SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


[X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
    Act of 1934 for the quarterly period ended August 31, 1998 or

[ ] Transition report pursuant to section 13 of 15(d) of the Securities Exchange
    Act of 1934 for the transition period from ________ to ________

                        Commission file number: 0-25104


                   CONTINENTAL INFORMATION SYSTEMS CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                                     
           New York                                           16-0956508
--------------------------------------------------------------------------------
  (State or other jurisdiction                            (I.R.S. Employer 
   of incorporation)                                      Identification No.)


 45 Broadway Atrium, Suite 1105, New York, New York               10006
--------------------------------------------------------------------------------
     (Address of principal executive offices)                 (Zip Code)


                                 (212) 771-1000
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code) 

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:


         Indicate by check mark whether the  registrant  has filed all documents
and reports  required to be filed by Sections 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [ X ] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

           Indicate  the number of shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest  practicable date: As of September 30,
1998, the registrant  has 6,939,060  shares of common stock,  par value $.01 per
share, outstanding.
<PAGE>
                   CONTINENTAL INFORMATION SYSTEMS CORPORATION
                              AND ITS SUBSIDIARIES


                                TABLE OF CONTENTS



PART I.             FINANCIAL INFORMATION:   

Item 1.             Financial Statements    

                    Consolidated Balance Sheets -
                           August 31, 1998 and May 31, 1998                     

                    Consolidated Statements of Operations -
                           for the three months ended August 31, 1998 and 1997  

                    Consolidated Statements of Cash Flows -
                           for the three months ended August 31, 1998 and 1997  

                    Notes to Consolidated Financial Statements                  

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


PART II.            OTHER INFORMATION:                                          

Item 1.             Legal Proceedings                                           

Item 6.             Exhibits and Reports on Form 8-K                            


SIGNATURES                             
<PAGE>
                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Number of  Shares)
--------------------------------------------------------------------------------
                                  CONSOLIDATED BALANCE SHEETS
                                          (Unaudited)

                                                                       August 31,     May 31,
                                                                         1998          1998
                                                                       --------      --------
<S>                                                                    <C>           <C>     
Assets:
Cash and cash equivalents                                              $  1,663      $  3,211
Accounts receivable, net                                                    928           636
Notes receivable                                                          8,795         6,870
Investment in mortgage participation notes                                  772         1,522
Inventory                                                                 1,973         3,755
Net investment in direct financing leases                                 4,516         4,658
Rental equipment, net                                                    16,819        18,118
Furniture, fixtures and equipment, net                                      389           398
Other assets                                                                624           620
Deferred tax assets                                                       5,414         5,414
                                                                       --------      --------

           Total assets                                                $ 41,893      $ 45,202
                                                                       ========      ========
Liabilities and Shareholders' Equity:
Liabilities:
      Accounts payable and other liabilities                           $  2,180      $  2,377
      Discounted lease rental borrowings                                  2,350         2,594
      Note payable to institution - secured                               2,494         4,429
      Net liabilities of discontinued operations (Note 2)                   586           866
      Deferred lease revenue                                              5,213         5,976
                                                                       --------      --------

           Total liabilities                                             12,823        16,242
                                                                       --------      --------
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares,
       issued 7,101,668 shares                                               71            71
Additional paid-in capital                                               35,129        35,129
Accumulated deficit                                                      (5,724)       (5,834)
                                                                       --------      --------
                                                                         29,476        29,366
Treasury stock, at cost; 162,608 shares                                    (406)         (406)
                                                                       --------      --------

          Total shareholders' equity                                     29,070        28,960
                                                                       --------      --------

          Total liabilities and shareholders' equity                   $ 41,893      $ 45,202
                                                                       ========      ========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except per Share Data)
--------------------------------------------------------------------------------
                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (Unaudited)



                                                              For the Three Months Ended
                                                                        August 31,
                                                                   -------------------
                                                                    1998         1997
                                                                   -------     -------
<S>                                                                <C>         <C>  
Revenues:
Equipment sales                                                    $ 3,098     $ 3,436
Equipment rentals                                                    1,871         969
Income from direct financing leases                                    206         187
Gain from sale of equipment subject to lease                            --          78
Interest, fees and other income                                        503         516
                                                                   -------     -------
                                                                     5,678       5,186
                                                                   -------     -------
Costs and Expenses:
Cost of sales                                                        2,696       2,712
Depreciation of rental equipment                                     1,421         480
Interest expense                                                       164         177
Other operating expenses                                               300         304
Selling, general and administrative expense                            920       1,149
                                                                   -------     -------
                                                                     5,501       4,822
                                                                   -------     -------

Income from continuing operations before income taxes                  177         364

Provision for income tax                                                67         138
                                                                   -------     -------

Income from continuing operations                                      110         226

Loss from discontinued operations, net of tax benefit (Note 2)          --        (127)
                                                                   -------     -------

Net Income                                                         $   110     $    99
                                                                   =======     =======
Basic and diluted net income (loss) per share (Note 1):
      Income from continuing operations                            $   .02     $   .03
      Income (loss) from discontinued operations                        --        (.02)
                                                                   -------     -------
           Net Income                                              $   .02     $   .01
                                                                   =======     =======
Weighted average number of shares of common
      stock outstanding                                              6,939       7,016
                                                                   =======     =======
</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
(In Thousands)
--------------------------------------------------------------------------------
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            (Unaudited)

                                                                        For the Three Months Ended
                                                                                  August 31,
                                                                            -------------------- 
                                                                              1998         1997
                                                                            -------      -------
<S>                                                                         <C>          <C>    
Cash flows from operating activities:
Net income                                                                  $   110      $    99
Less:  Net loss from discontinued operations                                     --         (127)
                                                                            -------      -------
      Income from continuing operations                                         110          226
                                                                            -------      -------

Adjustments  to  reconcile  net income from  continuing  operations
to net cash provided by operating activities:
     Proceeds from sale of equipment subject to lease                            --          850
     Gain from sale of equipment subject to lease                                --          (78)
     Proceeds from sale of other leased equipment                                12           39
     Amortization of unearned income                                           (206)        (187)
     Collections of rentals on direct financing leases                          551          546
     Depreciation and amortization expense                                    1,444          575
     Effect on cash flows of changes in:
         Accounts receivable                                                   (292)        (817)
         Notes receivable                                                    (1,925)       1,428
         Inventory                                                            1,782        2,002
         Other assets                                                            (4)        (396)
         Accounts payable and other liabilities                                (197)         631
         Deferred lease revenue                                                (763)          14
        Deferred tax assets                                                      --           61
        Other                                                                  (100)          77
                                                                            -------      -------
                                                                                302        4,745
                                                                            -------      -------
        Net cash provided by continuing operations                              412        4,971
        Net cash used in discontinued operations                               (280)        (688)
                                                                            -------      -------
        Net cash provided by operations                                         132        4,283
                                                                            -------      -------

Cash flows from investing activities:
Purchase of rental equipment                                                   (337)      (8,699)
Purchase of property and equipment                                              (14)          (5)
Proceeds from investment in mortgage participation notes                        850           --
                                                                            -------      -------
     Net cash provided by (used in) investing activities                        499       (8,704)
                                                                            -------      -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
(In Thousands)
--------------------------------------------------------------------------------
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (Unaudited) (continued)

                                                                        For the Three Months Ended
                                                                                  August 31,
                                                                            -------------------- 
                                                                              1998         1997
                                                                            -------      -------
<S>                                                                         <C>          <C>    
Cash flows from financing activities:
Proceeds from lease, bank and institution financings                          1,900          969
Payments on lease, bank and institution financings                           (4,079)        (805)
Purchase of treasury stock                                                       --         (236)
                                                                            -------      -------

     Net cash used in financing activities                                   (2,179)         (72)
                                                                            -------      -------

     Net decrease in cash and cash equivalents                               (1,548)      (4,493)
Cash and cash equivalents at beginning of period                              3,211        8,968
                                                                            -------      -------
Cash and cash equivalents at end of period                                  $ 1,663      $ 4,475
                                                                            =======      =======
</TABLE>
    The accompanying notes are an integral part of these financial statements
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Basis of Presentation

      The accompanying unaudited financial statements of Continental Information
      Systems  Corporation  and its  subsidiaries  (the  "Company")  contain all
      adjustments which are, in the opinion of management,  necessary for a fair
      statement  of results for the interim  periods  presented.  While  certain
      information  and  footnote  disclosures  normally  included  in  financial
      statements  prepared in  accordance  with  generally  accepted  accounting
      principles have been condensed or omitted,  the Company  believes that the
      disclosures  herein are adequate to make the  information  not misleading.
      The results of operations  for the three months ended August 31, 1998, are
      not  necessarily  indicative  of the  results  for the  full  year.  These
      statements  should be read in conjunction with the consolidated  financial
      statements and notes thereto  included,  for the fiscal year ended May 31,
      1998, appearing in the Company's Form 10-K.

2.    Discontinued Operations

      On May 29, 1998,  the Company  announced its decision to  discontinue  and
      liquidate its LaserAccess laser printing business.  The Company recorded a
      provision of $4,955,000 in the quarter ended May 31, 1998, relative to the
      disposal of LaserAccess' assets,  including the write-off of goodwill,  in
      the amount of $3,258,000,  and other charges related to the discontinuance
      of the business unit.

      The Company is currently  engaged in litigation with the former owners and
      executives of its discontinued  LaserAccess  business.  In March 1998, the
      Company prepaid remaining amounts due to the former owners and exercised a
      right  to  set-off  approximately  $1.1  million  against  amounts  due on
      promissory  notes in  connection  with the  purchase of  LaserAccess.  The
      Company has also  terminated  these  individuals  under  their  employment
      agreements.  On April 7, 1998,  the former  owners  filed suit in Superior
      Court of  California,  County of San Diego,  seeking  to  recover  damages
      allegedly arising from the Company's set-off of amounts due. Additionally,
      the former owners are seeking to recover approximately $733,000 in damages
      arising from the Company's termination of their employment contracts.  The
      complaint,  as amended, seeks damages for various other claims,  including
      defamation. The Company has asserted crossclaims and intends to vigorously
      contest these actions.

      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):
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                For the Three Months Ended
                                                        August 31,
                                                  ---------------------                      
                                                    1998          1997
                                                  -------       -------
<S>                                               <C>           <C>    
        Revenues                                  $    --       $ 1,236
        Costs and expenses                             --         1,440
                                                  -------       -------
        Loss from discontinued operations              --          (204)

        Income tax benefit                             --           (77)
                                                  -------       -------

        Net loss from discontinued operations     $    --       $  (127)
                                                  =======       =======
</TABLE>
      The  Consolidated  Balance  Sheets as of  August 31, 1998 and May 31, 1998
      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):
<TABLE>
<CAPTION>
                                                      August 31, 1998          May 31, 1998
                                                      ---------------          ------------
<S>                                                      <C>                      <C>          
     Assets:
     Cash and cash equivalents                           $    61                  $    19      
     Accounts receivable, net                                310                      198    
     Inventory                                               256                      779    
     Furniture, fixtures and equipment, net                   --                       12    
     Other assets                                             --                       58    
                                                         -------                  -------    
           Total assets                                      627                    1,066    
                                                         -------                  -------    
                                                                                             
     Liabilities:                                                                            
     Accounts payable and accruals                         1,213                    1,504    
     Note payable                                             --                      428    
                                                         -------                  -------    
           Total liabilities                               1,213                    1,932    
                                                         -------                  -------    
                Net Assets (Liabilities) of                                                  
                    Discontinued Operations              $  (586)                 $  (866)   
                                                         =======                  =======  
</TABLE>
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------

3.    Net Income Per Share

      In fiscal 1998, the Company adopted Financial  Accounting Standard No. 128
      (SFAS 128),  Earnings Per Share.  SFAS 128  specified  new  standards  for
      computing  and  disclosing  net income per share.  Basic and  diluted  net
      income per share for the three months ended August 31, 1998 and 1997,  was
      computed  based on the weighted  average  number of shares of common stock
      outstanding  during the periods.  As of August 31,  1998,  the Company had
      outstanding  options to purchase  369,674 shares of common stock (See Note
      5).  The  potential  dilution  of  these  options  is  immaterial  in  the
      computation of diluted net income per share.

4.    Reclassifications

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

5.    Stock Option Plan

      In 1995, the Board of Directors adopted and the stockholders  approved the
      Continental  Information  Systems Corporation 1995 Stock Compensation Plan
      (the "1995  Plan").  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  Board  of  Directors,  employees  of and
      independent contractors and consultants to the Company.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------

      A summary of the status of the 1995 Plan as of August 31, 1998 and changes
      since inception is presented below:
<TABLE>
<CAPTION>
                                                                   Weighted Average
                                                      Number of     Exercise Price
                                                       Options        Per Option
                                                       -------        ----------
<S>                                                    <C>             <C>     
   Outstanding at
         May 31, 1995 (none exercisable)                15,000         $   3.50
   Granted                                               9,000         $   2.50
   Exercised                                                --         $     --
   Forfeited/expired                                    (9,000)        $   3.50
                                                       -------
   Outstanding at
         May 31, 1996 (6,000 exercisable)               15,000         $   2.90
   Granted                                             319,000         $   1.97
   Exercised                                           (16,667)        $   1.97
   Forfeited/expired                                   (33,333)        $   1.97
                                                      --------
   Outstanding at
         May 31, 1997  (188,337 exercisable)           284,000         $   2.02
   Granted                                             190,674         $   2.38
   Exercised                                           (70,001)        $   1.97
   Forfeited/expired                                   (38,331)        $   1.97
                                                      --------
   Outstanding at
         May 31, 1998 (234,002 exercisable)            366,342         $   2.22
   Granted                                              10,000         $   1.95
   Forfeited/expired                                    (6,668)        $   1.97
                                                      --------
   Outstanding at
         August 31, 1998 (227,334 exercisable)         369,674         $   2.22
                                                      ========
</TABLE>
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
--------------------------------------------------------------------------------

Item 2.  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  for the fiscal year ended May 31,
1998, appearing in the Company's Form 10-K.

All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future capital requirements and the
Company's  future  business  plans,  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 those set forth below 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.


                              Results of Operations

Comparison of the Three Months Ended August 31, 1998 and 1997

Continuing Operations

Revenues
Total revenues  increased 9.5% to $5.7 million for the three months ended August
31, 1998 from $5.2 million for the  comparable  fiscal  quarter in 1997.  Within
this revenue  category,  equipment  sales decreased 9.8% to $3.1 million for the
three months ended August 31, 1998 from $3.4 million for the  comparable  fiscal
quarter in 1997.  This decrease is principally  due to the results of operations
of the  Telecommunications  Business Unit included in the financial  results for
the first quarter of the prior fiscal year, and subsequently  sold on August 31,
1997.

Equipment  rentals and income from direct  financing  leases  increased 79.7% to
$2.1  million for the quarter  ended  August 31, 1998 from $1.2  million for the
comparable  fiscal quarter in 1997.  This increase is the  cumulative  effect of
lease streams coming on-line, as a result of the Company acquiring approximately
$24 million in additional rental equipment in the prior fiscal year.

Interest,  fees and other  income  decreased  slightly to $503,000 for the three
months ended August 31, 1998 from $516,000 for the comparable  fiscal quarter in
1997. This decrease  principally  reflects a decline in management fees received
from income funds.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
--------------------------------------------------------------------------------

Costs and Expenses
Costs and  expenses  increased  14.1% to $5.5 million for the three months ended
August 31, 1998 from $4.8  million for the  comparable  fiscal  quarter in 1997.
Within this category, cost of sales, as a percentage of equipment sales, for the
three months ended August 31, 1998 and 1997, was 87.0% and 78.9%,  respectively.
This variance is directly  related to the results of operations of the Air Group
Business   Unit   and   reflect   the   competitive   conditions   in  the  used
aircraft/engines  marketplace.  Revenues and earnings from the aircraft business
are likely to continue to vary quarter-to-quarter, based on a number of factors,
including the volume of transactions. 

Depreciation of rental equipment increased to $1.4 million for the quarter ended
August 31, 1998 from $.5 million for the comparable fiscal quarter in 1997. This
increase is directly related to the aforementioned  acquisition of approximately
$24 million in additional rental equipment in the prior fiscal year.

Interest  expense  decreased  7.3% to $164,000 for the quarter  ended August 31,
1998 from  $177,000 for the  comparable  fiscal  quarter in 1997.  Additionally,
other  operating  expenses  decreased  slightly to $300,000 for the three months
ended August 31, 1998 from $304,000 for the comparable fiscal period in 1997.

Selling,  general and administrative expenses decreased 19.9% to $.9 million for
the three  months  ended  August 31, 1998 from $1.1  million for the  comparable
fiscal period in 1997.  This  decrease is  principally  due to cost  containment
efforts and staff reductions between the periods.

Income Taxes
For the quarter  ended  August 31, 1998,  a provision  for  deferred  income tax
expense on income from continuing  operations was recorded,  at an effective tax
rate of 38%, in the amount of $67,000.  For the quarter ended August 31, 1997, a
provision for deferred income tax expense on income from  continuing  operations
was  recorded,  at an  effective  rate  of  38%,  in  the  amount  of  $138,000.
Additionally, in this prior year fiscal quarter, a provision for deferred income
tax benefit on loss from discontinued  operations was recorded,  at an effective
tax rate of 38%, in the amount of $77,000.

Discontinued Operations
On May 29, 1998, the Company announced its decision to discontinue and liquidate
its LaserAccess  laser printing  business.  The Company  recorded a provision of
$4,955,000  in the  quarter  ended May 31,  1998,  relative  to the  disposal of
LaserAccess'  assets,  including  the  write-off of  goodwill,  in the amount of
$3,258,000,  and other  charges  related to the  discontinuance  of the business
unit.  See "PART II, Item 1. Legal  Proceedings"  for a discussion of litigation
related to Laser Access.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
--------------------------------------------------------------------------------

A summary of the results of discontinued operations follows (in thousands):
<TABLE>
<CAPTION>
                                                 For the Three Months Ended
                                                          August 31,
                                                 --------------------------                      
                                                   1998              1997
                                                  -------          -------
<S>                                               <C>              <C>    
     Revenues                                     $    --          $ 1,236
     Costs and expenses                                --            1,440
                                                  -------          -------
     Loss from discontinued operations                 --             (204)

     Income tax benefit                                --              (77)
                                                  -------          -------

     Net loss from discontinued operations        $    --          $  (127)
                                                  =======          =======
</TABLE>

                         Liquidity and Capital Resources

Net cash from operations for the three months ended August 31, 1998 was $132,000
as compared to $4.3 million for the comparable period in 1997. This decrease was
primarily  due to a $1.9  million  increase in notes  receivable  in the current
quarter  compared  to a $1.4  million  decrease  in  notes  receivable  for  the
comparable  period in 1997. Most of the net increase in notes receivable  during
the current  quarter  represents a $2.2 million  investment  in a joint  venture
between the Company's wholly-owned  subsidiary,  CIS Air Corporation ("CIS Air")
and JetAir Capital,  Inc., a  privately-owned  aviation  leasing and parts sales
company located in San Francisco, California. The joint venture has acquired the
McDonnell Douglas DC-10 spare parts inventory of Phillipine Airlines.

The  Company  purchased  $337,000  of  additional  rental  equipment  for  lease
transactions  during the three  months ended August 31, 1998 as compared to $8.7
million for the comparable  period in 1997.  The Company's  investment in rental
equipment  varies  from  quarter  to  quarter,  based  on a number  of  factors,
including  current market  conditions and the  availability of adequate   credit
facilities,  and the decline in equipment  purchases  during the current quarter
resulted from these factors.  The Company received proceeds of $850,000 from its
investment in mortgage  participation notes during the three months ended August
31, 1998.

Proceeds from lease, bank and institution  financings for the three months ended
August 31, 1998 and 1997 were $1.9 million and $.9 million, respectively,  while
payments  on  these  financings  were  $4.1  million  and  $.8  million  for the
respective 1998 and 1997 periods.  The  significant  increase in payments in the
current  quarter  resulted  from a $1.9  million  pay-down of CIS Air's  secured
revolving loan facility (the "CIS Air Loan Facility").  Amounts  available under
the CIS Air Loan Facility vary depending on the value of equipment and inventory
securing the loans, and CIS Air was required to pay down the CIS Air Loan due to
significant inventory sales during the current quarter.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
--------------------------------------------------------------------------------

As of  August  31,  1998,  the  Company  had  $1.7  million  in  cash  and  cash
equivalents,  as compared to $4.5 million at August 31, 1997. In September 1998,
the  Company  received  cash  proceeds  from the payoff of a $3.6  million  note
receivable owed to CIS Air.

The Company expects that  operations will generate  sufficient cash to meets its
operating  expenses and current  obligations  for the  foreseeable  future.  The
Company  finances  certain  equipment leases by assigning the rentals to various
lending  institutions at a fixed rate on a recourse and non-recourse  basis, and
the Company has, in the past, also utilized various credit facilities, including
bank lines of credit to fund its operating  activities. The Company is currently
in  negotiations  with a commercial  bank to establish a $3 million  "warehouse"
line of credit. The loan agreement for the line of credit is expected to contain
various  covenants,  including  limitations  on incurring  additional  liens and
encumbrances   and   prohibiting   certain   transactions   with  affiliates  or
subsidiaries. Additionaly, the Company has established the CIS Air Loan Facility
with a  financing  institution  to provide  lease and  inventory  financing  for
aircraft  engines  for its  operating  subsidiary  CIS  Air,  in the  amount  of
$10,000,000. The facility has a three-year term and permits borrowing equal to a
percentage  of  the   appraised   value  of  the  aircraft   engines   financed.
Substantially  all of the assets of CIS Air are  pledged as  collateral  for the
loan. At August 31, 1998,  $2,494,000 of this facility was being  utilized.  The
CIS Air Loan Facility  bears interest at prime plus 1/4% and expires in December
2000.  To expand its  operations,  the Company  may in the future  issue debt or
equity securities.

Year 2000
As the year 2000  approaches,  a critical  issue has emerged for all  companies,
including the Company, with respect to whether application software programs and
operating  systems  utilized by a company and the  companies  with which it does
business can accommodate  this date value. In brief,  many existing  application
software  products  in the  marketplace  were  designed  only to  accommodate  a
two-digit date position which  represents the year (e.g.,  "95" is stored on the
system and represents the year 1995).  As a result,  the year 1999 (i.e.,  "99")
could  be the  maximum  date  value  these  systems  will  be  able  to  process
accurately.

The Company  has, for several  months,  been engaged in a review of the software
and  information  systems  it uses in an effort to  determine  whether it or its
operations may be materially  adversely  affected by this so-called  "Year 2000"
conversion.  As a result of that review,  the Company  upgraded and replaced its
hardware  systems with systems that are Year 2000  compliant.  In addition,  the
Company  has  engaged a vendor to provide  new lease  billing  software  and has
identified  another  vendor to replace  its  accounting  software.  The  Company
expects that this software will be installed by the middle of 1999.  The Company
has inquired of, and generally obtained the assurances of, the providers of such
software with respect to its being Year 2000 compliant.  Based on its review the
Company does not presently believe that Year 2000 compliance issues with respect
to its software and systems will cause any material disruptions, malfunctions or
failures of its business.  However,  no assurances can be given that such review
uncovered  every  potential  adverse  effect  of the  Year  2000  conversion  in
connection with any of such software or systems.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
--------------------------------------------------------------------------------

With respect to assets other than its  computer  hardware and software  systems,
the  Company is aware  that some of the  equipment  it leases may have  embedded
technology  that is not Year 2000  compliant.  Under  the  terms of the  leases,
however,  the Company is not  responsible for the maintenance and repair of this
equipment,  and the leases  are  non-cancelable.  Failure  to achieve  Year 2000
compliance may materially adversely affect the residual value of such equipment.
No assurance can be given that such decrease in residual  value would not have a
material adverse effect on the Company's business or results of operations.

The Company has only recently begun a review of whether the software and systems
of  the  vendors,  financing  sources,  customers,  equipment  manufacturers  or
distributors  or other  parties with which it deals may, as a result of the Year
2000  conversion,  have  a  materially  adverse  effect  on the  Company  or its
operations.  Accordingly,  it is too early for the Company to be able to predict
whether such software and systems of such parties may have such effect.  As part
of this review,  the Company will attempt to obtain assurances from each of such
parties,  whose  dealings  with the Company  are  material to the Company or its
operations,  that such party does not and will not  utilize  software or systems
that  may  interfere  with  the  Company,  or are or  will be  important  to the
operations of such party,  that may cause  problems to such party or the Company
as a result of the Year 2000  conversion.  However,  no assurances  can be given
that the  Company  will be able to obtain  the  information  from  such  parties
necessary for the Company to determine  whether it may be  materially  adversely
affected by the software or systems of such parties.

The Company  currently  believes  that its systems  will be Year 2000  compliant
during 1999 and therefore has not  developed a contingency  plan.  Nevertheless,
the Company will maintain an ongoing effort to recognize and evaluate  potential
exposure  relating to the Year 2000 conversion  arising from its use of software
supplied by other parties or its dealings with other parties.  The total cost to
the Company of these Year 2000  compliance  activities  has not been, and is not
anticipated to be,  material to its financial  position or results of operations
in any given year.
<PAGE>
                           PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

             The  Company is  currently  engaged in  litigation  with the former
             owners and executives of its discontinued  LaserAccess business. In
             March 1998, the Company prepaid remaining amounts due to the former
             owners and exercised a right to set-off  approximately $1.1 million
             against  amounts due on  promissory  notes in  connection  with the
             purchase of  LaserAccess.  The Company  has also  terminated  these
             individuals  under their employment  agreements.  On April 7, 1998,
             the former  owners  filed  suit in  Superior  Court of  California,
             County of San Diego,  seeking to recover damages  allegedly arising
             from the Company's set-off of amounts due. Additionally, the former
             owners are  seeking to recover  approximately  $733,000  in damages
             arising  from  the  Company's   termination  of  their   employment
             contracts.  The  complaint,  as amended,  seeks damages for various
             other  claims,  including  defamation.  The  Company  has  asserted
             crossclaims and intends to vigorously contest these actions.



Item 6.  Exhibits and Reports on Form 8-K

           (a)    Exhibits

                  27.1  Financial Data Schedule

           (b)    Reports on Form 8-K - No reports on Form 8-K were filed by the
                  Company during the quarter ended August 31, 1998.
                   




<PAGE>



                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                      CONTINENTAL INFORMATION SYSTEMS
                                      CORPORATION

Date:    October 9, 1998              By:  /s/ Michael L. Rosen
                                           --------------------
                                           Michael L. Rosen
                                           President, Chief Executive Officer 
                                           and Director



Date:    October 9, 1998              By:  /s/ Jonah M. Meer
                                           -----------------
                                           Jonah M. Meer
                                           Senior Vice President, 
                                           Chief Operating Officer
                                           and Chief Financial Officer