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 March 31,  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 April 30, 1997.
  
  Common Stock, $.01 par value per share                            1,000 shares
  Registered Debt Outstanding as of April 30, 1997                $1,353,750,000
  
  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--March 31, 1997 and
                             September 30, 1996
  
                             Statements  of  Income--Three  months ended March 31,
                             1997 and March 31,  1996 and Six months  ended  March
                             31, 1997 and March 31, 1996
  
                             Statements of Cash Flows--Six months ended
                             March 31, 1997 and March 31, 1996
  
                             Notes to Financial Statements--March 31, 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>
                                                          March 31,     September 30,
                                                            1997            1996
  Assets
  <S>                                                   <C>              <C>       
  Investment in leases:
       Direct financing leases                          $1,444,772       $1,140,851
       Less: Unearned income                              (253,413)        (203,459)
                                                       -----------      -----------
                                                         1,191,359          937,392
       Funded leases, net                                  395,912          313,250
                                                       -----------      -----------
                                                         1,587,271        1,250,642
  
  Accounts receivable                                       53,176           48,334
  Prepaid expenses and other assets                         12,273           15,582
  Leased equipment-operating rentals at cost
       less accumulated depreciation of:
       3/97 - $25,106  9/96 - $ 17,624                      40,306           31,341
  Property and equipment at cost, less
       accumulated depreciation of:
       3/97 - $2,926  9/96 - $ 2,536                         9,581            6,889
  
                                                       ===========      ===========
  Total assets                                          $1,702,607       $1,352,788
                                                       ===========      ===========
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses               $41,898          $42,538
       Accrued interest                                     23,208           20,870
       Due to IKON Office Solutions                         10,630           24,330
       Notes payable to Banks                               25,000           58,000
       Medium Term Notes                                 1,312,400          969,900
       Deferred income taxes                                59,650           45,750
                                                       -----------      -----------
  Total liabilities                                      1,472,786        1,161,388
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                 131,415          112,415
       Retained earnings                                    98,406           78,985
                                                       -----------      -----------
  Total shareholder's equity                               229,821          191,400
                                                       ===========      ===========
  Total liabilities and shareholder's equity            $1,702,607       $1,352,788
                                                       ===========      ===========
  </TABLE>
  
  
  See notes to financial statements.
  
  <PAGE>
  
                                 IKON CAPITAL, INC.
                                STATEMENTS OF INCOME
                                   (in thousands)
  <TABLE>
  <CAPTION>
                                             Three Months Ended       Six Months Ended
                                                  March 31                March 31
                                             1997        1996        1997         1996
  <S>                                      <C>         <C>         <C>         <C>    
  Revenues:
      Lease finance income                 $40,657     $28,180     $77,557     $53,540
      Rental income                          5,136       3,346       9,928       6,577
      Interest on IKON tax deferrals         2,888       2,122       5,624       4,011
      Other income                           2,097       1,721       3,831       3,089
                                           -------     -------     -------     -------
                                            50,778      35,369      96,940      67,217
  
  Expenses:
      Interest                              19,602      13,696      37,228      27,113
      General and administrative            15,113      10,487      28,072      18,796
                                           -------     -------     -------     -------
                                            34,715      24,183      65,300      45,909
  
  Gain on sale of investment in leases         664         277       1,277         589
                                           -------     -------     -------     -------
  
  
  Income before income taxes                16,727      11,463      32,917      21,897
  
  Provision for income taxes                 6,858       4,700      13,496       8,978
                                           -------     -------     -------     -------
  
  Net income                                $9,869      $6,763     $19,421     $12,919
                                           =======     =======     =======     =======
  
  </TABLE>
  
  See notes to financial statements.
  
  <PAGE>
                                 IKON CAPITAL, INC.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  <TABLE>
  <CAPTION>
                                                               Six Months Ended
                                                                   March 31,
                                                               1997          1996
  <S>                                                        <C>            <C>    
  Operating activities:
  Net income                                                 $19,421        $12,919
  Adjustments to reconcile net income to net
       cash provided by operating activities
          Depreciation and amortization                        7,872          6,532
          Provision for deferred taxes                        13,900         18,808
          Gain on sale of investment in leases                (1,277)          (589)
          Changes in operating assets and liabilities:
              Accounts receivable                             (4,842)        (5,616)
              Prepaid expenses and other assets                4,586           (243)
              Accounts payable and accrued expenses             (640)         2,654
              Accrued interest                                 2,338          4,336
                                                           ---------      ---------
                                Net cash provided             41,358         38,801
                                                           ---------      ---------
  
  Investing activities:
  Purchases of leased equipment, net                         (16,447)        (9,132)
  Purchases of property and equipment, net                    (3,082)        (1,043)
  Direct financing leases:
       Additions                                            (619,015)      (365,156)
       Cancellations                                          87,839         60,577
       Collections                                           225,802        129,602
       Proceeds from sale                                     51,407         26,454
  Funded leases:
       Additions                                            (187,360)      (163,217)
       Cancellations                                          26,587         18,462
       Collections                                            78,111         39,499
                                                           ---------      ---------
                                Net cash used               (356,158)      (263,954)
                                                           ---------      ---------
  
  Financing activities:
  Proceeds from bank borrowings                                              60,000
  Payments on bank borrowings                                (33,000)       (40,000)
  Proceeds from issuance of medium term notes                385,500        169,500
  Payments on medium term notes                              (43,000)       (30,000)
  Capital contributed by IKON                                 19,000         17,000
                                                           ---------      ---------
                                Net cash provided            328,500        176,500
                                                           ---------      ---------
  
  Decrease (increase) in amounts due to IKON                  13,700        (48,653)
  Due (to) from IKON at beginning of period                  (24,330)        26,577
                                                           =========      =========
  Due (to) from IKON at end of period                       ($10,630)      ($22,076)
                                                           =========      =========
  </TABLE>
  
  See notes to financial statements.
  
  <PAGE>
  
                                 IKON Capital, Inc.
                            Notes to Financial Statements
                                   March 31, 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 six months  ended March 31, 1997,  IKON Capital  issued an
  additional  $385.5 million under its $1.5 billion  medium term note program.  At
  March 31, 1997,  $1,312.4 million of medium term notes remain outstanding with a
  weighted average interest rate of 6.7%,  leaving $114.6 million  available under
  this program.
  
  
  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 $51.4  million in direct  financing  leases
  during  the first six months of fiscal  1997,  replacing  leases  which had been
  liquidated during the period and recognized a pretax gain of approximately  $1.3
  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 March 31, 1997 Compared
                     with the Three Months Ended March 31, 1996
  
  Comparative  summarized  results of operations  for the three months ended March
  31,  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 March 31                  Increase
                                                           1997              1996          Amount      Percent
  <S>                                                    <C>               <C>          <C>                <C>  
  Revenues:
       Lease finance income                              $40,657           $28,180      $   12,477         44.3%
       Rental income                                       5,136             3,346           1,790         53.5%
       Interest on IKON tax deferrals                      2,888             2,122             766         36.1%
       Other income                                        2,097             1,721             376         21.8%
                                                       ---------         ---------       ---------
                                                          50,778            35,369          15,409         43.6%
  
  Expenses:
       Interest                                           19,602            13,696           5,906         43.1%
       General and administrative                         15,113            10,487           4,626         44.1%
                                                       ---------         ---------       ---------
                                                          34,715            24,183          10,532         43.6%
  
  Gain on sale of investment in leases                       664               277             387        139.7%
                                                       ---------         ---------       ----------
  
  Income before income taxes                              16,727            11,463           5,264         45.9%
  Provision for income taxes                               6,858             4,700           2,158         45.9%
                                                       ---------         ---------       ---------
  Net income                                          $    9,869        $    6,763      $    3,106         45.9%
                                                       =========         =========       =========
  </TABLE>
  
  Revenues
  
  Total revenues  increased $15.4 million or 43.6% in the second quarter of fiscal
  1997 compared to the second quarter of fiscal 1996.  Approximately  81% 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  41.1% from March 31, 1996 to March 31,
  1997.
  
  Office  equipment  placed on  rental  by the IKON  dealers  to  customers,  with
  cancelable  terms,  may be funded by the Company.  During the second quarters of
  fiscal  1997 and 1996,  IKON  Capital  funded  $9.6  million  and $1.6  million,
  respectively.  Operating leases contributed $5.1 million in rental income during
  the  second  quarter  of fiscal  1997,  compared  to $3.3  million in the second
  quarter of 1996.
  
  <PAGE>
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  dealers  resulting from 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 6.8% for both the second  quarter of fiscal 1997 and
  the second quarter of fiscal 1996. In addition, the deferred tax base upon which
  these  payments are  calculated  increased  36.8% to $185.5 million at March 31,
  1997 from  $135.6  million  at March  31,  1996.  As a result  of the  increased
  deferred tax  liabilities,  interest  income on deferred  taxes rose $766,000 or
  36.1% when  comparing  the three months ended March 31, 1997 to the three months
  ended March 31, 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 $376,000 or 21.8%,  when comparing the second 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 43.1%,  to
  $1,337.4  million  outstanding  at March 31,  1997.  The Company paid a weighted
  average  interest rate on all borrowings for the second  quarters of fiscal 1997
  and  fiscal  1996 of 6.8%.  As a result of the  increased  borrowings,  interest
  expense  grew by $5.9 million or 43.1%,  when  comparing  the second  quarter of
  fiscal 1997 to fiscal 1996.  At March 31,  1997,  the  Company's  debt to equity
  ratio, including intercompany amounts owed to IKON was 5.9 to 1.
  
  Total general and  administrative  expenses for the quarter ended March 31, 1997
  increased by $4.6 million or 44.1%,  over the quarter ended March 31, 1996.  The
  general and administrative expense category in the second quarter of fiscal 1997
  includes  depreciation  expense  on  leased  equipment  totaling  $3.7  million,
  compared to $3.2 million for the second 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 second quarter of fiscal 1997, lease bonus
  subsidy  payments  totaled $3.5  million as compared to $2.1 million  during the
  second quarter of fiscal 1996.
  
  Excluding  the effects of  depreciation  expense on  operating  leases and lease
  bonus subsidy payments,  remaining general and  administrative  expenses grew by
  $2.8 million or 54.5%,  when  comparing the second quarter of fiscal 1997 to the
  second quarter of fiscal 1996.
  
  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, new leases can be sold up to $125 million as
  collections reduce previously sold lease receivables.
  
  During the three  months ended March 31, 1997,  collections  reduced  previously
  sold interests under these two agreements by  approximately  $26.0 million.  The
  Company sold an additional $26.0 million in net eligible direct financing leases
  during  the  second  quarter  of  fiscal  1997 and  recognized  pretax  gains of
  $664,000.
  
  <PAGE>
  
  Income Before Taxes
  
  Income  before  taxes for the second  quarter of fiscal 1997  increased  by $5.3
  million or 45.9% over the second quarter of fiscal 1996. This increase in income
  before  taxes was  essentially  the effect of higher  earnings on a larger lease
  portfolio base,  partially offset by higher borrowing costs due to the increased
  debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the second  quarter of fiscal 1997 increased by $2.2 million or
  45.9% over the second  quarter of fiscal 1996.  This increase in income taxes is
  directly  attributable  to the  increase  in income  before  taxes in the second
  quarter of fiscal  1997 as compared to the second  quarter of fiscal  1996.  The
  effective tax rate was 41% for both the second quarter of fiscal 1997 and 1996.
  
                      Six Months Ended March 31, 1997 Compared
                      with the Six Months Ended March 31, 1996
  
  Comparative  summarized results of operations for the six months ended March 31,
  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>
                                                                Six Months
  (dollars in thousands)                                    Ended March 31                    Increase
                                                         1997                1996           Amount      Percent
  <S>                                                    <C>               <C>          <C>                <C>  
  Revenues:
       Lease finance income                              $77,557           $53,540      $   24,017         44.9%
       Rental income                                       9,928             6,577           3,351         51.0%
       Interest on IKON tax deferrals                      5,624             4,011           1,613         40.2%
       Other income                                        3,831             3,089             742         24.0%
                                                       ---------         ---------      ----------
                                                          96,940            67,217          29,723         44.2%
  
  Expenses:
       Interest                                           37,228            27,113          10,115         37.3%
       General and administrative                         28,072            18,796           9,276         49.4%
                                                       ---------         ---------       ---------
                                                          65,300            45,909          19,391         42.2%
  
  Gain on sale of investment in leases                     1,277               589             688        116.8%
                                                       ---------         ----------     ---------
  
  Income before income taxes                              32,917            21,897          11,020         50.3%
  Provision for income taxes                              13,496             8,978           4,518         50.3%
                                                       ---------         ---------      ----------
  Net income                                           $  19,421         $  12,919      $    6,502         50.3%
                                                       =========         =========      ==========
  </TABLE>
  
  Revenues
  
  Total  revenues  increased  $29.7  million  or 44.2% in the first six  months of
  fiscal 1997 compared to the first six months of fiscal 1996. Approximately 80.8%
  or $24.0  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 41.1% from March 31, 1996 to March
  31, 1997.
  
  
  <PAGE>
  
  
  Office  equipment  placed on  rental  by the IKON  dealers  to  customers,  with
  cancelable  terms, may be funded by the Company.  During the first six months of
  fiscal 1997 and 1996,  IKON  Capital  funded  $16.4  million  and $9.1  million,
  respectively.  Operating leases contributed $9.9 million in rental income during
  the first six months of fiscal  1997,  compared to $6.6 million in the first six
  months of fiscal 1996.
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  dealers  resulting from 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 6.8% for the both the first six months of fiscal 1997
  and fiscal 1996.  In addition,  the deferred tax base upon which these  payments
  are calculated  increased  36.8% to $185.5 million at March 31, 1997 from $135.6
  million  at  March  31,  1996.  As  a  result  of  the  increased  deferred  tax
  liabilities,  interest  income on deferred taxes rose $1.6 million or 40.2% when
  comparing  the six months ended March 31, 1997 to the six months ended March 31,
  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 $742,000  or 24.0%,  when  comparing  the first six
  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 43.1%,  to
  $1,337.4  million  outstanding  at March 31,  1997.  The Company paid a weighted
  average  interest rate on all  borrowings for the first half of both fiscal 1997
  and  fiscal  1996 of 6.8%.  As a result of the  increased  borrowings,  interest
  expense grew by $10.1 million or 37.3%,  when comparing the first half of fiscal
  1997 to the first half of fiscal 1996. At March 31, 1997,  the Company's debt to
  equity ratio, including intercompany amounts owed to IKON, was 5.9 to 1.
  
  Total  general and  administrative  expenses  for the six months ended March 31,
  1997  increased  by $9.3  million or 49.4%,  over the six months ended March 31,
  1996. The general and administrative expense category in the first six months of
  fiscal 1997  includes  depreciation  expense on leased  equipment  totaling $7.9
  million,  compared to $6.2 million for the first six 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 six months of fiscal
  1997,  lease bonus  subsidy  payments  totaled  $5.6 million as compared to $2.6
  million during the first six months of fiscal 1996.
  
  Excluding  the effects of  depreciation  expense on  operating  leases and lease
  bonus subsidy payments,  remaining general and  administrative  expenses grew by
  $4.6 million or 46.0%, when comparing the first six months of fiscal 1997 to the
  first six months of fiscal 1996.
  
  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, new leases can be sold up to $125 million as
  collections reduce previously sold lease receivables.
  
  <PAGE>
  
  During the six months ended March 31, 1997,  collections reduced previously sold
  interests under these two agreements by approximately $51.4 million. The Company
  sold an additional  $51.4 million in net eligible direct financing leases during
  the first half of fiscal 1997 and recognized pretax gains of approximately  $1.3
  million.
  
  Income Before Taxes
  
  Income before taxes for the first half of fiscal 1997 increased by $11.0 million
  or 50.3% over the first half of fiscal  1996.  This  increase  in income  before
  taxes was  essentially the effect of higher earnings on a larger lease portfolio
  base,  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 six months of fiscal 1997  increased by $4.5 million
  or 50.3% over the first six months of fiscal 1996. This increase in income taxes
  is directly  attributable  to the  increase in income  before taxes in the first
  half of fiscal 1997 as compared to the first half of fiscal 1996.  The effective
  tax rate was 41% for both the first half of fiscal 1997 and 1996.
  
  Forward-looking Information
  
  This document contains,  and other materials filed or to be filed by the Company
  with the  Commission  which are  incorporated  by reference  herein,  as well as
  information  included in oral statements or other written  statements made or to
  be made by the Company,  contain or will contain or include,  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 fluctuations
  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 18, 1997,  the  registrant  filed a Current Report on Form
               8-K to file,  under Item 5 of the form, the earnings of its parent,
               IKON Office Solutions,  Inc. for the fiscal quarter ended March 31,
               1997 and the announcement of certain  management  changes,  and the
               announcement  that it may repurchase from time to time as much as 5
               percent of its outstanding shares in open market transactions.
  
               On April 23, 1997,  the  registrant  filed a Current Report on Form
               8-K to file,  under Item 5 of the form, a Press  Release  issued by
               the Registrant's parent, IKON Office Solutions,  Inc., stating that
               it was unaware of any reason its stock,  which  recently had traded
               down  sharply,  should be under  pressure.  The Press  Release also
               stated that IKON knows of no material  developments  concerning its
               business  or  financial  statements  which  have not been  publicly
               disclosed.
  
  
  
  <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      May 15, 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", "description": "FORM 10-Q", "secsgml_size_bytes": 36556}]
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": "97607721"}, "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 March 31,  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 April 30, 1997.
  
  Common Stock, $.01 par value per share                            1,000 shares
  Registered Debt Outstanding as of April 30, 1997                $1,353,750,000
  
  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--March 31, 1997 and
                             September 30, 1996
  
                             Statements  of  Income--Three  months ended March 31,
                             1997 and March 31,  1996 and Six months  ended  March
                             31, 1997 and March 31, 1996
  
                             Statements of Cash Flows--Six months ended
                             March 31, 1997 and March 31, 1996
  
                             Notes to Financial Statements--March 31, 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)
  March 31,     September 30,
                                                            1997            1996
  Assets
  Investment in leases:
       Direct financing leases                          $1,444,772       $1,140,851
       Less: Unearned income                              (253,413)        (203,459)
                                                       -----------      -----------
                                                         1,191,359          937,392
       Funded leases, net                                  395,912          313,250
                                                       -----------      -----------
                                                         1,587,271        1,250,642
  
  Accounts receivable                                       53,176           48,334
  Prepaid expenses and other assets                         12,273           15,582
  Leased equipment-operating rentals at cost
       less accumulated depreciation of:
       3/97 - $25,106  9/96 - $ 17,624                      40,306           31,341
  Property and equipment at cost, less
       accumulated depreciation of:
       3/97 - $2,926  9/96 - $ 2,536                         9,581            6,889
  
                                                       ===========      ===========
  Total assets                                          $1,702,607       $1,352,788
                                                       ===========      ===========
  
  Liabilities and shareholder's equity
  
  Liabilities:
       Accounts payable and accrued expenses               $41,898          $42,538
       Accrued interest                                     23,208           20,870
       Due to IKON Office Solutions                         10,630           24,330
       Notes payable to Banks                               25,000           58,000
       Medium Term Notes                                 1,312,400          969,900
       Deferred income taxes                                59,650           45,750
                                                       -----------      -----------
  Total liabilities                                      1,472,786        1,161,388
  
  Shareholder's equity:
       Common Stock - $.01 par value, 1,000 shares
           authorized, issued, and outstanding
       Contributed capital                                 131,415          112,415
       Retained earnings                                    98,406           78,985
                                                       -----------      -----------
  Total shareholder's equity                               229,821          191,400
                                                       ===========      ===========
  Total liabilities and shareholder's equity            $1,702,607       $1,352,788
                                                       ===========      ===========
  See notes to financial statements.
  IKON CAPITAL, INC.
                                STATEMENTS OF INCOME
                                   (in thousands)
  Three Months Ended       Six Months Ended
                                                  March 31                March 31
                                             1997        1996        1997         1996
  Revenues:
      Lease finance income                 $40,657     $28,180     $77,557     $53,540
      Rental income                          5,136       3,346       9,928       6,577
      Interest on IKON tax deferrals         2,888       2,122       5,624       4,011
      Other income                           2,097       1,721       3,831       3,089
                                           -------     -------     -------     -------
                                            50,778      35,369      96,940      67,217
  
  Expenses:
      Interest                              19,602      13,696      37,228      27,113
      General and administrative            15,113      10,487      28,072      18,796
                                           -------     -------     -------     -------
                                            34,715      24,183      65,300      45,909
  
  Gain on sale of investment in leases         664         277       1,277         589
                                           -------     -------     -------     -------
  
  Income before income taxes                16,727      11,463      32,917      21,897
  
  Provision for income taxes                 6,858       4,700      13,496       8,978
                                           -------     -------     -------     -------
  
  Net income                                $9,869      $6,763     $19,421     $12,919
                                           =======     =======     =======     =======
  See notes to financial statements.
  IKON CAPITAL, INC.
                              STATEMENTS OF CASH FLOWS
                                   (in thousands)
  Six Months Ended
                                                                   March 31,
                                                               1997          1996
  Operating activities:
  Net income                                                 $19,421        $12,919
  Adjustments to reconcile net income to net
       cash provided by operating activities
          Depreciation and amortization                        7,872          6,532
          Provision for deferred taxes                        13,900         18,808
          Gain on sale of investment in leases                (1,277)          (589)
          Changes in operating assets and liabilities:
              Accounts receivable                             (4,842)        (5,616)
              Prepaid expenses and other assets                4,586           (243)
              Accounts payable and accrued expenses             (640)         2,654
              Accrued interest                                 2,338          4,336
                                                           ---------      ---------
                                Net cash provided             41,358         38,801
                                                           ---------      ---------
  
  Investing activities:
  Purchases of leased equipment, net                         (16,447)        (9,132)
  Purchases of property and equipment, net                    (3,082)        (1,043)
  Direct financing leases:
       Additions                                            (619,015)      (365,156)
       Cancellations                                          87,839         60,577
       Collections                                           225,802        129,602
       Proceeds from sale                                     51,407         26,454
  Funded leases:
       Additions                                            (187,360)      (163,217)
       Cancellations                                          26,587         18,462
       Collections                                            78,111         39,499
                                                           ---------      ---------
                                Net cash used               (356,158)      (263,954)
                                                           ---------      ---------
  
  Financing activities:
  Proceeds from bank borrowings                                              60,000
  Payments on bank borrowings                                (33,000)       (40,000)
  Proceeds from issuance of medium term notes                385,500        169,500
  Payments on medium term notes                              (43,000)       (30,000)
  Capital contributed by IKON                                 19,000         17,000
                                                           ---------      ---------
                                Net cash provided            328,500        176,500
                                                           ---------      ---------
  
  Decrease (increase) in amounts due to IKON                  13,700        (48,653)
  Due (to) from IKON at beginning of period                  (24,330)        26,577
                                                           =========      =========
  Due (to) from IKON at end of period                       ($10,630)      ($22,076)
                                                           =========      =========
  See notes to financial statements.
  IKON Capital, Inc.
                            Notes to Financial Statements
                                   March 31, 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 six months  ended March 31, 1997,  IKON Capital  issued an
  additional  $385.5 million under its $1.5 billion  medium term note program.  At
  March 31, 1997,  $1,312.4 million of medium term notes remain outstanding with a
  weighted average interest rate of 6.7%,  leaving $114.6 million  available under
  this program.
  
  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 $51.4  million in direct  financing  leases
  during  the first six months of fiscal  1997,  replacing  leases  which had been
  liquidated during the period and recognized a pretax gain of approximately  $1.3
  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 March 31, 1997 Compared
                     with the Three Months Ended March 31, 1996
  
  Comparative  summarized  results of operations  for the three months ended March
  31,  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 March 31                  Increase
                                                           1997              1996          Amount      Percent
  Revenues:
       Lease finance income                              $40,657           $28,180      $   12,477         44.3%
       Rental income                                       5,136             3,346           1,790         53.5%
       Interest on IKON tax deferrals                      2,888             2,122             766         36.1%
       Other income                                        2,097             1,721             376         21.8%
                                                       ---------         ---------       ---------
                                                          50,778            35,369          15,409         43.6%
  
  Expenses:
       Interest                                           19,602            13,696           5,906         43.1%
       General and administrative                         15,113            10,487           4,626         44.1%
                                                       ---------         ---------       ---------
                                                          34,715            24,183          10,532         43.6%
  
  Gain on sale of investment in leases                       664               277             387        139.7%
                                                       ---------         ---------       ----------
  
  Income before income taxes                              16,727            11,463           5,264         45.9%
  Provision for income taxes                               6,858             4,700           2,158         45.9%
                                                       ---------         ---------       ---------
  Net income                                          $    9,869        $    6,763      $    3,106         45.9%
                                                       =========         =========       =========
  Revenues
  
  Total revenues  increased $15.4 million or 43.6% in the second quarter of fiscal
  1997 compared to the second quarter of fiscal 1996.  Approximately  81% 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  41.1% from March 31, 1996 to March 31,
  1997.
  
  Office  equipment  placed on  rental  by the IKON  dealers  to  customers,  with
  cancelable  terms,  may be funded by the Company.  During the second quarters of
  fiscal  1997 and 1996,  IKON  Capital  funded  $9.6  million  and $1.6  million,
  respectively.  Operating leases contributed $5.1 million in rental income during
  the  second  quarter  of fiscal  1997,  compared  to $3.3  million in the second
  quarter of 1996.
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  dealers  resulting from 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 6.8% for both the second  quarter of fiscal 1997 and
  the second quarter of fiscal 1996. In addition, the deferred tax base upon which
  these  payments are  calculated  increased  36.8% to $185.5 million at March 31,
  1997 from  $135.6  million  at March  31,  1996.  As a result  of the  increased
  deferred tax  liabilities,  interest  income on deferred  taxes rose $766,000 or
  36.1% when  comparing  the three months ended March 31, 1997 to the three months
  ended March 31, 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 $376,000 or 21.8%,  when comparing the second 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 43.1%,  to
  $1,337.4  million  outstanding  at March 31,  1997.  The Company paid a weighted
  average  interest rate on all borrowings for the second  quarters of fiscal 1997
  and  fiscal  1996 of 6.8%.  As a result of the  increased  borrowings,  interest
  expense  grew by $5.9 million or 43.1%,  when  comparing  the second  quarter of
  fiscal 1997 to fiscal 1996.  At March 31,  1997,  the  Company's  debt to equity
  ratio, including intercompany amounts owed to IKON was 5.9 to 1.
  
  Total general and  administrative  expenses for the quarter ended March 31, 1997
  increased by $4.6 million or 44.1%,  over the quarter ended March 31, 1996.  The
  general and administrative expense category in the second quarter of fiscal 1997
  includes  depreciation  expense  on  leased  equipment  totaling  $3.7  million,
  compared to $3.2 million for the second 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 second quarter of fiscal 1997, lease bonus
  subsidy  payments  totaled $3.5  million as compared to $2.1 million  during the
  second quarter of fiscal 1996.
  
  Excluding  the effects of  depreciation  expense on  operating  leases and lease
  bonus subsidy payments,  remaining general and  administrative  expenses grew by
  $2.8 million or 54.5%,  when  comparing the second quarter of fiscal 1997 to the
  second quarter of fiscal 1996.
  
  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, new leases can be sold up to $125 million as
  collections reduce previously sold lease receivables.
  
  During the three  months ended March 31, 1997,  collections  reduced  previously
  sold interests under these two agreements by  approximately  $26.0 million.  The
  Company sold an additional $26.0 million in net eligible direct financing leases
  during  the  second  quarter  of  fiscal  1997 and  recognized  pretax  gains of
  $664,000.
  Income Before Taxes
  
  Income  before  taxes for the second  quarter of fiscal 1997  increased  by $5.3
  million or 45.9% over the second quarter of fiscal 1996. This increase in income
  before  taxes was  essentially  the effect of higher  earnings on a larger lease
  portfolio base,  partially offset by higher borrowing costs due to the increased
  debt to fund the lease portfolio.
  
  Provision for Income Taxes
  
  Income taxes for the second  quarter of fiscal 1997 increased by $2.2 million or
  45.9% over the second  quarter of fiscal 1996.  This increase in income taxes is
  directly  attributable  to the  increase  in income  before  taxes in the second
  quarter of fiscal  1997 as compared to the second  quarter of fiscal  1996.  The
  effective tax rate was 41% for both the second quarter of fiscal 1997 and 1996.
  
                      Six Months Ended March 31, 1997 Compared
                      with the Six Months Ended March 31, 1996
  
  Comparative  summarized results of operations for the six months ended March 31,
  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.
  Six Months
  (dollars in thousands)                                    Ended March 31                    Increase
                                                         1997                1996           Amount      Percent
  Revenues:
       Lease finance income                              $77,557           $53,540      $   24,017         44.9%
       Rental income                                       9,928             6,577           3,351         51.0%
       Interest on IKON tax deferrals                      5,624             4,011           1,613         40.2%
       Other income                                        3,831             3,089             742         24.0%
                                                       ---------         ---------      ----------
                                                          96,940            67,217          29,723         44.2%
  
  Expenses:
       Interest                                           37,228            27,113          10,115         37.3%
       General and administrative                         28,072            18,796           9,276         49.4%
                                                       ---------         ---------       ---------
                                                          65,300            45,909          19,391         42.2%
  
  Gain on sale of investment in leases                     1,277               589             688        116.8%
                                                       ---------         ----------     ---------
  
  Income before income taxes                              32,917            21,897          11,020         50.3%
  Provision for income taxes                              13,496             8,978           4,518         50.3%
                                                       ---------         ---------      ----------
  Net income                                           $  19,421         $  12,919      $    6,502         50.3%
                                                       =========         =========      ==========
  Revenues
  
  Total  revenues  increased  $29.7  million  or 44.2% in the first six  months of
  fiscal 1997 compared to the first six months of fiscal 1996. Approximately 80.8%
  or $24.0  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 41.1% from March 31, 1996 to March
  31, 1997.
  Office  equipment  placed on  rental  by the IKON  dealers  to  customers,  with
  cancelable  terms, may be funded by the Company.  During the first six months of
  fiscal 1997 and 1996,  IKON  Capital  funded  $16.4  million  and $9.1  million,
  respectively.  Operating leases contributed $9.9 million in rental income during
  the first six months of fiscal  1997,  compared to $6.6 million in the first six
  months of fiscal 1996.
  
  The Company earns  interest  income on the deferred tax  liabilities of the IKON
  dealers  resulting from 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 6.8% for the both the first six months of fiscal 1997
  and fiscal 1996.  In addition,  the deferred tax base upon which these  payments
  are calculated  increased  36.8% to $185.5 million at March 31, 1997 from $135.6
  million  at  March  31,  1996.  As  a  result  of  the  increased  deferred  tax
  liabilities,  interest  income on deferred taxes rose $1.6 million or 40.2% when
  comparing  the six months ended March 31, 1997 to the six months ended March 31,
  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 $742,000  or 24.0%,  when  comparing  the first six
  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 43.1%,  to
  $1,337.4  million  outstanding  at March 31,  1997.  The Company paid a weighted
  average  interest rate on all  borrowings for the first half of both fiscal 1997
  and  fiscal  1996 of 6.8%.  As a result of the  increased  borrowings,  interest
  expense grew by $10.1 million or 37.3%,  when comparing the first half of fiscal
  1997 to the first half of fiscal 1996. At March 31, 1997,  the Company's debt to
  equity ratio, including intercompany amounts owed to IKON, was 5.9 to 1.
  
  Total  general and  administrative  expenses  for the six months ended March 31,
  1997  increased  by $9.3  million or 49.4%,  over the six months ended March 31,
  1996. The general and administrative expense category in the first six months of
  fiscal 1997  includes  depreciation  expense on leased  equipment  totaling $7.9
  million,  compared to $6.2 million for the first six 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 six months of fiscal
  1997,  lease bonus  subsidy  payments  totaled  $5.6 million as compared to $2.6
  million during the first six months of fiscal 1996.
  
  Excluding  the effects of  depreciation  expense on  operating  leases and lease
  bonus subsidy payments,  remaining general and  administrative  expenses grew by
  $4.6 million or 46.0%, when comparing the first six months of fiscal 1997 to the
  first six months of fiscal 1996.
  
  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, new leases can be sold up to $125 million as
  collections reduce previously sold lease receivables.
  During the six months ended March 31, 1997,  collections reduced previously sold
  interests under these two agreements by approximately $51.4 million. The Company
  sold an additional  $51.4 million in net eligible direct financing leases during
  the first half of fiscal 1997 and recognized pretax gains of approximately  $1.3
  million.
  
  Income Before Taxes
  
  Income before taxes for the first half of fiscal 1997 increased by $11.0 million
  or 50.3% over the first half of fiscal  1996.  This  increase  in income  before
  taxes was  essentially the effect of higher earnings on a larger lease portfolio
  base,  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 six months of fiscal 1997  increased by $4.5 million
  or 50.3% over the first six months of fiscal 1996. This increase in income taxes
  is directly  attributable  to the  increase in income  before taxes in the first
  half of fiscal 1997 as compared to the first half of fiscal 1996.  The effective
  tax rate was 41% for both the first half of fiscal 1997 and 1996.
  
  Forward-looking Information
  
  This document contains,  and other materials filed or to be filed by the Company
  with the  Commission  which are  incorporated  by reference  herein,  as well as
  information  included in oral statements or other written  statements made or to
  be made by the Company,  contain or will contain or include,  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 fluctuations
  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 18, 1997,  the  registrant  filed a Current Report on Form
               8-K to file,  under Item 5 of the form, the earnings of its parent,
               IKON Office Solutions,  Inc. for the fiscal quarter ended March 31,
               1997 and the announcement of certain  management  changes,  and the
               announcement  that it may repurchase from time to time as much as 5
               percent of its outstanding shares in open market transactions.
  
               On April 23, 1997,  the  registrant  filed a Current Report on Form
               8-K to file,  under Item 5 of the form, a Press  Release  issued by
               the Registrant's parent, IKON Office Solutions,  Inc., stating that
               it was unaware of any reason its stock,  which  recently had traded
               down  sharply,  should be under  pressure.  The Press  Release also
               stated that IKON knows of no material  developments  concerning its
               business  or  financial  statements  which  have not been  publicly
               disclosed.
  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      May 15, 1997                      /s/ Harry G. Kozee
                                                  Harry G. Kozee
                                                  Vice President-Finance
                                                 (Chief Accounting Officer)
  Index to Exhibits
  
  Exhibit Number
  
          (27)               Financial Data Schedule