UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                 FORM 10-QSB

(MARK ONE)

      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                   FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
      SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                   TO

                       COMMISSION FILE NUMBER: 0-24220

                           KBK CAPITAL CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                      75-2416103
(STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)

301 COMMERCE, SUITE 2200, FORT WORTH, TEXAS                      76102-4122
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                         (ZIP CODE)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (817) 258-6000

    Check whether the issuer (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 [_]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

COMMON STOCK, $0.01 PAR VALUE                         3,310,133
                                      (SHARES OUTSTANDING AS OF MARCH 31, 1997)

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT   YES   [ ]       NO   [X]
<PAGE>
KBK CAPITAL CORPORATION
FORM 10-QSB -- Quarter Ended March 31, 1997

PART I.   Financial Information

Item 1 -  Financial Statements

          Consolidated Balance Sheets at March 31, 1997 
            and December 31, 1996                                              2

          Consolidated Statements of Income for the 
            Three Months Ended March 31, 1997, December 31, 1996, 
            and March 31, 1996                                                 3

          Consolidated Statements of Changes in Stockholders' 
            Equity for the Year Ended December 31, 1996 and 
            Three Months Ended March 31, 1997                                  4

          Consolidated Statements of Cash Flows for the 
            Three Months Ended March 31, 1997, 
            December 31, 1996 and March 31, 1996                               5

          Notes to Consolidated Financial Statements                           6

Item 2 -  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                             7-11

PART II.  Other Information

Item 1 -  Legal Proceedings                                                   12

Item 6 -  Exhibits and Reports on Form 8-K                                    12

          Signatures                                                          12

<PAGE>
                     KBK CAPITAL CORPORATION AND SUBSIDIARY
                          Consolidated Balance Sheets
                      March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
                                                                     Mar. 31, 1997  Dec. 31, 1996
                                                                     (unaudited)
                                                                     ------------   ------------
                                     ASSETS

<S>                                                                  <C>            <C>         
Cash ..............................................................  $       --     $  1,361,225

Accounts receivable ...............................................    53,289,289     55,584,786

Loans receivable ..................................................    28,621,109     27,375,655

Less allowance for credit losses ..................................    (1,561,451)    (1,608,253)
                                                                     ------------   ------------
Total receivables, net ............................................    80,348,947     81,352,188

Premises and equipment, net of accumulated depreciation of
$1,011,763 at March 31, 1997 and $878,646 at
December 31, 1996 .................................................     2,070,837      1,952,568
Intangible assets, less accumulated amortization of $1,623,406 at
March 31, 1997 and $1,529,024 at December 31, 1996 ................     3,616,015      3,710,397

Other assets ......................................................     1,218,210      1,370,113
                                                                     ------------   ------------
                                                                     $ 87,254,009   $ 89,746,491
                                                                     ============   ============
Liabilities and Stockholders' Equity
Liabilities:
Bank line of credit ...............................................  $ 56,345,923   $ 58,000,000
Due to factored clients ...........................................     6,944,588      8,245,544
Accounts payable and accrued liabilities ..........................     1,182,362      1,135,067
Income taxes payable ..............................................        26,128           --
Deferred revenue ..................................................       266,982        225,965
                                                                     ------------   ------------
Total liabilities .................................................    64,765,983     67,606,576
Stockholders' equity:
Preferred stock, $.10 par value.  Authorized 100,000 shares; no
shares issued and outstanding .....................................          --             --
Common stock, $.01 par value.  Authorized 10,000,000 shares; issued
3,547,200 shares and 3,310,133 shares outstanding at March 31, 1997
and December 31, 1996 .............................................        35,472         35,472
Additional paid-in capital ........................................    16,370,555     16,370,555
Retained earnings .................................................     7,584,632      7,236,521
Treasury stock ....................................................    (1,502,633)    (1,502,633)
                                                                     ------------   ------------
Total stockholders' equity ........................................    22,488,026     22,139,915
                                                                     ------------   ------------
                                                                     $ 87,254,009   $ 89,746,491
                                                                     ============   ============
</TABLE>
See accompanying notes to consolidated financial statements

                                       2
<PAGE>
                     KBK CAPITAL CORPORATION AND SUBSIDIARY
                       Consolidated Statements of Income
<TABLE>
<CAPTION>
                                                                                 Three Months       Three Months        Three Months
                                                                                     Ended              Ended              Ended
                                                                                 Mar. 31, 1997      Dec. 31, 1996      Mar. 31, 1996
                                                                                  (unaudited)        (unaudited)        (unaudited)
                                                                                  ----------          ----------         ----------
<S>                                                                               <C>                 <C>                <C>       
Earned discount income .................................................          $2,356,989          $2,628,894         $2,372,553
Interest income - Loans ................................................             838,968             527,349            199,285
Other income - Fees ....................................................             403,078             430,920             30,562
                                                                                  ----------          ----------         ----------
        Total revenue ..................................................           3,599,035           3,587,163          2,602,400
Interest expense .......................................................           1,090,264             939,451            408,083
                                                                                  ----------          ----------         ----------
        Income after interest expense ..................................           2,508,771           2,647,712          2,194,317
Provision for credit losses ............................................              75,000             100,000              30,00
                                                                                  ----------          ----------         ----------
        Income after interest expense and
            provision for credit losses ................................           2,433,771           2,547,712          2,164,317

Operating expenses:
        Salaries and employee benefits .................................           1,000,769           1,069,700            738,496
        Amortization of intangible assets ..............................              94,382              90,382             90,382
        Occupancy and equipment ........................................             298,767             273,919            175,783
        Professional fees ..............................................              46,983              88,886             94,550
        Other ..........................................................             412,035             556,183            323,275
                                                                                  ----------          ----------         ----------
                      Total operating expenses .........................           1,852,936           2,079,070          1,422,486
                                                                                  ----------          ----------         ----------
                      Income before income taxes .......................             580,835             468,642            741,831
Income tax expense (benefit):
        Federal
                      Current ..........................................             201,257             159,305            263,829
                      Deferred .........................................                --                  --
        State ..........................................................              31,467              21,050             15,770
                                                                                  ----------          ----------         ----------
                      Total income taxes ...............................             232,724             180,355            279,599
                                                                                  ----------          ----------         ----------
                      Net income .......................................          $  348,111          $  288,287         $  462,232
                                                                                  ==========          ==========         ==========
                      Net income per share .............................          $     0.11          $     0.09         $     0.13
                                                                                  ==========          ==========         ==========
                      Weighted-average common shares
                          outstanding ..................................           3,314,406           3,282,564          3,547,233
                                                                                  ==========          ==========         ==========
</TABLE>
See accompanying notes to financial statements.
 
                                        3
<PAGE>
                   KBK CAPITAL CORPORATION AND SUBSIDIARY
         Consolidated Statements of Changes in Stockholders' Equity

                        Year Ended December 31, 1996
              and Three Months Ended March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
                                       Common Stock           
                                   -----------------------      Additional                                          Total
                                     Shares                      paid-in         Retained         Treasury       stockholders'
                                   Outstanding     Amount        capital         earnings          stock           equity
                                   -------------------------------------------------------------------------------------------
<S>                                 <C>            <C>         <C>               <C>            <C>              <C>         
Balance, December 31, 1995 ...      3,397,200      $35,472     $ 16,500,555      $5,685,279     $  (933,750)     $ 21,287,556

Purchase of stock for treasury       (137,067)        --               --              --          (886,383)         (886,383)

Issuance of common stock .....         50,000         --           (130,000)           --           317,500           187,500

Net Income ...................           --           --               --         1,551,242            --           1,551,242
                                   -------------------------------------------------------------------------------------------
Balance, December 31, 1996 ...      3,310,133      $35,472     $ 16,370,555      $7,236,521     $(1,502,633)     $ 22,139,915

Net Income ...................           --           --               --           348,111            --             348,111
                                   -------------------------------------------------------------------------------------------
Balance, March 31, 1997 ......      3,310,133      $35,472     $ 16,370,555      $7,584,632     $(1,502,633)     $ 22,488,026
                                   ===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
                     KBK CAPITAL CORPORATION AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                            Three Months         Three Months          Three Months
                                                                                 Ended              Ended                  Ended
                                                                             Mar. 31, 1997       Dec. 31, 1996         Mar. 31, 1996
                                                                             (unaudited)          (unaudited)           (unaudited)
                                                                             ------------         ------------         ------------
<S>                                                                          <C>                  <C>                  <C>         
Cash flows from operating activities:
Net Income ..........................................................        $    348,111         $    288,287         $    462,232
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
   Depreciation and amortization ....................................             227,499              204,245              183,445
   Provision for credit losses ......................................              75,000              100,000               30,000
   Decrease (increase) in receivables ...............................             989,840          (16,411,170)          (4,169,606)
   Participation sold ...............................................             (61,599)             (60,019)             554,605
   Decrease (increase) in other assets ..............................             151,903             (241,264)              (9,849)
   Increase (decrease) in due to factored clients ...................          (1,300,956)             245,673              380,816
   Increase in accounts payable and accrued liabilities .............              88,312              353,712            1,157,007
   Increase (decrease) in income taxes payable ......................              26,128                 --                (95,453)
                                                                             ------------         ------------         ------------
     Net cash provided by (used in) operating activities ............             544,238          (15,520,536)          (1,506,803)

     Cash flows used in investing activities
     Purchase of premise and equipment ..............................            (251,386)            (214,136)            (265,421)
     Repurchase of common stock .....................................                --                138,571             (248,745)
                                                                             ------------         ------------         ------------
     Net cash used in investing activities ..........................            (251,386)             (75,565)            (514,166)

Cash flows from financing activities:
   Net borrowings from (repayments to) bank .........................          (1,654,077)          16,500,000           (9,500,000)
                                                                             ------------         ------------         ------------
      Net cash used in financing activities .........................          (1,654,077)          16,500,000           (9,500,000)
                                                                             ------------         ------------         ------------
      Net decrease in cash and cash equivalents .....................          (1,361,225)             903,899          (11,520,969)
                                                                             ------------         ------------         ------------
Cash and cash equivalents at beginning of period ....................           1,361,225              457,326           11,520,969
                                                                             ------------         ------------         ------------
Cash and cash equivalents at end of period ..........................        $       --           $  1,361,225         $       --
                                                                             ============         ============         ============
</TABLE>
          See accompanying notes to consolidated financial statements.
                                       5
<PAGE>
                     KBK CAPITAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. General. The consolidated financial statements of KBK Capital Corporation
(the "Company") and its wholly owned subsidiary, KBK Financial, Inc. (KBK),
included herein, are unaudited for all periods ended March 31, 1997 and 1996.
The consolidated statement of income for the quarter ended December 31, 1996 is
also unaudited. However, they reflect all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary to
fairly depict the results for the periods presented. Certain information and
note disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to rules and regulations of the Securities and Exchange
Commission. The Company believes that the disclosures made herein are adequate
to make the information presented not misleading.

The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results of operations to be expected for the
remainder of the year. It is suggested that these consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto for the years ended December 31, 1996 and 1995
which are included in the Company's annual report.

2. Bank Line of Credit. KBK maintains a $75 million multi-bank line of credit
("Credit Facility"), made up of a $50 million Revolving Credit Facility
("Revolving Facility") collateralized by purchased accounts receivable with
$36.5 million outstanding at March 31, 1997 and a $25 million Advancing Term
Facility ("Term Facility") collateralized by term loans, with $17.5 million
outstanding at March 31, 1997. The Credit Facility provides for maximum
borrowings of the lesser of (i) $67.5 million or (ii) the amount of a borrowing
base (based upon a percentage of eligible accounts receivable, as defined in the
loan agreement governing the Credit Facility, net of excluded amounts).
Borrowings under the accounts receivable portion of the Credit Facility bear
interest at the agent banks' prime rate or applicable LIBOR plus 1.5% at KBK's
discretion and expire on April 30, 1999. Borrowings under the portion of the
Credit Facility supported by term loans to KBK's clients bear interest at the
agent banks' prime rate or applicable LIBOR plus 1.75% at KBK's discretion and
expire April 30, 1999. At year-end 1996, KBK was not in compliance with its
borrowing base limitations under the Credit Facility. Concentrations in several
of KBK's largest clients resulted in borrowings in excess of the eligible
borrowing base by approximately $4 million. During the quarter ended March 31,
1997, the Company received waivers for the technical default from the bank group
and an amendment to the Credit Facility ("Over Advance Facility") to allow for
greater client concentration limits under the borrowing base. The Over Advance
Facility allowed up to $5 million in additional borrowing base availability to
fund amounts in excess of concentration limits, but did not increase the total
committed amount of the Credit Facility. Borrowings under the amended Credit
Facility, to the extent of the expanded concentration limits in the borrowing
base, bear interest at the agent banks' prime rate plus 1.5%. The balance
outstanding under the "Over Advance Facility" was $1.5 million at March 31,
1997.

3.  Stockholders'  Equity.  During the quarter ended March 31, 1997, the company
acquired  no  additional  shares  of its  common  stock  pursuant  to the  Stock
Repurchase Plan initiated in 1995.

4. Subsequent Event. Subsequent to the first quarter of 1997, the Company closed
a $75 million securitization facility with a financial institution. Certain of
the assets of KBK were transferred into a newly created wholly owned subsidiary,
or Special Purpose Corporation ("SPC"), KBK Receivables Corporation.
Securitization is a financing structure to access the capital markets through
the sale of financial assets. The SPC then sells eligible assets to a commercial
paper conduit on a non-recourse basis which in turn issues commercial paper to
fund the purchase of the assets. This structure allows the Company to fund its
portfolio of earning assets through the commercial paper market at a
substantially reduced cost of funds compared to the cost of funds available from
commercial bank lines of credit. The proceeds of the initial funding under the
securitization, $40.4 million, were utilized to repay $39.0 million of the bank
credit line.

                                       6
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

General
The following commentary presents management's discussion and analysis of the
Company's financial condition and results of operations. Certain of the
statements included below, including those regarding future financial
performance or results or that are not historical facts, are or contain
"forward-looking" information as that term is defined in the Securities Act of
1933, as amended. The words "expect," "believe," " anticipate," "project,"
"estimate," and similar expressions are intended to identify forward-looking
statements. The Company cautions readers that any such statements are not
guarantees of future performance or events and such statements involve risks,
uncertainties and assumptions, including but not limited to industry conditions,
general economic conditions, interest rates, competition, ability of the Company
to successfully manage its growth, and other factors discussed below and in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
Should one or more of these risks or uncertainties materialize or should the
underlying assumptions prove incorrect, those actual results and outcomes may
differ materially from those indicated in the forward-looking statements. This
review should be read in conjunction with information provided in the financial
statements, accompanying notes and selected financial data appearing in the
Company's Annual Report and Form 10-KSB for the year ended December 31, 1996.

       The Company, through its wholly owned subsidiary KBK Financial, Inc.
("KBK"), is a commercial financial institution providing asset-based and working
capital financing to middle market businesses through the discounted purchase of
their accounts receivable and through loans secured by inventory, equipment,
accounts receivable or other assets of the borrower. The Company's clients are
typically businesses that are experiencing rapid growth or financial stress.
Thus, the Company relies primarily on the quality of the assets and account
debtors of the client, rather than the financial condition of the client itself.
       In a majority of its working capital financings, the Company purchases
accounts receivable for a negotiated price usually less than their face amount,
based upon the size, age and type of accounts being purchased, the quality of
client documentation and the Company's judgment as to the payment history and
creditworthiness of the account debtors. The Company generates revenue through a
combination of Fixed and Variable Discounts which are negotiated on a
client-by-client basis. Fixed discount income is recognized for financial
accounting purposes in the month the related receivable is purchased. Variable
discount income is recorded on an accrual basis over the period between the date
the underlying receivable is purchased and the date the receivable is collected.
       The Company, in some cases, purchases accounts receivable as a "pool "
from some of its clients. These working capital financings generally involve
clients with greater financial strength, and have larger volumes of invoices to
purchase. The Company deducts a discount from the face amount of invoices
purchased based upon the number of days between the purchase date and the date
the underlying receivables are collected.
       The Company also provides other types of financing to middle market
businesses, including, among other things, inventory, equipment and working
capital loans at floating rates over its reference rate. The Company expects to
continue to expand its product line to include other types of financing
consistent with its goal of being the sole source of financing for its middle
market clients. Interest income and amounts outstanding under such facilities
are expected to increase in 1997 due to the continued emphasis of retaining
existing customers and attracting new customers who need both asset based loans,
as well as working capital financing.

       In its asset-based lending activities, the Company typically obtains an
appraisal of the collateral and extends credit at a negotiated percentage of the
appraised value. The term of these facilities generally does not exceed five
years. The interest income on these loans is accrued ratably over the life of
the loan at a floating rate. The rate is negotiated on a client-by-client basis.

                                       7
<PAGE>
Results of Operations

Analysis of First Quarter 1997 Compared to First Quarter 1996

         The following tables set forth the results of operations and certain
other data of the Company for the first quarter of 1997 and the first quarter of
1996.

                                Quarter Ended             Quarter Ended
                                March 31, 1997            March 31, 1996
                                (unaudited)               (unaudited)
                                ------------------------------------------------
                                               (dollars in thousands)

Average Net Earning Assets      $  77,272.1      --       $  44,480.6    --

Total revenue .............     $   3,599.0     100.0%    $   2,602.4     100.0%

Interest expense ..........         1,090.3    30.3 %           408.1      15.7%

Provision for credit losses            75.0    2.1 %
                                                                 30.0       1.2%

Operating Expenses ........         1,852.9    51.5 %         1,422.5      54.6%

Income Taxes ..............           232.7    6.4 %            279.6      10.7%

Net Income ................     $     348.1    9.7 %      $     462.2      17.8%

Average earning assets increased 74% to $77.3 million for the quarter ended
March 31, 1997 from $44.5 million for the quarter ended March 31, 1996. Total
revenue increased 38%, or $997,000, to $3.6 million at March 31, 1997 from March
31, 1996 total revenues of $2.6 million. This was due to the $640,000 increase
in the interest income component of revenue to $839,000 for the quarter ended
March 31, 1997 from $199,000 for the quarter ended March 31, 1996 and the
increase in fees component of revenue from $31,000 for the quarter ended March
31, 1996 to $403,000 for the quarter ended March 31, 1997.

Interest expense increased 167% to $1.09 million for the first quarter of 1997
compared with $408,100 for the first quarter of 1996. This increase was
primarily due to the 128% increase in average funded debt from $25.3 million in
the first quarter of 1996 to $57.4 million in the first quarter of 1997 to fund
the increased loans and receivables balances. Increased cost of funding related
to prime rate borrowings under the Bank Facilities also increased the average
cost of funds during the first quarter of 1997. As LIBOR tranches matured during
the first quarter of 1997 they were maintained in the Prime portion of the
Credit Facility while the Company was in default of its borrowing base. This
default was waived when the Credit Facility was amended in early March. At that
time, the Company transferred a majority of its borrowings under the Credit
Facility into LIBOR priced borrowing tranches. (See "Liquidity and Capital
Resources" below).

A provision for credit losses of $75,000 was taken for the first quarter of
1997, compared to $30,000 for the first quarter of 1996. During the first
quarter of 1997 the Company had net charge-offs of $121,802 compared to $10,000
of net charge-offs for the first quarter of 1996. The allowance for credit
losses at March 31, 1997 of $1.6 million represents 1.9% of total outstanding
loans and accounts receivables and 2.0% of average earning assets for the
quarter then ended. The allowance for credit losses at March 31, 1996 of $1.7
million represents 3.5% of total outstanding loans and accounts receivable and
3.9% of average earning assets for the quarter then ended. Management believes
the current allowance is adequate to cover potential losses which might result
from the purchased accounts receivable and loan portfolio at March 31, 1997.

Operating expenses of $1.9 million at March 31, 1997 were up $430,000, or 30%,
compared with $1.4 million at March 31, 1996. Employment related expense
constituted $384,000 of the increase, due to additional marketing staff
associated with the opening of two offices in California and increased staffing
in the underwriting department of the Company. The remaining $46,000 was evenly
distributed over travel, facility cost, professional fees, and depreciation.
Income taxes of $232,700 for the first quarter of 1997 were 17% less than the
$279,600 of income taxes for the first quarter of 1996, due to the 22% decrease
in income before taxes.

As a result of the foregoing, net income of the Company for the first quarter of
1997, decreased $114,100, or 25%, to $348,100 from $462,200 for the first
quarter of 1996.

                                       8
<PAGE>
         Analysis of First Quarter 1997 Compared to Fourth Quarter 1996

         The following tables set forth the results of operations and certain
other data of the Company for the first quarter of 1997 and the fourth quarter
of 1996.

                                Quarter Ended             Quarter Ended
                                March 31, 1997            March 31, 1996
                                (unaudited)               (unaudited)
                                ------------------------------------------------
                                          (dollars in thousands)
Average Net Earning Assets      $  77,272.1      --       $  71,066.0    --

Total revenue .............     $   3,599.0     100.0%    $   3,587.2     100.0%

Interest expense ..........         1,090.3    30.3 %           939.5      26.2%

Provision for credit losses            75.0    2.1 %
                                                                100.0       2.8%

Operating Expenses ........         1,852.9    51.5 %         2,079.1      58.0%

Income Taxes ..............           232.7    6.4 %            180.3
                                                                            5.0%

Net Income ................     $     348.1    9.7 %      $     288.3       8.0%

Average net earning assets increased 9% from the prior quarter to $77.3 million
in the first quarter of 1997 compared to the fourth quarter of 1996, while total
revenue of $3.6 million in the first quarter of 1997 were essentially unchanged
compared to fourth quarter 1996. Interest expense increased 16% due to a 17.7%
increase in average funded indebtedness to $57.4 million in the first quarter of
1997 from $48.8 million in the fourth quarter of 1996. The interest expense
increase in the first quarter of 1997 compared to the fourth quarter of 1997,
was more than offset by a $226,000 decrease in operating expenses. This 11%
decrease in operating expenses reflects a heightened focus on efficiencies and
cost containment which began during the fourth quarter of 1996.

A provision for credit losses of $75,000 was taken for the first quarter of
1997, compared to $100,000 for the last quarter of 1996. During the first
quarter of 1997 the Company had net charge-offs of $121,802 compared to $246,731
of net charge-offs for the fourth quarter of 1996. The allowance for credit
losses at March 31, 1997 of $1.56 million represents 1.9% of total outstanding
loans and accounts receivables and 2.0% of average earning assets for the
quarter then ended. The allowance for credit losses at December 31, 1996 of $1.6
million represents 1.9% of total outstanding loans and accounts receivable and
2.2% of average earning assets for the quarter then ended. Management believes
that the current allowance is adequate to cover potential losses which might
result from the purchased accounts receivable and loan portfolio at March 31,
1997.

Income taxes of $232,700 for the first quarter of 1997 were 29% more than the
$180,300 of income taxes for the fourth quarter of 1996, due to the 24% increase
in income before taxes.

As a result of the foregoing, net income of the Company for the first quarter of
1997, increased $60,000, or 21%, to $348.1 million from $288,300 for the fourth
quarter of 1996.

Changes in Financial Condition

All asset components of the Company's balance sheet decreased from December 31,
1996, to March 31, 1997, except loans receivable and premises and equipment.
Total assets decreased 2.8% from $89.7 million at December 31, 1996 to $87.2
million at March 31, 1997. This decrease was primarily due to the decrease in
accounts receivable from $55.6 million at December 31, 1996 to $53.3 million at
March 31, 1997. The decrease in accounts receivable was partially offset by a
$1.2 million increase in loans receivable from $27.4 million at December 31,
1996 to $28.6 million at March 31, 1997. The net effect of these changes
resulted in a $1.7 million decrease in borrowings for the same period. Net
intangible assets declined $152,000 during the first quarter 1997 due to
amortization.

Because of the reduction in purchased accounts receivable balances, amounts due
to factored clients decreased 15.8%, from $8.2 million to $6.9 million.
Stockholders' equity increased $348,000, from $22.1 million at December 31, 1996
to $22.5 million at March 31, 1997 due to net income for the quarter ended March
31, 1997 of $348,000. The Company paid no dividends on its common stock during
the first quarter of 1997.

Liquidity and Capital Resources

The Company's capital requirements generally increase proportionately to the
change in earning assets. Average net earning assets of $77.3 million was 73.7%
above the comparable average net earning assets of $44.5 million for the quarter
ended March 31, 1996. The average balance on loans increased from $25.3 million
for the quarter ended March 31, 1996 to $34.2 million for the quarter ended
March

                                       9
<PAGE>
31, 1997. The average balance on accounts receivable also increased for the same
period from $39.8 million to $47.5 million. The Company continues to search for
ways to employ its capital base and to expand its portfolio through the
expansion of its current product line, the acquisition or development of new
products or lines and the addition of services related to the purchase or
servicing of accounts receivable.

KBK maintains a $75 million multi-bank line of credit ("Credit Facility"), made
up of a $50 million Revolving Credit Facility ("Revolving Facility")
collateralized by purchased accounts receivable with $36.5 million outstanding
at March 31, 1997 and a $25 million Advancing Term Facility ("Term Facility")
collateralized by term loans, with $17.5 million outstanding at March 31, 1997.
The Credit Facility provided for maximum borrowings of the lesser of (i) $67.5
million or (ii) the amount of a borrowing base (based upon a percentage of
eligible accounts receivable, as defined in the loan agreement governing the
Credit Facility, net of excluded amounts). Borrowings under the Revolving
Facility portion of the Credit Facility bear interest at the agent banks' prime
rate or applicable LIBOR plus 1.5% at KBK's discretion and expire on April 30,
1999. Borrowings under the Term Facility portion of the Credit Facility bear
interest at the agent banks' prime rate or applicable LIBOR plus 1.75% at KBK's
discretion and expire April 30, 1999. At the beginning of the first quarter, the
Company was not in compliance with its borrowing base limitations under the
Credit Facility. Concentrations in several of the Company's largest clients
resulted in borrowings in excess of the eligible borrowing base by approximately
$4 million. The Company received waivers for the default from the bank group and
an amendment to the Credit Facility to provide an "Over Advance Facility" to
allow for greater client concentration limits. This Over Advance Facility does
not increase the total committed amount of the Credit Facility. Borrowings under
the amended Credit Facility, to the extent of the expanded concentration limits
in the borrowing base, bear interest at the agent banks' prime rate plus 1.5%.
Interest on the Credit Facility is payable quarterly. Commitment fees are paid
quarterly at the rate of .25% on the unused current commitment amounts under the
Revolving Facility and the Term Facility. The Credit Facility expires on April
30, 1999, at which time all outstanding amounts are due thereunder. At the time
the securitization transaction discussed below was completed in April, 1997, the
Over Advance Facility was cancelled.

Borrowings under the Credit Facility are secured by all accounts receivable and
inventory of KBK (including all accounts receivable purchased by KBK from its
clients) and certain other assets of KBK. The terms of the Credit Facility
require KBK to comply with certain financial covenants and include the
maintenance of a certain current ratio and tangible net worth, limitations on
its debt to tangible net worth ratio and an interest coverage ratio which
requires that the ratio of the KBK's income before interest and taxes to
interest expense, over the last four quarters, be no less than 1.5 to 1.
Additionally, the Credit Facility restricts the payment of dividends in any
fiscal year to the lesser of (i) KBK's after tax income for such fiscal year or
(ii) the sum of 50% of the amount by which KBK's after tax income and the
cumulative amount of dividends permitted to be paid under such tests, but not so
paid.

Thus, the Company is restricted in its ability to pay cash dividends or
repurchase its common stock. The Company has not paid dividends on its common
stock and currently does not intend to pay cash dividends; rather, it intends to
retain its cash for the continued expansion of its business and the continuation
of the stock repurchase program initiated in November, 1995. Under the Company's
stock repurchase program, the Company may buy back in open market transactions,
block trades or private transactions up to 500,000 shares of its Common Stock
(15% of the outstanding shares at March 31, 1997) at current market prices.
During the first quarter of 1997, the Company purchased no shares. At March 31,
1997, an aggregate of 237,067 shares (net of 50,000 shares issued to the former
Coastal shareholders) of common stock had been placed in the treasury at a cost
of $1.5 million, as a result of the Company's stock repurchase plan.

On April 11, 1997, the Company's subsidiary, KBK, entered into a $75 million
commercial paper conduit financing structure with a financial institution, which
effectively securitized a substantial portion of its earning assets. A "special
purpose subsidiary", KBK Receivables Corporation, was established as a
subsidiary of KBK. KBK sold approximately $42.6 million in purchased accounts
receivable and $8.3 million of inventory advances to KBK Receivables
Corporation, who in turn sold these assets to the commercial paper conduit
facility. The cash proceeds from this sale were utilized to reduce outstanding
bank borrowings by $39 million. The estimated cost of funds related to the
securitized assets is approximately 6.75%, or approximately 100 basis points
less that the financing costs under the Bank Facility. The Commercial Paper
Conduit Facility terminates on March 31, 2002. The committed level of the
facility on the date of closing was $50 million.

The $1.4 million reduction in cash from December 31, 1996 is due primarily to
the repayment of bank borrowings of $1.7 million during the quarter ended March
31, 1997. The Company anticipates that when the portfolio experiences growth in
future periods, funding will be available through the securitization program.
For assets not financed through the securitization, the Company anticipates the
continued or increased use of the Credit Facility, although there can be no
assurance that the Credit Facility banks will allow such increase in committed
bank lines.

                                       10
<PAGE>
PART II  -  OTHER INFORMATION

Item 1  -  Legal Proceedings

The Company is not a party to any litigation other than routine proceedings
incidental to its business, and the Company does not expect that these
proceedings will have a material adverse effect on the Company.

Item 6  -  Exhibits and Reports On Form 8-K

         (a)   Exhibits

              *10.1 - Receivables Purchase Agreement dated April 11, 1997 among
         KBK Receivables Corporation as Seller and KBK Financial, Inc. as
         initial Servicer and XYZ Corporation as Purchaser and ABC Corporation
         as Administrator and Bank as Relationship Bank.

              *10.2 - Purchase and Sale Agreement Dated as of April 11, 1997
         Between KBK Financial, Inc. individually and as the initial Servicer,
         and KBK Receivables Corporation as the Initial Purchaser.

* Filed herewith

         (b)      Reports on Form 8-K - None

                                   SIGNATURES

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




                                              KBK CAPITAL CORPORATION


Date     May 15, 1997                        /s/ Michael D. Magill

                                     Michael D. Magill, Executive Vice President
         `                                   and Chief Financial Officer

                                       11