

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                              ---------------------

         For the Fiscal Year May 31, 1996 Commission File Number 0-25104 

                         CONTINENTAL INFORMATION SYSTEMS
                                   CORPORATION
                           (Exact name of registrant)


       New York                                           16-0956508
(State of incorporation)                 (I.R.S. Employer Identification Number)


      One Northern Concourse, P.O. Box 4785, Syracuse, New York 13221-4785
              (Address of principal executive offices and zip code)

                                 (315) 455-1900
                         (Registrant's telephone number)


        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act: 


                     Common Stock, par value $.01 per share

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 [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

The number of the  registrant's  shares of Common Stock  outstanding on July 31,
1996 was 6,999,040.

As of July 31, 1996,  the  aggregate  market value of the shares of Common Stock
held by non-affiliates of the registrant was approximately $10,939,421.*

* Excludes  1,164,682  shares deemed to be held by officers and  directors,  and
shareholders  whose ownership  exceeds ten percent of the shares  outstanding at
July 31, 1996. Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect,  to direct or
cause the  direction of the  management or policies of the  registrant,  or that
such  person is  controlled  by or under  common  control  with the  registrant.
<PAGE>
                                     PART I

ITEM 1. BUSINESS

General

The Company is engaged in the business of buying and selling  telecommunications
equipment,   high  speed  production  laser  printing  systems,  and  commercial
aircraft,  and provides  leasing  services in  connection  with the sale of such
equipment.  From its founding in 1968, the Company had been primarily engaged in
the sale and marketing of International  Business Machines  Corporation  ("IBM")
mainframe and peripheral computer equipment.  However, in more recent years, the
computer  industry has undergone a  fundamental  transformation  highlighted  by
technological  advances,  increased  competition,  increased demand for open and
interoperable computing systems, and a shift in market demand toward distributed
computing and client/server  technology and away from mainframe  computing.  The
result  has been an  erosion  of margins  and a growing  focus by  customers  on
information  processing  solutions  rather than on  hardware.  As a result,  the
Company  has  departed  the  computer  market and has  expanded  into other more
attractive   capital   equipment   markets   including    commercial   aircraft,
telecommunications, and laser printing systems.

For the twelve  months ending May 31, 1996,  approximately  62% of the Company's
revenues  from  continuing  operations  were derived from its buying and selling
("buy/sell")  activities,  approximately  29% from its  leasing  activities  and
approximately 9% from interest, fees and other income.

More  recently,  the Company has adjusted its  strategic  direction to focus its
efforts on the buying and  selling of  capital  equipment  in  existing  and new
markets.  This decision follows an evaluation of the capital intensive nature of
the leasing  business,  the  opportunity  for  utilization  of existing tax loss
carryforwards, and the need to reduce the Company's operating cost structure and
increase operating profitability. Accordingly, the Company has decided to pursue
expansion of the equipment sales business and curtail its leasing operations. As
a result,  management  intends to sell  substantially all of its lease portfolio
and  utilize  the  proceeds  to support its  expansion  of the  equipment  sales
business.  Such  expansion  is expected to occur  through the growth of existing
business  lines as well as through  external  means by acquisition of businesses
engaged  in the  distribution  of new and  refurbished  capital  equipment.  The
Company  intends to identify  acquisition  candidates  that can  complement  and
broaden the Company's  existing product lines and equipment sales activity,  and
expand the Company's marketing capabilities.  The Company will continue to offer
a leasing alternative to its customers,  when and as needed, as a means of sales
support.

The Company currently conducts its operations  through four principal  operating
subsidiaries:  CIS Corporation ("CIS"), a New York corporation,  CMI Corporation
("CMI"),  a Michigan  corporation,  GMCCCS Corp.  ("LaserAccess"),  a California
corporation and CIS Air Corporation  ("CIS Air"), a Delaware  corporation.  Both
CIS and CMI conduct some of their operations through subsidiaries  including, in
the case of CIS,  LaserAccess  and CIS Air.  Although  CIS and CMI have not been
merged,  their  operations  have been  integrated  with the Company's  principal
executive  offices  located  at  One  Northern  Concourse,  Syracuse,  New  York
13221-4785.  The  Company's  subsidiaries  have  offices  throughout  the United
States.

On November 29, 1994 (the  "Confirmation  Date"),  the United States  Bankruptcy
Court for the Southern  District of New York (the  "Bankruptcy  Court") modified
and  confirmed  the  Company's  Joint  Plan  of  Reorganization  (the  "Plan  of
<PAGE>
Reorganization").   The  Company  emerged  from  bankruptcy  when  the  Plan  of
Reorganization  became effective and the transactions  contemplated thereby were
consummated on December 21, 1994 (the "Effective Date").


Acquisition Strategy

The  Company's   acquisition   strategy  is  to  acquire  profitable   equipment
refurbishment  and  distribution  businesses  with  strong  management  and well
developed market positions and customer franchises.  Acquisitions will generally
be  defined as either a filler or new market  acquisition.  Filler  acquisitions
generally  represent new sales territories  within existing product groups which
are easily combined with current operations.  New market acquisitions  represent
the addition of new product groups or the entry into new geographic  markets, or
both. The recent  acquisition of GMCCCS Corp. (doing business as LaserAccess) is
an example of a new market acquisition that provides the Company's initial entry
into the  refurbishment and distribution of high speed production laser printing
systems.

The Company has retained the services of an outside  financial  advisory firm to
assist in the identification of acquisition candidates.

Laser Printing Systems Equipment

On March 8,  1996,  the  Company,  through  its CIS  subsidiary,  completed  the
acquisition of 100% of the outstanding  shares of LaserAccess.  LaserAccess is a
San Diego,  California  based buy/sell  technical  sales and marketing  business
specializing  in  marketing  previously-owned  Xerox High Speed  Laser  Printing
Systems. The Company had been a marketing partner of LaserAccess since 1991. The
consideration  consists of a combination  of cash and notes  approximating  $4.6
million,  and the terms of the agreement provide for future incentive  payments,
assuming LaserAccess  achieves certain earnings levels.  LaserAccess had revenue
of $5.4 million for the year ended  December 31, 1995, and pretax income for the
year  then  ended  of  $1.2  million.  (See  Note 2 to the  Company's  Financial
Statements.)  LaserAccess had not been subject to Federal and State income taxes
since it was a Subchapter S Corporation prior to the acquisition by the Company.

The Company believes that this transaction is representative of the new business
strategy  it has  adopted.  LaserAccess  operates  in a focused  market  and has
established  a presence in a relatively  short  period of time.  The addition of
LaserAccess  also  complements the Company's  existing product lines and further
broadens the Company's equipment sales activity.

The Company will continue to buy and sell high and low end, new and used,  laser
printing systems.  Through its LaserAccess  technical and engineering  facility,
the Company now has the added capability to completely refurbish and maintain an
inventory  of Xerox High Speed  Laser  Printing  Systems.  LaserAccess  provides
customer  assurance and guarantees each system to be eligible for either a Xerox
or third party  maintenance  contract.  These  capabilities  give the Company an
advantage over many of its competitors.

Telecommunications Equipment

The Company's efforts in the  telecommunications/telephony  market will continue
to be focused on providing  both new and used AT&T,  Rolm and  Northern  Telecom
equipment to a nationwide  customer  base of users with mid-size or larger phone
systems. By specializing in equipment manufactured by these vendors, the Company
is  positioned  to sell to  approximately  60% of the PBX and key systems  users
throughout  the US. In  addition,  the  Company's  concentration  of its efforts
<PAGE>
within these  product  lines  allows it to provide high levels of marketing  and
technical support not available from all of the Company's competitors.

The  Company  actively  seeks   opportunities  to  purchase   telecommunications
equipment from dealers, telephone companies, leasing companies and end users. By
actively  soliciting  used  equipment,  the  Company  is  often  able to  obtain
equipment  at below market  prices  giving it the  potential  to increase  sales
revenues as a result.

CIS Air Corporation

Through its  wholly-owned  subsidiary CIS Air, the Company  participates  in the
worldwide  market  for the  acquisition,  sale and  leasing  of used,  primarily
narrow-bodied,  aircraft  subject  to  short-term  operating  leases.  CIS Air's
participation  in this market is largely  conducted  through its  acquisition of
whole aircraft and/or aircraft engines that are then sold,  leased or dismantled
and  sold as  replacement  parts.  The  Company  believes  that  it can  compete
successfully  in this market since larger  companies are generally not active in
this end of the market,  the Company has a stronger financial position than some
of its competitors,  and the Company is able to enter into short term leases and
rentals of aircraft and engines.

In addition,  a subsidiary  of CIS Air manages a portfolio of aircraft on behalf
of the  JetStream  L.P. and  JetStream II L.P.  limited  partnerships  that were
formed in 1987,  the units of which  are  publicly  held.  The  subsidiary,  CIS
Aircraft  Partners,  Inc., serves as the managing general partner of the limited
partnerships  while  Jet  Aircraft  Leasing,  Inc.  (a  Lehman  Brothers,   Inc.
affiliate) acts as the administrative  general partner. The limited partnerships
are engaged in the business of managing a portfolio of used commercial  aircraft
subject to triple net operating leases with commercial air carriers.

Although the recent  improvement  in the airline  industry has  contributed to a
modest  improvement  in the  demand  for  certain  types  of  aircraft,  overall
conditions in the aircraft  industry remain  competitive.  Additionally,  future
sales and leasing  opportunities  for the types of aircraft the Company deals in
may be limited as a result of the implementation of noise compliance regulations
which take full effect in the year 2000. Also, recent airline industry accidents
may prompt  regulatory  actions by the Federal Aviation  Administration or other
governmental bodies that may affect this market.

Equipment Leasing

As noted  previously,  the  Company  has  decided  to  pursue  expansion  of the
equipment  sales business and curtail its leasing  operations.  The Company will
continue to offer a leasing  alternative  to its  customers  as a means of sales
support, however the origination of leases will not be a primary objective.
 
The Company has conducted its leasing  business in a manner designed to conserve
working capital and minimize credit exposure.  The Company generally enters into
lease  transactions  with  creditworthy  companies  whose  leases can be readily
discounted,  on a  non-recourse  basis,  with  banks or finance  companies.  The
Company's credit standards  reflect the then current and anticipated  market for
transactions of the type originated by the Company.  The  creditworthiness of an
individual  customer is evaluated through a review of the customer's public debt
rating  and/or an analysis of the  customer's  financial  statements  and credit
references.  After the debt is repaid  over the term of the initial  lease,  the
subsequent  re-lease or remarketing of the equipment  generates  additional cash
flow for the  Company.  During  Fiscal 1996,  the Company  entered into a vendor
leasing arrangement with C-Cam International, Inc., a manufacturer of intermodal
<PAGE>
tank containers designed for transport on a variety of platforms  throughout the
world.  To date, no equipment  financings  have occurred in connection with this
arrangement.

Financing

In July 1996, CIS Air and LaserAccess  completed a $7 million secured  revolving
working capital  facility with a unit of Norwest Bank,  N.A.  Advances under the
Norwest agreement are collateralized by inventory and receivables of CIS Air and
LaserAccess.  In connection with its existing  leasing  operations,  the Company
finalized a $5 million secured revolving  multifacility  loan agreement with the
Vendor  Finance  Division of Heller  Financial,  Inc. in April 1996. The Company
also  completed,  in July 1996, a $5 million secured  revolving  credit facility
with CoreStates Bank, N.A.  Advances under the Heller and CoreStates  agreements
are secured by equipment leases.

Discontinued and Sold Businesses

The Company had conducted a portion of its business  through its Aviron Computer
Technologies,   Inc.   ("Aviron")  and  TLP  Leasing   Programs,   Inc.  ("TLP")
subsidiaries  for all or part of the  Company's  fiscal  year ended May 31, 1996
("Fiscal 1996"). As described below, the Company sold its TLP group of companies
to a group led by former  TLP  managers  in  January  1996,  and  announced  the
discontinuation of operations of a business which included Aviron in April 1996.

Aviron Computer Technologies,  Inc.- On April 3, 1996, the Company announced its
decision to discontinue an operation,  including Aviron, that purchased and sold
used computer  equipment and provided  related  technical  services.  After that
date,  the Company  attempted  to locate a buyer for the  operation.  On June 5,
1996, the Company  announced it had abandoned its efforts to sell the operations
and had decided instead to liquidate the assets which  consisted  principally of
used computer  equipment  inventories and fixed assets.  The Company  reported a
loss of $1,177,000  (net of $698,000  deferred tax benefit) for Fiscal 1996 from
the discontinuance of these operations.  (See Note 3 to the Company's  Financial
Statements.)

TLP Leasing Programs, Inc.- The TLP operations were sold on January 9, 1996 to a
group led by members of TLP's former management.  The Company concluded that (i)
the Company would no longer be engaging in the types of business which TLP could
support by creating new income  funds as a financing  source for the Company and
(ii) the market was not favorable for TLP to profitably acquire  transactions on
its own from third  party  originators  for  placement  in new  income  funds or
similar investment structures.  The TLP businesses were sold for $2,208,000 cash
at closing plus a 90 day note for $300,000.  The 90 day note was paid in full on
April 1, 1996. The sale price of the TLP companies approximated their book value
and,  therefore,  did not significantly  affect the results of operations of the
Company for Fiscal 1996. (See Note 4 to the Company's Financial Statements.)

NC3, Inc.- NC3, also known as the National  Commodity  Clearance  Center,  began
operating in October, 1993. NC3's operations were commenced to take advantage of
the "aftermarket" in used, new returned and new excess inventory of high quality
brand-name  computer  equipment and other electronic office products  consisting
mainly of personal computers, printers, terminals and photocopiers. In May 1995,
the Board decided to discontinue all NC3 operations effective immediately.  As a
result of the Board's  action,  the  remaining  NC3 inventory was sold through a
formal bid process, and, except for the resolution of its office lease (see ITEM
2.  "PROPERTIES"),  NC3's operations were entirely  discontinued in Fiscal 1996.
The Company took a $1,137,000  charge (net of $763,000 deferred tax benefit) for
the disposal of NC3's assets for the six months ended May 31, 1995.  (See Note 3
to the Company's Financial Statements.)
<PAGE>
Customers and Marketing

A  majority  of the  Company's  sales are with  repeat  customers  under  normal
commercial  terms.  The Company's  management  believes that its business is not
dependent on any single customer or any single source for the equipment marketed
by the Company.

Competition

The Company competes with other companies in each aspect of its business.  These
firms include other equipment dealers,  brokers, leasing companies and financing
institutions, including commercial banks and investment banking firms.

With respect to other capital  equipment such as aircraft,  the Company competes
with  aircraft  manufacturers,   distributors,  airlines  and  other  operators,
equipment managers, leasing companies,  financial institutions and other parties
engaged in leasing, managing, marketing or remarketing aircraft.

The  Company's  continued  ability to  compete  effectively  is also  materially
affected by its ability to attract and retain  well-qualified  personnel  and by
the  availability  of  financing  at  competitive  interest  rates.  Many of the
Company's  competitors have greater financial resources,  economies of scale and
lower capital costs than the Company and, as a result, no assurance can be given
that the Company  will be  successful  in operating  profitably  or in obtaining
access to competitive capital sources.

Employees

As of August 1, 1996,  the Company had  approximately  74  full-time  employees,
including  25 in  administration  and 49 in  sales  and  sales  support.  Of the
employees engaged in sales and sales support,  25 are marketing  representatives
who are compensated substantially on a commission basis.

Seasonality and Backlogs

Revenues have historically  shown a seasonal  fluctuation,  based largely on the
staggered fiscal years of its customer base as many lease and purchase decisions
are made on the basis of customer budget constraints, but the Company's business
is not  seasonal in nature.  The Company does not have a  significant  amount of
backlog orders as a result of its operations.

ITEM 2.  PROPERTIES

The Company is leasing its corporate headquarters facility for a period of three
years  (commencing  August 1, 1994) with  options to: (i) renew for 1, 2, 3 or 4
years at the end of the lease  term,  and;  (ii)  reduce the amount of  occupied
space on the effective  date of such  renewal.  The facility is located in North
Syracuse,  New York,  and has  approximately  27,000 square feet of usable floor
space, all of which was being utilized by the Company at the end of Fiscal 1996,
at a cost of $25,575 per month.

Aviron's  lease of  approximately  14,700 square feet of space at its Mine Hill,
New Jersey location and its lease of  approximately  43,000 square feet of space
at its Westmont,  Illinois facility were terminated effective June 30, 1996. The
New  Jersey  lease  was for  Aviron's  headquarters  and  warehouse  space.  The
headquarters  comprised  approximately  14,700 square feet of office,  equipment
refurbishing  and warehouse space and was rented for $9,000 per month on a month
to month basis at the end of Fiscal 1996. The Westmont, Illinois lease comprised
approximately  43,000 square feet of warehouse,  office and refurbishment  areas
<PAGE>
and was rented  for  $16,000  per month on a month to month  basis at the end of
Fiscal 1996. A payment of $32,000 was required to terminate this lease.

LaserAccess  leases  approximately  7,900 square feet of  warehouse  space in La
Jolla,  California.  This space houses  LaserAccess's  printer  refurbishing and
technical operations.  The monthly rent for the warehouse facility is $4,787 and
the  lease  expires  on  January  31,  1998.  In  addition,  LaserAccess  leases
approximately  700 square feet of office space at its headquarters in San Diego,
California.  The headquarters  location is leased on a month to month basis at a
total monthly rental of $1,645.  Finally,  LaserAccess  maintains one additional
sales office in Minneapolis, Minnesota which is rented for a non-material rental
amount. Likewise, the square footage of this office is not significant.

The Company's  telecommunications  group  operates out of leased space  formerly
occupied by NC3 which consists of  approximately  63,000 square feet of combined
warehouse and office space in Syracuse, New York at a rate of $10,500 per month.
The Company's  telecommunications  operations  account for approximately  14,000
square feet of office,  technical  and  warehouse  space.  The  remainder of the
facility is fully  subleased to three separate  sub-tenants  for a total monthly
rental income to the Company of $6,700. One sublease,  however,  is scheduled to
expire on November 5, 1996, so that the ongoing  rental  received by the Company
for its sublease of the excess space is  anticipated  to be $6,100 from November
6, 1996 through the anticipated expiration date of its lease. The lease for this
facility is scheduled to expire on May 31, 1997.

The Company maintains one additional sales office in Stamford, Connecticut and a
second  sales office in Los  Angeles,  California,  both of which are rented for
non-material  rental amounts.  Likewise,  the square footage of these offices is
not significant.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not party to any material legal proceedings.

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

No matters were  submitted to a vote of the  Company's  shareholders  during the
fourth quarter of its fiscal year.

<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS

After emerging from reorganization,  the Company's Common Stock began trading on
the NASDAQ  SmallCap Market under the symbol CISC on May 16, 1995. The Company's
Common  Stock  was  traded  on a limited  basis on the  over-the-counter  market
between March 29 and May 15, 1995. Bid  information was obtained from NASDAQ and
the National  Quotation  Bureau,  Inc. The high and low bid  information for the
period March 29, 1995 through May 31, 1996 is as follows:
<TABLE>
<CAPTION>
                            First Quarter              Second Quarter               Third Quarter                  Fourth Quarter
                         -----------------          ------------------            -------------------          ---------------------
                           Low       High             Low         High             Low           High             Low          High
                           ---       ----             ---         ----             ---           ----             ---          ----
<S>                      <C>        <C>             <C>         <C>               <C>         <C>              <C>           <C>
Fiscal Year ended May
31, 1996                 $ 2.13     $ 3.50          $ 1.75      $ 2.63            $ 1.88      $  2.38          $  1.50       $ 2.44

                           
Fiscal Year
ended May 31, 1995          N/A        N/A             N/A         N/A               N/A          N/A          $  2.00       $ 4.00
</TABLE>

As of July 31, 1996,  there were 1,558 record  holders of the  Company's  Common
Stock. No cash dividends have been paid on the Common Stock to date.

Continental Information Systems Corporation and its Subsidiaries

                                                               
ITEM 6.  SELECTED FINANCIAL DATA:

The  following  table  sets  forth a  summary  of  selected  financial  data for
Continental Information Systems Corporation and its Subsidiaries (the "Company")
as of the dates and for each of the periods stated.  To distinguish  between the
operations of the Company  after  reorganization  (sometimes  referred to as the
"Reorganized  Company")  and  operations  prior  to  reorganization,   the  term
"Predecessor   Company"   will  be   used   when   reference   is  made  to  the
pre-reorganization  periods.  Due to the application of "Fresh Start" accounting
as of November 30, 1994 (the "Fresh Start Date"),  the financial  data as of and
for the fiscal year ended May 31, 1995 is presented in two parts:  the six month
period commencing after the fresh start date and ending May 31, 1995 and the six
months  period  ending  on the  fresh  start  date,  which  was  the  end of the
Predecessor Company's second fiscal quarter.

This  information  should be read in conjunction  with the Company's  historical
financial  statements,  the related notes, and the other  information  contained
herein,  including the information set forth in "ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS."  The financial
data for the  Reorganized  Company is generally not  comparable to the financial
data  for the  Predecessor  Company  due to the  application  of  "fresh  start"
accounting   upon   emergence   from   Chapter  11   pursuant  to  the  Plan  of
Reorganization.
<PAGE>
<TABLE>
<CAPTION>
                                                                      (Dollars in thousands except per share amounts)
                                                                              |
                                                      Reorganized Company     |                 Predecessor Company
                                                   ---------------------------|----------------------------------------------------
                                                                              | For the six   
                                                   Fiscal Year   For the six  | months ended            Fiscal Year Ended     
                                                      ended      months ended | November 30,                   May 31,
Period Data:                                       May 31, 1996  May 31, 1995 |   1994          1994          1993          1992
- ------------                                       ------------   ------------  ---------     ---------     ---------     ---------
<S>                                                  <C>          <C>           <C>           <C>           <C>           <C>
Total Revenues ...................................   $ 26,822     $ 11,762    | $  25,707     $  54,193     $  94,624     $ 132,001
Costs and expenses ...............................     25,211        9,529    |    17,501        54,941       108,371       182,035
                                                     --------     --------    | ---------     ---------     ---------     ---------
Income (loss) from continuing operations                                      |
     before reorganization items, income                                      |
     taxes, fresh start adjustments and                                       |
     extraordinary item ..........................      1,611        2,233    |     8,206          (748)      (13,747)      (50,034)
Reorganization items .............................       --           --      |     8,945       134,224        31,715        47,463
                                                     --------     --------    | ---------     ---------     ---------     ---------
Income (loss) from continuing operations                                      |
     before income taxes, fresh start                                         |
     adjustments and extraordinary item ..........      1,611        2,233    |    17,151       133,476        17,968        (2,571)
Income taxes .....................................        611          849    |        45           100           100           150
                                                     --------     --------    | ---------     ---------     ---------     ---------
Income (loss) from continuing operations                                      |
      before fresh start adjustments and                                      |
      extraordinary item .........................      1,000        1,384    |    17,106       133,376        17,868        (2,721)
Loss from  discontinued  operations,  net of tax..       (934)      (2,997)   |    (4,882)         (575)       (1,138)       (1,799)
                                                     --------     --------    | ---------     ---------     ---------     ---------
Income (loss) before fresh start                                              |
     adjustments and extraordinary item ..........         66       (1,613)   |    12,224       132,801        16,730        (4,520)
Fresh start adjustments ..........................       --           --      |    (3,264)         --            --            --
                                                     --------     --------    | ---------     ---------     ---------     ---------
                                                                              |                                           
Income (loss) before extraordinary item ..........         66       (1,613)   |     8,960       132,801        16,730        (4,520)
Extraordinary item-Forgiveness of debt ...........       --           --      |    96,317          --            --            --
                                                     --------     --------    | ---------     ---------     ---------     ---------
                                                                              |                                           
Net income (loss) ................................   $     66     $ (1,613)   | $ 105,277     $ 132,801     $  16,730     $  (4,520)
                                                     ========     ========    | =========     =========     =========     =========
                                                                              
Net Income (Loss) Per Common Share:                                          
Income from continuing operations ................  $     .14     $    .20
Loss from discontinued operations ................       (.13)        (.43)
                                                    ---------     ---------
            Net income (loss) ....................  $     .01     $   (.23)
                                                    =========     =========


Note:       Net income (loss) per share data are not  presented for  Predecessor
            Company due to the general lack of  comparability as a result of the
            revised capital structure of the Reorganized Company.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                           (Dollars in thousands)
                                                   Reorganized Company                     |           Predecessor Company
                                                   -------------------                     |           -------------------
                                                                                           |
                                           Fiscal Year    For the six      For the six     |              Fiscal Year Ended
Balance Sheet Data                            ended       months ended    months ended     |                   May 31,
(at period end):                          May 31, 1996    May 31, 1995   November 30, 1994 |    1994           1993          1992
                                          ------------    ------------   ----------------- |    ----           ----          ----
<S>                                           <C>           <C>             <C>              <C>            <C>           <C>
Total assets ..........................       $53,550       $41,130         $47,323        | $ 231,173      $ 244,151     $ 289,298
Liabilities not subject to                                                                 |
     compromise .......................        20,097         7,743          12,323        |    72,142         73,969       130,243
Liabilities subject to                                                                     |
     compromise .......................          --            --              --          |   268,258        412,210       417,815
Shareholders' equity ..................        33,453        33,387          35,000        |  (109,227)      (242,028)     (258,760)
(deficit)                                                                                  
</TABLE>
                                                                                
                                                                          
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION            
         AND RESULTS OF OPERATIONS                                          
                                                                                
                                  INTRODUCTION                           
                                                                               
The following  discussion and analysis of the financial condition and results of
operations of the Company  should be read in conjunction  with the  consolidated
financial  statements and the notes thereto which appear  elsewhere in this Form
10-K.

All statements contained herein that are not historical facts, including but not
limited to, statements regarding  anticipated future capital  requirements,  the
Company's future  development and acquisition  plans,  the Company's  ability to
obtain additional debt, equity or other financing,  and the Company's ability to
generate cash from operations and further savings from existing operations,  are
based on current  expectations.  These  statements are forward looking in nature
and  involve a number of risks and  uncertainties.  Actual  results  may  differ
materially.  Among  the  factors  that  could  cause  actual  results  to differ
materially are the following:  the availability of sufficient capital to finance
the Company's  business plan on terms  satisfactory to the Company;  competitive
factors,  such as the  introduction of new technologies and competitors into the
telecommunications  equipment,  laser printing systems,  and commercial aircraft
industries;  pricing  pressures  which  could  affect  demand for the  Company's
service;  change in labor,  equipment and capital  costs;  future  acquisitions;
general business, economic and regulatory conditions; and the other risk factors
described  from time to time in the  Company's  reports  filed with the SEC. The
Company  wishes to  caution  readers  not to place  undue  reliance  on any such
forward looking  statements,  which  statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.

The Company emerged from Chapter 11 pursuant to a Plan of  Reorganization  which
was  confirmed  by the  Bankruptcy  Court on November 29,  1994.  For  financial
reporting purposes,  the emergence from bankruptcy protection was recorded as of
November 30, 1994. The Plan of  Reorganization  provided for the distribution of
all of the  Company's  assets,  except for  specifically  identified  assets and
liabilities  having a net fair tangible value of $30 million,  and the Company's
newly-issued  common stock,  to a  Liquidating  Estate for  distribution  to the
<PAGE>
creditors.  In  addition,  all  liabilities  subject to  compromise  and certain
postpetition  liabilities  were assumed by the Liquidating  Estate.  The Plan of
Reorganization  provided  that no further  recourse to the Company or any of its
subsidiaries may be had by any person with respect to any prepetition  claims or
postpetition  liabilities  assumed by the Liquidating Estate. As a result of the
reorganization   and   application  of  "fresh  start"   accounting,   financial
information  before  and  after  November  30,  1994  are  not  comparable.   To
distinguish  between the operations of the Company prior to  reorganization  and
operations after reorganization, the term "Predecessor Company" will be used for
the  pre-reorganization  periods.  The  following  discussion  should be read in
conjunction with the historical financial statements of the Company.

The Reorganized  Company applied the "fresh start" provisions of AICPA Statement
of Position No. 90-7 ("SOP 90-7") as of November 30, 1994 and, accordingly,  the
assets  retained by the  Reorganized  Company  were  adjusted as of that date to
reflect their fair value. The reorganization  value of $35 million  approximated
the fair value of the Reorganized  Company's net assets,  including net deferred
tax assets of $5 million, and accordingly,  no excess  reorganization value over
amount allocable to identifiable assets has been recognized.

On May 25, 1995, the Company  announced its decision to  discontinue  NC3, Inc.,
the Company's  excess  inventory  business  unit located in Syracuse,  New York.
Additionally,   on  April  3,  1996,  the  Company  announced  its  decision  to
discontinue an operation,  including its wholly-owned  subsidiary,  Aviron, that
purchased  and sold used  computer  equipment  and  provided  related  technical
services.  These  discontinued  operations  will  be  reviewed  separately  from
continuing operations in the following discussion.

Due to the application of "fresh start"  accounting as of November 30, 1994 (the
"Fresh Start Date"),  the results of operations  for the twelve months ended May
31, 1995 are presented in the accompanying Consolidated Statements of Operations
and Accumulated  Deficit in two parts: the six month period commencing after the
Fresh Start Date and ending May 31, 1995 and the six month period  ending on the
Fresh Start Date,  which is the end of the Predecessor  Company's  second fiscal
quarter.  Since this presentation  increases the difficulty in making meaningful
year to  year  comparisons,  the  following  unaudited  pro  forma  Consolidated
Statements  of  Continuing  Operations  for Fiscal 1995 and 1994, as compared to
historical Fiscal 1996, are provided for management discussion purposes. The pro
forma statements are based on historical data adjusted as follows:  (i) interest
expense on discounted  leases for the  Predecessor  Company has been adjusted to
eliminate  interest on debt  obligations  of the  Liquidating  Estate and,  (ii)
interest  expense  has  been  increased  to  reflect  the  interest  cost on the
estimated  average  principal  balance  outstanding  on the note  payable to the
Liquidating Estate.  Reorganization items and loss from discontinued  operations
have been  excluded  from the data  presented to more closely  represent  normal
operations.
<PAGE>
<TABLE>
<CAPTION>

                Consolidated Statements of Continuing Operations
                                   (Unaudited)

(Dollars in thousands)                                                    Historical                    Pro Forma
                                                                          ----------                    ---------
                                                                       Fiscal Year Ended   Fiscal Year Ended     Fiscal year Ended
                                                                         May 31, 1996        May 31, 1995          May 31, 1994
                                                                         ------------        ------------          ------------
<S>                                                                         <C>                  <C>                  <C>
Revenues:
Equipment rentals ...................................................       $ 6,540              $14,226              $25,280
Income from direct financing leases .................................         1,347                1,326                1,122
Equipment sales .....................................................        16,657               15,342               22,806
Interest, fees and other income .....................................         2,278                6,575                4,985
                                                                            -------              -------              -------
                                                                             26,822               37,469               54,193
                                                                            -------              -------              -------
Costs and Expenses:
Depreciation of rental equipment ....................................         3,445                4,330               11,947
Cost of sales .......................................................        11,899                9,058               14,922
Interest on secured liabilities .....................................           551                  471                  302
Investor share, sublease and other operating expenses ...............         1,411                4,500               10,215
Selling, general and administrative expense .........................         7,905                8,728               16,260
                                                                            -------              -------              -------
                                                                             25,211               27,087               53,646
                                                                            -------              -------              -------
 
Income from continuing operations before income taxes ...............       $ 1,611              $10,382              $   547
                                                                            =======              =======              =======
</TABLE>

                              RESULTS OF OPERATIONS

Continuing Operations                                                           

Recently,  the Company has adjusted its strategic direction to focus its efforts
on the buying and selling of capital equipment in existing and new markets. This
decision  follows an evaluation of the capital  intensive  nature of the leasing
business,  the opportunity  for utilization of existing tax loss  carryforwards,
and the need to reduce the  Company's  operating  cost  structure  and  increase
operating  profitability.   Accordingly,  the  Company  has  decided  to  pursue
expansion of the equipment sales business and curtail its leasing operations. As
a result,  management  intends to sell  substantially all of its lease portfolio
and  utilize  the  proceeds  to support its  expansion  of the  equipment  sales
business.  Such  expansion  is expected to occur  through the growth of existing
business  lines as well as through  external  means by acquisition of businesses
engaged  in the  distribution  of new and  refurbished  capital  equipment.  The
Company  intends to identify  acquisition  candidates  that can  complement  and
broaden the Company's  existing product lines and equipment sales activity,  and
expand the Company's marketing capabilities.

Total  revenues  decreased to $26.8 million in Fiscal 1996 from $37.5 million in
Fiscal 1995 and $54.2 million in Fiscal 1994.  Equipment rentals and income from
direct  financing  leases  decreased  to $7.9  million in Fiscal 1996 from $15.6
million  in  Fiscal  1995 and $26.4  million  in Fiscal  1994.  These  decreases
<PAGE>
primarily reflect a "running out" of the old lease portfolio, developed prior to
and during the bankruptcy proceeding.  Equipment sales increased by $1.4 million
in Fiscal  1996 to $16.7  million,  from  $15.3  million  in Fiscal  1995.  This
increase is principally  attributable  to higher sales in the aircraft  business
unit and additional sales  contributed by LaserAccess,  since its acquisition on
March 8, 1996. Equipment sales decreased by $7.5 million in Fiscal 1995 to $15.3
million,  from $22.8  million in Fiscal 1994.  This decline was chiefly due to a
reduced  volume  of  available  equipment  previously  on  lease  to  customers.
Interest, fees and other income decreased by $4.3 million in Fiscal 1996 to $2.3
million,  from $6.6 million in Fiscal 1995. This decrease  reflects a decline in
management  fees received from income funds and a decrease in fees  generated by
brokered  transactions.  Effective as of December 31, 1995, the Company sold TLP
Leasing  Programs,  a  group  of  wholly-owned  subsidiaries,   to  the  current
management of TLP. These  subsidiaries  previously  managed various income funds
and partnerships.  Interest,  fees and other income increased by $1.6 million in
Fiscal 1995 to $6.6 million,  from $5.0 million in Fiscal 1994, due primarily to
an increase in  management  fees  received  from income funds and an increase in
fees generated by brokered transactions.

Costs and expenses  decreased to $25.2 million in Fiscal 1996 from $27.1 million
in  Fiscal  1995 and  $53.6  million  in  Fiscal  1994.  Within  this  category,
depreciation  decreased  to $3.4  million  in Fiscal  1996 from $4.3  million in
Fiscal 1995 and $11.9 million in 1994.  Additionally,  investor share,  sublease
and other operating expenses decreased to $1.4 million in Fiscal 1996, from $4.5
million in Fiscal 1995 and $10.2 million in Fiscal 1994. Depreciation,  investor
share, and other operating  expenses are associated with the portfolio of rental
equipment and the decrease in these items is directly related to the diminishing
portfolio of this  equipment,  as noted above.  Cost of sales  increased by $2.8
million in Fiscal 1996 to $11.9  million from $9.1 million in Fiscal 1995.  This
increase is directly  related to the  increased  sales in the aircraft  business
unit and additional  sales  contributed by LaserAccess,  since its  acquisition.
Cost of sales  decreased  by $5.9  million in Fiscal 1995 to $9.1  million  from
$14.9  million in Fiscal  1994.  This  decline  is  directly  attributable  to a
decrease in sales of equipment  previously on lease to customers.  Cost of sales
as a percentage of sales for the fiscal years ended May 31, 1996, 1995 and 1994,
was 71.4%, 59.0% and 65.4%,  respectively.  These yearly variances are primarily
the  result  of  product  mix,  with  the  aircraft   business  unit  generating
significant   margins  on  a   relatively   few  large   transactions   and  the
telecommunications  and printing  business units  generating  comparably  lesser
margins on a greater number of transactions. Interest on secured liabilities was
$.6  million  for Fiscal  1996,  $.5 million for Fiscal 1995 and $.3 million for
Fiscal 1994.  These yearly  increases are the result of increased yearly average
debt outstanding. Selling, general and administrative expenses decreased to $7.9
million in Fiscal  1996 from $8.7  million in Fiscal  1995 and $16.3  million in
Fiscal 1994.  These yearly  decreases are  principally  due to staff  reductions
between the periods.
<PAGE>
For the following discussion of reorganization  items,  discontinued  operations
and income  taxes,  please  refer to the table  contained  in "ITEM 6.  SELECTED
FINANCIAL DATA" on page 8.

Reorganization Items

Reorganization items represented income and expenses incurred by the Predecessor
Company  resulting from bankruptcy and specific to the  reorganization  process.
These amounts are presented separately because of their non-operating nature.

Discontinued Operations

On April  3,  1996,  the  Company  announced  its  decision  to  discontinue  an
operation,  including its wholly-owned  subsidiary,  Aviron,  that purchased and
sold used computer equipment and provided related technical services. After that
date,  the Company  attempted  to locate a buyer for the  operation.  On June 5,
1996, the Company  announced it had abandoned its efforts to sell the operations
and would  instead  liquidate  the assets which  consisted  principally  of used
computer equipment  inventories and fixed assets. The net loss from discontinued
operations  for the year ended May 31,  1996,  was  $1,177,000  (net of $698,000
deferred  tax  benefit).  In May 1995,  the Company had  attempted to change the
products and marketing  strategies of Aviron to make it more  competitive in the
current market.  These actions resulted in a restructuring  charge to operations
of $800,000 in the quarter ended May 31, 1995, for employee  severance  programs
affecting 13 employees,  lease termination costs for excess facilities,  and the
write-off of certain  deferred  costs  relating to  non-compete  and  consulting
arrangements  having a book value of approximately  $218,000.  The restructuring
reserve has been  completely  utilized as of May 31,  1996,  as a result of cash
payments for severance and excess facilities costs.

A summary of the results of operations of the  discontinued  buy/sell  operation
follows (in thousands):
<TABLE>
<CAPTION>
                                                           Reorganized Company            |             Predecessor Company
                                                           -------------------            |             -------------------
                                                      For the year       For the six      |     For the six          For the year
                                                          ended          months ended     |    months ended              ended
                                                      May 31, 1996       May 31, 1995     |   November 30, 1994      May 31, 1994
                                                      ------------       ------------     |   -----------------      ------------
<S>                                                   <C>                  <C>                  <C>                  <C>
Revenues .............................................  $ 5,491            $ 5,352        |     $ 10,580             $ 26,308
Costs and expenses ...................................    6,661              7,890        |       12,110               26,824
                                                        -------            -------        |     --------             --------
Loss from discontinued operations ....................   (1,170)            (2,538)       |       (1,530)                (516)
Loss on disposal of discontinued                                                          |
      operations .....................................     (705)              --          |         --                   --
                                                        -------            -------        |     --------             --------
Loss before income tax benefit .......................   (1,875)            (2,538)       |       (1,530)                (516)
Income tax benefit ...................................     (698)              (971)       |         --                   --
                                                        -------            -------        |     --------             --------
Net loss from discontinued                                                                |
      operations .....................................  $(1,177)           $(1,567)       |     $ (1,530)            $   (516)
                                                        =======            =======        |     ========             ========
                                                                                          
</TABLE> 
<PAGE>                                                                          
Additionally,   on  May  25,  1995,   the  Board  of   Directors   approved  the
discontinuance  of NC3,  Inc.,  the  Company's  excess  inventory  business unit
located in Syracuse,  New York.  The Company  recorded a provision of $1,137,000
(net of  $763,000  deferred  tax  benefit) in the  quarter  ended May 31,  1995,
relative  to the  disposal  of NC3  assets  and  other  charges  related  to the
discontinuance  of the business unit. As of May 31, 1996, the Company had exited
the  business  and  liquidated  substantially  all of the assets.  A total of 14
employees  were  terminated  in  connection  with the closing of this  business.
Liabilities  of the  discontinued  operation  decreased from $744,000 at May 31,
1995 to  $175,000  as of May 31,  1996,  due to cash  payments  principally  for
severance  and  facilities  costs  totaling  approximately  $239,000  and  a net
reduction  of  $330,000  to adjust  the  amounts  estimated  for the loss on the
inventories,  receivables,  fixed assets and leased  facility  obligations.  The
remaining  liability of $175,000 as of May 31, 1996 is expected to be liquidated
by cash payments extending through approximately May 31, 1997. The adjustment of
the liability in the amount of $230,000 was recorded as a gain from discontinued
operations,  net of deferred tax expenses of $87,000 in the quarter ended August
31, 1995.  An  additional  adjustment of the liability in the amount of $100,000
was recorded as an offset to the loss on disposal of discontinued  operations in
the quarter ended May 31, 1996.

A summary of the results of  operations  of the  discontinued  NC3 business unit
follows (in thousands):
<TABLE>
<CAPTION>
                                                               Reorganized Company         |            Predecessor Company
                                                               -------------------         |            -------------------
                                                          For the year      For the six    |   For the six          For the year
                                                             ended          months ended   |    months ended           ended
                                                          May 31, 1996      May 31, 1995   |  November 30, 1994     May 31, 1994
                                                          ------------      ------------   | -----------------      ------------
<S>                                                            <C>            <C>                 <C>                <C>
Revenues ...................................................   $--            $ 1,285      |      $ 4,019            $ 1,742
Costs and expenses .........................................    --              1,773      |        7,371              1,801
                                                               ----           -------      |      -------            -------
Loss from discontinued operations ..........................    --               (488)     |       (3,352)               (59)
Income (loss) on disposal of                                                               |
     discontinued operations ...............................    330            (1,900)     |         --                 --
                                                               ----           -------      |      -------            -------
Income (loss) before income                                                                |
     tax (benefit) .........................................    330            (2,388)     |       (3,352)               (59)
Income tax (benefit) .......................................     87              (958)     |         --                 --
                                                               ----           -------      |      -------            -------
Net income (loss) from                                                                     |
     discontinued operations ...............................   $243           $(1,430)     |      $(3,352)           $   (59)
                                                               ====           =======      |      =======            =======
                                                                                           
</TABLE> 
<PAGE>                                                                  
Income Taxes                                                                    

For the year ended May 31,  1996 and for the six months  ended May 31,  1995,  a
provision for deferred income tax expense on income from  continuing  operations
was   recorded  in  the  amounts  of  $611,000   and   $849,000,   respectively.
Additionally,  for the year ended May 31, 1996 and for the six months  ended May
31, 1995, a deferred income tax benefit on loss from discontinued operations was
recognized in the amounts of $611,000 and $1,929,000,  respectively. For the six
months ended  November 30, 1994 and for the year ended May 31, 1994, a provision
for state income tax on income from  continuing  operations  was recorded in the
amounts of $45,000 and $100,000,  respectively.  No provision for federal income
tax  was  required  in  these  periods  due to the  effects  of the  Predecessor
Company's net operating loss ("NOL") carryforwards.  In connection with applying
"fresh  start"  accounting  as of November 30,  1994,  the  Reorganized  Company
recognized  deferred tax assets of approximately $5 million,  net of a valuation
allowance   of   approximately   $7  million,   relating   principally   to  NOL
carryforwards.  Net deferred tax assets  increased to  $6,080,000  as of May 31,
1995 due to the  Reorganized  Company's  operating  losses during the six months
then ended.  The  pre-reorganization  Federal NOL  carryforwards  giving rise to
deferred tax assets  expire  during the years 2004 to 2010.  Utilization  of the
Company's   pre-reorganization   Federal   NOL   carryforwards   is  limited  to
approximately  $2 million per year.  Management will  periodically  evaluate the
realizability  of the  deferred  tax  assets  based  principally  on actual  and
expected  operating  results.  In the event that an  adjustment  is  required to
reduce the reorganized deferred tax asset in the future, such adjustment will be
charged to  operations.  Any future  recognition  of the tax  benefits  from the
Company's  pre-reorganization  net operating loss carryforwards in excess of the
net $5 million  initially  recorded  will be  recognized  as a direct  credit to
shareholders' equity as required under SOP 90-7.
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations  for the year ended May 31, 1996 of $6.8 million was
composed of cash  provided by  continuing  operations  of $7.9 million with $1.1
million  being used in  discontinued  operations.  Cash  provided by  continuing
operations  arose  primarily  from net  income  of $1.0  million  less  non-cash
amortization of unearned income of $1.3 million plus non-cash  depreciation  and
amortization  expense of $3.9 million,  in addition to collections of rentals on
direct financing leases of $4.7 million.  Cash provided by proceeds from sale of
equipment  subject to operating leases of $2.2 million was offset by an increase
in accounts  receivable  and notes  receivable  and accrued  interest  and other
assets.  The net change in balance  sheet  accounts  has been  adjusted  for the
acquisition of LaserAccess and the sale of the TLP subsidiaries.  New investment
in rental  equipment  for the year  ended  May 31,  1996 was  $22.8  million  as
compared to $2.4 million for the six months ended May 31, 1995, $4.5 million for
the six months ended  November 30, 1994 and $11.8 million for the year ended May
31, 1994.  The  significant  increase in rental  equipment in the current period
resulted from the Company's  acquisition of equipment subject to lease. Net cash
provided by the Company's sale of its TLP subsidiaries  amounted to $.8 million.
Net cash used in the acquisition of LaserAccess was $1.9 million, in addition to
the issuance of notes  payable in the amount of $2.3  million,  payable in three
equal annual  installments,  commencing March 8, 1997, with interest at the rate
of 8.25% on the unpaid  principal  balance.  During the year ended May 31, 1996,
the  Reorganized  Company  made  principal  payments  of $3.4  million on a note
payable  to the  Liquidating  Estate,  paying  the note in full in  March  1996.
Proceeds from lease, bank and institution  financings were $15.4 million for the
year ended May 31, 1996, as compared to $.3 million for the six months ended May
31, 1995,  $.8 million for the six months  ended  November 30, 1994 and none for
the year ended May 31,  1994.  The  significant  increase in the current  period
primarily  represents  discounted  lease rental  borrowings  associated with the
purchase of rental equipment subject to lease.

Reorganization  related  adjustments for the six months ended November 30, 1994,
in the amount of $207.8 million, represent cash flows of the Predecessor Company
resulting from  bankruptcy and specific to the  reorganization  process.  During
this period,  a $15.0 million payment was made to the Internal  Revenue Service.
The $15.0 million balance due to the Internal  Revenue  Service,  required under
the  Settlement  Agreement,  was assumed by the  Liquidating  Estate and paid in
December 1994.

As noted previously,  the Company has adjusted its strategic  direction to focus
its efforts on the buying and selling of capital  equipment  in existing and new
markets.  This decision follows an evaluation of the capital intensive nature of
the leasing  business,  the  opportunity  for  utilization  of existing tax loss
carryforwards,  and the need to reduce the Company's  operating cost  structure,
and increase operating  profitability.  Accordingly,  the Company has decided to
pursue  expansion  of the  equipment  sales  business  and  curtail  its leasing
operations.  As a result,  management  intends to sell  substantially all of its
lease  portfolio  and utilize  the  proceeds  to support  its  expansion  of the
equipment sales business. Such expansion is expected to occur through the growth
of existing  business lines as well as through  external means by acquisition of
businesses engaged in the distribution of new and refurbished capital equipment.

The Company expects that  operations  will generate  sufficient cash to meet its
operating  expenses and current  obligations.  The cash  retained by the Company
pursuant to the Plan of  Reorganization  has been used to provide  liquidity  to
fund investment in new leases,  inventory,  and other investment  opportunities.
Typically,  companies in the business  engaged in by the Company employ leverage
<PAGE>
to enhance their returns.  In April 1996, the Company finalized a revolving loan
agreement with an institution to provide interim and  recourse/limited  recourse
lease  financing  in  the  total  amount  of  $5  million.   At  May  31,  1996,
approximately  $.9 million was  outstanding on the limited  recourse  portion of
this facility.  Additionally,  in July 1996, the Company finalized two revolving
loan  agreements  with  institutions to provide (1) warehouse lease financing in
the amount of $5 million and (2) inventory financing for LaserAccess and CIS Air
in the amount of $7 million.  The Company believes that the Company's asset base
will enable the Company to obtain  sufficient  capital to operate its  business.
Failure to obtain,  or delay in obtaining,  debt financing at competitive  rates
could  affect  the  Company's  ability to improve  earnings,  grow its  buy/sell
business and finance acquisitions.
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


        Financial Statements:                                       
        (a) (1)  Financial Statements

                    Reports of Independent Accountants
    
                    Consolidated Balance Sheets-May 31, 1996 and 1995
         
                    Consolidated   Statements  of  Operations  and   Accumulated
                         Deficit-Year ended May 31,  1996,  six months ended May
                         31, 1995 and  November  30, 1994 and year ended May 31,
                         1994
  
                    Consolidated  Statements  of Cash  Flows-Year ended May  31,
                         1996,  six months  ended May 31, 1995 and  November 30,
                         1994 and year ended May 31, 1994

                   Notes to Consolidated Financial Statements  
 
             (2)   Financial Statement Schedules
                      Valuation and Qualifying Accounts (Schedule II)   

                   All other  schedules  are omitted  because  they are not
                   applicable or the required  information  is shown in the
                   financial statements or notes thereto.




<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Stockholders of
Continental Information Systems Corporation


In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
Continental Information Systems Corporation (the "Company") and its subsidiaries
at May 31,  1996 and 1995,  and the results of their  operations  and their cash
flows for the year ended May 31, 1996 and the six months ended May 31, 1995,  in
conformity  with  generally  accepted  accounting  principles.  These  financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audit  provides a reasonable  basis for the opinion  expressed
above.

As discussed in Note 1, on November 29, 1994, the United States Bankruptcy Court
for  the  Southern  District  of  New  York  confirmed  the  Company's  Plan  of
Reorganization  (the "Plan").  Confirmation of the Plan resulted in distribution
of all of the Company's assets in settlement of all of the Company's liabilities
through a Liquidating  Estate,  except for  specifically  identified  assets and
liabilities  having a net  tangible  fair value of $30  million  retained by the
Company,  and  substantially  terminates  all  rights  and  interests  of equity
security holders as provided for in the Plan. The Plan was confirmed on November
29,  1994 and the  Company  emerged  from  bankruptcy.  In  connection  with its
emergence  from  bankruptcy,  the Company  adopted  fresh start  reporting as of
November 30, 1994.



PRICE WATERHOUSE LLP
July 11, 1996
Syracuse, New York




<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Stockholders
of Continental Information Systems Corporation


In our opinion, the consolidated financial statements listed in the accompanying
index present fairly,  in all material  respects,  the results of operations and
cash flows of Continental  Information  Systems  Corporation  (the  "Predecessor
Company") and its  subsidiaries  for the six months ended  November 30, 1994 and
the year ended May 31, 1994, in conformity  with generally  accepted  accounting
principles.  These financial  statements are the responsibility of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for the opinion expressed above.

As  discussed  in Note 1, on January 13, 1989 the  Predecessor  Company  filed a
petition with the United States  Bankruptcy  Court for the Southern  District of
New York for reorganization under the provisions of Chapter 11 of the Bankruptcy
Code. The Predecessor Company's Plan of Reorganization was confirmed on November
29,  1994 and the  Company  emerged  from  Bankruptcy.  In  connection  with its
emergence from bankruptcy, the Company adopted fresh start reporting.



PRICE WATERHOUSE LLP
January 20, 1995
Syracuse, New York






<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                           CONSOLIDATED BALANCE SHEETS


                                                                                                           May 31,
                                                                                              1996                      1995        
                                                                                              ----                      ----
<S>                                                                                   <C>                          <C>              
Assets:
Cash and cash equivalents                                                             $       5,382                $    13,015
Accounts receivable, net of allowance for
    doubtful accounts of $53 and $170                                                         2,300                      1,836
Notes receivable                                                                              2,688                        767
Inventory                                                                                     3,639                      3,352
Net investment in direct financing leases (Note 5)                                           15,783                      5,437
Rental equipment, net (Note 6)                                                               11,148                      8,324
Net assets of discontinued operations (Note 3)                                                    -                        351
Furniture, fixtures and equipment, net (Note 7)                                                 625                      1,059
Accrued interest and other assets                                                             1,965                        909
Goodwill, net of amortization of $67 (Note 2)                                                 3,940                          -
Deferred tax assets (Note 12)                                                                 6,080                      6,080
                                                                                       ------------                -----------

          Total assets                                                                 $     53,550                $    41,130
                                                                                       ============                ===========

Liabilities and Shareholders' Equity:
Liabilities:
    Accounts payable and other liabilities                                            $       2,949               $      2,076
    Net liabilities of discontinued operations (Note 3)                                         106                          -
    Discounted lease rental borrowings (Note 9)                                              14,738                      2,126
    Notes payable to former owners of acquired company (Note 2)                               2,304                          -
    Note payable to Liquidating Estate (Note 8)                                                   -                      3,391
    Income tax liability (Note 12)                                                                -                        150
                                                                                       ------------               ------------

        Total liabilities                                                                    20,097                      7,743
                                                                                       ------------               ------------
Shareholders' Equity:
Common  stock,  $.01  par  value;   authorized  10,000,000  shares,  issued  and
    outstanding  6,999,040 and 7,000,000,  excluding 960 treasury shares in 1996
    and none in 1995, respectively
    (Notes 10 and 11)                                                                            70                         70
Additional paid-in capital                                                                   34,930                     34,930
Accumulated deficit                                                                          (1,547)                    (1,613)
                                                                                       ------------               ------------

     Total shareholders' equity                                                              33,453                     33,387
                                                                                       ------------               ------------

     Total liabilities and shareholders' equity                                        $    53,550                $     41,130
                                                                                       ============               ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                    CONSOLIDATED STATEMENTS OF OPERATIONS AND
                               ACCUMULATED DEFICIT

                                                                        Reorganized Company         |       Predecessor Company
                                                                        -------------------         |       -------------------
                                                                   For the year       For the six   |   For the six     For the year
                                                                       ended          months ended  |   months ended        ended
                                                                      May 31,           May 31,     |   November 30,        May 31, 
                                                                        1996             1995       |     1994               1994
                                                                     --------         --------      |   ---------         ---------
<S>                                                                  <C>              <C>               <C>               <C>       
Revenues:                                                                                           |
Equipment rentals ............................................       $  6,540         $  4,726      |   $   9,500         $  25,280
Income from direct financing leases ..........................          1,347              621      |         705             1,122
Equipment sales ..............................................         16,657            4,571      |      10,771            22,806
Interest, fees and other income ..............................          2,278           1,8444      |       4,731             4,985
                                                                     --------         --------      |   ---------         ---------
                                                                       26,822           11,762      |      25,707            54,193
                                                                     --------         --------      |   ---------         ---------
Costs and Expenses:                                                                                 |
Depreciation of rental equipment .............................          3,445            1,465      |       2,865            11,947
Cost of sales ................................................         11,899            3,496      |       5,562            14,922
Interest on secured liabilities ..............................            551              277      |         137             1,597
Investor share, sublease and other                                                                  |
operating expenses ...........................................          1,411              873      |       3,627            10,215
Selling, general and administrative expense ..................          7,905            3,418      |       5,310            16,260
                                                                     --------         --------      |    ---------         ---------
                                                                       25,211            9,529      |      17,501            54,941
                                                                     --------         --------      |   ---------         ---------
Income (loss) from continuing operations                                                            |
before reorganization items, income taxes,                                                          |
fresh start adjustments and extraordinary items ..............          1,611            2,233      |       8,206              (748)
                                                                     --------         --------      |   ---------         ---------
                                                                                                    |
Reorganization Items:                                                                               |
Earnings from accumulated cash resulting from 
Chapter 11 proceedings .......................................           --               --        |       3,527             4,129 
Bankruptcy related professional fees .........................           --               --        |      (5,572)          (11,830)
Gain on settlement of bankruptcy issues ......................           --               --        |      10,990           139,023 
Other ........................................................           --               --        |        --               2,902
                                                                     --------         --------      |   ---------         ---------
                                                                         --               --        |       8,945           134,224
                                                                     --------         --------      |   ---------         ---------
                                                                                                    |
Income from continuing operations before                                                            |
income  taxes, fresh start adjustments and                                                          |
extraordinary item ...........................................          1,611            2,233      |      17,151           133,476
Provision for income tax .....................................            611              849      |          45               100
                                                                     --------         --------      |   ---------         ---------
                                                                                                    |
Income before discontinued operations,                                                              | 
fresh start adjustments and                                                                         |
extraordinary item ...........................................          1,000            1,384      |      17,106           133,376
                                                                     --------         --------      |   ---------         ---------

<PAGE>
<CAPTION>
                    CONSOLIDATED STATEMENTS OF OPERATIONS AND
                               ACCUMULATED DEFICIT
                                  (continued)

                                                                        Reorganized Company         |       Predecessor Company
                                                                        -------------------         |       -------------------
                                                                   For the year       For the six   |   For the six     For the year
                                                                       ended          months ended  |   months ended        ended
                                                                      May 31,           May 31,     |   November 30,        May 31, 
                                                                        1996             1995       |     1994               1994
                                                                     --------         --------      |   ---------         ---------
<S>                                                                  <C>              <C>               <C>               <C>       
Loss from discontinued operations, net                                                              |
of tax .......................................................           (725)          (1,860)     |      (4,882)             (575)
Loss on disposal of discontinued                                                                    |
operations, net of tax .......................................           (209)          (1,137)     |        --                --
                                                                     --------         --------      |   ---------         ---------
Net loss from discontinued operations (Note 3)  ..............           (934)          (2,997)     |      (4,882)             (575)
                                                                     --------         --------      |   ---------         ---------
                                                                                                    |
Income (loss) before fresh start                                                                    |
adjustments and extraordinary item ...........................             66           (1,613)     |      12,224           132,801
                                                                                                    |
Fresh start adjustments ......................................           --               --        |      (3,264)             --
                                                                     --------         --------      |   ---------         ---------
                                                                                                    |
Income (loss) before extraordinary item ........................           66           (1,613)     |       8,960           132,801
                                                                                                    |
Extraordinary item-forgiveness of debt .......................           --               --        |      96,317              --
                                                                     --------         --------      |   ---------         ---------
                                                                                                    |
Net income (loss) ............................................             66           (1,613)     |     105,277           132,801
                                                                                                    |
Retained earnings (Accumulated deficit),                                                            |
beginning of period ..........................................         (1,613)            --        |    (140,408)         (273,209)
                                                                                                    |
Elimination of accumulated deficit ...........................           --               --        |      35,131              --
                                                                     --------         --------      |   ---------         ---------
                                                                                                    |
Retained earnings (Accumulated deficit),                                                            |
end of period ................................................       $ (1,547)        $ (1,613)     |        --           $(140,408)
                                                                     ========         ========      |   =========         =========
                                                                                                     
Net income (loss) per share (Note 1):                                                                
Income from continuing operations ............................      $     .14         $    .20
Loss from discontinued operations ............................           (.13)            (.43)
                                                                    ---------         ---------
 Net income (loss) ...........................................      $     .01         $   (.23)
                                                                    =========         =========
                                                                                                     
                                                                                                     
The accompanying notes are an integral part of these financial statements.                           
</TABLE> 
<PAGE>                                                                        
Continental Information Systems Corporation                          
and its Subsidiaries
In Thousands
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                              Reorganized Company     |      Predecessor Company    
                                                                              -------------------     |      -------------------  
                                                                         For the year    For the six  |  For the six    For the year
                                                                            ended        months ended |  months ended       ended
                                                                            May 31,         May 31,   |   November 30,      May 31, 
                                                                             1996            1995     |      1994            1994
                                                                           --------       --------    |   ---------       ---------
<S>                                                                        <C>            <C>             <C>             <C>       
Cash flows from operating activities:                                                                 |
Net income (loss) ....................................................     $     66       $ (1,613)   |     105,277       $ 132,801
Less: Net loss from discontinued operations ..........................         (934)        (2,997)   |      (4,882)           (575)
                                                                           --------       --------    |   ---------       ---------
   Net income from continuing operations .............................        1,000          1,384    |     110,159         133,376
                                                                           --------       --------    |   ---------       ---------
Adjustments to reconcile net income                                                                   |
to net cash provided by operating activities:                                                         |
   Reorganiation related adjustments-                                                                 |
   Gain on forgiveness of debt .......................................         --             --      |     (96,317)           --
   Fresh start adjustments ...........................................         --             --      |       3,043            --
   Cash transferred to liquidating Estate ............................         --             --      |    (106,554)           --
   Gain on settlement of lease, bank and                                                              |
   institution financing .............................................         --             --      |      (8,012)       (114,244)
                                                                           --------       --------    |   ---------       ---------
     Reorganization related adjustments ..............................         --             --      |    (207,840)       (114,244)
                                                                           --------       --------    |   ---------       ---------
                                                                                                      |
Other adjustments-                                                                                    |
   Proceeds from sale of equipment subject to                                                         |
      operating leases ...............................................       2,155          3,066     |       2,449           7,262
   Amortization of unearned income ...................................       (1,347)          (621)   |        (705)         (1,122)
   Collections of rentals on direct financing loans ..................        4,665          1,761    |       2,092           5,756
   Depreciation and amortization expense .............................        3,967          1,699    |       3,309          14,126
   Effect on cash flows of changes in:                                                                |
      Marketable debt securities .....................................         --             --      |      25,829          39,409
      Accounts receivable ............................................         (317)         1,215    |      (2,436)          6,623
      Notes receivable ...............................................       (2,420)           186    |          (7)           (172)
      Inventory ......................................................          291          1,668    |       3,526          (1,497)
      Accrued interest and other assets ..............................       (1,157)           159    |         911             647
      Accounts payable and other liabilities .........................          616           (773)   |      (1,015)         (8,709)
      Income tax liability ...........................................          461          1,731    |     (16,567)           --   
      Deferred tax assets ............................................         --           (1,080)   |        --              --   
                                                                           --------       --------    |   ---------       ---------
                                                                                                      |
           Other adjustments .........................................        6,914          9,011    |      17,386          62,323
                                                                           --------       --------    |   ---------       ---------
      Net cash provided by (used in)                                                                  |
      continuing operations ..........................................        7,914         10,395    |     (80,295)         81,455
      Net cash provided by (used in)                                                                  |
      discontinued operations.........................................       (1,088)         1,950    |      (6,001)         (3,056)
                                                                           --------       --------    |   ---------       --------- 
      Net cash provided by (used in)                                            
      operations .....................................................        6,826         12,345    |     (86,296)         78,399 
                                                                           --------       --------    |   ---------       --------- 
                                                                              
<PAGE>                                                                                               
<CAPTION>                                                                                             
                     CONSOLIDATED STATEMENTS OF CASH FLOWS                                            
                                                                              Reorganized Company     |      Predecessor Company   
                                                                              -------------------     |      ------------------- 
                                                                         For the year    For the six  |  For the six    For the year
                                                                            ended        months ended |  months ended       ended
                                                                            May 31,         May 31,   |   November 30,      May 31, 
                                                                             1996            1995     |      1994            1994
                                                                           --------       --------    |   ---------       ---------
<S>                                                                        <C>            <C>             <C>             <C>     
Cash flows from investing activities:                                                                 |
Purchase of rental equipment .........................................      (22,800)        (2,444)   |      (4,503)        (11,817)
Purchase of property and equipment ...................................          (36)           (70)   |        (871)           (454)
Net cash provided by the sale of TLP subsidiaries ....................          754           --      |        --              --
Net cash used in the acquisition of LaserAccess subsidiary ...........       (1,910)          --      |        --              --
                                                                           --------       --------    |   ---------       ---------
            Net cash used in investing activities ....................      (23,992)        (2,514)   |      (5,374)        (12,271)
                                                                           --------       --------    |   ---------       ---------
                                                                                                      |
                                                                                                      |
                                                                                                      |
                                                                                                      |
Cash flows from financing activities:                                                                 |
Payments on building lease obligation ................................         --             --      |        --              (900)
Payments on note payable to Liquidating Estate .......................       (3,391)        (2,632)   |        --              --
Proceeds from lease, bank and institution financings .................       15,368            254    |         845            --
Payments on lease, bank and institution financings ...................       (2,444)         2,666)   |     (16,743)
                                                                           --------       --------    |   ---------       ---------
                                                                                                      |
            Net cash provided by (used in)                                                            |
            financing activities .....................................        9,533         (3,609)   |      (1,821)        (17,643)
                                                                           --------       --------    |   ---------       ---------
                                                                                                      |
            Net increase (decrease) in cash and                                                       |
            cash equivalents .........................................       (7,633)         6,222    |     (93,491)         48,485
Cash and cash equivalents at beginning of period .....................       13,015          6,793    |     100,284          51,799
                                                                           --------       --------    |   ---------       ---------
Cash and cash equivalents at end of period ...........................     $  5,382       $ 13,015    |   $   6,793       $ 100,284
                                                                           ========       ========    |   =========       =========
                                                                                                       
                                                                                                       
                                                                                                       
The accompanying notes are an integral part of these financial statements.                             
</TABLE> 
<PAGE>
Contintental Information Systems Corporation                                    
and its Subsidiaries                                                       
Notes to the Financial Statements                           
                                                             
                                                                       
1.    Summary of Significant Accounting Policies                                
                                                                                
      Continental  Information  Systems  Corporation and its  Subsidiaries  (the
      "Company")   are   engaged  in  the   business   of  buying  and   selling
      telecommunications  equipment,  printing systems, and commercial aircraft,
      and providing  leasing  services in connection  with such  equipment,  and
      certain other industrial equipment.                                       
                                                                                
      To distinguish between the operations of the Company after  reorganization
      (sometimes referred to as the "Reorganized  Company") and operations prior
      to  reorganization,  the  term  "Predecessor  Company"  will be used  when
      reference is made to the pre-reorganization  periods. On January 13, 1989,
      the Predecessor  Company and certain of its  subsidiaries  filed voluntary
      petitions  for  reorganization  under  Chapter  11 of  the  United  States
      Bankruptcy  Code.  On November  29, 1994 (the  "Confirmation  Date"),  the
      Bankruptcy Court confirmed the Company's Plan of Reorganization.  The Plan
      of   Reorganization   became  effective  on  December  21,  1994  and  the
      Reorganized  Company,  and its subsidiaries  which had filed petitions for
      relief,  emerged from Chapter 11. For financial  reporting  purposes,  the
      emergence from bankruptcy protection was recorded as of November 30, 1994,
      the end of the Predecessor Company's second fiscal quarter. As a result of
      the reorganization and "fresh start" reporting,  the financial  statements
      of the Predecessor Company are not comparable to the financial  statements
      subsequent to November 30, 1994.

      Consolidation
      The accompanying consolidated financial statements include the accounts of
      the Company and its wholly-owned  subsidiaries.  All intercompany accounts
      have been eliminated in consolidation.

      Cash and Cash Equivalents
      Cash and cash equivalents  include checking and money market accounts with
      financial institutions having original maturities of 90 days or less.

      Concentration of Credit Risk
      The Company  extends credit through trade accounts  receivable and leasing
      transactions to its customers located throughout the U.S. Direct financing
      and operating leases are secured by the underlying equipment.  The Company
      generally does not require collateral for trade accounts receivable.

      Inventory and Related Revenue Recognition
      Inventory  consists of various printing,  telecommunication,  and aircraft
      equipment purchased on a speculative basis for future sale or lease and is
      stated at the lower of cost or market, cost being determined on a specific
      identification  basis. Revenues from the sale of equipment and the related
      cost of the  equipment  are reflected in earnings at the time title to the
      equipment passes to the customer which generally occurs upon shipment.

      The Company performs ongoing analysis, at least quarterly, of the carrying
      value of  inventories  on a  specific  identification  basis  and  records
      adjustments,  as  considered  necessary,  to reduce the carrying  value of
      inventories to estimated market value in the period such  determination is
      made. These  adjustments are recorded as direct writedowns in the carrying
      value of the inventory.
<PAGE>
      Lease Accounting Policies
      Statement of Financial  Accounting Standards No. 13 requires that a lessor
      account for each lease by the direct financing  method,  sales-type method
      or operating method.  Presently, the Company has only direct financing and
      operating  leases.  Net investment in direct  financing leases consists of
      the present value of the future  minimum  lease  payments plus the present
      value of the unguaranteed residual, representing the estimated fair market
      value at lease  termination.  At the end of the lease term,  the  recorded
      residual value of equipment under direct  financing leases is reclassified
      to rental equipment and is depreciated over its estimated remaining useful
      life.

      Lease income from direct  financing  leases consists of interest earned on
      the present  value of the lease  payments and residual  value.  Revenue is
      recognized over the lease term using the interest method.

      Rental  equipment  consists of equipment  under operating  leases.  Rental
      equipment is  depreciated on a  straight-line  basis to its residual value
      over the estimated  remaining useful life of such equipment.  The original
      useful lives  generally  range from three to seven years.  Operating lease
      revenues consist of the contractual lease payments and are recognized on a
      straight-line  basis over the lease term.  Costs associated with operating
      leases principally consist of depreciation of the equipment.

      The Company makes  adjustments to the carrying value of leased assets,  if
      necessary, when market conditions have resulted in value that is below net
      book value.  In  accordance  with "fresh start"  reporting,  the Company's
      investment in direct  financing  leases and rental equipment were adjusted
      to reflect fair value,  and accumulated  depreciation of rental  equipment
      was eliminated, as of November 30, 1994.

      Deferred Commissions and Initial Direct Costs
      Commissions  and initial  direct costs related to lease  transactions  are
      capitalized  as a  component  of the  corresponding  investment  in direct
      financing  leases or rental  equipment  and  amortized  over the estimated
      average  lease term.  Costs  relating to  investment  in direct  financing
      leases are amortized using an interest method and costs relating to rental
      equipment are amortized using the straight-line method.

      Furniture, Fixtures and Equipment
      In accordance  with "fresh  start"  reporting,  the  Company's  furniture,
      fixtures and equipment was adjusted to reflect fair value and  accumulated
      depreciation  was  eliminated  as of November  30, 1994.  Additions  after
      November 30, 1994 are recorded at cost. Furniture,  fixtures and equipment
      are being depreciated  using the  straight-line  method over the estimated
      useful lives of such assets which range from three to five years.

      Goodwill
      Goodwill is the excess of the purchase price over the net assets of GMCCCS
      Corp.  (dba  "LaserAccess")  acquired  March 8,  1996.  Goodwill  is being
      amortized on a straight-line basis over 10 years.  Amortization charged to
      continuing  operations in the current fiscal year amounted to $67,000. The
      Company  periodically reviews the value of its goodwill to determine if an
      impairment has occurred.  The Company measures the potential impairment of
      recorded  goodwill by the undiscounted  value of expected future operating
      cash flows in relation to its net capital  investment  in the  subsidiary.
      Based on its review,  the Company does not believe that an  impairment  of
      its goodwill has occurred.
<PAGE>
      Income Taxes
      The Company accounts for income taxes under the asset and liability method
      required by Financial  Accounting  Standard No. 109 (FAS 109),  Accounting
      for Income Taxes. FAS 109 requires the recording of assets and liabilities
      for the future tax effects of temporary  differences  between the bases of
      all assets and liabilities for financial  reporting purposes and their tax
      bases.  When net deferred tax assets exist, FAS 109 requires the recording
      of a valuation  allowance to reduce tax assets to the amount which is more
      likely than not to be realized.

      Net Income (Loss) Per Share
      Net income (loss) per share for the Reorganized Company for the year ended
      May 31, 1996 and the six months ended May 31, 1995 was  computed  based on
      the weighted average number of shares of common stock  outstanding  during
      the periods, which were 6,999,399 and 7,000,000,  respectively.  As of May
      31, 1996,  the Company had granted  options to purchase  24,000  shares of
      common stock (see note 11).  Since the exercise  price of these options is
      in excess of the  average  market  price of the common  stock for the year
      ended May 31, 1996, the options are considered  anti-dilutive  and are not
      included in the computation of net income per share. Net income (loss) per
      share  data  are not  presented  for the  Predecessor  Company  due to the
      general lack of comparability as a result of the revised capital structure
      of the Reorganized Company.

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

      Reclassifications
      Certain  prior  period  balances  in the  financial  statements  have been
      reclassified  to  conform  to  the  current  period  financial   statement
      presentation.

2.    Acquisition

      On March 8, 1996, the Company,  through its wholly-owned  subsidiary,  CIS
      Corporation,  acquired  100% of the  capital  stock of GMCCCS  Corp.  (dba
      "LaserAccess") for a purchase price of approximately  $4,608,000,  payable
      in cash  of  approximately  $2,304,000  at  closing  and  the  balance  of
      approximately  $2,304,000  in the form of  notes  payable  in three  equal
      annual  installments,  commencing March 8, 1997, with interest at the rate
      of 8.25% on the unpaid  principal  balance.  In addition  to the  purchase
      price to be paid in cash and notes,  CIS  Corporation  is obligated to pay
      the  sellers an annual  earn out  payment for each of the first four years
      following  the March 8, 1996 sale.  The earn out payment is based upon the
      annual pretax income of  LaserAccess.  LaserAccess is engaged in the sales
      and marketing of remanufactured Xerox High Speed Laser Printing Systems.

      The  acquisition  has been  accounted  for  using the  purchase  method of
      accounting.  Allocations of the purchase price have been determined  based
      upon  preliminary  estimates  of fair  market  value and,  therefore,  are
      subject to change. The excess of the purchase price, over the net tangible
      assets acquired, of approximately $4.0 million, is considered goodwill and
      is being  amortized on a straight line basis over ten years.  LaserAccess'
<PAGE>
      results of operations  since the date of the  acquisition  are included in
      the accompanying consolidated statements of operations of the Company.

      Unaudited  pro forma data giving  effect to the purchase as if it had been
      acquired at the beginning of Fiscal 1995, with adjustments,  primarily for
      imputed  interest  charges  attributable  to notes  payable  to the former
      owners and amortization of goodwill follows:

<TABLE>
<CAPTION>
                                                                            (In Thousands, except per share amounts)
                                                                         For the year                    For the year
                                                                             ended                          ended
                                                                         May 31, 1996                    May 31, 1995*
                                                                         ------------                    ------------ 
<S>                                                                      <C>                             <C>
             Total Revenues                                              $  30,599                       $    40,346
                                                                         =========                        ==========

             Income from continuing operations                           $   1,410                       $     9,472
                                                                         =========                       ===========

             Income per share from continuing operations                 $     .20                       $      1.35
                                                                         =========                       ===========
             Weighted average number of shares
                   outstanding                                           6,999,040                         7,000,000
                                                                         =========                       ===========
</TABLE>


           *The pro forma results of operations for the year ended May 31, 1995,
            include  the results of  continuing  operations  of the  Predecessor
            Company  for the six  months  ended  November  30,  1994,  as if the
            reorganization  had  taken  place  at the  beginning  of  the  year.
            Reorganization items and loss from discontinued operations have been
            excluded from the pro forma results.


3.    Discontinued Operations

      On April 3, 1996,  the Company  announced its decision to  discontinue  an
      operation,  including its wholly-owned subsidiary,  Aviron, that purchased
      and sold used computer equipment and provided related technical  services.
      After that  date,  the  Company  had  attempted  to locate a buyer for the
      operation.  On June 5, 1996,  the Company  announced it had  abandoned its
      efforts to sell the operation and would instead liquidate the assets which
      consisted  principally of used computer  equipment  inventories  and fixed
      assets.  The net loss from discontinued  operations for the year ended May
      31, 1996, was $1,177,000 (net of $698,000  deferred tax benefit).  In May,
      1995,  the Company had  attempted  to change the  products  and  marketing
      strategies of Aviron to make it more  competitive  in the current  market.
      These actions resulted in a restructuring charge to operations of $800,000
      in the  quarter  ended  May 31,  1995,  for  employee  severance  programs
      affecting 13 employees, lease termination costs for excess facilities, and
      the  write-off  of certain  deferred  costs  relating to  non-compete  and
      consulting arrangements having a book value of approximately $218,000. The
      restructuring  reserve has been completely utilized as of May 31, 1996, as
      a result of cash payments for severance and excess facilities costs.
<PAGE>
      Additionally,  on May 25,  1995,  the  Board  of  Directors  approved  the
      discontinuance of NC3, Inc., the Company's excess inventory  business unit
      located  in  Syracuse,  New York.  The  Company  recorded a  provision  of
      $1,137,000 (net of $763,000 deferred tax benefit) in the quarter ended May
      31, 1995, relative to the disposal of NC3 assets and other charges related
      to the  discontinuance  of the  business  unit.  As of May 31,  1996,  the
      Company had exited the business and  liquidated  substantially  all of the
      assets.  A total of 14 employees  were  terminated in connection  with the
      closing  of  this  business.  Liabilities  of the  discontinued  operation
      decreased  from  $744,000 at May 31, 1995 to $175,000 as of May 31,  1996,
      due to cash  payments  principally  for  severance  and  facilities  costs
      totaling  approximately $239,000 and a net reduction of $330,000 to adjust
      the amounts estimated for the loss on the inventories,  receivables, fixed
      assets  and  leased  facility  obligations.  The  remaining  liability  of
      $175,000 as of May 31, 1996 is expected to be  liquidated by cash payments
      extending  through  approximately  May 31,  1997.  The  adjustment  of the
      liability  in  the  amount  of  $230,000  was  recorded  as  a  gain  from
      discontinued  operations,  net of deferred  tax expenses of $87,000 in the
      quarter ended August 31, 1995.  An additional  adjustment of the liability
      in the  amount  of  $100,000  was  recorded  an as  offset  to the loss on
      disposal of discontinued operations in the quarter ended May 31, 1996.

      The Consolidated  Statements of Operations for all periods  presented have
      been  reclassified  to  report  the  results  of  discontinued  operations
      separately  from  continuing  operations.  A  summary  of the  results  of
      discontinued operations follows (in thousands):
<TABLE>
<CAPTION>

                                                              Reorganized Company          |              Predecessor Company
                                                              -------------------          |              -------------------
                                                       For the year        For the six     |       For the six          For the year
                                                          ended           months ended     |      months ended              ended
                                                       May 31, 1996       May 31, 1995     |    November 30, 1994       May 31, 1994
                                                       ------------       ------------     |    -----------------       ------------
<S>                                                       <C>                <C>                    <C>                   <C>
        Revenues                                       $   5,491          $    6,637       |        $   14,599            $  28,050
        Costs and expenses                                 6,661               9,663       |            19,481               28,625
                                                       ---------          ----------       |        ----------            ---------
        Loss from discontinued operations                 (1,170)             (3,026)      |            (4,882)                (575)
        Loss on disposal of discontinued                                                   |
              operations                                    (375)             (1,900)      |                 -                     -
                                                       ---------          ----------       |        ----------            ---------
        Loss before income tax benefit                    (1,545)             (4,926)      |            (4,882)                (575)
        Income tax benefit                                  (611)             (1,929)      |                 -                     -
                                                       ---------          ----------       |        ----------            ---------
        Net loss from discontinued                                                         |
              operations                               $    (934)          $  (2,997)      |         $  (4,882)          $     (575)
                                                       ==========          ==========      |         ==========          ===========
</TABLE> 
<PAGE>
      The  Consolidated  Balance  Sheets as of May 31, 1996 and 1995,  have been
      reclassified  to  report  the  net  assets  of   discontinued   operations
      separately  from the assets and  liabilities of continuing  operations.  A
      summary of the assets and liabilities of discontinued  operations  follows
      (in thousands):
                                                                                
                                                                      May 31,   
                                                                  1996      1995
                                                                  ----      ----
Assets:                                                                         
Cash and cash equivalents ....................................   $ 159    $  253
Accounts receivable, net .....................................      55       441
Inventory ....................................................     115       744
Furniture, fixtures and equipment, net .......................      58       397
Accrued interest and other assets ............................      16       137
                                                                 -----    ------
       Total assets ..........................................     403     1,972
                                                                 -----    ------
                                                                                
Liabilities:                                                                    
Accounts payable and accruals ................................      44       295
Other liabilities ............................................     465       744
Accrued restructuring charge, net ............................    --         582
                                                                 -----    ------
       Total liabilities .....................................     509     1,621
                                                                 -----    ------
         Net Assets (Liabilities) of Discontinued Operations .   $(106)   $  351
                                                                 =====    ======
                                                                                

4.    Sale of Subsidiaries

      As of December 31, 1995, the Company sold TLP Leasing Programs ("TLP"),  a
      group of former subsidiaries  located in Boston,  Massachusetts,  to TLP's
      current management. TLP manages various income funds and partnerships. The
      sales price approximated TLP's book value of approximately  $2,500,000 and
      therefore  did not  significantly  affect the results of operations of the
      Company for the fiscal year ended May 31, 1996.

5.    Net Investment in Direct Financing Leases

      The components of the net investment in direct  financing leases as of May
      31 are as follows (in thousands):

                                                             1996         1995
                                                             ----         ----


Minimum lease payments receivable .....................    $ 17,044     $ 6,557
Initial direct costs and deferred commissions .........         303         144
Estimated unguaranteed residual values ................       2,483         191
Less:  Unearned income ................................      (4,047)     (1,455)
                                                           --------     -------
        Net investment in direct financing leases .....    $ 15,783     $ 5,437
                                                           ========     =======

<PAGE>
      Future minimum lease payments to be received under direct financing leases
      for fiscal years ending May 31 are as follows (in thousands):

                   1997                                     $    5,208
                   1998                                          4,742
                   1999                                          3,369
                   2000                                          2,413
                   2001                                          1,248
                   Beyond 2001                                      64
                                                            ----------
                                                            $   17,044
                                                            ==========

      Approximately  63% of these future lease  streams are allocable to lenders
      under financing agreements.


6.    Rental Equipment

      Rental equipment consists of the following as of May 31 (in thousands):

                                                             1996          1995
                                                             ----          ----

Computer equipment ..................................     $  7,565      $ 3,754
Capital equipment ...................................        2,856        1,671
Telecommunication equipment .........................        1,942        1,216
Aircraft equipment ..................................        3,485        2,887
Deferred commissions and initial direct costs .......          211          261
                                                          --------      -------
                                                            16,059        9,789
Less:  accumulated depreciation .....................       (4,911)      (1,465)
                                                          --------      -------
                                                          $ 11,148      $ 8,324
                                                          ========      =======

      Future minimum lease payments to be received  under  operating  leases for
      the fiscal years ended May 31 are as follows (in thousands):

                   1997                                     $    4,171
                   1998                                          2,788
                   1999                                          1,770
                   2000                                            525
                   2001                                            202
                   Beyond 2001                                       -
                                                            ----------
                                                            $    9,456
                                                            ==========

      Approximately  63% of these future lease  streams are allocable to lenders
      under financing agreements.
<PAGE>
7.    Furniture, Fixtures and Equipment

      Furniture,  fixtures and  equipment  consist of the following as of May 31
      (in thousands):


                                                            1996           1995
                                                            ----           ----

Leasehold improvements ...........................       $   423        $   404
Computer equipment and software ..................           707            688
Furniture, fixtures and office equipment .........           249            265
                                                         -------        -------
                                                           1,379          1,357
Less:  accumulated depreciation ..................          (754)          (298)
                                                         -------        -------
                                                         $   625        $ 1,059
                                                         =======        =======


8.    Note Payable to Liquidating Estate

      In connection with the Plan of Reorganization, the Company executed a note
      payable to the  Liquidating  Estate in the original  amount of $6,023,000.
      The note was paid in full in March  1996.  The  Company  paid  interest of
      $118,000 for the fiscal year ended May 31, 1996,  and $169,000 for the six
      months ended May 31, 1995, relating to this note payable.


9.    Discounted Lease Rental Borrowings

      The Company  finances  certain  leases by assigning the rentals to various
      lending  institutions at fixed rates on a recourse and non-recourse basis.
      Discounted  lease rental  borrowings  represent  the present  value of the
      lease payments discounted at the rate charged by the lending  institution.
      Discounted  lease rental  borrowings are reduced on a monthly basis as the
      corresponding  lease rental stream is collected  (generally by the lending
      institutions).  Amounts due under recourse  borrowings are  obligations of
      the Company which are secured by the leased  equipment and  assignments of
      lease receivables.  Amounts due under non-recourse  borrowings are secured
      by the leased  equipment  and  assignments  of lease  receivables  with no
      recourse to the general assets of the Company.

      The Company has been financing  leases on a one-on-one basis with a number
      of institutions. However, in April 1996, the Company finalized a revolving
      loan agreement with an institution to provide interim and recourse/limited
      recourse  lease  financing in the total amount of  $5,000,000.  At May 31,
      1996,  approximately  $948,000  was  outstanding  on the limited  recourse
      portion of this facility.  Interest rates on the facility range from prime
      rate  plus 2% on the  interim  facility  to 3.5% plus the  weekly  average
      matched term rate for U.S. Treasury Bills on the recourse/limited recourse
      facility.   The  institution  has  also  agreed  to  provide  non-recourse
      financing on a one-on-one basis.
<PAGE>
      Discounted  Lease  Rental  Borrowings  as of May 31  are  as  follows  (in
      thousands):

                                                         1996              1995
                                                         ----              ----

Non-recourse borrowings .....................           $14,488           $2,126
Recourse borrowings .........................               250             --
                                                        -------           ------
                                                        $14,738           $2,126
                                                        =======           ======


      The Company  paid  interest of $433,000  for the fiscal year ended May 31,
      1996,  and $108,000  for the six months  ended May 31,  1995,  relating to
      discounted lease borrowings.

      Discounted  lease rental  borrowings for the fiscal years ended May 31 are
      payable as follows (in thousands):

                                     1997                         $    4,106
                                     1998                              4,077
                                     1999                              2,948
                                     2000                              2,263
                                     2001                              1,344
                                     Beyond 2001                           -
                                                                  ----------
                                                                  $   14,738
                                                                  ==========
10.    Common Stock

       The Company's  authorized  capital stock consists of 10,000,000 shares of
       Common  Stock,  $.01  par  value.  To  the  extent  required  by  section
       1123(a)(6) of the Bankruptcy  Code, the Company will not issue  nonvoting
       equity  securities.  In  connection  with  the  Plan  of  Reorganization,
       7,000,000  shares were issued to the Liquidating  Estate for distribution
       to the creditors and former  shareholders of the Predecessor  Company. In
       October  1995,  a  wholly-owned  subsidiary  of the Company  acquired 960
       shares  of  the  Company's   Common  Stock  as  a  result  of  a  partial
       distribution by the Liquidating  Estate of the Predecessor  Company.  The
       partial  distribution was in relation to a prepetition  claim against the
       Predecessor  Company by certain  partnerships  in which the  wholly-owned
       subsidiary acted as general  partner.  The Company has classified the 960
       shares as Treasury Stock in the accompanying balance sheet. Each share of
       Common Stock entitles the holder to one vote on all matters  submitted to
       a vote of  shareholders.  The Company does not  anticipate the payment of
       dividends on the Common Stock for the foreseeable future.

11.    Stock Option Plan

       On  July  6,  1995,  the  Board  of  Directors  adopted  the  Continental
       Information  Systems  Corporation 1995 Stock Compensation Plan (the "1995
       Plan").  The 1995 Plan was approved by stockholders at the annual meeting
       held  September 27, 1995, in Syracuse,  New York.  The 1995 Plan provides
       for the  issuance of options  covering up to  1,000,000  shares of Common
       Stock  and  stock  grants of up to  500,000  shares  of  Common  Stock to
       non-employee  directors  of the  Company  and, in the  discretion  of the
       Compensation  Committee,  employees of and  independent  contractors  and
       consultants  to the  Company.  As of May  31,  1996,  nonqualified  stock
<PAGE>
       options  for  shares of Common  Stock had been  granted  to  non-employee
       directors as follows:
<TABLE>
<CAPTION>
                                                                  Number of             Exercise        Fair Market Value at Date
                                     Date Granted                  Options               Price                   of Grant
                                     ------------                  -------               -----          -------------------------
<S>                                                                <C>                 <C>                     <C>
                           May 16, 1995                              15,000            $  3.50                 $   52,500
                           September 27, 1995                         9,000               2.50                     22,500
                                                                    -------                                        ------

                           Balance - May 31, 1996                    24,000                                    $   75,000
                                                                    =======                                    ==========
</TABLE>

       As of May 31, 1996, options for 15,000 shares were exercisable.          

       In October 1995, the Financial  Accounting  Standards Board (FASB) issued
       Statement of Financial Accounting Standard No. 123 (FAS 123), "Accounting
       for Stock-Based Compensation." This Statement defines a "fair value based
       method" of  accounting  for an employee  stock  option or similar  equity
       instrument and encourages all entities to adopt that method of accounting
       for all their  employee  stock option plans.  However,  it also allows an
       entity to continue to measure compensation cost for those plans using the
       "intrinsic  value based method" of  accounting  prescribed by APB Opinion
       No. 25, "Accounting for Stock Issued to Employees."  Entities electing to
       remain with the accounting in Opinion 25 must make pro forma  disclosures
       of net income and earnings per share as if the fair value based method of
       accounting  defined in this  Statement had been applied.  These pro forma
       disclosure requirements are effective for financial statements for fiscal
       years beginning after December 15, 1995.  Presently,  the Company intends
       to  continue  to  measure  compensation  cost for the 1995 Plan using the
       "intrinsic value based methods" of accounting and present the appropriate
       disclosures  in Fiscal  1997.  The  differences  between  the methods are
       presently not considered material to the financial position or results of
       operations of the Company.

12.    Income Taxes

       The Company and its domestic  subsidiaries  file a  consolidated  federal
       income tax  return.  In April 1994,  the  Predecessor  Company  reached a
       settlement with the Internal Revenue Service relating to taxes for fiscal
       years through May 1992. The liability  associated with this settlement as
       well as the  liability  for claims  against the  Predecessor  Company for
       state  income  taxes,  have been  assumed  by the  Liquidating  Estate in
       connection with the Plan of Reorganization. As part of the aforementioned
       settlement, the Company is entitled to exclude approximately $141 million
       of otherwise  taxable income from gross income for the years 1990 through
       2005 ("safe  harbor  income").  However,  if the terms of the  agreements
       governing the safe harbor income are substantially modified or if certain
       other changes take place, the IRS is entitled to seek to include the safe
       harbor  income  in  the  Company's  taxable  income  after  Fiscal  1993.
       Management considers the prospects for such changes and resultant actions
       to be remote and accordingly has not provided an income tax liability for
       such income.

       As of  November  30,  1994,  $5 million in net  deferred  tax assets were
       recorded under "fresh start" accounting (net of a valuation  allowance of
       $7 million) to reflect the amount of deferred tax assets which Management
<PAGE>
       believed more likely than not to be realized.  The Company's  total gross
       deferred  tax  assets as of the  Effective  Date were  approximately  $12
       million.  The deferred tax assets relate principally to the net operating
       loss  carryforwards  available  to offset  future  taxable  income of the
       Reorganized Company,  subject to an annual limitation of approximately $2
       million  (limited in the aggregate to approximately  $35 million).  These
       carryforwards  expire  during the years 2004 to 2010. As of May 31, 1995,
       deferred  tax assets  increased  to  $6,080,000  as a result of temporary
       differences arising in the six months ended May 31, 1995.

       In determining  the amount of deferred tax benefits which are more likely
       than not to be  realized,  the  Company has  projected  that a minimum of
       approximately   $6  million  of  tax   benefits   will  be  generated  by
       post-reorganization  operations  during the fiscal  periods ended through
       May 31, 2001.  In order to realize this level of tax benefit,  cumulative
       pretax  income  for the  periods  through  2001  will have to be at least
       approximately  $15 million,  which the Company believes to be achievable.
       While the Company  believes that it will have a long  operating  life and
       continue  to  generate  profits  from  operations   beyond  that  period,
       Management  believes,  in the  context  of the  "more  likely  than  not"
       criteria  of FAS 109,  that the  recognition  of benefits in excess of $6
       million  would  be  inappropriate  in  the   circumstances.   Any  future
       realization of tax benefits relating to pre-reorganization  net operating
       loss  carryforwards  in excess of the net $5 million  initially  recorded
       will be recognized as a direct credit to stockholders' equity as required
       under SOP 90-7.

       The components of the provision for income taxes for both  continuing and
       discontinued operations are as follows (in thousands):

<TABLE>
<CAPTION>
                                                           Reorganized Company          |             Predecessor Company
                                                           -------------------          |             -------------------
                                                  For the year          For the six     |   For the six    For the year For the year
                                                     ended              months ended    |   months ended      ended         ended
                                                    May 31,               May 31,       |   November 30,      May 31,      May 31, 
                                                     1996                   1995        |      1994            1994         1993
                                                    -------              -------        |      ----             ----          ----
<S>                                                 <C>                  <C>                   <C>              <C>          <C> 
Current                                                                                 |
       Federal ........................             $  --                $  --          |      $--              $--          $--
       State ..........................                --                   --          |        45              100          100
                                                    -------              -------        |      ----             ----          ----
                                                       --                   --          |        45              100          100
Deferred ..............................                --                 (1,080)       |       --               --           --
                                                    -------              -------        |      ----             ----         ----
                                                    $  --                $(1,080)       |      $ 45             $100         $100
                                                    =======              =======        |      ====             ====         ====
                                                                                        
</TABLE> 
<PAGE>                                                       
      A reconciliation  of income tax expense (benefit) at the statutory rate to
      reported income tax expense  (benefit) for continuing  operations  follows
      (in thousands):
<TABLE>                                                                  
<CAPTION>                                                                               
                                                               Reorganized Company    |             Predecessor Company
                                                               -------------------    |             -------------------
                                                          For the year   For the six  |  For the six     For the year  For the year
                                                             ended       months ended |  months ended       ended          ended
                                                             May 31,       May 31,    |  November 30,       May 31,       May 31, 
                                                             1996           1995      |    1994              1994          1993
                                                             ----           ----      |    ----              ----          ----
                                                                                      |
<S>                                                          <C>          <C>           <C>              <C>               <C>
U.S. Federal statutory rate                                                           |
   applied to pretax income (loss)                                                    |
   from continuing operations ........................       $548         $759        | $ 5,311          $ 46,515          $ 5,806
                                                                                      |
State income taxes, net of federal                                                    |
   benefit ...........................................         63           90        |      45               100              100
                                                                                      |
Effect of permanent differences                                                       |
   and changes in the valuation                                                       |
   allowance .........................................        --           --         |  (5,311)          (46,515)          (5,806)
                                                             ----         ----        | -------          --------          -------
                                                             $611         $849        | $    45          $    100          $   100
                                                             ====         ====        | =======          ========          =======

</TABLE>
      The  income  tax  effect  of the  significant  temporary  differences  and
      carryforwards  which give rise to deferred tax assets and  liabilities are
      as follows as of May 31 (in thousands)
                                                              
                                                                               
                                                        1996              1995
                                                        ----              ----
Assets
    Net operating losses ...................         $ 16,422          $ 12,000
    Other ..................................            1,014             1,441
    Valuation allowance ....................          (10,125)           (7,361)

Liabilities
    Leased assets ..........................           (1,231)             --
                                                     --------          --------
                                                     $  6,080          $  6,080
                                                     ========          ========


13.    Employee Benefit Plans

      The  Company  maintains  a  defined   contribution  401(k)  plan  covering
      substantially  all of its  employees  under which it is  obligated to make
      matching  contributions  at the rate of 50% of the first 2% of participant
      earnings  contributed  to the  plan  and  which  provides  for  an  annual
      discretionary  contribution based on participants'  eligible compensation.
      Matching and discretionary  contributions  made by the Company vest over a
      five-year  period.  Company  contributions to the plan for the fiscal year
      ended May 31, 1996,  and the six months  ended May 31, 1995,  were $76,000
      and $26,000, respectively.
<PAGE>
       On January 4, 1995,  the  Company's  Board of  Directors  authorized  the
       Company  to  enter  into  "change  of  control"  agreement  with  six key
       management  employees.  If there is a "change of control",  as defined in
       the agreements,  and a reduction in duties,  title or compensation of the
       executives,  and if the  executive  leaves  (except  with cause or due to
       death or  disability)  within the 12 months after such change of control,
       these  agreements  provide  for a payment of 18 months base salary to the
       executives.

14.    Management and Services Agreement

      In connection with the Plan of Reorganization,  the Company entered into a
      Management  and  Services  Agreement  pursuant to which the  Company  will
      provide  certain  administrative  services to the Liquidating  Estate.  In
      exchange for such  services,  the Company will be paid a fee  comprised of
      the allocable share of the Company's  direct costs required to perform the
      agreed  upon  services  plus a 10%  markup  and  reasonable  out-of-pocket
      expenses.  The  Trustee  of  the  Liquidating  Estate  can,  at  his  sole
      discretion,  terminate the agreement at any time.  Management  expects the
      agreement  will be in place  through the closing of the Chapter 11 case in
      approximately two years. The Company received  approximately  $537,000 and
      $412,000,  pursuant  to this  agreement,  in the fiscal year ended May 31,
      1996, and the six months ended May 31, 1995, respectively.

15.    Commitments and Contingencies

       Rental Commitments
       The Company has various operating lease agreements for offices and office
       equipment.  These leases generally have provisions for renewal at varying
       terms. The Company recorded rental expense of $717,000 for the year ended
       May 31, 1996,  $597,000  for the six months ended May 31, 1995,  $663,000
       for the six months ended  November 30, 1994 and  $1,362,000  for the year
       ended May 31, 1994.


       The future minimum lease payments required under operating leases for the
       fiscal years ended May 31 are as follows (in thousands):

                                 1997                   $   536
                                 1998                        97

       Contingencies
       The Company is a defendant in certain legal actions arising in the normal
       course of business. Management believes that the outcome of these actions
       will have no  material  effect on the  Company's  financial  position  or
       results of operations.

16.    Fair Value of Financial Instruments

       The  following  methods and  assumptions  were used to estimate  the fair
       value of each class of financial instruments:

       Cash and cash  equivalents  and notes  receivable  - The  carrying  value
       approximates   fair  value  because  of  the  short   maturity  of  those
       instruments.

       Discounted lease rental  borrowings and notes payable to former owners of
       acquired company - Fair value of discounted  lease rental  borrowings and
       notes  payable  to former  owners of  acquired  company  are based on the
<PAGE>
       borrowing  rates  currently  available to the Company for bank loans with
       similar terms and average maturities.  At May 31, 1996, the fair value of
       discounted lease rental  borrowings and notes payable to former owners of
       acquired company approximates its carrying value.

       The estimated fair values of the Company's  financial  instruments at May
       31, 1996 are as follows:

                                                          Carrying         Fair 
                                                            Value         Value
                                                          --------        -----
Assets:
    Cash and cash equivalents ......................       $ 5,382       $ 5,382
    Notes receivable ...............................         2,688         2,688

Liabilities:
    Discounted lease rental borrowings .............        14,738        14,738
    Notes payable to former owners of
    acquired company ...............................         2,304         2,304

<PAGE>
                                  SCHEDULE II
<TABLE>
<CAPTION>
                   CONTINENTAL INFORMATION SYSTEMS CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
                         THREE YEARS ENDED MAY 31, 1996
                             (Dollars in thousands)


                                                                       Charged           Charged
                                                    Beginning          to costs          to other                           Ending
                                                     Balance         and expenses        accounts        Deductions         Balance
                                                     --------        ------------        --------        ----------         --------
<S>                                                 <C>               <C>             <C>                  <C>             <C>
1994:
Accounts receivable -
allowance for doubtful
accounts
(Predecessor Company) .......................        $(21,971)        $(1,778)        $        --          $ 3,281         $(20,468)
                                                     --------         -------         -------------        -------         --------

1995:
Accounts receivable -
allowance for doubtful
accounts
- - six months ended
  November 30, 1994
  (Predecessor Company) .....................         (20,468)           (222)                 --           20,562*            (128)
                                                     --------         -------         -------------        -------         --------

- - six months ended
  May 31, 1995
  (Reorganized Company) .....................            (128)           (103)                 --               61             (170)
                                                     --------         -------         -------------        -------         --------

1996:
Accounts receivable -
allowance for doubtful
accounts
(Reorganized Company) .......................            (170)            (34)                 --              151              (53)
                                                     --------         -------         -------------        -------         --------
</TABLE>
      *In connection  with the Plan of  Reorganization  confirmed as of November
       29, 1994, a transfer of assets to the  Liquidating  Estate  resulted in a
       significant reduction in the allowance for doubtful accounts.
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         None


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  Company  incorporates  herein  by  reference  the  information   concerning
directors and executive officers contained in its Notice of Annual Stockholder's
Meeting  and Proxy  Statement  to be filed  within 120 days after the end of the
Company's fiscal year (the "1996 Proxy Statement").


ITEM 11. EXECUTIVE COMPENSATION

The  Company  incorporates  herein  by  reference  the  information   concerning
executive compensation contained in the 1996 Proxy Statement.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT

The Company incorporates herein by reference the information concerning security
ownership  of certain  beneficial  owners and  management  contained in the 1996
Proxy Statement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company incorporates herein by reference the information  concerning certain
relationships and related transactions contained in the 1996 Proxy Statement.
<PAGE>
                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                  ON FORM 8-K

(a)      The following documents are filed as part of this Annual Report:

         Financial   Statements.   See  "ITEM  8.   FINANCIAL   STATEMENTS   AND
         SUPPLEMENTARY  DATA" for Index to Financial  Statements  and  Schedules
         included in this Form 10-K.

         Exhibit No.

         2.1*  Disclosure  Statement  with  respect to  Trustee's  Joint Plan of
         Reorganization dated October 4, 1994.

         2.2*  November  29,  1994  Order  Confirming  Trustee's  Joint  Plan of
         Reorganization dated October 4, 1994.

         2.3** Stock Purchase Agreement among CIS Corporation, GMCCCS Corp. (dba
         Laser Access),  Greg M. Cody and Charles C. Sinks,  dated March 8, 1996
         (Filed as Exhibit  2.1 to the  Company's  Form 8-K filed March 21, 1996
         and incorporated herein by reference).

         3.1* Restated Certificate of Incorporation.

         3.2** Restated  Bylaws (Filed as Exhibit 3.2 to the Company's Form 10-Q
         for the  quarter  ended  August  31,  1995 and  incorporated  herein by
         reference).

         10.1* Security Agreement dated December 21, 1994.

         10.2* Management and Services Agreement dated December 21, 1994.

         10.3* Senior Secured Promissory Note dated December, 1994.

         10.4** Letter Agreement  Relating to Management and Services  Agreement
         dated  December 21, 1994 (Filed as Exhibit 10.4 to the  Company's  Form
         10-Q for the quarter ended November 30, 1994 and incorporated herein by
         reference).

         10.5*  Lease  dated May 5,  1994  between  B.G.  Sulzle,  Inc.  and the
         Trustee.

         10.6*  Lease  dated  April  1,  1993  between  John  Crimi  and  Aviron
         (including renewal letter).

         10.7*  Extension  Agreement  dated April 1, 1994 between John Crimi and
         Aviron.

         10.8* Lease dated July 1, 1994 between LaSalle National Trust, N.A. and
         Aviron.

         10.9* Employment Agreement with Richard B. Lasken.

         10.10* Change in Control Agreements with Key Management Employees.
<PAGE>
         10.11**  Separation  Agreement  and Release  dated July 6, 1995 between
         Richard  B.  Lasken  and the  Company  (Filed as  Exhibit  10.12 to the
         Company's  Form  10-K  for the  fiscal  year  ended  May 31,  1995  and
         incorporated herein by reference).

         10.12**  1995 Stock  Compensation  Plan  (Filed as Exhibit  10.1 to the
         Company's  Form  10-Q  for  the  quarter  ended  August  31,  1995  and
         incorporated herein by reference).

         10.13**  Severance  Agreement with Thomas J. Prinzing dated December 6,
         1995 (Filed as Exhibit 10.1 to the Company's  Form 10-Q for the quarter
         ended November 30, 1995 and incorporated herein by reference).

         10.14** Employment  Agreement between CIS Corporation and Greg M. Cody,
         dated March 8, 1996 (Filed as Exhibit  10.1 to the  Company's  Form 8-K
         filed March 21, 1996 and incorporated herein by reference).

         10.15**  Employment  Agreement  between CIS  Corporation and Charles C.
         Sinks, dated March 8, 1996 (Filed as Exhibit 10.2 to the Company's Form
         8-K filed March 21, 1996 and incorporated herein by reference).

         10.16   Multi-facility   Loan  and  Security   Agreement   between  CIS
         Corporation and Heller Financial, Inc., dated March 27, 1996.

         10.17  Loan  and  Security   Agreement   between  CIS  Corporation  and
         CoreStates Bank, N.A., dated July 9, 1996.

         22.1 Subsidiaries of the Company.

         23.1 Consent of Independent Accountants.

         27.1 Financial data schedule.
- ----------------------------
         * Filed as an exhibit to the  Company's  amended  Form 10  Registration
         Statement (Commission File No. 0-25104),  originally filed November 10,
         1994 and incorporated herein by reference.

         ** Incorporated by reference.
<PAGE>

(b)      Reports on Form 8-K

         The  Company  filed  the  following  reports  on Form 8-K on the  dates
         indicated during the last quarter of the Company's fiscal year:

         Date                                 Description
         ----                                 -----------
         March 21, 1996     The  Company  reported  it  acquired,   through  its
                            wholly-owned subsidiary CIS Corporation, 100% of the
                            capital  stock  of  GMCCCS  (dba  "LaserAccess"),  a
                            privately held California  corporation.  The capital
                            stock was acquired from the two former owners of the
                            business;  (1)  Greg M.  Cody of  Rancho  Santa  Fe,
                            California,  and (2)  Charles C. Sinks of San Diego,
                            California  for a  purchase  price of  approximately
                            $4,608,000.  The items  reported in this filing were
                            Item 2  "Acquisition  or  Disposition of Assets" and
                            Item 7 "Financial  Statements  and Exhibits" and the
                            following   financial   statements  of  GMCCCS  (dba
                            "LaserAccess") were filed therewith:

                         FINANCIAL STATEMENTS OF BUSINESS ACQUIRED

                         Report of Independent Accountants.

                         Balance Sheets of GMCCCS Corp. (dba  LaserAccess) as of
                         December 31, 1995 and 1994.

                         Statements   of   Operations   and  Retained   Earnings
                         (Accumulated deficit) of GMCCCS Corp. (dba LaserAccess)
                         for the year ended  December 31, 1995, the seven months
                         ended  December 31,  1994,  the year ended May 31, 1994
                         and the year ended May 31, 1993.
<PAGE>
                         Statements   of  Cash  Flows  of  GMCCCS   Corp.   (dba
                         LaserAccess)  for the year ended December 31, 1995, the
                         seven  months ended  December 31, 1994,  the year ended
                         May 31, 1994 and the year ended May 31, 1993.

                         Notes to Financial Statements.

                         On May 7, 1996,  the Company  amended  this Form 8-K by
                         filing Form 8-K/A.  The item reported in such amendment
                         was Item 7 "Financial  Statements and Exhibits" and the
                         following  pro  forma  financial   information  of  the
                         Company  and  GMCCCS  (dba   LaserAccess)   were  filed
                         therewith:

                         Pro Forma Financial Information.

                         Unaudited  Pro Forma  Consolidated  Balance Sheet as of
                         February 29, 1996.

                         Unaudited   Pro   Forma   Consolidated   Statement   of
                         Operations for the nine months ended February 29, 1996.

                         Unaudited   Pro   Forma   Consolidated   Statement   of
                         Operations for the year ended May 31, 1995.

                         Notes to Unaudited Pro Forma Consolidated Statements.

           
  
         April 26, 1996     Press  Release  Announcing  Financial  Facility  and
                            Vendor Program.

         June 10, 1996      Press Release Announcing Fourth Quarter Charge.
<PAGE>


                                   SIGNATURES

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

                                 CONTINENTAL INFORMATION SYSTEMS
                                 CORPORATION


                            BY:  /s/  THOMAS J. PRINZING
                                 -----------------------
                                 Thomas J. Prinzing
                                 President, Chief Executive Officer and Director


                            BY:  /s/  FRANK J. CORCORAN
                                 ----------------------
                                 Frank J. Corcoran
                                 Senior Vice President, Chief Financial Officer,
                                 Treasurer and Secretary


Dated:     August 15, 1996


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and the dates indicated:
<TABLE>
<CAPTION>


             Signature                                  Title                                                      Date
             ---------                                  -----                                                      ----

<S>                                                 <C>                                                     <C>
/s/ DR. LEON H. BLOOM                               Director                                                August 15, 1996
- ---------------------
Dr. Leon H. Bloom


/s/ ARTHUR R. BREHM                                 Director                                                August 15, 1996
- ---------------------
Arthur R. Brehm


/s/  JAMES P. HASSETT                               Director and Chairman of the Board                      August 15, 1996
- ---------------------
James P. Hassett


/s/  MICHAEL L. ROSEN                               Director                                                August 15, 1996
- ---------------------
Michael L. Rosen


/s/  PAUL M. SOLOMON                                Director                                                August 15, 1996
- ---------------------
Paul M. Solomon
</TABLE>
<PAGE>
                                INDEX TO EXHIBITS



                                                              
Exhibit                                            
  No.                            Description                   
- -------                          -----------

  10.16           Multi-facility Loan and Security Agreement between
                  CIS Corporation and Heller Financial, Inc., dated
                  March 27, 1996.


  10.17           Loan  and  Security  Agreement  between  CIS  Corporation  and
                  CoreStates Bank, N.A., dated July 9, 1996.


  22.1            Subsidiaries of the Company.


  23.1            Consent of Independent Accountants.


  27.1            Financial data schedule.



