content: SECURITIES AND EXCHANGE COMMISSION
  
                               Washington, D. C. 20549
  
                                      Form 10-Q
  
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
  Act of 1934 for the  quarterly  period  ended  June 30,  1997 or [ ]  Transition
  report  pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934
  for the transition period from ______ to _______
  
  Commission file number              0-20405
  
                                 IKON CAPITAL, INC.
               (Exact name of registrant as specified in its charter)
  
             DELAWARE                                        23-2493042
  (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                         Identification No.)
  
                        1738 Bass Road, Macon, Georgia 31210
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                   (912) 471-2300
                (Registrant's telephone number, including area code)
  
                                        NONE
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days.
  
  Yes   X   No
  
  *  Applicable  only to issuers  involved in  bankruptcy  proceedings  during the
  preceding five years:
  
  Indicate  by check mark  whether  the  registrant  has filed all  documents  and
  reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
  Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
  confirmed by a court.
  
  Yes        No
  
  * Applicable only to corporate issuers:
  
  Indicate the number of shares  outstanding  of each of the  issuer's  classes of
  common stock, as of July 31, 1997.
  
  Common Stock, $.01 par value per share                         1,000 shares
  Registered Debt Outstanding as of July 31, 1997              $1,481,250,000
  
  The registrant,  an indirect wholly owned  subsidiary of IKON Office  Solutions,
  Inc. ("IKON"), meets the conditions set forth in General Instruction H(1)(a) and
  (b) of Form 10-Q and is,  therefore,  filing with the reduced  disclosure format
  contemplated thereby.
  
  <PAGE>
  
                                        INDEX
  
                                 IKON CAPITAL, INC.
  
  
  
  PART I.  FINANCIAL INFORMATION
  
  
        Item 1.              Financial Statements (Unaudited)
  
                             Balance Sheets--June 30, 1997 and
                             September 30, 1996
  
                             Statements  of  Income--Three  months  ended 
                             June 30, 1997 and June 30, 1996 and Nine months
                             ended June 30, 1997 and June 30, 1996
  
                             Statements of Cash Flows--Nine months ended
                             June 30, 1997 and June 30, 1996
  
                             Notes to Financial Statements--June 30, 1997
  
  
        Item 2.              Management's Discussion and Analysis of
                             Financial Condition and Results of Operations
  
  
  PART II.  OTHER INFORMATION
  
  
        Item 6.              Exhibits and Reports on Form 8-K
  
  
  
  SIGNATURES
  
  
  
  <PAGE>
                           PART I . FINANCIAL INFORMATION
  
  
  Item 1: Financial Statements (unaudited)
  
  
                                 IKON CAPITAL, INC.
                                   BALANCE SHEETS
                 (in thousands, except share and per share amounts)
  
  <TABLE>
  <CAPTION>
                                                         June 30,       September 30,
                                                           1997             1996
  <S>                                                   <C>              <C>       
  Assets
  
  Investment in leases:
       Direct financing leases                          $1,529,879       $1,140,851
       Less: Unearned income                              (268,000)        (203,459)
                                                       -----------      -----------
                                                         1,261,879          937,392
       Funded leases, net                                  443,374          313,250
                                                       -----------      -----------
                                                         1,705,253        1,250,642
  
  Cash                                                         349
  Accounts receivable                                       52,098           48,334
  Due  from  IKON                                           38,134
  Prepaid expenses and other assets                         13,389           15,582
  Leased equipment-operating rentals at cost
       less accumulated depreciation of:
       6/97 - $29,751  9/96 - $ 17,624                      43,028           31,341
  Property and equipment at cost, less
       accumulated depreciation of:
       6/97 - $3,220  9/96 - $ 2,536                        11,210            6,889
  
                                                       ===========      ===========
  Total assets                                          $1,863,461       $1,352,788
                                                       ===========      ===========
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses               $37,464          $42,538
       Accrued interest                                      5,258           20,870
       Due to IKON                                                           24,330
       Notes payable to banks                               25,000           58,000
       Medium term notes                                 1,476,250          969,900
       Deferred income taxes                                65,924           45,750
                                                       -----------      -----------
  Total liabilities                                      1,609,896        1,161,388
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                 144,415          112,415
       Retained earnings                                   109,150           78,985
                                                       -----------      -----------
  Total shareholder's equity                               253,565          191,400
                                                       ===========      ===========
  Total liabilities and shareholder's equity            $1,863,461       $1,352,788
                                                       ===========      ===========
  </TABLE>
  
  
  See notes to financial statements 
  
  
  <PAGE>
                                 IKON CAPITAL, INC.
                                STATEMENTS OF INCOME
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
                                             Three Months Ended         Nine Months Ended
                                                  June 30                   June 30
                                              1997         1996        1997          1996
  <S>                                       <C>          <C>         <C>           <C>    
  Revenues:
      Lease finance income                  $44,494      $32,025     $122,051      $85,565
      Rental income                           6,545        3,733       16,473       10,310
      Interest on IKON tax deferrals          3,148        2,273        8,772        6,284
      Other income                            2,090        1,584        5,921        4,673
                                             ------       ------      -------      -------
                                             56,277       39,615      153,217      106,832
  
  Expenses:
      Interest                               22,075       15,564       59,303       42,677
      General and administrative             16,634       10,835       44,706       29,631
                                             ------       ------      -------      -------
                                             38,709       26,399      104,009       72,308
  
  Gain on sale of investment in leases          642          329        1,919          918
                                             ------       ------      -------      -------
  
  
  Income before income taxes                 18,210       13,545       51,127       35,442
  
  Provision for income taxes                  7,466        5,553       20,962       14,531
                                             ------       ------      -------      -------
  
  Net income                                $10,744       $7,992      $30,165      $20,911
                                             ======       ======      =======      =======
  </TABLE>
  
  See notes to financial statements 
  
  <PAGE>
                                 IKON CAPITAL, INC.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  
  <TABLE>
  <CAPTION>
                                                                Nine Months Ended
                                                                    June 30
                                                               1997           1996
  <S>                                                        <C>            <C>    
  Operating activities:
  Net income                                                 $30,165        $20,911
  Adjustments to reconcile net income to net
       cash provided by operating activities
          Depreciation and amortization                       13,743         10,044
          Provision for deferred taxes                        20,174         27,014
          Gain on sale of investment in leases                (1,919)          (918)
          Changes in operating assets and liabilities:
              Accounts receivable                             (3,764)       (11,477)
              Prepaid expenses and other assets                4,112         (3,904)
              Accounts payable and accrued expenses           (5,074)          (573)
              Accrued interest                               (15,612)        (7,754)
                                                           ---------      ---------
                                Net cash provided             41,825         33,343
                                                           ---------      ---------
  
  Investing activities:
  Purchases of leased equipment, net                         (24,746)       (14,076)
  Purchases of property and equipment, net                    (5,005)        (1,420)
  Direct financing leases:
       Additions                                            (884,826)      (625,591)
       Cancellations                                         139,510        104,835
       Collections                                           343,578        224,383
       Proceeds from sale                                     77,251         39,571
  Funded leases:
       Additions                                            (314,058)      (197,577)
       Cancellations                                          49,518         24,407
       Collections                                           134,416         52,241
                                                           ---------      ---------
                                Net cash used               (484,362)      (393,227)
                                                           ---------      ---------
  
  Financing activities:
  Proceeds from bank borrowings                                              60,000
  Payments on bank borrowings                                (33,000)      (150,000)
  Proceeds from issuance of medium term notes                632,350        397,900
  Payments on medium term notes                             (126,000)       (30,000)
  Capital contributed by IKON                                 32,000         30,000
                                                           ---------      ---------
                                Net cash provided            505,350        307,900
                                                           ---------      ---------
  
  Decrease (increase) in amounts due to IKON                  62,813        (51,984)
  Due (to) from IKON at beginning of year                    (24,330)        26,577
                                                           =========      =========
  Cash and due from (to) IKON at end of period               $38,483       ($25,407)
                                                           =========      =========
  </TABLE>
  
  See notes to financial statements.
  
  
  <PAGE>
                                 IKON Capital, Inc.
                            Notes to Financial Statements
                                    June 30, 1997
  
  
  Note 1:    Basis of Presentation
  
             The accompanying  unaudited condensed financial  statements have been
  prepared in accordance with generally accepted accounting principles for interim
  financial  information  and the  instructions  to Form  10-Q and  Rule  10-01 of
  Regulation  S-X. In the opinion of management,  all  adjustments  (consisting of
  normal recurring  accruals)  considered  necessary for a fair  presentation have
  been included.  For further  information,  refer to the financial statements and
  footnotes  thereto  included in the  Company's  report on Form 10-K for the year
  ended September 30, 1996.
  
  
  Note 2:    Medium Term Note Program
  
             During the nine  months  ended June 30,  1997,  IKON  Capital  issued
  $632.4  million  under its medium term note  program.  In May 1997,  the Company
  filed a shelf registration to increase the total amount of the program from $1.5
  billion to $3.5 billion. At June 30, 1997, $1,476.3 million of medium term notes
  were  outstanding  with a weighted  average interest rate of 6.7%. The remaining
  amount available under this registration statement is $1,867.8 million.
  
  
  Note 3:    Asset Securitization
  
             In September 1996, IKON Capital entered into a new agreement to sell,
  under an asset  securitization  program, an undivided ownership interest in $150
  million of eligible direct financing lease  receivables.  This is in addition to
  an existing  agreement for $125 million  entered into in September  1994.  Under
  these  agreements,  the Company sold $77.3  million in direct  financing  leases
  during the first nine months of fiscal  1997,  replacing  leases  which had been
  liquidated during the period and recognized a pretax gain of approximately  $1.9
  million.  Under the terms of the sales agreements,  the Company will continue to
  service the lease portfolio.
  
  <PAGE>
  
  Item 2: Management's  Discussion and Analysis of Financial Condition and Results
  of Operations
  
  Pursuant to General Instruction H(2) (a) of Form 10-Q, the following analysis of
  the results of operations is presented in lieu of  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
  
                      Three Months Ended June 30, 1997 Compared
                      with the Three Months Ended June 30, 1996
  
  Comparative summarized results of operations for the three months ended June 30,
  1997 and 1996 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  <TABLE>
  <CAPTION>
                                                                Three Months
  (dollars in thousands)                                        Ended June 30                   Increase
                                                           1997             1996          Amount          Percent
  <S>                                                    <C>               <C>          <C>                <C>  
  Revenues:
       Lease finance income                              $44,494           $32,025      $   12,469         38.9%
       Rental income                                       6,545             3,733           2,812         75.3%
       Interest on IKON tax deferrals                      3,148             2,273             875         38.5%
       Other income                                        2,090             1,584             506         31.9%
                                                      ----------        ----------      ----------
                                                          56,277            39,615          16,662         42.1%
  
  Expenses:
       Interest                                           22,075            15,564           6,511         41.8%
       General and administrative                         16,634            10,835           5,799         53.5%
                                                      ----------        ----------      ----------
                                                          38,709            26,399          12,310         46.6%
  
  Gain on sale of investment in leases                       642               329             313         95.1%
                                                      ----------        ----------      ----------
  
  Income before income taxes                              18,210            13,545           4,665         34.4%
  Provision for income taxes                               7,466             5,553           1,913         34.4%
                                                      ----------        ----------      ----------
  Net income                                          $   10,744        $    7,992      $    2,752         34.4%
                                                      ==========        ==========      ==========
  </TABLE>
  
  
  Revenues
  
  Total revenues  increased  $16.7 million or 42.1% in the third quarter of fiscal
  1997 compared to the third quarter of fiscal 1996.  Approximately 74.8% or $12.5
  million of this  increase in revenues  was a result of increased  lease  finance
  income due to continued  growth in the portfolio of direct  financing and funded
  leases.  The lease portfolio,  net of lease  receivables that were sold in asset
  securitization  transactions,  increased  36.5%  from June 30,  1996 to June 30,
  1997.
  
  Office  equipment  placed on  rental  by the IKON  dealers  to  customers,  with
  cancelable terms, may be purchased by the Company.  During the third quarters of
  fiscal 1997 and 1996, IKON Capital  purchased  operating lease equipment of $8.3
  million  and $5.0  million,  respectively.  Operating  leases  contributed  $6.5
  million in rental income  during the third  quarter of fiscal 1997,  compared to
  $3.7 million in the third quarter of fiscal 1996.
  
  <PAGE>
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  dealers  associated  with leases funded through the Company at a rate consistent
  with the Company's  weighted  average  outside  borrowing rate of interest.  The
  Company's  average  rate was 6.7% for both the third  quarter of fiscal 1997 and
  fiscal  1996.  The deferred  tax base upon which these  payments are  calculated
  increased  41.8% to $201.4  million at June 30, 1997 from $142.0 million at June
  30, 1996. As a result of the increased deferred tax liabilities, interest income
  on deferred  taxes rose $875,000 or 38.5% when  comparing the three months ended
  June 30, 1997 to the three months ended June 30, 1996.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1996.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these sources grew by $506,000 or 31.9%,  when  comparing the third quarter
  of fiscal 1997 to the same period of fiscal 1996.
  
  Expenses
  
  Debt to fund  the  lease  portfolio  in the  form of loans  from  banks  and the
  issuance  of medium  term  notes in the public  market  increased  by 42.6%,  to
  $1,501.3  million  outstanding  at June 30,  1997.  The Company  paid a weighted
  average  interest rate on all  borrowings  for the third quarters of fiscal 1997
  and  fiscal  1996 of 6.7%.  As a result of the  increased  borrowings,  interest
  expense  grew by $6.5  million or 41.8%,  when  comparing  the third  quarter of
  fiscal 1997 to fiscal  1996.  At June 30,  1997,  the  Company's  debt to equity
  ratio, including intercompany amounts due from IKON was 5.8 to 1.
  
  Total  general and  administrative  expenses for the quarter ended June 30, 1997
  increased by $5.8 million or 53.5%,  over the quarter  ended June 30, 1996.  The
  general and administrative  expense category in the third quarter of fiscal 1997
  includes  depreciation  expense  on  leased  equipment  totaling  $5.2  million,
  compared to $3.3 million for the third quarter of fiscal 1996. In addition,  the
  general  and  administrative  expense  category  includes  lease  bonus  subsidy
  payments to either IKON or directly to the IKON  dealers,  based on the level of
  dealer  participation  in the Company's  leasing  programs or for the funding of
  targeted new lease volume.  During the third quarter of fiscal 1997, lease bonus
  subsidy  payments  totaled $2.1  million as compared to $2.0 million  during the
  third quarter of fiscal 1996.
  
  Excluding the effects of increased  depreciation expense on operating leases and
  lease bonus subsidy payments, remaining general and administrative expenses grew
  by $3.8 million or 35.2% compared to general and administrative  expenses in the
  third quarter of fiscal 1996. This increase is attributable to the growth in the
  lease portfolio.
  
  Gain on Sale of Investment in Leases
  
  In September 1996, the Company entered into an asset securitization  transaction
  whereby the Company  sold an  undivided  ownership  interest in $150  million in
  eligible direct financing lease receivables.  This agreement was structured as a
  revolving   securitization  so  that  as  collections   reduce  previously  sold
  interests, additional leases can be sold up to $150 million.
  
  Under an asset  securitization  program  entered  into in  September  1994,  the
  Company sold an undivided  ownership interest in $125 million of eligible direct
  financing lease  receivables.  This agreement was also structured as a revolving
  securitization.  Under this  program,  additional  leases can be sold up to $125
  million as collections reduce previously sold lease receivables.
  
  During the three months ended June 30, 1997, collections reduced previously sold
  interests under these two agreements by approximately $25.8 million. The Company
  sold an additional  $25.8 million in net eligible direct financing leases during
  the third quarter of fiscal 1997 and recognized pretax gains of $642,000.
  <PAGE>
  
  Income Before Income Taxes
  
  Income  before  income taxes for the third  quarter of fiscal 1997  increased by
  $4.7 million or 34.4% over the third  quarter of fiscal 1996.  This  increase in
  income before income taxes was  essentially  the effect of higher  earnings on a
  larger  lease  portfolio  base  net  of  increased  general  and  administrative
  expenses,  partially  offset by higher borrowing costs due to the increased debt
  to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the third  quarter of fiscal 1997  increased by $1.9 million or
  34.4% over the third  quarter of fiscal 1996.  This  increase in income taxes is
  directly  attributable  to the  increase  in  income  before  taxes in the third
  quarter of fiscal  1997 as  compared to the third  quarter of fiscal  1996.  The
  effective tax rate was 41% for both the third quarter of fiscal 1997 and 1996.
  
                      Nine Months Ended June 30, 1997 Compared
                      with the Nine Months Ended June 30, 1996
  
  Comparative  summarized results of operations for the nine months ended June 30,
  1997 and 1996 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  <TABLE>
  <CAPTION>
                                                                Nine Months
  (dollars in thousands)                                       Ended June 30                     Increase
                                                          1997              1996          Amount         Percent
  <S>                                                   <C>                <C>          <C>                <C>  
  Revenues:
       Lease finance income                             $122,051           $85,565      $   36,486         42.6%
       Rental income                                      16,473            10,310           6,163         59.8%
       Interest on IKON tax deferrals                      8,772             6,284           2,488         39.6%
       Other income                                        5,921             4,673           1,248         26.7%
                                                         -------           -------         ------- 
                                                         153,217           106,832          46,385         43.4%
  
  Expenses:
       Interest                                           59,303            42,677          16,626         39.0%
       General and administrative                         44,706            29,631          15,075         50.9%
                                                         -------           -------         ------- 
                                                         104,009            72,308          31,701         43.8%
  
  Gain on sale of investment in leases                     1,919               918           1,001        109.0%
                                                         -------           -------         ------- 
  
  Income before income taxes                              51,127            35,442          15,685         44.3%
  Provision for income taxes                              20,962            14,531           6,431         44.3%
                                                         -------           -------         ------- 
  Net income                                             $30,165           $20,911         $ 9,254         44.3%
                                                         =======           =======         ======= 
  
  </TABLE>
  
  Revenues
  
  Total  revenues  increased  $46.4  million or 43.4% in the first nine  months of
  fiscal  1997  compared to the first nine  months of fiscal  1996.  Approximately
  78.7% or $36.5  million of this  increase in revenues  was a result of increased
  lease  finance  income  due to  continued  growth  in the  portfolio  of  direct
  financing and funded leases. The lease portfolio,  net of lease receivables that
  were sold in asset  securitization  transactions,  increased 36.5% from June 30,
  1996 to June 30, 1997.
  
  <PAGE>
  
  Office  equipment  placed on  rental  by the IKON  dealers  to  customers,  with
  cancelable terms, may be purchased by the Company.  During the first nine months
  of fiscal 1997 and 1996,  IKON Capital  purchased  operating  lease equipment of
  $24.7 million and $14.1  million,  respectively.  Operating  leases  contributed
  $16.5  million in rental  income  during the first nine  months of fiscal  1997,
  compared to $10.3 million in the first nine months of fiscal 1996.
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  dealers  associated  with leases funded through the Company at a rate consistent
  with the Company's  weighted  average  outside  borrowing rate of interest.  The
  Company's  average  rate was 6.7% for the both the first  nine  months of fiscal
  1997 and fiscal  1996.  The  deferred  tax base upon which  these  payments  are
  calculated  increased  41.8% to $201.4  million  at June 30,  1997  from  $142.0
  million at June 30, 1996. As a result of the increased deferred tax liabilities,
  interest  income on deferred taxes rose $2.5 million or 39.6% when comparing the
  nine months ended June 30, 1997 to the nine months ended June 30, 1996.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1996.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these sources grew by $1.2 million or 26.7%,  when comparing the first nine
  months of fiscal 1997 to the same period of fiscal 1996.
  
  Expenses
  
  Debt to fund  the  lease  portfolio  in the  form of loans  from  banks  and the
  issuance  of medium  term  notes in the public  market  increased  by 42.6%,  to
  $1,501.3  million  outstanding  at June 30,  1997.  The Company  paid a weighted
  average interest rate on all borrowings for the first nine months of both fiscal
  1997 and fiscal 1996 of 6.7%. As a result of the increased borrowings,  interest
  expense grew by $16.6 million or 39.0%,  when comparing the first nine months of
  fiscal  1997 to the first nine  months of fiscal  1996.  At June 30,  1997,  the
  Company's debt to equity ratio,  including  intercompany  amounts due from IKON,
  was 5.8 to 1.
  
  Total  general and  administrative  expenses  for the nine months ended June 30,
  1997  increased by $15.1  million or 50.9%,  over the nine months ended June 30,
  1996. The general and  administrative  expense category in the first nine months
  of fiscal 1997 includes  depreciation expense on leased equipment totaling $13.1
  million,  compared to $9.6 million for the first nine months of fiscal 1996.  In
  addition,  the general and administrative  expense category includes lease bonus
  subsidy  payments to either IKON or directly to the IKON  dealers,  based on the
  level of dealer  participation  in the  Company's  leasing  programs  or for the
  funding of  targeted  new lease  volume.  During the first nine months of fiscal
  1997,  lease bonus  subsidy  payments  totaled  $7.7 million as compared to $4.5
  million during the first nine months of fiscal 1996.
  
  Excluding the effects of increased  depreciation expense on operating leases and
  lease bonus subsidy payments, remaining general and administrative expenses grew
  by $8.4 million or 28.4% compared to general and administrative  expense for the
  first nine months of fiscal 1996. This increase is attributable to the growth in
  the lease portfolio.
  
  Gain on Sale of Investment in Leases
  
  In September 1996, the Company entered into an asset securitization  transaction
  whereby the Company  sold an  undivided  ownership  interest in $150  million in
  eligible direct financing lease receivables.  This agreement was structured as a
  revolving   securitization  so  that  as  collections   reduce  previously  sold
  interests, additional leases can be sold up to $150 million.
  
  Under an asset  securitization  program  entered  into in  September  1994,  the
  Company sold an undivided  ownership interest in $125 million of eligible direct
  financing lease  receivables.  This agreement was also structured as a revolving
  securitization.  Under this  program,  additional  leases can be sold up to $125
  million as collections reduce previously sold lease receivables.
  
  <PAGE>
  
  During the nine months ended June 30, 1997,  collections reduced previously sold
  interests under these two agreements by approximately $77.3 million. The Company
  sold an additional  $77.3 million in net eligible direct financing leases during
  the  first  nine  months  of  fiscal  1997  and   recognized   pretax  gains  of
  approximately $1.9 million.
  
  Income Before Income Taxes
  
  Income before income taxes for the first nine months of fiscal 1997 increased by
  $15.7 million or 44.3% over the first nine months of fiscal 1996.  This increase
  in income before income taxes was essentially the effect of higher earnings on a
  larger  lease  portfolio  base  net  of  increased  general  and  administrative
  expenses,  partially  offset by higher borrowing costs due to the increased debt
  to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the first nine months of fiscal 1997  increased by $6.4 million
  or 44.3% over the first nine  months of fiscal  1996.  This  increase  in income
  taxes is directly  attributable  to the  increase in income  before taxes in the
  first nine  months of fiscal  1997  compared  to the first nine months of fiscal
  1996.  The  effective  tax rate was 41% for both the first nine months of fiscal
  1997 and 1996.
  
  
                             FORWARD-LOOKING INFORMATION
  
  This document contains disclosures which are forward-looking statements relating
  to the  Company or its  parent,  IKON,  within the meaning of Section 27A of the
  Securities Act of 1933, as amended (the  "Securities  Act"),  and Section 21E of
  the 1934 Act.  Such  forward-looking  statements  address,  among other  things,
  strategic  initiatives  (including  plans for  enhancing the Company's or IKON's
  business  through  new  acquisitions,   information  technology  systems,  sales
  strategies,  market  growth  plans,  margin  enhancement  initiatives,   capital
  expenditure   requirements   and  financing   sources).   Such   forward-looking
  information  is based upon  management's  current plans or  expectations  and is
  subject to a number of uncertainties and risks that could  significantly  affect
  the  Company's  and/or  IKON's  current  plans,  anticipated  actions and future
  financial condition and results.  These uncertainties and risks include, but are
  not limited to, those relating to IKON's successful  management of an aggressive
  program to  acquire  and  integrate  new  companies,  including  companies  with
  technical  services  and  products  that are  relatively  new to IKON,  and also
  including  companies outside the United States,  which present  additional risks
  relating to international  operations;  risks and  uncertainties  (applicable to
  both the Company and IKON)  relating to  conducting  operations in a competitive
  environment;  delays, difficulties,  technological changes and employment issues
  (applicable  to  both  the  Company  and  IKON)   associated  in  a  large-scale
  transformation  project;  debt  service  requirements  (applicable  to both  the
  Company and IKON) including  sensitivity to fluctuation in interest  rates;  and
  general  economic  conditions.  As a  consequence,  current  plans,  anticipated
  actions  and future  financial  condition  and  results  may  differ  from those
  expressed in any forward-looking  statements made by or on behalf of the Company
  or IKON.
  
  <PAGE>
  
                             PART II. OTHER INFORMATION
  
  Item 6.      Exhibits and Reports on Form 8-K
  
       (a)  The  following   Exhibits  are  furnished  pursuant  to  Item  601  of
            Regulation S-K:
  
               Exhibit No. (27) Financial Data Schedule
  
       (b)  Reports on Form 8-K
  
               On April 21, 1997,  the  registrant  filed a Current Report on Form
               8-K to file, under Item 5 of the form,  information  contained in a
               press release  issued by its parent,  IKON Office  Solutions,  Inc.
               ("IKON")  announcing i) earnings for the fiscal quarter ended March
               31, 1997; ii) certain management changes, and iii) its intention to
               repurchase  from time to time as much as 5 percent  of  outstanding
               shares in open market transactions.
  
               On April 24, 1997,  the  registrant  filed a Current Report on Form
               8-K to file, under Item 5 of the form,  information  contained in a
               press  release  issued  by the  Registrant's  parent,  IKON  Office
               Solutions, Inc. ("IKON"), which stated that IKON was unaware of any
               reason its stock, which recently had traded down sharply, should be
               under   pressure,   and  stated  that  IKON  knew  of  no  material
               developments  concerning its business or financial statements which
               had not been publicly disclosed.
  
               On June 27, 1997, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, information contained in a press
               release issued by its parent, IKON Office Solutions, Inc. ("IKON"),
               which indicated that IKON's third and fourth quarter earnings would
               be lower than expected.
  
               On July 17, 1997, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, information contained in a press
               release issued by its parent, IKON Office Solutions,  Inc. ("IKON")
               concerning  IKON's  earnings for the fiscal  quarter ended June 30,
               1997.
  
  <PAGE>
  
                                     SIGNATURES
  
  Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
  Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned,  thereunto duly authorized. This report has also been signed by the
  undersigned in his capacity as the chief accounting officer of the Registrant.
  
  
                                          IKON CAPITAL, INC.
  
  
  Date        August 12, 1997             /s/ Harry G. Kozee
                                          Harry G. Kozee
                                          Vice President - Finance
                                          (Chief Accounting Officer)
  
  <PAGE>
  
                                  Index to Exhibits
  
  Exhibit Number
  
       (27) Financial Data Schedule
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 37814}]
metadata_filer: {"company-data": {"conformed-name": "ALCO CAPITAL RESOURCE INC", "cik": "0000922255", "assigned-sic": "5110", "irs-number": "232493042", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-20405", "film-number": "97656779"}, "business-address": {"street1": "1738 BASS RD", "city": "MACON", "state": "GA", "zip": "31210", "phone": "2152968000"}, "mail-address": {"street1": "BOX 834", "city": "VALLEY FORGE", "state": "PA", "zip": "19482"}}
text: SECURITIES AND EXCHANGE COMMISSION
  
                               Washington, D. C. 20549
  
                                      Form 10-Q
  
  (Mark One)*
  [X] Quarterly report pursuant to section 13 or 15(d) of the Securities  Exchange
  Act of 1934 for the  quarterly  period  ended  June 30,  1997 or [ ]  Transition
  report  pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934
  for the transition period from ______ to _______
  
  Commission file number              0-20405
  
                                 IKON CAPITAL, INC.
               (Exact name of registrant as specified in its charter)
  
             DELAWARE                                        23-2493042
  (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                         Identification No.)
  
                        1738 Bass Road, Macon, Georgia 31210
                      (Address of principal executive offices)
                                     (Zip Code)
  
                                   (912) 471-2300
                (Registrant's telephone number, including area code)
  
                                        NONE
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the  preceding 12 months (or for such  shorter  period that the  registrant  was
  required  to file  such  reports),  and  (2) has  been  subject  to such  filing
  requirements for the past 90 days.
  
  Yes   X   No
  
  *  Applicable  only to issuers  involved in  bankruptcy  proceedings  during the
  preceding five years:
  
  Indicate  by check mark  whether  the  registrant  has filed all  documents  and
  reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
  Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
  confirmed by a court.
  
  Yes        No
  
  * Applicable only to corporate issuers:
  
  Indicate the number of shares  outstanding  of each of the  issuer's  classes of
  common stock, as of July 31, 1997.
  
  Common Stock, $.01 par value per share                         1,000 shares
  Registered Debt Outstanding as of July 31, 1997              $1,481,250,000
  
  The registrant,  an indirect wholly owned  subsidiary of IKON Office  Solutions,
  Inc. ("IKON"), meets the conditions set forth in General Instruction H(1)(a) and
  (b) of Form 10-Q and is,  therefore,  filing with the reduced  disclosure format
  contemplated thereby.
  INDEX
  
                                 IKON CAPITAL, INC.
  
  PART I.  FINANCIAL INFORMATION
  
        Item 1.              Financial Statements (Unaudited)
  
                             Balance Sheets--June 30, 1997 and
                             September 30, 1996
  
                             Statements  of  Income--Three  months  ended 
                             June 30, 1997 and June 30, 1996 and Nine months
                             ended June 30, 1997 and June 30, 1996
  
                             Statements of Cash Flows--Nine months ended
                             June 30, 1997 and June 30, 1996
  
                             Notes to Financial Statements--June 30, 1997
  
        Item 2.              Management's Discussion and Analysis of
                             Financial Condition and Results of Operations
  
  PART II.  OTHER INFORMATION
  
        Item 6.              Exhibits and Reports on Form 8-K
  
  SIGNATURES
  PART I . FINANCIAL INFORMATION
  
  Item 1: Financial Statements (unaudited)
  
                                 IKON CAPITAL, INC.
                                   BALANCE SHEETS
                 (in thousands, except share and per share amounts)
  June 30,       September 30,
                                                           1997             1996
  Assets
  
  Investment in leases:
       Direct financing leases                          $1,529,879       $1,140,851
       Less: Unearned income                              (268,000)        (203,459)
                                                       -----------      -----------
                                                         1,261,879          937,392
       Funded leases, net                                  443,374          313,250
                                                       -----------      -----------
                                                         1,705,253        1,250,642
  
  Cash                                                         349
  Accounts receivable                                       52,098           48,334
  Due  from  IKON                                           38,134
  Prepaid expenses and other assets                         13,389           15,582
  Leased equipment-operating rentals at cost
       less accumulated depreciation of:
       6/97 - $29,751  9/96 - $ 17,624                      43,028           31,341
  Property and equipment at cost, less
       accumulated depreciation of:
       6/97 - $3,220  9/96 - $ 2,536                        11,210            6,889
  
                                                       ===========      ===========
  Total assets                                          $1,863,461       $1,352,788
                                                       ===========      ===========
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses               $37,464          $42,538
       Accrued interest                                      5,258           20,870
       Due to IKON                                                           24,330
       Notes payable to banks                               25,000           58,000
       Medium term notes                                 1,476,250          969,900
       Deferred income taxes                                65,924           45,750
                                                       -----------      -----------
  Total liabilities                                      1,609,896        1,161,388
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                 144,415          112,415
       Retained earnings                                   109,150           78,985
                                                       -----------      -----------
  Total shareholder's equity                               253,565          191,400
                                                       ===========      ===========
  Total liabilities and shareholder's equity            $1,863,461       $1,352,788
                                                       ===========      ===========
  See notes to financial statements
  IKON CAPITAL, INC.
                                STATEMENTS OF INCOME
                                   (in thousands)
  Three Months Ended         Nine Months Ended
                                                  June 30                   June 30
                                              1997         1996        1997          1996
  Revenues:
      Lease finance income                  $44,494      $32,025     $122,051      $85,565
      Rental income                           6,545        3,733       16,473       10,310
      Interest on IKON tax deferrals          3,148        2,273        8,772        6,284
      Other income                            2,090        1,584        5,921        4,673
                                             ------       ------      -------      -------
                                             56,277       39,615      153,217      106,832
  
  Expenses:
      Interest                               22,075       15,564       59,303       42,677
      General and administrative             16,634       10,835       44,706       29,631
                                             ------       ------      -------      -------
                                             38,709       26,399      104,009       72,308
  
  Gain on sale of investment in leases          642          329        1,919          918
                                             ------       ------      -------      -------
  
  Income before income taxes                 18,210       13,545       51,127       35,442
  
  Provision for income taxes                  7,466        5,553       20,962       14,531
                                             ------       ------      -------      -------
  
  Net income                                $10,744       $7,992      $30,165      $20,911
                                             ======       ======      =======      =======
  See notes to financial statements
  IKON CAPITAL, INC.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Nine Months Ended
                                                                    June 30
                                                               1997           1996
  Operating activities:
  Net income                                                 $30,165        $20,911
  Adjustments to reconcile net income to net
       cash provided by operating activities
          Depreciation and amortization                       13,743         10,044
          Provision for deferred taxes                        20,174         27,014
          Gain on sale of investment in leases                (1,919)          (918)
          Changes in operating assets and liabilities:
              Accounts receivable                             (3,764)       (11,477)
              Prepaid expenses and other assets                4,112         (3,904)
              Accounts payable and accrued expenses           (5,074)          (573)
              Accrued interest                               (15,612)        (7,754)
                                                           ---------      ---------
                                Net cash provided             41,825         33,343
                                                           ---------      ---------
  
  Investing activities:
  Purchases of leased equipment, net                         (24,746)       (14,076)
  Purchases of property and equipment, net                    (5,005)        (1,420)
  Direct financing leases:
       Additions                                            (884,826)      (625,591)
       Cancellations                                         139,510        104,835
       Collections                                           343,578        224,383
       Proceeds from sale                                     77,251         39,571
  Funded leases:
       Additions                                            (314,058)      (197,577)
       Cancellations                                          49,518         24,407
       Collections                                           134,416         52,241
                                                           ---------      ---------
                                Net cash used               (484,362)      (393,227)
                                                           ---------      ---------
  
  Financing activities:
  Proceeds from bank borrowings                                              60,000
  Payments on bank borrowings                                (33,000)      (150,000)
  Proceeds from issuance of medium term notes                632,350        397,900
  Payments on medium term notes                             (126,000)       (30,000)
  Capital contributed by IKON                                 32,000         30,000
                                                           ---------      ---------
                                Net cash provided            505,350        307,900
                                                           ---------      ---------
  
  Decrease (increase) in amounts due to IKON                  62,813        (51,984)
  Due (to) from IKON at beginning of year                    (24,330)        26,577
                                                           =========      =========
  Cash and due from (to) IKON at end of period               $38,483       ($25,407)
                                                           =========      =========
  See notes to financial statements.
  IKON Capital, Inc.
                            Notes to Financial Statements
                                    June 30, 1997
  
  Note 1:    Basis of Presentation
  
             The accompanying  unaudited condensed financial  statements have been
  prepared in accordance with generally accepted accounting principles for interim
  financial  information  and the  instructions  to Form  10-Q and  Rule  10-01 of
  Regulation  S-X. In the opinion of management,  all  adjustments  (consisting of
  normal recurring  accruals)  considered  necessary for a fair  presentation have
  been included.  For further  information,  refer to the financial statements and
  footnotes  thereto  included in the  Company's  report on Form 10-K for the year
  ended September 30, 1996.
  
  Note 2:    Medium Term Note Program
  
             During the nine  months  ended June 30,  1997,  IKON  Capital  issued
  $632.4  million  under its medium term note  program.  In May 1997,  the Company
  filed a shelf registration to increase the total amount of the program from $1.5
  billion to $3.5 billion. At June 30, 1997, $1,476.3 million of medium term notes
  were  outstanding  with a weighted  average interest rate of 6.7%. The remaining
  amount available under this registration statement is $1,867.8 million.
  
  Note 3:    Asset Securitization
  
             In September 1996, IKON Capital entered into a new agreement to sell,
  under an asset  securitization  program, an undivided ownership interest in $150
  million of eligible direct financing lease  receivables.  This is in addition to
  an existing  agreement for $125 million  entered into in September  1994.  Under
  these  agreements,  the Company sold $77.3  million in direct  financing  leases
  during the first nine months of fiscal  1997,  replacing  leases  which had been
  liquidated during the period and recognized a pretax gain of approximately  $1.9
  million.  Under the terms of the sales agreements,  the Company will continue to
  service the lease portfolio.
  Item 2: Management's  Discussion and Analysis of Financial Condition and Results
  of Operations
  
  Pursuant to General Instruction H(2) (a) of Form 10-Q, the following analysis of
  the results of operations is presented in lieu of  Management's  Discussion  and
  Analysis of Financial Condition and Results of Operations.
  
                      Three Months Ended June 30, 1997 Compared
                      with the Three Months Ended June 30, 1996
  
  Comparative summarized results of operations for the three months ended June 30,
  1997 and 1996 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  Three Months
  (dollars in thousands)                                        Ended June 30                   Increase
                                                           1997             1996          Amount          Percent
  Revenues:
       Lease finance income                              $44,494           $32,025      $   12,469         38.9%
       Rental income                                       6,545             3,733           2,812         75.3%
       Interest on IKON tax deferrals                      3,148             2,273             875         38.5%
       Other income                                        2,090             1,584             506         31.9%
                                                      ----------        ----------      ----------
                                                          56,277            39,615          16,662         42.1%
  
  Expenses:
       Interest                                           22,075            15,564           6,511         41.8%
       General and administrative                         16,634            10,835           5,799         53.5%
                                                      ----------        ----------      ----------
                                                          38,709            26,399          12,310         46.6%
  
  Gain on sale of investment in leases                       642               329             313         95.1%
                                                      ----------        ----------      ----------
  
  Income before income taxes                              18,210            13,545           4,665         34.4%
  Provision for income taxes                               7,466             5,553           1,913         34.4%
                                                      ----------        ----------      ----------
  Net income                                          $   10,744        $    7,992      $    2,752         34.4%
                                                      ==========        ==========      ==========
  Revenues
  
  Total revenues  increased  $16.7 million or 42.1% in the third quarter of fiscal
  1997 compared to the third quarter of fiscal 1996.  Approximately 74.8% or $12.5
  million of this  increase in revenues  was a result of increased  lease  finance
  income due to continued  growth in the portfolio of direct  financing and funded
  leases.  The lease portfolio,  net of lease  receivables that were sold in asset
  securitization  transactions,  increased  36.5%  from June 30,  1996 to June 30,
  1997.
  
  Office  equipment  placed on  rental  by the IKON  dealers  to  customers,  with
  cancelable terms, may be purchased by the Company.  During the third quarters of
  fiscal 1997 and 1996, IKON Capital  purchased  operating lease equipment of $8.3
  million  and $5.0  million,  respectively.  Operating  leases  contributed  $6.5
  million in rental income  during the third  quarter of fiscal 1997,  compared to
  $3.7 million in the third quarter of fiscal 1996.
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  dealers  associated  with leases funded through the Company at a rate consistent
  with the Company's  weighted  average  outside  borrowing rate of interest.  The
  Company's  average  rate was 6.7% for both the third  quarter of fiscal 1997 and
  fiscal  1996.  The deferred  tax base upon which these  payments are  calculated
  increased  41.8% to $201.4  million at June 30, 1997 from $142.0 million at June
  30, 1996. As a result of the increased deferred tax liabilities, interest income
  on deferred  taxes rose $875,000 or 38.5% when  comparing the three months ended
  June 30, 1997 to the three months ended June 30, 1996.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1996.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these sources grew by $506,000 or 31.9%,  when  comparing the third quarter
  of fiscal 1997 to the same period of fiscal 1996.
  
  Expenses
  
  Debt to fund  the  lease  portfolio  in the  form of loans  from  banks  and the
  issuance  of medium  term  notes in the public  market  increased  by 42.6%,  to
  $1,501.3  million  outstanding  at June 30,  1997.  The Company  paid a weighted
  average  interest rate on all  borrowings  for the third quarters of fiscal 1997
  and  fiscal  1996 of 6.7%.  As a result of the  increased  borrowings,  interest
  expense  grew by $6.5  million or 41.8%,  when  comparing  the third  quarter of
  fiscal 1997 to fiscal  1996.  At June 30,  1997,  the  Company's  debt to equity
  ratio, including intercompany amounts due from IKON was 5.8 to 1.
  
  Total  general and  administrative  expenses for the quarter ended June 30, 1997
  increased by $5.8 million or 53.5%,  over the quarter  ended June 30, 1996.  The
  general and administrative  expense category in the third quarter of fiscal 1997
  includes  depreciation  expense  on  leased  equipment  totaling  $5.2  million,
  compared to $3.3 million for the third quarter of fiscal 1996. In addition,  the
  general  and  administrative  expense  category  includes  lease  bonus  subsidy
  payments to either IKON or directly to the IKON  dealers,  based on the level of
  dealer  participation  in the Company's  leasing  programs or for the funding of
  targeted new lease volume.  During the third quarter of fiscal 1997, lease bonus
  subsidy  payments  totaled $2.1  million as compared to $2.0 million  during the
  third quarter of fiscal 1996.
  
  Excluding the effects of increased  depreciation expense on operating leases and
  lease bonus subsidy payments, remaining general and administrative expenses grew
  by $3.8 million or 35.2% compared to general and administrative  expenses in the
  third quarter of fiscal 1996. This increase is attributable to the growth in the
  lease portfolio.
  
  Gain on Sale of Investment in Leases
  
  In September 1996, the Company entered into an asset securitization  transaction
  whereby the Company  sold an  undivided  ownership  interest in $150  million in
  eligible direct financing lease receivables.  This agreement was structured as a
  revolving   securitization  so  that  as  collections   reduce  previously  sold
  interests, additional leases can be sold up to $150 million.
  
  Under an asset  securitization  program  entered  into in  September  1994,  the
  Company sold an undivided  ownership interest in $125 million of eligible direct
  financing lease  receivables.  This agreement was also structured as a revolving
  securitization.  Under this  program,  additional  leases can be sold up to $125
  million as collections reduce previously sold lease receivables.
  
  During the three months ended June 30, 1997, collections reduced previously sold
  interests under these two agreements by approximately $25.8 million. The Company
  sold an additional  $25.8 million in net eligible direct financing leases during
  the third quarter of fiscal 1997 and recognized pretax gains of $642,000.
  Income Before Income Taxes
  
  Income  before  income taxes for the third  quarter of fiscal 1997  increased by
  $4.7 million or 34.4% over the third  quarter of fiscal 1996.  This  increase in
  income before income taxes was  essentially  the effect of higher  earnings on a
  larger  lease  portfolio  base  net  of  increased  general  and  administrative
  expenses,  partially  offset by higher borrowing costs due to the increased debt
  to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the third  quarter of fiscal 1997  increased by $1.9 million or
  34.4% over the third  quarter of fiscal 1996.  This  increase in income taxes is
  directly  attributable  to the  increase  in  income  before  taxes in the third
  quarter of fiscal  1997 as  compared to the third  quarter of fiscal  1996.  The
  effective tax rate was 41% for both the third quarter of fiscal 1997 and 1996.
  
                      Nine Months Ended June 30, 1997 Compared
                      with the Nine Months Ended June 30, 1996
  
  Comparative  summarized results of operations for the nine months ended June 30,
  1997 and 1996 are set  forth in the  table  below.  This  table  also  shows the
  increase  in the dollar  amounts of major  revenue  and  expense  items  between
  periods, as well as the related percentage increase.
  Nine Months
  (dollars in thousands)                                       Ended June 30                     Increase
                                                          1997              1996          Amount         Percent
  Revenues:
       Lease finance income                             $122,051           $85,565      $   36,486         42.6%
       Rental income                                      16,473            10,310           6,163         59.8%
       Interest on IKON tax deferrals                      8,772             6,284           2,488         39.6%
       Other income                                        5,921             4,673           1,248         26.7%
                                                         -------           -------         ------- 
                                                         153,217           106,832          46,385         43.4%
  
  Expenses:
       Interest                                           59,303            42,677          16,626         39.0%
       General and administrative                         44,706            29,631          15,075         50.9%
                                                         -------           -------         ------- 
                                                         104,009            72,308          31,701         43.8%
  
  Gain on sale of investment in leases                     1,919               918           1,001        109.0%
                                                         -------           -------         ------- 
  
  Income before income taxes                              51,127            35,442          15,685         44.3%
  Provision for income taxes                              20,962            14,531           6,431         44.3%
                                                         -------           -------         ------- 
  Net income                                             $30,165           $20,911         $ 9,254         44.3%
                                                         =======           =======         =======
  Revenues
  
  Total  revenues  increased  $46.4  million or 43.4% in the first nine  months of
  fiscal  1997  compared to the first nine  months of fiscal  1996.  Approximately
  78.7% or $36.5  million of this  increase in revenues  was a result of increased
  lease  finance  income  due to  continued  growth  in the  portfolio  of  direct
  financing and funded leases. The lease portfolio,  net of lease receivables that
  were sold in asset  securitization  transactions,  increased 36.5% from June 30,
  1996 to June 30, 1997.
  Office  equipment  placed on  rental  by the IKON  dealers  to  customers,  with
  cancelable terms, may be purchased by the Company.  During the first nine months
  of fiscal 1997 and 1996,  IKON Capital  purchased  operating  lease equipment of
  $24.7 million and $14.1  million,  respectively.  Operating  leases  contributed
  $16.5  million in rental  income  during the first nine  months of fiscal  1997,
  compared to $10.3 million in the first nine months of fiscal 1996.
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  dealers  associated  with leases funded through the Company at a rate consistent
  with the Company's  weighted  average  outside  borrowing rate of interest.  The
  Company's  average  rate was 6.7% for the both the first  nine  months of fiscal
  1997 and fiscal  1996.  The  deferred  tax base upon which  these  payments  are
  calculated  increased  41.8% to $201.4  million  at June 30,  1997  from  $142.0
  million at June 30, 1996. As a result of the increased deferred tax liabilities,
  interest  income on deferred taxes rose $2.5 million or 39.6% when comparing the
  nine months ended June 30, 1997 to the nine months ended June 30, 1996.
  
  Other income  consists  primarily of late  payment  charges and various  billing
  fees. The structure of these fees has remained  basically  unchanged from fiscal
  1996.  The growth in other  income from fees is primarily  due to the  increased
  size of the lease portfolio upon which these fees are based. Overall, fee income
  from these sources grew by $1.2 million or 26.7%,  when comparing the first nine
  months of fiscal 1997 to the same period of fiscal 1996.
  
  Expenses
  
  Debt to fund  the  lease  portfolio  in the  form of loans  from  banks  and the
  issuance  of medium  term  notes in the public  market  increased  by 42.6%,  to
  $1,501.3  million  outstanding  at June 30,  1997.  The Company  paid a weighted
  average interest rate on all borrowings for the first nine months of both fiscal
  1997 and fiscal 1996 of 6.7%. As a result of the increased borrowings,  interest
  expense grew by $16.6 million or 39.0%,  when comparing the first nine months of
  fiscal  1997 to the first nine  months of fiscal  1996.  At June 30,  1997,  the
  Company's debt to equity ratio,  including  intercompany  amounts due from IKON,
  was 5.8 to 1.
  
  Total  general and  administrative  expenses  for the nine months ended June 30,
  1997  increased by $15.1  million or 50.9%,  over the nine months ended June 30,
  1996. The general and  administrative  expense category in the first nine months
  of fiscal 1997 includes  depreciation expense on leased equipment totaling $13.1
  million,  compared to $9.6 million for the first nine months of fiscal 1996.  In
  addition,  the general and administrative  expense category includes lease bonus
  subsidy  payments to either IKON or directly to the IKON  dealers,  based on the
  level of dealer  participation  in the  Company's  leasing  programs  or for the
  funding of  targeted  new lease  volume.  During the first nine months of fiscal
  1997,  lease bonus  subsidy  payments  totaled  $7.7 million as compared to $4.5
  million during the first nine months of fiscal 1996.
  
  Excluding the effects of increased  depreciation expense on operating leases and
  lease bonus subsidy payments, remaining general and administrative expenses grew
  by $8.4 million or 28.4% compared to general and administrative  expense for the
  first nine months of fiscal 1996. This increase is attributable to the growth in
  the lease portfolio.
  
  Gain on Sale of Investment in Leases
  
  In September 1996, the Company entered into an asset securitization  transaction
  whereby the Company  sold an  undivided  ownership  interest in $150  million in
  eligible direct financing lease receivables.  This agreement was structured as a
  revolving   securitization  so  that  as  collections   reduce  previously  sold
  interests, additional leases can be sold up to $150 million.
  
  Under an asset  securitization  program  entered  into in  September  1994,  the
  Company sold an undivided  ownership interest in $125 million of eligible direct
  financing lease  receivables.  This agreement was also structured as a revolving
  securitization.  Under this  program,  additional  leases can be sold up to $125
  million as collections reduce previously sold lease receivables.
  During the nine months ended June 30, 1997,  collections reduced previously sold
  interests under these two agreements by approximately $77.3 million. The Company
  sold an additional  $77.3 million in net eligible direct financing leases during
  the  first  nine  months  of  fiscal  1997  and   recognized   pretax  gains  of
  approximately $1.9 million.
  
  Income Before Income Taxes
  
  Income before income taxes for the first nine months of fiscal 1997 increased by
  $15.7 million or 44.3% over the first nine months of fiscal 1996.  This increase
  in income before income taxes was essentially the effect of higher earnings on a
  larger  lease  portfolio  base  net  of  increased  general  and  administrative
  expenses,  partially  offset by higher borrowing costs due to the increased debt
  to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the first nine months of fiscal 1997  increased by $6.4 million
  or 44.3% over the first nine  months of fiscal  1996.  This  increase  in income
  taxes is directly  attributable  to the  increase in income  before taxes in the
  first nine  months of fiscal  1997  compared  to the first nine months of fiscal
  1996.  The  effective  tax rate was 41% for both the first nine months of fiscal
  1997 and 1996.
  
                             FORWARD-LOOKING INFORMATION
  
  This document contains disclosures which are forward-looking statements relating
  to the  Company or its  parent,  IKON,  within the meaning of Section 27A of the
  Securities Act of 1933, as amended (the  "Securities  Act"),  and Section 21E of
  the 1934 Act.  Such  forward-looking  statements  address,  among other  things,
  strategic  initiatives  (including  plans for  enhancing the Company's or IKON's
  business  through  new  acquisitions,   information  technology  systems,  sales
  strategies,  market  growth  plans,  margin  enhancement  initiatives,   capital
  expenditure   requirements   and  financing   sources).   Such   forward-looking
  information  is based upon  management's  current plans or  expectations  and is
  subject to a number of uncertainties and risks that could  significantly  affect
  the  Company's  and/or  IKON's  current  plans,  anticipated  actions and future
  financial condition and results.  These uncertainties and risks include, but are
  not limited to, those relating to IKON's successful  management of an aggressive
  program to  acquire  and  integrate  new  companies,  including  companies  with
  technical  services  and  products  that are  relatively  new to IKON,  and also
  including  companies outside the United States,  which present  additional risks
  relating to international  operations;  risks and  uncertainties  (applicable to
  both the Company and IKON)  relating to  conducting  operations in a competitive
  environment;  delays, difficulties,  technological changes and employment issues
  (applicable  to  both  the  Company  and  IKON)   associated  in  a  large-scale
  transformation  project;  debt  service  requirements  (applicable  to both  the
  Company and IKON) including  sensitivity to fluctuation in interest  rates;  and
  general  economic  conditions.  As a  consequence,  current  plans,  anticipated
  actions  and future  financial  condition  and  results  may  differ  from those
  expressed in any forward-looking  statements made by or on behalf of the Company
  or IKON.
  PART II. OTHER INFORMATION
  
  Item 6.      Exhibits and Reports on Form 8-K
  
       (a)  The  following   Exhibits  are  furnished  pursuant  to  Item  601  of
            Regulation S-K:
  
               Exhibit No. (27) Financial Data Schedule
  
       (b)  Reports on Form 8-K
  
               On April 21, 1997,  the  registrant  filed a Current Report on Form
               8-K to file, under Item 5 of the form,  information  contained in a
               press release  issued by its parent,  IKON Office  Solutions,  Inc.
               ("IKON")  announcing i) earnings for the fiscal quarter ended March
               31, 1997; ii) certain management changes, and iii) its intention to
               repurchase  from time to time as much as 5 percent  of  outstanding
               shares in open market transactions.
  
               On April 24, 1997,  the  registrant  filed a Current Report on Form
               8-K to file, under Item 5 of the form,  information  contained in a
               press  release  issued  by the  Registrant's  parent,  IKON  Office
               Solutions, Inc. ("IKON"), which stated that IKON was unaware of any
               reason its stock, which recently had traded down sharply, should be
               under   pressure,   and  stated  that  IKON  knew  of  no  material
               developments  concerning its business or financial statements which
               had not been publicly disclosed.
  
               On June 27, 1997, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, information contained in a press
               release issued by its parent, IKON Office Solutions, Inc. ("IKON"),
               which indicated that IKON's third and fourth quarter earnings would
               be lower than expected.
  
               On July 17, 1997, the registrant filed a Current Report on Form 8-K
               to file, under Item 5 of the form, information contained in a press
               release issued by its parent, IKON Office Solutions,  Inc. ("IKON")
               concerning  IKON's  earnings for the fiscal  quarter ended June 30,
               1997.
  SIGNATURES
  
  Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
  Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned,  thereunto duly authorized. This report has also been signed by the
  undersigned in his capacity as the chief accounting officer of the Registrant.
  
                                          IKON CAPITAL, INC.
  
  Date        August 12, 1997             /s/ Harry G. Kozee
                                          Harry G. Kozee
                                          Vice President - Finance
                                          (Chief Accounting Officer)
  Index to Exhibits
  
  Exhibit Number
  
       (27) Financial Data Schedule