U.S.SECURITIES AND EXCHANGE COMMISSION
                           Washington,  D.C. 20549


                                FORM 10-QSB


(Mark One)

[X]  Quarterly Report under Section 13 or 15(d) of the Securities Exchange 
Act of 1934
	
   For the quarterly period ended:                         November 30, 1998

[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934

	For the transition period from ____________ to ____________

                       Commission File Number  0-18250

                               TMS, Inc.
      (Exact name of small business issuer as specified in its charter)

           OKLAHOMA                                   91-1098155
(State or other jurisdiction of       (I.R.S. Employer Identification Number)
 incorporation or organization)



                         206 West Sixth Street
                         Post Office Box 1358
                      Stillwater, Oklahoma  74075
               (Address of principal executive offices)
      Issuer's telephone number, including area code: (405) 377-0880


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


State the number of shares outstanding of each of the issuer's classes of 
common equity, as of the latest practicable date:

      Title of Each Class                   Outstanding at November 30, 1998
Common stock, par value $.05 per share                    13,731,322


Transitional Small Business Disclosure Format(check one):
Yes [ ]  No [X]






PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

TMS, Inc.

Condensed Balance Sheets (unaudited)
November 30, 1998 and August 31, 1998



                                    November 30,1998       August 31, 1998*
                                    ----------------       ----------------



Cash                                 $      347,447               491,696
Trade accounts receivable, net            1,370,690             1,293,921
Contract service work in process            302,024               597,345
Other current assets                        375,070               365,050
                                     _______________       _______________
   Total current assets                   2,395,231             2,748,012
                                     ---------------       ---------------



Property and equipment                    3,025,373             3,187,407
Accumulated depreciation and
 amortization                            (1,490,763)           (1,527,528)
                                     _______________       _______________
   Net property and equipment             1,534,610             1,659,879
                                     ---------------       ---------------



Capitalized software development
 costs, net                                 468,680               620,539
Other assets                                256,518               257,153
                                     _______________       _______________
Total assets                              4,655,039             5,285,583
                                     ===============       ===============

Note payable                                      -                     -
Accounts payable                            174,021               147,844
Other current liabilities                   502,056               504,136
                                     _______________       _______________
   Total current liabilities                676,077               651,980
                                     ---------------       ---------------



Obligation under capital lease,
 net of current installments                 62,590                78,651
Long-term debt, net of current
 installments                               303,829               309,986
                                     _______________       _______________
   Total liabilities                      1,042,496             1,040,617
                                     ---------------       ---------------
Common stock                                686,565               673,305
Additional paid-in capital               11,496,081            11,476,190
Unamortized deferred compensation           (22,876)              (23,967)
Accumulated deficit                      (8,468,342)           (7,801,677)
Treasury stock                              (78,885)              (78,885)
                                     _______________       _______________
   Total shareholders' equity             3,612,543             4,244,966
                                     ---------------       ---------------
Total liabilities and
 shareholders' equity                $    4,655,039             5,285,583
                                     ===============       ===============

*Condensed from audited financial statements. 

See accompanying notes to condensed 
 financial statements.

<PAGE>   2 



TMS, Inc.

Condensed Statements of Operations (unaudited)
Three Months Ended November 30, 1998 and 1997

                                            1998                 1997
Revenue:                             ---------------       ---------------
 Licensing and royalties             $      707,355             1,155,169
 Software development services              233,103               450,764
 Document conversion services               186,858               448,211
                                     _______________       _______________
                                          1,127,316             2,054,144
                                     ---------------       ---------------
Operating costs and expenses:
 Cost of licensing and royalties            375,090               211,767
 Cost of software development services      207,114               222,052
 Cost of document conversion services       112,426               272,359
 Selling, general and administrative
  expenses                                1,024,770             1,100,415
 Restructuring costs                         70,895                     -
                                     _______________       _______________
                                          1,790,295             1,806,593
                                     ---------------       ---------------
Operating (loss) income                    (662,979)              247,551

Other (expense) income, net                  (4,641)              (11,031)
                                     _______________       _______________
(Loss) income before income taxes          (667,620)              236,520

Income tax (benefit) expense                   (955)               44,869
                                     _______________       _______________
Net (loss) income                    $     (666,665)              191,651
                                     ===============       ===============
Net (loss) income per share:
  Basic                              $        (0.05)                 0.01
  Diluted                            $        (0.05)                 0.01
                                     ===============       ===============
Weighted average shares:
  Basic                                  13,467,602            13,283,906
  Diluted                                13,467,602            13,827,123
                                     ===============       ===============
See accompanying notes to condensed 
  financial statements.

<PAGE>   3

 

TMS, Inc.

Condensed Statements of Cash Flows (unaudited)
Three Months Ended November 30, 1998 and 1997

                                            1998                 1997
                                     ---------------       ---------------
Net cash flows (used in) provided by 
 operating activities                $      (53,584)              155,663
                                     ---------------       ---------------

Cash flows from investing activities:
 Purchases of property and equipment        (37,419)             (137,962)
 Capitalized software development costs     (83,454)             (111,833)
 Proceeds from sale of equipment             17,522                     -
                                     _______________       _______________
Net cash used in investing activities      (103,351)             (249,795)
                                     ---------------       ---------------
Cash flows from financing activities:
 Repayment of long-term debt                 (5,781)               (7,181)
 Proceeds from short-term note payable            -               185,000
 Repayments of capital lease obligation     (14,684)                    -
 Issuance of common stock                    33,151                     -
                                     _______________       _______________
Net cash provided by financing
 activities                                  12,686               177,819
                                     ---------------       ---------------
Net (decrease) increase in cash            (144,249)               83,687

Cash at beginning of period                 491,696               426,174
                                     _______________       _______________
Cash at end of period                $      347,447               509,861
                                     ===============       ===============
See accompanying notes to condensed 
 financial statements.

<PAGE>   4




TMS, Inc.

Notes to Condensed Financial Statements (unaudited)

Unaudited Interim Condensed Financial Statements
------------------------------------------------
The unaudited interim condensed financial statements and related notes were 
prepared by TMS, Inc.(the Company).  Certain information and footnote 
disclosures normally included in financial statements prepared in accordance 
with generally accepted accounting principles have been condensed or omitted 
pursuant to rules and regulations established by the Securities and Exchange 
Commission (SEC).  The accompanying unaudited interim condensed financial 
statements should be read in conjunction with the audited financial 
statements and related notes included in the Company's Form 10-KSB Annual 
Report for the fiscal year ended August 31, 1998.

The unaudited interim financial statements reflect all adjustments that are, 
in the opinion of management, necessary for a fair presentation of financial 
position, results of operations and cash flows for the interim periods 
presented. Except for a restructuring charge described in the "Management's 
Discussion and Analysis of Financial Condition and Results of Operations" 
below, all adjustments are normal and recurring.   

Interim results are subject to year-end adjustments and audit by independent 
auditors.  The financial data for the interim periods may not necessarily be 
indicative of the results expected for the year.

Net (Loss) Income Per Share
----------------------------
The Company accounts for net (loss) income per share in accordance with
Statement of Financial Accounting Standards No. 128. Following is a 
reconciliation of the numerators and the denominators of the basic and 
diluted per-share computations for the current and prior year quarters ending 
November 30.
<TABLE>
<CAPTION>


                               November 30, 1998                     November 30, 1997
                               -----------------                     -----------------
                       Income       Shares      Per-Share      Income     Shares     Per-Share
                    (Numerator)  (Denominator)   Amount     (Numerator)(Denominator)  Amount
                    -------------------------------------  ------------------------------------

<S>                 <C>           <C>           <C>          <C>          <C>          <C>
Basic EPS:
 Net (loss) income  $(666,665)    13,467,602    $ (0.05)     $ 191,651    13,283,906   $ 0.01

Effect of Dilutive
 Securities:
Common stock options                         -                               543,217
                   -------------------------------------   ------------------------------------
Diluted EPS:
 Net (loss) income $ (666,665)    13,467,602    $ (0.05)     $ 191,651    13,827,123   $ 0.01
                   =====================================   ====================================
</TABLE>


Options to purchase approximately 331,000 shares of common stock at prices 
ranging from $.53-$.75 per share were outstanding during the current year 
first quarter, but were not included in the computation of diluted net loss 
per share because the options' exercise prices were greater than the average 
market price of common shares. Additionally, approximately 309,000 options to 
purchase common stock at prices ranging from $.125-$.375 were excluded from 
the computation of diluted loss per share during the current year first 
quarter, because of their anti-dilutive effect.  All options expire during 
periods through the year 2007. 

<PAGE>   5                                       



Revenue Recognition
--------------------
The Company adopted the provisions of Statement of Position (SOP) 97-2 
"Software Revenue Recognition" beginning September 1, 1998. The principle 
objectives of 97-2 are to amend certain provisions in SOP 91-1 that led to 
diversity in revenue recognition practices among software companies, and to 
address practice issues not previously covered under SOP 91-1. The most 
significant change in accounting under SOP 97-2 is the requirement to un-
bundle multiple elements in software transactions and to allocate 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.  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. The Company was not required to defer significant revenue in 
the current year first quarter in accordance with SOP 97-2. 


Item 2.  Management's Discussion and Analysis of Financial Condition and      
Results of Operations
	
                        RESULTS OF OPERATIONS

This Quarterly Report on Form 10-QSB contains forward-looking statements 
within the meaning of Section 27A of the Securities Act of 1933 and Section 
21E of the Securities Exchange Act of 1934. The Company's actual results 
could differ materially from those set forth in the forward-looking 
statements because of certain risks and uncertainties, such as those inherent 
generally in the computer software industry and the impact of competition, 
pricing, and changing market conditions. As a result, the reader is cautioned 
not to place reliance on these forward-looking statements.

Reportable Segments
-------------------
Effective September 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an 
Enterprise and Related Information" (SFAS No. 131).  SFAS No. 131 establishes 
standards for the way public business enterprises report information about 
operating segments in both annual and interim financial statements. 

The Company's reportable segments include: Tools and Utilities, End-user 
Applications, Professional Services and Document Conversion Services.  The 
tools and utilities segment develops core image viewing, image enhancement 
and forms processing software products that are necessary for developing new 
software applications or enhancing existing software applications. The 
Company's tools and utilities products are primarily licensed to developers, 
system integrators, value added resellers (VARs) and/or companies who use the 
software internally. The Company generally receives royalties for each 
workstation/system that is utilizing the product. The end-user application 
segment develops software products that may function independently from any 
other software package or may be closely associated with other software 
packages.  These products install directly on a user's system or on a server 
in a client/server environment. The end-user applications are primarily 
licensed to entities who require the capability to view and manipulate images 
through their Internet or intranet web browsers.  The professional services 
segment offers a variety of consulting and integration services for business 
and information management processes. In general, the professional service 
projects focus on an entity's need for document imaging solutions.  The 
Company charges for projects on a time and materials or fixed fee basis. The 
document conversion segment primarily offers services for electronic 
publishing of documents.  These services include indexing - for large volume 
searching of on-line information; hyperlinking - for navigating through 
complex sets of on-line information; and document markup - for electronic 
publishing of documents on CD-Rom and the Internet/intranet.  Document 
conversion also participates in a limited amount of data capture activities - 
converting paper documents to electronic forms.   

<PAGE>   6                                     



The accounting policies for the segments are the same as those described in
the "Summary of Significant Accounting Policies" in the Form 10-KSB annual 
report for the fiscal year ended August 31, 1998.  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.  The results of 
operations below include summarized operating income and loss information for 
each segment.  Financial results are measured in accordance with the manner 
in which management assesses segment performance and allocates resources.  
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. 

Following are the results of operations for each reportable segment for the 
first quarters ending November 30, 1998 and 1997.  All revenue and expenses 
are from unaffiliated sources:

Tools and Utilities
-------------------
                                          1998                   1997
                                     ---------------       ---------------
Revenue:
 Image viewing                       $      199,432               336,029
 Image enhancement                          145,094               238,594
 Forms processing                            55,366                97,148
 Other                                       82,750                82,918
                                     _______________       _______________
   Total revenue                            482,642               754,689

Cost of revenue                             124,523               125,445
                                     _______________       _______________
   Gross profit                             358,119               629,244

Selling and marketing expense               108,099               144,934
General and administrative 
 expense                                     82,846               143,993
                                     _______________       _______________
   Operating income                  $      167,174               340,317
                                     ===============       ===============

Fiscal 1999 first quarter revenue for tools and utilities (TU) was $482,642 
compared to $754,689 for the same period last year, a decrease of $272,047 or 
36%. Image viewing products (e.g. ViewDirector) accounted for approximately 
50% of the total decline in TU revenue.  The decline in image viewing 
products is almost entirely due to a decline in the number of units 
reported/purchased from royalty bearing customers.  The Company believes that 
the population of image viewing royalty customers has remained fairly stable, 
but the number of units utilized by customers has declined.  As reported in 
the Form 10-KSB for the fiscal year ending August 31, 1998, the Company 
believes that image viewing royalties will be lower throughout fiscal 1999 as 
compared to fiscal 1998 because of the commoditization of the market and the 
Company's emphasis on developing and marketing more end-user application 
oriented products.  Image enhancement products (e.g. ScanFix) accounted for 
approximately 34% of the decline in total TU revenue.  The decline in image 
enhancement revenue is a result of several factors.  Revenue from the 
Company's ScanFix for Omnipage product declined approximately 50% from the 
same period last year.  Early in the Company's prior year first quarter, 
Caere Corporation, a leader in optical character recognition (OCR) 
technology, released its Omnipage product and through a co-marketing 
arrangement with Caere, the Company was able to promote and sell its ScanFix 
for Omnipage product.  A newly released version of Caere's Omnipage and 
ScanFix for Omnipage was released late in the first quarter of the current 
fiscal year. The remaining decline in image enhancement products is due to 
fewer direct sales as compared to last year.  The Company believes that 
inadequate promotion of the image enhancement product line is the primary 
reason for the decline in direct sales revenue and is currently in the 
process of developing and implementing a strategy for better promotion and 
penetration of more indirect sales channels such as VAR, original equipment 
manufacturer (OEM) and co-marketing arrangements. The remaining 16% decline 
in TU revenue resulted from lower direct sales of forms processing tools 
(e.g. FormFix).  The Company's primary direct sales person for forms 
processing technology left the Company early in the current year first 
quarter which had an impact on overall direct sales for the current quarter.  
The Company is in the process of training other direct sales employees to 
better sell this complex tool, but believes that the most significant 
potential revenue source for forms processing tools will come from leveraging 
the technology as part of complete solutions that the Company's professional 
service segment is developing and/or partnering with other organizations that 
offer more complete forms processing solutions. 

<PAGE>   7                                      



Gross profit margins for TU were 74% and 83% for the quarters ending November
30, 1998 and 1997, respectively.  Net operating profit margins were 35% and 
45% for the same two periods, respectively.  The decline in margins is a 
result of lower revenue.  Selling and marketing expense declined by 
approximately 25% from the prior year first quarter because of two fewer 
salespeople in the current quarter and more marketing dollars being allocated 
to the end-user application segment.  The 42% decline in general and 
administrative costs resulted from a re-allocation of management attention 
and related costs to other segments, and a $25,000 credit to re-allocate bad 
debt expense to the document conversion segment for a specific write-off of a 
customer account.   

End-user Applications
---------------------
                                          1998                   1997
                                     ---------------       ---------------
Revenue:
 Internet/intranet                   $      196,585               365,189
 Image management                            14,151                 6,091
 Other                                       13,977                29,200
                                     _______________       _______________
   Total revenue                            224,713               400,480

Cost of revenue                             250,567                86,322
                                     _______________       _______________
   Gross (loss) profit                      (25,854)              314,158

Selling and marketing expense               177,841               159,393
General and administrative 
 expense                                    155,798               144,318
                                     _______________       _______________
   Operating (loss) income           $     (359,493)               10,447
                                     ===============       ===============
Fiscal 1999 first quarter revenue for end-user applications (EUA) was 
$224,713 compared to $400,480 for the same period last year, a decrease of 
$175,767 or 44%.  Approximately 50% of the prior first quarter revenue was 
attributable to a multiple licensing arrangement of Internet/intranet 
products (e.g. Prizm Plug-in) to a single customer.  No one customer 
accounted for greater than 10% of the EUA segment's revenue during the 
current year first quarter.  Revenue from Internet/intranet products was 
lower than expected primarily because of delays in releasing the next 
generation Prizm product - Prizm Image Server (Prizm IS).  The Prizm IS 
expands the Company's Prizm Plug-in technology by offering a client/server 
alternative and multi-platform Java technology.  Prizm IS was originally 
scheduled to be released late in the Company's prior year fourth quarter.  
Final release did not occur until mid-way through the current first quarter, 
and because of the customer cycle time associated with evaluating this 
server-based technology, Prizm IS did not have much impact on first quarter 
results. 

<PAGE>   8                                     



Fiscal 1999 first quarter cost of revenue includes a non-recurring charge of
approximately $111,000 to write-down the remaining unamortized development 
costs for Scan 'n' Store (SNS).  During the second half of December 1998, the 
Company decided to eliminate SNS as a separate product for sale because 
financial returns from the product are not expected to be enough to warrant 
the Company allocating additional promotion, development, and technical 
support resources that would be required to enhance its market viability. The 
Company believes that because of certain competitive strengths, devoting the 
majority of its resources on expanding Internet/intranet products, image and 
forms processing technologies and custom software development solutions, will 
result in better financial returns than SNS.   In conjunction with the 
elimination of SNS, the Company anticipates that it will incur another 
$30,000 to $40,000 in non-recurring costs during the second quarter for 
employee severance, closing down a remote sales office, and contractual 
technical support obligations with VARs who have already purchased the 
product.     

During the first quarter fiscal 1999, selling and marketing and general and 
administrative expenses increased 12% and 8%, respectively, over the same 
period last year. Increased promotion of the new products (SNS and Prizm IS), 
as well as the Company's intention to shift more from a tools product 
business to an application oriented products business required more marketing 
and management attention and thus increased costs. 
 
Professional Services
---------------------
                                          1998                   1997
                                     ---------------       ---------------
Revenue:
 Software development services              233,103               450,764

Cost of revenue                             207,114               222,052
                                     _______________       _______________
   Gross profit                              25,989               228,712

Selling and marketing expense                71,610                93,491
General and administrative 
 expense                                     93,069                95,104
                                     _______________       _______________
 Operating (loss) income             $     (138,690)               40,117
                                     ===============       ===============

Professional services (PS) revenue was $233,103 and $450,764 at November 30, 
1998 and 1997, respectively, a decrease of $217,661, or 48%.  Approximately 
56% of the current first quarter revenue came from one customer contract and 
approximately 64% of the prior year first quarter revenue came from another 
customer contract.  Even though there was a significant level of dependence 
on certain contracts in both quarters, during the prior year first quarter 
the PS segment had accumulated its revenue backlog at a level that was 
commensurate with direct labor capacity; whereas, the PS segment was still in 
the process of building revenue backlog during the current year first 
quarter.  As of November 30, 1998, the PS segment had a revenue backlog of 
approximately $1,000,000.  This backlog is more in line with the direct labor 
capacity that is projected to be available through the middle of the 
Company's third quarter. In addition to the revenue shortfall,  gross profit 
and operating margins were negatively impacted by unanticipated overruns in 
the Oklahoma County project.  The Oklahoma county project was the predominant 
source of revenue throughout fiscal 1998.  The Company estimates that this 
overrun cost the PS segment approximately $40,000 during the current year 
first quarter.   Gross profit and operating margins were 11% and (60%), 
respectively, for the quarter ended November 30, 1998, and 51% and 9%, 
respectively, for the quarter ended November 30, 1997.  

<PAGE>   9
                                      


Document Conversion
-------------------
                                          1998                   1997
                                     ---------------       ---------------
Revenue:
 Data capture                        $       50,900               355,420
 Electronic publishing                      135,958                92,791
                                     _______________       _______________
   Total revenue                            186,858               448,211

Cost of revenue                             112,426               272,359
                                     _______________       _______________
   Gross profit                              74,432               175,852

Selling and marketing expense                18,732                50,510
General and administrative 
 expense                                    154,038                88,850
Restructuring costs                          70,895                     -
                                     _______________       _______________
   Operating (loss) income           $     (169,233)               36,492
                                     ===============       ===============

Revenue from document conversion (DC) was $186,858 and $448,211 for the 
quarters eneded November 30, 1998 and 1997, respectively, a $261,353, or 58% 
decrease. Approximately 41% of revenue in the current year first quarter came 
from one customer and approximately 55% of revenue in the prior year first 
quarter came from another customer. The most significant portion of business 
development and contract conversion work in the prior year first quarter 
focused on large back-file conversion of documents for imaging and database 
management.  This revenue is classified as "Data capture" in the above table. 
Because of the low margins and competitive nature of back-file jobs that 
became evident throughout the prior fiscal year, the Company made a decision 
in late May 1998, to discontinue pursuit of large back-file conversion/data 
capture activities and focus its efforts on electronic publishing of 
documents.  Electronic publishing has traditionally resulted in higher 
margins for the Company and is more in line with the Company's core 
competencies.  In late October of the current quarter, the Company decided to 
restructure DC operations and only continue to support customer relationships 
which primarily relate to electronic publishing activities and for which 
there are contractual obligations.   Many of these customers are using 
technology that is unique to the Company which thus makes the Company a sole 
source provider. The Company's longer-term objective is to sell these 
customer contracts and other assets to a third-party and/or gain better 
internal efficiencies by more closely integrating document conversion 
activities as a true support function for the document management and imaging 
projects that are being contracted through the PS segment.  The restructuring 
charge of $70,895 for the first quarter includes approximately $53,000 of 
equipment write-downs, $15,000 of employee severance costs, and $3,000 for 
closing down the leased DC facility.  All remaining DC Employees were 
relocated to the Company's headquarters building. In addition to the non-
recurring restructuring charge, general and administrative expense includes a 
$55,000 non-recurring write-off of a portion of a customer account, of which 
$25,000 was an internal reallocation of bad debt expense from the TU segment.  

Total Company Operating Results
--------------------------------
Following is a report of total company revenue and a reconciliation of 
reportable segments' operating (loss) income to the Company's total net 
(loss) income for the quarters ended November 30, 1998 and 1997.  

                                          1998                   1997
                                     ---------------       ---------------
Total company revenue                $    1,127,316             2,054,144
                                     ===============       ===============
Operating (loss) income for
 reportable segments                 $     (500,242)              427,373
Unallocated corporate expenses              162,737               179,822
Interest Income                              (3,204)               (2,820)
Interest expense                              8,644                10,217
Other, net                                     (799)                3,634
Income tax (benefit) expense                   (955)               44,869
                                     _______________       _______________
     Net (loss) income               $     (666,665)              191,651
                                     ===============       ===============
(Loss) income per share:
  Basic                              $        (0.05)                 0.01
  Diluted                                     (0.05)                 0.01
                                     ===============       ===============

<PAGE>  10                                      



Total revenue for the first quarter of fiscal 1999 was $1,127,316 compared to
$2,054,144 for the same quarter of fiscal 1998, a decrease of $926,828 or 
45%. Net loss for the first quarter of fiscal 1999 was $666,665 or $.05 per 
share (basic and diluted), compared to net income of $191,651, or $.01 per 
share (basic and diluted), for the first quarter of fiscal 1998.  Income tax 
benefit of $253,696 for the first quarter of fiscal 1999 was offset by a 
corresponding increase to the valuation allowance for deferred tax assets.  
The $955 benefit recorded for the current quarter is for a prior year tax 
refund received during the current year first quarter.  Income tax expense of 
$89,878 for the first quarter of fiscal 1998 was offset by a decrease of 
approximately $45,000 to the valuation allowance for deferred tax assets. The 
Company assesses the realizability of deferred tax assets at least quarterly, 
and adjusts the valuation allowance to reflect the future benefits that will 
more likely than not be realized from those deferred tax assets. 

The net loss of $666,665 reported for the first quarter of fiscal 1999, is 
primarily the result of the revenue shortfalls described above in the 
individual reportable segment discussions combined with an approximate 
$111,000 write-off for the elimination of SNS and $71,000 of DC segment 
restructuring costs. The revenue decline for the DC segment was expected, and 
related decreases in recurring operating expenses were also achieved during 
the current quarter.  In addition to the DC segment restructuring charge, the 
Company implemented other actions to help reduce costs on a going forward 
basis.  These actions included additional reductions to the Company's 
workforce, a senior management pay reduction, and elimination of other in 
process product development projects that are not expected to result in 
significant returns on investments and/or are not core to on-going 
operations.  The Company also incurred costs of approximately $30,000 during 
the current first quarter in an effort to acquire certain intellectual 
properties that would provide more complete end-user solutions to entities 
requiring high volume forms processing.  The Company was unsuccessful in a 
competitive bidding process to acquire those assets, but plans to pursue 
other opportunities that might strengthen the Company's  Internet/intranet 
imaging, image and forms processing and custom software development services 
offerings.  

As discussed in the "Management's Discussion and Analysis of Financial 
Condition and Results of Operations" in the Company's Form 10-KSB for the 
fiscal year ended August 31, 1998, uncertainty exists about collection of one 
significant VAR customer account.  Effective October 1, 1998, a security 
agreement went into effect whereby the VAR is required to make monthly 
payments to the Company equal to 100% of the revenue that the VAR generates 
from distribution of products that contain the Company's technology.   
Subsequent to the end of the fiscal year 1998, the Company has collected 
approximately $31,000 from the VAR pursuant to the security agreement and has 
deferred approximately $8,000 in revenue from this VAR for new royalties 
reported.  The current uncollected balance from this VAR is approximately 
$280,000.  Based on the historical trends of the VAR product distributions, 
the Company anticipates that the uncollected balance will be paid in full 
within one year. However, because of the uncertainty that exists about the 
VAR's ability to pay, the Company continues to maintain a specific bad debt 
reserve against a portion of this account. If the VAR does not adhere to 
security agreement or revenue from VAR Product distributions is significantly 
lower than historical trends, the Company may be required to make additional 
adjustments to its bad debt reserve in future quarters.    

<PAGE>  11
                                      


Impact of Year 2000 Issue
-------------------------
The Company is addressing the need to ensure that its operations will not be 
adversely impacted by software or other system failures related to year 2000 
(Y2K). The Company has formed an oversight committee and has developed a plan 
to coordinate the identification, evaluation and implementation of any 
necessary changes to internal computer systems, applications and business 
processes. As of December 31, 1998, the Y2K committee had identified and 
prioritized the Company's systems that could  potentially be impacted by Y2K. 
The Company is currently in the process of  determining Y2K readiness for all 
identified systems and expects to have substantial completion by the end of 
February of 1999. The Y2K committee is undertaking three primary steps to
validate systems readiness: (1) obtaining a vendor readiness statement,
(2) internal testing, and (3) third-party validation through an authorized
organization that has already tested the systems. The Company plans to perform
the procedures described in steps (1) and (2) for all systems that are not
already validated through a third-party authorized organization. Prior to the
end of February, the Company plans to have a detailed schedule of events that
will be required to correct Y2K problems, if any. This schedule will include a
list of identified problems, prioritization of the problems, and identified
solutions. In March 1999, the Company will begin implementing solutions for
any systems identified to have a Y2K problem. This phase will include applying
solutions, verifying that solutions make the system(s) Y2K ready, and
developing a contingency plan for any critical system that is not deemed Y2K
compliant. The Company plans to have completed all Y2K readiness and
contingency planning by September 1, 1999. The Company anticipates that the
Y2K processes discussed above will be performed utilizing existing employees.
The Company does not track the internal costs incurred for the Y2K project
since such costs are principally related to the payroll costs for its
employees. Accordingly, the Company has not incurred any material incremental
costs and has not identified any incremental future costs associated with Y2K
activities. Upon completion of the systems readiness phase in February, the
Company will evaluate whether incremental costs will need to be incurred for
systems that are critical to the organization and not deemed to be Y2K
compliant. The Company has not identified the most reasonably likely worst
case scenario in the event the Company does not obtain Y2K readiness. This
will be performed during contingency planning.

No assurances can be given that the Company will be able to completely
identify or address all year 2000 compliance issues, or that third parties
with whom the Company does business will not experience system failures as a
result of the year 2000 issue, nor can the Company fully predict the
consequences of noncompliance.

The Company has reviewed all of its software products for sale and determined
them to be year 2000 compliant and accordingly, does not believe it will be
adversely impacted by year 2000 issues as it relates to its own products for
sale.

                              FINANCIAL CONDITION

Working capital, at November 30, 1998 was $1,719,154 with a current ratio of  
3.5:1 compared to $2,096,032 with a current  ratio of 4.2:1, at August 31, 
1998. Net cash used in operations for the three months ended November 30, 
1998 was $53,584 compared to net cash provided by operations of $155,663 for 
the same period last year. The current quarter operating loss was the primary 
reason for negative operating cash flow as compared the same period last 
year. Net cash used in investing activities for the first three months of 
fiscal 1999 was $103,351 compared to $249,795 for the same period in fiscal 
1998. The decrease in investing activities primarily relates to additional 
equipment needed to meet requirements under document conversion service 
contracts in the prior year first quarter.

During the quarter ended November 30, 1997, the Company borrowed $185,000 
against its $800,000 line of credit for general operating purposes. This 
resulted in a balance of $263,000 outstanding against the line of credit at 
November 30, 1997. The Company also entered into a $100,000 capital lease 
obligation to obtain the scanners needed to meet requirements under document 
conversion contracts. No borrowings were required during the quarter ended 
November 30, 1998, and $800,000 remains available under the operating line of 
credit. 

<PAGE>  12                                       



During the current year first quarter and beginning of the second quarter,
the Company took significant action to reduce its operating cost structure on 
a going-forward basis.  Specific actions included a headcount reduction of 
20, the closing down of three offices and elimination of products/services 
that were not expected to produce significant financial returns for the 
Company.  These changes are expected to have a positive impact on operating 
cash flow and accordingly, the Company believes that operating cash flow and 
the $800,000 operating line of credit will be adequate to meet its current 
obligations and current operating and capital requirements. The funding of 
long-term needs is dependent upon increased revenue and profitability and 
obtaining funds through outside debt and equity sources. The funding for 
long-term needs includes funding for increased product development, for 
expanded marketing and promotion of the Company and its products, and for 
potential merger/acquisition activities. 


PART II - OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K

Reports on Form 8-K

None



Exhibits

Exhibit No.     Name of Exhibit

        27	Financial Data Schedule as of and for the three month period 
                ending November 30, 1998.  


SIGNATURES
	

In accordance with the requirements of the Exchange Act, the registrant 
caused the report to be signed on its behalf by the undersigned, thereunto 
duly authorized.  


TMS, Inc.


Date: January 14, 1999           /s/ Dana R. Allen
      ----------------           -----------------------
                                 Dana R. Allen
                                 Chief Executive Officer

Date: January 14, 1999          /s/ Deborah D. Mosier
      ----------------          ------------------------
                                 Deborah D. Mosier                              
                                 Chief Financial Officer


<PAGE>  13