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  June 30,  1998 or [ ]  Transition
  report  pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934
  for the transition period from _____ to _____
  
  Commission file number              0-20405
  
                                  IOS CAPITAL, INC.
               (Exact name of registrant as specified in its charter)
  
             DELAWARE                                       23-2493042
  (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                        Identification No.)
  
                        1738 Bass Road, Macon, Georgia 31210
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                                     (912) 471-2300
                (Registrant's telephone number, including area code)
  
  
                (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 August 7, 1998.
  
  Common Stock, $.01 par value per share                         1,000 shares
  Registered Debt Outstanding as of August 7, 1998              $1,674,750,000
  
  The registrant,  an indirect wholly owned  subsidiary of IKON Office  Solutions,
  Inc. ("IKON"), meets the conditions set forth in General Instruction H(1)(a) and
  (b) of Form 10-Q and is,  therefore,  filing with the reduced  disclosure format
  contemplated thereby.
  <PAGE>
                                        INDEX
  
                                  IOS CAPITAL, INC.
  
  
  
  PART I.  FINANCIAL INFORMATION
  
  
        Item 1.              Financial Statements (Unaudited)
  
                             Balance Sheets--June 30, 1998 and
                             September 30, 1997
  
                             Statements of Income--Three and nine months ended
                             June 30, 1998 and June 30, 1997
  
                             Statements of Cash Flows--Nine months ended
                             June 30, 1998 and June 30, 1997
  
                             Notes to Financial Statements--June 30, 1998
  
  
        Item 2.              Management's Discussion and Analysis of
                             Financial Condition and Results of Operations
  
  
  PART II.  OTHER INFORMATION
  
  
        Item 6.              Exhibits and Reports on Form 8-K
  
  
  
  SIGNATURES
  
  <PAGE>
                           PART I . FINANCIAL INFORMATION
  
  
  Item 1: Financial Statements (unaudited)
  
  
                                  IOS Capital, Inc.
                                   BALANCE SHEETS
                 (in thousands, except share and per share amounts)
  <TABLE>
  <CAPTION>
                                                                June 30,             September 30,
                                                                  1998                    1997
                                                           --------------------     -----------------
  Assets
  <S>                                                               <C>                   <C>       
  Investment in leases:
       Direct financing leases                                      $1,965,315            $1,640,559
       Less: Unearned income                                          (338,932)             (286,769)
                                                           --------------------     -----------------
                                                                     1,626,383             1,353,790
       Funded leases, net                                              573,924               485,658
                                                           --------------------     -----------------
                                                                     2,200,307             1,839,448
  
  Accounts receivable                                                   58,353                55,589
  Due  from  IKON Office Solutions                                      16,111                 4,463
  Prepaid expenses and other assets                                     12,799                13,436
  Leased equipment-operating rentals at cost,
       less accumulated depreciation of:
       6/98 - $40,026;   9/97 - $ 33,598                                70,981                50,945
  Property and equipment at cost, less
       accumulated depreciation of:
       6/98 - $5,102;   9/97 - $ 3,771                                  11,981                12,330
  
                                                           ====================     =================
  Total assets                                                      $2,370,532            $1,976,211
                                                           ====================     =================
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses                           $46,051               $51,018
       Accrued interest                                                  6,354                27,785
       Notes payable to banks                                          225,000                25,000
       Medium term notes                                             1,674,750             1,542,250
       Deferred income taxes                                           100,883                64,177
                                                           --------------------     -----------------
  Total liabilities                                                  2,053,038             1,710,230
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                             149,415               144,415
       Retained earnings                                               168,079               121,566
                                                           --------------------     -----------------
  Total shareholder's equity                                           317,494               265,981
                                                           ====================     =================
  Total liabilities and shareholder's equity                        $2,370,532            $1,976,211
                                                           ====================     =================
  </TABLE>
  
  
  See notes to financial statements.
  
  <PAGE>
                                  IOS Capital, Inc.
                                STATEMENTS OF INCOME
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
                                                Three Months Ended              Nine Months Ended
                                                     June 30                        June 30
                                               1998            1997            1998           1997
  <S>                                        <C>             <C>            <C>             <C>     
  Revenues:
      Lease finance income                   $56,904         $44,494        $163,170        $122,051
      Rental income                           10,138           6,545          28,287          16,473
      Interest on IKON tax deferrals           3,944           3,148          11,449           8,772
      Other income                             3,035           2,090           8,400           5,921
                                            --------        --------        --------        --------
                                              74,021          56,277         211,306         153,217
  
  Expenses:
      Interest                                27,382          22,075          80,455          59,303
      General and administrative              17,658          16,634          53,401          44,706
                                            --------        --------        --------        --------
                                              45,040          38,709         133,856         104,009
  
  Gain on sale of lease receivables              710             642           1,891           1,919
                                            --------        --------        --------        --------
  
  
  Income before income taxes                  29,691          18,210          79,341          51,127
  
  Provision for income taxes                  12,471           7,466          32,828          20,962
                                            --------        --------        --------        --------
  
  Net income                                 $17,220         $10,744         $46,513         $30,165
                                            ========        ========        ========        ========
  </TABLE>
  
  See notes to financial statements.
  
  
  <PAGE>
  
                                 IOS Capital, Inc.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
                                                                               Nine Months Ended
                                                                                   June 30,
                                                                             1998                1997
  Operating activities:
  <S>                                                                      <C>                 <C>    
  Net income                                                               $46,513             $30,165
  Adjustments to reconcile net income to net
          cash provided by operating activities:
                  Depreciation and amortization                             25,239              13,743
                  Provision for deferred taxes                              36,706              20,174
                  Gain on sale of lease receivables                         (1,891)             (1,919)
                  Changes in operating assets and liabilities:
                          Accounts receivable                               (2,764)             (3,764)
                          Prepaid expenses and other assets                  2,528               4,112
                          Accounts payable and accrued expenses             (4,967)             (5,074)
                          Accrued interest                                 (21,431)            (15,612)
                                                                        ----------          ---------- 
                          Net cash provided                                 79,933              41,825
                                                                        ----------          ---------- 
  
  Investing activities:
  Purchases of leased equipment, net                                       (43,917)            (24,746)
  Purchases of property and equipment, net                                  (1,009)             (5,005)
  Direct financing leases:
          Additions                                                     (1,015,101)           (884,826)
          Cancellations                                                    204,855             139,510
          Collections                                                      458,817             343,578
          Proceeds from sale                                                78,836              77,251
  Funded leases:
          Additions                                                       (272,724)           (314,058)
          Cancellations                                                     55,038              49,518
          Collections                                                      129,420             134,416
                                                                        ----------          ---------- 
                          Net cash used                                   (405,785)           (484,362)
                                                                        ----------          ---------- 
  
  Financing activities:
  Proceeds from bank borrowings                                            200,000
  Payments on bank borrowings                                                                  (33,000)
  Proceeds from issuance of medium term notes                              348,500             632,350
  Payments on medium term notes                                           (216,000)           (126,000)
  Capital contributed by IKON                                                5,000              32,000
                                                                        ----------          ---------- 
                          Net cash provided                                337,500             505,350
                                                                        ----------          ---------- 
  
  Increase in amounts due from IKON                                         11,648              62,813
  Due from (to) IKON at beginning of year                                    4,463             (24,330)
                                                                        ----------          ---------- 
  Due from IKON at end of period                                           $16,111             $38,483
                                                                        ----------          ---------- 
  
  </TABLE>
  
  
  See notes to financial statements 
  
  <PAGE>
                                  IOS Capital, Inc.
                            Notes to Financial Statements
                                    June 30, 1998
  
  
  Note 1:    Basis of Presentation
  
             The accompanying  unaudited condensed financial  statements have been
  prepared in accordance with generally accepted accounting principles for interim
  financial  information  and the  instructions  to Form  10-Q and  Rule  10-01 of
  Regulation  S-X. In the opinion of management,  all  adjustments  (consisting of
  normal recurring  accruals)  considered  necessary for a fair  presentation have
  been included.  For further  information,  refer to the financial statements and
  footnotes  thereto  included in the Company's annual report on Form 10-K for the
  year ended September 30, 1997.
  
  
  Note 2:    Medium Term Note Program
  
             During the nine months ended June 30, 1998, IOS Capital issued $348.5
  million under its medium term note program.  At June 30, 1998,  $1,674.8 million
  of medium term notes were  outstanding  with a weighted average interest rate of
  6.5%.  The  remaining  amount  available  under this  registration  statement is
  $1,298.2 million.
  
  
  Note 3:    Asset Securitization
  
             IOS Capital has asset  securitization  agreements for $275 million of
  eligible direct financing  receivables that expire September 1998 ($150 million)
  and March 1999 ($125  million).  Both of these  agreements  are  expected  to be
  renewed.  Under  these  agreements,  the  Company  sold $78.8  million in direct
  financing  leases during the first nine months of fiscal 1998,  replacing leases
  which had been  liquidated  during the period and  recognized  a pretax  gain of
  approximately $1.9 million. Under the terms of the sales agreements, the Company
  will continue to service the lease portfolio.
  
  
  Note 4:   Name Change
  
             On January 22, 1998, the Company  changed its name from IKON Capital,
  Inc. to IOS Capital, Inc.
  
  <PAGE>
  
  Item 2: Management's  Discussion and Analysis of Financial Condition and Results
  of Operations
  
  Pursuant to General Instruction H(2) (a) of Form 10-Q, the following analysis of
  the results of operations is presented in lieu of  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
  
                      Three Months Ended June 30, 1998 Compared
                      with the Three Months Ended June 30, 1997
  
  Comparative summarized results of operations for the three months ended June 30,
  1998 and 1997 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  <TABLE>
  <CAPTION>
                                                  Three Months
  (dollars in thousands)                          Ended June 30                    Increase
                                              1998            1997          Amount          Percent
  <S>                                        <C>            <C>            <C>               <C>  
  Revenues:
       Lease finance income                  $56,904        $44,494        $12,410           27.9%
       Rental income                          10,138          6,545          3,593           54.9%
       Interest on IKON tax deferrals          3,944          3,148            796           25.3%
       Other income                            3,035          2,090            945           45.2%
                                             -------        -------        -------       
                                              74,021         56,277         17,744           31.5%
  
  Expenses:
       Interest                               27,382         22,075          5,307           24.0%
       General and administrative             17,658         16,634          1,024            6.2%
                                             -------        -------        -------       
                                              45,040         38,709          6,331           16.4%
  
  Gain on sale of lease receivables              710            642             68           10.6%
                                             -------        -------        -------       
  
  Income before income taxes                  29,691         18,210         11,481           63.0%
  Provision for income taxes                  12,471          7,466          5,005           67.0%
                                             -------        -------        -------       
  Net income                                 $17,220        $10,744         $6,476           60.3%
                                             =======        =======         ======     
  </TABLE>
  
  
  Revenues
  
  Total revenues  increased  $17.7 million or 31.5% in the third quarter of fiscal
  1998 compared to the third quarter of fiscal 1997.  Approximately 69.9% or $12.4
  million of this  increase in revenues  was a result of increased  lease  finance
  income due to continued  growth in the portfolio of direct  financing and funded
  leases.  The lease portfolio,  net of lease  receivables that were sold in asset
  securitization  transactions,  increased  29.0 % from June 30,  1997 to June 30,
  1998.
  
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable terms, may be purchased by the Company.  During the third quarters of
  fiscal 1998 and 1997, IOS Capital  purchased  operating lease equipment of $15.8
  million and $8.3  million,  respectively.  Operating  leases  contributed  $10.1
  million in rental income  during the third  quarter of fiscal 1998,  compared to
  $6.5 million in the third quarter of fiscal 1997.
  
  <PAGE>
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  marketplaces  associated  with  leases  funded  through  the  Company  at a rate
  consistent  with  the  Company's  weighted  average  outside  borrowing  rate of
  interest.  The  Company's  average rate was 6.5% for the third quarter of fiscal
  1998 and 6.7% for the third  quarter of fiscal 1997.  In addition,  the deferred
  tax base upon which these  payments  are  calculated  increased  28.8% to $259.4
  million at June 30, 1998 from $201.4  million at June 30,  1997.  Primarily as a
  result of the increased  deferred tax  liabilities,  interest income on deferred
  taxes rose $796,000 or 25.3% when comparing the three months ended June 30, 1998
  to the three months ended June 30, 1997.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1997.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these  sources  grew by $.9  million  or 45.2%,  when  comparing  the third
  quarter of fiscal 1998 to the same period of fiscal 1997.
  
  Expenses
  
  Average  borrowings  to finance  the lease  portfolio  in the form of loans from
  banks and the  issuance of medium term notes in the public  market  increased by
  26.5% from June 30, 1997, to $1,899.8 million  outstanding at June 30, 1998. The
  Company paid a weighted  average interest rate on all borrowings of 6.5% for the
  third  quarter of fiscal  1998 and 6.7% for the third  quarter  of fiscal  1997.
  Primarily as a result of the increased borrowings, interest expense grew by $5.3
  million or 24.0%,  when  comparing the third quarter of fiscal 1998 to the third
  quarter of fiscal 1997. At June 30, 1998,  the  Company's  debt to equity ratio,
  including  intercompany  amounts due from IKON was 5.9 to 1. On August 14, 1998,
  Standard  and Poor's  lowered  its credit  ratings one level for the Company and
  IKON to "BBB+" from "A-" and Moody's Investor Service lowered its credit ratings
  one level on the Company and IKON to "Baa1" from "A3".
  
  Total  general and  administrative  expenses for the quarter ended June 30, 1998
  increased by $1.0  million or 6.2%,  over the quarter  ended June 30, 1997.  The
  general and administrative  expense category in the third quarter of fiscal 1998
  includes  depreciation  expense  on  leased  equipment  totaling  $8.5  million,
  compared to $5.2 million for the third quarter of fiscal 1997. In addition,  the
  general  and  administrative  expense  category  includes  lease  bonus  subsidy
  payments to either IKON or directly to the IKON marketplaces, based on the level
  of dealer  participation in the Company's leasing programs or for the funding of
  targeted new lease volume.  During the third quarter of fiscal 1998, lease bonus
  subsidy  payments totaled $3.7 million compared to $2.1 million during the third
  quarter of fiscal 1997. Excluding the effects of increased  depreciation expense
  on operating  leases and lease bonus  subsidy  payments,  remaining  general and
  administrative  expenses  decreased by $3.9 million or 41.6% compared to general
  and  administrative  expenses in the third quarter of fiscal 1997. This decrease
  is due to recent cost controls initiated within the Company.
  
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $275  million of eligible
  direct financing lease receivables that expire September 1998 ($150 million) and
  March 1999 ($125 million).  Both of these agreements are expected to be renewed.
  As collections  reduce  previously sold interests,  new leases can be sold up to
  the agreement amount.  During the three months ended June 30, 1998,  collections
  reduced  previously sold interests by  approximately  $26.6 million on these two
  agreements.  The Company sold an additional $26.6 million in net eligible direct
  financing  leases during the third quarter of fiscal 1998 and recognized  pretax
  gains of $710,000.
  
  
  <PAGE>
  Income Before Income Taxes
  
  Income  before  income taxes for the third  quarter of fiscal 1998  increased by
  $11.5 million or 63.0% over the third  quarter of fiscal 1997.  This increase in
  income before income taxes was  essentially the effect of higher earnings due to
  a larger  lease  portfolio  base,  net of increased  general and  administrative
  expenses,  partially  offset by higher  borrowing costs resulting from increased
  debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the third  quarter of fiscal 1998  increased by $5.0 million or
  67.0% over the third  quarter of fiscal 1997.  This  increase in income taxes is
  directly  attributable  to the  increase  in  income  before  taxes in the third
  quarter  of fiscal  1998  compared  to the third  quarter  of fiscal  1997.  The
  effective  tax rate was 42% in the third  quarter of fiscal 1998 compared to 41%
  in the third quarter of fiscal 1997.
  
  
                      Nine Months Ended June 30, 1998 Compared
                      with the Nine Months Ended June 30, 1997
  
  Comparative  summarized results of operations for the nine months ended June 30,
  1998 and 1997 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  <TABLE>
  <CAPTION>
                                                    Nine Months
  (dollars in thousands)                           Ended June 30                     Increase
                                               1998            1997            Amount          Percent
  <S>                                        <C>            <C>            <C>               <C>  
  Revenues:
       Lease finance income                  $163,170        $122,051         $41,119            33.7%
       Rental income                           28,287          16,473          11,814            71.7%
       Interest on IKON tax deferrals          11,449           8,772           2,677            30.5%
       Other income                             8,400           5,921           2,479            41.9%
                                              -------         -------         -------         
                                              211,306         153,217          58,089            37.9%
  
  Expenses:
       Interest                                80,455          59,303          21,152            35.7%
       General and administrative              53,401          44,706           8,695            19.4%
                                              -------         -------         -------         
                                              133,856         104,009          29,847            28.7%
  
  Gain on sale of lease receivables             1,891           1,919             (28)           (1.5)%
                                              -------         -------         -------         
  
  Income before income taxes                   79,341          51,127          28,214            55.2%
  Provision for income taxes                   32,828          20,962          11,866            56.6%
                                              -------         -------         -------         
  Net income                                  $46,513         $30,165         $16,348            54.2%
                                              =======         =======         =======          
  </TABLE>
  
  
  Revenues
  
  Total  revenues  increased  $58.1  million or 37.9% in the first nine  months of
  fiscal  1998  compared to the first nine  months of fiscal  1997.  Approximately
  70.8% or $41.1  million of this  increase in revenues  was a result of increased
  lease  finance  income  due to  continued  growth  in the  portfolio  of  direct
  financing and funded leases. The lease portfolio,  net of lease receivables that
  were sold in asset securitization  transactions,  increased 29.0 % from June 30,
  1997 to June 30, 1998.
  
  
  <PAGE>
  
  
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable terms, may be purchased by the Company.  During the first nine months
  of fiscal 1998 and 1997,  IOS Capital  purchased  operating  lease  equipment of
  $43.9 million and $24.7  million,  respectively.  Operating  leases  contributed
  $28.3  million in rental  income  during the first nine  months of fiscal  1998,
  compared to $16.5 million in the first nine months of fiscal 1997.
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  marketplaces  associated  with  leases  funded  through  the  Company  at a rate
  consistent  with  the  Company's  weighted  average  outside  borrowing  rate of
  interest.  The  Company's  average  rate was 6.5% for the first  nine  months of
  fiscal 1998 and 6.7% for the first nine months  fiscal 1997.  In  addition,  the
  deferred tax base upon which these  payments are calculated  increased  28.8% to
  $259.4 million at June 30, 1998 from $201.4 million at June 30, 1997.  Primarily
  as a result  of the  increased  deferred  tax  liabilities,  interest  income on
  deferred  taxes rose $2.7 or 30.5% when  comparing  the first nine months  ended
  June 30, 1998 to the first nine months ended June 30, 1997.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1997.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these sources grew by $2.5 million or 41.9%,  when comparing the first nine
  months of fiscal 1998 to the same period of fiscal 1997.
  
  Expenses
  
  Average  borrowings  to finance  the lease  portfolio  in the form of loans from
  banks and the  issuance of medium term notes in the public  market  increased by
  26.5%, to $1,899.8 million  outstanding at June 30, 1998 from June 30, 1997. The
  Company paid a weighted  average interest rate on all borrowings of 6.5% for the
  first nine  months of fiscal  1998 and 6.7% for the first nine  months of fiscal
  1997. Primarily as a result of the increased  borrowings,  interest expense grew
  by $21.2 million or 35.7%,  when  comparing the first nine months of fiscal 1998
  to the first nine months of fiscal 1997. At June 30, 1998, the Company's debt to
  equity ratio, including intercompany amounts due to IKON was 5.9 to 1. On August
  14,  1998,  Standard  and Poor's  lowered  its credit  ratings one level for the
  Company and IKON to "BBB+" from "A-" and Moody's  Investor  Service  lowered its
  credit ratings one level on the Company and IKON to "Baa1" from "A3".
  
  Total general and  administrative  expenses for the first nine months ended June
  30, 1998  increased by $8.7  million or 19.4%,  over the first nine months ended
  June 30, 1997. The general and administrative expense category in the first nine
  months of fiscal 1998 includes depreciation expense on leased equipment totaling
  $23.9  million,  compared  to $13.1  million for the first nine months of fiscal
  1997. In addition,  the general and  administrative  expense  category  includes
  lease  bonus   subsidy   payments  to  either  IKON  or  directly  to  the  IKON
  marketplaces,  based  on the  level of  dealer  participation  in the  Company's
  leasing  programs or for the funding of targeted  new lease  volume.  During the
  first nine months of fiscal 1998,  lease bonus  subsidy  payments  totaled $11.3
  million  compared to $7.7  million  during the first nine months of fiscal 1997.
  Excluding the effects of increased  depreciation expense on operating leases and
  lease bonus subsidy  payments,  remaining  general and  administrative  expenses
  decreased  by $5.7  million  or 23.8%  compared  to general  and  administrative
  expenses in the first nine months of fiscal 1997. This decrease is due to recent
  cost controls initiated within the Company.
  
  
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $275  million of eligible
  direct financing lease receivables that expire September 1998 ($150 million) and
  March 1999 ($125 million).  Both of these agreements are expected to be renewed.
  As collections  reduce  previously sold interests,  new leases can be sold up to
  the agreement  amount.  During the nine months ended June 30, 1998,  collections
  reduced  previously sold interests by  approximately  $78.8 million on these two
  agreements.  The Company sold an additional $78.8 million in net eligible direct
  financing  leases  during the first nine  months of fiscal  1998 and  recognized
  pretax gains of $1.9 million.
  <PAGE>
  Income Before Income Taxes
  
  Income before income taxes for the first nine months of fiscal 1998 increased by
  $28.2 million or 55.2% over the first nine months of fiscal 1997.  This increase
  in income before income taxes was  essentially the effect of higher earnings due
  to a larger lease  portfolio base, net of increased  general and  administrative
  expenses,  partially  offset  by  higher  borrowing  costs  resulting  from  the
  increased debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the first nine months of fiscal 1998 increased by $11.9 million
  or 56.6% over the first nine  months of fiscal  1997.  This  increase  in income
  taxes is directly  attributable  to the  increase in income  before taxes in the
  first nine  months of fiscal  1998  compared  to the first nine months of fiscal
  1997.  The effective tax rate was 41.4% for the first nine months of fiscal 1998
  compared to 41% for first nine months of fiscal 1997.
  
                             FORWARD-LOOKING INFORMATION
  
  This document contains disclosures which are forward-looking statements relating
  to the  Company or its  parent,  IKON,  within the meaning of Section 27A of the
  Securities Act of 1933, as amended (the  "Securities  Act"),  and Section 21E of
  the 1934 Act.  Such  forward-looking  statements  address,  among other  things,
  strategic  initiatives  (including  plans for  enhancing the Company's or IKON's
  business  through  new  acquisitions,   information  technology  systems,  sales
  strategies,  market  growth  plans,  margin  enhancement  initiatives,   capital
  expenditure   requirements   and  financing   sources).   Such   forward-looking
  information  is based upon  management's  current plans or  expectations  and is
  subject to a number of uncertainties and risks that could  significantly  affect
  the  Company's  and/or  IKON's  current  plans,  anticipated  actions and future
  financial condition and results.  These uncertainties and risks include, but are
  not limited to, those relating to IKON's successful  management of an aggressive
  program to  acquire  and  integrate  new  companies,  including  companies  with
  technical  services  and  products  that are  relatively  new to IKON,  and also
  including  companies outside the United States,  which present  additional risks
  relating to international  operations;  risks and  uncertainties  (applicable to
  both the Company and IKON)  relating to  conducting  operations in a competitive
  environment;  delays, difficulties,  technological changes and employment issues
  (applicable  to  both  the  Company  and  IKON)   associated  in  a  large-scale
  transformation  project;  debt  service  requirements  (applicable  to both  the
  Company and IKON) including  sensitivity to fluctuation in interest  rates;  and
  general  economic  conditions.  As a  consequence,  current  plans,  anticipated
  actions  and future  financial  condition  and  results  may  differ  from those
  expressed in any forward-looking  statements made by or on behalf of the Company
  or IKON.
  
  <PAGE>
                             PART II. OTHER INFORMATION
  
  
  
  Item 6.      Exhibits and Reports on Form 8-K
  
       (a)  The  following   Exhibits  are  furnished  pursuant  to  Item  601  of
            Regulation S-K:
  
               Exhibit No. (27) Financial Data Schedule
  
       (b)  Reports on Form 8-K
  
               On April 27, 1998, the registrant filed a Current Report on Form
               8-K to file, under Item 5 of the form, the press release dated
               April 22, 1998 of its parent, IKON Office Solutions, Inc. (IKON),
               which reported its earnings for the fiscal quarter ended March 31,
               1998, provided earnings estimates for the remainder of IKON's 1998
               fiscal year and provided additional information regarding its
               business, acquisitions and transformation process.
  
  
               On June 29, 1998, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, the press release dated June 29,
               1998 of its parent, IKON, indicating that IKON anticipates earnings
               will be significantly lower than the First Call consensus estimate
               of $.34 per share for the quarter ending June 30, 1998 and that
               IKON expects to release third quarter earnings on July 22, 1998.
  
               On July 10, 1998, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, the press release dated July 9,
               1998 of its parent, IKON, announcing the appointment of James J.
               Forese as IKON's President, Chief Executive Officer and a member of
               the Board of Directors. IKON also announced that Richard A. Jalkut,
               who has been a director of IKON since 1996, has been appointed
               non-executive Chairman. John E. Stuart, who had served as IKON's
               Chairman, President and Chief Executive Officer, has resigned his
               positions with IKON.
  
               On August 5, 1998, the registrant filed a Current Report on Form
               8-K to file, under Item 5 of the form, the press release dated
               August 4, 1998 of its parent, IKON, stating that IKON is in the
               process of conducting the full review of operations previously
               announced and that IKON's third quarter results will be announced
               on August 14, 1998.
  
  <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        August 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": 39032}]
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": "98691465"}, "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  June 30,  1998 or [ ]  Transition
  report  pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934
  for the transition period from _____ to _____
  
  Commission file number              0-20405
  
                                  IOS CAPITAL, INC.
               (Exact name of registrant as specified in its charter)
  
             DELAWARE                                       23-2493042
  (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                        Identification No.)
  
                        1738 Bass Road, Macon, Georgia 31210
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                                     (912) 471-2300
                (Registrant's telephone number, including area code)
  
                (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 August 7, 1998.
  
  Common Stock, $.01 par value per share                         1,000 shares
  Registered Debt Outstanding as of August 7, 1998              $1,674,750,000
  
  The registrant,  an indirect wholly owned  subsidiary of IKON Office  Solutions,
  Inc. ("IKON"), meets the conditions set forth in General Instruction H(1)(a) and
  (b) of Form 10-Q and is,  therefore,  filing with the reduced  disclosure format
  contemplated thereby.
  INDEX
  
                                  IOS CAPITAL, INC.
  
  PART I.  FINANCIAL INFORMATION
  
        Item 1.              Financial Statements (Unaudited)
  
                             Balance Sheets--June 30, 1998 and
                             September 30, 1997
  
                             Statements of Income--Three and nine months ended
                             June 30, 1998 and June 30, 1997
  
                             Statements of Cash Flows--Nine months ended
                             June 30, 1998 and June 30, 1997
  
                             Notes to Financial Statements--June 30, 1998
  
        Item 2.              Management's Discussion and Analysis of
                             Financial Condition and Results of Operations
  
  PART II.  OTHER INFORMATION
  
        Item 6.              Exhibits and Reports on Form 8-K
  
  SIGNATURES
  PART I . FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                                  IOS Capital, Inc.
                                   BALANCE SHEETS
                 (in thousands, except share and per share amounts)
  June 30,             September 30,
                                                                  1998                    1997
                                                           --------------------     -----------------
  Assets
  Investment in leases:
       Direct financing leases                                      $1,965,315            $1,640,559
       Less: Unearned income                                          (338,932)             (286,769)
                                                           --------------------     -----------------
                                                                     1,626,383             1,353,790
       Funded leases, net                                              573,924               485,658
                                                           --------------------     -----------------
                                                                     2,200,307             1,839,448
  
  Accounts receivable                                                   58,353                55,589
  Due  from  IKON Office Solutions                                      16,111                 4,463
  Prepaid expenses and other assets                                     12,799                13,436
  Leased equipment-operating rentals at cost,
       less accumulated depreciation of:
       6/98 - $40,026;   9/97 - $ 33,598                                70,981                50,945
  Property and equipment at cost, less
       accumulated depreciation of:
       6/98 - $5,102;   9/97 - $ 3,771                                  11,981                12,330
  
                                                           ====================     =================
  Total assets                                                      $2,370,532            $1,976,211
                                                           ====================     =================
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses                           $46,051               $51,018
       Accrued interest                                                  6,354                27,785
       Notes payable to banks                                          225,000                25,000
       Medium term notes                                             1,674,750             1,542,250
       Deferred income taxes                                           100,883                64,177
                                                           --------------------     -----------------
  Total liabilities                                                  2,053,038             1,710,230
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                             149,415               144,415
       Retained earnings                                               168,079               121,566
                                                           --------------------     -----------------
  Total shareholder's equity                                           317,494               265,981
                                                           ====================     =================
  Total liabilities and shareholder's equity                        $2,370,532            $1,976,211
                                                           ====================     =================
  See notes to financial statements.
  IOS Capital, Inc.
                                STATEMENTS OF INCOME
                                   (in thousands)
  Three Months Ended              Nine Months Ended
                                                     June 30                        June 30
                                               1998            1997            1998           1997
  Revenues:
      Lease finance income                   $56,904         $44,494        $163,170        $122,051
      Rental income                           10,138           6,545          28,287          16,473
      Interest on IKON tax deferrals           3,944           3,148          11,449           8,772
      Other income                             3,035           2,090           8,400           5,921
                                            --------        --------        --------        --------
                                              74,021          56,277         211,306         153,217
  
  Expenses:
      Interest                                27,382          22,075          80,455          59,303
      General and administrative              17,658          16,634          53,401          44,706
                                            --------        --------        --------        --------
                                              45,040          38,709         133,856         104,009
  
  Gain on sale of lease receivables              710             642           1,891           1,919
                                            --------        --------        --------        --------
  
  Income before income taxes                  29,691          18,210          79,341          51,127
  
  Provision for income taxes                  12,471           7,466          32,828          20,962
                                            --------        --------        --------        --------
  
  Net income                                 $17,220         $10,744         $46,513         $30,165
                                            ========        ========        ========        ========
  See notes to financial statements.
  IOS Capital, Inc.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Nine Months Ended
                                                                                   June 30,
                                                                             1998                1997
  Operating activities:
  Net income                                                               $46,513             $30,165
  Adjustments to reconcile net income to net
          cash provided by operating activities:
                  Depreciation and amortization                             25,239              13,743
                  Provision for deferred taxes                              36,706              20,174
                  Gain on sale of lease receivables                         (1,891)             (1,919)
                  Changes in operating assets and liabilities:
                          Accounts receivable                               (2,764)             (3,764)
                          Prepaid expenses and other assets                  2,528               4,112
                          Accounts payable and accrued expenses             (4,967)             (5,074)
                          Accrued interest                                 (21,431)            (15,612)
                                                                        ----------          ---------- 
                          Net cash provided                                 79,933              41,825
                                                                        ----------          ---------- 
  
  Investing activities:
  Purchases of leased equipment, net                                       (43,917)            (24,746)
  Purchases of property and equipment, net                                  (1,009)             (5,005)
  Direct financing leases:
          Additions                                                     (1,015,101)           (884,826)
          Cancellations                                                    204,855             139,510
          Collections                                                      458,817             343,578
          Proceeds from sale                                                78,836              77,251
  Funded leases:
          Additions                                                       (272,724)           (314,058)
          Cancellations                                                     55,038              49,518
          Collections                                                      129,420             134,416
                                                                        ----------          ---------- 
                          Net cash used                                   (405,785)           (484,362)
                                                                        ----------          ---------- 
  
  Financing activities:
  Proceeds from bank borrowings                                            200,000
  Payments on bank borrowings                                                                  (33,000)
  Proceeds from issuance of medium term notes                              348,500             632,350
  Payments on medium term notes                                           (216,000)           (126,000)
  Capital contributed by IKON                                                5,000              32,000
                                                                        ----------          ---------- 
                          Net cash provided                                337,500             505,350
                                                                        ----------          ---------- 
  
  Increase in amounts due from IKON                                         11,648              62,813
  Due from (to) IKON at beginning of year                                    4,463             (24,330)
                                                                        ----------          ---------- 
  Due from IKON at end of period                                           $16,111             $38,483
                                                                        ----------          ----------
  See notes to financial statements
  IOS Capital, Inc.
                            Notes to Financial Statements
                                    June 30, 1998
  
  Note 1:    Basis of Presentation
  
             The accompanying  unaudited condensed financial  statements have been
  prepared in accordance with generally accepted accounting principles for interim
  financial  information  and the  instructions  to Form  10-Q and  Rule  10-01 of
  Regulation  S-X. In the opinion of management,  all  adjustments  (consisting of
  normal recurring  accruals)  considered  necessary for a fair  presentation have
  been included.  For further  information,  refer to the financial statements and
  footnotes  thereto  included in the Company's annual report on Form 10-K for the
  year ended September 30, 1997.
  
  Note 2:    Medium Term Note Program
  
             During the nine months ended June 30, 1998, IOS Capital issued $348.5
  million under its medium term note program.  At June 30, 1998,  $1,674.8 million
  of medium term notes were  outstanding  with a weighted average interest rate of
  6.5%.  The  remaining  amount  available  under this  registration  statement is
  $1,298.2 million.
  
  Note 3:    Asset Securitization
  
             IOS Capital has asset  securitization  agreements for $275 million of
  eligible direct financing  receivables that expire September 1998 ($150 million)
  and March 1999 ($125  million).  Both of these  agreements  are  expected  to be
  renewed.  Under  these  agreements,  the  Company  sold $78.8  million in direct
  financing  leases during the first nine months of fiscal 1998,  replacing leases
  which had been  liquidated  during the period and  recognized  a pretax  gain of
  approximately $1.9 million. Under the terms of the sales agreements, the Company
  will continue to service the lease portfolio.
  
  Note 4:   Name Change
  
             On January 22, 1998, the Company  changed its name from IKON Capital,
  Inc. to IOS Capital, Inc.
  Item 2: Management's  Discussion and Analysis of Financial Condition and Results
  of Operations
  
  Pursuant to General Instruction H(2) (a) of Form 10-Q, the following analysis of
  the results of operations is presented in lieu of  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
  
                      Three Months Ended June 30, 1998 Compared
                      with the Three Months Ended June 30, 1997
  
  Comparative summarized results of operations for the three months ended June 30,
  1998 and 1997 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  Three Months
  (dollars in thousands)                          Ended June 30                    Increase
                                              1998            1997          Amount          Percent
  Revenues:
       Lease finance income                  $56,904        $44,494        $12,410           27.9%
       Rental income                          10,138          6,545          3,593           54.9%
       Interest on IKON tax deferrals          3,944          3,148            796           25.3%
       Other income                            3,035          2,090            945           45.2%
                                             -------        -------        -------       
                                              74,021         56,277         17,744           31.5%
  
  Expenses:
       Interest                               27,382         22,075          5,307           24.0%
       General and administrative             17,658         16,634          1,024            6.2%
                                             -------        -------        -------       
                                              45,040         38,709          6,331           16.4%
  
  Gain on sale of lease receivables              710            642             68           10.6%
                                             -------        -------        -------       
  
  Income before income taxes                  29,691         18,210         11,481           63.0%
  Provision for income taxes                  12,471          7,466          5,005           67.0%
                                             -------        -------        -------       
  Net income                                 $17,220        $10,744         $6,476           60.3%
                                             =======        =======         ======
  Revenues
  
  Total revenues  increased  $17.7 million or 31.5% in the third quarter of fiscal
  1998 compared to the third quarter of fiscal 1997.  Approximately 69.9% or $12.4
  million of this  increase in revenues  was a result of increased  lease  finance
  income due to continued  growth in the portfolio of direct  financing and funded
  leases.  The lease portfolio,  net of lease  receivables that were sold in asset
  securitization  transactions,  increased  29.0 % from June 30,  1997 to June 30,
  1998.
  
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable terms, may be purchased by the Company.  During the third quarters of
  fiscal 1998 and 1997, IOS Capital  purchased  operating lease equipment of $15.8
  million and $8.3  million,  respectively.  Operating  leases  contributed  $10.1
  million in rental income  during the third  quarter of fiscal 1998,  compared to
  $6.5 million in the third quarter of fiscal 1997.
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  marketplaces  associated  with  leases  funded  through  the  Company  at a rate
  consistent  with  the  Company's  weighted  average  outside  borrowing  rate of
  interest.  The  Company's  average rate was 6.5% for the third quarter of fiscal
  1998 and 6.7% for the third  quarter of fiscal 1997.  In addition,  the deferred
  tax base upon which these  payments  are  calculated  increased  28.8% to $259.4
  million at June 30, 1998 from $201.4  million at June 30,  1997.  Primarily as a
  result of the increased  deferred tax  liabilities,  interest income on deferred
  taxes rose $796,000 or 25.3% when comparing the three months ended June 30, 1998
  to the three months ended June 30, 1997.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1997.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these  sources  grew by $.9  million  or 45.2%,  when  comparing  the third
  quarter of fiscal 1998 to the same period of fiscal 1997.
  
  Expenses
  
  Average  borrowings  to finance  the lease  portfolio  in the form of loans from
  banks and the  issuance of medium term notes in the public  market  increased by
  26.5% from June 30, 1997, to $1,899.8 million  outstanding at June 30, 1998. The
  Company paid a weighted  average interest rate on all borrowings of 6.5% for the
  third  quarter of fiscal  1998 and 6.7% for the third  quarter  of fiscal  1997.
  Primarily as a result of the increased borrowings, interest expense grew by $5.3
  million or 24.0%,  when  comparing the third quarter of fiscal 1998 to the third
  quarter of fiscal 1997. At June 30, 1998,  the  Company's  debt to equity ratio,
  including  intercompany  amounts due from IKON was 5.9 to 1. On August 14, 1998,
  Standard  and Poor's  lowered  its credit  ratings one level for the Company and
  IKON to "BBB+" from "A-" and Moody's Investor Service lowered its credit ratings
  one level on the Company and IKON to "Baa1" from "A3".
  
  Total  general and  administrative  expenses for the quarter ended June 30, 1998
  increased by $1.0  million or 6.2%,  over the quarter  ended June 30, 1997.  The
  general and administrative  expense category in the third quarter of fiscal 1998
  includes  depreciation  expense  on  leased  equipment  totaling  $8.5  million,
  compared to $5.2 million for the third quarter of fiscal 1997. In addition,  the
  general  and  administrative  expense  category  includes  lease  bonus  subsidy
  payments to either IKON or directly to the IKON marketplaces, based on the level
  of dealer  participation in the Company's leasing programs or for the funding of
  targeted new lease volume.  During the third quarter of fiscal 1998, lease bonus
  subsidy  payments totaled $3.7 million compared to $2.1 million during the third
  quarter of fiscal 1997. Excluding the effects of increased  depreciation expense
  on operating  leases and lease bonus  subsidy  payments,  remaining  general and
  administrative  expenses  decreased by $3.9 million or 41.6% compared to general
  and  administrative  expenses in the third quarter of fiscal 1997. This decrease
  is due to recent cost controls initiated within the Company.
  
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $275  million of eligible
  direct financing lease receivables that expire September 1998 ($150 million) and
  March 1999 ($125 million).  Both of these agreements are expected to be renewed.
  As collections  reduce  previously sold interests,  new leases can be sold up to
  the agreement amount.  During the three months ended June 30, 1998,  collections
  reduced  previously sold interests by  approximately  $26.6 million on these two
  agreements.  The Company sold an additional $26.6 million in net eligible direct
  financing  leases during the third quarter of fiscal 1998 and recognized  pretax
  gains of $710,000.
  Income Before Income Taxes
  
  Income  before  income taxes for the third  quarter of fiscal 1998  increased by
  $11.5 million or 63.0% over the third  quarter of fiscal 1997.  This increase in
  income before income taxes was  essentially the effect of higher earnings due to
  a larger  lease  portfolio  base,  net of increased  general and  administrative
  expenses,  partially  offset by higher  borrowing costs resulting from increased
  debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the third  quarter of fiscal 1998  increased by $5.0 million or
  67.0% over the third  quarter of fiscal 1997.  This  increase in income taxes is
  directly  attributable  to the  increase  in  income  before  taxes in the third
  quarter  of fiscal  1998  compared  to the third  quarter  of fiscal  1997.  The
  effective  tax rate was 42% in the third  quarter of fiscal 1998 compared to 41%
  in the third quarter of fiscal 1997.
  
                      Nine Months Ended June 30, 1998 Compared
                      with the Nine Months Ended June 30, 1997
  
  Comparative  summarized results of operations for the nine months ended June 30,
  1998 and 1997 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  Nine Months
  (dollars in thousands)                           Ended June 30                     Increase
                                               1998            1997            Amount          Percent
  Revenues:
       Lease finance income                  $163,170        $122,051         $41,119            33.7%
       Rental income                           28,287          16,473          11,814            71.7%
       Interest on IKON tax deferrals          11,449           8,772           2,677            30.5%
       Other income                             8,400           5,921           2,479            41.9%
                                              -------         -------         -------         
                                              211,306         153,217          58,089            37.9%
  
  Expenses:
       Interest                                80,455          59,303          21,152            35.7%
       General and administrative              53,401          44,706           8,695            19.4%
                                              -------         -------         -------         
                                              133,856         104,009          29,847            28.7%
  
  Gain on sale of lease receivables             1,891           1,919             (28)           (1.5)%
                                              -------         -------         -------         
  
  Income before income taxes                   79,341          51,127          28,214            55.2%
  Provision for income taxes                   32,828          20,962          11,866            56.6%
                                              -------         -------         -------         
  Net income                                  $46,513         $30,165         $16,348            54.2%
                                              =======         =======         =======
  Revenues
  
  Total  revenues  increased  $58.1  million or 37.9% in the first nine  months of
  fiscal  1998  compared to the first nine  months of fiscal  1997.  Approximately
  70.8% or $41.1  million of this  increase in revenues  was a result of increased
  lease  finance  income  due to  continued  growth  in the  portfolio  of  direct
  financing and funded leases. The lease portfolio,  net of lease receivables that
  were sold in asset securitization  transactions,  increased 29.0 % from June 30,
  1997 to June 30, 1998.
  Office  equipment placed on rental by the IKON  marketplaces to customers,  with
  cancelable terms, may be purchased by the Company.  During the first nine months
  of fiscal 1998 and 1997,  IOS Capital  purchased  operating  lease  equipment of
  $43.9 million and $24.7  million,  respectively.  Operating  leases  contributed
  $28.3  million in rental  income  during the first nine  months of fiscal  1998,
  compared to $16.5 million in the first nine months of fiscal 1997.
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  marketplaces  associated  with  leases  funded  through  the  Company  at a rate
  consistent  with  the  Company's  weighted  average  outside  borrowing  rate of
  interest.  The  Company's  average  rate was 6.5% for the first  nine  months of
  fiscal 1998 and 6.7% for the first nine months  fiscal 1997.  In  addition,  the
  deferred tax base upon which these  payments are calculated  increased  28.8% to
  $259.4 million at June 30, 1998 from $201.4 million at June 30, 1997.  Primarily
  as a result  of the  increased  deferred  tax  liabilities,  interest  income on
  deferred  taxes rose $2.7 or 30.5% when  comparing  the first nine months  ended
  June 30, 1998 to the first nine months ended June 30, 1997.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1997.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these sources grew by $2.5 million or 41.9%,  when comparing the first nine
  months of fiscal 1998 to the same period of fiscal 1997.
  
  Expenses
  
  Average  borrowings  to finance  the lease  portfolio  in the form of loans from
  banks and the  issuance of medium term notes in the public  market  increased by
  26.5%, to $1,899.8 million  outstanding at June 30, 1998 from June 30, 1997. The
  Company paid a weighted  average interest rate on all borrowings of 6.5% for the
  first nine  months of fiscal  1998 and 6.7% for the first nine  months of fiscal
  1997. Primarily as a result of the increased  borrowings,  interest expense grew
  by $21.2 million or 35.7%,  when  comparing the first nine months of fiscal 1998
  to the first nine months of fiscal 1997. At June 30, 1998, the Company's debt to
  equity ratio, including intercompany amounts due to IKON was 5.9 to 1. On August
  14,  1998,  Standard  and Poor's  lowered  its credit  ratings one level for the
  Company and IKON to "BBB+" from "A-" and Moody's  Investor  Service  lowered its
  credit ratings one level on the Company and IKON to "Baa1" from "A3".
  
  Total general and  administrative  expenses for the first nine months ended June
  30, 1998  increased by $8.7  million or 19.4%,  over the first nine months ended
  June 30, 1997. The general and administrative expense category in the first nine
  months of fiscal 1998 includes depreciation expense on leased equipment totaling
  $23.9  million,  compared  to $13.1  million for the first nine months of fiscal
  1997. In addition,  the general and  administrative  expense  category  includes
  lease  bonus   subsidy   payments  to  either  IKON  or  directly  to  the  IKON
  marketplaces,  based  on the  level of  dealer  participation  in the  Company's
  leasing  programs or for the funding of targeted  new lease  volume.  During the
  first nine months of fiscal 1998,  lease bonus  subsidy  payments  totaled $11.3
  million  compared to $7.7  million  during the first nine months of fiscal 1997.
  Excluding the effects of increased  depreciation expense on operating leases and
  lease bonus subsidy  payments,  remaining  general and  administrative  expenses
  decreased  by $5.7  million  or 23.8%  compared  to general  and  administrative
  expenses in the first nine months of fiscal 1997. This decrease is due to recent
  cost controls initiated within the Company.
  
  Gain on Sale of Lease Receivables
  
  The Company has asset  securitization  agreements  for $275  million of eligible
  direct financing lease receivables that expire September 1998 ($150 million) and
  March 1999 ($125 million).  Both of these agreements are expected to be renewed.
  As collections  reduce  previously sold interests,  new leases can be sold up to
  the agreement  amount.  During the nine months ended June 30, 1998,  collections
  reduced  previously sold interests by  approximately  $78.8 million on these two
  agreements.  The Company sold an additional $78.8 million in net eligible direct
  financing  leases  during the first nine  months of fiscal  1998 and  recognized
  pretax gains of $1.9 million.
  Income Before Income Taxes
  
  Income before income taxes for the first nine months of fiscal 1998 increased by
  $28.2 million or 55.2% over the first nine months of fiscal 1997.  This increase
  in income before income taxes was  essentially the effect of higher earnings due
  to a larger lease  portfolio base, net of increased  general and  administrative
  expenses,  partially  offset  by  higher  borrowing  costs  resulting  from  the
  increased debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the first nine months of fiscal 1998 increased by $11.9 million
  or 56.6% over the first nine  months of fiscal  1997.  This  increase  in income
  taxes is directly  attributable  to the  increase in income  before taxes in the
  first nine  months of fiscal  1998  compared  to the first nine months of fiscal
  1997.  The effective tax rate was 41.4% for the first nine months of fiscal 1998
  compared to 41% for first nine months of fiscal 1997.
  
                             FORWARD-LOOKING INFORMATION
  
  This document contains disclosures which are forward-looking statements relating
  to the  Company or its  parent,  IKON,  within the meaning of Section 27A of the
  Securities Act of 1933, as amended (the  "Securities  Act"),  and Section 21E of
  the 1934 Act.  Such  forward-looking  statements  address,  among other  things,
  strategic  initiatives  (including  plans for  enhancing the Company's or IKON's
  business  through  new  acquisitions,   information  technology  systems,  sales
  strategies,  market  growth  plans,  margin  enhancement  initiatives,   capital
  expenditure   requirements   and  financing   sources).   Such   forward-looking
  information  is based upon  management's  current plans or  expectations  and is
  subject to a number of uncertainties and risks that could  significantly  affect
  the  Company's  and/or  IKON's  current  plans,  anticipated  actions and future
  financial condition and results.  These uncertainties and risks include, but are
  not limited to, those relating to IKON's successful  management of an aggressive
  program to  acquire  and  integrate  new  companies,  including  companies  with
  technical  services  and  products  that are  relatively  new to IKON,  and also
  including  companies outside the United States,  which present  additional risks
  relating to international  operations;  risks and  uncertainties  (applicable to
  both the Company and IKON)  relating to  conducting  operations in a competitive
  environment;  delays, difficulties,  technological changes and employment issues
  (applicable  to  both  the  Company  and  IKON)   associated  in  a  large-scale
  transformation  project;  debt  service  requirements  (applicable  to both  the
  Company and IKON) including  sensitivity to fluctuation in interest  rates;  and
  general  economic  conditions.  As a  consequence,  current  plans,  anticipated
  actions  and future  financial  condition  and  results  may  differ  from those
  expressed in any forward-looking  statements made by or on behalf of the Company
  or IKON.
  PART II. OTHER INFORMATION
  
  Item 6.      Exhibits and Reports on Form 8-K
  
       (a)  The  following   Exhibits  are  furnished  pursuant  to  Item  601  of
            Regulation S-K:
  
               Exhibit No. (27) Financial Data Schedule
  
       (b)  Reports on Form 8-K
  
               On April 27, 1998, the registrant filed a Current Report on Form
               8-K to file, under Item 5 of the form, the press release dated
               April 22, 1998 of its parent, IKON Office Solutions, Inc. (IKON),
               which reported its earnings for the fiscal quarter ended March 31,
               1998, provided earnings estimates for the remainder of IKON's 1998
               fiscal year and provided additional information regarding its
               business, acquisitions and transformation process.
  
               On June 29, 1998, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, the press release dated June 29,
               1998 of its parent, IKON, indicating that IKON anticipates earnings
               will be significantly lower than the First Call consensus estimate
               of $.34 per share for the quarter ending June 30, 1998 and that
               IKON expects to release third quarter earnings on July 22, 1998.
  
               On July 10, 1998, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, the press release dated July 9,
               1998 of its parent, IKON, announcing the appointment of James J.
               Forese as IKON's President, Chief Executive Officer and a member of
               the Board of Directors. IKON also announced that Richard A. Jalkut,
               who has been a director of IKON since 1996, has been appointed
               non-executive Chairman. John E. Stuart, who had served as IKON's
               Chairman, President and Chief Executive Officer, has resigned his
               positions with IKON.
  
               On August 5, 1998, the registrant filed a Current Report on Form
               8-K to file, under Item 5 of the form, the press release dated
               August 4, 1998 of its parent, IKON, stating that IKON is in the
               process of conducting the full review of operations previously
               announced and that IKON's third quarter results will be announced
               on August 14, 1998.
  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        August 14, 1998                     /s/ Harry G. Kozee
                                                  Harry G. Kozee
                                                  Vice President - Finance
                                                 (Chief Accounting Officer)
  Index to Exhibits
  
  Exhibit Number
  
          (27)               Financial Data Schedule