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, 1997 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,
1997 was 7,010,827.

As of July 31, 1997,  the  aggregate  market value of the shares of Common Stock
held by non-affiliates of the registrant was approximately $12,621,953.*

                       DOCUMENTS INCORPORATED BY REFERENCE 

Portions  of  Continental  Information  Systems  Corporation's  Notice of Annual
Meeting of Stockholders and Proxy  Statement,  to be filed within 120 days after
the end of the registrant's  fiscal year, are incorporated into Part III of this
Annual Report.

     * Excludes  1,552,685  shares deemed to be held by officers and  directors,
and stockholders  whose ownership exceeds ten percent of the shares  outstanding
at July 31, 1997. 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>
Continental Information Systems Corporation
and its Subsidiaries


                                     PART I

ITEM 1. BUSINESS

General

The  Company  is engaged in the  buying  and  selling  of  commercial  aircraft,
telecommunications  equipment, high speed production laser printing systems, and
certain other industrial equipment, provides leasing services in connection with
such  equipment,  and is engaged in providing  real estate  financing.  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 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 attempted to expand into
other more attractive capital markets.

For the twelve  months ending May 31, 1997,  approximately  77% of the Company's
revenues  from  continuing  operations  were derived from its buying and selling
("buy/sell")  activities,  approximately  16% from its  leasing  activities  and
approximately 7% from interest, fees and other income.

During the  current  fiscal  year,  the  Company  made a  strategic  decision to
diversify into real estate financing as an extension of its historical financing
business.  In conjunction with this effort,  in the second and third quarters of
fiscal 1997,  the Company sold a substantial  portion of its portfolio of leased
equipment  to provide  capital to  facilitate  the  expansion  of the  Company's
strategic  business  units which are comprised of aircraft,  leasing,  equipment
trading  businesses  and real  estate  finance.  Additionally,  the  Company  is
currently engaged in negotiations to sell its telecommunications  business unit.
Subsequent  to year end,  on July 3, 1997,  the  Company  announced  that it had
entered into a joint investment  agreement with Emmes Investment  Management Co.
LLC ("Emmes") to provide  high-yield,  short-term  financing for commercial real
estate  transactions.  The Company's  commitment is up to $8 million in approved
transactions.  The transaction with Emmes is part of an ongoing restructuring of
the Company's  broad based asset lending  activities.  In addition,  the Company
anticipates committing additional resources to its existing aircraft and leasing
businesses.

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.
<PAGE>
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
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").

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.

Real Estate Financing

As noted previously,  on July 3, 1997, the Company announced that it had entered
into a joint investment  agreement (the "Emmes Agreement") with Emmes Investment
Management  Co. LLC ("Emmes") to provide  high-yield,  short-term  financing for
commercial  real  estate  transactions.  The  Company's  commitment  is up to $8
million  in  approved  transactions.  Under  the  Emmes  Agreement,  Emmes  will
identify, negotiate and service proposed transactions. The Company will make its
own independent  determination whether to participate in a proposed transaction.
It is expected that the Company will  co-invest in each  transaction  with other
funds  managed by Emmes,  and that the  transactions  will be leveraged  through
borrowings  under a senior  credit  facility  obtained by Emmes.  The  Company's
investments  will be pledged to secure its portion of such  borrowings,  but the
loans will  otherwise be  non-recourse  to the  Company.  The Company will pay a
management  fee to Emmes equal to a percentage of total assets under  management
(including  leverage) plus a portion of profits on the investments to the extent
that  total  return  on  the  Company's   invested  capital  exceeds   specified
<PAGE>
thresholds.  The term of the Agreement is three years, unless earlier terminated
in  accordance  with its  terms.  The Emmes  Agreement  is  expected  to involve
transactions  which do not  meet the  underwriting  standards  of a  traditional
lender, and instances where there are unusual time constraints.  Emmes,  founded
in 1992 by individuals  who have been involved in commercial  real estate dating
back to the early 1970s,  provides high-yield,  short-term real estate financing
as well as a broad range of other special  opportunity real estate  investments.
Management  believes that the real estate finance business  represents a logical
extension of the  Company's  historic  business  focus and skills as a financial
intermediary for asset-based  transactions;  however,  the Company itself has no
direct experience in real estate. Accordingly,  the Company will be dependent on
the expertise of Emmes and will need to employ  qualified  management to oversee
the investment.  The Company will also be subject to the risks attendant to real
estate  finance  generally,  including the risks of leverage,  risks of borrower
default, general economic and real estate market conditions, and competition for
attractive real estate finance investments; in particular, the risks of borrower
default may be high given the nature of its contemplated investments.
 
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  consisted 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 3 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.

Recently,  sales and margins for the Company's laser printing business have been
adversely  impacted,  and may continue to be impacted,  as a result of increased
activity  in the used  high  speed  printer  market  by Xerox  Corporation,  the
manufacturer  of the  Company's  laser  printers,  and another  large  financial
services company that has entered the market.

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 may give the Company an
advantage over many of its competitors.
<PAGE>
Equipment Leasing

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.  The  Company  currently  intends  to  offer  a  leasing
alternative to its customers as a means of sales support.

On November 30, 1996, the Company,  through certain  wholly-owned  subsidiaries,
sold a substantial portion of its leased equipment to an institutional  investor
for a sales price of approximately $20 million, payable in cash of approximately
$7.4  million  and the  assumption  by the  investor  of the  Company's  related
outstanding non-recourse lease rental borrowings of approximately $12.5 million.
The gain on the transaction of approximately  $2.5 million,  exclusive of income
taxes, was included in results from continuing operations for the fiscal quarter
ended November 30, 1996. Additionally, on February 28, 1997, the Company sold an
additional  portion of its leased equipment to the same  institutional  investor
for a sales price of approximately $2 million,  payable in cash of approximately
$775,000,  a short-term note of  approximately  $560,000,  the assumption by the
investor  of  the  Company's  related  outstanding   non-recourse  lease  rental
borrowings of  approximately  $343,000 and the payment of the Company's  related
outstanding recourse lease rental borrowings of approximately $379,000. The gain
on the transaction of  approximately  $341,000,  exclusive of income taxes,  was
included in results from  continuing  operations  for the fiscal  quarter  ended
February 28, 1997.  The Company is acquiring  additional  equipment,  subject to
lease,  which it  intends  to sell on an  ongoing  basis,  as market  conditions
permit.  The  Company's  future  revenue  and  earnings  from the sale of leased
equipment  will be  affected  by a number of factors,  including  the  Company's
ability to identify and market equipment leases to equipment lessees, conditions
in the  secondary  market for  equipment  leases,  which may be affected by such
factors as the  availability of  institutional  investment  capital and interest
rates, and competition from other entities seeking to resell equipment leases.

Telecommunications Equipment

During   the   current   fiscal   year,    the   Company's    efforts   in   the
telecommunications/telephony  market  continued 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.  While  margins in this
business unit remain  stable,  the Company to date has not achieved  significant
increases in volume from this  business.  The Board of Directors  has decided to
sell this  business  unit and the Company is currently  engaged in  negotiations
with a potential buyer.
<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,  investment  banking firms and real
estate investors.

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, 1997,  the Company had  approximately  39  full-time  employees,
including  23 in  administration  and 16 in  sales  and  sales  support.  Of the
employees engaged in sales and sales support,  12 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 office space for its corporate headquarters on a month to
month  basis,  commencing  August 1,  1997.  The  offices  are  located in North
Syracuse, New York and the Company is occupying  approximately 6,000 square feet
of floor space at a cost of $9,167 per month.  The  Company  intends to move its
corporate  offices to another  location in the Greater  Syracuse,  New York area
during Fiscal 1998.
<PAGE>
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 $4,978 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 $1,850.  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  which
consists of  approximately  17,000 square feet of combined  warehouse and office
space in Syracuse,  New York at a cost of  approximately  $4,800 per month.  The
lease for this  facility is  scheduled to expire on May 31, 1998 and is expected
to be assumed by any  potential  buyer of the  Telecommunications  Business Unit
(see Item 1. "Business").

The Company maintains an administrative office in New York, New York and a 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. The Company intends to move to expanded administrative office space
in New York, New York during Fiscal 1998.

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.


                                     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  Small-Cap Market under the symbol CISC on May 16, 1995. The high and
low bid information for the last two fiscal years 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, 1997
                        $ 1.63   $ 2.00        $ 1.69    $ 2.25          $ 1.75   $  3.13        $  1.88      $ 2.88

Fiscal Year ended
May 31, 1996
                        $ 2.13   $ 3.50        $ 1.75    $ 2.63          $ 1.88   $  2.38        $  1.50      $ 2.44
</TABLE>
As of July 31, 1997,  there were 1,408 record  holders of the  Company's  Common
Stock. No cash dividends have been paid on the Common Stock to date.
<PAGE>
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
                                              --------------------------------------- | ------------------------------------------
                                                   Fiscal Year Ended     For the Six  |    For the Six         Fiscal Year Ended
                                                        May 31,          Months Ended |    Months Ended             May 31,
Period Data:                                      1997          1996     May 31, 1995 | November 30, 1994     1994           1993
------------                                      ----          ----     ------------ | -----------------     ----           ----
<S>                                           <C>           <C>            <C>             <C>            <C>            <C>
Total Revenues ..........................     $  31,301     $  26,822      $  11,762  |    $  25,707      $  54,193      $  94,624
Costs and expenses ......................        29,662        25,211          9,529  |       17,501         54,941        108,371
                                              ---------     ---------      ---------  |    ---------      ---------      ---------
Income (loss) from continuing                                                         |
  operations before reorganization items,                                             |
  income taxes, fresh start adjustments                                               |
  and extraordinary item ................         1,639         1,611          2,233  |        8,206           (748)       (13,747)
Reorganization items ....................          --            --             --    |        8,945        134,224         31,715
                                              ---------     ---------      ---------  |    ---------      ---------      ---------
Income (loss) from continuing                                                         |
  operations before income taxes,                                                     |
  fresh start adjustments and                                                         |
  extraordinary item ....................         1,639         1,611          2,233  |       17,151        133,476         17,968
Income taxes ............................           623           611            849  |           45            100            100
                                              ---------     ---------      ---------  |    ---------      ---------      ---------
Income (loss) from continuing                                                         |
  operations before fresh start                                                       |
  adjustments and extraordinary item ....         1,016         1,000          1,384  |       17,106        133,376         17,868
Income (loss)from discontinued                                                        |
  operations, net of tax ................            70          (934)        (2,997) |       (4,882)          (575)        (1,138)
                                              ---------     ---------      ---------  |    ---------      ---------      ---------
Income (loss) before fresh start                                                      | 
  adjustments and  extraordinary item ...         1,086            66         (1,613) |        12,224        132,801         16,730
Fresh start adjustments .................          --            --             --    |       (3,264)          --             --   
                                              ---------     ---------      ---------  |    ---------      ---------      ---------
Income (loss) before  extraordinary .....         1,086            66         (1,613) |        8,960        132,801         16,730
  item                                                                                |
Extraordinary  item-Forgiveness  of                                                   |
  debt ..................................          --            --             --    |       96,317           --             --   
                                              ---------     ---------      ---------  |    ---------      ---------      ---------
                                                                                      |
Net income (loss) .......................     $   1,086     $      66      $  (1,613) |    $ 105,277      $ 132,801      $  16,730
                                              =========     =========      =========  |    =========      =========      =========
                                                                                      |
                                                                                      |
Net Income (Loss) Per Common Share:                                                   |
Income from continuing operations........     $     .14     $     .14      $     .20  |
Income  (loss)  from   discontinued                                                   |
operations...............................           .01          (.13)          (.43) |
                                              ---------     ---------      ---------  |
            Net income (loss)............     $     .15     $     .01      $    (.23) |
                                              =========     =========      ========== |
</TABLE>
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.
<PAGE>
<TABLE>
<CAPTION>


                                                             (Dollars in thousands)
                                                    
                                               Reorganized  Company                               |     Predecessor Company
                            ------------------------------------------------------------------    |  ----------------------- 
                           Fiscal Year      Fiscal Year      For the Six        For the Six       |     Fiscal Year Ended
Balance Sheet Data            Ended            Ended        Months Ended       Months Ended       |          May 31,
(at period end):           May 31, 1997    May 31, 1996     May 31, 1995     November 30, 1994    |     1994         1993
                           ------------    ------------     ------------     -----------------    |     ----         ----
<S>                         <C>             <C>             <C>               <C>                    <C>          <C>
Total assets                $   44,077      $   53,550      $    41,130       $    47,323         |  $ 231,173    $ 244,151
Liabilities not subject                                                                           |
  to compromise                  9,476          20,097            7,743            12,323         |     72,142       73,969
Liabilities subject to                                                                            |
  compromise                      -               -                -                 -            |    268,258      412,210
Shareholders' equity                                                                              |
(deficit)                       34,601          33,453           33,387            35,000         |   (109,227)    (242,028) 
</TABLE> 
<PAGE>                                                         
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; the risks attendant to real estate finance generally,  including the
risks of leverage,  risks of borrower default,  general economic and real estate
market   conditions,   and   competition  for  attractive  real  estate  finance
investments;  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 Securities
and Exchange  Commission  ("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
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.
<PAGE>
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
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, as compared to historical Fiscal 1997 and
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, 1997       May 31, 1996       May 31, 1995
                                                     ------------       ------------       ------------
<S>                                                     <C>                <C>                <C>
Revenues:
Equipment sales ............................            $21,393            $16,657            $15,342
Gain from sale of equipment subject to lease              2,816               --                 --
Equipment rentals ..........................              3,829              6,540             14,226
Income from direct financing leases ........              1,188              1,347              1,326
Interest, fees and other income ............              2,075              2,278              6,575
                                                        -------            -------            -------
                                                         31,301             26,822             37,469
                                                        -------            -------            -------
Costs and Expenses:
Cost of sales ..............................             17,145             11,966              9,058
Depreciation of rental equipment ...........              2,130              3,445              4,330
Interest expense ...........................                975                551                471
Other operating expenses ...................              2,310              1,344              4,500
Selling, general and administrative expense               7,102              7,905              8,728
                                                        -------            -------            -------
                                                         29,662             25,211             27,087
                                                        -------            -------            -------
Income from continuing operations before
     income taxes ..........................            $ 1,639            $ 1,611            $10,382
                                                        =======            =======            =======


</TABLE>
<PAGE>
                              RESULTS OF OPERATIONS 

Continuing Operations

During the  current  fiscal  year,  the  Company  made a  strategic  decision to
diversify into real estate financing as an extension of its historical financing
business.  In conjunction with this effort,  in the second and third quarters of
fiscal 1997,  the Company sold a substantial  portion of its portfolio of leased
equipment  to provide  capital to  facilitate  the  expansion  of the  Company's
strategic  business  units which are comprised of aircraft,  leasing,  equipment
trading  businesses and real estate finance.  Subsequent to year end, on July 3,
1997,  the  Company  announced  that  it had  entered  into a  joint  investment
agreement  (the "Emmes  Agreement")  with Emmes  Investment  Management  Co. LLC
("Emmes") to provide high-yield, short-term financing for commercial real estate
transactions.  Under the  agreement  the Company may provide up to $8 million in
financing,  subject to management's  approval of each loan. The transaction with
Emmes  is  part of an  ongoing  restructuring  of the  Company's  asset  lending
activities. In addition, the Company anticipates committing additional resources
to its existing aircraft and leasing businesses.

The Emmes  Agreement is expected to involve  transactions  which do not meet the
underwriting  standards of a traditional  lender,  and instances where there are
unusual time  constraints.  Emmes,  founded in 1992 by individuals who have been
involved in commercial real estate dating back to the early 1970s, provides high
yield,  short-term  real  estate  financing  as well as a broad  range  of other
special  opportunity real estate investments.  Under the Emmes Agreement,  Emmes
will identify, negotiate and service proposed transactions,  and will present to
the Company the  opportunity to participate  in such  transactions.  The Company
will  make  its  own  independent  determination  whether  to  participate  in a
transaction.

For the three fiscal years being  reviewed,  total  revenues  increased to $31.3
million in fiscal 1997 from $26.8 million in fiscal 1996,  while decreasing from
$37.4  million in fiscal 1995.  Equipment  sales  increased in each of the three
years,  from $15.3 million in fiscal 1995 to $16.6 million in fiscal 1996 and to
$21.3  million in fiscal  1997.  The  significant  increase  (28.4%)  during the
current fiscal year is principally  attributable to the addition of LaserAccess'
results of operations for the current twelve month period,  after being acquired
on March 8, 1996.

On November 30, 1996, the Company,  through certain  wholly-owned  subsidiaries,
sold a substantial portion of its leased equipment to an institutional  investor
for a sales price of approximately $20 million, payable in cash of approximately
$7.4  million  and the  assumption  by the  investor  of the  Company's  related
outstanding non-recourse lease rental borrowings of approximately $12.5 million.
The gain on the transaction of approximately  $2.5 million,  exclusive of income
taxes, was included in results from continuing operations for the fiscal quarter
ended November 30, 1996. Additionally, on February 28, 1997, the Company sold an
additional  portion of its leased equipment to the same  institutional  investor
for a sales price of approximately $2 million,  payable in cash of approximately
$775,000,  a short-term note of  approximately  $560,000,  the assumption by the
investor  of  the  Company's  related  outstanding   non-recourse  lease  rental
borrowings of  approximately  $343,000 and the payment of the Company's  related
outstanding recourse lease rental borrowings of approximately $379,000. The gain
<PAGE>
on the transaction of  approximately  $341,000,  exclusive of income taxes,  was
included in results from  continuing  operations  for the fiscal  quarter  ended
February 28, 1997.  The Company is acquiring  additional  equipment,  subject to
lease,  which it  intends  to sell on an  ongoing  basis,  as market  conditions
permit.  The  Company's  future  revenue  and  earnings  from the sale of leased
equipment  will be  affected  by a number of factors,  including  the  Company's
ability to identify and market equipment leases to equipment lessees, conditions
in the  secondary  market for  equipment  leases,  which may be affected by such
factors as the  availability of  institutional  investment  capital and interest
rates, and competition from other entities seeking to resell equipment leases.

Sales and margins for the Company's laser printing  business have been adversely
impacted,  and may continue to be impacted, as a result of increased activity in
the used high speed printer market by Xerox Corporation, the manufacturer of the
Company's laser printers, and another large leasing company that has entered the
market.  While  margins in the Company's  telecom  equipment  buy/sell  business
remain  stable,  the Company to date has not achieved  significant  increases in
volume from this  business.  The Board of Directors  has decided to seek a buyer
for the Company's telecom equipment  buy/sell  business.  The disposition of the
telecom  business  is not  expected to have a material  effect on the  Company's
financial  position  or  results  of  operations.  Sales and  earnings  from the
aircraft  business are likely to continue to vary  quarter-to-quarter,  based on
the volume of transactions.

Equipment  rentals and income from direct  financing  leases  decreased  to $5.0
million in fiscal  1997 from $7.9  million in fiscal  1996 and $15.6  million in
fiscal 1995. The  significant  decrease  (49.3%) from fiscal 1995 to fiscal 1996
primarily  reflects a "running out" of the old lease portfolio,  developed prior
to and during the bankruptcy proceeding. The decrease from fiscal 1996 to fiscal
1997 is  directly  related to the  previously  described  sale of a  substantial
portion of the Company's leased  equipment to an  institutional  investor in the
second and third quarters of the current fiscal year.

Interest,  fees and other income  decreased  from $6.5 million in fiscal 1995 to
$2.2  million in fiscal 1996 to $2.0  million in fiscal  1997.  The  significant
decrease (65.3%) from fiscal 1995 to fiscal 1996 principally  reflects a decline
in management  fees  received  from income  funds.  Effective as of December 31,
1995,  the  Company  sold  TLP  Leasing   Programs,   a  group  of  wholly-owned
subsidiaries, to the current management of TLP.

Costs and expenses  increased to $29.6 million in fiscal 1997 from $25.2 million
in fiscal  1996  while  decreasing  from $27.0  million in fiscal  1995 to $25.2
million in fiscal 1996.  Cost of sales increased in each of the three years from
$9.1 million in fiscal 1995 to $11.9 million in fiscal 1996 and to $17.1 million
in fiscal 1997. The significant increase (43.3%) during the current fiscal year,
is directly  related to additional  sales  contributed by LaserAccess  since its
acquisition.  Cost of sales as a percentage  of sales for the fiscal years ended
May 31, 1997,  1996 and 1995, was 80.0%,  71.8% and 59.0%,  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.  Depreciation of
rental  equipment  decreased from $4.3 million in fiscal 1995 to $3.4 million in
fiscal 1996 and to $2.1  million in fiscal 1997.  The decrease of $885,000  from
<PAGE>
fiscal 1995 to fiscal 1996 is related to the previously  described "running out"
of the old  lease  portfolio,  developed  prior  to and  during  the  bankruptcy
proceeding.  The  decrease  of $1.3  million  from fiscal 1996 to fiscal 1997 is
directly  related to the sale of a substantial  portion of the Company's  leased
equipment  to an  institutional  investor  in the second and third  quarters  of
fiscal 1997. Interest expense increased from $471,000 in fiscal 1995 to $551,000
in fiscal 1996 and to $975,000  in fiscal  1997.  These  yearly  increases  were
primarily the result of increases in the average debt  outstanding  during these
periods,  prior to the assumption of approximately $12.8 million in non-recourse
lease rental  borrowings  by an  institutional  investor in the second and third
quarters,  relative to the sale of equipment  subject to lease.  Other operating
expenses  decreased  from $4.5  million in fiscal 1995 to $1.3 million in fiscal
1996. This decrease  occurred  primarily in expenses  associated with leases and
was impacted by the "running out" of the old lease  portfolio.  Other  operating
expenses increased by $1.0 million to $2.3 million in fiscal 1997. This increase
was  principally  due to (i) a write off of certain assets  associated  with the
Company's  telecommunications  and other  leasing  business  units in the fourth
quarter of fiscal 1997, (ii) additional equipment refurbishment expenses related
to LaserAccess' results of operations for the current twelve month period, after
being acquired on March 8, 1996 and (iii) a full twelve months  amortization  in
fiscal 1997 of goodwill associated with the acquisition of LaserAccess. Selling,
general and  administrative  expenses decreased from $8.7 million in fiscal 1995
to $7.9 million in fiscal 1996 and to $7.1 million in fiscal 1997.  These yearly
decreases are principally due to cost  containment  efforts and staff reductions
between the periods.

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 had been  completely  utilized as of May 31,  1996,  as a result of cash
payments for severance and excess facilities costs.
<PAGE>
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 Year      For the Six    |         For the Six
                                         Ended            Ended         Months Ended    |        Months Ended
                                      May 31, 1997     May 31, 1996      May 31, 1995   |      November 30, 1994
                                      ------------     ------------      ------------   |    -----------------
<S>                                     <C>              <C>              <C>                   <C>
Revenues .......................        $   --           $  5,491         $  5,352      |        $ 10,580
Costs and expenses .............             (24)           6,661            7,890      |          12,110
                                        --------         --------         --------      |        --------
Income (loss) from discontinued                                                         | 
      operations ...............              24           (1,170)          (2,538)     |          (1,530)
Loss on disposal of discontinued                                                        | 
      operations ...............            --               (705)            --        |             --
                                        --------         --------         --------      |        --------
Income (loss) before income tax                                                         | 
     (tax benefit) .............              24           (1,875)          (2,538)     |          (1,530)  
Income tax (tax benefit) .......               9             (698)            (971)     |            --
                                        --------         --------         --------      |        --------
Net income (loss) from                                                                  | 
     discontinued operations ...        $     15         $ (1,177)        $ (1,567)     |        $ (1,530)
                                        ========         ========         ========      |        ========
</TABLE>
                                                                                
                                                                                
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 none as of May 31, 1997, due to cash payments  principally for severance
and  facilities  costs  totaling  approximately  $325,000 and a net reduction of
$419,000  to  adjust  the  amounts  estimated  for the loss on the  inventories,
receivables, fixed assets and leased facility obligations. 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 final  adjustment  of the  liability in the
amount of $89,000 was  recorded as income from  discontinued  operations  in the
quarter ended May 31, 1997.
<PAGE>
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 Year      For the Six |        For the Six
                                    Ended            Ended         Months Ended |       Months Ended
                                 May 31, 1997     May 31, 1996      May 31, 1995|     November 30, 1994
                                 ------------     ------------      ------------|     -----------------
<S>                                  <C>             <C>             <C>          
Revenues ....................        $  --           $  --           $ 1,285    |        $ 4,019
Costs and expenses ..........            (89)           --             1,773    |          7,371
                                     -------         -------         -------    |        -------
Income (loss) from                                                              |
    discontinued operations..             89            --              (488)   |         (3,352) 
Income (loss) on disposal of                                                    | 
    discontinued operations..           --               330          (1,900)   |           --
                                     -------         -------         -------    |        -------
Income (loss) before income                                                     | 
     tax (tax benefit) ......             89             330          (2,388)   |         (3,352)
Income tax (tax benefit) ...              34              87            (958)   |           --
                                     -------         -------         -------    |        -------
Net income (loss) from                                                          | 
    discontinued operations..        $    55         $   243         $(1,430)   |        $(3,352)
                                     =======         =======         =======    |        =======
</TABLE>
Income Taxes 

For the fiscal  years ended May 31,  1997 and 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  $623,000,  $611,000 and
$849,000, respectively.  Additionally, for the fiscal year ended May 31, 1997, a
deferred income tax expense on income from discontinued  operations was recorded
in the amount of  $43,000,  while for the fiscal 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,  a
provision for state tax on income from continuing operations was recorded in the
amount of $45,000.  No  provision  for federal  income tax was  required in this
period 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. For the fiscal year ended May
31, 1997,  $666,000 of deferred tax assets were utilized to offset  deferred tax
liabilities of a like amount. 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-organization  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 fiscal years ended May 31, 1997 and 1996 and
the six months ended May 31,  1995,  was $11.7  million,  $6.8 million and $12.3
million,  respectively.  Cash used in operations by the Predecessor  Company for
the six months ended  November  30, 1994,  was $86.3  million.  The  significant
increase in cash provided by continuing  operations  for the current fiscal year
was primarily due to the proceeds generated by two sales of equipment subject to
lease in the aggregate  amount of $8.7 million in the second and third quarters.
In  addition  to the  cash  payments  and a  short-term  note  of  approximately
$560,000, the buyer assumed approximately $12.8 million of the Company's related
outstanding  non-recourse lease rental borrowings and approximately  $379,000 of
the Company's  related  outstanding  recourse lease rental  borrowings were paid
off. The sales of this leased  equipment  accelerated the earnings and cash flow
from the leases,  which would have been received over time,  into the second and
third  quarters of the current  fiscal  year.  These  funds  provide  capital to
facilitate  the expansion of the Company's  strategic  business  units which are
comprised of aircraft,  leasing,  equipment  trading  businesses and real estate
finance.  Inventory  increased by $3.9 million  during the current  fiscal year.
This increase was primarily  attributable  to the  acquisition  of used aircraft
equipment and certain laser  printing  systems to support  planned  increases in
business  activity in these business units.  New investment in rental  equipment
was $11.4  million  for the fiscal  year ended May 31, 1997 as compared to $22.8
million  for the  prior  fiscal  year.  The  significant  investment  in  rental
equipment in fiscal 1996 initiated the Company's  strategy of originating leases
on acquired rental equipment and subsequently selling them to investors,  as was
accomplished in the second and third quarters of the current fiscal year.

Because a note payable to the Liquidating Estate was paid in full in March 1996,
there were no additional payments made on the note for the fiscal year ended May
31, 1997 as compared to the  comparable  fiscal  period in 1996 when the Company
made  principal  payments  of  $3.3  million.  Proceeds  from  lease,  bank  and
institution  financings  were $12.8  million in fiscal 1997 as compared to $15.3
million in fiscal 1996. Payments on lease, bank and institution  financings were
$8.7  million in fiscal  1997 as compared to $2.4  million in fiscal  1996.  The
significant increase in payments in the current fiscal year primarily represents
increased payments on discounted lease rental borrowing prior to the sale of the
related equipment subject to lease.

The Company expects that  operations  will generate  sufficient cash to meet its
operating expenses and current  obligations for the foreseeable future. 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.  On March 14,  1997,  the  Company  was  notified by this
institution that it was terminating the credit line due primarily to minimal use
of the facility. The Company believes that the termination of this facility will
not have a material effect on the Company's  liquidity or ability to finance its
current  businesses.  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.  At May 31, 1997,  approximately $1.0 million in loans
payable were  outstanding  under these lines of credit.  The LaserAccess and CIS
<PAGE>
Air  loan  agreements  contain  various  covenants   including   limitations  on
additional  indebtedness  and the maintenance of minimum levels of net worth/net
earnings.  At May 31, 1997,  LaserAccess  did not meet the minimum net worth/net
earnings  requirement.  In August 1997, a waiver  relative to this  covenant was
obtained from the lending institution.  In July 1997, the Company signed letters
of intent with two institutions to provide lease and inventory  financing in the
total  amount of $20 million for CIS Air.  The Company is  currently  engaged in
negotiations  relative  to the terms of the  proposed  lines of  credit  and due
diligence reviews with the institutions.

On May 27,  1997,  the  Company  announced  that  its  Board  of  Directors  had
authorized  the  expenditure  of up to $500,000 for the repurchase of its common
stock. The Company  commenced a voluntary odd lot program through June 30, 1997,
which was  extended  through July 31,  1997.  Shareholders  owning less than 100
shares of the Company's  common stock were offered the  opportunity  to sell all
their shares at the closing  price of the common  stock on the NASDAQ  Small-Cap
Market on May 23, 1997, which was $2.25 per share.  Approximately  20,000 shares
were repurchased by the Company at an aggregate cost of  approximately  $45,000.
Subsequent to the odd lot repurchase program,  the Company intends to repurchase
from time to time  additional  shares of its common  stock up to the  balance of
$500,000  remaining  after the odd lot program.  The Company may  repurchase the
additional  shares at  prevailing  prices in the open market or in negotiated or
other permissible transactions at the discretion of management. The Company will
hold all repurchased shares of common stock in its treasury.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


        Financial Statements:                                                
        (a) (1)  Financial Statements
                 Reports of Independent Accountants                          

                 Consolidated Balance Sheets
                 May 31, 1997 and 1996                                       

                 Consolidated Statements of Operations
                      Years ended May 31, 1997 and 1996 and six months ended
                      May 31, 1995 and November 30, 1994                     

                 Consolidated Statements of Shareholders'  Equity 
                      Years ended May 31, 1997 and 1996 and six months ended
                      May 31, 1995 and November 30, 1994                     

                 Consolidated Statements of Cash Flows
                      Years ended May 31, 1997 and 1996 and six months ended
                      May 31, 1995 and November 30, 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,  1997 and 1996,  and the results of their  operations  and their cash
flows for the years ended May 31, 1997 and 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.


/s/Price Waterhouse LLP
-----------------------
PRICE WATERHOUSE LLP
July 18, 1997
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, 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.


/s/Price Waterhouse LLP
-----------------------
PRICE WATERHOUSE LLP
January 20, 1995
Syracuse, New York
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Per Share Data)

                                     CONSOLIDATED BALANCE SHEETS 

                                                                                       May 31,
                                                                              ----------------------
                                                                                 1997          1996
                                                                              --------      --------
<S>                                                                           <C>           <C>
Assets:
Cash and cash equivalents ...............................................     $  9,005      $  5,382
Accounts receivable, net of allowance for
    doubtful accounts of $50 and $53 ....................................        2,485         2,295
Notes receivable ........................................................        5,094         3,457
Inventory ...............................................................        6,832         2,875
Net investment in direct financing leases (Note 6) ......................        3,446        15,783
Rental equipment, net (Note 7) ..........................................        7,505        11,148
Furniture, fixtures and equipment, net (Note 8) .........................          218           625
Other assets ............................................................          446         1,965
Goodwill, net of amortization of $519 and $67 (Note 3) ..................        3,632         3,940
Deferred tax assets (Note 13) ...........................................        5,414         6,080
                                                                              --------      --------

          Total assets ..................................................     $ 44,077      $ 53,550
                                                                              ========      ========
Liabilities and Shareholders' Equity:
Liabilities:
    Accounts payable and other liabilities ..............................     $  1,302      $  2,949
    Net liabilities of discontinued operations (Note 4) .................         --             106
    Discounted lease rental borrowings (Note 9) .........................        5,633        14,738
    Notes payable to former owners of acquired company (Note 3) .........        1,536         2,304
    Note payable to institution - secured (Note 10) .....................        1,005          --
                                                                              --------      --------

        Total liabilities ...............................................        9,476        20,097
                                                                              --------      --------

Shareholders' Equity:
Common stock, $.01 par value;  authorized  10,000,000 shares,  issued and
    outstanding 7,030,707 and 6,999,040, excluding
    960 treasury shares in 1997 and 1996 (notes 11 and 12) ..............           70            70
Additional paid-in capital ..............................................       34,992        34,930
Accumulated deficit .....................................................         (461)       (1,547)
                                                                              --------      --------

     Total shareholders' equity .........................................       34,601        33,453
                                                                              --------      --------

     Total liabilities and shareholders' equity .........................     $ 44,077      $ 53,550
                                                                              ========      ========

              The accompanying notes are an integral part of these financial statements. 
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Number of Shares)

 

                                               CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                               Reorganized                      |    Predecessor
                                                                                 Company                        |     Company
                                                             ---------------------------------------------------|   -------------
                                                              For the Year     For the Year       For the Six   |    For the Six
                                                                 Ended            Ended           Months Ended  |    Months Ended
                                                             May 31, 1997      May 31, 1996       May 31, 1995  | November 30, 1994
                                                             ------------      ------------       --------------  -----------------
<S>                                                           <C>             <C>                  <C>               <C>
Revenues:                                                                                                       | 
Equipment sales ........................................      $  21,393       $  16,657            $  4,571     |    $  10,771
Gain from sale of equipment subject to lease (Note 2)...          2,816            --                  --       |         --
Equipment rentals ......................................          3,829           6,540               4,726     |        9,500
Income from direct financing leases ....................          1,188           1,347                 621     |          705
Interest, fees and other income ........................          2,075           2,278               1,844     |        4,731
                                                              ---------       ---------            --------     |    ---------
                                                                 31,301          26,822              11,762     |       25,707
                                                              ---------       ---------            --------     |    ---------
                                                                                                                | 
Costs and Expenses:                                                                                             | 
Cost of sales ..........................................         17,145          11,966               3,496     |        5,562
Depreciation of rental equipment .......................          2,130           3,445               1,465     |        2,865
Interest expense .......................................            975             551                 277     |          137
Other operating expenses ...............................          2,310           1,344                 873     |        3,627
Selling, general and admiistrative expenses ............          7,102           7,905               3,418     |        5,310
                                                              ---------       ---------            --------     |    ---------
                                                                 29,662          25,211               9,529     |       17,501
                                                              ---------       ---------            --------     |    ---------
                                                                                                                | 
Income from continuing operations before                                                                        |  
   reorganization items, income taxes, fresh start                                                              |  
   adjustments and extraordinary issues ................          1,639           1,611               2,233     |        8,206
                                                              ---------       ---------            --------     |    ---------
                                                                                                                | 
Reorganization Items:                                                                                           | 
Earnings from accumulated cash resulting from                                                                   | 
   Chapter 11 proceedings ..............................           --              --                  --       |        3,527
Bankruptcy related professional fees ...................           --              --                  --       |       (5,572)
Gain on settlement of bankruptcy issues ................           --              --                  --       |       10,990
Other ..................................................           --              --                  --       |         --   
                                                              ---------       ---------            --------     |    ---------
                                                                   --              --                  --       |        8,945
                                                              ---------       ---------            --------     |    ---------
                                                                                                                 
</TABLE> 
<PAGE>  
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Number of Shares)

 

                                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                                           (continued)

                                                                               Reorganized                      |    Predecessor
                                                                                 Company                        |     Company
                                                             ---------------------------------------------------|   -------------
                                                              For the Year     For the Year       For the Six   |    For the Six
                                                                 Ended            Ended           Months Ended  |    Months Ended
                                                             May 31, 1997      May 31, 1996       May 31, 1995  | November 30, 1994
                                                             ------------      ------------       --------------  -----------------
<S>                                                           <C>             <C>                  <C>               <C>
Income from continuing operations before income                                                                 | 
   taxes, fresh start adjustments and extraordinary item          1,639           1,611               2,233     |       17,151
Provision for income tax ...............................            623             611                 849     |           45
                                                              ---------       ---------            --------     |    ---------
Income before discontinued operations, fresh                                                                    | 
   start adjustments and extraordinary item ............           1016           1,000               1,384     |       17,106
                                                              ---------       ---------            --------     |    ---------
Income (loss) from discontinued operations, net of tax .             70            (725)             (1,860)    |       (4,882)
Income (loss) on disposal of discontinued                                                                       | 
   operations, net of tax...............................             --            (209)             (1,137)    |         --
                                                              ---------       ---------            --------     |    ---------
   Net income (loss) from discontinued operations                                                               | 
   (Note 4) ............................................             70            (934)             (2,997)    |       (4,882)
                                                              ---------       ---------            --------     |    ---------
Income (loss) before fresh start adjustments and                                                                | 
   extraordinary item ..................................          1,086              66              (1,613)    |       12,224
Fresh start adjustments ................................           --              --                  --       |       (3,264)
                                                              ---------       ---------            --------     |    ---------
Income (loss) before extraordinary item ................      $   1,086              66              (1,613)    |        8,960
Extraordinary item - forgiveness of debt ...............           --              --                  --       |       96,317
                                                              ---------       ---------            --------     |    ---------
Net income (loss).......................................      $   1,086       $      66            $ (1,613)    |    $ 105,277
                                                              =========       =========            ========     |    =========
                                                                                                                | 
Net income (loss) per share (Note 1)                                                                            | 
   Income from continuing operations....................      $     .14       $     .14            $    .20     | 
   Income (loss) from discontinued operations                       .01            (.13)               (.43)    | 
                                                              ---------       ---------            --------     |                
        Net income (loss)................................     $     .15       $     .01            $   (.23)    | 
                                                              =========       =========            ========     | 
                                                                                                                | 
Weighted average number of shares of common                                                                     | 
  stock outstanding.....................................          7,008           6,999               7,000     | 
                                                              =========       =========            ========     | 
                                                                                                                  
                            The accompanying notes are an integral part of these financial statements.           
</TABLE> 
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except Number of Shares)

                                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 

                                                                                                         Retained
                                                          Common Stock               Additional          Earnings
                                                          ------------                Paid-In          (Accumulated
                                                   Shares             Amount          Capital            Deficit)
                                                   ------             ------          -------            --------
Predecessor Company
-------------------
<S>                                             <C>               <C>               <C>               <C>
Balance - May 31, 1994 ...................       12,761,875       $       383       $    30,798       $  (140,408)

     Net Income ..........................             --                --                --             105,277

     Elimination of the historical capital
     structure of the Company upon
     Reorganization ......................      (12,761,875)             (383)          (30,798)           35,131


Reorganized Company
-------------------

     "Fresh-Start" Reorganized
      capital structure ..................        7,000,000                70            34,930              --
                                                -----------       -----------       -----------       -----------

Balance - November 30, 1994 ..............        7,000,000                70            34,930              --

     Net loss ............................             --                --                --              (1,613)
                                                -----------       -----------       -----------       -----------

Balance - May 31, 1995 ...................        7,000,000                70            34,930            (1,613)

     Net income ..........................             --                --                --                  66

     Acquisition of treasury shares ......             (960)             --                --                --
                                                -----------       -----------       -----------       -----------

Balance - May 31, 1996 ...................        6,999,040                70            34,930            (1,547)

     Net income ..........................             --                --                --               1,086

     Stock options exercised .............           16,667              --                  33              --

     Stock issued as compensation ........           15,000              --                  29              --
                                                -----------       -----------       -----------       -----------

Balance - May 31, 1997 ...................        7,030,707       $        70       $    34,992       $      (461)
                                                ===========       ===========       ===========       ===========

                     The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands
                                               CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                                   Reorganized                    |  Predecessor
                                                                                     Company                      |     Company
                                                             ---------------------------------------------------  |-----------------
                                                                 For the Year      For the Year     For the Six   |   For the Six
                                                                    Ended             Ended         Months Ended  |  Months Ended
                                                                 May 31, 1997      May 31, 1996     May 31, 1995   November 30, 1994
                                                                 ------------      ------------     ------------   -----------------
<S>                                                                <C>              <C>              <C>              <C>
Cash flows from operating activities:                                                                             | 
Net income (loss) ...............................................  $   1,086        $      66        $  (1,613)   |   $ 105,277
Less: Net income (loss) from discontinued operations ............         70             (934)          (2,997)   |      (4,882)
                                                                   ---------        ---------        ---------    |   ---------
Net income from continuing operations ...........................      1,016            1,000            1,384    |     110,159
                                                                   ---------        ---------        ---------    |   ---------
                                                                                                                  | 
Adjustments to reconcile net income                                                                               | 
to net cash provided by operating activities:                                                                     | 
  Reorganization 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)
                                                                   ---------        ---------        ---------    |   ---------
      Reorganization related adjustments ........................       --               --               --      |    (207,840)
                                                                   ---------        ---------        ---------    |   ---------
                                                                                                                  | 
Other adjustments-                                                                                                | 
Proceeds from sale of equipment subject to lease ................      8,703             --               --      |         --
Gain on sale of equipment subject to lease ......................     (2,816)            --               --      |         --
Proceeds from sale of  other leased equipment ...................      3,763            2,155            3,066    |       2,449
Amortization of unearned income .................................     (1,188)          (1,347)            (621)   |        (705)
Collections of rentals on direct financing leases ...............      3,524            4,665            1,761    |       2,092
Depreciation and amortization expense ...........................      3,012            3,967            1,699    |       3,309
Effect on cash flows of changes in:                                                                               | 
   Marketable debt securities ...................................       --               --               --      |      25,829
   Accounts receivable ..........................................       (190)            (317)           1,215    |      (2,436)
   Notes receivable .............................................     (1,637)          (2,420)             186    |          (7)
   Inventory ....................................................     (3,957)             291            1,668    |       3,526
   Other assets .................................................      1,519           (1,157)             159    |         911
   Accounts payable and other liabilities .......................       (474)           1,077              958    |     (17,582)
   Deferred tax assets ..........................................        666             --             (1,080)   |         --
   Other ........................................................       (209)            --               --      |         --
                                                                   ---------        ---------        ---------    |    ---------
      Other adjustments .........................................     10,716            6,914            9,011    |      17,386
                                                                   ---------        ---------        ---------    |    ---------
           Net cash provided by (used in) continuing operations .     11,732            7,914           10,395    |     (80,295)
                                                                                                                  |
           Net cash provided by (used in) discontinued operations          7           (1,088)           1,950    |      (6,001)
                                                                   ---------        ---------        ---------    |   ---------
           Net cash provided by (used in) operations ............     11,739            6,826           12,345    |     (86,296)
                                                                   ---------        ---------        ---------    |   ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands

                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                            (continued)

                                                                                   Reorganized                    |  Predecessor
                                                                                     Company                      |     Company
                                                                 -------------------------------------------------|-----------------
                                                                 For the Year      For the Year     For the Six   |   For the Six
                                                                    Ended             Ended         Months Ended  |  Months Ended
                                                                 May 31, 1997      May 31, 1996     May 31, 1995   November 30, 1994
                                                                 ------------      ------------     ------------   -----------------
<S>                                                                <C>              <C>              <C>              <C>
Cash flows from investing activities:                                                                             | 
Purchase of rental equipment ....................................    (11,432)         (22,800)          (2,444)   |      (4,503)
Purchase of property and equipment ..............................        (23)             (36)             (70)   |        (871)
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 ....................    (11,455)         (23,992)          (2,514)   |      (5,374)
                                                                   ---------        ---------        ---------    |   ---------
                                                                                                                  | 
Cash flows from financing activities:                                                                             | 
Payments on note payable to Liquidating Estate ..................       --             (3,391)          (2,632)   |        --
Proceeds from lease, bank and institution financings ............     12,852           15,368              254    |         845
Payments on lease, bank and institution financings ..............     (8,778)          (2,444)          (1,231)   |      (2,666)
Payments on notes payable to former owners of acquired company ..       (768)            --               --      |        --
Proceeds from exercise of stock options .........................         33             --               --      |        --
                                                                   ---------        ---------        ---------    |   ---------
     Net cash provided by (used in) financing activities ........      3,339            9,533           (3,609)   |      (1,821)
                                                                   ---------        ---------        ---------    |   ---------
                                                                                                                  | 
     Net increase (decrease) in cash and cash equivalents .......      3,623           (7,633)           6,222    |     (93,491)
                                                                                                                  |   
Cash and cash equivalents at beginning of period ................      5,382           13,015            6,793    |     100,284
                                                                   ---------        ---------        ---------    |    ---------
Cash and cash equivalents at end of period ......................  $   9,005        $   5,382        $  13,015    |   $   6,793
                                                                   =========        =========        =========    |   =========
                                                                                                           
                            The accompanying notes are an integral part of these financial statements.   
</TABLE> 
<PAGE>                                                                         
Continental 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  commercial
      aircraft,   telecommunications  equipment,  high  speed  production  laser
      printing systems, and certain other industrial equipment, provides leasing
      services in  connection  with such  equipment  and is engaged in providing
      real estate financing.

      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  primarily  direct
       financing and operating leases; the dollar value and number of sales-type
       leases are  considered  immaterial.  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
       $452,000.  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 years
       ended May 31,  1997 and 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  7,008,440,  6,999,399  and
       7,000,000,  respectively. As of May 31, 1997, the Company had outstanding
       options to purchase  284,000  shares of common  stock (see note 12).  The
       potential  dilution of these options is immaterial 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.     Sale of Equipment Subject to Lease

       On  November  30,  1996,  the  Company,   through  certain   wholly-owned
       subsidiaries,  sold a substantial  portion of its leased  equipment to an
       institutional  investor for a sales price of  approximately  $20 million,
       payable in cash of  approximately  $7.4 million and the assumption by the
       investor of the Company's related  outstanding  non-recourse lease rental
       borrowings of approximately $12.5 million. The gain on the transaction of
       approximately  $2.5 million,  exclusive of income taxes,  was included in
       results from continuing  operations for the fiscal quarter ended November
       30,  1996.  Additionally,  on February  28,  1997,  the  Company  sold an
       additional  portion of its  leased  equipment  to the same  institutional
       investor for a sales price of approximately  $2 million,  payable in cash
       of approximately  $775,000, a short-term note of approximately  $560,000,
       the  assumption  by the  investor of the  Company's  related  outstanding
       non-recourse  lease rental  borrowings of approximately  $343,000 and the
       payment  of the  Company's  related  outstanding  recourse  lease  rental
       borrowings of  approximately  $379,000.  The gain on the  transaction  of
       approximately  $341,000,  exclusive  of income  taxes,  was  included  in
       results from continuing  operations for the fiscal quarter ended February
       28, 1997.
<PAGE>
3.    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 prime
      rate (currently  8.5%) on the unpaid principal  balance.  The first annual
      principal installment,  plus accrued interest, was paid on a timely basis.
      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  and is
      charged to income  when  earned.  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  estimates of fair market  value.  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'  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 1996, 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
                                                                         Ended
                                                                     May 31, 1996
                                                                     ------------
<S>                                                                   <C>
Total Revenues ............................................           $   30,599
                                                                      ==========

Income from continuing operations .........................           $    1,410
                                                                      ==========

Income per share from continuing operations ...............           $      .20
                                                                      ==========

Weighted average number of shares
      outstanding .........................................            6,999,040
                                                                      ==========
</TABLE>

          Note:Reorganization  items and loss from discontinued  operations have
               been excluded from the pro forma results.
<PAGE>
4.    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 had been completely utilized as of May 31, 1996, as
      a result of cash payments for severance and excess facilities costs.

      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 none as of May 31, 1997, due to
      cash payments  principally  for severance and  facilities  costs  totaling
      approximately  $325,000  and a net  reduction  of  $419,000  to adjust the
      amounts  estimated  for the loss on the  inventories,  receivables,  fixed
      assets and leased facility obligations. 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.  A final
      adjustment  of the  liability  in the amount of $89,000  was  recorded  as
      income from discontinued operations in the quarter ended May 31, 1997.
<PAGE>
      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>
                                                                                                    |       Predecessor
                                                                 Reorganized Company                |         Company
                                                    -----------------------------------------       |    -----------------
                                                    For the Year    For the Year      For the Six   |       For the Six
                                                        Ended           Ended        Months Ended   |       Months Ended
                                                    May 31, 1997    May 31, 1996     May 31, 1995   |    November 30, 1994
                                                    ------------    ------------     ------------   |    -----------------
<S>                                                  <C>              <C>              <C>              
Revenues ....................................        $   --           $  5,491         $  6,637     |        $ 14,599
Costs and expenses ..........................            (113)           6,661            9,663     |          19,481
                                                     --------         --------         --------     |        --------
Income (loss) from discontinued operations ..             113           (1,170)          (3,026)    |          (4,882)
Loss on disposal of discontinued                                                                    | 
      operations ............................             --              (375)          (1,900)    |            --
                                                     --------         --------         --------     |        --------
                                                                                                    |      
Income (loss) before income tax (tax benefit)             113           (1,545)          (4,926)    |          (4,882)
Income tax (tax benefit) ....................              43             (611)          (1,929)    |            --
                                                     --------         --------         --------     |        --------
Net income (loss) from discontinued                                                                 | 
      operations ............................        $     70         $   (934)        $ (2,997)    |        $ (4,882)
                                                     ========         ========         ========     |        ========
</TABLE>
      The  Consolidated  Balance  Sheets as of May 31, 1997 and 1996,  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>                                                                       
                                                                    May 31,     
                                                               -----------------
                                                               1997        1996 
                                                               ----        ---- 
<S>                                                            <C>        <C>   
Assets:                                                                         
Cash and cash equivalents ................................     $ --       $ 159 
Accounts receivable, net .................................       --          55 
Inventory ................................................       --         115                    
Furniture, fixtures and equipment, net ...................       --          58
Accrued interest and other assets ........................       --          16
                                                               ------     -----
          Total assets ...................................       --         403
                                                               ------     -----
Liabilities:
Accounts payable and accruals ............................       --          44
Other liabilities ........................................       --         465
                                                               ------     -----
         Total liabilities ...............................       --         509
                                                               ------     -----
                Net Liabilities of Discontinued Operations     $ --       $(106)
                                                               ======     =====
</TABLE>
<PAGE>
5.    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.

6.    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):
<TABLE>
<CAPTION>
                                                                   1997                    1996
                                                              -----------             -----------
<S>                                                           <C>                     <C>
        Minimum lease payments receivable                     $    3,921              $   17,044
        Initial direct costs and deferred commissions                 34                     303
        Estimated unguaranteed residual values                       630                   2,483
        Less:  Unearned income                                    (1,139)                 (4,047)
                                                              -----------             -----------
           Net  investment in direct financing  leases        $    3,446              $   15,783
                                                              ==========              ==========
</TABLE>
<PAGE>
      Future minimum lease payments to be received under direct financing leases
      for fiscal years ending May 31 are as follows (in thousands):
<TABLE>
<CAPTION>
<S>                                               <C>
                 1998                             $    1,756
                 1999                                  1,191
                 2000                                    659
                 2001                                    242
                 2002                                     73
                 Beyond 2002                               -
                                                  ---------- 
                                                  $    3,921
                                                  ==========
</TABLE>

      Approximately  29% of these future lease  streams are allocable to lenders
      under financing agreements.

7.    Rental Equipment

      Rental equipment consists of the following as of May 31 (in thousands):
<TABLE>
<CAPTION>

                                                           1997            1996
                                                        --------       --------
<S>                                                     <C>            <C>
Computer equipment ...............................      $  4,130       $  7,565
Capital equipment ................................         6,105          2,856
Telecommunication equipment ......................           240          1,942
Aircraft equipment ...............................         1,338          3,485
Printing equipment ...............................           548           --
Deferred commissions and initial direct costs ....            64            211
                                                        --------       --------
                                                          12,425         16,059
Less:  accumulated depreciation ..................        (4,920)        (4,911)
                                                        --------       --------
                                                        $  7,505       $ 11,148
                                                        ========       ========
</TABLE>
      Future minimum lease payments to be received  under  operating  leases for
      the fiscal years ended May 31 are as follows (in thousands):
<TABLE>
<CAPTION>
<S>                                               <C>
                 1998                             $    2,453
                 1999                                  1,765
                 2000                                  1,353
                 2001                                    801
                 2002                                    702
                 Beyond 2002                             137
                                                  ---------- 
                                                  $    7,211
                                                  ==========
</TABLE>
      Approximately  63% of these future lease  streams are allocable to lenders
under financing agreements.
<PAGE>
8.    Furniture, Fixtures and Equipment

      Furniture,  fixtures and  equipment  consist of the following as of May 31
      (in thousands):
<TABLE>
<CAPTION>
                                                            1997           1996
                                                         -------        -------
<S>                                                      <C>            <C>
Leasehold improvements ...........................       $   423        $   423
Computer equipment and software ..................           719            707
Furniture, fixtures and office equipment .........           253            249
                                                         -------        -------
                                                           1,395          1,379
Less:  accumulated depreciation ..................        (1,177)          (754)
                                                         -------        -------
                                                         $   218        $   625
                                                         =======        =======
</TABLE>
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  finances  leases  on a  one-on-one  basis  with a number  of
      institutions.  Additionally,  the Company has a revolving  loan  agreement
      with an institution to provide  warehouse lease financing in the amount of
      $5,000,000.  The  loan  agreement  contains  various  covenants  including
      limitations on incurring additional liens and encumbrances and prohibiting
      certain transactions with affiliates or subsidiaries. At May 31, 1997, the
      Company is in compliance with all debt covenants. At May 31, 1997, none of
      this facility was being utilized.  Interest on the facility is at 1% above
      the prime rate.

      Discounted  lease  rental  borrowings  as of May 31  are  as  follows  (in
      thousands):
<TABLE>
<CAPTION>
                                                        1997               1996
                                                      -------            -------
<S>                                                   <C>                <C>
Non-recourse borrowings ..................            $ 5,383            $14,488
Recourse borrowings ......................                250                250
                                                      -------            -------
                                                      $ 5,633            $14,738
                                                      =======            =======
</TABLE>
     The  Company  paid  interest  related to  discounted  lease  borrowings  of
     $652,000  and  $433,000  for the fiscal  years ended May 31, 1997 and 1996,
     respectively.
<PAGE>
      Discounted lease rental  borrowings for the fiscal years ending May 31 are
      payable as follows (in thousands):
<TABLE>
<CAPTION>
<S>                                               <C>
                1998                              $   1,415
                1999                                  1,448
                2000                                  1,163
                2001                                    685
                2002                                    656
                Beyond 2002                             266
                                                  --------- 
                                                  $   5,633
                                                  =========
</TABLE>
10.   Note Payable to Institution

      The Company has a revolving  loan agreement with an institution to provide
      inventory financing in the amount of $7,000,000 to two of its wholly-owned
      subsidiaries,  CIS Air  Corporation  and  LaserAccess.  The loan agreement
      contains   various   covenants   including   limitations   on   additional
      indebtedness  and the  maintenance  of  minimum  levels  of net  worth/net
      earnings.  At May 31,  1997,  LaserAccess  did not  meet the  minimum  net
      worth/net earnings requirement.  In August 1997, a waiver relative to this
      covenant  was  obtained  from the lending  institution.  At May 31,  1997,
      $1,005,000 of this facility was being  utilized.  Interest on the facility
      is at 3/4% above the prime rate. The Company paid interest related to this
      facility of $127,000 in fiscal 1997.

11.   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.

12.   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  Compensation  Committee,  employees of and
      independent contractors and consultants to the Company. Options granted to
<PAGE>
      non-employee  directors of the Company in any year become  exercisable  at
      the next annual stockholders'  meeting while those granted to employees of
      and independent  contractors and consultants to the Company are subject to
      vesting periods determined by the Compensation Committee.  Options granted
      to employees in fiscal 1997 become  exercisable in  installments of 33 1/3
      percent  at the grant date and at each  subsequent  fiscal  year end.  The
      Company  applies  APB  Opinion  No. 25,  "Accounting  for Stock  Issued to
      Employees," and related  interpretations  in accounting for the 1995 Plan.
      Accordingly,  no compensation cost has been charged against income for the
      stock option plan. Had compensation cost for the 1995 Plan been determined
      based on the fair  value at the  grant  dates for  awards  under the Plan,
      consistent with the  requirements  of FASB Statement No. 123,  "Accounting
      for Stock-Based Compensation," the Company's net income and net income per
      share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>

                    (in thousands, except per share amounts) 

                                                         1997         1996
                                                         ----         ----
<S>                                <C>                <C>           <C>                        
Net income ..................      - As reported      $   1,086     $    66
                                   - Pro forma        $     894     $    50


Net income per share ........      - As reported      $     .15     $   .01
                                   - Pro forma        $     .13     $   .01
</TABLE>
      The fair value of each stock option  grant has been  estimated on the date
      of each  grant  using the  Black-Scholes  option  pricing  model  with the
      following weighted average assumptions:
<TABLE>
<CAPTION>
                                                            1997            1996
                                                            ----            ----
<S>                                                          <C>             <C>

Risk-free interest rate ........................             6.6%            6.3%
Expected life (months) .........................             46              60
Expected volatility ............................             42%             42%
Expected dividend yield ........................             --              --
</TABLE>

     The  weighted-average  grant  date fair  values of options  granted  during
     fiscal 1997 and 1996 were $.80 and $1.40 per share, respectively.
<PAGE>
      A summary of the status of the 1995 Plan as of May 31, 1996 and 1997,  and
      changes during the years ending on those dates 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
                                                         ======= 
</TABLE>

         The  following  table  summarizes   information   about  stock  options
outstanding at May 31, 1997:
<TABLE>
<CAPTION>

                                                Options Outstanding                         Options Exercisable
                     --------------------------------------------------------        ---------------------------------
      Range of                        Weighted-Average
      Exercise       Number of           Remaining           Weighted-Average        Number of        Weighted-Average
       Prices         Options         Contractual Life        Exercise Price          Options          Exercise Price
       ------         -------         ----------------        --------------          -------          --------------
<S>                   <C>                   <C>                   <C>                  <C>               <C>     
        $3.50            6,000              3.0                   $   3.50               6,000           $  3.50
         2.50            9,000              3.3                       2.50               9,000              2.50
         1.97          260,000              4.0                       1.97             173,337              1.97
         1.84            9,000              4.4                       1.84                   -              1.84
                       -------                                                         -------  
        Total          284,000                                                         188,337
                       =======                                                         =======

</TABLE>
<PAGE>
13.   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
      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.

      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 $5.4 million of tax benefits will be generated by operations
      during the fiscal  periods ended through May 31, 2004. In order to realize
      this  level of tax  benefit,  cumulative  pretax  income  for the  periods
      through  2004  will  have to be  approximately  $14.2  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.
<PAGE>
      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 Year        For the Six     |       For the Six       For the Year
                         Ended               Ended           Months Ended     |      Months Ended          Ended
                      May 31, 1997        May 31, 1996       May 31, 1995     |   November 30, 1994     May 31, 1994
                      ------------        ------------       ------------     |   -----------------     ------------
<S>                      <C>                <C>                 <C>                    <C>                <C>
Current                                                                         
      Federal            $  --              $  --               $  --         |        $  --              $  --
      State .               --                 --                  --         |             45                100
                         -------            -------             -------       |        -------            -------
                            --                 --                  --         |             45                100
Deferred ....                666               --                (1,080)      |           --                 --
                         -------            -------             -------       |        -------            -------
                         $   666            $  --               $(1,080)      |        $    45            $   100
                         =======            =======             =======       |        =======            =======
</TABLE>                                                                        
                                                                                
      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 Year       For the Six  |    For the Six         For the Year
                                      Ended            Ended         Months Ended  |    Months Ended           Ended
                                  May 31, 1997     May 31, 1996      May 31, 1995  |  November 30, 1994      May 31, 1994
                                  ------------     ------------      -------- ---- |  -----------------      ------------
<S>                                 <C>               <C>              <C>              <C>                  <C>
U.S. Federal statutory rate                                                        |
   applied to pretax income (loss)                                                 |
   from continuing operations       $    557          $    548         $     759   |    $   5,311            $    46,515
                                                                                   |
                                                                                   |
State income taxes, net of                                                         |
   federal benefit                        66                63                90   |           45                    100
                                                                                   |
Effect of permanent differences                                                    |
   and changes in the valuation                                                    |
   allowance                               -                -                 -    |       (5,311)               (46,515)
                                    --------         ---------       ------------  |    ---------            -----------
                                    $    623         $     611        $      849   |    $      45            $        100
                                    ========         =========        ==========   |    =========            ============
</TABLE> 
<PAGE>                                                                 
      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)                                    
<TABLE>                                                                         
<CAPTION>                                                                       
                                                      1997                1996  
                                                   --------            -------- 
<S>                                                <C>                 <C>      
Assets                                                                          
    Net operating losses ...............           $ 15,735            $ 16,422 
    Other ..............................                426               1,014        
    Valuation allowance ................            (10,541)            (10,125)

Liabilities
    Leased assets ......................               (206)             (1,231)
                                                   --------            --------
                                                   $  5,414            $  6,080
                                                   ========            ========

</TABLE>

14.   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, 1997 and 1996, were $116,000 and $76,000, respectively.

15.   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 provided
      certain administrative services to the Liquidating Estate. In exchange for
      such services, the Company was 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 agreement was
      terminated in February 1997. The Company received  approximately  $539,000
      and $537,000,  pursuant to this  agreement,  in the fiscal years ended May
      31, 1997 and 1996, respectively.

16.   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 $442,000 for the year ended
      May 31, 1997,  $717,000 for the year ended May 31, 1996,  $597,000 for the
      six  months  ended May 31,  1995 and  $663,000  for the six  months  ended
      November 30, 1994.

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

                            1998               $   231
                            1999                     2
<PAGE>
      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.


17.   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,  notes  payable to former  owners of
      acquired  company  and  note  payable  to  institution  -  Fair  value  of
      discounted  lease rental  borrowings,  notes  payable to former  owners of
      acquired  company  and  note  payable  to  institution  are  based  on the
      borrowing  rates  currently  available  to the Company for bank loans with
      similar terms and average  maturities.  At May 31, 1997, the fair value of
      discounted  lease rental  borrowings,  notes  payable to former  owners of
      acquired  company  and  note  payable  to  institution  approximate  their
      carrying values.

      The estimated  fair values of the Company's  financial  instruments at May
      31, 1997 are as follows:
<TABLE>
<CAPTION>
                                                    Carrying Value       Fair Value
                                                    --------------       ----------
<S>                                                   <C>                 <C>
       Assets:
           Cash and cash equivalents                  $   9,005           $   9,005
           Notes receivable                               5,094               5,094

       Liabilities:
           Discounted lease rental borrowings             5,633               5,633
           Notes payable to former owners of
           acquired company                               1,536               1,536
           Note payable to institution                    1,005               1,005
</TABLE>

18.   Subsequent Event

      The  Board  of  Directors  has  decided  to  sell  the  Telecommunications
      Equipment   Business  Unit  and  the  Company  is  currently   engaged  in
      negotiations  with a potential  buyer.  The sale is  subject,  among other
      conditions, to satisfactory due diligence and negotiation and execution of
      satisfactory  sales   documentation.   The  sales  price  is  expected  to
      approximate  the  business  unit's  book  value and  therefore  should not
      significantly  affect the results of  operations of the Company for Fiscal
      1998.  The net assets and results of operations of the  Telecommunications
      Equipment  Business Unit are not considered  material to the  consolidated
      net assets and results of operations of the Company.
<PAGE>

                                   SCHEDULE II

<TABLE>
<CAPTION>
                                   CONTINENTAL INFORMATION SYSTEMS CORPORATION
                                        VALUATION AND QUALIFYING ACCOUNTS
                                         THREE YEARS ENDED MAY 31, 1997
                                             (Dollars in thousands)


                                                Charged            Charged
                               Beginning        to costs           to other                             Ending
                                Balance       and expenses         accounts          Deductions         Balance
                               --------         --------         -------------        --------         --------
<S>                            <C>              <C>             <C>                  <C>               <C>
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)
                               --------         --------         -------------        --------         --------

1997:
Accounts receivable -
allowance for doubtful
accounts
(Reorganized Company) .        $    (53)        $    (34)        $        --          $     37         $    (50)
                               --------         --------         -------------        --------         --------



     *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.
</TABLE>
<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  Meeting of
Stockholders  and Proxy  Statement  to be filed within 120 days after the end of
the Company's fiscal year (the "1997 Proxy Statement").


ITEM 11.  EXECUTIVE COMPENSATION

The  Company  incorporates  herein  by  reference  the  information   concerning
executive compensation contained in the 1997 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 1997
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 1997 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  LaserAccess),  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*     Lease dated May 5, 1994  between B.G.  Sulzle,  Inc.
                            and the Trustee.


                  10.2**    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).

                  10.3**    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).

                  10.4**    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).

                  10.5**    Loan and Security  Agreement between CIS Corporation
                            and CoreStates Bank, N.A., dated July 9, 1996 (Filed
                            as Exhibit 10.17 to the Company's  Form 10-K for the
                            Fiscal  Year  ended  May 31,  1996 and  incorporated
                            herein by reference).
<PAGE>

                  10.6**    Revolving    credit   facility   between   CIS   Air
                            Corporation and Norwest Business Credit, Inc., dated
                            July  31,  1996  (Filed  as  Exhibit   10.2  to  the
                            Company's Form 10-Q for the quarter ended August 31,
                            1996 and incorporated herein by reference).

                  10.7**    Revolving   credit  facility  between  GMCCCS  Corp.
                            (doing  business  as   "LaserAccess")   and  Norwest
                            Business Credit, Inc., dated July 31, 1996 (Filed as
                            Exhibit  10.3 to the  Company's  Form  10-Q  for the
                            quarter  ended  August  31,  1996  and  incorporated
                            herein by reference).

                  10.8**    Letter  Agreement  regarding  severance with John R.
                            Campbell  dated  October  23, 1996 (Filed as Exhibit
                            10.1 to the  Company's  Form  10-Q  for the  quarter
                            ended November 30, 1996 and  incorporated  herein by
                            reference).

                  10.9**    Letter Agreement  regarding  severance with Frank J.
                            Corcoran  dated  October  23, 1996 (Filed as Exhibit
                            10.2 to the  Company's  Form  10-Q  for the  quarter
                            ended November 30, 1996 and  incorporated  herein by
                            reference).

                  10.10**   Letter Agreement  regarding  severance with James J.
                            Mosher dated October 23, 1996 (Filed as Exhibit 10.3
                            to the  Company's  Form 10-Q for the  quarter  ended
                            November  30,  1996  and   incorporated   herein  by
                            reference).

                  10.11     Letter Agreement regarding employment with Thomas J.
                            Prinzing dated May 20, 1997.

                  10.12     Letter Agreement regarding  employment with Jonah M.
                            Meer dated June 9, 1997.

                  10.13     Advisory   Agreement   for   Real   Estate   Related
                            Investments between Continental  Information Systems
                            Corporation and Emmes Investment  Management Co. LLC
                            dated June 30, 1997.

                  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.

(b)        Reports on Form 8-K

          No  reports  on Form 8-K were  filed by the  Company  during  the last
          quarter of the Company's fiscal year.
<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/ MICHAEL L. ROSEN
                                          --------------------
                                              Michael L. Rosen
                                              President, Chief Executive Officer
                                              and Director


                                     BY:  /s/ JONAH M. MEER
                                          -----------------
                                              Jonah M. Meer
                                              Senior Vice President, 
                                              Chief Operating Officer
                                              and Chief Financial officer


Dated:     August 20, 1997


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:


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


/s/ DR. LEON H. BLOOM            Director                        August 20, 1997
--------------------- 
Dr. Leon H. Bloom



/s/  JAMES P. HASSETT            Director and                    August 20, 1997
---------------------            Chairman of the Board
James P. Hassett



/s/  PAUL M. SOLOMON             Director                        August 20, 1997
-------------------- 
Paul M. Solomon