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

                                   FORM 10-KSB

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

                         COMMISSION FILE NUMBER: 0-24220

                             KBK CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

<TABLE>

<S>      <C>                                           <C>     <C>
         DELAWARE                                        75-2416103
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                         Identification No.)

2200 CITY CENTER II, 301 COMMERCE ST., FORT WORTH, TEXAS       76102
(Address of principal executive office)                     (Zip Code)
</TABLE>

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>

<S> <C>                          <C>      <C>
    TITLE OF EACH CLASS            NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, .01 PAR VALUE      AMERICAN STOCK EXCHANGE, PACIFIC EXCHANGE, INC.
9.50% TRUST PREFERRED SECURITIES          AMERICAN STOCK EXCHANGE
</TABLE>

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE

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
                                       ------    ------

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ]

Issuer's revenues for its most recent fiscal year: $19,133,201

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 21,
2000, as reported on the American Stock Exchange, was approximately $4,603,000.
Shares of Common Stock held by each officer and director and by each person who
owns 10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of March 21, 2000, the Registrant had outstanding 2,940,027 shares of Common
Stock.

                       DOCUMENT INCORPORATED BY REFERENCE

PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE REGISTRANT'S 2000 ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD MAY 9, 2000, ARE INCORPORATED BY REFERENCE IN
PART III.


                                     Page 1


<PAGE>   2

                                      INDEX
<TABLE>
<CAPTION>
                                                                                                          Page Number
<S>                       <C>                                                                             <C>
Item 1.                   Description of Business                                                            3
                          Products and Markets                                                               3
                          Clients                                                                            4
                          Account Debtors                                                                    5
                          Competition                                                                        6
                          Government Regulation                                                              7
                          Employees                                                                          8

Item 2.                   Description of Property                                                            8

Item 3.                   Legal Proceedings                                                                  8

Item 4.                   Submission of Matters to a Vote of Security Holders                                8

Item 5.                   Market for Common Equity and Related Stockholder Matters                           8

Item 6.                   Management's Discussion and Analysis of Financial Condition and Results            9
                          of Operations

Item 7.                   Financial Statements                                                               15

Item 8.                   Changes in and Disagreements With Accountants on Accounting and Financial          29
                          Disclosure

Item 9.                   Directors, Executive Officers, Promoters and Control Persons:                      29
                          Compliance With Section 16(a) of the Exchange Act

Item 10.                  Executive Compensation                                                             29

Item 11.                  Security Ownership of Certain Beneficial Owners and Management                     29

Item 12.                  Certain Relationships and Related Transactions                                     29

Item 13.                  Exhibits and Reports on Form 8-K                                                   30
                          (a)      Exhibits                                                                  30
                          (b)      Reports on Form 8-K                                                       31
</TABLE>



                                     Page 2
<PAGE>   3

                                     PART I

     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
EXCHANGE ACT OF 1934, 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 THAT 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 OR INCLUDED BY REFERENCE IN THIS ANNUAL REPORT ON FORM 10-KSB.
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.


ITEM 1. DESCRIPTION OF BUSINESS

     KBK Capital Corporation (the "Company") was incorporated in Delaware in
1992 to acquire its wholly owned subsidiary, KBK Financial, Inc. ("KBK"), a
commercial financial institution. KBK, in operation since 1962, is principally
engaged in providing financing to middle-market businesses through loans secured
by accounts receivable, inventory, equipment, owner-occupied real estate or
other assets of the borrower and through the discounted purchase of accounts
receivable. KBK or its predecessors have been engaged in the purchase of
accounts receivable for over thirty-five years. During 1997, KBK completed a
sale of purchased receivables and inventory loans, in which a substantial
portion of such receivables and inventory loans were transferred into KBK
Receivables Corporation ("SPC"), also known as a special purpose corporation.
Under this structure, SPC sells eligible receivables and inventory loans to a
conduit, which in turn issues commercial paper to fund its ongoing purchase of
assets. The assets sold to SPC and the commercial paper conduit continue to be
serviced by KBK, which receives periodic revenue in the form of a servicing fee
as outlined in the servicing agreement.

     In 1993, KBK expanded the then existing Houston, Texas marketing office and
established corporate, regional and national marketing headquarters in Fort
Worth, Texas. Through the acquisition of Coastal Financial Resources, Inc.
("Coastal") in December of 1994, a marketing office was established in New
Orleans, Louisiana giving expanded market coverage across the Gulf Coast. In
addition, the Company established offices in Los Angeles, California in 1996 and
St. Louis, Missouri in 1998. The Company currently expects that the Louisiana
office will be merged into the Houston office during 2000.

     The Company's plan for continued growth in 2000 is based primarily on
growth in earning assets from the markets currently served. Another element of
the Company's growth plan is the introduction of new products and services. The
Company's strategy also includes the pursuit of opportunistic acquisitions and
formation of key partnerships.

     Unless otherwise noted, all references to the "Company" include KBK Capital
Corporation, KBK, SPC and its predecessors. The principal executive offices of
the Company are located at 2200 City Center II, 301 Commerce Street, Fort Worth,
Texas 76102 and the telephone number is (817) 258-6000.


Products and Markets

     The Company's business is providing financing to middle-market businesses
through loans secured by accounts receivable, inventory, equipment,
owner-occupied real estate or other assets of the borrower and through the
discounted purchase of accounts receivable. During 1998, the Company further
expanded its product line to include a mezzanine product, which offers an
attractive financing alternative for clients whose growth has outpaced their
borrowing capacity

                                     Page 3
<PAGE>   4

from traditional senior debt sources. It is the Company's intention to offer a
comprehensive product line of financing to commercial businesses in the
middle-market in order to provide a single source of financing for these
businesses. The Company may also generate fees and revenues through the cross
selling of third party products to existing customers. These products include
lease financing and structuring and brokering asset securitizations.

     The Company has traditionally marketed its services, in part, by soliciting
referrals from providers of financial services to small businesses, such as
commercial bankers, lawyers and accountants. Management believes these sources
refer quality clients who are more likely to have the financial information and
reporting systems required for the Company's purchase of accounts receivable. In
addition, the Company relies on referrals from current and former clients and
direct inquiries from potential clients resulting from the Company's reputation
established over its long tenure in the business. The Company has developed a
formal network of referral sources who bring prospective client packages to KBK
for consideration. Such sources receive a fee when the Company actually advances
funds to the client referred. The Company has identified ten standard
metropolitan statistical areas ("SMSA's") as having the highest concentrations
of small commercial businesses in the United States. The Company's goal is to
develop correspondent networks in each of the targeted SMSA's not currently
served (New York City, Chicago, Boston, Philadelphia, and Atlanta). The Company
expects that it will, in the future, offer its services through the addition of
marketing offices in these locations.


Clients

     The Company's client portfolio of purchased receivables totaled 213 clients
in twenty-two states during 1999 compared to 229 clients in nineteen states
during 1998. As of December 31, 1999, no client exceeded 5% of total managed
receivables. The Company requires Board of Directors' approval of any client
facility (loan and/or working capital facility) in excess of $5,000,000 of
committed funds.

     The Company's general policy has been to limit its exposure in a single
client to an amount which does not exceed the greater of the Company's allowance
for credit losses ($2.0 million at December 31, 1999, and December 31, 1998) or
15% of KBK's primary capital ($6.3 million at December 31, 1999, and $6.5
million at December 31, 1998). Based on facts and circumstances, exceptions are
made to this policy, with Board of Directors' approval, and there can be no
assurance that the Company's exposure to a particular client at any time will
not exceed such limits. At December 31, 1999, there were three clients who
exceeded this limitation. The largest client outstanding balance at December 31,
1999, was $6.9 million or 29.0% of the Company's net worth, as compared to $10.1
million or 39.7% of the Company's net worth at December 31, 1998. The second and
third largest clients had $6.8 million and $6.5 million outstanding at December
31, 1999, or 28.6% and 27.0% of the Company's net worth. The Company is in the
process of reducing the client concentration on these accounts to conform to its
current concentration policy.

     The following table indicates the composition of the Company's total volume
of purchased receivables under management by type of client business for the
year ended December 31, 1999, as well as outstanding receivables under
management by type of client business at December 31, 1999, and December 31,
1998, and the related percentages thereon. The Company purchased $643 million of
receivables in 1999, a $26 million decrease from the $669 million purchased in
1998.



                                     Page 4
<PAGE>   5

<TABLE>
<CAPTION>
                                                                   Gross Purchased                  Gross Purchased
                                     Total Volume                    Receivables                      Receivables
                                    of Receivables      Percent    Under Management      Percent    Under Management       Percent
                                   Under Management       of        Outstanding at         of        Outstanding at          of
Business of Client (Receivables)  Purchased in 1999      Total     December 31, 1999      Total     December 31, 1998*      Total
-------------------------------  --------------------   -------   --------------------   -------   ---------------------   -------
                                (dollars in thousands)           (dollars in thousands)           (dollars  in thousands)
<S>                                 <C>                  <C>     <C>                      <C>     <C>                       <C>
Manufacturing                       $233,207             36.3%           $21,131          30.3%            $27,661          34.9%
Services                              71,085             11.1             10,045          14.4               9,086          11.5
Wholesale, Retail Sales               43,505              6.8              6,606           9.5               4,106           5.2
Agriculture                           37,380              5.8              2,490           3.6               1,680           2.1
Engineering & Construction            32,295              5.0              4,160           6.0               4,020           5.1
Transportation                        17,528              2.7              1,706           2.4               2,260           2.9
Energy Related                        13,441              2.1              1,336           1.9               3,042           3.8
Other                                    149              0.0                129           0.2                   0           0.0
Pool Purchases**                     194,153             30.2             22,085          31.7              27,355          34.5
                                    --------            -----            -------         -----             -------         -----
      Total                         $642,743            100.0%           $69,688         100.0%            $79,210         100.0%
                                    ========            =====            =======         =====             =======         =====
</TABLE>
---------------

* 1998 balances have been reclassified for consistent presentation with 1999
balances. Industry classifications are based on Standard Industrial
Classification codes.

** Pool purchases are not recorded as individual invoice purchases but as a
collection of invoices which have been purchased and recorded as the aggregate
sum of receivables purchased.

     The following table indicates the composition of the Company's loan
balances under management by type of client business for the years ended
December 31, 1999 and 1998, and the related percentages thereon. The Company's
outstanding loan balance grew to $87,407,000 a $11,870,000 increase over the
$75,537,000 balance at December 31, 1998.

<TABLE>
<CAPTION>
                                 Loan Balance          Percent      Loan Balance          Percent
                               Outstanding as of         of       Outstanding at             of
Business of Client (Loans)     December 31,1999         Total     December 31, 1998        Total
--------------------------  ----------------------     ------- ----------------------     -------
                            (dollars in thousands)             (dollars in thousands)
<S>                         <C>                        <C>     <C>                        <C>
Manufacturing                      $33,075             37.8%         $ 28,442              37.7%
Energy Related                       7,715              8.8            12,791              16.9
Transportation                      15,294             17.5             9,177              12.1
Services                            10,408             11.9             8,896              11.8
Engineering and
Construction                         2,340              2.7             6,601               8.7
Other                                3,125              3.6             3,671               4.9
Wholesale and Retail
Sales                               10,896             12.5             3,032               4.0
Agriculture                          4,554              5.2             2,927               3.9
                                   -------            -----          --------             -----
      Total                        $87,407            100.0%         $ 75,537             100.0%
                                   =======            =====          ========             =====
</TABLE>


Account Debtors

     During 1999 and 1998, the accounts receivable under management underlying
the Company's working capital facility portfolio represented 6,693 and 7,012
different debtor entities, respectively. The most significant concentration in
1999 was debtors in the manufacturing industry. This category of debtors made up
16.5% of the total balance of purchased receivables under management outstanding
at December 31, 1999, as compared to 5.9% at December 31, 1998. Due to the
diversity of products in this industry, management does not feel this level of
industry concentration is a significant negative concentration.



                                     Page 5

<PAGE>   6

<TABLE>
<CAPTION>
                            Total Volume                        Gross Purchased                     Gross Purchased
                            of Receivables                        Receivables                        Receivables
                            Under Management                    Under Management                    Under Management
                             Purchased in          Percent of   Outstanding at        Percent of    Outstanding at      Percent of
Account Debtors                  1999                Total      December 31, 1999        Total      December 31, 1998*      Total
---------------             ---------------------  -----------  ---------------------- ---------- ---------------------- ----------
                            (dollars in thousands)              (dollars in thousands)            (dollars  in thousands)
<S>                                <C>              <C>             <C>                <C>              <C>                <C>
Manufacturing                      $102,693         16.0%           $11,523            16.5%            $12,234            15.4%
Wholesale, Retail Sales             100,842         15.7              7,541            10.8              11,406            14.4
Transportation                       85,208         13.3              4,808             6.9              10,078            12.7
Federal, State & Local
Govt.                                36,532          5.7              2,801             4.0               2,106             2.7
Energy Related                       34,574          5.4              4,406             6.3               5,706             7.2
Engineering & Construction           27,830          4.3              6,255             9.0               2,935             3.7
Services                             23,022          3.5              1,163             1.7               3,764             4.7
Agriculture                          18,137          2.8              2,920             4.2               2,413             3.1
Communications                        9,377          1.5                627              .9                 987             1.3
Real Estate                           1,464           .2                212              .3                 179              .2
Other                                 8,911          1.4              5,347             7.7                  47              .1
Pool Purchases**                    194,153         30.2             22,085            31.7              27,355            34.5
                                   --------        -----            -------           -----             -------           -----
        Totals                     $642,743        100.0%           $69,688           100.0%            $79,210           100.0%
                                   ========        =====            =======           =====             =======           =====
</TABLE>

* 1998 balances have been reclassified for consistent presentation with 1999
balances. Industry classifications are based on Standard Industrial
Classification codes.

** Pool purchases are not recorded as individual invoice purchases but as a
collection of invoices, which have been purchased and recorded as the aggregate
sum of receivables purchased.

     During 1999 and 1998, no individual account debtor's total receivables
purchased by the Company exceeded 5.0% of the total volume of receivables
purchased during such year. Due to the constantly changing nature of the
Company's clients and the changing volume and nature of receivables which
clients may offer the Company for purchase, the receivables purchased from the
Company's clients regularly result in the Company holding receivables from one
account debtor which constitute 5% to 10% of outstanding receivables then held
by the Company. There may also be times when a related group of debtors exceed
such levels of concentration. These concentrations are in excess of the
Company's allowance for credit losses and can be a significant percentage of the
Company's net worth. This account debtor concentration exposes the Company to
credit risk with respect to particular account debtors which could have a
material effect on the Company's operations. Although specific exposure limits
are set for each account, which at any time does not generally exceed 20% of the
Company's net worth, exceptions are regularly made to this policy, and there can
be no assurance that the Company's exposure to a particular account debtor (or
group of affiliated account debtors) will not at any time exceed such
percentage.


Competition

     The Company encounters significant competition from factoring companies,
asset based lenders, commercial banks and other financial institutions engaged
in secured lending. Due to the size of facilities offered by the Company and the
size of target clients, the Company competes with a large number of local and
regional sources of financing, as well as large national competitors. Many of
these competitors have significantly greater financial and other resources than
the Company and have access to capital markets at a lower cost than the Company
is currently able to obtain.

     The Company's larger competitors include Heller Financial, CIT, and FINOVA.
Other competitors include Bank of America Business Credit, BayView Financial,
Coast Business Credit, Congress Financial, the Foothill Group, a subsidiary of
NORWEST, GE Capital Commercial Credit, and Wells Fargo Business Credit. The
competition for earning assets has had the effect of reducing yields due to the
competitive nature of the business and the increasing strength of many clients
in the current economic expansion.


                                     Page 6
<PAGE>   7

Government Regulation

     Federal Assignment of Claims Act. In connection with certain of its clients
whose account debtors include the United States or departments or agencies
thereof (the "Federal Government"), certain receivables sold or pledged to the
Company are subject to the Federal Assignment of Claims Act ("FACA"). FACA
provides that an assignment of a client's contractual claim for monies due from
the Federal Government will be enforceable against the Federal Government by a
third party assignee of such client only under limited circumstances. Certain
aspects of the Company's purchased or pledged receivables make compliance with
FACA impractical or impossible, or make the protections afforded by FACA
unavailable to the Company. As a result, the Company does not always comply with
FACA when it purchases or receives a pledge of receivables where the Federal
Government is the account debtor, causing all assignments of receivables
purchased by the Company to which the Federal Government is the account debtor
to be unenforceable by the Company as regards the Federal Government. Such
failure to comply with FACA has no effect on the validity of assignment or
pledge among the Company, the client and third parties other than the Federal
Government. Non-compliance with FACA causes the Company to lose any right it may
have to receive payments directly from the Federal Government or cause the
Federal Government to acknowledge the Company's claim in such receivables.
However, FACA does not limit the Company's ability to require its clients to
direct payments made by the Federal Government to a lockbox controlled by the
Company. The Federal Government also has significant rights of setoff in
connection with its contractual payments. Typically, the Company can protect
itself from certain rights of setoff by account debtors, either by pursuing its
rights against clients for breach of representation regarding the absence of
setoffs with respect to purchased receivables, or sending the account debtors a
notice of assignment pursuant to the Uniform Commercial Code. In cases where the
Federal Government is the account debtor, an assignee must comply with FACA in
order to protect itself from such setoffs, thus the Company is unable to avail
itself of such protection (other than by pursuing its rights against clients for
breach of representations). The Federal Government has broad setoff rights,
including setoffs for unpaid taxes and setoffs arising from other contracts
between the client and the Federal Government. During 1999 and 1998,
respectively, the Federal Government comprised 5.7% and 2.7% of the account
debtors for the Company's total volume of purchased receivables under
management. The Company has not experienced a disproportionate dilution rate
with respect to such receivables compared to other of the Company's receivables.

     State Usury Laws. Usury laws generally limit the amount of interest that a
creditor may contract for, charge or receive in connection with the loan of
money. In the State of Texas (in which the Company's primary offices are
presently located), state law prohibits creditors from contracting for,
charging, reserving, taking or receiving interest at a rate in excess of a
varying index. For loans in which the interest rate is fixed, the usury ceiling
is equal to the index preceding the week in which the contract is entered into.
For varying rate loans, the index floats. Under the provisions of Texas law, the
index may never exceed 24% per year (or, in the case of business purpose loans
exceeding $250,000, 28% per year). If the amount of the index is less than 18%
per year, the creditor may, nevertheless, charge interest pursuant to a written
agreement at the rate of 18% per year. Because of the low interest rate
environment, the Texas usury ceiling has, since early in 1985, prohibited a
business creditor from contracting for, charging, reserving, taking or receiving
interest at a rate in excess of 18% per year. Section 339.004 of the Texas
Finance Code defines an "account purchase transaction" as an agreement in which
a commercial enterprise sells accounts receivable at a discount with or without
a related repurchase obligation. This law provides that the amount of any
discount associated with the purchase or any fees paid to an account service
provider is not interest. Also, the law provides that the parties'
characterization of an account purchase transaction is conclusive that the
transaction is not a loan.

                                     Page 7

<PAGE>   8

Employees

     The Company had 77 full-time employees at December 31, 1999, of whom five
were employed in executive and administrative positions and twenty-three were
employed in marketing. None of the Company's employees are a party to any
collective bargaining agreement, and the Company considers its relations with
employees to be satisfactory.


ITEM 2. DESCRIPTION OF PROPERTY

     The Company leases its offices at each of its locations in Fort Worth and
Houston, Texas, New Orleans, Louisiana, Pasadena, California, and St. Louis,
Missouri under lease agreements expiring at various dates through 2004. The
Company believes that its facilities are adequate to meet the Company's needs in
these markets; however, space will be required at the location of any new
marketing office opened by the Company.


ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's common stock is traded on the American Stock Exchange and the
Pacific Stock Exchange. At March 21, 2000, there were 105 holders of record of
the Company's common stock. The Company has not paid or declared dividends on
its common stock during the two most recent fiscal years and does not currently
intend to pay cash dividends on its common stock in the foreseeable future. The
following table provides market data for the Company's common stock based on
closing prices:


PER SHARE MARKET DATA

<TABLE>
<CAPTION>
       QUARTER                        1999                                   1998
       -------                        ----                                   ----
                              High              Low               High                Low
                              ----              ---               ----                ---
<S>                          <C>              <C>               <C>                <C>
       First                 $ 9.25           $ 7.00            $ 14.63            $ 10.50
       Second                  7.13             6.00              12.88               9.88
       Third                   6.25             5.38              11.63               9.50
       Fourth                  5.50             3.38               9.94               8.38
</TABLE>

                                     Page 8
<PAGE>   9




ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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
1934, 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. 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
elsewhere in this report.

OVERVIEW

The Company, through its wholly owned subsidiaries, KBK Financial, Inc. ("KBK"),
KBK Receivables Corporation ("SPC"), and KBK Capital Trust I (the "Trust"), is
an independent financial services company that provides a broad line of
financial products and services to middle market commercial businesses with
credit needs of less than $10 million. KBK was founded in 1962 as a factoring
company for energy-related receivables in Texas. Factoring has served as the
cornerstone of KBK's growth. In 1994, KBK began introducing new products in an
effort to expand its client base and to meet the needs of its existing clients
as their credit quality improves. These products include purchase revolvers,
working capital loans, term loans and mezzanine loans.

KBK's client base consists primarily of businesses with annual revenues ranging
from $1 million to $50 million. The Company's clients typically have rapidly
expanding operations which drive their need for capital. KBK strives to provide
fast, flexible and creative solutions that are tailored to meet these needs.
This approach has provided KBK with a strong reputation in the middle market and
a well-diversified client base. The Company's clients are located in twenty-two
states and are engaged in a range of businesses, including energy-related,
manufacturing, wholesale and retail distribution, and other businesses. The
Company has consistently employed a disciplined credit approach, which has
enabled it to increase earning assets, minimize credit losses and generate 37
consecutive years of profitability.

The Company's factoring facilities generally involve an on-going or revolving
agreement to purchase eligible new receivables. Factoring involves the Company's
purchase and the clients' true sale of accounts receivable, which usually are
individually ledgered, invoice-by-invoice on the Company's books. The Company
offers a full range of factoring products and services, including notification,
non-notification, verification, non-verification and non-recourse factoring as
well as several other hybrid variations. The obligors or "debtors" of the
factored receivables typically represent large, financially strong businesses,
many of which are ranked in Fortune Magazine's Fortune 1000 list. As of December
31, 1999, KBK's portfolio of owned and managed receivables purchased under
factoring facilities totaled $46.9 million. The Company's yield on its factoring
portfolio was 20.1% in 1999 and 21.6% in 1998.

In addition to factoring or purchasing accounts receivable on a specific
"invoice-by-invoice" ledgered basis, the Company also purchases accounts
receivable as a revolving "pool." Under this arrangement, the client sells all
receivables, and when they are generated by the business, KBK makes periodic
advances upon a request by the client, in aggregate amounts up to the client's
maximum availability limit. The Company's yield on purchase revolvers was 11.2%
in 1999 and 12.6% in 1998.

KBK's commercial loan portfolio includes working capital and term loan
facilities that are typically secured by a first lien on accounts receivable,
inventory, equipment, owner-occupied real estate or other assets. The working
capital lines of credit have maturities of up to two years, while term loans are
structured with monthly payments and maturities, which typically range from one
to five years. Most of the Company's commercial loan products are priced on a
floating rate basis over the Company's announced base rate. During 1999 and
1998, the Company's yield on its commercial loan portfolio was 12.3% and 12.4%,
respectively.

The Company's mezzanine loan product, which was introduced in 1998, offers an
attractive financing alternative for customers whose growth has outpaced their
borrowing capacity from senior debt sources. The Company's strategy with


                                     Page 9
<PAGE>   10

respect to mezzanine loans is to extend the duration of its current
relationships and offer the Company's traditional products to new customers. It
is anticipated that KBK's mezzanine financings will typically have fixed
interest rates as well as warrants to acquire equity in the borrower. To date,
the Company has funded three loans for an aggregate investment of $10.0 million.

In 1992, in connection with the formation of the Company, the Company sold
warrants to two former directors and one current director to purchase 500,000
shares of the Company's common stock. During 1999, the Company paid $572,500 to
repurchase from a former director warrants to purchase 160,000 shares. The
remaining 340,000 warrants are exercisable at $5 per share and expire on
February 25, 2005.

Pursuant to the Stock Repurchase Plan initiated in 1995, the Company holds
591,656 shares of Treasury Stock at a cost of $4,298,139, as of December 31,
1999. During October, 1999, the Company entered into an agreement to repurchase
483,795 shares of its common stock over an 18-month period. The per share prices
are fixed, ranging from $5.00 to $5.53, depending on the timing of the purchase.
The stock is being acquired from the previous shareholders of Coastal Financial
Resources Inc., which was acquired by the Company in December, 1994.

During 1999, KBK maintained a $72,875,000 multi-bank revolving line of credit
("Credit Facility"), maturing on April 30, 2001 and bearing interest at the
banks' prime rate or LIBOR plus 1.75% at the election of KBK, and secured by
substantially all of KBK's assets. At December 31, 1999, $72,875,000 was
committed with outstanding indebtedness under this Credit Facility of
$56,000,000 (at a weighted average interest rate of 8.11%) and there were
$940,048 in letters of credit outstanding under this revolving line of credit.
At December 31, 1998, $55,000,000 was committed with outstanding indebtedness of
$26,000,000 (at a weighted average interest rate of 7.29%) and there were
$2,394,817 in letters of credit outstanding under this revolving line of credit.
The terms of the Credit Facility require KBK to comply with certain financial
covenants and include the maintenance of a certain tangible net worth,
limitations on its debt to tangible net worth, limitations on chargeoffs and
non-performing assets and an interest coverage ratio. The Credit Facility also
provides for a borrowing base against eligible receivables and eligible loans
pursuant to the terms of the Credit Facility. KBK was in compliance with the
financial covenants and borrowing base limitations, and there was approximately
$2,553,000 and $26,605,000 in available credit under this line at December 31,
1999 and 1998, respectively.

During 1997, KBK completed a sale of purchased receivables and inventory loans,
in which a substantial portion of KBK's owned receivables and inventory loans
were transferred into SPC, also known as a special purpose corporation. Under
this structure, SPC sells eligible receivables to a conduit, which in turn
issues commercial paper to fund its ongoing purchase of assets. The assets sold
to SPC and the commercial paper conduit continue to be serviced by KBK, which
receives periodic revenue in the form of a servicing fee. As of December 31,
1999 and 1998, KBK had $55.9 million and $75.0 million, respectively, of
receivables and inventory loans outstanding in the conduit facility and during
1999 and 1998 the Company had recorded approximately $5.1 million and $7.9
million, respectively, in fees related to managing and servicing such assets.
Currently, the Company has the ability to fund up to $85.0 million through the
conduit facility. The financing provided by this facility is off-balance sheet
and the Company realizes no gain on transfer of the assets to the conduit.
Servicing income is credited as received. The Company believes that the conduit
facility will enable it to significantly expand its owned and managed portfolio
while simultaneously minimizing its balance sheet leverage.

In 1998, the Company issued 1,725,000 shares of 9.50% mandatorily redeemable
Trust Preferred Securities through its subsidiary, KBK Capital Trust I. The
principal assets of the Trust are 9.50% subordinated debentures of the Company
due 2028. The approximately $16.0 million in net proceeds from the sale of the
securities were invested by the Trust in the debentures. The Company in turn
utilized the funds from the debentures as an equity investment in KBK, and KBK
repaid approximately $16.0 million of short-term indebtedness.

STRATEGY

The Company's long-term goal is to be a leader in providing financial products
and services to middle market businesses in the United States. By serving the
financial and capital needs of this growing segment, the Company believes that
it can achieve strong growth and generate a return on assets above other
financial institutions. The Company believes that it has been very successful in
achieving an appropriate balance between asset growth, asset quality and
profitability through strict adherence to proven systems for origination,
underwriting and monitoring. During the course of the past five years, the
Company has leveraged its existing market presence into new product lines to
enable its clients to transition into lower-priced financial products and
services as their businesses expanded and credit quality improved. Additionally,
the Company expanded its geographic presence in key metropolitan markets through
both new office openings and the development of relationships with regional
correspondent banks. The Company remains committed to focusing on its


                                      Page 10
<PAGE>   11

core middle market commercial finance business. Going forward, KBK's growth
strategies include increasing market penetration, introducing additional
products and services, and pursuing strategic acquisitions and partnerships.

     Increase Market Penetration. A critical aspect of KBK's long-term growth
objective is to increase its earning asset base from existing markets. The
Company's strategy is to (i) continue improving the productivity of its
marketing force through extensive market planning and a compensation program
tied directly to targeted objectives, (ii) add additional marketing
professionals and (iii) train its marketing force to cross-sell existing and new
products. Each year, KBK's account officers are required to develop a marketing
plan with respect to existing customer business and new business prospects. This
active business development program is designed to enable KBK account officers
to identify an ample number of new high-quality business opportunities, thereby
improving selectivity and increasing market penetration. In order to meet their
objectives, account officers are provided with on-going training in the areas of
credit analysis, product application and relationship development and retention.

     Expand Product Line. Another element of KBK's growth plan is the continued
introduction of new products and services. Since 1995, the Company has
introduced a variety of commercial finance products and services designed to
meet the needs of its core middle market clients, broaden its client base and
diversify its portfolio mix. Many of these products enable KBK's former
factoring clients to transition to other financial products and services as
their credit quality improves and, accordingly, have allowed the Company to
lengthen the duration of its relationships. In addition, a growing component of
KBK's portfolio is comprised of conventional commercial loans extended to
clients with more than two years of tenure with the Company. The mezzanine
market has also generated a number of high quality conventional commercial loan
prospects.

     Pursue Strategic Acquisitions and Partnerships. Also important to the
Company's strategy is the pursuit of opportunistic acquisitions and formation of
key partnerships. The Company focuses on acquisition candidates who can expand
KBK's origination capabilities, product line, cross-selling potential and market
penetration, as well as those which add to its asset base. Given current
conditions in the specialty finance market, the Company's management continually
evaluates potential acquisition opportunities. Accordingly, at any particular
time, the Company may be involved in negotiations (at various stages) to acquire
other companies.

     In addition to acquisitions, KBK will continue to explore partnerships,
which complement or leverage the Company's product portfolio or client
relationships. During the past several years, KBK has formed a number of
important partnerships. For example, KBK currently offers equipment lease
financing through third party equipment leasing companies. KBK also originates
real estate loans to its clients and may participate or sell such loans to an
unaffiliated real estate lender. KBK collects an origination or placement fee
from its client or the third party.

Results of Operations Analysis
1999 compared to 1998

<TABLE>
<CAPTION>
                                                    YEAR ENDED                                        YEAR ENDED
                                                  DECEMBER 31, 1999                                 DECEMBER 31, 1998
                                                  -------------------------------------------------------------------
                                                                        (dollars in thousands)
<S>                                         <C>                                                <C>
Average Net Earning Assets
     Managed And Owned                      $   131,712                                         $   118,441
     Owned                                       75,295                                              49,567

Total revenue                                    19,133            100%                              17,948         100%
Interest expense                                  5,522             29                                3,149          18
Provision for credit losses                       1,600              8                                1,500           8
Provision for impairment losses                     500              3                                    -           -
Operating expenses                               11,177             58                                9,679          54
Income taxes                                        184              1                                1,227           7
                                            -----------            ---                          -----------         ---

Net income                                  $       150              1%                         $     2,393          13%
                                            ===========            ===                          ===========         ===

</TABLE>


                             Page 11
<PAGE>   12

Average net earning assets under management increased 11.2% to $131.7 million
for the year ended December 31, 1999, from $118.4 million for the year ended
December 31, 1998. This asset growth is comprised of $22.0 million increase in
the loan portfolio and $8.7 million decrease in the accounts receivable
portfolio. Due to the lower yield on loans as compared to accounts receivable,
the asset growth resulted in a total revenue increase of 6.6%, or $1.2 million,
for the year ended December 31, 1999, from year ended December 31, 1998, in
which the Company reported total revenue of $17.9 million. Average net earning
assets owned for the year ended December 31, 1999 increased 51.9% or $25.7
million, from the year ended December 31, 1998.

Interest expense increased 75.4% to $5.5 million for the year ended December 31,
1999, compared to $3.1 million for the year ended December 31, 1998. This
increase resulted primarily from the $34.1 million increase in average funded
debt required to fund the increase in net average earning assets owned. The
proceeds from the trust preferred securities comprised $16.0 million of the
increased funding and carried a significantly higher cost of funds than the bank
debt. The net effect of the $1.2 million increase in revenue and the $2.4
million increase in interest expense resulted in a $1.2 million decrease in
income after interest expense for the year ended December 31, 1999 compared to
the year ended December 31, 1998.

The provision for credit losses was $1.6 million for 1999 compared to $1.5 for
1998, representing a 6.7% increase. During 1999, the Company had charge-offs of
$1.6 million while recovering $40,000. Net charge-offs for 1999 of $1.5 million
and a provision of $1.6 million for 1999 resulted in an allowance for credit
losses of $2.0 million or 2.0% of gross receivables outstanding as of December
31, 1999 (2.3% of average owned receivables outstanding during 1999). In
addition, the Company recorded a $500,000 provision for impairment loss related
to the valuation of other assets. During 1998, the Company had charge-offs of
$1.5 million while recovering $3,000, resulting in net charge-offs of $1.5
million. The Company's 1998 provision for credit losses of $1.5 million brought
the allowance for credit losses to $2.0 million, or 2.5% of gross receivables
outstanding as of December 31, 1998 (3.2% of average owned receivables
outstanding during 1998). The Company believes that the allowance for credit
losses is adequate in light of the historical loss experience and the risk
inherent in the earning asset portfolio at year-end 1999.

Operating expenses increased $1.5 million, or 15.5%, to $11.2 million, or 58.4%,
of total revenue for 1999 compared with $9.7 million or 54.0% of total revenue
for 1998. This increase was primarily a result of increased salaries and
benefits and other employment expenses of $870,000, related to marketing staff
added in 1999 to support the Company's growth and increased business activity.
In addition, professional fees increased $517,000, resulting primarily from
costs incurred in connection with due diligence efforts related to a terminated
acquisition attempt.

The decreased income after interest expense, combined with increased operating
expenses and the provision for impairment losses, resulted in a 90.8% decrease
in earnings before income taxes compared to the prior year. Therefore, income
taxes of $184,000 for 1999 were 85.0% lower than the income taxes of $1.2
million for 1998.

As a result of the above, net income of the Company for 1999 decreased $2.2
million, or 93.7%, to $150,000 or 0.8% of total revenue, from $2.4 million or
13.3% of total revenue in 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's capital requirements generally increase proportionately to the
increase in earning assets. The method of funding the portfolio changed
significantly during 1997 with the implementation of the asset sale and in 1998
with the sale of the Trust Preferred Securities. Total average net earning
assets owned increased by $25.7 million, from $49.6 million in 1998 to $75.3
million in 1999. The Company continues to search for ways to employ its capital
and to expand its portfolio through increased market penetration, expansion of
its current product line, expansion of market presence, and pursuit of strategic
acquisitions and partnerships which enable the Company to provide complete
financial services to middle-market businesses.

KBK maintained a $72,875,000, multi-bank line of credit which had $72,875,000
committed and $56,000,000 outstanding at December 31, 1999, $30,000,000 more
than the $26,000,000 outstanding at December 31, 1998. The Credit Facility
provides for maximum borrowings of the lesser of (i) $72,875,000 or (ii) the
amount of a borrowing base (based on a percentage of eligible loans and accounts
receivable, as defined in the loan agreement governing the Credit Facility, net
of excluded amounts). There was $2,553,000 in available credit under this line
as of December 31, 1999. Borrowings under the Credit Facility bear interest at
the agent banks' prime rate or applicable LIBOR plus 1.75% at KBK's discretion
and expire on April 30, 2001.



                                     Page 12
<PAGE>   13

Borrowings under the Credit Facility are secured by all accounts receivable of
KBK (including all accounts receivable purchased by KBK from its clients), all
inventory of KBK now owned or acquired, all instruments, chattel paper,
documents and general intangibles of KBK now owned or acquired, an assignment of
all security interest, mortgages and liens securing the foregoing and all
proceeds of the foregoing. The Credit Facility provides that KBK is permitted to
contribute and sell, free of liens, and grant security interests in, accounts,
chattel paper, instruments and general intangibles to SPC pursuant to the
purchase and sale agreement. The terms of the Credit Facility require KBK to
comply with certain financial covenants and include the maintenance of a certain
tangible net worth, limitations on its debt to tangible net worth, limitations
on chargeoffs and non-performing assets, and an interest coverage ratio which
requires that KBK's ratio of income before interest and taxes to interest
expense, over the last four quarters, be no less than 1.5 to 1.

In May 1998, the Company reinstated its commercial paper program (CP Program).
During the 19 year period preceding mid-1994, KBK used the proceeds from the
private issuance of short-term, unrated commercial paper to finance a portion of
its portfolio. The CP Program was canceled by management concurrent with its
June 1994 initial public offering of common stock. Under the Company's CP
Program, certificates may be issued for tenures ranging from 30 to 270 days at
interest rates comparable to the Company's alternative unsecured funding
sources. The certificates will be placed directly by the Company, however, the
Company reserves the right to name a placement agent in the future. The
certificates are not rated by any independent agency and the Company does not
maintain a back-up liquidity facility to support outstanding certificates. As of
December 31, 1999, KBK had issued two certificates with a balance outstanding of
$100,000 at a coupon rate of 6.52%, maturing March 20, 2000.

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
(16.7% of the outstanding shares at year end 1999) of the Company's common stock
at the current market price. At December 31, 1999 and 1998, 591,656 and 355,867
shares of common stock were held in the treasury at a cost of $4.3 million and
$3.1 million, respectively. All of such purchases have been funded out of the
general funds of the Company, which may have had the result of increasing the
outstanding balance under the Credit Facility. During October, 1999, the Company
entered into an agreement to repurchase an aggregate of 483,795 shares of its
common stock over an 18-month period. The per share prices are fixed, ranging
from $5.00 to $5.53, depending on the timing of the purchase. The stock is being
acquired from the previous shareholders of Coastal Financial Resources Inc.,
which was acquired by the Company in December, 1994.

The $21.5 million increase in outstanding loans and accounts receivable
purchased as of December 31, 1999 was funded by an increase in the balance
outstanding under the bank line of credit, which also funded the $4.7 million
increase in cash and the $2.2 million decrease in due to clients. During 2000,
the Company plans to increase the asset sale conduit to $100 million as needed
for funding asset growth.

The Company expended $331,000 and $715,000 on premises and equipment in 1999 and
1998, respectively, principally in connection with upgrades to its management
information systems, computer equipment, office furniture and equipment, and
leasehold improvements. The Company funded such expenditures from internally
generated funds or borrowings under the Credit Facility. The Company plans to
continue enhancements of its management information systems for providing
tracking and supporting new products.

CHANGES IN FINANCIAL CONDITION

Total assets increased 28.3% to $112.4 million as of December 31, 1999. This
increase resulted primarily from the $21.4 million growth in net receivables and
the $4.7 million increase in cash. The Company's allowance for credit losses
stood at $2.0 million on December 31, 1999, 2.0% of gross outstanding accounts
receivable or 2.3% of average owned receivables outstanding during 1999. At
year-end 1998, the reserve for credit losses was $2.0 million, 2.5% of gross
outstanding accounts receivable or 3.2% of average owned receivables outstanding
during 1998. Management believes that the Company's allowance for credit losses
is adequate as of December 31, 1999 and 1998.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June of 1997, the Financial Accounting Standards Board issued SFAS 131
"Disclosures about Segments of an Enterprise and Related Information," which is
required to be adopted for fiscal years beginning after December 15, 1997. This
statement requires that public business enterprises report certain information
about operating segments in complete


                                   Page 13
<PAGE>   14

sets of financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate, and their major customers.
The adoption of SFAS 131 did not have a material impact on the Company's
consolidated financial statements, as the Company is not managed in separate
operating segments.

Impact of the Year 2000 Issue

During 1998, the Company initiated a company-wide program to resolve the
potential impact of the year 2000 on the processing of date-sensitive data by
the Company's computerized information systems. The year 2000 is critical to
these systems as many computer programs were written using two digits rather
than four to define the applicable year.

During 1999, the Company completed its program to prepare the Company's computer
systems and applications for the year 2000. Based on present information, the
Company believes that it is now year 2000 compliant through modification of some
existing programs and the replacement of other programs with new programs that
are year 2000 compliant. The Company utilized both internal and external
resources to reprogram, or replace, and test software for year 2000 compliance.
The total project costs have been immaterial and have been expensed as incurred.

The Company has also taken steps to resolve year 2000 compliance issues that may
be created by clients, debtors and financial institutions with whom the Company
does business. However, there can be no guarantee that the systems of other
entities will be properly converted. A failure to convert by another entity
could have a significant adverse effect on the Company.

Subsequent to December 31, 1999, the Company has experienced no significant
problems related to the year 2000 issue.


                                    Page 14
<PAGE>   15


KBK CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                               Years Ended December 31
                                                                               -----------------------
                                                                              1999                 1998
                                                                              ----                 ----
<S>                                                                      <C>                  <C>
Earned discount income                                                   $  2,596,704         $  1,569,617
Interest income - Loans                                                     8,044,142            5,137,815
Servicing fees (note 2)                                                     5,142,035            7,914,684
Other income - Fees                                                         3,350,320            3,325,710
                                                                         ------------         ------------
         Total revenue                                                     19,133,201           17,947,826
Interest expense                                                            5,522,259            3,148,469
                                                                         ------------         ------------
     Income after interest expense                                         13,610,942           14,799,357
Provision for credit losses (note 4)                                        1,600,000            1,500,000
Provision for impairment losses (note 3)                                      500,000                   --
                                                                         ------------         ------------
Income after interest expense and provision for losses                     11,510,942           13,299,357
Operating expenses:
     Salaries and employee benefits (note 16)                               6,198,839            5,329,177
     Amortization of intangible assets                                        393,513              393,513
     Occupancy and equipment (note 14)                                      1,604,715            1,507,620
     Professional fees                                                        865,470              348,398
     Other                                                                  2,114,426            2,100,201
                                                                         ------------         ------------
         Total operating expenses                                          11,176,963            9,678,909
                                                                         ------------         ------------
     Income before income taxes                                               333,979            3,620,448
Income tax expense (benefit):
     Federal (note 10):
         Current                                                              393,839            1,135,868
         Deferred                                                            (221,534)             182,316
     State                                                                     11,599              (90,542)
                                                                         ------------         ------------
         Total income taxes                                                   183,904            1,227,642
                                                                         ------------         ------------
         Net income                                                      $    150,075         $  2,392,806
                                                                         ============         ============
Earnings per share - basic (note 11)                                     $       0.05         $        .73
                                                                         ============         ============
Weighted-average common shares outstanding - basic (note 11)                3,173,413            3,264,789
                                                                         ============         ============
Earnings per share - diluted (note 11)                                   $       0.05         $        .64
                                                                         ============         ============
Weighted-average common shares outstanding - diluted (note 11)              3,300,180            3,744,106
                                                                         ============         ============
</TABLE>

See accompanying notes to consolidated financial statements


                                    Page 15
<PAGE>   16


KBK CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                 December 31                 December 31
                                                                             ----------------           ----------------
                                                                                    1999                          1998
<S>                                                                          <C>                        <C>
ASSETS (note 6)
Cash                                                                         $      4,854,980           $       136,223
Accounts receivable, net                                                           14,475,250                15,924,170
Loans receivable, net                                                              77,328,257                61,147,544
Retained interest in sold assets (note 2)                                           9,150,992                 2,377,884
Less allowance for credit losses                                                   (2,018,787)               (1,949,573)
                                                                             ----------------           ----------------
              Total receivables, net (note 4)                                      98,935,712                77,500,025

Premises and equipment, net of accumulated depreciation
     of $3,023,383 and  $2,269,494 at December 31, 1999
     and 1998, respectively (note 5)                                                1,607,567                 2,105,945

Intangible assets less accumulated amortization of $2,665,447
     and $2,271,934 at December 31, 1999
     and 1998, respectively                                                         3,092,794                 3,481,559
                                                                             ----------------           ----------------
Other investments, net (note 3)                                                     1,250,000                 1,750,000
Other assets (notes 3 and 10)                                                       2,636,509                 2,646,869
                                                                             ----------------           ----------------
              Total assets                                                   $    112,377,562           $    87,620,621
                                                                             ================           ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Bank line of credit (note 6)                                                 $     56,000,000           $    26,000,000
Mandatorily redeemable preferred securities (note 7)                               16,008,622                15,965,232
Commercial paper (note 8)                                                             100,000                 2,000,000
Due to clients (note 9)                                                            15,060,845                17,232,335
Accounts payable and other liabilities (note  7)                                      970,241                   736,428
Deferred revenue                                                                      339,856                   257,322
                                                                             ----------------           ----------------
              Total liabilities                                                    88,479,564                62,191,317

Stockholders' equity (notes 3, 12, 13, and 17):
     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 3,577,485 shares and outstanding 2,985,829 at
         December 31, 1999 and issued 3,550,738 shares and outstanding
         3,194,871 shares at December 31, 1998                                         35,775                    35,507
     Additional paid-in capital                                                    16,326,919                16,759,567
     Retained earnings                                                             11,833,443                11,693,807
     Treasury stock, at cost, 591,656 shares at December 31,1999
         and 355,867 shares at December 31, 1998                                   (4,298,139)               (3,059,577)
                                                                             ----------------           ---------------
     Total stockholders' equity                                                    23,897,998                25,429,304
Commitments and contingencies (notes 6, 7, 14, 15)
                                                                             ----------------           ---------------
              Total liabilities and stockholders' equity                     $    112,377,562            $   87,620,621
                                                                             ================           ===============
</TABLE>
See accompanying notes to consolidated financial statements.

                                    Page 16
<PAGE>   17



KBK CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Years ended December 31, 1999 and 1998
<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 at December 31, 1997           3,342,033     $ 35,472     $   16,584,805   $  9,301,001     $ (1,352,366)     $ 24,568,912
Purchase of stock for treasury
     (note 12)                          (150,700)          --               --               --       (1,707,211)       (1,707,211)
Exercise of stock options
     (note 13)                             1,400           14              9,786             --               --             9,800
Issuance of common stock
     (note 17)                             2,138           21             19,101             --               --            19,122
Issuance of stock options
     (note 3)                                 --           --            145,875             --               --           145,875
Net income                                    --           --                 --      2,392,806               --         2,392,806
                                       ---------     --------     --------------   ------------     ------------      ------------
Balance at December 31, 1998           3,194,871       35,507         16,759,567     11,693,807       (3,059,577)       25,429,304

Purchase of stock for treasury
     (note 12)                          (239,608)          --                 --             --       (1,271,280)       (1,271,280)
Exercise of stock options
     (note 13)                            23,800          238            117,270             --               --           117,508
Purchase of stock warrants
     (note 12)                                --           --          ( 572,500)            --               --          (572,500)
Issuance of common stock
     from treasury (note 17)               3,819           --                 --        (10,439)          32,718            22,279
Issuance of common stock
     (note 17)                             2,947           30             22,582             --               --            22,612
Net income                                    --           --                 --        150,075               --           150,075
                                       ---------     --------    ---------------   ------------    -------------      ------------
Balance at December 31, 1999           2,985,829    $  35,775    $    16,326,919   $ 11,833,443    $  (4,298,139)     $ 23,897,998
                                       =========    =========    ===============   ============    =============      ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                    Page 17
<PAGE>   18


KBK CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31
                                                                                    --------------------------------
                                                                                    1999                        1998
<S>                                                                           <C>                         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                                    $       150,075             $    2,392,806
     Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
         Depreciation and amortization                                              1,147,402                  1,163,700
         Accretion on mandatorily redeemable preferred securities                      43,390                          -
         Provision for credit losses                                                1,600,000                  1,500,000
         Provision for impairment losses                                              500,000                          -
         Increase in accounts receivable, net                                         (81,866)                (7,624,934)
         Net (increase) decrease in retained interest in sold assets               (6,813,808)                 9,760,267
         Increase in intangible assets                                                 (4,748)                         -
         (Increase) decrease in other assets                                           10,360                   (883,346)
         Increase (decrease) in due to clients                                     (2,171,490)                 7,417,438
         Increase (decrease) in accounts payable and other liabilities                233,813                    (31,365)
         Increase in interest payable for the sold assets                              40,700                     10,458
         Decrease in income taxes payable                                                   -                    (11,307)
         Increase in deferred revenue                                                  82,534                     19,299
                                                                              ---------------             --------------
     Net cash provided by (used in) operating activities                           (5,263,638)                13,713,016

CASH FLOWS FROM INVESTING ACTIVITIES
     Net increase in loans receivable, net                                        (16,180,713)               (39,033,867)
     Sale of premises and equipment                                                    75,402                     15,400
     Purchases of premises and equipment                                             (330,913)                  (714,785)
                                                                              ---------------             --------------
              Net cash used in investing activities                               (16,436,224)               (39,733,252)

CASH FLOWS FROM FINANCING ACTIVITIES
     Net borrowings from bank line of credit                                       30,000,000                  5,000,000
     Issuance of mandatorily redeemable preferred securities, net                           -                 15,965,232
     Increase (decrease) in commercial paper                                       (1,900,000)                 2,000,000
     Purchase of stock warrants                                                      (572,500)                        -
     Repurchase of common stock                                                    (1,271,280)                (1,707,211)
     Exercise of stock options                                                        117,508                      9,800
     Issuance of common stock                                                          44,891                     19,122
                                                                              ---------------             --------------
              Net cash provided by financing activities                            26,418,619                 21,286,943
                                                                              ---------------             --------------
              Net increase (decrease) in cash                                       4,718,757                 (4,733,293)
Cash at beginning of year                                                             136,223                  4,869,516
                                                                              ---------------             --------------
Cash at end of year                                                           $     4,854,980             $      136,223
                                                                              ===============             ==============
Supplemental disclosure of cash flow information:
     Cash paid for interest                                                   $     3,080,665             $    2,839,381
     Income taxes paid                                                        $       126,000             $    1,595,000
                                                                              ===============             ==============
     See note 3 for additional supplemental cash flow information
</TABLE>
See accompanying notes to consolidated financial statements.


                                    Page 18
<PAGE>   19


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements presented herein reflect the consolidated financial
statements for KBK Capital Corporation (the "Company") and its wholly owned
subsidiaries, KBK Financial, Inc., ("KBK"), KBK Receivables Corporation, ("SPC")
and KBK Capital Trust I, (the "Trust"). All material intercompany balances and
transactions have been eliminated in consolidation.

The accounting and reporting policies of the Company conform to generally
accepted accounting principles ("GAAP") and to practices within the finance
industry. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the consolidated balance sheets and
revenues and expenses for the period, and actual results could differ from those
estimates. The Company provides financial services through the extension of
secured loans and the discounted purchase of accounts receivable.

Discount Income and Interest Income

Variable discount income from purchased receivables and interest income from
loans receivable are recorded on an accrual basis in accordance with the terms
of the agreements. Fixed discounts from accounts receivable are earned in the
month in which the receivables are purchased. The financial result of this
method of recognizing such fixed discounts does not differ materially from the
accrual method utilized in recognizing variable discounts.

Loans Receivable

Loans receivable are recorded at cost, less the related allowance for estimated
impairment and credit losses. Management, considering current information and
events regarding the borrowers' ability to repay their obligations, considers a
note to be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the note
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the note's effective interest rate. Impairment losses are included
in the allowance for credit losses through a charge to provision for credit
losses. Cash receipts on impaired loans receivable are applied to reduce the
principal amount of such loans until the principal has been recovered and are
recognized as interest income, thereafter.

Allowance for Credit Losses

The allowance for credit losses represents the provision charged to operations,
less accounts receivable or loans receivable charged off, net of recoveries. The
allowance for credit losses is an amount which, in the judgment of management,
is adequate to absorb the estimated losses of accounts receivable or loans
receivable. The amount of provision for credit losses is set with reference to
the adequacy of the allowance. Management's periodic evaluation of the adequacy
of the allowance is based upon the Company's past credit loss experience, known
and inherent risks in the receivables, adverse situations that may affect
repayment, the potential for additional costs to perfect title to collateral and
current and prospective economic situations.

Management regularly reviews the portfolio of earning assets to identify
accounts which have or may become collection problems. When any account becomes
doubtful as to collection of discount or interest income, the account is placed
on non-accrual status. Any discount or interest income accrued during the
current year, but not received at the time its collectability becomes doubtful,
is reversed in that year to the extent deemed uncollectable. Additional
discounts and interest accrued in prior years, which are subsequently determined
to have doubtful collectability, are charged to the allowance for credit losses.
Payments of discount and interest income subsequently received on accounts or
relationships classified as non-accrual are recognized as received. After an
account relationship is placed on non-accrual status, no income is accrued until
circumstances indicate that such income is collectable.

Premises and Equipment

Premises and equipment are carried at cost, net of accumulated depreciation.
Depreciation is computed primarily using the straight-line method over the
useful lives of the assets. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in income for the period. The cost of
maintenance and repairs is charged to expense as incurred.

                                     Page 19
<PAGE>   20

Intangible Assets

Goodwill, which represents the excess of purchase price over the fair value of
net assets acquired in the 1994 acquisition of Coastal Financial Resources,
Inc., is amortized on a straight-line basis over fifteen years. The Company
assesses the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through the operating cash flows of the acquired business. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.

The noncompetition agreement entered into with the previous owner of KBK is
amortized on a straight-line basis over the life of the agreement, approximately
thirteen years, through March 31, 2005.

Mandatorily Redeemable Preferred Securities

In 1998, the Company issued 1,725,000 shares of 9.50% mandatorily redeemable
Trust Preferred Securities ("Preferred Securities") through its subsidiary, the
Trust. The principal assets of the Trust are 9.50% subordinated debentures from
the Company due in 2028. The Preferred Securities are recorded at total proceeds
from the sale less the related offering costs and are classified as debt in the
accompanying consolidated balance sheets (note 7).

Income Taxes

The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

The Company files a consolidated Federal income tax return and reflects a
consolidated tax provision.

Stock Option Plan

Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. SFAS
No. 123, "Accounting for Stock-Based Compensation," permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in 1996 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provides the pro forma disclosure
provisions of SFAS No. 123 (note 13).

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

The Company reviews for impairment of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

Fair value of Financial Instruments

The carrying amount of cash, accounts receivable, retained interest in sold
assets, due to clients, accounts payable and other liabilities approximates fair
value because of the short maturity of these instruments. The carrying value of
loans receivable approximates fair value because the loans are earning interest
at floating rates, which approximate rates currently offered by local lending
institutions for loans of similar terms to companies with comparable credit
risk. The carrying value of the Company's bank debt and commercial paper
approximates fair value because it bears interest at



                                     Page 20
<PAGE>   21

floating rates that are similar to current borrowing rates for loans of
comparable maturity and credit risk and because of the short maturities of the
commercial paper and LIBOR tranches of the line of credit. The fair market value
of the mandatorily redeemable preferred stock, which approximates carrying
value, is estimated using rates offered on similar types of risk commensurate
instruments, considering the risks associated with those instruments.

(2)  SALE OF ASSETS

In April of 1997, KBK completed a sale of purchased receivables and inventory
loans, in which a substantial portion of KBK's owned receivables and inventory
loans were transferred into SPC, also known as a special purpose corporation.
Under this structure, SPC sells eligible receivables to a conduit, which in turn
issues commercial paper to fund its ongoing purchase of assets. This structure
allows KBK to effectively fund its portfolio of earning assets on a non-recourse
basis, through the commercial paper conduit. The nature of these sales is a
"Revolving Period" sale where receivables are transferred at the inception and
periodically (weekly or monthly) thereafter for a five year period. During the
Revolving Period, SPC uses most of the cash collections to purchase additional
receivables from KBK. The transfer of earning assets into SPC, and subsequent
sale to the commercial paper conduit, is treated as a sale. The assets sold to
SPC and the commercial paper conduit continue to be serviced by KBK, which
receives periodic revenue in the form of a servicing fee, as outlined in the
servicing agreement. Neither a servicing asset nor a servicing liability is
recorded due to the term of the receivables initially transferred and the
commitment obligation during the Revolving Period. The determination of a value
is not practicable and, therefore, no value is recorded. Although the sale is on
a non-recourse basis, KBK may in certain circumstances deem it necessary to
repurchase or replace specific receivables. No gain or loss results from the
sale of these receivables to SPC. A retained interest in the sold assets remains
on the consolidated balance sheets and represents the amounts due from the
conduit. This retained interest amounted to $9,150,992 and $2,377,884 at
December 31, 1999 and 1998, respectively.

As of December 31, 1999 and 1998, KBK had $55.9 million and $75.0 million,
respectively, of receivables and inventory loans outstanding in the conduit
facility and during 1999 and 1998 the Company had recorded approximately $5.1
million and $7.9 million, respectively, in fees related to managing and
servicing such assets. Currently, the Company has the ability to fund up to
$85.0 million through the conduit facility.

(3)  SUPPLEMENTAL CASH FLOW INFORMATION

During 1998, a receivable balance of the Company was deemed non-performing due
to allegedly fraudulent invoices being sold to KBK. To partially offset the
unsecured portion of the receivables purchased balance, KBK was offered and
accepted an ownership interest in a newly formed entity, which took over the
operations of the company selling KBK the invoices. The ownership interest of
this newly formed entity, amounting to $1,750,000, has been included in other
investments as an equity investment in the new entity. During 1999, the Company
established a $500,000 provision for impairment loss related to this asset. The
net fair value of $1,250,000 was determined by reference to the present value of
the estimated future cash flows of the asset.

During 1998, 25,000 employee stock options were granted at an exercise price
less than the market price at the date of issuance. Accordingly, deferred
compensation of $145,875 was recorded as other assets. Amortization of this
amount is being recorded over a five-year period to compensation expense. The
impact of this amortization to the consolidated financial statements in 1999 and
1998 was not material.

(4)  RECEIVABLES

Receivables at December 31, 1999 and 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                   1999                    1998
                                             ---------------         --------------
<S>                                          <C>                     <C>
Accounts receivable                          $    21,969,340         $   20,913,835
     Less participation                           (7,494,090)            (4,989,665)
Loans receivable                                  80,346,222             70,888,085
     Less participation                           (3,391,512)           (10,080,859)
Employee advances                                    373,547                340,318
Retained interest in sold assets                   9,150,992              2,377,884
                                             ---------------         --------------
                                                 100,954,499             79,449,598
Less allowance for credit losses                   2,018,787              1,949,573
                                             ---------------         --------------
                                             $    98,935,712         $   77,500,025
                                             ===============         ==============
</TABLE>

                                    Page 21

<PAGE>   22

Accounts receivable are purchased from clients engaged in a variety of
industries including, but not limited to, wholesale and retail sales,
engineering and construction, energy, manufacturing, transportation, and
marketing related companies. The two largest clients represent 6.9% and 6.8%,
respectively, of total receivables or 29.0% and 28.6%, respectively, of
stockholders' equity at December 31, 1999. At December 31, 1998, the two largest
clients represented 12.7% and 9.8%, respectively, of total receivables or 39.7%
and 30.7%, respectively, of stockholders' equity.

At December 31, 1999, approximately 30.3% and 14.4% of the outstanding accounts
receivable under management were purchased from clients in manufacturing related
and services related industries, respectively. At December 31, 1998,
approximately 34.9% and 11.5% of the outstanding accounts receivable under
management were purchased from clients in manufacturing related and services
related industries, respectively.

The two largest debtors at December 31, 1999, had outstanding accounts
receivable under management of $4.1 million and $3.9 million, which represented
approximately 5.9% and 5.6%, respectively, of the total outstanding accounts
receivables under management at that date. The two largest debtors at December
31, 1998, had outstanding accounts receivable under management of $3.8 million
and $3.4 million, which represented approximately 4.8% and 4.2%, respectively,
of the total outstanding accounts receivables under management at that date.

Accounts receivable generally have terms of 30 days and are normally collected
within 30 to 60 days from the date of purchase. Loans receivable are secured by
accounts receivable, inventory, and equipment, and generally guaranteed by the
individual or corporate owners of the business.


The following is an analysis of the activity in the allowance for credit losses:

<TABLE>
<CAPTION>

                                                   Year Ended December 31
                                            ------------------------------------
                                                 1999                   1998
                                            --------------        --------------
<S>                                         <C>                   <C>
Balance at beginning of year                $    1,949,573        $    1,928,629
Provision for credit losses                      1,600,000             1,500,000
Charge-offs                                     (1,570,297)           (1,482,067)
Recoveries                                          39,511                 3,011
                                            --------------        --------------
Balance at end of year                      $    2,018,787        $    1,949,573
                                            ==============        ==============
</TABLE>


(5)  PREMISES AND EQUIPMENT

Premises and equipment at December 31, 1999 and 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                 Estimated
                                                                               useful lives
                                        1999                   1998              in years
                                    -------------         -------------        ------------
<S>                                 <C>                   <C>                  <C>
Office equipment                    $   3,938,434         $   3,660,119             3-7
Automotive                                 21,352                96,754               5
Leasehold improvements                    671,164               618,566            2-10
                                    -------------         -------------        ------------
                                        4,630,950             4,375,439
Less accumulated depreciation           3,023,383             2,269,494
                                    -------------         -------------
                                    $   1,607,567         $   2,105,945
                                    -------------         -------------
</TABLE>

(6)  BANK LINE OF CREDIT

KBK maintains a $72,875,000 multi-bank revolving line of credit ("Credit
Facility"), maturing on April 30, 2001 and bearing interest at the agent bank's
prime rate or LIBOR plus 1.75% at the election of KBK, and secured by
substantially all of KBK's assets. At December 31, 1999, $72,875,000 was
committed with outstanding indebtedness under this Credit Facility of
$56,000,000 (at a weighted average interest rate of 8.11%). Under this revolving
credit facility, KBK is entitled to the issuance of one or more letters of
credit which in total shall not exceed the lesser of $7.5 million or the
remainder of the revolving borrowing base, less all amounts outstanding on the
revolving credit facility. There were $940,048 in letters of credit outstanding
at December 31, 1999. At December 31, 1998, $55,000,000 was committed with
outstanding indebtedness of $26,000,000 (at a weighted average interest rate of
7.29%), and there were $2,394,817 in letters of credit outstanding under this
revolving line of credit. The terms of the Credit Facility require KBK to comply


                                    Page 22
<PAGE>   23

with certain financial covenants and include the maintenance of a certain
tangible net worth, limitations on its debt to tangible net worth, limitations
on chargeoffs and non-performing assets and an interest coverage ratio. The
Credit Facility also provides for a borrowing base against eligible receivables
and eligible loans pursuant to the terms of the Credit Facility. KBK was in
compliance with the financial covenants and borrowing base limitations, and
there was approximately $2,553,000 and $26,605,000 in available credit under
this line at December 31, 1999 and 1998, respectively.

The following is an analysis of the activity under the line of credit for the
years indicated:

<TABLE>
<CAPTION>
                                            Years Ended December 31
                                      -------------------------------------
                                           1999                 1998
                                      --------------         --------------
<S>                                   <C>                    <C>
Average amount outstanding            $   46,059,000         $   31,321,000
                                      --------------         --------------
Maximum outstanding as of
     any month-end                    $   58,000,000         $   47,650,000
                                      --------------         --------------
Weighted-average interest rate                   7.1%                  7.4%
                                      --------------         --------------
</TABLE>


(7)  MANDATORILY REDEEMABLE PREFERRED SECURITIES

In 1998, the Trust issued 1,725,000 shares of mandatorily redeemable Trust
Preferred Securities. The principal assets of the Trust are approximately $16.0
million in subordinated debentures issued by the Company. The subordinated
debentures, which are eliminated upon consolidation of the Trust with the
Company, bear interest at a rate of 9.50% and mature in 2028, subject to
extension or earlier redemption in certain events. The Company owns all of the
common securities of the Trust.

The Preferred Securities are redeemable for cash, at the option of the Trust, in
whole or in part, from time to time on or after November 30, 2001, at a
redemption price of $10.00 per share plus accumulated and unpaid distributions
thereon. The Preferred Securities will also be redeemable upon the repayment
either at maturity of the Debentures or as a result of the acceleration of the
Debentures upon an event of default.

Distributions on the Preferred Securities are cumulative and accrue at 9.50% per
annum on the sum of liquidation value thereof, plus unpaid distributions, which
have been accrued in prior quarters. Accrued and unpaid distributions are
reflected in other liabilities in the accompanying consolidated balance sheets.

The obligations of the Company with respect to the issuance of the Preferred
Securities constitute an irrevocable guarantee by the Company of the Trust's
obligation with respect to the Preferred Securities.

Subject to certain limitations, the Company may, from time to time, defer
subordinated debenture interest payments to the Trust, which would result in a
deferral of distribution payments on the related Preferred Securities. In such
case, the distributions on the Preferred Securities will accumulate and compound
quarterly at 9.50% per annum.

The difference between the carrying value and liquidation value of the Preferred
Securities, $1,241,378 as of December 31, 1999, is being accredited over 15
years by making periodic charges to the Company's earnings.

(8)  COMMERCIAL PAPER

Under the Company's commercial paper program, certificates may be issued for
tenures ranging from 30 to 270 days at interest rates comparable to the
Company's alternative unsecured funding sources. The certificates will be placed
directly by the Company, however, the Company reserves the right to name a
placement agent in the future. The certificates are not rated by any independent
agency and the Company does not maintain a back-up liquidity facility to support
outstanding certificates. As of December 31, 1999, KBK had issued two
certificates with a balance outstanding of $100,000 at a coupon rate of 6.52%,
maturing March 20, 2000. As of December 31, 1998, KBK had issued three
certificates with a balance outstanding of $2,000,000 ($1,000,000 at a coupon
rate of 7.75%, maturing January 13, 1999 and $1,000,000 at a coupon rate of
8.75%, maturing June 11, 1999). The commercial paper balance included $1,000,000
issued to a former Director of the Company.



                                    Page 23

<PAGE>   24
(9)  DUE TO CLIENTS

The Company typically pays less than the face value of the invoice at the time a
receivable is purchased from a client. Upon collection of the purchased
invoices, amounts collected in excess of discount income and the initial payment
are remitted to clients. Such amounts may, in some instances, be applied to
offset uncollected account balances due to clients' breach of representations or
warranties.

(10) INCOME TAXES

The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                             1999                           1998
                                                        -------------                  ------------
<S>                                                     <C>                            <C>
Deferred tax assets:
     Allowance for credit losses                        $     444,578                  $    476,169
     Allowance for impairment losses                          168,865                            -
Deferred tax liabilities:
     Premises and equipment, due to differences
     in depreciation                                          (10,044)                     (119,490)
     Amortization of non-compete agreement                   (103,699)                      (78,513)
                                                        -------------                  ------------
     Net deferred tax asset                             $     499,700                  $    278,166
                                                        =============                  ============
</TABLE>

No valuation allowance has been established for the deferred tax assets at
December 31, 1999 or 1998 as management believes that realizability of such
assets is more likely than not. The income tax expense was different than the
amount computed by using the U.S. Federal income tax rate of 34.0% as a result
of the following:

<TABLE>
<CAPTION>
                                                   Years Ended December 31
                                        -------------------------------------------
                                              1999                         1998
                                        --------------                 ------------
<S>                                     <C>                            <C>
Computed "expected" tax expense         $      113,553                 $  1,230,952
Nondeductible amortization                      81,453                       57,295
Nondeductible, other                            14,413                           -
State Income Tax, net                            7,655                      (59,758)
Other, net                                     (33,170)                        (847)
                                        --------------                 ------------
                                        $      183,904                 $  1,227,642
                                        ==============                 ============
</TABLE>

(11) EARNINGS PER SHARE

Following is a reconciliation between the weighted average shares outstanding
used in the basic and diluted EPS computations:

<TABLE>
<CAPTION>

                                                                Years Ended December 31
                                                          -----------------------------------
                                                               1999                 1998
                                                          -------------         -------------
<S>                                                       <C>                   <C>
Net Income                                                $     150,075         $   2,392,806
                                                          =============         =============
Weighted average shares outstanding - Basic                   3,173,413             3,264,789
                                                          =============         =============
Earnings per share - Basic                                $         .05         $         .73
                                                          =============         =============

Weighted average shares outstanding - Basic                   3,173,413             3,264,789
Effect of dilutive securities:
     Assumed exercise of stock options and warrants             126,767               479,317
                                                          -------------         -------------
Weighted average shares outstanding - Diluted                 3,300,180             3,744,106
                                                          =============         =============
Earnings per share - Diluted                              $         .05         $         .64
                                                          =============         =============
</TABLE>


(12) STOCKHOLDERS' EQUITY

In 1992, in connection with the formation of the Company, the Company sold
warrants to two former directors and one current director to purchase 500,000
shares of the Company's common stock. During 1999, the Company paid $572,500 to
repurchase from a former director warrants to purchase 160,000 shares. The
remaining 340,000 warrants are exercisable at $5 per share and expire on
February 25, 2005.


                                    Page 24
<PAGE>   25

Pursuant to the Stock Repurchase Plan initiated in 1995, the Company held
591,656 shares of Treasury Stock at a cost of $4,298,139 as of December 31,
1999, and 355,867 shares of Treasury Stock at a cost of $3,059,577 as of
December 31, 1998. During October, 1999, the Company entered into an agreement
to repurchase 483,795 shares of its common stock over an 18-month period. The
per share prices are fixed, ranging from $5.00 to $5.53, depending on the timing
of the purchase. The stock is being acquired from the previous shareholders of
Coastal Financial Resources Inc., which was acquired by the Company in December,
1994.


(13) STOCK OPTION PLANS

In 1994, the stockholders approved the 1994 Stock Option Plan for the benefit of
the employees and non-employee directors. Such plan replaced both plans
previously adopted by the Board and the stockholders. This plan authorizes the
Company to grant incentive options or options which do not constitute incentive
options and an automatic grant of options which do not constitute incentive
options to non-employee directors. This plan is administered by the Compensation
Committee of the Board of Directors. The aggregate number of shares which may be
issued under this plan, shall not exceed 400,000 shares of common stock of the
Company. Such options become exercisable ratably over five years from the date
of grant and expire ten years from the grant date if not exercised.

In 1996, the stockholders approved the 1996 Long-Term Incentive Plan for the
benefit of employees, consultants and advisors of the Company. This plan does
not replace or affect the 1994 Stock Option Plan. The 1996 Plan is administered
by the Compensation Committee of the Board of Directors. The Committee is
authorized to grant to key employees, consultants and advisors of the Company
and its subsidiaries and affiliates, awards in the form of stock options,
performance shares, and restricted stock. In addition, the Committee will have
the authority to grant other stock-based awards in the form of stock
appreciation rights, restricted stock units, and stock unit awards. The types of
awards and terms of their issuance will be determined by the Committee and
specified in the option agreement evidencing the grant. A maximum of 675,000
shares of common stock may be issued under this Plan (as amended in 1999), with
a 200,000 share limitation for any individual. The Plan will expire ten years
from the effective date unless terminated earlier or extended by the Board of
Directors.

At December 31, 1999, there were 374,550 shares available for grant under the
two Plans. The per share weighted-average fair value of stock options granted
during 1999 and 1998 was $3.49 and $5.24 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
expected dividend yield of 0%, expected volatility of 42% in 1999 and 32% in
1998, risk-free interest rate of 6%, and an expected life of 9 years.

The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the proforma
amounts indicated below:

<TABLE>
<CAPTION>
                                             1999                   1998
                                        ------------           -----------
<S>                                     <C>                    <C>
Net income      As reported             $    150,075           $ 2,392,806
                Pro Forma               $    100,000           $ 2,324,000
Earnings per share - basic
                As reported             $        .05           $       .73
                Pro Forma               $        .03           $       .71
Earnings per share - diluted
                As reported             $        .05           $       .64
                Pro Forma               $        .03           $       .62
                                        ------------           -----------
</TABLE>

Pro forma net income reflects only options granted in 1999 and 1998. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period of 10
years and compensation cost for options granted prior to January 1, 1998 is not
considered.

                             Page 25
<PAGE>   26

Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                    Number of         Weighted-Average
                                      Shares           Exercise Price
<S>                                   <C>                 <C>
Balance at December 31, 1996          329,500             $  6.28
Granted                               180,000                5.14
Exercised                                  --                  --
Forfeited                             (61,000)               5.08
                                      -------             -------
Balance at December 31, 1997          448,500                5.86
Granted                               181,750                9.66
Exercised                              (1,400)               7.00
Forfeited                             (19,100)               6.31
                                      -------             -------
Balance at December 31, 1998          609,750                6.96
Granted                               198,000                5.68
Exercised                             (23,800)               4.94
Forfeited                             (75,700)               8.73
                                      -------             -------
Balance at December 31, 1999          708,250             $  6.42
                                      -------             -------
</TABLE>


The following table summarizes information about stock options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                                        Options Outstanding
                              ------------------------------------------
                                   Number               Weighted Average
    Range of                     Outstanding                Remaining                Weighted-Average
 Exercise Prices                 at 12/31/99            Contractual Life              Exercise Price
----------------              ----------------          ----------------             ----------------
<S>                           <C>                       <C>                          <C>
$4.06 to $5.94                     447,000                  7.34 years                   $   5.21
$6.00 to $7.25                     128,000                  5.94                             6.87
$9.00 to $9.94                      83,250                  6.57                             9.29
$11.00 to $12.00                    50,000                  8.00                            11.30
----------------              ----------------          ----------------             ----------------
$4.06 to $12.00                    708,250                  7.04                         $   6.42
----------------              ----------------          ----------------             ----------------
</TABLE>

<TABLE>
<CAPTION>
                          Options Exercisable
                        ------------------------
                                 Number                   Weighted
     Range of                Exercisable at                Average
  Exercise Prices               12/31/99               Exercise Price
-----------------            --------------            --------------
<S>                          <C>                       <C>
$4.06 to $5.94                  131,600                    $  5.17
$6.00 to $7.75                  112,000                       6.85
$9.00 to $9.94                   38,250                       9.13
$11.00 to $12.00                 34,000                      11.32
-----------------            --------------            --------------
$4.06 to $12.00                 315,850                    $  6.90
-----------------            --------------            --------------
</TABLE>

At December 31, 1999 and 1998, the number of options exercisable was 315,850 and
268,400, respectively, and the weighted-average exercise price of those options
was $6.90 and $6.65, respectively.

                                     Page 26
<PAGE>   27

(14) COMMITMENTS

The Company has several noncancelable operating leases for office space. Total
rent expense incurred was $742,000 and $687,000, during 1999 and 1998. At
December 31, 1999, future minimum payments on noncancelable operating leases are
as follows:

<TABLE>
<CAPTION>
    Year Ending
    December 31
-----------------    -----------------
<S>                  <C>
       2000          $  772,783
       2001             768,539
       2002             721,855
       2003             345,926
       2004              43,762
    Thereafter                -
</TABLE>

(15) FINANCIAL OBLIGATIONS WITH OFF-BALANCE SHEET RISK

The Company may have limited off-balance sheet risk due to agreements with
clients. In certain circumstances, the Company may have a commitment to continue
purchasing accounts receivable from a client during a 30-day notice period. A
notice of termination of the agreement is required, under some conditions,
before the agreement may be terminated.

The Company's exposure to credit loss with respect to future purchases of
accounts receivable, in the event of nonperformance by the other party, does not
exceed the amounts to be considered for purchase. The Company uses its
established credit policies to consider committing to purchase accounts
receivable, and all future purchases of receivables are contingent on the
individual clients maintaining specific credit and other standards at the time
of the purchase funding.

In the normal course of business, the Company accepts warrants to acquire equity
in its borrowers. As these warrants have no ready market and are thinly traded,
the Company does not recognize unrealized gains or losses relative to the
warrants' value.

The Company's average receivable purchases in a 30-day period (considered to be
the maximum future purchase commitment, although not a contractual obligation)
pursuant to its normal business practice were approximately $53,600,000 and
$55,800,000 for 1999 and 1998, respectively.

(16) INVESTMENT PLAN

In 1996, the Company adopted a defined contribution plan ("the "Plan") that is a
qualified plan under Section 401(k) of the Internal Revenue Code for the benefit
of KBK employees. The Plan is available to substantially all employees with at
least six months of employment. Employee contributions are voluntary. The
Company may, at the discretion of the Board, annually elect to match some
portion of employee contributions to this Plan. The Company currently matches
50% of every employee contribution subject to a 6% salary limit. The Company's
contributions to the Plan totaled $93,000 for 1999 and $69,000 for 1998.

(17) EMPLOYEE STOCK PURCHASE PLAN

In April of 1998, the Company adopted the 1998 Employee Stock Purchase Plan,
("the Stock Plan") which subsequently received shareholder approval. The Stock
Plan provides eligible full-time employees with an opportunity to purchase
common stock of the Company through payroll deductions. The aggregate number of
shares of common stock which may be purchased under the Stock Plan shall not
exceed 150,000 (subject to adjustment in the event of stock dividends, stock
splits, combinations of shares, recapitalizations or other changes in the
outstanding common stock). The exercise price for the stock purchase shall be
90% of the lower of the fair market value of the stock on the first day or the
last day of the calendar quarter of the applicable option period. The Stock Plan
became effective July 1, 1998. The shares purchased by employees through the
Stock Plan totaled 6,766 in 1999 and 2,138 in 1998.

                                    Page 27
<PAGE>   28



INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders

KBK Capital Corporation:

We have audited the accompanying consolidated balance sheets of KBK Capital
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of KBK Capital
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

                                                        KPMG LLP
Fort Worth, Texas
February 3, 2000


KBK CAPITAL CORPORATION and SUBSIDIARIES
QUARTERLY SUMMARY RESULTS (Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
                                                       1999
                                 YTD      ----------------------------------------------
                                 1999     4TH QTR     3RD QTR     2ND QTR      1ST QTR
                               --------   --------   ----------  ----------   ----------
<S>                            <C>        <C>        <C>         <C>          <C>
Average Net Earning Assets
   Managed and Owned           $131,712   $137,455   $  129,183  $  126,459   $  133,739
   Owned                         75,295     82,728       77,096      71,481       69,712
                               ========   ========   ==========  ==========   ==========

Revenue                        $ 19,133   $  4,879   $    4,891  $    4,650   $    4,713
Interest Expense                  5,522      1,588        1,427       1,281        1,226
Operating Expenses               11,177      2,777        2,687       3,013        2,700
                               --------   --------   ----------  ----------   ----------
Operating profit                  2,434        514          777         356          787
Provision for credit losses       1,600        400          400         400          400
Provision for impairment losses     500        500            -           -            -
                               --------   --------   ----------  ----------   ----------
Pretax Income (Loss)                334       (386)         377         (44)         387
Taxes                               184       (123)         175          (3)         135
                               --------   --------   ----------  ----------   ----------
Net Income (Loss)              $    150   $   (263)  $      202  $      (41)  $      252
                               ========   ========   ==========  ==========   ==========
Earnings (Loss)
   Per Share - Basic           $    .05   $   (.08)  $      .06  $     (.01)  $      .08
Earnings (Loss)
   Per Share - Diluted         $    .05   $   (.07)  $      .06  $     (.01)  $      .07
                               ========   ========   ==========  ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                          1998
                                  YTD       -----------------------------------------------
                                  1998       4TH QTR     3RD QTR     2ND QTR      1ST QTR
                                ----------  ----------  ----------  ----------   ----------
<S>                             <C>         <C>         <C>         <C>          <C>
Average Net Earning Assets
   Managed and Owned            $  118,441  $  137,148  $  122,811  $  112,587   $  101,252
   Owned                        $   49,567  $   63,867  $   50,845  $   45,943   $   37,698
                                ==========  ==========  ==========  ==========   ==========

Revenue                         $   17,948  $    4,715  $    4,500  $    4,635   $    4,097
Interest Expense                     3,149       1,144         835         679          491
Operating Expenses                   9,679       2,805       2,359       2,361        2,154
                                ----------  ----------  ----------  ----------   ----------
Operating profit                     5,120         766       1,306       1,595        1,452
Provision for credit losses          1,500         400         400
Provision for impairment losses          -           -           -           -            -
                                ----------  ----------  ----------  ----------   ----------
Pretax Income (Loss)                 3,620         366         906       1,195        1,152
Taxes                                1,227         117         186         478          446
                                ----------  ----------  ----------  ----------   ----------
Net Income (Loss)              $     2,393  $      249  $      720  $      717   $      706
                                ==========  ==========  ==========  ==========   ==========
Earnings (Loss)
   Per Share - Basic            $     0.73  $      .08  $      .22  $      .22   $      .21
Earnings (Loss)
   Per Share - Diluted          $     0.64  $      .08  $      .19  $      .19   $      .18
                                ==========  ==========  ==========  ==========   ==========
</TABLE>


                             Page 28
<PAGE>   29


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

     The information required by this item is included in the Company's Proxy
Statement to be filed pursuant to Regulation 14A in connection with the
Company's 2000 Annual Meeting of Stockholders, under the captions "Election of
Directors," "Information Concerning Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference.


ITEM 10. EXECUTIVE COMPENSATION

     The information required by this item is included in the Proxy Statement to
be filed pursuant to Regulation 14A in connection with the Company's 2000 Annual
Meeting of Stockholders, under the captions "Compensation of Executive Officers"
and is incorporated herein by reference.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is included in the Proxy Statement to
be filed pursuant to Regulation 14A in connection with the Company's 2000 Annual
Meeting of Stockholders, under the captions "Share Ownership of Directors,
Executive Officers and Certain Beneficial Owners" and is incorporated herein by
reference.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is included in the Proxy Statement to
be filed pursuant to Regulation 14A in connection with the Company's 2000 Annual
Meeting of Stockholders, under the captions "Certain Relationships and Related
Party Transactions" and is incorporated herein by reference.


                                    Page 29
<PAGE>   30


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits:

<TABLE>
<CAPTION>
     Exhibit Number
<S>    <C>     <C>
3.1    --      Restated Certificate of Incorporation of the Company
               (incorporated by reference to Exhibit 3.1 to the Registrant's
               Registration Statement on form SB-2, Registration No.
               33-77378-D).

3.2    --      Bylaws of the Company and amendment thereto (incorporated by
               reference to Exhibit 4.5 to the Registrant's Registration
               Statement on Form S-8, Registration No. 33-89377).

4.1    --      Specimen Stock Certificate for Common Stock of the Company
               (incorporated by reference to Exhibit 4.1 to the Registrant's
               Registration Statement on form SB-2, Registration No.
               33-77378-D).

4.2    --      Form of Registration Rights Agreement between the Company and the
               parties named therein, as amended (incorporated by reference to
               Exhibit 4.2 to the Registrant's Registration Statement on Form
               SB-2, Registration No. 33-77378-D).

**10.1 --      1992 Key Employee Stock Option Plan of the Company (terminated),
               and forms of stock option agreements and amendments thereto
               (incorporated by reference to Exhibit 10.1 to the Registrant's
               Registration Statement on Form SB-2, Registration No.
               33-77378-D).

**10.2 --      1993 Non-Employee Director Stock Option Plan of the Company
               (terminated), and form of stock option agreement (incorporated by
               reference to Exhibit 10.2 to the Registrant's Registration
               Statement on form SB-2, Registration No. 33-77378-D).

**10.3 --      1994 Stock Option Plan of the Company, and forms of stock option
               agreements (incorporated by reference to Exhibit 10.3 to the
               Registrant's Registration Statement on Form SB-2, Registration
               No. 33-77378-D).

  10.4 --      Form of Indemnification Agreement between the Company and each of
               its directors (incorporated by reference to Exhibit 10.4 to the
               Registrant's Registration Statement on form SB-2, Registration
               No. 33-77378-D).

  10.5 --      Stock Purchase Agreement dated as of April 2, 1992 among the
               Company, KBK, Inc. and R. Doyle Kelley (incorporated by reference
               to Exhibit 10.5 to the Registrant's Registration Statement on
               Form SB-2, Registration No. 33-77378-D).

  10.6 --      Employment and Non-Competition Agreement dated Aril 7, 1992
               between the Company and R. Doyle Kelley (incorporated by
               reference to Exhibit 10.6 to the Registrant's Registration
               statement on form SB-2, Registration No. 33-77378-D).

 10.7  --      documents (incorporated by reference to Exhibit 10.7 to the
               Registrant's registration Statement on form SB-2, Registration
               No. 33-77378-D).

 10.8  --      Form of Warrants of the Company (incorporated by reference to
               Exhibit 10.8 to the Registrant's Registration Statement on Form
               SB-2, Registration No. 33-77378-D).

 10.9  --      Stock Exchange Agreement among KBK Capital Corporation and
               Coastal, Inc. and the Owners of the outstanding capital stock of
               Coastal Financial Resources, Inc. dated as of December 30, 1994
               (incorporated by reference to Exhibit 10.9 to the Registrant's
               Registration Statement on Form SB-2, Registration No.
               33-77378-D).

 10.10 --      Amended and Restated Letter Loan Agreement dated as of August 21,
               1997 among KBK Financial, Inc., as borrower, and KBK Capital
               Corporation, as guarantor, and the Banks listed on the signature
               pages thereof and Bank One, Texas, N.A. as Agent (incorporated by
               reference to Exhibit 10.10 to the Registrant's Registration
               Statement on Form SB-2, Registration No. 33-77378-D).

 10.11 --      Amendment to Third Amended and Restated Loan Agreement
               (incorporated by reference to Exhibit 10.11 to the Registrant's
               Registration Statement on Form SB-2, Registration No.
               33-77378-D).

 10.12 --      Receivables Purchase Agreement (4/11/97) (incorporated by
               reference to Exhibit 10.12 to the Registrant's Registration
               Statement on Form SB-2, Registration No. 33-77378-D).

 10.13 --      Purchase and Sale Agreement (4/11/97) (incorporated by reference
               to Exhibit 10.13 to the Registrant's Registration Statement on
               Form SB-2, Registration No. 33-77378-D).

*10.14 --      Stock Purchase Agreement by and between the Company and Sirmon
               Commercial Finance, L.L.C. dated October 21, 1999.
</TABLE>

                                    Page 30
<PAGE>   31

<TABLE>

<S>    <C>     <C>
*10.15 --      Fourth Amended and Restated Letter Loan Agreement dated as of May
               21, 1999 among KBK Financial, Inc., as borrower, and KBK Capital
               Corporation, as guarantor, and the Banks listed on the signature
               pages thereof and Bank One, Texas, N.A. as Agent.

 21.1  --      Subsidiary of the Company (incorporated by reference to Exhibit
               21.1 to the Registrant's Registration Statement on Form SB-2,
               Registration No. 33-77378-D).
</TABLE>

**Management contract or compensatory plan or arrangement
 *Filed herewith

     (b) Reports on form 8-K

The Company did not file any reports on Form 8-K during the fourth quarter of
the year ended December 31, 1999.


                                    Page 31
<PAGE>   32





                                   SIGNATURES

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


                             KBK CAPITAL CORPORATION

                                   REGISTRANT

Date:  March 29, 2000        By /s/ Deborah  B. Wilkinson
                                --------------------------------------------
                                Deborah B. Wilkinson, Executive Vice President
                                       and Chief Financial Officer

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 indicated below and on the dates indicated.

<TABLE>


<S>  <C>                       <C>                                       <C>
By: /s/ Robert J. McGee        Chairman and Chief Executive Officer      March 29, 2000
   -------------------------
       (Robert J. McGee)


By: /s/ Deborah B. Wilkinson   Executive Vice President and              March 29, 2000
   --------------------------  Chief Financial Officer
       (Deborah B. Wilkinson)  Principal Financial Officer)


By: /s/ Thomas Simmons         Director                                  March 29, 2000
    -------------------------
       (Thomas Simmons)


By: /s/ Daniel R. Feehan       Director                                  March 29, 2000
    -------------------------
       (Daniel R. Feehan)

By: /s/ Thomas L. Healey       Director                                  March 29, 2000
    -------------------------
       (Thomas L. Healey)


By: /s/ Martha V. Leonard      Director                                  March 29, 2000
    -------------------------
       (Martha V. Leonard)


By: /s/ R. Earl Cox, III       Director                                  March 29, 2000
    -------------------------
       (R. Earl Cox, III)


By: /s/ Harris A. Kaffie       Director                                  March 29, 2000
    -------------------------
       (Harris A. Kaffie)
</TABLE>


                                     Page 32
<PAGE>   33
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                     DESCRIPTION
-------                    -----------
<S>         <C>
10.14       Stock Purchase Agreement by and between the Company and Simon
            Commercial Finance, L.L.C. dated October 21, 1999.

10.15       Fourth Amended and Restated Letter Loan Agreement dated as of May
            21, 1999 among KBK Financial, Inc., as borrower, and KBK Capital
            Corporation, as guarantor, and the banks listed on the signature
            pages thereof and Bank One, Texas, N.A. as Agent.

27          Financial Data Schedule
</TABLE>