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,  1999 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)
  
  
  --------------------------------------------------------------------------------
                (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, 1999.
  
  Common Stock, $.01 par value per share                           1,000 shares
  Registered Debt Outstanding as of April 30, 1999               $1,622,250,000
  
  The registrant,  an indirect wholly owned  subsidiary of IKON Office  Solutions,
  Inc. ("IKON"), meets the conditions set forth in General Instruction I(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, 1999 and
                             September 30, 1998
  
                             Statements of Income--Three and Six Months ended
                             March 31, 1999 and March 31, 1998
  
                             Statements of Cash Flows--Six Months ended
                             March 31, 1999 and March 31, 1998
  
                             Notes to Financial Statements--March 31, 1999
  
  
        Item 2.              Management's Discussion and Analysis of
                             Financial Condition and Results of Operations
  
  
  PART II.  OTHER INFORMATION
  
  
        Item 5.              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>
                                                                 March 31,           September 30,
                                                                   1999                   1998
                                                          -------------------     -----------------
  Assets
  
  Investment in leases:
  <S>                                                             <C>                   <C>       
       Direct financing leases                                    $1,646,285            $2,002,012
       Less: Unearned income                                        (271,480)             (343,211)
                                                          -------------------     -----------------
                                                                   1,374,805             1,658,801
       Funded leases, net                                            575,555               592,827
                                                          -------------------     -----------------
                                                                   1,950,360             2,251,628
  
  Retained interest in lease receivables                             120,674
  Cash                                                                                       2,621
  Accounts receivable                                                 66,397                63,066
  Due  from  IKON Office Solutions                                                          52,060
  Prepaid expenses and other assets                                   38,856                14,224
  Leased equipment-operating rentals at cost
       less accumulated depreciation of:
       3/99 - $50,874; 9/98 - $43,411                                 61,661                76,551
  Property and equipment at cost, less
       accumulated depreciation of:
       3/99 - $6,504; 9/98 - $5,596                                   10,499                11,491
                                                          -------------------     -----------------
  Total assets                                                    $2,248,447            $2,471,641
                                                          ===================     =================
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses                         $81,857               $59,206
       Accrued interest                                               29,440                33,467
       Due to IKON Office Solutions                                   47,616
       Notes payable to banks                                                              100,000
       Medium term notes                                           1,622,250             1,849,750
       Deferred income taxes                                         116,058                95,115
                                                          -------------------     -----------------
  Total liabilities                                                1,897,221             2,137,538
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                           119,415               149,415
       Retained earnings                                             230,683               184,688
       Accumulated other comprehensive income                          1,128
                                                          -------------------     -----------------
  Total shareholder's equity                                         351,226               334,103
                                                          -------------------     -----------------
  Total liabilities and shareholder's equity                      $2,248,447            $2,471,641
                                                          ===================     =================
  </TABLE>
  
  See notes to financial statements.
  
  <PAGE>
  
                                  IOS CAPITAL, INC.
                                STATEMENTS OF INCOME
                                   (in thousands)
  
  
  <TABLE>
  <CAPTION>
                                                                  Three Months Ended                       Six Months Ended
                                                                       March 31                                 March 31
                                                            --------------------------------         ---------------------------------
                                                                1999               1998                  1999               1998
                                                            -------------      -------------         --------------     --------------
  Revenues:
  <S>                                                            <C>                <C>                   <C>                <C>     
       Lease finance income                                      $51,323            $54,787               $111,850           $106,266
       Rental income                                               9,195              9,098                 19,037             18,149
       Interest on IKON tax deferrals                              4,279              3,844                  8,475              7,505
       Other income                                                3,937              3,130                  7,414              5,365
                                                            -------------      -------------         --------------     --------------
                                                                  68,734             70,859                146,776            137,285
  
  Expenses:
       Interest                                                   26,607             27,208                 55,809             53,073
       General and administrative                                 15,512             17,972                 32,544             35,743
                                                            -------------      -------------         --------------     --------------
                                                                  42,119             45,180                 88,353             88,816
  
  Gain on sale of lease receivables                                4,203                617                 20,879              1,181
                                                            -------------      -------------         --------------     --------------
  
  
  Income before income taxes                                      30,818             26,296                 79,302             49,650
  
  Provision for income taxes                                      12,944             10,782                 33,307             20,357
                                                            -------------      -------------         --------------     --------------
  
  Net income                                                     $17,874            $15,514                $45,995            $29,293
                                                            =============      =============         ==============     ==============
  </TABLE>
  
  See notes to financial statements.
  
  <PAGE>
                                  IOS CAPITAL, INC.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
                                                                                       Six Months Ended
                                                                                           March 31,
                                                                            --------------------------------------
                                                                                  1999                  1998
                                                                            ---------------      -----------------
  Operating activities:
  <S>                                                                              <C>                    <C>    
  Net income                                                                       $45,995                $29,293
  Adjustments to reconcile net income to net
        cash provided by operating activities:
            Depreciation and amortization                                           16,931                 16,221
            Provision for deferred taxes                                            20,191                 20,788
            Gain on sale of lease receivables                                      (20,879)                (1,181)
            Changes in operating assets and liabilities:
                Accounts receivable                                                 (3,331)                (1,913)
                Prepaid expenses and other assets                                   11,092                  1,976
                Accounts payable and accrued expenses                               16,372                 (2,039)
                Accrued interest                                                    (4,027)                 6,047
                                                                            ---------------      -----------------
                                      Net cash provided                             82,344                 69,192
                                                                            ---------------      -----------------
  
  Investing activities:
  Purchases of leased equipment, net                                                (1,134)               (28,142)
  Disposals of property and equipment, net of additions                                 85                     15
  Investment in leases:
        Additions                                                                 (736,894)              (841,171)
        Cancellations                                                              173,730                164,546
        Collections                                                                404,055                379,240
        Proceeds from sale                                                         333,017                 52,271
                                                                            ---------------      -----------------
                                      Net cash provided (used)                     172,859               (273,241)
                                                                            ---------------      -----------------
  
  Financing activities:
  Payments on bank borrowings                                                     (100,000)                     0
  Proceeds from issuance of medium term notes                                            0                348,500
  Payments on medium term notes                                                   (227,500)              (155,000)
  Capital contributed by IKON                                                            0                  5,000
  Dividend to IKON                                                                 (30,000)                     0
                                                                            ---------------      -----------------
                                      Net cash (used) provided                    (357,500)               198,500
                                                                            ---------------      -----------------
  
  Increase in amounts Due to IKON                                                 (102,297)                (5,549)
  Cash and Due from IKON at beginning of year                                       54,681                  4,463
                                                                            ---------------      -----------------
  Due to IKON at end of period                                                    ($47,616)               ($1,086)
                                                                            ===============      =================
  
  </TABLE>
  
  See notes to financial statements.
  
  <PAGE>
                                  IOS Capital, Inc.
                            Notes to Financial Statements
                                   March 31, 1999
  
  
  Note 1:    Basis of Presentation
  
             The  accompanying  unaudited  condensed  financial  statements of IOS
  Capital,  Inc. (the Company)  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,  1998.
  Certain  prior year amounts have been  reclassified  to conform with the current
  year presentation.
  
  
  Note 2:    Medium Term Note Program
  
             During the six months  ended March 31,  1999,  the Company  issued no
  medium term notes under its $3.5 billion medium term note program.  At March 31,
  1999,  $1,622.3  million of medium term notes were  outstanding  with a weighted
  average interest rate of 6.5%. The remaining amount available under this program
  is $1,123.3 million.
  
  
  Note 3: Asset Securitization
  
           In December  1998,  the Company  entered  into an asset  securitization
  transaction whereby it sold $366.6 million in direct financing lease receivables
  for $250 million in cash and a retained interest in the remainder. The agreement
  is for an  initial  three-year  term with  certain  renewal  provisions  and was
  structured as a revolving  asset  securitization  so that as collections  reduce
  previously sold interests in the pool of leases,  additional  leases can be sold
  up to $250  million.  The terms of the  agreement  provide that the Company will
  continue to service the lease  portfolio  for the  securitization  provider.  At
  March 31, 1999, the interest-only  strip of approximately  $26.2 million related
  to the sale is included in prepaid  expenses and other assets and the  servicing
  obligation  of  approximately  $5.2 million is included in accounts  payable and
  accrued expenses.  The Company  recognized a pretax gain of $14.3 million during
  the first quarter of fiscal 1999 on this agreement.
  
           The Company has  additional  asset  securitization  agreements for $275
  million of eligible direct financing  receivables.  These  agreements  expire in
  September 1999 ($150 million) and March 2000 ($125 million),  respectively. Both
  of these  agreements  are  expected to be  renewed.  These  agreements  are also
  structured as revolving  securitizations,  whereby additional leases can be sold
  as collections reduce the previously sold interests. During the first six months
  of fiscal  1999,  collections  reduced  previously  sold  interests on these two
  agreements and the $250 million transaction,  described above, by $83.0 million.
  The Company sold an additional  $83.0 million in net eligible  direct  financing
  leases and  recognized  pretax  gains of $6.6  million for the six months  ended
  March 31, 1999.
  
  <PAGE>
                                  IOS Capital, Inc.
                        Notes to Financial Statements (Cont.)
                                   March 31, 1999
  
  Note 4:  Comprehensive Income
  
           As of October 1, 1998,  the  Company  adopted  Statement  of  Financial
  Accounting Standards No. 130, "Reporting  Comprehensive Income" (SFAS 130). SFAS
  130 establishes rules for the reporting and presentation of comprehensive income
  and its components. SFAS 130 requires mark to market adjustments on the retained
  interest on lease receivables to be included in other comprehensive income.
  
           Total comprehensive income is as follows (in thousands):
  <TABLE>
  <CAPTION>
                                                                         Three Months Ended           Six Months Ended
                                                                             March  31                     March 31
                                                                             ---------                     --------
                                                                         1999           1998           1999        1998
                                                                         ----           ----           ----        ----
  <S>                                                                  <C>             <C>           <C>         <C>    
           Net income                                                  $17,874         $15,514       $45,995     $29,293
           Mark to market adjustment, net of tax                           159                         1,128            
                                                                       -------         -------       -------     -------
           Total comprehensive income                                  $18,033         $15,514       $47,123     $29,293
                                                                       =======         =======       =======     =======
  </TABLE>
  
  <PAGE>
  Item 2: Management's Discussion and Analysis of Financial Condition and Results
  of Operations
  
  Pursuant to General  Instruction I(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.
  
  Impact of Year 2000
  
  State of  Readiness.  The Year 2000 issue arises from  computer  programs  being
  written using two digits rather than four to define the applicable  year. Any of
  the Company's computer programs or hardware that have date-sensitive software or
  embedded technology (non-IT systems) may recognize a date using "00" as the year
  1900  rather  than the year  2000.  This  could  result in a system  failure  or
  miscalculations  causing  disruptions  of  operations,  including,  among  other
  things, a temporary inability to process transactions,  send invoices, or engage
  in similar normal business  activities.  The potential for a problem exists with
  all  computer  hardware  and  software,  as well as in  products  with  embedded
  technology: copiers and fax machines; security and HVAC systems; voice/telephony
  systems; elevators, etc.
  
  IKON has appointed a Year 2000 Corporate  Compliance  Team, which has prepared a
  compliance  program  for all  business  units,  including  the  Company,  and is
  responsible  for  coordination  and  inspecting  compliance  activities  in  all
  business units. The compliance program requires all business units and locations
  in every country to inventory potentially affected systems and products,  assess
  risk, take any required corrective actions, test and certify compliance.  IKON's
  Year  2000  Testing  and  Certification   Guidelines  delineate  the  Year  2000
  compliance process, testing and quality assurance guidelines,  certification and
  reporting processes and contingency planning. An independent  consulting company
  has reviewed the compliance program.
  
  The  Company's  Year 2000  compliance  program has five phases:  1) inventory of
  internal IT and non-IT  systems;  2) risk assessment of the Year 2000 compliance
  issues  associated with such internal IT and non-IT  systems;  3) remediation of
  non-compliant  systems; 4) testing and validation of remediated systems;  and 5)
  implementation  of remediated  systems  throughout the Company.  The progress to
  date of each of these  phases is as follows:  1) internal IT and non-IT  systems
  have been inventoried;  2) appropriate risk assessments have been completed;  3)
  remediation of critical systems has been substantially completed and remediation
  of non-critical  systems is  progressing;  4) testing and validation of critical
  systems has been substantially completed; and 5) Year 2000 compliant versions of
  critical  systems are in the process of being  implemented in field  operations.
  The Company  anticipates  completing the Year 2000 project no later than October
  31, 1999,  which is prior to any  anticipated  material  impact on its operating
  systems.
  
  Costs. The Company will use both internal and external resources to reprogram or
  replace,   test  and  implement  its  IT  and  non-IT   systems  for  Year  2000
  modifications. The Company does not separately track the internal costs incurred
  on the Year 2000 project.  Such costs are principally  payroll and related costs
  for its  internal  IT  personnel.  The  total  cost of the  Year  2000  project,
  excluding these internal costs, is estimated at $1.4 million and is being funded
  through  operating  cash flows,  all of which will be expensed as  incurred.  To
  date, the Company has expensed  approximately  $794,000 related to its Year 2000
  project.
  
  <PAGE>
  Risks. Management believes,  based on the information currently available to it,
  that the most  reasonably  likely  worse case  scenario  that could be caused by
  technology  failures  relating to the Year 2000 could pose a significant  threat
  not  only  to  the  Company,  IKON,  its  customers  and  suppliers,  but to all
  businesses. Risks include, but are not limited to:
  
  o    Legal risks, including customer, supplier, employee or shareholder lawsuits
       over failure to deliver contracted services, product failure, or health and
       safety issues.
  o    Loss of revenues due to failure to meet customer quality expectations.
  o    Increased  operational costs due to manual  processing,  data corruption or
       disaster recovery.
  o    Inability to bill or invoice.
  
  The cost of the project  and the date on which IKON and the  Company  believe it
  will  complete  the Year  2000  modifications  are  based in  management's  best
  estimates,  which were derived  using  numerous  assumptions  of future  events,
  including the continued  availability  of certain  resources and other  factors.
  However,  there can be no guarantee  that these  estimates  will be achieved and
  actual results could differ materially from those anticipated.  Specific factors
  that might cause such material  differences include, but are not limited to, the
  availability  and cost of personnel  trained in this area, the ability to locate
  and correct all relevant computer codes, and other uncertainties.
  
  Contingency Plans. IKON's Guidelines require that contingency plans be developed
  and  validated in the event that any  critical  system  cannot be corrected  and
  certified  before the system's failure date. The Company and IKON expect to have
  contingency  plans in place by October 31, 1999. In addition,  IKON is forming a
  rapid response team as part of its IT group that will respond to any operational
  problems during the Year 2000 date change period.
  
  
                     Three Months Ended March 31, 1999 Compared 
                     with the Three Months Ended March 31, 1998
  
  Comparative  summarized  results of operations  for the three months ended March
  31,  1999 and 1998 are set forth in the table  below.  This table also shows the
  increase or decrease in the dollar  amounts of major  revenue and expense  items
  between periods, as well as the related percentage increase or decrease.
  <TABLE>
  <CAPTION>
                                                                Three Months
  (dollars in thousands)                                       Ended March 31               Increase  (Decrease)
                                                           ----------------------           --------------------
                                                         1999                1998          Amount        Percent
                                                         ----                ----          ------        -------
  Revenues:
  <S>                                                    <C>               <C>            <C>             <C>   
       Lease finance income                              $51,323           $54,787        $(3,464)        (6.3)%
       Rental income                                       9,195             9,098             97          1.1%
       Interest on IKON tax deferrals                      4,279             3,844            435         11.3%
       Other income                                        3,937             3,130            807         25.8%
                                                       ---------         ---------       ---------
                                                          68,734            70,859         (2,125)        (3.0)%
  
  Expenses:
       Interest                                           26,607            27,208           (601)        (2.2)%
       General and administrative                         15,512            17,972         (2,460)       (13.7)%
                                                       ---------         ---------       ---------
                                                          42,119            45,180         (3,061)        (6.8)%
  
  Gain on sale of lease receivables                        4,203               617          3,586        581.2%
                                                       ---------         ---------       ---------
  
  Income before income taxes                              30,818            26,296          4,522         17.2%
  Provision for income taxes                              12,944            10,782          2,162         20.1%
                                                       ---------         ---------       ---------
  Net income                                           $  17,874         $  15,514       $  2,360         15.2%
                                                       =========         =========       =========
  </TABLE>
  
  <PAGE>
  Revenues
  
  Total  revenues  decreased by  approximately  $2.1 million or 3.0% in the second
  quarter of fiscal 1999  compared  to the second  quarter of fiscal  1998.  Lease
  finance income decreased by approximately  $3.5 million due to the effect of the
  sale of $366.6  million in direct  financing  leases in  December  1998 under an
  asset securitization transaction.  The lease portfolio, net of lease receivables
  sold in asset securitization transactions, decreased .6 % from March 31, 1998 to
  March 31, 1999, including the retained interest in the leases sold.
  
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable terms, may be purchased by the Company.  During the second quarter of
  fiscal 1998, the Company  purchased  operating lease equipment of $11.2 million,
  compared  to none  in the  second  quarter  of  fiscal  1999.  Operating  leases
  contributed  $9.2 million in rental income  during the second  quarter of fiscal
  1999,  compared to $9.1 million in the second quarter of fiscal 1998.  Effective
  October 1, 1998, the Company has limited the funding of rental  equipment to the
  IKON marketplaces to select accounts.
  
  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 both
  fiscal 1999 and fiscal 1998. The deferred tax base upon which these payments are
  calculated  increased  by 7.9% to $263.5  million at March 31,  1999 from $244.3
  million at March 31, 1998.  Primarily as a result of the increased  deferred tax
  liabilities,  interest  income on deferred  taxes rose by $435,000 or 11.3% when
  comparing  the three months ended March 31, 1999 to the three months ended March
  31, 1998.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1998.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio, including securitized leases, upon which these fees
  are based.  Overall,  fee income from these  sources  grew by $807,000 or 25.8%,
  when  comparing  the second  quarter of fiscal 1999 to the same period of fiscal
  1998.
  
  Expenses
  
  Borrowings  to finance the lease  portfolio  in the form of loans from banks and
  the  issuance of medium term notes in the public  market  decreased by 7.9% from
  the prior  year,  with  $1,622.3  million  outstanding  at March 31,  1999.  The
  decrease  was the  result of the asset  securitization  in  December  1998.  The
  Company paid a weighted  average  interest rate on all borrowings of 6.5% in the
  second  quarter of both  fiscal  1999 and  fiscal  1998.  As a result,  interest
  expense  decreased by $601,000,  or 2.2%,  when  comparing the second quarter of
  fiscal  1999 to the  second  quarter  of fiscal  1998.  At March 31,  1999,  the
  Company's debt to equity ratio,  including intercompany amounts due to IKON, was
  4.8 to 1.
  
  Total general and  administrative  expenses for the quarter ended March 31, 1999
  decreased  by $2.5  million or 13.7%,  compared to the  quarter  ended March 31,
  1998. The general and  administrative  expense category in the second quarter of
  both  fiscal  1999 and  fiscal  1998  includes  depreciation  expense  on leased
  equipment  totaling $7.7  million.  In addition,  lease bonus  subsidy  payments
  included in the general and administrative expense category were $3.0 million in
  the second quarter of fiscal 1999 compared to $3.8 million in the second quarter
  of fiscal  1998.  Excluding  the effects of  depreciation  expense on  operating
  leases and a decrease in lease bonus  subsidy  payments,  remaining  general and
  administrative  expenses  decreased by $1.7 million or 25.6%, when comparing the
  second quarter of fiscal 1999 to the second quarter of fiscal 1998.
  
  
  <PAGE>
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $525  million of eligible
  direct financing  receivables.  These agreements  expire in September 1999 ($150
  million),   March  2000  ($125  million)  and  November  2001  ($250   million),
  respectively.  The March and  September  agreements  totaling  $275  million are
  expected  to  be  renewed.   The   agreements   are   structured   as  revolving
  securitizations, whereby additional leases can be sold as collections reduce the
  previously sold interests. During the second quarter of fiscal 1999, collections
  reduced  previously  sold  interests on all  securitization  agreements by $51.9
  million.  The Company sold an additional  $51.9  million in net eligible  direct
  financing leases and recognized pretax gains of $4.2 million.
  
  Income Before Income Taxes
  
  Income  before income taxes for the second  quarter of fiscal 1999  increased by
  $4.5 million or 17.2% over the second  quarter of fiscal 1998.  This increase in
  income  before  income taxes was  essentially  the effect of the increase in the
  gains on the sale of lease receivables and decreased general and  administrative
  expenses.
  
  Provision for Income Taxes
  
  Income taxes for the second  quarter of fiscal 1999 increased by $2.2 million or
  20.1% over the second  quarter of fiscal 1998.  This increase in income taxes is
  directly  attributable  to the  increase in income  before  income  taxes in the
  second  quarter of fiscal 1999 compared to the first second of fiscal 1998.  The
  effective tax rate was 42% for the second quarter of fiscal 1999 and 41% for the
  second quarter of 1998.
  
                      Six Months Ended March 31, 1999 Compared 
                      with the Six Months Ended March 31, 1998
  
  Comparative summarized results of operations for the six months ended March, 31,
  1999 and 1998 are set  forth in the  table  below.  This  table  also  shows the
  increase or decrease in the dollar  amounts of major  revenue and expense  items
  between periods, as well as the related percentage increase or decrease.
  <TABLE>
  <CAPTION>
                                                                Six Months
  (dollars in thousands)                                       Ended March 31               Increase  (Decrease)
                                                           ----------------------           --------------------
                                                         1999                1998          Amount        Percent
                                                         ----                ----          ------        -------
  Revenues:
  <S>                                                   <C>               <C>              <C>             <C> 
       Lease finance income                             $111,850          $106,266         $5,584          5.3%
       Rental income                                      19,037            18,149            888          4.9%
       Interest on IKON tax deferrals                      8,475             7,505            970         12.9%
       Other income                                        7,414             5,365          2,049         38.2%
                                                       ---------         ---------       ---------
                                                         146,776           137,285          9,491          6.9%
  
  Expenses:
       Interest                                           55,809            53,073          2,736          5.2%
       General and administrative                         32,544            35,743         (3,199)        (9.0)%
                                                       ---------         ---------       ---------
                                                          88,353            88,816           (463)         (.5)%
  
  Gain on sale of lease receivables                       20,879             1,181         19,698       1667.9%
                                                       ---------         ---------       ---------
  
  Income before income taxes                              79,302            49,650         29,652         59.7%
  Provision for income taxes                              33,307            20,357         12,950         63.6%
                                                       ---------         ---------       ---------
  Net income                                           $  45,995         $  29,293       $ 16,702         57.0%
                                                       =========         =========       =========
  </TABLE>
  <PAGE>
  Revenues
  
  Total revenues  increased by approximately $9.5 million or 6.9% in the first six
  months of  fiscal  1999  compared  to the  first  six  months  of  fiscal  1998.
  Approximately 58.8% or $5.6 million of this increase in revenues was a result of
  increased lease finance income due to the increase in lease receivables prior to
  the asset securitization completed in December 1998. The lease portfolio, net of
  lease receivables that were sold in asset securitization transactions, decreased
  by .6 % from March 31, 1998 to March 31, 1999,  including the retained  interest
  in the leases sold, primarily due to the asset securitization in December 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 1999 and 1998, IOS Capital purchased operating lease equipment of $5.7
  million and $30.7 million,  respectively.  Operating  leases  contributed  $19.0
  million in rental income during the first six months of fiscal 1999, compared to
  $18.1 million in the first six months of fiscal 1998. Effective October 1, 1998,
  the Company has limited the funding of rental equipment to the IKON marketplaces
  to select accounts.
  
  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 first six months of both
  fiscal 1999 and fiscal 1998. The deferred tax base upon which these payments are
  calculated  increased  by 7.9 % to $263.5  million at March 31, 1999 from $244.3
  million at March 31, 1998.  Primarily as a result of the increased  deferred tax
  liabilities,  interest  income on deferred  taxes rose by $970,000 or 12.9% when
  comparing  the six months ended March 31, 1999 to the six months ended March 31,
  1998.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1998.  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 $2.0 million or 38.2%,  when  comparing the first six
  months of fiscal 1999 to the same period of fiscal 1998.
  
  Expenses
  
  Borrowings  to finance the lease  portfolio  in the form of loans from banks and
  the  issuance of medium term notes in the public  market  decreased by 7.9% from
  the prior  year,  with  $1,622.3  million  outstanding  at March 31,  1999.  The
  decrease was the result of the asset  securitization in December 1998. Excluding
  the  securitization,  debt would have increased by $111.5 million,  or 6.3%. The
  Company paid a weighted  average  interest rate on all borrowings of 6.5% in the
  first six months of both fiscal 1999 and fiscal 1998.  The increased  borrowings
  prior to the securitization in December 1998 resulted in an increase in interest
  expense of $2.7 million,  or 5.2%, when comparing the first six months of fiscal
  1999 to the first six months of fiscal 1998.  At March 31, 1999,  the  Company's
  debt to equity ratio, including intercompany amounts due to IKON, was 4.8 to 1.
  
  Total  general and  administrative  expenses  for the six months ended March 31,
  1999  decreased by $3.2 million or 9.0%,  compared to the six months ended March
  31,  1998.  The general  and  administrative  expense  category in the first six
  months of fiscal 1999 includes depreciation expense on leased equipment totaling
  $16.0  million,  compared  to $15.3  million  for the first six months of fiscal
  1998.  In addition,  lease bonus  subsidy  payments  included in the general and
  administrative  expense  category  were $5.8  million in the first six months of
  fiscal  1999  compared to $7.6  million in the first six months of fiscal  1998.
  Excluding the effects of increased  depreciation expense on operating leases and
  a decrease in lease bonus subsidy payments, remaining general and administrative
  expenses decreased by $2.1 million or 16.3%, when comparing the first six months
  of fiscal 1999 to the first six months of fiscal 1998.
  
  
  
  <PAGE>
  Gain on Sale of Lease Receivables
  
  In December 1998, the Company entered into an asset  securitization  transaction
  whereby it sold $366.6 million in direct  financing  lease  receivables for $250
  million in cash and a retained  interest in the remainder.  The agreement is for
  an initial three-year term with certain renewal provisions and was structured as
  a revolving asset  securitization so that as collections  reduce previously sold
  interests  in the  pool  of  leases,  additional  leases  can be sold up to $250
  million.  The terms of the  agreement  provide that the Company will continue to
  service  the  lease  portfolio  for the  securitization  provider.  The  Company
  recognized  a pretax gain of $14.3  million  during the first  quarter of fiscal
  1999 on this agreement.
  
  The Company has additional asset  securitization  agreements for $275 million of
  eligible direct financing receivables. These agreements expire in September 1999
  ($150  million)  and March  2000  ($125  million),  respectively.  Both of these
  agreements are expected to be renewed.  These  agreements are also structured as
  revolving securitizations,  whereby additional leases can be sold as collections
  reduce  the  previously  sold  interests.  During the first six months of fiscal
  1999,  collections reduced previously sold interests on these two agreements and
  the $250 million  transaction,  described  above, by $83.0 million.  The Company
  sold an additional  $83.0 million in net eligible  direct  financing  leases and
  recognized pretax gains of $6.6 million for the six months ended March 31, 1999.
  
  Income Before Income Taxes
  
  Income before income taxes for the first six months of fiscal 1999  increased by
  $29.7  million or 59.7% over the first six months of fiscal 1998.  This increase
  in income  before  income  taxes was  essentially  the effect of the gain on the
  asset  securitization  completed  in the first  quarter of fiscal  1999,  higher
  earnings  on  a  larger  lease   portfolio   base  and  decreased   general  and
  administrative expenses, partially offset by higher borrowing costs.
  
  Provision for Income Taxes
  
  Income taxes for the first six months of fiscal 1999  increased by $13.0 million
  or 63.6% over the first six months of fiscal 1998. This increase in income taxes
  is directly  attributable  to the increase in income  before income taxes in the
  first six months of fiscal 1999 compared to the first six months of fiscal 1998.
  The  effective  tax rate was 42% for the first six months of fiscal 1999 and 41%
  for the first six months of 1998.
  
  
                             FORWARD-LOOKING INFORMATION
  
  This  Report  includes  or  incorporates  by  reference  information  which  may
  constitute   forward-looking  statements  within  the  meaning  of  the  federal
  securities laws.  Although the Company  believes the  expectations  contained in
  such forward-looking  statements are reasonable,  it can give no assurances that
  such expectations will prove correct. Such forward-looking  information is based
  upon  management's  current plans or expectations  and is subject to a number of
  risks  and  uncertainties  that  could   significantly   affect  current  plans,
  anticipated  actions and the Company's and/or IKON's future financial  condition
  and results. These risks and uncertainties,  which apply to both the Company and
  IKON,  include,  but are not limited  to,  risks and  uncertainties  relating to
  conducting  operations  in  a  competitive  environment;  delays,  difficulties,
  management  transitions and employment issues associated with  consolidation of,
  and/or changes in business operations;  managing the integration of existing and
  acquired companies;  risks and uncertainties  associated with existing or future
  vendor relationships;  and general economic conditions. Certain additional risks
  and uncertainties are set forth in the Company's 1998 Annual Report on Form 10-K
  filed with the Securities and Exchange Commission. As a consequence of these and
  other risks and  uncertainties,  current plans,  anticipated  actions and future
  financial  condition and results may differ  materially  from those expressed in
  any forward-looking statements made by or on behalf of the Company.
  <PAGE>
                             PART II. OTHER INFORMATION
  
  
  
  Item 5. Other Information
  
  
          On May 10,  1999,  Kurt E.  Dinkelacker  resigned  his  position as Sole
          Director of the  Company.  William S. Urkiel has been  appointed  as the
          Sole Director of the Company to succeed Mr. Dinkelacker.
  
          Richard P. Maier, who has served as the Company's  President since 1989,
          will resign all positions  with the Company  effective July 1, 1999. The
          Company is currently seeking a successor for the position.
  
          During  the third  quarter  of fiscal  1999,  IKON  Receivables,  LLC (a
          second-tier  wholly-owned subsidiary of the Company) expects to publicly
          offer  approximately   $752.93  million  of  lease-  backed  notes  (the
          "Notes").  This transaction will be structured using two special purpose
          limited  liability  companies:  IKON  Receivables-1,  LLC,  of which the
          Company  is  sole  member,  and  IKON  Receivables,  LLC of  which  IKON
          Receivables-1,  LLC is sole member.  The Company will contribute to IKON
          Receivables-1,  LLC a pool of office  equipment  leases or contracts and
          related  assets (the "Asset  Pool"),  and IKON  Receivables-1,  LLC will
          transfer them to IKON Receivables,  LLC, which will be the issuer of the
          Notes.  The Notes will be secured by the Asset Pool and the  payments on
          the Notes will be made from  payments  on the leases.  The Company  will
          receive  approximately  $750  million in  proceeds  from the sale of the
          Notes  and  will  use  approximately  $250  million  of that  amount  to
          repurchase   previously   sold  assets  in  connection  with  the  asset
          securitization  transaction  completed in December 1998. The repurchased
          assets will be contributed as part of the Asset Pool.
  
  
  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 March 10, 1999,  the Company filed a Current  Report on Form 8-K
               to file,  under Item 5 of the form,  information  contained  in the
               press release  issued by IKON,  dated March 9, 1999  announcing the
               resignation of Kurt E. Dinkelacker as Chief Financial Officer and a
               member of IKON's Board of Directors, effective May 1, 1999.
  
               On May 5, 1999,  the Company filed a Current  Report on Form 8-K to
               file,  under Item 5 of the form,  information  contained in: 1) the
               press release issued by IKON,  dated April 22, 1999,  regarding the
               appointment of William S. Urkiel as IKON's Chief Financial  Officer
               and Senior Vice President, and 2) the press release issued by IKON,
               dated April 28, 1999,  regarding IKON's  financial  results for the
               period  ended  March 31,  1999,  including  unaudited  consolidated
               statements  of income for the three months ended March 31, 1999 and
               the six months ended March 31, 1999.
  
  <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": 51337}]
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": "99623823"}, "business-address": {"street1": "1738 BASS RD", "city": "MACON", "state": "GA", "zip": "31210", "phone": "2154712300"}, "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,  1999 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)
  
  --------------------------------------------------------------------------------
                (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, 1999.
  
  Common Stock, $.01 par value per share                           1,000 shares
  Registered Debt Outstanding as of April 30, 1999               $1,622,250,000
  
  The registrant,  an indirect wholly owned  subsidiary of IKON Office  Solutions,
  Inc. ("IKON"), meets the conditions set forth in General Instruction I(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, 1999 and
                             September 30, 1998
  
                             Statements of Income--Three and Six Months ended
                             March 31, 1999 and March 31, 1998
  
                             Statements of Cash Flows--Six Months ended
                             March 31, 1999 and March 31, 1998
  
                             Notes to Financial Statements--March 31, 1999
  
        Item 2.              Management's Discussion and Analysis of
                             Financial Condition and Results of Operations
  
  PART II.  OTHER INFORMATION
  
        Item 5.              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,
                                                                   1999                   1998
                                                          -------------------     -----------------
  Assets
  
  Investment in leases:
  Direct financing leases                                    $1,646,285            $2,002,012
       Less: Unearned income                                        (271,480)             (343,211)
                                                          -------------------     -----------------
                                                                   1,374,805             1,658,801
       Funded leases, net                                            575,555               592,827
                                                          -------------------     -----------------
                                                                   1,950,360             2,251,628
  
  Retained interest in lease receivables                             120,674
  Cash                                                                                       2,621
  Accounts receivable                                                 66,397                63,066
  Due  from  IKON Office Solutions                                                          52,060
  Prepaid expenses and other assets                                   38,856                14,224
  Leased equipment-operating rentals at cost
       less accumulated depreciation of:
       3/99 - $50,874; 9/98 - $43,411                                 61,661                76,551
  Property and equipment at cost, less
       accumulated depreciation of:
       3/99 - $6,504; 9/98 - $5,596                                   10,499                11,491
                                                          -------------------     -----------------
  Total assets                                                    $2,248,447            $2,471,641
                                                          ===================     =================
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses                         $81,857               $59,206
       Accrued interest                                               29,440                33,467
       Due to IKON Office Solutions                                   47,616
       Notes payable to banks                                                              100,000
       Medium term notes                                           1,622,250             1,849,750
       Deferred income taxes                                         116,058                95,115
                                                          -------------------     -----------------
  Total liabilities                                                1,897,221             2,137,538
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                           119,415               149,415
       Retained earnings                                             230,683               184,688
       Accumulated other comprehensive income                          1,128
                                                          -------------------     -----------------
  Total shareholder's equity                                         351,226               334,103
                                                          -------------------     -----------------
  Total liabilities and shareholder's equity                      $2,248,447            $2,471,641
                                                          ===================     =================
  See notes to financial statements.
  IOS CAPITAL, INC.
                                STATEMENTS OF INCOME
                                   (in thousands)
  Three Months Ended                       Six Months Ended
                                                                       March 31                                 March 31
                                                            --------------------------------         ---------------------------------
                                                                1999               1998                  1999               1998
                                                            -------------      -------------         --------------     --------------
  Revenues:
  Lease finance income                                      $51,323            $54,787               $111,850           $106,266
       Rental income                                               9,195              9,098                 19,037             18,149
       Interest on IKON tax deferrals                              4,279              3,844                  8,475              7,505
       Other income                                                3,937              3,130                  7,414              5,365
                                                            -------------      -------------         --------------     --------------
                                                                  68,734             70,859                146,776            137,285
  
  Expenses:
       Interest                                                   26,607             27,208                 55,809             53,073
       General and administrative                                 15,512             17,972                 32,544             35,743
                                                            -------------      -------------         --------------     --------------
                                                                  42,119             45,180                 88,353             88,816
  
  Gain on sale of lease receivables                                4,203                617                 20,879              1,181
                                                            -------------      -------------         --------------     --------------
  
  Income before income taxes                                      30,818             26,296                 79,302             49,650
  
  Provision for income taxes                                      12,944             10,782                 33,307             20,357
                                                            -------------      -------------         --------------     --------------
  
  Net income                                                     $17,874            $15,514                $45,995            $29,293
                                                            =============      =============         ==============     ==============
  See notes to financial statements.
  IOS CAPITAL, INC.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Six Months Ended
                                                                                           March 31,
                                                                            --------------------------------------
                                                                                  1999                  1998
                                                                            ---------------      -----------------
  Operating activities:
  Net income                                                                       $45,995                $29,293
  Adjustments to reconcile net income to net
        cash provided by operating activities:
            Depreciation and amortization                                           16,931                 16,221
            Provision for deferred taxes                                            20,191                 20,788
            Gain on sale of lease receivables                                      (20,879)                (1,181)
            Changes in operating assets and liabilities:
                Accounts receivable                                                 (3,331)                (1,913)
                Prepaid expenses and other assets                                   11,092                  1,976
                Accounts payable and accrued expenses                               16,372                 (2,039)
                Accrued interest                                                    (4,027)                 6,047
                                                                            ---------------      -----------------
                                      Net cash provided                             82,344                 69,192
                                                                            ---------------      -----------------
  
  Investing activities:
  Purchases of leased equipment, net                                                (1,134)               (28,142)
  Disposals of property and equipment, net of additions                                 85                     15
  Investment in leases:
        Additions                                                                 (736,894)              (841,171)
        Cancellations                                                              173,730                164,546
        Collections                                                                404,055                379,240
        Proceeds from sale                                                         333,017                 52,271
                                                                            ---------------      -----------------
                                      Net cash provided (used)                     172,859               (273,241)
                                                                            ---------------      -----------------
  
  Financing activities:
  Payments on bank borrowings                                                     (100,000)                     0
  Proceeds from issuance of medium term notes                                            0                348,500
  Payments on medium term notes                                                   (227,500)              (155,000)
  Capital contributed by IKON                                                            0                  5,000
  Dividend to IKON                                                                 (30,000)                     0
                                                                            ---------------      -----------------
                                      Net cash (used) provided                    (357,500)               198,500
                                                                            ---------------      -----------------
  
  Increase in amounts Due to IKON                                                 (102,297)                (5,549)
  Cash and Due from IKON at beginning of year                                       54,681                  4,463
                                                                            ---------------      -----------------
  Due to IKON at end of period                                                    ($47,616)               ($1,086)
                                                                            ===============      =================
  See notes to financial statements.
  IOS Capital, Inc.
                            Notes to Financial Statements
                                   March 31, 1999
  
  Note 1:    Basis of Presentation
  
             The  accompanying  unaudited  condensed  financial  statements of IOS
  Capital,  Inc. (the Company)  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,  1998.
  Certain  prior year amounts have been  reclassified  to conform with the current
  year presentation.
  
  Note 2:    Medium Term Note Program
  
             During the six months  ended March 31,  1999,  the Company  issued no
  medium term notes under its $3.5 billion medium term note program.  At March 31,
  1999,  $1,622.3  million of medium term notes were  outstanding  with a weighted
  average interest rate of 6.5%. The remaining amount available under this program
  is $1,123.3 million.
  
  Note 3: Asset Securitization
  
           In December  1998,  the Company  entered  into an asset  securitization
  transaction whereby it sold $366.6 million in direct financing lease receivables
  for $250 million in cash and a retained interest in the remainder. The agreement
  is for an  initial  three-year  term with  certain  renewal  provisions  and was
  structured as a revolving  asset  securitization  so that as collections  reduce
  previously sold interests in the pool of leases,  additional  leases can be sold
  up to $250  million.  The terms of the  agreement  provide that the Company will
  continue to service the lease  portfolio  for the  securitization  provider.  At
  March 31, 1999, the interest-only  strip of approximately  $26.2 million related
  to the sale is included in prepaid  expenses and other assets and the  servicing
  obligation  of  approximately  $5.2 million is included in accounts  payable and
  accrued expenses.  The Company  recognized a pretax gain of $14.3 million during
  the first quarter of fiscal 1999 on this agreement.
  
           The Company has  additional  asset  securitization  agreements for $275
  million of eligible direct financing  receivables.  These  agreements  expire in
  September 1999 ($150 million) and March 2000 ($125 million),  respectively. Both
  of these  agreements  are  expected to be  renewed.  These  agreements  are also
  structured as revolving  securitizations,  whereby additional leases can be sold
  as collections reduce the previously sold interests. During the first six months
  of fiscal  1999,  collections  reduced  previously  sold  interests on these two
  agreements and the $250 million transaction,  described above, by $83.0 million.
  The Company sold an additional  $83.0 million in net eligible  direct  financing
  leases and  recognized  pretax  gains of $6.6  million for the six months  ended
  March 31, 1999.
  IOS Capital, Inc.
                        Notes to Financial Statements (Cont.)
                                   March 31, 1999
  
  Note 4:  Comprehensive Income
  
           As of October 1, 1998,  the  Company  adopted  Statement  of  Financial
  Accounting Standards No. 130, "Reporting  Comprehensive Income" (SFAS 130). SFAS
  130 establishes rules for the reporting and presentation of comprehensive income
  and its components. SFAS 130 requires mark to market adjustments on the retained
  interest on lease receivables to be included in other comprehensive income.
  
           Total comprehensive income is as follows (in thousands):
  Three Months Ended           Six Months Ended
                                                                             March  31                     March 31
                                                                             ---------                     --------
                                                                         1999           1998           1999        1998
                                                                         ----           ----           ----        ----
  Net income                                                  $17,874         $15,514       $45,995     $29,293
           Mark to market adjustment, net of tax                           159                         1,128            
                                                                       -------         -------       -------     -------
           Total comprehensive income                                  $18,033         $15,514       $47,123     $29,293
                                                                       =======         =======       =======     =======
  Item 2: Management's Discussion and Analysis of Financial Condition and Results
  of Operations
  
  Pursuant to General  Instruction I(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.
  
  Impact of Year 2000
  
  State of  Readiness.  The Year 2000 issue arises from  computer  programs  being
  written using two digits rather than four to define the applicable  year. Any of
  the Company's computer programs or hardware that have date-sensitive software or
  embedded technology (non-IT systems) may recognize a date using "00" as the year
  1900  rather  than the year  2000.  This  could  result in a system  failure  or
  miscalculations  causing  disruptions  of  operations,  including,  among  other
  things, a temporary inability to process transactions,  send invoices, or engage
  in similar normal business  activities.  The potential for a problem exists with
  all  computer  hardware  and  software,  as well as in  products  with  embedded
  technology: copiers and fax machines; security and HVAC systems; voice/telephony
  systems; elevators, etc.
  
  IKON has appointed a Year 2000 Corporate  Compliance  Team, which has prepared a
  compliance  program  for all  business  units,  including  the  Company,  and is
  responsible  for  coordination  and  inspecting  compliance  activities  in  all
  business units. The compliance program requires all business units and locations
  in every country to inventory potentially affected systems and products,  assess
  risk, take any required corrective actions, test and certify compliance.  IKON's
  Year  2000  Testing  and  Certification   Guidelines  delineate  the  Year  2000
  compliance process, testing and quality assurance guidelines,  certification and
  reporting processes and contingency planning. An independent  consulting company
  has reviewed the compliance program.
  
  The  Company's  Year 2000  compliance  program has five phases:  1) inventory of
  internal IT and non-IT  systems;  2) risk assessment of the Year 2000 compliance
  issues  associated with such internal IT and non-IT  systems;  3) remediation of
  non-compliant  systems; 4) testing and validation of remediated systems;  and 5)
  implementation  of remediated  systems  throughout the Company.  The progress to
  date of each of these  phases is as follows:  1) internal IT and non-IT  systems
  have been inventoried;  2) appropriate risk assessments have been completed;  3)
  remediation of critical systems has been substantially completed and remediation
  of non-critical  systems is  progressing;  4) testing and validation of critical
  systems has been substantially completed; and 5) Year 2000 compliant versions of
  critical  systems are in the process of being  implemented in field  operations.
  The Company  anticipates  completing the Year 2000 project no later than October
  31, 1999,  which is prior to any  anticipated  material  impact on its operating
  systems.
  
  Costs. The Company will use both internal and external resources to reprogram or
  replace,   test  and  implement  its  IT  and  non-IT   systems  for  Year  2000
  modifications. The Company does not separately track the internal costs incurred
  on the Year 2000 project.  Such costs are principally  payroll and related costs
  for its  internal  IT  personnel.  The  total  cost of the  Year  2000  project,
  excluding these internal costs, is estimated at $1.4 million and is being funded
  through  operating  cash flows,  all of which will be expensed as  incurred.  To
  date, the Company has expensed  approximately  $794,000 related to its Year 2000
  project.
  Risks. Management believes,  based on the information currently available to it,
  that the most  reasonably  likely  worse case  scenario  that could be caused by
  technology  failures  relating to the Year 2000 could pose a significant  threat
  not  only  to  the  Company,  IKON,  its  customers  and  suppliers,  but to all
  businesses. Risks include, but are not limited to:
  
  o    Legal risks, including customer, supplier, employee or shareholder lawsuits
       over failure to deliver contracted services, product failure, or health and
       safety issues.
  o    Loss of revenues due to failure to meet customer quality expectations.
  o    Increased  operational costs due to manual  processing,  data corruption or
       disaster recovery.
  o    Inability to bill or invoice.
  
  The cost of the project  and the date on which IKON and the  Company  believe it
  will  complete  the Year  2000  modifications  are  based in  management's  best
  estimates,  which were derived  using  numerous  assumptions  of future  events,
  including the continued  availability  of certain  resources and other  factors.
  However,  there can be no guarantee  that these  estimates  will be achieved and
  actual results could differ materially from those anticipated.  Specific factors
  that might cause such material  differences include, but are not limited to, the
  availability  and cost of personnel  trained in this area, the ability to locate
  and correct all relevant computer codes, and other uncertainties.
  
  Contingency Plans. IKON's Guidelines require that contingency plans be developed
  and  validated in the event that any  critical  system  cannot be corrected  and
  certified  before the system's failure date. The Company and IKON expect to have
  contingency  plans in place by October 31, 1999. In addition,  IKON is forming a
  rapid response team as part of its IT group that will respond to any operational
  problems during the Year 2000 date change period.
  
                     Three Months Ended March 31, 1999 Compared 
                     with the Three Months Ended March 31, 1998
  
  Comparative  summarized  results of operations  for the three months ended March
  31,  1999 and 1998 are set forth in the table  below.  This table also shows the
  increase or decrease in the dollar  amounts of major  revenue and expense  items
  between periods, as well as the related percentage increase or decrease.
  Three Months
  (dollars in thousands)                                       Ended March 31               Increase  (Decrease)
                                                           ----------------------           --------------------
                                                         1999                1998          Amount        Percent
                                                         ----                ----          ------        -------
  Revenues:
  Lease finance income                              $51,323           $54,787        $(3,464)        (6.3)%
       Rental income                                       9,195             9,098             97          1.1%
       Interest on IKON tax deferrals                      4,279             3,844            435         11.3%
       Other income                                        3,937             3,130            807         25.8%
                                                       ---------         ---------       ---------
                                                          68,734            70,859         (2,125)        (3.0)%
  
  Expenses:
       Interest                                           26,607            27,208           (601)        (2.2)%
       General and administrative                         15,512            17,972         (2,460)       (13.7)%
                                                       ---------         ---------       ---------
                                                          42,119            45,180         (3,061)        (6.8)%
  
  Gain on sale of lease receivables                        4,203               617          3,586        581.2%
                                                       ---------         ---------       ---------
  
  Income before income taxes                              30,818            26,296          4,522         17.2%
  Provision for income taxes                              12,944            10,782          2,162         20.1%
                                                       ---------         ---------       ---------
  Net income                                           $  17,874         $  15,514       $  2,360         15.2%
                                                       =========         =========       =========
  Revenues
  
  Total  revenues  decreased by  approximately  $2.1 million or 3.0% in the second
  quarter of fiscal 1999  compared  to the second  quarter of fiscal  1998.  Lease
  finance income decreased by approximately  $3.5 million due to the effect of the
  sale of $366.6  million in direct  financing  leases in  December  1998 under an
  asset securitization transaction.  The lease portfolio, net of lease receivables
  sold in asset securitization transactions, decreased .6 % from March 31, 1998 to
  March 31, 1999, including the retained interest in the leases sold.
  
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable terms, may be purchased by the Company.  During the second quarter of
  fiscal 1998, the Company  purchased  operating lease equipment of $11.2 million,
  compared  to none  in the  second  quarter  of  fiscal  1999.  Operating  leases
  contributed  $9.2 million in rental income  during the second  quarter of fiscal
  1999,  compared to $9.1 million in the second quarter of fiscal 1998.  Effective
  October 1, 1998, the Company has limited the funding of rental  equipment to the
  IKON marketplaces to select accounts.
  
  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 both
  fiscal 1999 and fiscal 1998. The deferred tax base upon which these payments are
  calculated  increased  by 7.9% to $263.5  million at March 31,  1999 from $244.3
  million at March 31, 1998.  Primarily as a result of the increased  deferred tax
  liabilities,  interest  income on deferred  taxes rose by $435,000 or 11.3% when
  comparing  the three months ended March 31, 1999 to the three months ended March
  31, 1998.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1998.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio, including securitized leases, upon which these fees
  are based.  Overall,  fee income from these  sources  grew by $807,000 or 25.8%,
  when  comparing  the second  quarter of fiscal 1999 to the same period of fiscal
  1998.
  
  Expenses
  
  Borrowings  to finance the lease  portfolio  in the form of loans from banks and
  the  issuance of medium term notes in the public  market  decreased by 7.9% from
  the prior  year,  with  $1,622.3  million  outstanding  at March 31,  1999.  The
  decrease  was the  result of the asset  securitization  in  December  1998.  The
  Company paid a weighted  average  interest rate on all borrowings of 6.5% in the
  second  quarter of both  fiscal  1999 and  fiscal  1998.  As a result,  interest
  expense  decreased by $601,000,  or 2.2%,  when  comparing the second quarter of
  fiscal  1999 to the  second  quarter  of fiscal  1998.  At March 31,  1999,  the
  Company's debt to equity ratio,  including intercompany amounts due to IKON, was
  4.8 to 1.
  
  Total general and  administrative  expenses for the quarter ended March 31, 1999
  decreased  by $2.5  million or 13.7%,  compared to the  quarter  ended March 31,
  1998. The general and  administrative  expense category in the second quarter of
  both  fiscal  1999 and  fiscal  1998  includes  depreciation  expense  on leased
  equipment  totaling $7.7  million.  In addition,  lease bonus  subsidy  payments
  included in the general and administrative expense category were $3.0 million in
  the second quarter of fiscal 1999 compared to $3.8 million in the second quarter
  of fiscal  1998.  Excluding  the effects of  depreciation  expense on  operating
  leases and a decrease in lease bonus  subsidy  payments,  remaining  general and
  administrative  expenses  decreased by $1.7 million or 25.6%, when comparing the
  second quarter of fiscal 1999 to the second quarter of fiscal 1998.
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $525  million of eligible
  direct financing  receivables.  These agreements  expire in September 1999 ($150
  million),   March  2000  ($125  million)  and  November  2001  ($250   million),
  respectively.  The March and  September  agreements  totaling  $275  million are
  expected  to  be  renewed.   The   agreements   are   structured   as  revolving
  securitizations, whereby additional leases can be sold as collections reduce the
  previously sold interests. During the second quarter of fiscal 1999, collections
  reduced  previously  sold  interests on all  securitization  agreements by $51.9
  million.  The Company sold an additional  $51.9  million in net eligible  direct
  financing leases and recognized pretax gains of $4.2 million.
  
  Income Before Income Taxes
  
  Income  before income taxes for the second  quarter of fiscal 1999  increased by
  $4.5 million or 17.2% over the second  quarter of fiscal 1998.  This increase in
  income  before  income taxes was  essentially  the effect of the increase in the
  gains on the sale of lease receivables and decreased general and  administrative
  expenses.
  
  Provision for Income Taxes
  
  Income taxes for the second  quarter of fiscal 1999 increased by $2.2 million or
  20.1% over the second  quarter of fiscal 1998.  This increase in income taxes is
  directly  attributable  to the  increase in income  before  income  taxes in the
  second  quarter of fiscal 1999 compared to the first second of fiscal 1998.  The
  effective tax rate was 42% for the second quarter of fiscal 1999 and 41% for the
  second quarter of 1998.
  
                      Six Months Ended March 31, 1999 Compared 
                      with the Six Months Ended March 31, 1998
  
  Comparative summarized results of operations for the six months ended March, 31,
  1999 and 1998 are set  forth in the  table  below.  This  table  also  shows the
  increase or decrease in the dollar  amounts of major  revenue and expense  items
  between periods, as well as the related percentage increase or decrease.
  Six Months
  (dollars in thousands)                                       Ended March 31               Increase  (Decrease)
                                                           ----------------------           --------------------
                                                         1999                1998          Amount        Percent
                                                         ----                ----          ------        -------
  Revenues:
  Lease finance income                             $111,850          $106,266         $5,584          5.3%
       Rental income                                      19,037            18,149            888          4.9%
       Interest on IKON tax deferrals                      8,475             7,505            970         12.9%
       Other income                                        7,414             5,365          2,049         38.2%
                                                       ---------         ---------       ---------
                                                         146,776           137,285          9,491          6.9%
  
  Expenses:
       Interest                                           55,809            53,073          2,736          5.2%
       General and administrative                         32,544            35,743         (3,199)        (9.0)%
                                                       ---------         ---------       ---------
                                                          88,353            88,816           (463)         (.5)%
  
  Gain on sale of lease receivables                       20,879             1,181         19,698       1667.9%
                                                       ---------         ---------       ---------
  
  Income before income taxes                              79,302            49,650         29,652         59.7%
  Provision for income taxes                              33,307            20,357         12,950         63.6%
                                                       ---------         ---------       ---------
  Net income                                           $  45,995         $  29,293       $ 16,702         57.0%
                                                       =========         =========       =========
  Revenues
  
  Total revenues  increased by approximately $9.5 million or 6.9% in the first six
  months of  fiscal  1999  compared  to the  first  six  months  of  fiscal  1998.
  Approximately 58.8% or $5.6 million of this increase in revenues was a result of
  increased lease finance income due to the increase in lease receivables prior to
  the asset securitization completed in December 1998. The lease portfolio, net of
  lease receivables that were sold in asset securitization transactions, decreased
  by .6 % from March 31, 1998 to March 31, 1999,  including the retained  interest
  in the leases sold, primarily due to the asset securitization in December 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 1999 and 1998, IOS Capital purchased operating lease equipment of $5.7
  million and $30.7 million,  respectively.  Operating  leases  contributed  $19.0
  million in rental income during the first six months of fiscal 1999, compared to
  $18.1 million in the first six months of fiscal 1998. Effective October 1, 1998,
  the Company has limited the funding of rental equipment to the IKON marketplaces
  to select accounts.
  
  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 first six months of both
  fiscal 1999 and fiscal 1998. The deferred tax base upon which these payments are
  calculated  increased  by 7.9 % to $263.5  million at March 31, 1999 from $244.3
  million at March 31, 1998.  Primarily as a result of the increased  deferred tax
  liabilities,  interest  income on deferred  taxes rose by $970,000 or 12.9% when
  comparing  the six months ended March 31, 1999 to the six months ended March 31,
  1998.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1998.  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 $2.0 million or 38.2%,  when  comparing the first six
  months of fiscal 1999 to the same period of fiscal 1998.
  
  Expenses
  
  Borrowings  to finance the lease  portfolio  in the form of loans from banks and
  the  issuance of medium term notes in the public  market  decreased by 7.9% from
  the prior  year,  with  $1,622.3  million  outstanding  at March 31,  1999.  The
  decrease was the result of the asset  securitization in December 1998. Excluding
  the  securitization,  debt would have increased by $111.5 million,  or 6.3%. The
  Company paid a weighted  average  interest rate on all borrowings of 6.5% in the
  first six months of both fiscal 1999 and fiscal 1998.  The increased  borrowings
  prior to the securitization in December 1998 resulted in an increase in interest
  expense of $2.7 million,  or 5.2%, when comparing the first six months of fiscal
  1999 to the first six months of fiscal 1998.  At March 31, 1999,  the  Company's
  debt to equity ratio, including intercompany amounts due to IKON, was 4.8 to 1.
  
  Total  general and  administrative  expenses  for the six months ended March 31,
  1999  decreased by $3.2 million or 9.0%,  compared to the six months ended March
  31,  1998.  The general  and  administrative  expense  category in the first six
  months of fiscal 1999 includes depreciation expense on leased equipment totaling
  $16.0  million,  compared  to $15.3  million  for the first six months of fiscal
  1998.  In addition,  lease bonus  subsidy  payments  included in the general and
  administrative  expense  category  were $5.8  million in the first six months of
  fiscal  1999  compared to $7.6  million in the first six months of fiscal  1998.
  Excluding the effects of increased  depreciation expense on operating leases and
  a decrease in lease bonus subsidy payments, remaining general and administrative
  expenses decreased by $2.1 million or 16.3%, when comparing the first six months
  of fiscal 1999 to the first six months of fiscal 1998.
  Gain on Sale of Lease Receivables
  
  In December 1998, the Company entered into an asset  securitization  transaction
  whereby it sold $366.6 million in direct  financing  lease  receivables for $250
  million in cash and a retained  interest in the remainder.  The agreement is for
  an initial three-year term with certain renewal provisions and was structured as
  a revolving asset  securitization so that as collections  reduce previously sold
  interests  in the  pool  of  leases,  additional  leases  can be sold up to $250
  million.  The terms of the  agreement  provide that the Company will continue to
  service  the  lease  portfolio  for the  securitization  provider.  The  Company
  recognized  a pretax gain of $14.3  million  during the first  quarter of fiscal
  1999 on this agreement.
  
  The Company has additional asset  securitization  agreements for $275 million of
  eligible direct financing receivables. These agreements expire in September 1999
  ($150  million)  and March  2000  ($125  million),  respectively.  Both of these
  agreements are expected to be renewed.  These  agreements are also structured as
  revolving securitizations,  whereby additional leases can be sold as collections
  reduce  the  previously  sold  interests.  During the first six months of fiscal
  1999,  collections reduced previously sold interests on these two agreements and
  the $250 million  transaction,  described  above, by $83.0 million.  The Company
  sold an additional  $83.0 million in net eligible  direct  financing  leases and
  recognized pretax gains of $6.6 million for the six months ended March 31, 1999.
  
  Income Before Income Taxes
  
  Income before income taxes for the first six months of fiscal 1999  increased by
  $29.7  million or 59.7% over the first six months of fiscal 1998.  This increase
  in income  before  income  taxes was  essentially  the effect of the gain on the
  asset  securitization  completed  in the first  quarter of fiscal  1999,  higher
  earnings  on  a  larger  lease   portfolio   base  and  decreased   general  and
  administrative expenses, partially offset by higher borrowing costs.
  
  Provision for Income Taxes
  
  Income taxes for the first six months of fiscal 1999  increased by $13.0 million
  or 63.6% over the first six months of fiscal 1998. This increase in income taxes
  is directly  attributable  to the increase in income  before income taxes in the
  first six months of fiscal 1999 compared to the first six months of fiscal 1998.
  The  effective  tax rate was 42% for the first six months of fiscal 1999 and 41%
  for the first six months of 1998.
  
                             FORWARD-LOOKING INFORMATION
  
  This  Report  includes  or  incorporates  by  reference  information  which  may
  constitute   forward-looking  statements  within  the  meaning  of  the  federal
  securities laws.  Although the Company  believes the  expectations  contained in
  such forward-looking  statements are reasonable,  it can give no assurances that
  such expectations will prove correct. Such forward-looking  information is based
  upon  management's  current plans or expectations  and is subject to a number of
  risks  and  uncertainties  that  could   significantly   affect  current  plans,
  anticipated  actions and the Company's and/or IKON's future financial  condition
  and results. These risks and uncertainties,  which apply to both the Company and
  IKON,  include,  but are not limited  to,  risks and  uncertainties  relating to
  conducting  operations  in  a  competitive  environment;  delays,  difficulties,
  management  transitions and employment issues associated with  consolidation of,
  and/or changes in business operations;  managing the integration of existing and
  acquired companies;  risks and uncertainties  associated with existing or future
  vendor relationships;  and general economic conditions. Certain additional risks
  and uncertainties are set forth in the Company's 1998 Annual Report on Form 10-K
  filed with the Securities and Exchange Commission. As a consequence of these and
  other risks and  uncertainties,  current plans,  anticipated  actions and future
  financial  condition and results may differ  materially  from those expressed in
  any forward-looking statements made by or on behalf of the Company.
  PART II. OTHER INFORMATION
  
  Item 5. Other Information
  
          On May 10,  1999,  Kurt E.  Dinkelacker  resigned  his  position as Sole
          Director of the  Company.  William S. Urkiel has been  appointed  as the
          Sole Director of the Company to succeed Mr. Dinkelacker.
  
          Richard P. Maier, who has served as the Company's  President since 1989,
          will resign all positions  with the Company  effective July 1, 1999. The
          Company is currently seeking a successor for the position.
  
          During  the third  quarter  of fiscal  1999,  IKON  Receivables,  LLC (a
          second-tier  wholly-owned subsidiary of the Company) expects to publicly
          offer  approximately   $752.93  million  of  lease-  backed  notes  (the
          "Notes").  This transaction will be structured using two special purpose
          limited  liability  companies:  IKON  Receivables-1,  LLC,  of which the
          Company  is  sole  member,  and  IKON  Receivables,  LLC of  which  IKON
          Receivables-1,  LLC is sole member.  The Company will contribute to IKON
          Receivables-1,  LLC a pool of office  equipment  leases or contracts and
          related  assets (the "Asset  Pool"),  and IKON  Receivables-1,  LLC will
          transfer them to IKON Receivables,  LLC, which will be the issuer of the
          Notes.  The Notes will be secured by the Asset Pool and the  payments on
          the Notes will be made from  payments  on the leases.  The Company  will
          receive  approximately  $750  million in  proceeds  from the sale of the
          Notes  and  will  use  approximately  $250  million  of that  amount  to
          repurchase   previously   sold  assets  in  connection  with  the  asset
          securitization  transaction  completed in December 1998. The repurchased
          assets will be contributed as part of the Asset Pool.
  
  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 March 10, 1999,  the Company filed a Current  Report on Form 8-K
               to file,  under Item 5 of the form,  information  contained  in the
               press release  issued by IKON,  dated March 9, 1999  announcing the
               resignation of Kurt E. Dinkelacker as Chief Financial Officer and a
               member of IKON's Board of Directors, effective May 1, 1999.
  
               On May 5, 1999,  the Company filed a Current  Report on Form 8-K to
               file,  under Item 5 of the form,  information  contained in: 1) the
               press release issued by IKON,  dated April 22, 1999,  regarding the
               appointment of William S. Urkiel as IKON's Chief Financial  Officer
               and Senior Vice President, and 2) the press release issued by IKON,
               dated April 28, 1999,  regarding IKON's  financial  results for the
               period  ended  March 31,  1999,  including  unaudited  consolidated
               statements  of income for the three months ended March 31, 1999 and
               the six months ended March 31, 1999.
  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