content: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      Form 10-Q
  
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
  Act of 1934 for the  quarterly  period  ended March 31,  1998 or [ ]  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              0-20405
  
                                  IOS CAPITAL, INC.
               (Exact name of registrant as specified in its charter)
  
             DELAWARE                                        23-2493042
  (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                           Identification No.)
  
                        1738 Bass Road, Macon, Georgia 31210
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                   (912) 471-2300
                (Registrant's telephone number, including area code)
  
  
                                        NONE
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days.
  
  Yes   X   No ____
  
  *  Applicable  only to issuers  involved in  bankruptcy  proceedings  during the
  preceding five years:
  
  Indicate  by check mark  whether  the  registrant  has filed all  documents  and
  reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
  Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
  confirmed by a court.
  
  Yes ____  No ____
  
  * Applicable only to corporate issuers:
  
  Indicate the number of shares  outstanding  of each of the  issuer's  classes of
  common stock, as of April 30, 1998.
  
  Common Stock, $.01 par value per share                        1,000 shares
  Registered Debt Outstanding as of April 30, 1998             $1,710,750,000
  
  The registrant,  an indirect wholly owned  subsidiary of IKON Office  Solutions,
  Inc. ("IKON"), meets the conditions set forth in General Instruction H(1)(a) and
  (b) of Form 10-Q and is,  therefore,  filing with the reduced  disclosure format
  contemplated thereby.
  
  <PAGE>
                                        INDEX
  
                                  IOS CAPITAL, INC.
  
  
  PART I.  FINANCIAL INFORMATION
  
  
        Item 1.              Financial Statements (Unaudited)
  
                             Balance Sheets--March 31, 1998 and
                                 September 30, 1997
  
                             Statements of Income--Three and six months ended
                             March 31, 1998 and March 31, 1997
  
                             Statements of Cash Flows--Six months ended
                             March 31, 1998 and March 31, 1997
  
                             Notes to Financial Statements--March 31, 1998
  
  
        Item 2.              Management's Discussion and Analysis of
                             Financial Condition and Results of Operations
  
  
  PART II.  OTHER INFORMATION
  
  
        Item 6.              Exhibits and Reports on Form 8-K
  
  
  
  SIGNATURES
  
  
  
  <PAGE>
                           PART I . FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                                  IOS Capital, Inc.
                                   BALANCE SHEETS
                 (in thousands, except share and per share amounts)
  
  <TABLE>
  <CAPTION>
  <S>                                                          <C>                   <C>       
                                                               March 31,           September 30,
                                                                 1998                   1997
  Assets
  
  Investment in leases:
       Direct financing leases                                 $1,848,712            $1,640,559
       Less: Unearned income                                     (320,102)             (286,769)
                                                        ------------------     -----------------
                                                                1,528,610             1,353,790
       Funded leases, net                                         555,952               485,658
                                                        ------------------     -----------------
                                                                2,084,562             1,839,448
  
  Cash                                                                805
  Accounts receivable                                              57,502                55,589
  Due  from  IKON Office Solutions                                                        4,463
  Prepaid expenses and other assets                                12,641                13,436
  Leased equipment-operating rentals at cost
       less accumulated depreciation of:
       3/98 - $37,222;     9/97 - $ 33,598                         63,742                50,945
  Property and equipment at cost, less
       accumulated depreciation of:
       3/98 - $4,632;   9/97 - $ 3,771                             11,439                12,330
  
                                                        ==================     =================
  Total assets                                                 $2,230,691            $1,976,211
                                                        ==================     =================
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses                      $48,979               $51,018
       Accrued interest                                            33,832                27,785
       Due to IKON Office Solutions                                 1,891
       Notes payable to banks                                      25,000                25,000
       Medium term notes                                        1,735,750             1,542,250
       Deferred income taxes                                       84,965                64,177
                                                        ------------------     -----------------
  Total liabilities                                             1,930,417             1,710,230
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                        149,415               144,415
       Retained earnings                                          150,859               121,566
                                                        ------------------     -----------------
  Total shareholder's equity                                      300,274               265,981
                                                        ==================     =================
  Total liabilities and shareholder's equity                   $2,230,691            $1,976,211
                                                        ==================     =================
  </TABLE>
  
  See notes to financial statements.
  
  <PAGE>
  
                                  IOS Capital, Inc.
                                STATEMENTS OF INCOME
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
  <S>                                                             <C>               <C>                   <C>                 <C>    
                                                                   Three Months Ended                         Six Months Ended
                                                                         March 31                                  March 31
                                                            --------------------------------          --------------------------------
                                                                  1998               1997                   1998               1997
                                                            --------------      ------------          -------------      -------------
  Revenues:
      Lease finance income                                        $54,787           $40,657               $106,266            $77,557
      Rental income                                                 9,098             5,136                 18,149              9,928
      Interest on IKON tax deferrals                                3,844             2,888                  7,505              5,624
      Other income                                                  3,130             2,097                  5,365              3,831
                                                            --------------      ------------          -------------      ------------
                                                                   70,859            50,778                137,285             96,940
  
  Expenses:
      Interest                                                     27,208            19,602                 53,073             37,228
      General and administrative                                   17,972            15,113                 35,743             28,072
                                                            --------------      ------------          -------------      ------------
                                                                   45,180            34,715                 88,816             65,300
  
  Gain on sale of lease receivables                                   617               664                  1,181              1,277
                                                            --------------      ------------          -------------      ------------
  
  Income before income taxes                                       26,296            16,727                 49,650             32,917
  
  Provision for income taxes                                       10,782             6,858                 20,357             13,496
                                                            --------------      ------------          -------------      ------------
  
  Net income                                                      $15,514            $9,869                $29,293            $19,421
                                                            ==============      ============          =============      ============
  </TABLE>
  
  See notes to financial statements.
  
  <PAGE>
  
                                  IOS Capital, Inc.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
  <S>                                                                            <C>              <C>    
                                                                                   Six Months Ended
                                                                                       March 31,
                                                                            ------------------------------
                                                                                 1998             1997
                                                                            -------------    -------------
  Operating activities:
  Net income                                                                     $29,293          $19,421
  Adjustments to reconcile net income to net
       cash provided by operating activities
          Depreciation and amortization                                           16,221            7,872
          Provision for deferred taxes                                            20,788           13,900
          Gain on sale of lease receivables                                       (1,181)          (1,277)
          Changes in operating assets and liabilities:
              Accounts receivable                                                 (1,913)          (4,842)
              Prepaid expenses and other assets                                    1,976            4,586
              Accounts payable and accrued expenses                               (2,039)            (640)
              Accrued interest                                                     6,047            2,338
                                                                            -------------    -------------
                                Net cash provided                                 69,192           41,358
                                                                            -------------    -------------
  
  Investing activities:
  Purchases of leased equipment, net                                             (28,142)         (16,447)
  Purchases of property and equipment, net                                            15           (3,082)
  Direct financing leases:
       Additions                                                                (631,051)        (619,015)
       Cancellations                                                             123,443           87,839
       Collections                                                               280,517          225,802
       Proceeds from sale                                                         52,271           51,407
  Funded leases:
       Additions                                                                (210,120)        (187,360)
       Cancellations                                                              41,103           26,587
       Collections                                                                98,723           78,111
                                                                            -------------    -------------
                                Net cash used                                   (273,241)        (356,158)
                                                                            -------------    -------------
  
  Financing activities:
  Payments on bank borrowings                                                          0          (33,000)
  Proceeds from issuance of medium term notes                                    348,500          385,500
  Payments on medium term notes                                                 (155,000)         (43,000)
  Capital contributed by IKON                                                      5,000           19,000
                                                                            -------------    -------------
                                Net cash provided                                198,500          328,500
                                                                            -------------    -------------
  
  (Increase) decrease in cash and amounts due to IKON                             (5,549)          13,700
  Due from (to) IKON at beginning of year                                          4,463          (24,330)
                                                                            =============    =============
  Cash and due to IKON at end of period                                          ($1,086)        ($10,630)
                                                                            =============    =============
  </TABLE>
  
  See notes to financial statements.
  
  <PAGE>
                                  IOS Capital, Inc.
                            Notes to Financial Statements
                                   March 31, 1998
  
  
  Note 1:    Basis of Presentation
  
             The accompanying  unaudited condensed financial  statements have been
  prepared in accordance with generally accepted accounting principles for interim
  financial  information  and the  instructions  to Form  10-Q and  Rule  10-01 of
  Regulation  S-X. In the opinion of management,  all  adjustments  (consisting of
  normal recurring  accruals)  considered  necessary for a fair  presentation have
  been included.  For further  information,  refer to the financial statements and
  footnotes  thereto  included in the Company's annual report on Form 10-K for the
  year ended September 30, 1997.
  
  
  Note 2:    Medium Term Note Program
  
             During the six months ended March 31, 1998, IOS Capital issued $348.5
  million under its medium term note program.  At March 31, 1998, $1,735.8 million
  of medium term notes were  outstanding  with a weighted average interest rate of
  6.5%.  The  remaining  amount  available  under this  registration  statement is
  $1,298.2 million.
  
  
  Note 3:    Asset Securitization
  
             IOS Capital has asset  securitization  agreements for $275 million of
  eligible direct financing  receivables that expire September 1998 ($150 million)
  and March 1999 ($125  million).  Both of these  agreements  are  expected  to be
  renewed.  Under  these  agreements,  the  Company  sold $52.3  million in direct
  financing  leases during the first six months of fiscal 1998,  replacing  leases
  which had been  liquidated  during the period and  recognized  a pretax  gain of
  approximately $1.2 million. Under the terms of the sales agreements, the Company
  will continue to service the lease portfolio.
  
  
  Note 4:    Name Change
  
             On January 22, 1998, the Company changed its name from IKON Capital,
  Inc. to IOS Capital, Inc.
  
  <PAGE>
  Item 2: Management's  Discussion and Analysis of Financial Condition and Results
  of Operations
  
  Pursuant to General Instruction H(2) (a) of Form 10-Q, the following analysis of
  the results of operations is presented in lieu of  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
  
                     Three Months Ended March 31, 1998 Compared
                     with the Three Months Ended March 31, 1997
  
  Comparative  summarized  results of operations  for the three months ended March
  31,  1998 and 1997 are set forth in the table  below.  This table also shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  <TABLE>
  <CAPTION>
  <S>                                                    <C>               <C>             <C>             <C>  
                                                             Three Months
  (dollars in thousands)                                    Ended March 31                       Increase
                                                         1998               1997          Amount           Percent
  Revenues:
       Lease finance income                              $54,787           $40,657         $14,130         34.8%
       Rental income                                       9,098             5,136           3,962         77.1%
       Interest on IKON tax deferrals                      3,844             2,888             956         33.1%
       Other income                                        3,130             2,097           1,033         49.3%
                                                      ----------        ----------      ----------        
                                                          70,859            50,778          20,081         39.5%
  
  Expenses:
       Interest                                           27,208            19,602           7,606         38.8%
       General and administrative                         17,972            15,113           2,859         18.9%
                                                      ----------        ----------      ----------        
                                                          45,180            34,715          10,465         30.1%
  
  Gain on sale of lease receivables                          617               664             (47)        (7.1)%
                                                      ----------        ----------      ----------        
  
  Income before income taxes                              26,296            16,727           9,569         57.2%
  Provision for income taxes                              10,782             6,858           3,924         57.2%
                                                      ----------        ----------      ----------        
  Net income                                          $   15,514        $    9,869      $    5,645         57.2%
                                                      ==========        ==========      ==========        
  </TABLE>
  
  Revenues
  
  Total revenues  increased $20.1 million or 39.5% in the second quarter of fiscal
  1998 compared to the second quarter of fiscal 1997. Approximately 70.4% or $14.1
  million of this  increase in revenues  was a result of increased  lease  finance
  income due to continued  growth in the portfolio of direct  financing and funded
  leases.  The lease portfolio,  net of lease  receivables that were sold in asset
  securitization  transactions,  increased 31.3 % from March 31, 1997 to March 31,
  1998.
  
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable terms, may be purchased by the Company. During the second quarters of
  fiscal 1998 and 1997, IOS Capital  purchased  operating  lease equipment of $9.4
  million  and $9.6  million,  respectively.  Operating  leases  contributed  $9.1
  million in rental income during the second  quarter of fiscal 1998,  compared to
  $5.1 million in the second quarter of fiscal 1997.
  <PAGE>
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  marketplaces  associated  with  leases  funded  through  the  Company  at a rate
  consistent  with  the  Company's  weighted  average  outside  borrowing  rate of
  interest.  The Company's  average rate was 6.5% for the second quarter of fiscal
  1998 and 6.8% for the second  quarter of fiscal 1997. In addition,  the deferred
  tax base upon which these  payments  are  calculated  increased  31.7% to $244.3
  million at March 31, 1998 from $185.5 million at March 31, 1997.  Primarily as a
  result of the increased  deferred tax  liabilities,  interest income on deferred
  taxes rose  $956,000 or 33.1% when  comparing  the three  months ended March 31,
  1998 to the three months ended March 31, 1997.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1997.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these  sources grew by $1.0  million or 49.3%,  when  comparing  the second
  quarter of fiscal 1998 to the same period of fiscal 1997.
  
  Expenses
  
  Average  borrowings  to finance  the lease  portfolio  in the form of loans from
  banks and the  issuance of medium term notes in the public  market  increased by
  31.7% from March 31, 1997, to $1,760.8  million  outstanding  at March 31, 1998.
  The Company paid a weighted  average interest rate on all borrowings of 6.5% for
  the  second  quarter of fiscal  1998 and 6.8% for the  second  quarter of fiscal
  1997. Primarily as a result of the increased  borrowings,  interest expense grew
  by $7.6 million or 38.8%,  when  comparing the second  quarter of fiscal 1998 to
  the second  quarter of fiscal 1997.  At March 31, 1998,  the  Company's  debt to
  equity ratio, including intercompany amounts due to IKON was 5.9 to 1.
  
  Total general and  administrative  expenses for the quarter ended March 31, 1998
  increased by $2.9 million or 18.9%,  over the quarter ended March 31, 1997.  The
  general and administrative expense category in the second quarter of fiscal 1998
  includes  depreciation  expense  on  leased  equipment  totaling  $7.7  million,
  compared to $3.7 million for the second quarter of fiscal 1997. In addition, the
  general  and  administrative  expense  category  includes  lease  bonus  subsidy
  payments to either IKON or directly to the IKON marketplaces, based on the level
  of dealer  participation in the Company's leasing programs or for the funding of
  targeted new lease volume. During the second quarter of fiscal 1998, lease bonus
  subsidy payments totaled $3.8 million compared to $3.5 million during the second
  quarter of fiscal 1997. Excluding the effects of increased  depreciation expense
  on operating  leases and lease bonus  subsidy  payments,  remaining  general and
  administrative  expenses  decreased by $1.5 million or 18.5% compared to general
  and administrative  expenses in the second quarter of fiscal 1997. This decrease
  is due to recent cost controls initiated within the Company.
  
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $275  million of eligible
  direct financing lease receivables that expire September 1998 ($150 million) and
  March 1999 ($125 million).  Both of these agreements are expected to be renewed.
  As collections  reduce  previously sold interests,  new leases can be sold up to
  the agreement amount. During the three months ended March 31, 1998,  collections
  reduced  previously sold interests by  approximately  $26.5 million on these two
  agreements.  The Company sold an additional $26.5 million in net eligible direct
  financing  leases during the three months of fiscal 1998 and  recognized  pretax
  gains of $617,000.
  
  <PAGE>
  Income Before Income Taxes
  
  Income  before income taxes for the second  quarter of fiscal 1998  increased by
  $9.6 million or 57.2% over the second  quarter of fiscal 1997.  This increase in
  income before income taxes was  essentially the effect of higher earnings due to
  a larger  lease  portfolio  base,  net of increased  general and  administrative
  expenses,  partially  offset by higher  borrowing costs resulting from increased
  debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the second  quarter of fiscal 1998 increased by $3.9 million or
  57.2% over the second  quarter of fiscal 1997.  This increase in income taxes is
  directly  attributable  to the  increase  in income  before  taxes in the second
  quarter of fiscal  1998  compared  to the second  quarter  of fiscal  1997.  The
  effective tax rate was 41% for both the second quarter of fiscal 1998 and 1997.
  
  
                      Six Months Ended March 31, 1998 Compared
                      with the Six Months Ended March 31, 1997
  
  Comparative  summarized results of operations for the six months ended March 31,
  1998 and 1997 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  <TABLE>
  <CAPTION>
  <S>                                                   <C>                <C>             <C>             <C>  
                                                               Six Months
  (dollars in thousands)                                    Ended March 31                       Increase
                                                         1998               1997            Amount       Percent
  Revenues:
       Lease finance income                             $106,266           $77,557         $28,709         37.0%
       Rental income                                      18,149             9,928           8,221         82.8%
       Interest on IKON tax deferrals                      7,505             5,624           1,881         33.4%
       Other income                                        5,365             3,831           1,534         40.0%
                                                      ----------          --------       ---------    
                                                         137,285            96,940          40,345         41.6%
  
  Expenses:
       Interest                                           53,073            37,228          15,845         42.6%
       General and administrative                         35,743            28,072           7,671         27.3%
                                                      ----------          --------       ---------    
                                                          88,816            65,300          23,516         36.0%
  
  Gain on sale of lease receivables                        1,181             1,277             (96)        (7.5)%
                                                      ----------          --------       ---------    
  
  Income before income taxes                              49,650            32,917          16,733         50.8%
  Provision for income taxes                              20,357            13,496           6,861         50.8%
                                                      ----------          --------       ---------    
  Net income                                          $   29,293          $ 19,421       $   9,872         50.8%
                                                      ==========          ========       =========    
  </TABLE>
  
  Revenues
  
  Total  revenues  increased  $40.3  million  or 41.6% in the first six  months of
  fiscal 1998 compared to the first six months of fiscal 1997. Approximately 71.2%
  or $28.7  million of this  increase in revenues was a result of increased  lease
  finance income due to continued  growth in the portfolio of direct financing and
  funded leases.  The lease portfolio,  net of lease receivables that were sold in
  asset securitization transactions, increased 31.3 % from March 31, 1997 to March
  31, 1998.
  
  <PAGE>
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable  terms, may be purchased by the Company.  During the first six months
  of fiscal 1998 and 1997,  IOS Capital  purchased  operating  lease  equipment of
  $28.1 million and $16.4  million,  respectively.  Operating  leases  contributed
  $18.1  million in rental  income  during  the first six  months of fiscal  1998,
  compared to $9.9 million in the first six months of fiscal 1997.
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  marketplaces  associated  with  leases  funded  through  the  Company  at a rate
  consistent  with  the  Company's  weighted  average  outside  borrowing  rate of
  interest. The Company's average rate was 6.6% for the first six months of fiscal
  1998 and 6.8% for the first six months  fiscal 1997.  In addition,  the deferred
  tax base upon which these  payments  are  calculated  increased  31.7% to $244.3
  million at March 31, 1998 from $185.5 million at March 31, 1997.  Primarily as a
  result of the increased  deferred tax  liabilities,  interest income on deferred
  taxes rose $1.9 or 33.4% when  comparing  the first six months  ended  March 31,
  1998 to the first six months ended March 31, 1997.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1997.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these  sources grew by $1.5 million or 40%,  when  comparing  the first six
  months of fiscal 1998 to the same period of fiscal 1997.
  
  Expenses
  
  Average  borrowings  to finance  the lease  portfolio  in the form of loans from
  banks and the  issuance of medium term notes in the public  market  increased by
  31.7%,  to $1,760.8  million  outstanding at March 31, 1998 from March 31, 1997.
  The Company paid a weighted  average interest rate on all borrowings of 6.6% for
  the first six months of fiscal  1998 and 6.8% for the first six months of fiscal
  1997. Primarily as a result of the increased  borrowings,  interest expense grew
  by $15.8 million or 42.6%,  when  comparing the first half of fiscal 1998 to the
  first half of fiscal  1997.  At March 31,  1998,  the  Company's  debt to equity
  ratio, including intercompany amounts due to IKON was 5.9 to 1.
  
  Total general and  administrative  expenses for the first six months ended March
  31, 1998  increased  by $7.7  million or 27.3%,  over the first six months ended
  March 31, 1997. The general and administrative expense category in the first six
  months of fiscal 1998 includes depreciation expense on leased equipment totaling
  $15.3 million, compared to $7.9 million for the first six months of fiscal 1997.
  In addition,  the general and  administrative  expense  category  includes lease
  bonus  subsidy  payments to either  IKON or  directly to the IKON  marketplaces,
  based on the level of dealer  participation in the Company's leasing programs or
  for the funding of  targeted  new lease  volume.  During the first six months of
  fiscal 1998,  lease bonus subsidy payments totaled $7.6 million compared to $5.6
  million  during the first six months of fiscal  1997.  Excluding  the effects of
  increased  depreciation  expense on  operating  leases and lease  bonus  subsidy
  payments,  remaining  general  and  administrative  expenses  decreased  by $1.8
  million or 12.4%  compared to general and  administrative  expenses in the first
  six  months  of fiscal  1997.  This  decrease  is due to  recent  cost  controls
  initiated within the Company.
  
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $275  million of eligible
  direct financing lease receivables that expire September 1998 ($150 million) and
  March 1999 ($125 million).  Both of these agreements are expected to be renewed.
  As collections  reduce  previously sold interests,  new leases can be sold up to
  the agreement  amount.  During the six months ended March 31, 1998,  collections
  reduced  previously sold interests by  approximately  $52.3 million on these two
  agreements.  The Company sold an additional $52.3 million in net eligible direct
  financing  leases  during  the first six  months of fiscal  1998 and  recognized
  pretax gains of $1.2 million.
  
  <PAGE>
  Income Before Income Taxes
  
  Income before income taxes for the first six months of fiscal 1998  increased by
  $16.7  million or 50.8% over the first six months of fiscal 1997.  This increase
  in income before income taxes was  essentially the effect of higher earnings due
  to a larger lease  portfolio base, net of increased  general and  administrative
  expenses,  partially  offset  by  higher  borrowing  costs  resulting  from  the
  increased debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income  taxes for the first six months of fiscal 1998  increased by $6.9 million
  or 50.8% over the first six months of fiscal 1997. This increase in income taxes
  is directly  attributable  to the  increase in income  before taxes in the first
  half of fiscal 1998 compared to the first half of fiscal 1997. The effective tax
  rate was 41% for both the first half of fiscal 1998 and 1997.
  
                             FORWARD-LOOKING INFORMATION
  
  This document contains disclosures which are forward-looking statements relating
  to the  Company or its  parent,  IKON,  within the meaning of Section 27A of the
  Securities Act of 1933, as amended (the  "Securities  Act"),  and Section 21E of
  the 1934 Act.  Such  forward-looking  statements  address,  among other  things,
  strategic  initiatives  (including  plans for  enhancing the Company's or IKON's
  business  through  new  acquisitions,   information  technology  systems,  sales
  strategies,  market  growth  plans,  margin  enhancement  initiatives,   capital
  expenditure   requirements   and  financing   sources).   Such   forward-looking
  information  is based upon  management's  current plans or  expectations  and is
  subject to a number of uncertainties and risks that could  significantly  affect
  the  Company's  and/or  IKON's  current  plans,  anticipated  actions and future
  financial condition and results.  These uncertainties and risks include, but are
  not limited to, those relating to IKON's successful  management of an aggressive
  program to  acquire  and  integrate  new  companies,  including  companies  with
  technical  services  and  products  that are  relatively  new to IKON,  and also
  including  companies outside the United States,  which present  additional risks
  relating to international  operations;  risks and  uncertainties  (applicable to
  both the Company and IKON)  relating to  conducting  operations in a competitive
  environment;  delays, difficulties,  technological changes and employment issues
  (applicable  to  both  the  Company  and  IKON)   associated  in  a  large-scale
  transformation  project;  debt  service  requirements  (applicable  to both  the
  Company and IKON) including  sensitivity to fluctuation in interest  rates;  and
  general  economic  conditions.  As a  consequence,  current  plans,  anticipated
  actions  and future  financial  condition  and  results  may  differ  from those
  expressed in any forward-looking  statements made by or on behalf of the Company
  or IKON.
  <PAGE>
  
                             PART II. OTHER INFORMATION
  
  
  
  Item 6.      Exhibits and Reports on Form 8-K
  
        (a)  The  following  Exhibits  are  furnished  pursuant  to  Item  601  of
             Regulation S-K:
  
               Exhibit No. (27) Financial Data Schedule
  
        (b)  Reports on Form 8-K
  
               On April 27, 1998,  the  registrant  filed a Current Report on Form
               8-K to file,  under  Item 5 of the form,  the press  release  dated
               April 22, 1998 of its parent,  IKON, which reported IKON's earnings
               for the fiscal  quarter  ended March 31,  1998,  provided  earnings
               estimates for the remainder of IKON's 1998 fiscal year and provided
               additional information regarding IKON's business,  acquisitions and
               transformation process.
  
  <PAGE>
                                     SIGNATURES
  
  
  Pursuant  to the  requirements  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. This report has also been signed by the
  undersigned in his capacity as the chief accounting officer of the Registrant.
  
  
                                                    IOS CAPITAL, INC.
  
  
  Date        May 14, 1998                          /s/ Harry G. Kozee
                                                    Harry G. Kozee
                                                    Vice President - Finance
                                                    (Chief Accounting Officer)
  
  
  
  <PAGE>
                                  Index to Exhibits
  
  
  
  Exhibit Number
  
          (27)               Financial Data Schedule
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 38487}]
metadata_filer: {"company-data": {"conformed-name": "IOS CAPITAL INC", "cik": "0000922255", "assigned-sic": "5110", "irs-number": "232493042", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-20405", "film-number": "98619364"}, "business-address": {"street1": "1738 BASS RD", "city": "MACON", "state": "GA", "zip": "31210", "phone": "2152968000"}, "mail-address": {"street1": "BOX 834", "city": "VALLEY FORGE", "state": "PA", "zip": "19482"}, "former-company": [{"former-conformed-name": "IKON CAPITAL INC", "date-changed": "19980113"}, {"former-conformed-name": "ALCO CAPITAL RESOURCE INC", "date-changed": "19940425"}]}
text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
  
                                      Form 10-Q
  
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
  Act of 1934 for the  quarterly  period  ended March 31,  1998 or [ ]  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              0-20405
  
                                  IOS CAPITAL, INC.
               (Exact name of registrant as specified in its charter)
  
             DELAWARE                                        23-2493042
  (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                           Identification No.)
  
                        1738 Bass Road, Macon, Georgia 31210
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                   (912) 471-2300
                (Registrant's telephone number, including area code)
  
                                        NONE
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days.
  
  Yes   X   No ____
  
  *  Applicable  only to issuers  involved in  bankruptcy  proceedings  during the
  preceding five years:
  
  Indicate  by check mark  whether  the  registrant  has filed all  documents  and
  reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
  Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
  confirmed by a court.
  
  Yes ____  No ____
  
  * Applicable only to corporate issuers:
  
  Indicate the number of shares  outstanding  of each of the  issuer's  classes of
  common stock, as of April 30, 1998.
  
  Common Stock, $.01 par value per share                        1,000 shares
  Registered Debt Outstanding as of April 30, 1998             $1,710,750,000
  
  The registrant,  an indirect wholly owned  subsidiary of IKON Office  Solutions,
  Inc. ("IKON"), meets the conditions set forth in General Instruction H(1)(a) and
  (b) of Form 10-Q and is,  therefore,  filing with the reduced  disclosure format
  contemplated thereby.
  INDEX
  
                                  IOS CAPITAL, INC.
  
  PART I.  FINANCIAL INFORMATION
  
        Item 1.              Financial Statements (Unaudited)
  
                             Balance Sheets--March 31, 1998 and
                                 September 30, 1997
  
                             Statements of Income--Three and six months ended
                             March 31, 1998 and March 31, 1997
  
                             Statements of Cash Flows--Six months ended
                             March 31, 1998 and March 31, 1997
  
                             Notes to Financial Statements--March 31, 1998
  
        Item 2.              Management's Discussion and Analysis of
                             Financial Condition and Results of Operations
  
  PART II.  OTHER INFORMATION
  
        Item 6.              Exhibits and Reports on Form 8-K
  
  SIGNATURES
  PART I . FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                                  IOS Capital, Inc.
                                   BALANCE SHEETS
                 (in thousands, except share and per share amounts)
  March 31,           September 30,
                                                                 1998                   1997
  Assets
  
  Investment in leases:
       Direct financing leases                                 $1,848,712            $1,640,559
       Less: Unearned income                                     (320,102)             (286,769)
                                                        ------------------     -----------------
                                                                1,528,610             1,353,790
       Funded leases, net                                         555,952               485,658
                                                        ------------------     -----------------
                                                                2,084,562             1,839,448
  
  Cash                                                                805
  Accounts receivable                                              57,502                55,589
  Due  from  IKON Office Solutions                                                        4,463
  Prepaid expenses and other assets                                12,641                13,436
  Leased equipment-operating rentals at cost
       less accumulated depreciation of:
       3/98 - $37,222;     9/97 - $ 33,598                         63,742                50,945
  Property and equipment at cost, less
       accumulated depreciation of:
       3/98 - $4,632;   9/97 - $ 3,771                             11,439                12,330
  
                                                        ==================     =================
  Total assets                                                 $2,230,691            $1,976,211
                                                        ==================     =================
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses                      $48,979               $51,018
       Accrued interest                                            33,832                27,785
       Due to IKON Office Solutions                                 1,891
       Notes payable to banks                                      25,000                25,000
       Medium term notes                                        1,735,750             1,542,250
       Deferred income taxes                                       84,965                64,177
                                                        ------------------     -----------------
  Total liabilities                                             1,930,417             1,710,230
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                        149,415               144,415
       Retained earnings                                          150,859               121,566
                                                        ------------------     -----------------
  Total shareholder's equity                                      300,274               265,981
                                                        ==================     =================
  Total liabilities and shareholder's equity                   $2,230,691            $1,976,211
                                                        ==================     =================
  See notes to financial statements.
  IOS Capital, Inc.
                                STATEMENTS OF INCOME
                                   (in thousands)
  Three Months Ended                         Six Months Ended
                                                                         March 31                                  March 31
                                                            --------------------------------          --------------------------------
                                                                  1998               1997                   1998               1997
                                                            --------------      ------------          -------------      -------------
  Revenues:
      Lease finance income                                        $54,787           $40,657               $106,266            $77,557
      Rental income                                                 9,098             5,136                 18,149              9,928
      Interest on IKON tax deferrals                                3,844             2,888                  7,505              5,624
      Other income                                                  3,130             2,097                  5,365              3,831
                                                            --------------      ------------          -------------      ------------
                                                                   70,859            50,778                137,285             96,940
  
  Expenses:
      Interest                                                     27,208            19,602                 53,073             37,228
      General and administrative                                   17,972            15,113                 35,743             28,072
                                                            --------------      ------------          -------------      ------------
                                                                   45,180            34,715                 88,816             65,300
  
  Gain on sale of lease receivables                                   617               664                  1,181              1,277
                                                            --------------      ------------          -------------      ------------
  
  Income before income taxes                                       26,296            16,727                 49,650             32,917
  
  Provision for income taxes                                       10,782             6,858                 20,357             13,496
                                                            --------------      ------------          -------------      ------------
  
  Net income                                                      $15,514            $9,869                $29,293            $19,421
                                                            ==============      ============          =============      ============
  See notes to financial statements.
  IOS Capital, Inc.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Six Months Ended
                                                                                       March 31,
                                                                            ------------------------------
                                                                                 1998             1997
                                                                            -------------    -------------
  Operating activities:
  Net income                                                                     $29,293          $19,421
  Adjustments to reconcile net income to net
       cash provided by operating activities
          Depreciation and amortization                                           16,221            7,872
          Provision for deferred taxes                                            20,788           13,900
          Gain on sale of lease receivables                                       (1,181)          (1,277)
          Changes in operating assets and liabilities:
              Accounts receivable                                                 (1,913)          (4,842)
              Prepaid expenses and other assets                                    1,976            4,586
              Accounts payable and accrued expenses                               (2,039)            (640)
              Accrued interest                                                     6,047            2,338
                                                                            -------------    -------------
                                Net cash provided                                 69,192           41,358
                                                                            -------------    -------------
  
  Investing activities:
  Purchases of leased equipment, net                                             (28,142)         (16,447)
  Purchases of property and equipment, net                                            15           (3,082)
  Direct financing leases:
       Additions                                                                (631,051)        (619,015)
       Cancellations                                                             123,443           87,839
       Collections                                                               280,517          225,802
       Proceeds from sale                                                         52,271           51,407
  Funded leases:
       Additions                                                                (210,120)        (187,360)
       Cancellations                                                              41,103           26,587
       Collections                                                                98,723           78,111
                                                                            -------------    -------------
                                Net cash used                                   (273,241)        (356,158)
                                                                            -------------    -------------
  
  Financing activities:
  Payments on bank borrowings                                                          0          (33,000)
  Proceeds from issuance of medium term notes                                    348,500          385,500
  Payments on medium term notes                                                 (155,000)         (43,000)
  Capital contributed by IKON                                                      5,000           19,000
                                                                            -------------    -------------
                                Net cash provided                                198,500          328,500
                                                                            -------------    -------------
  
  (Increase) decrease in cash and amounts due to IKON                             (5,549)          13,700
  Due from (to) IKON at beginning of year                                          4,463          (24,330)
                                                                            =============    =============
  Cash and due to IKON at end of period                                          ($1,086)        ($10,630)
                                                                            =============    =============
  See notes to financial statements.
  IOS Capital, Inc.
                            Notes to Financial Statements
                                   March 31, 1998
  
  Note 1:    Basis of Presentation
  
             The accompanying  unaudited condensed financial  statements have been
  prepared in accordance with generally accepted accounting principles for interim
  financial  information  and the  instructions  to Form  10-Q and  Rule  10-01 of
  Regulation  S-X. In the opinion of management,  all  adjustments  (consisting of
  normal recurring  accruals)  considered  necessary for a fair  presentation have
  been included.  For further  information,  refer to the financial statements and
  footnotes  thereto  included in the Company's annual report on Form 10-K for the
  year ended September 30, 1997.
  
  Note 2:    Medium Term Note Program
  
             During the six months ended March 31, 1998, IOS Capital issued $348.5
  million under its medium term note program.  At March 31, 1998, $1,735.8 million
  of medium term notes were  outstanding  with a weighted average interest rate of
  6.5%.  The  remaining  amount  available  under this  registration  statement is
  $1,298.2 million.
  
  Note 3:    Asset Securitization
  
             IOS Capital has asset  securitization  agreements for $275 million of
  eligible direct financing  receivables that expire September 1998 ($150 million)
  and March 1999 ($125  million).  Both of these  agreements  are  expected  to be
  renewed.  Under  these  agreements,  the  Company  sold $52.3  million in direct
  financing  leases during the first six months of fiscal 1998,  replacing  leases
  which had been  liquidated  during the period and  recognized  a pretax  gain of
  approximately $1.2 million. Under the terms of the sales agreements, the Company
  will continue to service the lease portfolio.
  
  Note 4:    Name Change
  
             On January 22, 1998, the Company changed its name from IKON Capital,
  Inc. to IOS Capital, Inc.
  Item 2: Management's  Discussion and Analysis of Financial Condition and Results
  of Operations
  
  Pursuant to General Instruction H(2) (a) of Form 10-Q, the following analysis of
  the results of operations is presented in lieu of  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
  
                     Three Months Ended March 31, 1998 Compared
                     with the Three Months Ended March 31, 1997
  
  Comparative  summarized  results of operations  for the three months ended March
  31,  1998 and 1997 are set forth in the table  below.  This table also shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  Three Months
  (dollars in thousands)                                    Ended March 31                       Increase
                                                         1998               1997          Amount           Percent
  Revenues:
       Lease finance income                              $54,787           $40,657         $14,130         34.8%
       Rental income                                       9,098             5,136           3,962         77.1%
       Interest on IKON tax deferrals                      3,844             2,888             956         33.1%
       Other income                                        3,130             2,097           1,033         49.3%
                                                      ----------        ----------      ----------        
                                                          70,859            50,778          20,081         39.5%
  
  Expenses:
       Interest                                           27,208            19,602           7,606         38.8%
       General and administrative                         17,972            15,113           2,859         18.9%
                                                      ----------        ----------      ----------        
                                                          45,180            34,715          10,465         30.1%
  
  Gain on sale of lease receivables                          617               664             (47)        (7.1)%
                                                      ----------        ----------      ----------        
  
  Income before income taxes                              26,296            16,727           9,569         57.2%
  Provision for income taxes                              10,782             6,858           3,924         57.2%
                                                      ----------        ----------      ----------        
  Net income                                          $   15,514        $    9,869      $    5,645         57.2%
                                                      ==========        ==========      ==========
  Revenues
  
  Total revenues  increased $20.1 million or 39.5% in the second quarter of fiscal
  1998 compared to the second quarter of fiscal 1997. Approximately 70.4% or $14.1
  million of this  increase in revenues  was a result of increased  lease  finance
  income due to continued  growth in the portfolio of direct  financing and funded
  leases.  The lease portfolio,  net of lease  receivables that were sold in asset
  securitization  transactions,  increased 31.3 % from March 31, 1997 to March 31,
  1998.
  
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable terms, may be purchased by the Company. During the second quarters of
  fiscal 1998 and 1997, IOS Capital  purchased  operating  lease equipment of $9.4
  million  and $9.6  million,  respectively.  Operating  leases  contributed  $9.1
  million in rental income during the second  quarter of fiscal 1998,  compared to
  $5.1 million in the second quarter of fiscal 1997.
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  marketplaces  associated  with  leases  funded  through  the  Company  at a rate
  consistent  with  the  Company's  weighted  average  outside  borrowing  rate of
  interest.  The Company's  average rate was 6.5% for the second quarter of fiscal
  1998 and 6.8% for the second  quarter of fiscal 1997. In addition,  the deferred
  tax base upon which these  payments  are  calculated  increased  31.7% to $244.3
  million at March 31, 1998 from $185.5 million at March 31, 1997.  Primarily as a
  result of the increased  deferred tax  liabilities,  interest income on deferred
  taxes rose  $956,000 or 33.1% when  comparing  the three  months ended March 31,
  1998 to the three months ended March 31, 1997.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1997.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these  sources grew by $1.0  million or 49.3%,  when  comparing  the second
  quarter of fiscal 1998 to the same period of fiscal 1997.
  
  Expenses
  
  Average  borrowings  to finance  the lease  portfolio  in the form of loans from
  banks and the  issuance of medium term notes in the public  market  increased by
  31.7% from March 31, 1997, to $1,760.8  million  outstanding  at March 31, 1998.
  The Company paid a weighted  average interest rate on all borrowings of 6.5% for
  the  second  quarter of fiscal  1998 and 6.8% for the  second  quarter of fiscal
  1997. Primarily as a result of the increased  borrowings,  interest expense grew
  by $7.6 million or 38.8%,  when  comparing the second  quarter of fiscal 1998 to
  the second  quarter of fiscal 1997.  At March 31, 1998,  the  Company's  debt to
  equity ratio, including intercompany amounts due to IKON was 5.9 to 1.
  
  Total general and  administrative  expenses for the quarter ended March 31, 1998
  increased by $2.9 million or 18.9%,  over the quarter ended March 31, 1997.  The
  general and administrative expense category in the second quarter of fiscal 1998
  includes  depreciation  expense  on  leased  equipment  totaling  $7.7  million,
  compared to $3.7 million for the second quarter of fiscal 1997. In addition, the
  general  and  administrative  expense  category  includes  lease  bonus  subsidy
  payments to either IKON or directly to the IKON marketplaces, based on the level
  of dealer  participation in the Company's leasing programs or for the funding of
  targeted new lease volume. During the second quarter of fiscal 1998, lease bonus
  subsidy payments totaled $3.8 million compared to $3.5 million during the second
  quarter of fiscal 1997. Excluding the effects of increased  depreciation expense
  on operating  leases and lease bonus  subsidy  payments,  remaining  general and
  administrative  expenses  decreased by $1.5 million or 18.5% compared to general
  and administrative  expenses in the second quarter of fiscal 1997. This decrease
  is due to recent cost controls initiated within the Company.
  
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $275  million of eligible
  direct financing lease receivables that expire September 1998 ($150 million) and
  March 1999 ($125 million).  Both of these agreements are expected to be renewed.
  As collections  reduce  previously sold interests,  new leases can be sold up to
  the agreement amount. During the three months ended March 31, 1998,  collections
  reduced  previously sold interests by  approximately  $26.5 million on these two
  agreements.  The Company sold an additional $26.5 million in net eligible direct
  financing  leases during the three months of fiscal 1998 and  recognized  pretax
  gains of $617,000.
  Income Before Income Taxes
  
  Income  before income taxes for the second  quarter of fiscal 1998  increased by
  $9.6 million or 57.2% over the second  quarter of fiscal 1997.  This increase in
  income before income taxes was  essentially the effect of higher earnings due to
  a larger  lease  portfolio  base,  net of increased  general and  administrative
  expenses,  partially  offset by higher  borrowing costs resulting from increased
  debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the second  quarter of fiscal 1998 increased by $3.9 million or
  57.2% over the second  quarter of fiscal 1997.  This increase in income taxes is
  directly  attributable  to the  increase  in income  before  taxes in the second
  quarter of fiscal  1998  compared  to the second  quarter  of fiscal  1997.  The
  effective tax rate was 41% for both the second quarter of fiscal 1998 and 1997.
  
                      Six Months Ended March 31, 1998 Compared
                      with the Six Months Ended March 31, 1997
  
  Comparative  summarized results of operations for the six months ended March 31,
  1998 and 1997 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  Six Months
  (dollars in thousands)                                    Ended March 31                       Increase
                                                         1998               1997            Amount       Percent
  Revenues:
       Lease finance income                             $106,266           $77,557         $28,709         37.0%
       Rental income                                      18,149             9,928           8,221         82.8%
       Interest on IKON tax deferrals                      7,505             5,624           1,881         33.4%
       Other income                                        5,365             3,831           1,534         40.0%
                                                      ----------          --------       ---------    
                                                         137,285            96,940          40,345         41.6%
  
  Expenses:
       Interest                                           53,073            37,228          15,845         42.6%
       General and administrative                         35,743            28,072           7,671         27.3%
                                                      ----------          --------       ---------    
                                                          88,816            65,300          23,516         36.0%
  
  Gain on sale of lease receivables                        1,181             1,277             (96)        (7.5)%
                                                      ----------          --------       ---------    
  
  Income before income taxes                              49,650            32,917          16,733         50.8%
  Provision for income taxes                              20,357            13,496           6,861         50.8%
                                                      ----------          --------       ---------    
  Net income                                          $   29,293          $ 19,421       $   9,872         50.8%
                                                      ==========          ========       =========
  Revenues
  
  Total  revenues  increased  $40.3  million  or 41.6% in the first six  months of
  fiscal 1998 compared to the first six months of fiscal 1997. Approximately 71.2%
  or $28.7  million of this  increase in revenues was a result of increased  lease
  finance income due to continued  growth in the portfolio of direct financing and
  funded leases.  The lease portfolio,  net of lease receivables that were sold in
  asset securitization transactions, increased 31.3 % from March 31, 1997 to March
  31, 1998.
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable  terms, may be purchased by the Company.  During the first six months
  of fiscal 1998 and 1997,  IOS Capital  purchased  operating  lease  equipment of
  $28.1 million and $16.4  million,  respectively.  Operating  leases  contributed
  $18.1  million in rental  income  during  the first six  months of fiscal  1998,
  compared to $9.9 million in the first six months of fiscal 1997.
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  marketplaces  associated  with  leases  funded  through  the  Company  at a rate
  consistent  with  the  Company's  weighted  average  outside  borrowing  rate of
  interest. The Company's average rate was 6.6% for the first six months of fiscal
  1998 and 6.8% for the first six months  fiscal 1997.  In addition,  the deferred
  tax base upon which these  payments  are  calculated  increased  31.7% to $244.3
  million at March 31, 1998 from $185.5 million at March 31, 1997.  Primarily as a
  result of the increased  deferred tax  liabilities,  interest income on deferred
  taxes rose $1.9 or 33.4% when  comparing  the first six months  ended  March 31,
  1998 to the first six months ended March 31, 1997.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1997.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these  sources grew by $1.5 million or 40%,  when  comparing  the first six
  months of fiscal 1998 to the same period of fiscal 1997.
  
  Expenses
  
  Average  borrowings  to finance  the lease  portfolio  in the form of loans from
  banks and the  issuance of medium term notes in the public  market  increased by
  31.7%,  to $1,760.8  million  outstanding at March 31, 1998 from March 31, 1997.
  The Company paid a weighted  average interest rate on all borrowings of 6.6% for
  the first six months of fiscal  1998 and 6.8% for the first six months of fiscal
  1997. Primarily as a result of the increased  borrowings,  interest expense grew
  by $15.8 million or 42.6%,  when  comparing the first half of fiscal 1998 to the
  first half of fiscal  1997.  At March 31,  1998,  the  Company's  debt to equity
  ratio, including intercompany amounts due to IKON was 5.9 to 1.
  
  Total general and  administrative  expenses for the first six months ended March
  31, 1998  increased  by $7.7  million or 27.3%,  over the first six months ended
  March 31, 1997. The general and administrative expense category in the first six
  months of fiscal 1998 includes depreciation expense on leased equipment totaling
  $15.3 million, compared to $7.9 million for the first six months of fiscal 1997.
  In addition,  the general and  administrative  expense  category  includes lease
  bonus  subsidy  payments to either  IKON or  directly to the IKON  marketplaces,
  based on the level of dealer  participation in the Company's leasing programs or
  for the funding of  targeted  new lease  volume.  During the first six months of
  fiscal 1998,  lease bonus subsidy payments totaled $7.6 million compared to $5.6
  million  during the first six months of fiscal  1997.  Excluding  the effects of
  increased  depreciation  expense on  operating  leases and lease  bonus  subsidy
  payments,  remaining  general  and  administrative  expenses  decreased  by $1.8
  million or 12.4%  compared to general and  administrative  expenses in the first
  six  months  of fiscal  1997.  This  decrease  is due to  recent  cost  controls
  initiated within the Company.
  
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $275  million of eligible
  direct financing lease receivables that expire September 1998 ($150 million) and
  March 1999 ($125 million).  Both of these agreements are expected to be renewed.
  As collections  reduce  previously sold interests,  new leases can be sold up to
  the agreement  amount.  During the six months ended March 31, 1998,  collections
  reduced  previously sold interests by  approximately  $52.3 million on these two
  agreements.  The Company sold an additional $52.3 million in net eligible direct
  financing  leases  during  the first six  months of fiscal  1998 and  recognized
  pretax gains of $1.2 million.
  Income Before Income Taxes
  
  Income before income taxes for the first six months of fiscal 1998  increased by
  $16.7  million or 50.8% over the first six months of fiscal 1997.  This increase
  in income before income taxes was  essentially the effect of higher earnings due
  to a larger lease  portfolio base, net of increased  general and  administrative
  expenses,  partially  offset  by  higher  borrowing  costs  resulting  from  the
  increased debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income  taxes for the first six months of fiscal 1998  increased by $6.9 million
  or 50.8% over the first six months of fiscal 1997. This increase in income taxes
  is directly  attributable  to the  increase in income  before taxes in the first
  half of fiscal 1998 compared to the first half of fiscal 1997. The effective tax
  rate was 41% for both the first half of fiscal 1998 and 1997.
  
                             FORWARD-LOOKING INFORMATION
  
  This document contains disclosures which are forward-looking statements relating
  to the  Company or its  parent,  IKON,  within the meaning of Section 27A of the
  Securities Act of 1933, as amended (the  "Securities  Act"),  and Section 21E of
  the 1934 Act.  Such  forward-looking  statements  address,  among other  things,
  strategic  initiatives  (including  plans for  enhancing the Company's or IKON's
  business  through  new  acquisitions,   information  technology  systems,  sales
  strategies,  market  growth  plans,  margin  enhancement  initiatives,   capital
  expenditure   requirements   and  financing   sources).   Such   forward-looking
  information  is based upon  management's  current plans or  expectations  and is
  subject to a number of uncertainties and risks that could  significantly  affect
  the  Company's  and/or  IKON's  current  plans,  anticipated  actions and future
  financial condition and results.  These uncertainties and risks include, but are
  not limited to, those relating to IKON's successful  management of an aggressive
  program to  acquire  and  integrate  new  companies,  including  companies  with
  technical  services  and  products  that are  relatively  new to IKON,  and also
  including  companies outside the United States,  which present  additional risks
  relating to international  operations;  risks and  uncertainties  (applicable to
  both the Company and IKON)  relating to  conducting  operations in a competitive
  environment;  delays, difficulties,  technological changes and employment issues
  (applicable  to  both  the  Company  and  IKON)   associated  in  a  large-scale
  transformation  project;  debt  service  requirements  (applicable  to both  the
  Company and IKON) including  sensitivity to fluctuation in interest  rates;  and
  general  economic  conditions.  As a  consequence,  current  plans,  anticipated
  actions  and future  financial  condition  and  results  may  differ  from those
  expressed in any forward-looking  statements made by or on behalf of the Company
  or IKON.
  PART II. OTHER INFORMATION
  
  Item 6.      Exhibits and Reports on Form 8-K
  
        (a)  The  following  Exhibits  are  furnished  pursuant  to  Item  601  of
             Regulation S-K:
  
               Exhibit No. (27) Financial Data Schedule
  
        (b)  Reports on Form 8-K
  
               On April 27, 1998,  the  registrant  filed a Current Report on Form
               8-K to file,  under  Item 5 of the form,  the press  release  dated
               April 22, 1998 of its parent,  IKON, which reported IKON's earnings
               for the fiscal  quarter  ended March 31,  1998,  provided  earnings
               estimates for the remainder of IKON's 1998 fiscal year and provided
               additional information regarding IKON's business,  acquisitions and
               transformation process.
  SIGNATURES
  
  Pursuant  to the  requirements  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. This report has also been signed by the
  undersigned in his capacity as the chief accounting officer of the Registrant.
  
                                                    IOS CAPITAL, INC.
  
  Date        May 14, 1998                          /s/ Harry G. Kozee
                                                    Harry G. Kozee
                                                    Vice President - Finance
                                                    (Chief Accounting Officer)
  Index to Exhibits
  
  Exhibit Number
  
          (27)               Financial Data Schedule