UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549
                           Form 10-QSB
(Mark one)
 X  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended               September 30, 1997               .

      TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from                                 to            
Commission file number                0-13538              

                 NATIONAL AFFILIATED CORPORATION

(Exact Name of small business issuer as specified in its charter)

                   Louisiana                        72-0947819                
    (State or other jurisdiction of(I.R.S. Employer Identification
     incorporation or organization)Number)

7228 England Drive, Suite 24, P.O. Box 12190, Alexandria, LA 71315

             (Address of principal executive offices)

                          (318) 473-4355

        (Insurer's telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last 
report)

Check whether the issuer (1) filed all reports required to be filed by Section 
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter 
period that the registrant was required to file such reports), and (2) has been 
subject to such filing requirements for the past 90 days. Yes  X  No    

               APPLICABLE ONLY TO ISSUERS INVOLVED
                 IN BANKRUPTCY PROCEEDINGS DURING
                    THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be 
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution 
of securities under a plan confirmed by a court. Yes     No    

              APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.

Registrant had 10,105,934 Voting Common Shares outstanding on 
September 30, 1997.

                  PART I - FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 
<TABLE>
<S>                                          <C>          <C>
                                                 1997        1996
ASSETS:
Cash                                            $175,179    $195,835
Invested assets:                                          
   Fixed maturities available-for-sale at mar  1,772,121   1,227,902
   Equity securities available-for-sale at ma    445,780      80,938
   Mortgage loans                              1,661,988   1,425,000
   Collateral loans                              202,500     881,822
   Other long-term investments at equity          97,268     127,775
   Other long-term investments at market          39,000           0
   Certificates of deposit, time deposits and    805,361      24,673
   Restricted assets at market                 1,033,568   1,032,000
Accrued investment income                        127,051      62,313
Finance notes receivable - net                     2,545       7,117
Policy loans                                     106,829     107,830
Reinsurance receivable                           737,533     679,623
Other amounts receivable:                     
   Premiums due and uncollected                   75,714      25,458
   Agents' balances (net of allowance for unc             
     account of $150,000 in 1997 and 1996)       187,087     138,133
   Other                                         669,560   2,139,330
Property - net                                   132,870     136,839
Deferred policy acquisition costs                758,261     966,545
Investment in Life One, Inc                    3,788,911           0
Other assets                                   1,108,677      21,482
TOTAL                                        $13,927,803  $9,280,615
                                              
LIABILITIES AND STOCKHOLDERS' EQUITY:         
Policy benefit reserves                        3,366,970  $3,650,190
Policy claims                                    471,985     961,697
Unearned premiums                                 24,371      24,642
Dividends left on deposit                        245,279     304,697
Advance premium deposits                         119,941     168,141
Other policyholders' funds                        17,831      11,452
Accounts payable and accruals                    186,351     301,464
Debentures                                     3,798,000           0
   Total liabilities                           8,230,728   5,422,283
Commitments and contingent liabilities
Stockholders' equity:
   Voting common shares, no par; 14,000,000 s             
    authorized; 10,105,934 and 8,740,915 shar 10,461,891   9,275,003
   Additional paid-in capital                    154,500     154,500
   Net unrealized investment gains (losses)     (112,784)   (508,846)
   Accumulated deficit                        (4,806,532) (5,062,325)
   Total stockholders' equity                  5,697,075   3,858,332
TOTAL                                        $13,927,803  $9,280,615
</TABLE>
See notes to consolidated financial statements.
 

NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S>                              <C>       <C>        <C>     <C>

                                       Three Months          Nine Months
                                   1997      1996      1997      1996
REVENUES:
Insurance premiums               $471,564  $425,160 1,687,244 1,428,715
Net investment income             103,214    64,034   273,510   378,880
Other income                      185,076    13,310   886,332    45,145
   Total revenues                 759,854   502,504 2,847,086 1,852,740

EXPENSES:
Increase (decrease) in policy be  (45,069)   (4,075) (360,372)  (44,404)
Claims and other benefits         217,639   243,935 1,110,439   939,458
Policyholder dividends              2,375     2,927     7,927    10,606
Commission expense                 52,164    68,110   175,126   222,879
Depreciation and amortization      19,930    51,008    41,469    65,898
Interest expense                   17,599    10,519    51,058    40,711
Salaries, wages and taxes         113,621   190,464   326,946   558,590
Operating expense                 248,041   732,943   682,565 1,424,785
Restructuring expense             252,527         0   347,851         0
Amortization of deferred acquisi   51,120    83,772   208,284   321,469
   Total expenses                 929,947 1,379,603 2,591,293 3,539,992

GAIN (LOSS) BEFORE INCOME TAXES  (170,093) (877,099)  255,793 (1,687,252)

PROVISION FOR INCOME TAXES              0         0         0         0

NET GAIN (LOSS)                 ($170,093)($877,099) $255,793 ($1,687,252)

GAIN (LOSS) PER COMMON SHARE       ($0.02)   ($0.24)    $0.03    ($0.48)
        (primary and fully diluted)

WEIGHTED AVERAGE COMMON 
     SHARES OUTSTANDING         9,528,034 3,635,586 9,021,066 3,531,521
</TABLE>
                                                     

See notes to consolidated financial statements.

NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<S>                                             <C>      <C>
                                                 1997        1996
Cash flows from operating activities:
Net gain (loss)                                 $255,793 ($1,687,252)
Non-cash and non-operating items:
   Loss (gain) on sale of invested assets         12,861    (244,332)
   Depreciation and amortization                   3,969      65,898
Change in assets and liabilities:
   Deferred policy acquisition costs             208,284     321,469
   Policy benefit reserves and unearned premi   (283,491)    (83,550)
   Policy claims                                (489,712)   (217,332)
   Equity write-down of other long-term inves     30,507      12,441
   Accounts payable and accruals                (115,113) (1,435,086)
   Due from reinsurance companies                (57,910)     80,032
   Other                                         265,905     608,514
Net cash provided from (used in) operating ac   (168,907) (2,579,198)
Cash flows from investing activities:
Acquisitions of:
   Invested assets
      Fixed maturities available-for-sale     (1,319,923) (1,420,120)
      Equity securities available-for-sale      (262,500)   (250,000)
      Mortgage loans                            (236,988) (1,045,715)
      Collateral loans                          (362,500)   (881,822)
      Other long-term investments                (39,000)          0
      Certificates of deposit, time deposits,   (780,688)          0
   Finance notes receivable                            0     (10,000)
   Property                                            0     (10,991)
Proceeds from:
   Invested assets
      Fixed maturities available-for-sale        804,399   3,340,308
      Equity securities avaiable-for-sale        250,596           0
      Collateral loans                         1,041,822           0
      Other long-term investments                      0      29,000
      Certificates of deposit and time deposi          0     141,480
   Finance notes receivable                        4,572       1,041
Policy loans                                       1,001     (15,670)
Agent's balances - net                           (48,954)      2,020
Net cash (used in) provided from investing ac   (948,163)   (120,469)
Cash flows from financing activities:
Withdrawals of dividends and advance premiums    (99,563)    (94,884)
Sale of preferred and common stock             1,186,888   2,634,840
Sale of convertible debentures                 3,798,000           0
Investment in Life One, Inc.                  (3,788,911)          0
Net cash provided from financing activities    1,096,414   2,539,956
Net decrease in cash                             (20,656)   (159,711)
Cash at beginning of year                        195,835     306,686
Cash at end of period                           $175,179    $146,975

Supplemental cash flows disclosures:
Interest paid                                    $32,770     $24,085
Income taxes paid                                     $0          $0
</TABLE>
See notes to consolidated financial statements.


NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997  

NOTE 1 - REPRESENTATION BY MANAGEMENT


The unaudited consolidated financial statements included herein reflect all
normal, recurring adjustments which are necessary to a fair presentation of
the consolidated financial position, results of operations and cash flows for
the interim periods presented.

The results of operations for the nine month period ended September 30,
1997, are not necessarily indicative of the results to be expected for the
entire year of 1997.


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF
          OPERATION

Management's discussion and analysis reviews the consolidated financial
condition of National Affiliated Corporation ("NAC" or "the Company") at
September 30, 1997 and December 31, 1996, the consolidated  results of
operations for the periods ended September 30, 1997 and 1996, and, where 
appropriate, factors that may affect future financial performance.  This
discussion should be read in conjunction with the  accompanying 
consolidated  financial  statements, notes thereto and selected financial
data.

The Company and its controlling stockholder, The Southern Group, Inc.
("TSG"), have formed a corporate joint venture - Life One, Inc. ("Life
One"), which was incorporated in Delaware on June 24, 1997.  T. Brent
Chapel , and Michael Dugan own or have a beneficial interest in the
majority of TSG stock.  The Company has contributed the proceeds of a
$3,788,911 convertible debenture offering netting $2,778,423  for 75% of
the authorized and outstanding common shares (750 shares) of Life One,
Inc.  TSG contributed 100,000 shares of common stock, which is 100% of
the issued and outstanding shares of Southern Mortgage, Inc., a
commercial mortgage company located in San Juan Capistrano, California, 
and 200,000 shares of common stock, which is 100% of the issued and
outstanding shares (1,000,000 shares are authorized) of Maryland Southern
Life Insurance Company, a Maryland domiciled life insurance company
("MSLIC") located in Towson, Maryland. The contribution of MSLIC to
Life One is subject to the approval of the Maryland Insurance
Commissioner.  TSG received 250 common shares or 25% of the issued
and outstanding stock of Life One, Inc. for its contributions.

The Company has settled all of the Alabama lawsuits and, as is discussed
under Legal Proceedings, has reached an agreement to settle the FLA-100
policyholder class action lawsuit, which was the last material lawsuit.  See
ITEM 1. Legal Proceedings.

Previously, the Company, through its wholly-owned subsidiary, National
Affiliated Investors Life Insurance Company ("NAIL"), issued life and
accident and health insurance policies to customers in targeted niche
markets in urban and rural areas.  Beginning in 1997, the Company
changed its focus to reduce its operating and marketing costs and to begin
steps to acquire other life insurance companies. 

Financial Condition

The Company's assets at September 30, 1997, totaled $13,927,803 as
compared to $9,280,615 on December 31, 1996. Liabilities totaled
$8,230,728 and $5,422,283 on September 30, 1997 and December 31,
1996, respectively. Stockholders' equity increased to $5,697,075 at
September 30, 1997, from $3,858,332 at December 31, 1996. Equity
securities increased by $364,842 due to common stocks included in the
recapture of the life insurance block. Effective December 31, 1995, NAIL
and Maryland Southern Life Insurance Company (MSLIC) entered into a
coinsurance agreement whereby MSLIC assumed 80% of all the life
insurance business retained by NAIL. This agreement was terminated
December 31, 1996 and the ceded business was recaptured by NAIL. This
is a nonrecurring transaction. Insurance companies use coinsurance and
reinsurance to increase their statutory capital. This practice is more
common in small insurance companies. The practice provides additional
statutory capital immediately, but also has a negative impact on profits in
the long run. The securities were sold in the second quarter of 1996 for a
profit. Other amounts receivable decreased by $1,653,395 primarily as a
result of the reversal of the coinsurance transaction in February 1997.
Policy benefit reserves decreased by $283,220 due to a decrease in the
number and amount of policies. The reserves also decreased due to the
reduction in cash outflows, which is a component of reserves if the
company is losing money. The reduction in cash outflows resulted from the
cost reduction program. 

Through September of 1997, the Company's earnings per share were $.03
on net income of $255,793, as compared to a loss per share in the same
period of 1996 of $.48 on a loss of  $1,687,252.  Premium revenues
exceeded the first nine months of 1996 by $258,529, or 18%, due to
recapture of the 80% coinsurance from MSLIC in the first quarter of 1997.
Other income increased $841,187 due to restructuring of the New Mexico
Health program. Policy claims and other benefits increased by $170,981, or
18%. This was due to large health claims which occurred in the first four
months of the year. Salaries were reduced by 42% and other operating
expenses were reduced by $742,220, or 52%. These improvements were
due to outsourcing of operations and cost reduction programs implemented
by new management.

Results of Operations

1997 Compared to 1996

The Company had a net profit for the first nine months of 1997 of
$255,793 compared to a loss of $1,687,252 for the nine months ended
September 30, 1996.  The earnings per common share were $.03 through
September of 1997 compared to a loss of $.48 for the same period 1996. 
Total revenues through September of 1997 increased to $2,847,086 from
$1,852,740 in 1996.  Premium revenues increased to $1,687,244 in the first
nine months of 1997 from $1,428,715 in 1996.
<TABLE>
          <S>                       <C>                <C>
                                     Nine months ended September 30,
                                         1997              1996  
          Life premium               $ 605,098          $ 769,385
          Life reinsurance premiums    (16,452)          (493,092)
          A & H premiums             1,273,016          1,292,747
          A & H reinsurance premiums  (174,418)          (140,325)
          
          Total premium revenues    $1,687,244         $1,428,715
</TABLE>
          
     
Although total premiums increased, life premiums declined as a result of
continuing lapses of FLA-100 policies.  The Company ceased paying
significant dividends on these policies in 1992 when the Board of Directors
determined the projected dividend to be excessive.  This action has caused
the lapse rate of these policies to increase. 

The increase in the accident and health (A&H) premium is the result of
adding additional members to the New Mexico group business.  The
Company has received a 33% rate increase, which is effective October 1,
1997. Additional savings of 6% were also obtained through benefit
reductions.  

Net investment income decreased to $273,510 as of September 30, 1997 as
compared to $378,880 at September 30, 1996. This decrease was due to
capital gains realized from the sale of assets in connection with a
coinsurance transaction in the first quarter of 1996.

The Company's claims and other benefits increased to $1,110,439 for the
first nine months of 1997 from $939,458 for the same period of 1996.  The
increase is the result of the claims incurred on the New Mexico policies
described above. These claims were due to seven extraordinary cases
including several leukemia cases and several premature births. Reinsurance
covered a portion of the costs. Only one case of this magnitude occurred in
the six years previous to this period. This unusual number of claims is not
expected to occur again in future periods. The composition of benefits and
claims for the nine months ending September 30 are as follows:
<TABLE>
          <S>                         <C>                 <C>
                                       Nine months ended September 30,
                                            1997              1996  
                    
          Life benefits                 $ 245,584          $ 50,383
          A & H benefits                  864,855           889,075
                  
          Total benefits              $ 1,110,439         $ 939,458
</TABLE>
          
     

Commission expense decreased to $175,126 for the first nine months of 
1997 from $222,879 for the first nine months of 1996, primarily as a result
of decreased sales of life policies.  The composition of commission expense
was as follows:
<TABLE>
          <S>                      <C>             <C>
          
                                 Nine months ended September 30,
                                      1997            1996  
          
          Life commissions          $ 39,513       $ 112,290
          A & H commission           135,613         889,075
          
          Total                    $ 175,126       $ 222,879
          
</TABLE>
     

Salaries and operating expenses decreased to $1,009,511 through
September of 1997 from $1,983,375 in 1996. The Company expects
additional decreases in salaries and other operating expenses during the
remainder of 1997. The Company has moved its offices and decreased its
rent, utility and maintenance costs. The Company has downsized its staff
by 76% and out-source its computer and policy administrative services. 
These changes are expected to result in a further decrease in these expenses
in 1997.  Management is continuing to evaluate operations to further
reduce operating costs. 

The Company has experienced excessive costs in the third quarter related
to the settlement of the FLA-100 policyholder class action lawsuit. These
costs include actuarial reviews and litigation attorneys costs. 

Conseco Capital Management (CCM), an asset management company with
$29 billion of assets under management, manages the assets of the
Company. Based on CCM's historical record of investing assets, the
Company expects to see an improvement in its investment income.

Amortization of deferred policy acquisition costs decreased to $208,284
for the first nine months of 1997 as compared to $321,469 for the first nine
months of 1996.  The lapse of FLA-100 policies is still causing a decrease
in deferred acquisition costs.  The decrease in deferred acquisition costs is
allocated between life and health as follows:
<TABLE>
          <S>                     <C>                  <C>
                                  Nine months ended September 30,
                                      1997               1996  
          Life                     $139,152            $ 198,702
          A & H                      69,132              122,767
               
          Total                   $ 208,284            $ 321,469
</TABLE>
          
Liquidity and Capital Resources

The liquidity requirements for the Company's operations generally arise
from the insurance operations of NAIL and the administrative activities of
NAC, and include payment of claims  to policyholders, payment of
commissions and other costs of acquiring new policies, payment of
operating costs, and payment of cash values upon termination of policies. 
These demands have generally been met by NAIL with funds generated by
its operations, from its reserves and liquid assets, and from capital
contributions by NAC.  NAC has funded its operations primarily through
management fees charged to its subsidiaries, including NAIL.  NAIL is
prohibited by Louisiana law from paying dividends to NAC other than from
statutory profits.

Statutory losses in the previous six years by NAIL have had a substantial
negative impact on the amount of its surplus.  Due to the decline in surplus
and continual operating losses, NAIL was notified during 1996 that its
licenses were suspended in the states of Alabama, Tennessee and
Wyoming.  With the stock purchase by The Southern Group, the Company
contributed $2,766,913 to NAIL's surplus at December 31, 1996. The
latest liquidity test published by A.M. Best Insurance Reports rates NAIL's
Current Liquidity as 123%. The usual range stated by Best for this test is
95% to 120%. NAIL's Quick Liquidity, which measures the portion of
liabilities covered by cash and quickly convertible investments, is 56.8%
while the usual range is 10% to 20%. 

Acquisition of Life Insurance Companies

The Company's business plans will focus on growth through the acquisition
and consolidation  of other small and medium-sized insurance companies. 
The Company plans  to acquire undervalued life insurance companies in the
$2 million to $50 million equity range.  This acquisition strategy will
require acquisition candidates, evaluation, acquisition finance, and
regulatory approvals. The company has implemented this program and the
status is as follows:

     Maryland Southern Life Insurance Company has been funded,
     regulatory approval anticipated at the conclusion of the tri-annual
     audit by the Maryland Insurance Commission.  Southern Mortgage,
     Inc. has been funded and will be consolidated in the fourth quarter
     of 1997.

The Company continues to seek additional candidates, evaluate potential
targets and negotiate with companies and funding sources.

The Company has a strategic alliance with CCM to provide assistance in
the evaluation of the assets of target life insurance companies during the
due diligence phase. CCM also manages the assets of the insurance
company if the acquisition is completed. 


            PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS
          
From time to time, the Company and National Affiliated Investors Life
(NAIL), NAC's life insurance subsidiary, are involved in lawsuits related to
their operations. In most cases, such lawsuits involve claims under
insurance policies of NAIL or other contracts of the Company. 

The Company has reached an agreement to settle Classert et. al. v. NAIL
et. al., with the plaintiffs' attorneys. The settlement must be approved by
the 14,000 individual FLA-100 policyholders and the 18th Judicial District
Court.
          
The Company and NAIL have other outstanding lawsuits as well as other
claims that arise in the ordinary course of business. Even though the
Company and NAIL may be contesting the validity or extent of its liability
in response to such lawsuits, the Company has established reserves in its
consolidated financial statements that approximate its estimated potential
liability.

ITEM 2.   CHANGES IN SECURITIES
          
Former employees acquired 99,500 shares of common stock of the
Company upon the exercise of options at $0.50 per share in July, 1997.
Also in July, 74,546 shares were issued to investor relation firms as
payment for fees.  All shares were issued pursuant to a registration
statement filed by the Company on Form S-8.  

On May 21, 1997, NAC completed the sale of $1,500,000 of convertible
debentures which was previously reported by the Company in its Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. The
debentures were sold to purchasers who were not United States persons in
transactions occurring outside of the United States. All of the purchasers
were institutional investors. The offering was completed with the assistance
of European American Securities, Inc., a NASDAQ licensed broker-dealer
domiciled in London, who was paid a commission of $150,000 in
connection with the placement. The offering is intended to be exempt from
registration pursuant to Regulation S promulgated under the Securities Act
of 1933, as amended.  In the third quarter an agreement to buy back
approximately $900,000 of debentures was made when the Company stock
price was below $0.80. Subsequent announcements caused the price to go
above $2.00 and the debenture holders requested permission to convert at
20% below the higher price. All the debentures have been redeemed.
Overall, 1,422,580 shares of common stock were issued to these debenture
holders as a result of conversions from this issue.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None during the period ended September 30, 1997.  Under the terms of the
convertible debentures issued by the Company during 1997, the Company
is in default in certain affirmative covenants with regard to the maintenance
of sufficient authorized shares required for conversion of such debentures
into shares of common stock.  The face amount of convertible debentures
as of February 6, 1998 is $4,378,241.  The default occurred due to an
unexpected decline in the market value of the Company's common stock
and the resulting requirement that additional shares be made available for
possible future conversions by debenture holders.

The Company is in the process of requesting waivers of this default by the
debenture holders.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF
          SECURITY HOLDERS
          None

ITEM 5.   OTHER INFORMATION
          
On October 21, 1997, the Company agreed to exchange with TSG, three
mortgages with a face value of $475,000 each and a collateralized note for
$440,911. For these assets TSG agreed to transfer the remaining 25% of
Life One, Inc. thus giving the Company 100% of Life One, Inc. The
acquisition by the Company of the remaining shares of Life One includes
the acquisition of all of the shares of Maryland Southern Life Insurance
Company and is accordingly subject to the approval of the Maryland
Insurance Commissioner.  TSG also agreed to guarantee up to $10 million
of convertible debt and pay up $300,000 of the settlement to the plaintiffs'
attorneys in the Classert class action case.

The Department of Justice has begun seizing control of Conestoga Life
Assurance Company. This action has caused NAC to cease its attempts to
secure a reinstatement of the note purchase agreement between its
controlling stockholder, The Southern Group, and the Pennsylvania
Insurance Commissioner, for Conestoga. The seizure proceedings arise out
of the federal criminal conviction in December 1997 of Allan Stewart, the
indirect beneficial owner of Conestoga. In the criminal trial certain of Mr.
Stewart's assets, including his interest in Conestoga, were found by the
jury to be subject to forfeiture proceedings in the United States Federal
Court.

NAC has received a return of $1,800,000 of its initial payments for the
note and is seeking return of the remaining $650,000. At the time that
NAC was notified of the Department of Justice's decision to seize
Conestoga, NAC was attempting to secure financing for the remaining
installment due on the note purchase agreement and to reinstate the note
purchase agreement. NAC has submitted a letter of intent to the United
States Marshal to purchase 100% of the common shares of Conestoga and
is requesting transfer of the remaining $650,000 to the U.S. Marshal as a
deposit. NAC has no existing agreements with the United States
government or the Pennsylvania Insurance Commissioner for the purchase
of any of the shares of Conestoga. No assurance can be provided that NAC
will be able to secure financing for this acquisition on terms acceptable to
NAC. 

     On January 30, 1998, the Board of Directors removed Ira
L. Gottshall as Director, President and CEO of the Company and of
various directorships and officer positions in its subsidiaries.

     During the third quarter, NAC participated in offerings to offshore
investors, non-U.S. Persons, for their investment in a series of convertible
debentures.  Such offerings to offshore investors were made pursuant to
Regulation S promulgated under the Securities Act of 1933, as amended
("Regulation S").  The offered convertible debentures, except for those
debentures in (2) and (3) below, are guaranteed by The Southern Group,
Inc., the majority shareholder of NAC.  The following information is
provided with respect to such convertible debentures:
<TABLE>
<C>         <C>            <C>                  <C>             <C>
Debenture       Gross    Offering Price       Broker's Fee         Net

(1)         $1,788,000     $1,490,000           $178,000        $1,311,200
(2)           $360,000       $300,000            $36,000          $264,000
(3)         $1,199,904     $1,000,000           $120,660          $880,000
</TABLE>

      (1)(a)On September 15, 1997, September 18, 1997, and
September 22, 1997, NAC sold convertible debentures entitled 12% Series
A Subordinated Convertible Redeemable Debenture due August 31, 1998,
in the face amount of $1,788,000 ("Debenture," see Item 6).

      (b)The Debenture was sold to non-U.S. Persons as the term is
defined pursuant to Rule 902 of Regulation S. 

      (c)The total offering price was $1,490,000, a 16.67% discount
from the face value of the Debenture.  The broker, Vengua Capital Markets
("Vengua"), a placement agent in Lemington Spa, Great Britain, was paid a
broker's fee of 12% or $178,800.  NAC received cash in an amount equal
to the offering price net of the broker's fee or $1,311,200.

      (d)The Debenture was sold pursuant to Regulation S.

      (e)The holder of the Debenture, commencing 45 days after the
closing of the offering, has the option to convert all or any amount over
$10,000 of the face amount to the Debenture to common stock, $0.001 par
value, of the NAC ("Common Stock") at a conversion price equal to the
lower of (i) 75% of the average of the closing bid prices of the Common
Stock for the five business days immediately preceding the date of receipt
by NAC of a notice of conversion or (ii) 80% of the closing bid price of the
Common Stock for the business day immediately preceding the closing date
as reported by the National Association of Securities Dealers Electronic
Bulletin Board ("Conversion Shares").  If the number of resultant
Conversion Shares would as a matter of law or pursuant to a regulatory
authority require the Company to seek shareholder approval of such
issuance, NAC shall take the necessary steps to obtain such approval.  If
such approval is not obtained within 45 days, NAC shall be required to
redeem the Debenture.  To effectuate the conversion, the holder shall be
required to execute investment representations and documents reasonably
required to comply with Regulation S.  If it fails to deliver the Conversion
Shares to holder within ten days of the conversion, NAC has agreed to pay
liquidated damages to the holder in the amount of $500 per day late,
starting after the initial ten days, for up to ten additional days late and
$5,000 plus an additional $1,000 for every day late after the additional ten
days late.  NAC can redeem the Debenture within 45 days of issuance by
paying 100% of the face value or after 90 days from issuance by paying
120% of face value. 

      (2)(a)On September 19, 1997, NAC sold one convertible
debenture entitled 12% Convertible Debenture due September 18, 1998, in
the face amount of $360,000 ("Debenture," see Item 6).

      (b)The Debenture was sold to a non-U.S. Person as the term is
defined pursuant to Rule 902 of Regulation S.

      (c)The total offering price was $300,000, a 16.67% discount
from the face value of the Debenture.  The broker, Vengua, a placement
agent in Lemington Spa, Great Britain, was paid a broker's fee of 12% or
$36,000.  NAC received cash in an amount equal to the offering price net
of the broker's fee or $264,000.

      (d)The Debenture was sold pursuant to Regulation S.

      (e)The holder of the Debenture, commencing on or after
October 29, 1997, has the option to convert all or any amount, in
increments of $50,000, of the face amount to the Debenture to Common
Stock at a conversion price equal to (i) 80% of the five days average lower
bid price prior to the date of execution of the Debenture or (ii) the lower of
(x) 75% of the average of the closing bid prices of the Common Stock for
the five business days immediately preceding the date of receipt by NAC of
a notice of conversion or (x) 75% of the lower bid price of the Common
Stock for the day immediately prior to conversion as reported by the
National Association of Securities Dealers Electronic Bulletin Board.  To
effectuate the conversion, the holder shall be required to execute
investment representations and documents reasonably required to comply
with Regulation S.  If it fails to deliver the Common Stock within five days
of the conversion, NAC will pay to the holder a monthly penalty of an
additional three percent discount to the stated value of Common Stock
upon conversion.  NAC can redeem the Debenture at any time within 90
days of the issuance by paying 120% of face value.

      (3)(a)On September 23, 1997, NAC sold convertible debentures
entitled 12% Senior Convertible Redeemable Debenture due September 25,
1998, in the face amount of $1,199,904 ("Debenture," see Item 6).

      (b)The Debenture was sold to non-U.S. Persons as the term is
defined pursuant to Rule 902 of Regulation S.

      (c)The total offering price was $1,000,000, a 16.66% discount
from the face value of the Debenture.  The broker, Vengua, a placement
agent in Lemington Spa, Great Britain, was paid a broker's fee of 12% or
$120,000.  NAC received cash in an amount equal to the offering price net
of the broker's fee or $880,000.

      (d)The Debenture was sold pursuant to Regulation S.

      (e)The holder of the Debenture, at any time commencing 45
days after the issue date of the Debenture, has the option to convert all or
any amount, in increments of $50,000, of the face amount to the Debenture
to Common Stock at a conversion price equal to (i) $.80 or (ii) 75% of the
closing bid price of the Common Stock on the last day that the Common
Stock trades immediately preceding the date of receipt by NAC of a notice
of conversion by the holder as such closing price is quoted by the National
Association of Securities Dealers Electronic Bulletin Board ("Conversion
Shares").  If the number of resultant Conversion Shares would as a matter
of law or pursuant to a regulatory authority require the Company to seek
shareholder approval of such issuance, NAC shall take the necessary steps
to obtain such approval.  If such approval is not obtained within 30 days,
NAC shall be required to redeem the Debenture.  If the Conversion Shares
are not delivered to the holder within three days of the conversion, NAC
will pay a cash penalty equal to .5% of the face amount of the Debenture. 
To effectuate the conversion, the holder shall be required to execute
investment representations and documents reasonably required to comply
with Regulation S.  NAC can redeem the Debenture at any time within 45
days of the issuance by paying 110% of face value.

     Vengua presently disputes NAC's rescinding of a conditional
arrangement whereby Vengua would have received additional warrants to
purchase common stock of NAC in exchange for providing additional
financing for NAC.  NAC rescinded the conditional arrangement after
Vengua failed to perform the conditions of the arrangement.

     As of January 26, 1998, the following conversions have occurred
with respect to the convertible debentures:
<TABLE>
<C>         <C>         <C>             <C>              <C>         <C>
Debenture      Gross    Amount      Number of Shares    Amount Left  Shares in
                       Converted                                       Escrow
(1)         $1,788,000  $1,738,000      1,786,108         $50,000            0
(2)           $360,000    $360,000        362,920               0            0
(3)         $1,199,904     $50,000         62,500        $410,544    1,346,514*

</TABLE>
_________
*    These shares represent two share certificates.  NAC issued a
     replacement share certificate for 833,334 shares and did not receive
     a certificate representing the shares being replaced.  The remaining
     513,180 shares are presently being disputed by NAC as superseded
     by the replacement shares.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

EXHIBIT 4.01
          12% Series A Subordinated Convertible Redeemable
          Debenture due August 31, 1998

EXHIBIT 4.02
          12% Convertible Debenture due September 18, 1998

EXHIBIT 4.03
          12% Senior Convertible Redeemable Debenture due
          September 25, 1998

EXHIBIT 11
     NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES

     STATEMENT OF COMPUTATION OF PER SHARE EARNINGS

          The weighted average number of shares outstanding for the
          nine months ended September 30, 1997 was computed as
          follows:

        Shares outstanding, beginning of period      8,740,915

        Shares issued, first quarter, 1997              24,500

        Shares issued, second quarter, 1997             21,000

        Shares issued, third quarter, 1997           1,319,519

        Shares outstanding, end of period           10,105,934

     Shares outstanding,
     January   8,740,915
     February  8,760,915
     March     8,765,415
     April     8,765,415
     May       8,786,415
     June      8,786,415
     July      9,046,682
     August    9,431,486
     September 10,105,934
               81,189,592 / 9 = 9,021,066

     July      9,046,682
     August    9,431,486
     September 10,105,934
                         28,584,102 / 3 = 9,528,034

     
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.

     NATIONAL AFFILIATED CORPORATION
     (Registrant)




    Date February 6, 1998             By:    /s/  T. Brent Chapel, CPA
                                          T. Brent Chapel,CPA
                                   Chief Financial Officer
                                   (Duly authorized officer and principal
                                   accounting officer of the Registrant)