The amount of
expense recognized in 2002 and 2001 related to employee stock-based awards was
$1,511 and $7,982, respectively. Compensation cost is not required to be
recorded for the employee stock purchase plan (see Note 4), as it is non-
compensatory under the provisions of APB No. 25.

Income Taxes

The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized at the enacted tax rates for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Allowance for Doubtful Trade
Accounts 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>  F8

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, trade accounts receivable,
accounts payable, accrued expenses and other liabilities approximate fair value
because of the short maturity of these financial instruments. The carrying value
of notes payable and long-term debt approximates fair value because the current
rates approximate market rates available on similar instruments.

Comprehensive Income

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130), establishes standards for reporting and display of
"comprehensive income" and its components in a set of financial statements. It
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed at the same prominence as other financial
statements. The Company currently does not have any components of comprehensive
income that are not included in net loss.

Reclassifications
Certain 2001 amounts have been reclassified to conform to the 2002 financial
statement presentation.

Note 2: Note Payable and Long-Term Debt

At August 31, 2002 the Company had a $1,000,000 operating line of credit with a
bank which bears interest at 1% above prime (5.75% at August 31, 2002) and
expired on October 3, 2002.  No balance was outstanding against the line of
credit at August 31, 2002.

The Company had $227,375 and $254,392 outstanding under a long-term note payable
to a bank, at August 31, 2002 and 2001, respectively. The note bore interest at
7.38% at August 31, 2002 and 2001, respectively, and is due January 1, 2009.
The aggregate maturities of long-term debt for each of the five years subsequent
to August 31, 2002, and thereafter, are as follows: 2003, $29,106; 2004,
$31,320; 2005, $33,783; 2006, $36,397; 2007, $39,214; thereafter, $57,555. The
long-term note is secured by all accounts receivable, equipment, furniture and
fixtures, and real property of the Company.

Note 3: Income Taxes

The income tax provision for fiscal year 2002 included the following significant
components: deferred tax benefit $156,644; increase in the valuation allowance
for deferred tax assets, $161,265; benefit for correction of prior year
estimates, $4,620; and a benefit for prior year U. S. Federal tax refunds of
$4,320. The significant components of the 2001 income tax provision include:
deferred tax benefit, $34,813; increase in the valuation allowance for deferred
tax assets, $33,869; and benefit for correction of prior year estimates, $944.
Additionally, the Company had $293,690 and $2,158,718 in net operating loss
carryforwards expire during fiscal years 2002 and 2001, respectively.  Income
tax expense for 2002 and 2001 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:

                                                           2002       2001
Computed "expected" tax benefit                          (34.0%)    (34.0%)
Change in the deferred tax assets valuation allowance     38.0%      32.0%
State income tax, net of Federal income tax benefit       (4.0%)     (4.0%)
Other                                                     (1.0%)      6.0%
Effective income tax (benefit) expense                    (1.0%)      0.0%


The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at August 31, 2002 and 2001 are
presented in Table 3a.

Table 3a
--------------                                            2002         2001
Deferred tax assets:
  Tax operating loss carryforwards                   $ 1,036,142      985,392
  Other                                                   55,277       61,536
Total gross deferred tax assets                        1,091,419    1,046,928
Less valuation allowance                                 321,352      271,153
Net Deferred Tax Assets                                  770,067      775,775
Deferred tax liabilities:
  Property and equipment                                (14,014)      (21,993)
  Capitalized Software Costs                           (271,553)     (269,282)
Net deferred tax asset                               $  484,500       484,500


<PAGE>  F9

     Deferred tax assets are recognized when it is more likely than not that
benefits from deferred tax assets will be realized. The Company had recognized a
net deferred tax asset of $484,500 at August 31, 2002. The ultimate realization
of this deferred tax asset is dependent upon the Company's ability to generate
future taxable income during the periods in which those temporary differences
become deductible. Management considered the scheduled reversal of deferred tax
liabilities, projected future taxable income, past earnings history, sales
backlog, and net operating loss carryforward expiration dates in determining the
amount of deferred tax asset to recognize. In order to fully realize the
deferred tax asset, the Company will be required to generate future taxable
income of approximately $1,275,000 prior to the expiration of the net operating
loss carryforwards. Taxable loss for the year ended August 31, 2002 approximated
$415,000 compared to a financial loss of approximately $416,000. Taxable loss
for the year ended August 31, 2001 approximated $428,000 compared to a financial
loss of approximately $104,000. In fiscal 2002 and 2001, the differences in the
tax and financial losses primarily resulted from timing differences associated
with the deductibility of capitalized software and bad debt estimates compared
to the recognition of related expenses in conformity with accounting principles
generally accepted in the United States of America.  The $322,919 valuation
allowance provides for net operating loss carryforwards that, as of August 31,
2002, are not expected to be realized prior to expiration. At August 31, 2002
the Company's tax net operating loss carryforwards approximated $2,730,000.
These carryforwards expire during the years 2003 through 2022. Approximately
$1,800,000, or 66%, of the net operating loss carryforwards do not begin to
expire until fiscal year 2019. The benefits from these carryforwards could also
be limited under Internal Revenue Service Code Section 382 due to changes in
ownership.

Note 4: Stock-Based Compensation

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.  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. The options become exercisable
over a five-year period, beginning one year after the grant date.

     Pursuant to resolutions by the board of directors, options to purchase the
Company's common stock have been issued to certain directors and key employees
of the Company. Such options are generally exercisable at a price equal to or
greater than the market price of the stock at the date of the grant.

Table 4b summarizes information about stock options outstanding at August 31,
2002.

Employee Stock Purchase Plan

On January 21, 2000, the shareholders approved the TMS, Inc. Employee Stock
Purchase Plan.  The Employee Stock Purchase Plan allows eligible employees to
purchase common stock on a quarterly basis at the lower of 85% of the market
price at the beginning or end of each three-month offering period. Employee
contributions to the Employee Stock Purchase Plans were approximately $400 and
$31,500 for the years ended August 31, 2002 and 2001, respectively. Pursuant to
the Employee Stock Purchase Plan, 30,326 and 167,643 shares were issued in
fiscal 2002 and 2001, respectively, from common shares held in treasury by the
Company. There were no shares available for purchase as of August 31, 2002.

<PAGE>  F10

Fair Value Disclosures

The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, compensation cost has been recognized using the intrinsic value
method prescribed in APB No. 25, and related Interpretations. Had compensation
cost for the Company's stock option grants and Employee Stock Purchase Plan in
fiscal years 2002 and 2001 been based on the fair value method prescribed by
SFAS No. 123, net loss would have been increased by $4,364 and $21,286 in 2002
and 2001, respectively, with no effect on loss per share. The fair values at the
time of each option grant was estimated using the Black-Scholes option-pricing
model with the following weighted-average assumptions: dividend yield of 0%;
expected volatility ranging from 84.22% to 95.96%, depending on the year of
grant, risk-free interest rate of 4.5% and 1.3% for the stock option grants and
the Employee Stock Purchase Plan, respectively; expected lives of approximately
6 to 8 years for the stock option grants; and expected lives for the Employee
Stock Purchase Plan of approximately .25 years.

     Pro forma net earnings reflects only options granted after September 1,
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to September 1,
1995 is not considered.


Table 4a

                                                Weighted Average   Option
                                Shares          Exercise Price     Price Range
Shares under option:
At August 31, 2000              740,974               $0.30        $0.13-$0.40
        Options cancelled       (4,000)               $0.13        $0.13
At August 31, 2001              736,974               $0.30        $0.13-$0.40
        Options cancelled      (100,000)              $0.25        $0.19-$0.31
At August 31, 2002              636,974               $0.31        $0.13-$0.40




<TABLE>
<CAPTION>

Table 4b
<S>                    <C>                       <C>               <C>                   <C>                    <C>
                                                 Weighted
                                                 Average           Weighted              Options                Weighted
  Range of             Options                   Remaining         Average               Exercisable            Average
  Option Prices        Outstanding at 8/31/02    Contract Life     Exercise Price        at 8/31/02             Exercise Price

  $0.13 - $0.31        496,500                   2.6 Years         $0.29                 426,500                $0.29
  $0.38 - $0.40        140,474                   3.1 Years         $0.39                 140,474                $0.39

  $0.13 - $0.40        636,974                   3.4 Years         $0.31                 566,974                $0.32



</TABLE>


<PAGE>  F11

Note 5: Earnings Per Share
     Options to purchase approximately 628,000 and 678,000 shares of common
stock at prices ranging from $.27-$.40 per share were outstanding at August 31,
2002 and 2001, but were not included in the computation of EPS because the
options' exercise price was greater than the average market price of common
shares. Additionally, approximately 9,000 options to purchase 2,500 incremental
shares of common stock at prices ranging from $.125-$.188 were excluded from the
per share computation for fiscal 2002, because of their anti-dilutive effect.
All options expire during periods through the year 2008.

Note 6: Reportable Segments
The Company's reportable segments are determined by its products and services
and include: Component Product Technologies, Assessment Scoring Technologies,
and Other Services. The Component Product Technology segment develops the
Company's core product technologies. These products include core image viewing,
image enhancement and image and forms processing software toolkits that are used
to develop new software applications or enhance existing software applications.
In addition, the Component Product Technology segment develops software
applications that may function independently from any other software package or
may be closely associated with other software packages. The toolkits are
primarily licensed to developers, system integrators, value added resellers
and/or companies who use the software internally. The Company generally receives
royalties for each workstation/system that utilizes the product. The
applications install directly on a user's system or on a server in a
client/server environment. The applications are primarily licensed to entities
that require the capability to view and manipulate images through their Internet
or intranet web browsers.

     The Assessment Scoring Technology segment was created during fiscal 2000
to focus on developing technologies to improve the overall process of scoring
standardized tests in the educational marketplace. The technologies being
developed in this segment leverage the Company's existing core competencies in
forms recognition, image processing, viewing and enhancement. The Assessment
Scoring Technology segment created a Digital Mark Recognition (DMR) software
product designed to replace the need for hardware based Optical Mark
Recognition. The DMR product is currently patent-pending. The Assessment Scoring
Technology segment also developed a new product called the Virtual Scoring
Center ("VSC"). The VSC uses imaging-based technology to facilitate the process
of scoring student responses to open-ended test questions in a web-enabled
environment. Subsequent to August 31, 2002, the Company transferred the VSC
technology to VSC Technologies, LLC, which is jointly owned by the Company and
Measurement Incorporated, a leading provider of educational scoring services
(See "Note 10").

<PAGE>  F12

     During fiscal year 2001 the Company provided document conversion services
to corporations and government organizations to assist them in migrating from
paper to electronic information systems. The Other Services reportable segment
includes the financial results for document conversion services for fiscal year
2001.  The Company had completed all outstanding document conversion projects
and discontinued offering document conversion services prior to the start of
fiscal year 2002. Other Services also included revenue for an ongoing customer
support and maintenance contract related to a custom software product that the
Company developed for a customer in fiscal year 2000.

Direct costs are charged to the segments and certain selling, general and
administrative expenses for corporate services (i.e. marketing, accounting,
information systems, facilities administration et. al.) are allocated to the
segments based on various factors such as segment full-time equivalent
employees, segment revenue or segment costs. Financial results are measured in
accordance with the manner in which management assesses segment performance and
allocates resources. Except for capitalized software development costs,
financial results do not include separately identifiable balance sheet assets
for each segment, as this is not a common measure that management uses to assess
segment performance or allocate resources. In the software development business,
the most important assets are the employees. Performance measures of the
employees are included in the derivation of operating income and loss. See Table
6a for the results of operations for each reportable segment for fiscal years
ending 2002 and 2001. All revenue and expenses are from unaffiliated sources.
<TABLE>
<CAPTION>
___________
-----------
Table 6a
<S>                                                             <C>              <C>              <C>             <C>
                                                                  COMPONENT      ASSESSMENT
                                                                   PRODUCT         SCORING         OTHER
2002                                                            TECHNOLOGIES     TECHNOLOGIES     SERVICES      TOTAL
      Revenue from external customers                        $  3,193,913          101,571          32,362    $ 3,327,846
      Depreciation and amortization                          $     55,419           33,438              -     $    88,857
Operating income (loss)                                      $    599,329         (907,635)        27,065     $  (281,241)
Other significant noncash items:
     Amortization of capitalized software development costs  $    330,829           51,000              -     $   381,829
Identifiable segment assets:
     Capitalized software development costs, net             $    480,855          234,510                    $   715,365
Expenditures for capitalized software development costs      $    255,317          132,494                    $   387,811

                                                                  COMPONENT       ASSESSMENT
                                                                   PRODUCT          SCORING          OTHER
2001                                                            TECHNOLOGIES      TECHNOLOGIES      SERVICES     TOTAL
Revenue from external customers                              $  3,159,529          221,180          260,893   $ 3,641,602
Depreciation and amortization                                $     74,415           31,340           31,053   $   136,808
Operating income (loss)                                      $    767,850         (705,244)         109,791   $   172,397
Other significant noncash items:
      Amortization of capitalized software development costs $    158,167           15,218                -   $   173,385
Identifiable segment assets:
      Capitalized software development costs, net            $    556,367          153,017                -   $   709,384
Expenditures for capitalized software development costs      $    326,276          168,235                -   $   494,511



</TABLE>

<PAGE>  F13


Table 6b is a reconciliation of the segment operating (loss) income to the total
Company net loss for fiscal 2002 and 2001.

Table 6b
                                                      2002            2001
Operating (loss) income for reportable segments  $  (281,241)        172,397
Unallocated corporate expenses                      (214,763)       (310,804)
Interest income                                      100,863          51,206
Interest expense                                     (18,356)        (17,733)
Other, net                                            (6,963)            632
Income tax benefit                                     4,320               -
Net loss                                         $  (416,140)       (104,302)



Note 7: Employee Benefit Plan
The Company sponsors a defined contribution benefit plan for substantially all
employees for the purpose of accumulating funds for retirement. Participation in
the plan is based on six months of service and a minimum of 1,000 hours of
annual service. The Company matches 50% of employee contributions in an amount
up to 6% of employees' total compensation. The cost of employer matching
approximated $44,000 and $22,000 in 2002 and 2001, respectively. Employees vest
in employer matching contributions at a rate of 20% per year after two years of
service.

Note 8: Leases

The Company leases office space under operating leases. Rent expense was
approximately $49,000 and $36,000 for 2002 and 2001, respectively. The Company
had non-cancelable future minimum lease obligations of $225,633 at August 31,
2002, as follows:  $44,799 in fiscal year 2003, $46,344 in fiscal year 2004,
$47,883 in fiscal year 2005, $49,239 in fiscal year 2006, and $37,368 in fiscal
year 2007.

     In November 1997, the Company entered into two capital lease agreements
for scanning equipment and related software. The leases ended in the first
quarter of fiscal year 2001 and the leased equipment was purchased and resold at
fair market value. The leases had a three-year term and provided for the Company
to either relinquish the equipment and software to the leasing company at the
end of the lease or purchase the equipment and software at fair market value.
During fiscal 2001 depreciation expense included $10,960 for amortization of
assets held under capital lease. In fiscal 1999, the Company entered into an
operating sublease for certain computer equipment and software held under
capital lease. The sublease ended in the first quarter of 2001 and the lessee
purchased the leased equipment at fair market value. The Company received
approximately $3,000 in rental payments under the sublease in fiscal year 2001.

Note 9: Business and Credit Concentrations

In fiscal year 2002, one customer accounted for 13% of total revenue.   At
August 31, 2002, two customers accounted for 34% of total trade accounts
receivable.  In fiscal year 2001, no customer accounted for greater than 10% of
total revenue and two customers accounted for 44% of total trade accounts
receivable.   Revenue and trade accounts receivable for the Company by
geographic area as of and for the years ended August 31, 2002 and 2001, follows:

REVENUE:                                            2002                2001
United States                                $  2,694,511            2,969,037
Europe (export sales)                             376,982              389,700
Asia (export sales)                               180,569              192,296
Australia (export sales)                           31,266               27,518
Canada (export sales)                              28,846               18,324
Other (export sales)                               15,672               44,727
                                             $  3,327,846            3,641,602

ACCOUNTS RECEIVABLE (GROSS):                       2002                 2001
United States                                $    558,903            1,024,372
Europe                                             13,626               20,589
Asia                                                    -               (1,147)
Australia                                          16,520                  537
Canada                                             20,254                  203
Other                                               1,400
                                             $    610,703            1,044,554


<PAGE>  F14

Note 10:  Subsequent Event

On October 10, 2002, the Company entered into an agreement with Measurement
Incorporated, one of the nation's leading providers of writing and performance
assessment hand-scoring services, to further develop the Virtual Scoring Center
technology and bring it to market through a new entity, VSC Technologies, LLC.
The Company transferred its rights in the Virtual Scoring Center technology to
the LLC in exchange for one-time cash payment of $250,000 and a 50% ownership
interest.  Measurement Incorporated holds the remaining 50% ownership interest.

The Company and Measurement Incorporated plan to jointly market the Virtual
Scoring Center product in the education market to educational testing companies,
private and governmental departments of education, colleges, universities and
other similar educational institutions which conduct testing, surveys or
otherwise collect and/or archive information in or for education systems or
institutions.  In addition to revenue that may be directly generated by the LLC
from Virtual Scoring Center license fees, the Company will be required to remit
royalties to the LLC for license of the Virtual Scoring Center technology
outside of the education market and Measurement Incorporated will be required to
remit royalties to the LLC for its own internal use of the Virtual Scoring
Center product.

Note 11:  Related Party Transactions

In fiscal year 2002, the Company accrued or received approximately $177,000 from
Measurement Incorporated for partial funding of the Virtual Scoring Center
software development costs.  Approximately $152,000 of that funding was applied
as an offset to capitalized software development costs and approximately $25,000
was recorded as a credit against research and development expense. Measurement
Incorporated and the Company formed, VSC Technologies, LLC, subsequent to August
31, 2002 to further develop and market the Virtual Scoring Center software (see
"Note 10").


<TABLE>
<CAPTION>


Schedule II

Valuation and Qualifying Accounts
-----------------------------------------------------------

TMS, Inc. (dba TMSSequoia)

<S>                                   <C>           <C>                    <C>
CLASSIFICATION                        BALANCE AT    ADDITIONS/REDUCTIONS       DEDUCTIONS-         BALANCE AT END OF
                                       BEGINNING        TO COSTS AND       RECOVERY/WRITE-OFF           PERIOD
                                       OF PERIOD          EXPENSES             OF ACCOUNTS
Year ended August 31, 2002:
    Allowance for doubtful          $     36,715           87,500                108,011             $   16,204
    accounts
Year ended August 31, 2001
    Allowance for doubtful          $     54,032           (5,000)                12,317             $   36,715
    accounts



</TABLE>

<PAGE>  F15

Corporate Directory

Directors
Rudy Alvarado
Doyle E. Cherry
James R. Rau, M.D.
Russell W. Teubner
Marshall C. Wicker


Officers
Deborah L. Klarfeld, President
Deborah D. Mosier, Chief Financial Officer
Marshall C. Wicker, Secretary


Stock Trading
TMSSequoia Common Stock is listed on the OTC Bulletin Board under the symbol
TMSS.

Purpose of Annual Report
The annual report provides general information to TMSSequoia shareholders.
Although it includes financial statements, it is not intended to be used to
induce any securities sale or purchase.

Investor Relations
Investor Relations
TMSSequoia
206 West 6th Avenue, P.O. Box 1358
Stillwater, OK 74076
Call 405-377-0880 or fax 405-372-9288
Email invest@tmsinc.com

Auditors
KPMG LLP
700 Oklahoma Tower
210 Park Avenue
Oklahoma City, OK  73102

Transfer Agent
UMB Bank
928 Grand Blvd.
Kansas City, MO  64106


<PAGE>  F16