<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997.

[ ] TRANSITION  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE TRANSITION  PERIOD FROM __________ TO __________.


Commission file number __________


                           KAYE KOTTS ASSOCIATES INC.
        (Exact name of small business issuer as specified in its charter)

           Delaware                                   95-4248310
         ------------                               ---------------
  (State or other jurisdiction of          (I.R.S. Employer Identification No.)
   incorporation or organization)

                             15490 VENTURA BOULEVARD
                         SHERMAN OAKS, CALIFORNIA 91403
               (Address of principal executive offices, zip code)

                                 (818) 382-6300
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 
                                                              ---    ---

As of March 31, 1997, the Registrant had 2,403,400 shares of Common Stock
outstanding.

Transitional Small Business Disclosure Format (Check One):    Yes    No  X
                                                                  ---   ---



<PAGE>   2

         COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996


RESULTS OF OPERATIONS

         For the three month period ended March 31, 1997, the Company had an
operating loss of approximately $589, 872 compared with an operating loss of
$351,377 in the 1996 period. The increase in the loss of $238,505 resulted
primarily from a decrease in fee income of $275,382 offset by a reduction in
Costs and Expenses of $36,887. The decrease in fee income resulted primarily
from the change in selling methodology discussed in "Fee Income" below.

         The Company had a net loss of $603,608 ($.25 per share) for the 1997
period compared with a net loss of $471,876 ($.29 per share) in 1996. The net
loss in 1996 was after an extraordinary charge of $98,550 for the write-off of a
deferred financing charge and unamortized debt discount upon the repayment of
debt.


FEE INCOME

         Fee income declined by $275,382 (19%) to $1,172,731 in 1997 from
$1,448,113 in the 1996 period. The primary reason for the decrease was the
Company's change in selling methodology from a single phase sale to a two phase
sale.

         Prior to November 1996, the Company sold a single phase solution to
taxpayer problems. This solution was based upon information provided by the
taxpayer at the initial interview. Over time, the Company experienced excessive
costs, client dissatisfaction and increased bad debts mainly attributable to the
lack of reliability of this initial information.

         To correct this problem, the Company revised its sales policy to a two
phase approach. In Phase I, at the initial interview, the client is informed of
a tentative solution to their tax problem. However, the client is encouraged to
retain the Company to provide a detailed analysis and verification of that
solution. This detailed analysis then becomes the Phase I sale. Thereafter,
usually two months from the initiation of Phase I, the client returns for a more
informed consultation and may then retain the Company for Phase II which is the
implementation and negotiation of the proposed solution.

         As a result of this change in selling methodology, 1997 revenues
decreased $275,382, although only six (6) fewer cases were sold in the first
quarter of 1996 compared with 1997, 516 cases and 522 cases respectively, due to
a decrease in the average unit sales price from $2,758 in 1996 to $2,273 in
1997.

         For the first time, the Company now has a sales backlog, consisting of
Phase I cases that will become eligible for Phase II sales. The Company
anticipates that in subsequent months as this backlog matures, revenues which
had been lost due to the initiation of this new selling method will be regained
along with the attendant benefits of a reduction in bad debt rates and increased
client satisfaction.


<PAGE>   3

COSTS AND EXPENSES

         Operating costs decreased by $36,887, or 2.2% from $1,799,490 in 1996
to $1,762,603 in 1997. The decrease resulted primarily from lower Payroll and
Employee Benefits of $858,829 in 1997 compared with $1,033,691 in the prior
year. The decrease of $175,462 resulted from fewer employees and lower
commissions because of reduced sales and a lower overall commission rate.

         The decline in Payroll and Employee Benefits expense was offset
primarily by an increase of $69,529 in facilities equipment and communication
expense resulting from three additional sales offices which were subsequently
closed and the costs of the Company's new computer network system that was
installed in the last quarter of 1996, and an increase in professional and
consulting fees of $33, 383 to $146,791 from $113,408 in the prior period.

         In March 1997, the Company sold its Burlingame Office resulting in a
net loss of $20,473 which is included in other administrative costs.

         Subsequently, annual costs were further reduced by approximately $3.5
million (See Liquidity & Capital Resources)


CERTAIN BALANCE SHEET DATA

         Net accounts receivable decreased by $152,908 or approximately 30% from
the December 31, 1996 level to $374,703 at March 31, 1997. This amount represent
20% of the Company's total assets at both March 31, 1997 and December 31, 1996.
The Company reviews the provision for uncollectible accounts quarterly and
adjusts the provision based on actual write-offs and aging analyses.

         At March 31, 1997 accounts receivable greater than 90 days old were
$99,585 representing 15% of total receivables at that date. The decline in
accounts receivable results primarily from the reduced sales discussed in "Fee
Income" and the sale of the Burlingame office.

         Deferred income declined by $141,335 to $504,561 from $645,896 at
December 31, 1996. This decline resulted primarily from lower sales because of
the use of the new two phase sale system and the transfer of the obligation to
complete servicing certain accounts to the purchaser of the Burlingame office.


<PAGE>   4

LIQUIDITY AND CAPITAL RESOURCES

         The Company incurred substantial losses during 1996 and the three month
period ended March 31, 1997 and had a working capital deficiency of $967,124 at
March 31, 1997. Therefore, its continuation as a going concern is dependent upon
obtaining additional financing and attaining profitable operations. On May 15,
1997, the Company had a net cash balance of approximately $40,000. These factors
raise substantial doubt about the Company's ability to continue as a going
concern.

         In April 1997, the Company signed a Letter of Intent for a proposed
private placement of 10% Convertible Preferred Stock in a minimum amount of
$250,000 and a maximum amount of $750,000. The Preferred Shares will be
convertible into Common Stock at 70% of the bid price of the Common Stock at the
time of conversion. There can be no assurance that this proposed private
placement will be completed.

         The Company initiated a cost reduction program during the third quarter
of 1996 which resulted in a reduction in the number of employees from 108 on
June 30, 1996 to 53 on May 15, 1997. Annualized payroll and fringe costs have
decreased from $4.1 million in June 1996 to $2.0 million in May 1997. Facility
and communication costs were reduced through the consolidation of 7 regional
operating centers in June 1996 into 3 operating centers in May 1997. After these
and other cost reductions, the Company's annualized expense rate in May 1997,
excluding the provision for bad debts is approximately $4 million compared with
actual expenses of $7.5 million in 1996.


<PAGE>   5

                           KAYE KOTTS ASSOCIATES, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               March 31,    December 31,
                                                                 1996          1996
                                                              ----------    ----------
                                                                       (Unaudited)
<S>                                                           <C>           <C>       
                                     ASSETS
CURRENT ASSETS:
     Cash                                                     $   14,474    $   23,255
     Short-term investments:
          Unrestricted                                           187,800       742,125
          Restricted                                             500,000       500,000
     Accounts receivable, net of allowance for doubtful
       accounts of $290,868 and $310,075 at March 31, 1997
       and December 31, 1996 respectively                        374,703       527,611
     Prepaid expenses and other current assets                    93,067        98,187
                                                              ----------    ----------
        TOTAL CURRENT ASSETS                                   1,170,044     1,891,178
                                                              ----------    ----------

Property and Equipment - Net of accumulated depreciation
  of $258,798 and $214,677 at March 31, 1997 and 
  December 31, 1996 respectively                                 452,856       431,445

Other Receivables                                                213,720       208,083

Other Assets                                                      49,287        58,096
                                                              ----------    ----------
                                                              $1,885,907    $2,588,802
                                                              ==========    ==========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:

     Accounts payable-trade                                      641,269       510,239
     Other accrued liabilities                                   467,395       558,628
     Loans payable                                               523,943       523,943
     Deferred revenues                                           504,561       645,896
                                                              ----------    ----------
        TOTAL CURRENT LIABILITIES                              2,137,168     2,238,706
                                                              ----------    ----------

STOCKHOLDERS' EQUITY (DEFICIT IN ASSETS)

Common Stock, $0.01 par value; 10,000,000 shares
  authorized: 2,403,400 and 2,398,900 shares issued and
  outstanding at March 31, 1997 and December 31, 1996,
  respectively.                                                   24,034        23,989
Additional paid-in-capital common stock                        4,694,533     4,692,328
Deficit                                                       (4,969,829)   (4,366,221)
                                                              ----------    ----------
                                                               (251,262)       350,096

                                                              $1,885,907    $2,588,802
                                                              ==========    ==========
</TABLE>


<PAGE>   6

                           KAYE KOTTS ASSOCIATES, INC.
       CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                   FOR THE THREE MONTHS ENDED MARCH 31, 1997


                                  COMMON STOCK

<TABLE>
<CAPTION>
                                                          Additional
                                                            Paid-in                    Treasury
                                  Shares       Amount       Capital       Deficit       Stock        Totals
                                  ------       ------     ----------      -------      --------      ------
<S>                              <C>           <C>         <C>          <C>            <C>           <C>    
Balance - December 31, 1996      2,398,900      23,989      4,692,328     (4,366,221)       --        350,096

Issuance of common stock             4,500          45          2,205                                   2,250

Net Loss                                                                    (603,608)                (603,608)
                                 ---------     -------     ----------    -----------    --------     --------
Balance - March 31, 1997         2,403,900     $24,034     $4,694,533    $(4,969,829)          0     (251,262)
                                 =========     =======     ==========    ===========    ========     ========
</TABLE>


<PAGE>   7

                           KAYE KOTTS ASSOCIATES, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                        FOR THE THREE MONTHS
                                                            ENDED MARCH 31,
                                                     ---------------------------
                                                         1997           1996
                                                     ------------   ------------
                                                              UNAUDITED
<S>                                                  <C>            <C>         
FEE INCOME                                           $  1,172,731   $  1,448,113

COSTS AND EXPENSES

Payroll & Employee Benefits                               858,829      1,033,691
Marketing & Sales Promotion                               190,775        173,735
Facilities Equipment & Communications                     319,522        249,993
Professional Fees & Other Outside Services                146,791        113,408
Provision For Bad Debts & Cancellations                   166,318        154,115
Other Administrative Costs                                 80,368         74,548
                                                     ------------   ------------
                                                        1,762,603      1,799,490

OPERATING (LOSS)                                         (589,872)      (351,377)

Interest Income                                            10,484          3,039
Interest Expense                                          (24,220)       (10,741)
Amortization of Debt Discount                                --          (14,247)
                                                     ------------   ------------

(Loss) Before Income Taxes & Extraordinary Item          (603,608)      (373,326)
Provision for (Benefit From Income Taxes                     --
                                                     ------------   ------------

(LOSS) BEFORE EXTRAORDINARY ITEM                         (603,608)      (373,326)

Extraordinary Item: Write off of Deferred Finance
  Charge and Unamortized Debt Discount Upon
  Repayment of Debt                                          --           98,550
                                                     ------------   ------------

NET (LOSS)                                           $   (603,608)  $   (471,876)
                                                     ============   ============ 

(Loss) Per Common and Common Equivalent Share        $      (0.25)  $      (0.29)

Weighted Average Number of Common
  And Common Equivalent Shares Outstanding              2,403,400      1,654,033
                                                     ============   ============ 
</TABLE>



<PAGE>   8

                           KAYE KOTTS ASSOCIATES, INC.
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                        FOR THE THREE MONTHS
                                                            ENDED MARCH 31,
                                                     ---------------------------
                                                         1997           1996
                                                     ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:                         UNAUDITED
<S>                                                  <C>            <C>         
Net (Loss)                                           $   (603,608)  $   (471,876)
                                                     ------------   ------------ 

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
  PROVIDED (USED) BY OPERATING ACTIVITIES:
     Depreciation                                          52,946         16,549
     Issuance of common shares for services provided        4,500           --
CHANGES IN ASSETS AND LIABILITIES:
     (Increase)/decrease in accounts receivable-trade     152,908         88,926
     (Increase)/decrease in prepaid assets                  5,120        (65,761)
     (Increase)/decrease in other assets                    3,172        (14,770)
     (Increase)/decrease in accounts payable-trade        131,030       (173,057)
     (Increase)/decrease in accrued expenses              (91,233)      (145,582)
     (Increase)/decrease in deferred revenues            (141,335        (38,862)
     (Decrease) in deferred income taxes                     --             --
                                                     ------------   ------------
          Total Adjustments                               117,109       (332,557)

Net Cash (Used) by Operating Activities                  (486,499)      (804,433)
                                                     ------------   ------------
Cash Flows From Investing Activities:
     Capital expenditures                                (104,322)       (13,052)
                                                     ------------   ------------

Cash Flows From Financing Activities

     Payments on loan payable                                --       (1,054,021)
     Proceeds from issuance of warrants                      --        5,057,339
     Payments on capital equipment leases                 (25,011)          --
     Proceeds from capital equipment leases                52,726           --
                                                             --             --
                                                     ------------   ------------
Net Cash Provided By Financing Activities                  27,715      4,003,318
                                                     ------------   ------------
Net Increase/(Decrease) In Cash                          (563,106)     3,185,833

Cash At Beginning Of Period                             1,265,380         18,643
                                                     ------------   ------------
Cash And Short Term Investments At End of Period     $    702,274   $  3,204,476
                                                     ============   ============
</TABLE>




<PAGE>   9

1.       GOING CONCERN

         The Company incurred substantial losses during 1996 and the three month
         period ended March 31, 1997 and had a working capital deficiency of $
         967,124 at March 31, 1997. Therefore, its continuation as a going
         concern is dependent upon obtaining additional financing and attaining
         profitable operations. On May 15, 1997, the Company had a net cash
         balance of approximately $40,000. These factors raise substantial doubt
         about the Company's ability to continue as a going concern. The
         accompanying financial statements do not include any adjustments
         relating to the recoverability and classification of recorded asset
         amounts or the amounts and classification of liabilities that might be
         necessary should the Company be unable to continue as a going concern.

         The Company initiated a cost reduction program during the third quarter
         of 1996 which resulted in a reduction in the number of employees from
         108 on June 30, 1996 to 53 on May 15, 1997. Annualized payroll and
         fringe costs have decreased from $4.1 million in June 1996 to $2.0
         million in May 1997. Facility and communication costs were reduced
         through the consolidation of 7 regional operating centers in June 1996
         into 3 operating centers in May 1997. After these and other cost
         reductions, the Company's annualized expense rate in May 1997,
         excluding the provision for bad debts is approximately $4 million
         compared with actual expenses of $7.5 million in 1996.

2.       LITIGATION

         On September 16, 1996, the Company and other persons not affiliated
         with the company, were served with a lawsuit, alleging breach of
         contract and exercise of due care in connection with negotiation by the
         Company for an Offer in Compromise. Pursuant to the written retainer
         agreement between the Company and the Plaintiff , in February, 1997,
         the Company filed a demand for arbitration with the American
         Arbitration Association. Pending that arbitration, the Court has stayed
         the Superior Court action. Management of the Company believes that
         there are valid defenses to this action and intends to defend this
         lawsuit vigorously.

         On December 4, 1996, the Company and its Chief Executive Officer, were
         served with a lawsuit by a stockholder for $37,500. The plaintiff
         alleges the Company's prospectus omitted material facts regarding the
         company's operations; the Company breached its fiduciary duties; and
         the Company failed to disclose facts regarding the company's negative
         operating results in a timely manner. The Company has agreed in
         principle with the plaintiff to settle this lawsuit for a minimal
         amount.


<PAGE>   10

3.       INTERNAL REVENUE SERVICE INVESTIGATION

         In April 1996 a former employee of the Company was accused of violating
         the law in connection with negotiations with the IRS. The employee, who
         was not an executive officer, director or principal stockholder of the
         Company, pled guilty to one felony count charging the employee with a
         violation of 26 U. S. C. 7212, a statute proscribing the corrupt
         obstruction or impeding of the due administration of the Internal
         Revenue laws. He received probation.

         The Company's counsel has been advised that the U.S. Attorney has
         requested authorization from the Tax Division of the Justice Department
         to file criminal tax charges against the Company, allegedly arising out
         of the illegal acts of the former employee. In April 1997, the
         Company's Counsel met with representatives of the Justice Department in
         Washington D.C. to discuss final resolution of this matter. The Company
         is awaiting a final determination by the Justice Department.

4.       PROPOSED FINANCING

         In April 1997, the Company signed a Letter of Intent for a proposed
         private placement of 10% Convertible Preferred Stock in a minimum
         amount of $250,000 and a maximum amount of $750,000. The Preferred
         Shares will be convertible into Common Stock at 70% of the bid price of
         the Common Stock at the time of conversion. There can be no assurance
         that this proposed private placement will be completed.