SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

    Annual report under Section 13 or 15(d) of the Securities Exchange Act of
                1934 for the fiscal year ended December 31, 2000

                             Commission File Number
                                     0-17832

                         Allstate Financial Corporation
                 (Name of Small Business Issuer in Its Charter)

                 Delaware                              54-1208450
     (State or other jurisdiction of    (I.R.S. Employer Identification No.)
      incorporation or organization

         8180 Greensboro Drive, McLean, VA                22102
      (Address of principal executive offices)         (Zip Code)

         Issuer's telephone number, including area code: (703) 883-9757

      Securities registered under Section 12(b) of the Exchange Act: None
  Securities registered under Section 12(g) of the Exchange Act: Common Stock,
                                 $.01 par value

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes  X     No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. X

Revenues for year ended December 31, 2000 were  $1,465,115

The  aggregate  market  value of  1,735,455  shares of common  stock held by non
affiliates  as of March 27, 2001 was  $1,301,591,  computed by  reference to the
closing  market  price at which the stock was traded on the OTC  Bulletin  Board
(Symbol : ASFN).

         The number of shares outstanding of the issuer's common stock,
                       as of March 27, 2001 was 15,184,164

                      DOCUMENTS INCORPORATED BY REFERENCE.
               Portions of the Proxy Statement for the 2001 Annual
                       Meeting of Stockholders (Part III)

      Transitional Small Business Disclosure Format (check one): Yes _ No X



<PAGE>



Part I

This Form 10-KSB may contain certain  "forward-looking  statements"  relating to
the Company  (defined  in Item 1 below) that  represent  the  Company's  current
expectations or beliefs,  including,  but not limited to, statements  concerning
the Company's operations,  performance, financial condition and growth. For this
purpose, any statements contained in this Form 10-KSB that are not statements of
historical fact may be deemed forward-looking  statements.  Without limiting the
generality of the foregoing,  words such as "may", "will", "expect",  "believe",
"anticipate",  "intend", "could", "estimate", or "continue", or the negatives or
other  variations  thereof,  or comparable  terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, such as credit losses, dependence on management and key
personnel,  seasonality,  and variability of quarterly  results,  ability of the
Company  to  continue  its  growth   strategy,   competition,   and   regulatory
restrictions  relating to potential new activities,  certain of which are beyond
the  Company's  control.  Should  one or more of these  risks  or  uncertainties
materialize  or  should  the  underlying  assumptions  prove  incorrect,  actual
outcomes  and  results  could  differ  materially  from those  indicated  in the
forward-looking statements.

Item 1.  Description of Business

Business Development

Allstate Financial  Corporation (the "Company") was formed in 1982 as a Virginia
Corporation. In 2000, the Company changed its state of incorporation to Delaware
and,  on  November  30,  2000,   acquired   Harbourton   Financial   Corporation
("Harbourton") by merger. Harbourton was a Delaware corporation formed in August
1998 to acquire the assets of  Harbourton  Residential  Capital  Co.,  L.P.  The
Company's principal business is to provide financing to the residential building
and development  community,  through  products that were  previously  offered by
Harbourton. Although it is no longer active in these business lines, the Company
has  a  portfolio  of  commercial  finance  loans  to  small  and  middle-market
businesses  secured  by  accounts  receivable,   inventory,  and  machinery  and
equipment. In October 1999, the Company sold its factoring business, the portion
of the business that purchased  discounted  invoices with recourse.  The Company
will  continue to receive  revenue  from this sale for the  foreseeable  future,
under an agreement with the purchaser to pay the Company part of the purchaser's
net revenue  earned from new factoring  activities  with the borrowers  acquired
from the Company.  The Company's  subsidiary  Lifetime  Options,  Inc. manages a
portfolio  of life  insurance  policies it  purchased  from  individuals  facing
life-threatening  illnesses.  During 1997,  Lifetime  Options ceased  purchasing
policies.

On  October  5,  2000,  the  Company  and the  holders  of its  10%  convertible
subordinated  notes due  September 30, 2003, on which the Company was in default
as to the payment of interest and certain financial  covenants,  filed a plan of
arrangement  with the Delaware  Court of Chancery  that proposed a conversion of
$4.3 million of notes, together with accrued but unpaid interest calculated at a
rate of 12.5%, into common stock of the Company at a price of $0.95 per share of
common stock (the "Notes  Conversion").  The Delaware  court  approved the Notes
Conversion on October 6, 2000;  minor changes were made to the approval order on
October 11, 2000. The conversion of the notes (plus accrued and unpaid  interest
thereon)  occurred  on  October  26,  2000.  Of the $4.6  million  of  principal
outstanding on the notes,  $4.3 million,  together with $579 thousand of accrued
but unpaid interest,  was converted into 5,168,388 shares of newly issued common
stock.  Value  Partners,  Ltd.  ("Value  Partners")  held notes with a principal
balance of $4.2 million plus accrued interest,  at 12.5%, of $561 thousand,  and
received  5,008,481 shares of common stock as a result of the Notes  Conversion.
Value Partners owned  approximately 27% of the Company's common stock as well as
94% of the  Notes  before  the  exchange.  As a result  of the  exchange,  Value
Partners  owned 74.0% of the  Company's  common  stock.  As of that date,  Value
Partners  acquired  a  controlling  interest  in  the  Company.  Holders  of the
remaining $266,000 of notes waived default interest and received interest at the
10% note rate on the same day. The  remaining  holders  retained  their right to
convert their notes into common stock of the Company at $6.50 per share.

                                       1
<PAGE>

On November 30, 2000,  the Company  acquired  Harbourton.  Harbourton  had total
assets of $11.9  million  and  liabilities  of $2.7  million  at the date of the
merger,  giving it net shareholders'  equity of $9.2 million. The Company issued
7,516,160  new  common  shares  and paid $2.1  million  in cash to  Harbourton's
shareholders.  Harbourton  was merged  into the  Company and the Company was the
surviving entity. The Company's majority  shareholder,  Value Partners,  was the
holder of 95.7% of Harbourton's  common shares and received  7,191,414 shares of
stock and $2 million.  Following the merger  transaction  Value  Partners  owned
approximately 84.8% of the Company's common stock.

Unless  the  context  requires  or  otherwise  permits,  all  references  to the
"Company"   include  Allstate   Financial   Corporation  and  its  wholly  owned
subsidiaries.

The Company's corporate offices in McLean,  Virginia house its executive offices
and  borrower  administration   activities.  Its  Hanover,  Maryland  office  is
responsible  for accounting and all aspects of servicing and  administration  of
loans.

Business of Issuer

Principal Products

The   Company's   primary   business   is   originating   loan   financing   for
builders/developers of residential projects.  Typically, a participation in each
loan is sold  to  another  financial  institution.  The  Company  is  active  in
Maryland, Virginia, North Carolina and Florida.

The primary  product offered by the Company is one developed to serve a specific
market niche,  a loan for  acquisition,  development  and  construction  ("AD&C"
loan). In the AD&C loan, the Company provides higher amounts of funding based on
loan to costs  than  traditional  bank  lenders.  Yields to the  Company  on the
structure provide returns that may approach those traditionally earned by equity
investments, with control and rights typically held by a first trust lender. The
loan is structured as a revolving  credit secured by a first mortgage or deed of
trust and provides funding for land acquisition,  development of infrastructure,
and construction of units as necessary.  Typically, personal guarantees are also
obtained. The Company relates equity requirements to a percentage of the maximum
outstanding  balance of the AD&C loans,  with most requiring between 10% and 15%
of the  maximum  outstanding  loan  balance  as equity at  closing.  The  equity
calculation relates to the Company's established underwriting criteria requiring
a minimum of 10% of total  costs  funded in equity in the  project at all times.
This equity,  coupled with  restriction on starts of new units ahead of sales of
finished units, minimizes risk found in loans based solely on loan-to-value. The
target  customer base is regional  builder/developers,  usually with  production
levels less than $50 million annually,  with financial  resources to support the
loan request.  The Company's  AD&C  structure  allows  continued  growth for the
builders /developer,  with a more efficient use of its own equity or the ability
to spread limited third party equity into multiple  projects.  Interest rates on
the  Company's  AD&C loans are prime based and fees are based upon the committed
amount,  with the majority collected at closing.  Loan terms range from 12 to 36
months with the average being 29 months at December 31, 2000.

A companion  product to the Company's  AD&C financing is mezzanine or "gap" loan
financing in residential  for-sale  homebuilding and land development  projects,
with  AD&C  financing  provided  by  traditional  banking  sources.  The loan is
structured  as a term  credit  secured  by a second  mortgage  or deed of trust.
Traditionally,  financing of this type has been provided by local investors in a
highly fragmented fashion, with the builders/developer forced to raise equity on
an individual  transaction basis from investors with little working knowledge of
the  business.  Careful  selection  of  builders/developer  partners and active,
hands-on asset management  functions are the key elements of minimizing risk and
investment  exposure in this product.  In general,  the Company seeks  "in-fill"
projects (sites situated in established  communities) which are less susceptible
to  nearby  competition  and  market  swings.  Builders/developer  partners  are
selected  based on successful  records of  accomplishment  and  reputations  for
integrity  and  performance.   A  key  element  in  project  selection  is  that
builders/developer  partners invest at least 5% to 10% of the equity requirement
and provide personal  guarantees on bank AD&C debt. The financing by the Company
usually is structured as mezzanine debt in a development entity,  subordinate to
the first trust lender providing AD&C financing.  Project  underwriting  entails
similar analysis and asset management functions developed for AD&C lending, with
extensive reporting and performance  requirements from the borrowers,  which, if
not achieved, trigger additional input and control by the Company.

The Company's  commercial  finance products consisted of financing for small and
medium-sized  businesses,  usually  those with annual sales of $1 million to $10
million  per  year.  Through  its  offering  of  advances  secured  by  accounts
receivable,  inventory,  and machinery and equipment  ("Asset-Based  Lending" or
"ABL"),  the Company  provided  its  borrowers  with the ability to expand their
working  capital  and acquire  productive  business  assets.  As a result of the
merger  transaction,  the Company  elected to cease  making new loans in the ABL
area and focus on the residential building and development lending.

                                       2
<PAGE>

During October 1999, the Company sold its portfolio of factoring borrowers.  The
Company will receive a premium over time based on agreement  with the  purchaser
to pay the Company part of the net revenue earned from new factoring  activities
with these  borrowers.  The Company  does not intend to re-enter  the  factoring
business.

Distribution Methods

The Company relies principally on direct management  contacts with prospects for
the  origination of new loans.  Management has extensive  experience in the real
estate  industry and has developed  relationships  with a  significant  group of
existing and potential borrowers in the Company's markets.  The Company achieves
a high degree of repeat transactions with its existing borrowers.  Referrals are
also  received  from  professional  contacts  with  attorneys,   engineers,  and
architects.

The ABL product was marketed  through  referrals  from the financial  community,
business consultants,  lawyers, accountants,  commercial and investment bankers.
The  Company  required  extensive  financial   information  and  reporting  from
borrowers  who sought to qualify for its ABL product,  and  believed  that these
kinds of  referral  sources  were more  likely to  provide  prospects  that will
qualify for such  financing.  Through its  BusinessFundingUSA  site on the World
Wide Web (now closed),  the Company received  applications over the internet for
its ABL product directly from prospective borrowers.

Competition

The  Company,  because  of its  ability to offer  customized  loan  products  to
builders/developers,  operates in a niche  market that is served by only a small
group of private investors. The market for AD&C loans is highly fragmented, with
few sources of capital  beyond  traditional  bank  financing  available  for the
Company's target market of regional builders/developers.  The Company achieves a
significant competitive advantage when competing with traditional bank financing
since its AD&C product is designed to be structured to fit the specific needs of
each borrower,  including the ability to provide higher amounts of funding based
on loan to costs. The Company competes with many sources of financing, including
traditional bank lenders and private  investors.  Many of these competitors have
significant financial,  marketing and operational resources, and may have access
to capital at lower costs than the Company can obtain.

                                       3
<PAGE>

In its ABL  business,  the  Company  faced  competition  from other  asset-based
lenders, and commercial banks that offered secured financing. Due to the size of
facilities that it offered,  the Company  competed with both regional sources of
financing and large national organizations.

Sources of Capital

The  Company's  requirement  for  capital  is a  function  of the  level  of its
generation of and investment in  receivables.  The Company funds this investment
through   participations,   shareholders'  equity,  its  bank  line  of  credit,
convertible  subordinated  notes,  and internally  generated  funds. The Company
expects an increase in the cash flow generated from  operating  activities.  The
cash flow is positively  impacted by the ability to use the net  operating  loss
carryforward to offset the payment of income taxes.

The Company sells  participation  interests in its loans in a structure designed
to provide  credit  enhancement  to  participants  as well as incentives for the
Company to efficiently  service and  administer  loans.  The Company  retains an
interest in each loan, with repayment on a pro rata basis with the  participant.
Since  the  interest  retained  by the  Company  is  subordinate  to that of the
participant,  the  Company  assumes  the  risk of loss up to the  amount  of the
retained interest in the loan. Each transaction is treated as an individual loan
with no cross  collateralization and no blanket subordination.  Loan to value to
the  participant  will range from 50% to 70% after giving  consideration  to the
Company's subordinated interest. This structure provides the participant with an
investment with reduced risk, and without the cost of origination and servicing.
All loans and subsequent  participations are structured to meet the requirements
of  applicable  law  and  regulatory  guidelines.   The  Company  currently  has
participations  with four sources  including banks and a major nonbank financial
services  company.  The largest of these facilities is an agreement  wherein the
Company  may  offer  up  to  $55  million  in  participation  interests  to  the
participant.   The  Company  may  seek  to  establish   relationships  with  new
participants or increase the level of existing agreements.

The  Company  has  available  a secured  line of  credit  in the  amount of $2.5
million.  The  facility  carries an  interest  rate equal to the prime rate plus
1.5%,  and  expires  May 11,  2001.  The  lender has been  granted a  collateral
security  interest in two mezzanine loans having a combined  original  principal
indebtedness  of $4.3 million and a balance at December 31, 2000 of $2.8 million
(net of a participation sold of $1.1 million). In addition,  the lender has been
granted a general  assignment of the  Company's  right to all  collections  from
notes.  The loan  agreement  contains  financial  covenants  of the type usually
required  in such an  agreement,  including  a  prohibition  on the  payment  of
dividends. The Company may seek to expand this facility on similar terms.

         The Forebearance  Agreement (as hereinafter defined) with the Company's
revolving  bank  credit  group  expired on  December  24,  1999.  Line of credit
availability at December 31, 1999 was zero. The banks were owed $566 thousand as
of December 31, 1999.  The interest  rate on the line of credit was equal to the
agent lender's base rate plus 4.75%.  The loan was repaid in full on January 13,
2000.

         To augment its working  capital  during the  forebearance  period,  the
Company  obtained a $1 million  working  capital loan from Value  Partners.  The
working capital loan bore a 10% rate of interest,  which was payable  quarterly,
and required mandatory  prepayments of 25% of collections of certain assets. The
outstanding balance of the loan was due March 31, 2000. As of December 31, 1999,
the Company owed $780 thousand on the working capital loan. The loan was paid in
full on April 5, 2000.

As of December  31, 1999,  the Company had  convertible  subordinated  notes due
September  30, 2000  convertible  into common  stock of the Company at $7.50 per
share and bearing an adjustable interest rate equal to the prime rate plus 1.25%
outstanding,  with an aggregate  principal  balance of $357 thousand.  The notes
were paid at maturity on September 30, 2000.

                                       4
<PAGE>


At  December  31,  1999,  the  Company  had  $4.6  million  of  10%  convertible
subordinated  notes  ("Notes") due September  30, 2003  convertible  into common
stock  of  the  Company  at  $6.50  per  share.  The  notes  are  unsecured  and
subordinated in payment to all other senior debt of the Company. The Company was
in default on the interest  payments due December 31, 1999 through September 30,
2000 and on certain financial covenants as well. On October 26, 2000 the Company
converted  $4.3 million of the Notes (plus accrued and unpaid  interest  thereon
calculated  at a rate of 12.5%),  into common stock of the Company at a price of
$0.95 per share. Of the $4.6 million of principal outstanding on the Notes, $4.3
million,  together  with $579  thousand  of  accrued  but unpaid  interest,  was
converted  into  5,168,388  shares of newly issued common stock.  Value Partners
held Notes with a principal balance of $4.2 million,  plus accrued interest,  of
$561 thousand,  and received 5,008,481 shares of common stock as a result. As of
that date,  Value  Partners  acquired a  controlling  interest  in the  Company.
Holders of the remaining  $266,000 of notes waived default interest and received
interest at the 10% note rate on the same day. The  remaining  holders  retained
their right to convert their notes into common stock of the Company at $6.50 per
share.  At December 31, 2000, $266 thousand of Notes remained  outstanding.  The
Company  expects  that  this  conversion  will  decrease   interest  expense  by
approximately $430 thousand per year.

Borrower Base

The   Company's   borrowers   consist   of   regional   and  local   residential
builders/developers  that  have  established  histories  of  successful  project
development and home  construction.  The borrowers have  demonstrated  financial
capability  with  annual  sales  revenue of $10 to $75  million.  The  borrowers
actively manage and participate in each of their projects.

         The  Company's  ABL  borrowers  are small- to  medium-sized  growth and
turnaround  companies with annual revenues  typically between $1 million and $10
million.  The Company's  borrowers have not typically  qualified for traditional
bank  financing  because  they are either too new,  too small,  undercapitalized
(over-leveraged),  unprofitable or otherwise  unable to satisfy the requirements
of a bank  lender.  Accordingly,  there is a  significant  risk of  default  and
borrower failure inherent in the Company's ABL business.

The purchased receivables are due primarily from major insurance companies.


The following table indicates the composition of the Company's portfolio, net of
deferred income, by loans receivable and purchased  receivables,  as of December
31, 2000 and 1999 (Dollars in thousands).


                     Composition of the Company's Portfolio
                                       2000                        1999
                                Amount        %           Amount            %

Loans receivable               $12,838       89.0%        $9,329           81.6%
Purchased receivables            1,589       11.0%         2,110           18.4%
Total portfolio                $14,427      100.0%       $11,439          100.0%




                                       5
<PAGE>




The following  table  indicates the  composition of the Company's  retained loan
portfolio,  net of deferred income, by loan product, as of December 31, 2000 and
1999 (Dollars in thousands).

            Loans Receivable, Net of Deferred Income, by Loan Product

Loan Product                              2000                      1999
                                   Amount         %        Amount      %
ADC                                $6,516        50.8%     $  -            -
Mezzanine                           5,059        39.4%            -            -
Asset-based                         1,146         8.9%        9,191        98.5%
Other                                 117         0.9%          138         1.5%
                    All products  $12,838       100.0%       $9,329       100.0%

The following  table  indicates the  composition of the Company's  retained loan
portfolio,  net of deferred income,  by type of borrower business as of December
31, 2000 and 1999 (Dollars in thousands).

         Loans Receivable, net of Deferred Income, by Borrower Business

Business of Borrower                     2000                      1999
                                  Amount         %         Amount       %
Builders/developer              $11,575         90.2%      $  -             -
Apparel manufacturer                  2          0.0%          147          1.6%
Computer distributor                  -             -          179          1.9%
Construction supply                 464          3.5%          438          4.7%
Food distributor                     34          0.3%           61          0.7%
Jewelry manufacturer                  -             -        4,833         51.8%
Printing, direct mail               126          1.0%        1,333         14.3%
Trucking                            151          1.2%        1,590         17.0%
Video distributor                   369          2.9%          610          6.5%
Other                               117           0.9%         138          1.5%
                     Totals     $12,838        100.0%       $9,329        100.0%

The following  table  indicates the  composition of the Company's  retained loan
portfolio,  net of deferred income, by state of the borrower's operation,  as of
December 31, 2000 and 1999 (Dollars in thousands).

    Loans Receivable, net of Deferred Income, by State of Borrower Operation

State                                    2000                      1999
                                 Amount          %         Amount         %
Florida                          $4,420        34.4%         $  -            -
North Carolina                    3,188        24.8%            -            -
Maryland                          2,373        18.5%            -            -
Virginia                          1,594        12.4%            -            -
New Jersey                          617         4.8%        2,396        25.7%
New York                             84         0.7%        5,765        61.8%
California                          369         2.9%          829         8.9%

                                       6
<PAGE>

State                                    2000                      1999
                                Amount      %             Amount      %
Delaware                             76         0.6%           68         0.7%
Pennsylvania                          -            -          147         1.6%
Wisconsin                           117         0.9%          124         1.3%
                                $12,838       100.0%       $9,329       100.0%



From time to time,  a single  borrower  or single  industry  may  account  for a
significant  portion of the Company's  loans  receivable.  At December 31, 2000,
four  borrowers  each  accounted for more than 10% of loans  receivable,  net of
deferred income,  for a total of 61.5%. At December 31, 1999, two borrowers each
accounted for more than 10% of loans  receivable,  net of deferred  income,  and
those two together accounted for 51.5% of the total.

 For the year ended December 31, 2000,  one borrower  accounted for greater than
10% of the Company's total revenue, at 20.2%. This borrower is not classified as
non-earning. For the year ended December 31, 1999, three borrowers accounted for
25.8%  of the  Company's  total  earned  discounts  and  interest.  Two of these
borrowers were classified as non-earning and were  written-off  during 1999. The
third borrower paid off all outstanding balances prior to the end of 1999.

There is very little turnover among the Company's builders/developer  borrowers.
The borrowing  relationship is extended  because of the term of each transaction
and the  Company's  ability to maintain a  relationship  with the  borrowers  in
subsequent projects.

Historically,  in its ABL  business,  the Company had not expected to maintain a
funding  relationship  with a  borrower  for more than two  years.  The  Company
expected that its borrowers would qualify for more competitively  priced bank or
asset-based financing within that period, or would be liquidated. Therefore, the
Company's major ABL borrowers have tended to change significantly over time.

Government Regulation

State  usury laws  generally  limit the amount of interest  that a creditor  may
contract  for,  charge or receive in  connection  with the lending of money.  In
Virginia,  where the  Company's  principal  offices  are  located,  there are no
restrictions  on the  rates of  interest  and fees  that may be  charged  by the
Company to borrowers.

Employees

The Company currently has eight employees.  None of the Company's employees is a
party to any collective bargaining agreement.

Item 2.  Description of Property

The Company's principal offices occupy  approximately 2,400 square feet of space
in an office building in McLean,  Virginia. The Company's lease on this property
expires in May 2003.  The cost of renting this office space (with the operations
of the  residential  building and development  business  included for the period
November 1 through December 31, 2000) was approximately $28 thousand in 2000. In
1999, the Company leased a previous space for $178 thousand.

                                       7
<PAGE>

The  accounting and loan  administration  functions of the Company are housed in
Hanover,  Maryland, in a leased facility of approximately 1,950 square feet. The
lease  expires  in May  2003.  The  rent  paid on this  lease  during  2000  was
approximately $6 thousand.

Commencing  November 1997, the Company also occupied  approximately 2,500 square
feet of space in an office  building in New York City.  The  Company  elected to
terminate the lease in February 1999 for a total expense,  including rent to the
termination  date,  of $35  thousand.  At the same  time the  Company  leased an
executive  suite  facility  in New York City for a term  ending  July 1999.  The
annual rent on the new facility was approximately  $26 thousand.  That lease was
terminated in July 1999.

Item 3.  Legal Proceedings

None.

Item 4.  Submission of Matters to A Vote of Security Holders

The shareholders of the Company took action by written consent November 30, 2000
to approve  the  proposal  to merge with  Harbourton  Financial  Corporation.  A
majority of  outstanding  shares was required to approve the motion.  The motion
was  approved.  The  results of voting,  by numbers of votes  recorded,  were as
follows:

                          Against the
For the proposal:          proposal:              Abstain:      Not Represented:
       5,621,849                  0                     0             2,046,155

Part II

Item 5. Market for Common Equity and Related Stockholder Matters

The Company's  common stock is traded on the OTC Bulletin  Board (Symbol  ASFN).
Before  October 18, 1999,  the  Company's  common stock was traded on the Nasdaq
Stock Market.

The following  table sets forth the range of high and low bids for the Company's
common  stock in the over the  counter  market  for the  periods  indicated,  as
furnished by the National  Association  of Securities  Dealers,  Inc. These bids
represent  prices among  dealers,  do not include retail  markups,  markdowns or
commissions, and may not represent actual transactions.

        Fiscal Years Ended December 31,
                                        2000                        1999
                                 High            Low        High            Low
First Quarter                   $1.31           $0.36      $4.50           $3.50
Second Quarte                   $0.81           $0.19       7.09            2.03
Third Quarter                   $0.75           $0.44       2.13            0.47
Fourth Quarte                   $0.75           $0.41       0.56            0.36

On March 27, 2001,  there were  approximately 39 stockholders of record based on
information provided by the Company's transfer agent. The number of stockholders
of record does not  reflect the actual  number of  individual  or  institutional
stockholders of the Company because a significant portion of the Company's stock
is held in street  name.  Based on the best  information  made  available to the
Company by the transfer agent, there are approximately 530 beneficial holders of
the Company's common stock.

                                       8
<PAGE>

The  Company  has not  paid a  dividend  and  does not  anticipate  paying  cash
dividends to holders of its common stock for the foreseeable future. The payment
of dividends is restricted under the Company's line of credit agreement with its
bank.  The Company  currently  intends to retain any earnings for future capital
requirements and growth.

Item 6.  Management's Discussion and Analysis or Plan of Operation

Year ended December 31, 2000 vs. year ended December 31, 1999

On November 30, 2000, the Company acquired Harbourton, which was merged into the
Company; the Company was the surviving entity. The portion of the net Harbourton
assets acquired from Value Partners was recorded at historical cost, in a manner
similar to a pooling of  interests  accounting.  The  portion of the  Harbourton
assets acquired from the minority shareholders was recorded at market value. The
financial  statements have been restated back to the date that the two companies
came under common control due to the Notes Conversion.  Thus, the operations for
the year ending December 31, 2000 include the results of Harbourton for only the
months of November and December 2000.

The following  discussion  should be read in conjunction  with the  accompanying
consolidated  financial  statements  and notes thereto and other  information in
this Annual  Report on Form  10-KSB.  Historical  results and trends which might
appear should not be taken as indicative of future operations.

Total assets  increased by $10.0  million to $17.7  million at December 31, 2000
from $7.7 million.

The December 31, 2000 balance of  asset-based  loans was $1.5 million,  vs. $9.2
million at December 31, 1999.  (See  "Business  of  Issuer-Borrower  Base") As a
result of the Harbourton  merger, the Company added $11.9 million of residential
building and development loans.  Purchased  receivables,  net of deferred income
and  allowances,  dropped to $1.6 million at December 31, 2000 from $2.0 million
at December 31, 1999,  due primarily to the  collection of $366 thousand in life
insurance  proceeds,  with the  balance  in  collections  of  litigation  claims
receivable.

During 1999, the Company  suffered a high level of credit  losses.  Due to these
losses,  the Company was not in  compliance  with the covenants in its revolving
bank line of credit.  The Company  negotiated  an agreement  with the bank group
which called for the bank group to forebear from exercising its rights to demand
payment (that agreement,  and successor  agreements,  are hereinafter called the
"Forebearance  Agreement(s)")  while the Company  attempted to obtain sufficient
liquidity to repay the bank group.  With no other immediate source of financing,
the  Company,  with the  concurrence  of the bank  group,  elected to dispose of
substantially all of the factoring and asset-based loan assets, through sales or
accelerated  collections,  to pay off the bank line of credit.  On  October  29,
1999,  the Company sold the  purchased  receivables  and the  asset-based  loans
related to its  factoring  business to Metro  Factors,  Inc.  ("Metro"),  for $6
million,  a price that  approximated  the carrying value of the assets involved.
Simultaneous with the sale, the Company purchased a participation in each of the
loans associated with the factoring  borrowers for $1.5 million.  Metro will act
as the servicer of these participations. The Company will receive a premium over
time based on the performance of the purchased  receivables  sold to Metro.  The
Company did not record any gain or loss on this transaction.  At the time of the
sale, the Company took a  restructuring  charge to downsize the  operations.  In
addition,  in December 1999, the Company sold an asset-based  loan. The proceeds
of both  asset  sales  were  applied to the  revolving  bank line of credit.  At
December 31, 1999, the Company had performing asset-based loans of $3.9 million,
including the $1.5 million in participations acquired as part of the sale of the
factoring  portfolio.  During  January of 2000, a second ABL was paid off before
maturity,  with the proceeds  paying the revolving  bank line of credit in full.
The Company had one large ABL  remaining  of $1.5  million.  This  borrower  was
informed  that its line of credit  would not be  renewed  at its March 31,  2000
maturity  date.  The  borrower   subsequently   arranged  other   financing  and
substantially  paid  down  its  balance.  The  Company  did not  extend  any new
asset-based  loans in 2000,  but  focused  instead  on  servicing  the  existing
portfolio and on collections of non-performing and charged off accounts.

                                       9
<PAGE>

Securities held for sale represents an equity investment in a former asset-based
borrower. The Company acquired the securities in 2000 in partial settlement of a
non-performing loan through the exercise of an option to purchase the securities
for consideration of $4 thousand. The sale of the securities is restricted for a
period of one year from the date of purchase by the Securities Act of 1933.

At December  31, 2000 and 1999,  the Company had $3.3 million and $0 in deferred
income taxes (net of  valuation  allowances  of $5.7 million and $9.2  million),
respectively.  Income taxes  receivable  represent an  overpayment  of estimated
taxes by Harbourton  prior to the merger.  The deferred  income taxes  represent
projected   decreases  in  taxes   payable  in  future  years  as  a  result  of
carryforwards  at the end of each year. The Company  provided  ($3.0) million to
reverse part of the $9.2 million tax provision it took in 1999. During 1999, the
Company  established a $9.2 million  allowance  against deferred income taxes of
the same amount since it appeared to be unlikely  that the Company would realize
these tax savings in the near  future.  Because of the  Harbourton  merger,  the
Company  reevaluated  its  consolidated  tax  position and  determined  that the
recovery of at least a portion of the deferred tax asset was likely.  See note 6
to the Financial Statements-Income Taxes.

Other assets increased to $154 thousand from $44 thousand,  primarily because of
increased accounts receivable arising from the merger with Harbourton.

Total liabilities decreased significantly,  to $2.6 million at December 31, 2000
from $7.3 million at December 31, 1999.

Notes payable were $1.4 million at December 31, 2000,  approximately  the amount
as at December 31, 1999.  During 2000, the Company repaid the entire balances of
both of the lines of credit  outstanding  at  December  31,  1999.  The  Company
assumed Harbourton's obligation under its line of credit in the merger, and $1.4
million was outstanding under that facility at year-end.

Convertible  subordinated  notes decreased to $266 thousand at December 31, 2000
from $5.0  million at December  31,  1999,  as result of the  repayment  of $357
thousand of notes which came due in 2000,  and the conversion of $4.3 million of
notes due in 2003 to equity.

Accounts payable and accrued expenses decreased to $794 thousand at December 31,
2000 from $1 million at December  31, 1999.  Decreases  in accrued  expenses due
December 31, 1999 because of the conversion of $579 thousand of accrued interest
to equity  were  partially  offset by  increased  accounts  payable  and accrued
expenses accruals because of the Harbourton merger.

Income taxes payable related to the Harbourton merger were $149 thousand.

The  shareholders  equity  increased at December 31, 2000 to $15.1  million from
$0.3 million at December 31, 1999. The principal components of the increase were
the issuance of common stock for the conversion of the majority of the Company's
outstanding Notes, the merger with Harbourton, and the results of operations.

Additional paid in capital  increased to $24.6 million at December 31, 2000 from
$18.9 million at December 31, 1999,  resulting  from a $4.7 million  increase in
connection  with the note  exchange  and $1.0  million  in  connection  with the
Harbourton merger.

At December 31, 2000, the Company retired 781,212 shares of common stock held in
the  treasury.  The  balance of treasury  stock was $0 at December  31, 2000 vs.
($5.0) million at December 31, 1999.

                                       10
<PAGE>

The  following  table breaks down total revenue by type of  transaction  for the
periods indicated and the percentage relationship of each type of transaction to
total revenue (Dollars in thousands).

                         Revenue by Type of Transaction

                        For the Years Ended December 31,

                                          2000                      1999

                                  Amount            %       Amount            %

Interest, discount, and loan fees  $ 775          52.9%    $3,556          98.2%

Admin. fees and other revenue        644          44.0%        65           1.8%

Profit participations                 46           3.1%         -              -

Total revenue                     $1,465         100.0%    $3,621         100.0%


Total revenue  decreased by 59.5% in 2000 versus 1999, to $1.5 million from $3.6
million.  The  revenues of the  residential  building  and  development  lending
portfolio are included in the results for 2000 only for the period from November
1, 2000 through December 31, 2000.

Within total revenue,  interest,  discounts,  and loan fees decreased  78.2%, to
$775 thousand from $3.6 million,  in 2000 as compared to 1999.  The Company sold
its  factoring  portfolio  in October  1999,  and reduced its  asset-based  loan
portfolio in 2000 to pay down senior debt. Administration fees and other revenue
increased by 882.7 % to $644 thousand from $66 thousand.  Such fees,  along with
project  profits,  are  an  important  component  of  residential  building  and
development lending.

The  following  table  sets  forth  certain  items of  expense  for the  periods
indicated and the percentage  relationship of each item to total expenses in the
period (Dollars in thousands).

              Expense Categories as a Percentage of Total Expenses

                        For the Years Ended December 31,

                                                     2000               1999

              Type of Expense                 Amount        %    Amount        %



Compensation and fringe benefits ........   $   727       44.0% $ 2,059    12.2%

General and administrative ..............     1,169       70.8%   3,340    19.8%

Interest expense ........................       594       36.0%   1,293     7.7%

Provision for credit losses .............      (839)     -50.8%  10,178    60.3%

Total expenses ..........................   $ 1,651      100.0% $16,870   100.0%


Total  expenses  decreased  $15.2  million,  or 90.2%.  During 2000, the Company
completed the sales of assets and realized the decreases in the general level of
expenses  identified  in its  restructuring  plan.  The expenses of  residential
building and development  lending are  consolidated for only the period November
1, 2000 through December 31, 2000.

Compensation  and fringe benefits  decreased $1.3 million,  or 64.7%, due to the
reduction in staff levels.

General and administrative  expense,  in total,  decreased $2.2 million, or 65%.
All major components of the category  decreased as a result of the downsizing of
the Company. Included in the total were direct costs of the Harbourton merger of
$75 thousand.

Interest  expense  decreased $699 thousand,  or 54.1%, due to the payoffs of the
Company's  bank line of credit and  supplemental  working  capital  facility  in
January  and  April  2000,  respectively,   the  repayment  of  the  convertible
subordinated notes due 2000, and the conversion of the convertible  subordinated
notes due 2003.  These savings were partially  offset by interest on the line of
credit assumed in the merger.

                                       11
<PAGE>

The  following  chart  details  activity in the  Company's  allowance for losses
account for the years ending December 31, 2000 and 1999 (Dollars in thousands).

                            Allowance for Losses
Balance December 31, 1998                                             $2,800
Provision for Credit losses                                           10,178
Charge-offs                                                           (9,197)
Recoveries                                                               536
Balance December 31, 1999                                              4,317
Provision for credit recoveries                                         (839)
Charge-offs                                                           (3,661)
Recoveries                                                               736
Balance December 31, 2000                                              $ 553


In 2000, the Company had  collections  and recoveries  that allowed it to take a
provision for recoveries of $839 thousand.  In 1999, the Company provisioned for
losses on two  large  asset-based  loans in the  amount  of  approximately  $9.2
million,  and increased the valuation  allowance on the life insurance  policies
owned by the Company's subsidiary by $487 thousand.

During the year ended December 31, 2000, the Company  charged-off  $3.7 million.
Included in the total were $662 thousand of purchased receivables and $3 million
in asset-based loans.  Recoveries  totaled $736 thousand.  At December 31, 2000,
the  allowance  for losses on retained  loans,  net of the amount  allocated  to
non-performing accounts, was $321 thousand. This represents 2.7% of the retained
loan portfolio at December 31, 2000. The Company believes that the allowance for
credit  losses is adequate in light of the risks  inherent in the  portfolio  at
year-end 2000.

In 1999, the Company  charged-off $9.2 million,  while recovering $536 thousand.
The recoveries  related primarily to borrowers that filed bankruptcy in 1998. At
December  31,  1999,  the  allowance  for losses,  net of amounts  allocated  to
impaired assets, was $329 thousand. This represents 8.31% of the performing loan
portfolio at December 31, 1999.

Liquidity and Capital Resources

The  Company's  requirement  for  capital  is a  function  of the  level  of its
generation of and investment in  receivables.  The Company funds this generation
and  investment  through  participations,  shareholders'  equity,  bank lines of
credit,  convertible  subordinated  notes,  and internally  generated funds. The
Company believes its internal and external sources of liquidity are adequate.

The Company sells  participation  interests in its loans in a structure designed
to provide  credit  enhancement  to  participants  as well as incentives for the
Company to efficiently  service and  administer  loans.  The Company  retains an
interest in the loans,  with repayment on a pro rata basis with the participant.
In the event of borrower  default,  repayment is subordinate to the participant.
Each   transaction   is   treated   as  an   individual   loan   with  no  cross
collateralization  and no  blanket  subordination.  The  Company  currently  has
participations  with four sources  including banks and a major nonbank financial
services  company.  The  largest  of  these  facilities  is  an  agreement  with
Residential  Funding  Corporation   ("RFC,")  a  subsidiary  of  General  Motors
Acceptance  Corporation,  wherein  the  Company  may offer up to $55  million in
participation  interests to RFC. The Company may seek to establish relationships
with new participants or increase the level of existing agreements.

                                       12
<PAGE>

At December  31,  2000,  the Company has  available a secured line of credit for
$2.5 million.  The facility  carries an interest rate of the lender's prime rate
plus a  premium,  and  expires  May 11,  2001.  The  lender  has been  granted a
collateral  security  interest in two mezzanine loans having a combined original
principal  indebtedness  of $4.3  million and a balance at December  31, 2000 of
$2.8 million (net of a  participation  sold of $1.1 million).  In addition,  the
lender  has been  granted a general  assignment  of the  Company's  right to all
collections from notes. The loan agreement contains  financial  covenants of the
type  usually  required in such an  agreement,  including a  prohibition  on the
payment of  dividends.  The Company may seek to expand this  facility on similar
terms.

During 1999, as a result of portfolio losses,  the Company was operating under a
Forbearance Agreement negotiated with its bank lenders. As of December 24, 1999,
the Forbearance  Agreement expired.  The line of credit availability at December
31, 1999 was $0. Under the Forebearance Agreement, the interest rate on the line
of credit  was  equal to the agent  lender's  base  rate plus  2.25%.  After the
expiration of the  agreement,  the rate charged was the agent lender's base rate
plus 4.75%. The loan was paid in full in January 2000.

To augment its  working  capital  during the  forebearance  period,  in 1999 the
Company  obtained a $1 million  working  capital loan from Value  Partners.  The
working  capital  loan  bore a 10%  rate of  interest,  payable  quarterly,  and
repayment  terms of 25% of collections of certain  assets,  with the balance due
March 31, 2000.  As of December 31, 1999,  the Company owed $780 thousand on the
working capital loan. The loan was paid in full on April 5, 2000.

As of December 31, 1999, the Company had two issues of convertible  subordinated
notes  outstanding of $5.0 million.  The first issue was due September 30, 2000,
convertible  into common  stock of the Company at $7.50 per share and bearing an
adjustable interest rate equal to the prime rate plus 1.25% outstanding, with an
aggregate principal balance of $357 thousand.  These notes were paid at maturity
on September 30, 2000.

The  second  issue  was  $4.6  million  of 10%  notes  due  September  30,  2003
convertible  into common stock of the Company at $6.50 per share.  The notes are
unsecured  and  subordinate  in payment to all other senior debt of the Company.
The  Company  was in default on the  interest  payments  due  December  31, 1999
through  September  30,  2000 and on certain  financial  covenants  as well.  On
October 26, 2000, the Company  converted $4.3 million of the notes (plus accrued
and unpaid interest thereon calculated at a rate of 12.5%), into common stock of
the  Company at a price of $0.95 per  share.  Of the $4.6  million of  principal
outstanding on the Notes,  $4.3 million,  together with $579 thousand of accrued
but unpaid interest,  was converted into 5,168,388 shares of newly issued common
stock. Value Partners held notes with a principal balance of $4.2 million,  plus
accrued  interest,  of $561 thousand,  and received  5,008,481  shares of common
stock as a result.  As of that  date,  Value  Partners  acquired  a  controlling
interest in the  Company.  Holders of the  remaining  $266,000  of notes  waived
default interest and received interest at the 10% note rate on the same day. The
remaining  holders retained their right to convert their notes into common stock
of the Company at $6.50 per share.  At December 31, 2000, $266 thousand of notes
remained  outstanding.  The Company  expects that this  conversion will decrease
interest expense by approximately $430 thousand per year.

The Company  expended a nominal amount and $181 thousand on furniture,  fixtures
and equipment in 2000 and 1999,  respectively,  principally  in connection  with
upgrades to computer  equipment and software and office  equipment.  The Company
funded such expenditures from internally generated funds or borrowings under its
line of credit. The Company does not believe it will need to further enhance its
management information systems in the near future.

                                       13
<PAGE>

Impact of Inflation

Management  believes  that  inflation  has  not  had a  material  effect  on the
Company's income, expenses or liquidity during the past two years. The Company's
loans bear interest at primarily floating (prime base) rates. Its line of credit
also bears interest at a floating prime based rate. The convertible subordinated
notes bear a fixed rate of interest and the balance of the  Company's  funds are
derived from equity.  Therefore,  an environment of falling interest rates could
have adverse affects on the Company's net interest spread.

Item 7.  Financial Statements

See pages 21 to 61.

Item  8.  Changes  In And  Disagreements  With  Accountants  On  Accounting  And
Financial Disclosure

      On May 18, 1999, the audit  committee of the board of directors  dismissed
Deloitte & Touche, LLP as the Company's  auditors.  The Company did not have any
disagreement with them as to any matters of accounting  principles or practices,
financial statement  disclosure,  or auditing scope or procedures.  The Form 8-K
filed May 24, 1999 is hereby  incorporated  by reference.  On March 14, 2000 the
Company appointed McGladrey & Pullen, LLP as auditors.  The Form 8-K filed March
14, 2000 is hereby incorporated by reference.  On December 4, 2000, the board of
directors  dismissed  McGladrey & Pullen, LLP and engaged Arthur Andersen LLP as
the Company's  auditors.  The Company did not have any disagreement with them as
to any  matters of  accounting  principles  or  practices,  financial  statement
disclosure, or auditing scope or procedures. The Form 8-K filed December 7, 2000
is hereby incorporated by reference.

Part III

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

A definitive  proxy  statement is expected to be filed with the  Securities  and
Exchange  Commission  within 120 days of  December  31,  2000.  The  information
required  by  this  item  will be set  forth  under  the  caption  "Election  of
Directors",  under the  caption  "Executive  Officers"  and  under  the  caption
"Section  16(a)  Beneficial  Ownership  Reporting  Compliance" in the definitive
proxy statement, which information is incorporated herein by reference thereto.

Item 10.  Executive Compensation

The  information  required  by this  item will be set  forth  under the  caption
"Executive Compensation" in the definitive proxy statement, which information is
incorporated herein by reference thereto.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The  information  required  by this  item will be set  forth  under the  caption
"Security  Ownership  of  Certain  Beneficial  Owners  and  Management"  in  the
definitive  proxy  statement,   which  information  is  incorporated  herein  by
reference thereto.

Item 12.  Certain Relationships and Related Transactions

This  information  required  by this item will be set  forth  under the  caption
"Certain  Transactions" in the definitive proxy statement,  which information is
incorporated herein by reference thereto

                                       14
<PAGE>

Item 13.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed herewith or incorporated by reference:

1.       Financial Statements:

The following financial statements are submitted for the Company:

Financial  Statements as of December 31, 2000 and 1999,  and for the Years Ended
December 31, 2000 and 1999, together with Auditors' Report
                                                                     Page Number
Independent Auditors' Reports on Consolidated Financial Statements
and Schedules..............................................................18-19
Consolidated Balance Sheets...................................................20
Consolidated Statements of Operations.........................................21
Consolidated Statements of Comprehensive Income...............................21
Consolidated Statements of Shareholders' Equity...............................22
Consolidated Statements of Cash Flows.........................................23
Consolidated Statements of Cash Flows (continued).............................24
Notes to Consolidated Financial Statements....................................25


2.  Financial Statement Schedules

The following financial statement schedule is filed as part of this report:

                                                                     Page Number

Schedule IV Indebtedness to Related parties for the years
ended December 31, 2000 and 1999..............................................39

Schedules  other than those listed above have been omitted since they are either
not  required  or  the  information  is  included  elsewhere  in  the  financial
statements or notes thereto.

3. Financial Statements of Business Acquired

The following financial statements are submitted for Harbourton:

(A) Financial  Statements  as of December 31, 1999 and 1998,  and for the Period
August 28, 1998 (Inception), to December 31, 1998 together with Auditors' Report
                                                                     Page Number

Independent Auditors' Reports on Consolidated Financial
Statements and Schedules......................................................40
Statements of Financial Condition as of December 31, 1999 and 1998............41
Statements of Operations For the Year Ended December 31, 1999,
and for the Period August 28, 1998 (Inception), to December 31, 1998..........42
Statements of Changes in Stockholders' Equity for the Year Ended
December 31, 1999, and for the Period August 28, 1998 (Inception),
to December 31, 1998..........................................................43
Statements of Cash Flows for the Year Ended December 31, 1999,
and for the Period August 28, 1998 (Inception), to December 31, 1998..........44
Notes to Financial Statements for the Year Ended December 31, 1999,
and for the Period August 28, 1998 (Inception), to December 31, 1998..........45

                                       15
<PAGE>

(B) Financial  Statements as of November 30, 2000 and December 31, 1999, and for
the periods ended November 30, 2000 and 1999

                                                                     Page Number

Statements of Financial Condition as of November 30,2000 and December 31,1999.50
Statements of Operations for the eleven month periods ended November 30, 2000
and 1999 (unaudited)..........................................................51
Statement of Cash Flows for the eleven month periods ended November 30,.......52
Notes to Financial Statements for the Eleven Months Ended  November 30, 2000..53

(C) Pro Forma Financial Information
                                                                     Page Number

Condensed pro forma  statement of income  reflecting the combined  operations of
the Company and Harbourton for the latest fiscal year.........................61

4. Exhibits
( 3)  Articles of Incorporation and By-laws

Certificate of  Incorporation of the Company as filed with the State of Delaware
on July 7, 2000,  incorporated  by reference to the Company's  Definitive  Proxy
Statement Filed July 11, 2000.

Amended and restated  bylaws of the Company as adopted by the board of directors
on September 12, 2000.

(4)  Instruments Defining the Rights of Security Holders

Restrictions on reverse side of common stock certificate.

(10) Material Contracts

Participation  Agreement by and between Harbourton Residential Capital Co., L.P.
and  Residential  Funding  Corporation  dated  as of  February  23,  1996 and as
amended.

Credit and Security  Agreement  between  Greater  Atlantic  Bank and  Harbourton
Financial Corp. dated May 11, 2000 and as amended.

2000 Restricted Stock Plan for Non-Employee  Directors incorporated by reference
to the Company's Definitive Proxy Statement Filed July 11, 2000.

Allstate Financial  Corporation 2000 Stock Option Plan incorporated by reference
to the Company's Definitive Proxy Statement Filed July 11, 2000.

Agreement  and Plan of Merger  dated as of  October  24,  2000,  by and  between
Harbourton Financial Corporation and Allstate Financial Corporation incorporated
by reference to the Company's Definitive Information Statement Filed November 9,
2000.

                                       16
<PAGE>

(10) Employment Contracts

Employment  and  Compensation  Agreement  dated  September  1, 1998 with C. Fred
Jackson incorporated by reference to the Company's filing on Form 10-QSB for the
quarter ended September 30, 1998.

Amendment dated January 10, 2000 to Employment and Compensation  Agreement dated
September 1, 1998 with C. Fred Jackson,  terminating  contract effective January
10, 2002.

Employment Agreement dated October 24, 2000 with J. Kenneth McLendon.

Employment Agreement dated October 24, 2000 with James M. Cluett.

(21)  Subsidiaries of the Registrant

(b) Reports on Form 8-K

Changes  in  Registrant's  Certifying  Accountant.  Notice of the  dismissal  of
McGladrey  &  Pullen,  LLP and the  engagement  of Arthur  Andersen,  LLP as the
Company's independent auditors. Filed December 7, 2000.

Acquisition or Disposition  of Assets.  Notice of the  acquisition of Harbourton
Financial  Corporation.   Filed  December  13,  2000.  The  following  financial
statements were filed by amendment to the original filing on January 13, 2001:

         (A) Financial Statements of Businesses Acquired.

1.                    Audited statements of financial condition of Harbourton as
                      of December 31, 1999 and 1998, and the related  statements
                      of operations,  changes in  stockholders'  equity and cash
                      flows for the year ended  December 31,  1999,  and for the
                      period August 28, 1998 (Inception), to December 31, 1998.

2.                    Statements  of  financial  condition of  Harbourton  as of
                      November  30,  2000  (unaudited)  and  December  31,  1999
                      (audited),  and the related  statements of operations  and
                      cash flows for the eleven  months ended  November 30, 2000
                      (unaudited) and year ended December 31, 1999 (audited).

(B)      Pro Forma Financial Information.

1.                    Pro forma balance  sheet giving effect to the  combination
                      of the Company  and  Harbourton  as of  November  30, 2000
                      (unaudited)  and pro forma  statements  of income  for the
                      years ended  December 31, 1999 and 1998  (unaudited),  and
                      for the eleven months ended November 30, 2000  (unaudited)
                      giving effect to the  combination at the beginning of each
                      of the respective periods.




                                       17
<PAGE>



Letterhead of Arthur Andersen LLP





To the Board of Directors of
Allstate Financial Corporation:


We  have  audited  the  accompanying  consolidated  balance  sheet  of  Allstate
Financial Corporation and subsidiaries (a Delaware  Corporation,  the "Company")
as of December 31, 2000, and the related consolidated  statements of operations,
comprehensive  income,  shareholders'  equity  and cash  flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Allstate Financial
Corporation  and  subsidiaries as of December 31, 2000, and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
accounting principles generally accepted in the United States.


Arthur Andersen LLP
Vienna, Virginia
February 1, 2001 (except with respect to the matter  discussed in Note 13, as to
which the date is March 15, 2001)




                                       18
<PAGE>



Letterhead of McGladrey & Pullen, LLP

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Allstate Financial Corporation and subsidiaries
Arlington, Virginia


We  have  audited  the  accompanying  consolidated  balance  sheet  of  Allstate
Financial  Corporation and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
the year then  ended.  Our  audit  also  included  the 1999  information  on the
financial statement schedule listed in the Index at Item 13(a)2. These financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion  on the
financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining on a test basis,  evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

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

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As discussed in Note 14 to
the  financial  statements,  the  Company  has  suffered  recurring  losses from
operations and its line of credit  available for working  capital  expires March
31, 2000. This raises  substantial doubt about the Company's ability to continue
as a going  concern.  Management's  plans in  regard to these  matters  are also
described in Note 14. The consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.


McGladrey & Pullen, LLP
Raleigh, NC
March 17, 2000



                                       19
<PAGE>



                 Allstate Financial Corporation and Subsidiaries
                           Consolidated Balance Sheets
                                                          December 31,
  ----------------------------------------- ----------------- ------------------
                                                       2000               1999
  ----------------------------------------- ----------------- ------------------
  Assets
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
   Cash and cash equivalents                        $ 447,184          $ 353,962
  ------------------------------------------------------------------------------
   Loans receivable, net                           12,199,912          5,142,344
  ------------------------------------------------------------------------------
   Purchased receivables, net                       1,575,969          1,981,077
  ------------------------------------------------------------------------------
   Securities available for sale                       60,000                  -
  ------------------------------------------------------------------------------
   Deferred income taxes, net                       3,126,714                  -
  ------------------------------------------------------------------------------
   Furniture, fixtures and equipment, net              55,617            151,375
  ------------------------------------------------------------------------------
   Other assets                                       154,328             43,643
  ------------------------------------------------------------------------------
  Total assets                                   $17,619,724          $7,672,401
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  Liabilities and shareholders' equity
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  Liabilities
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
      Notes payable                                $1,420,000         $1,366,051
  ------------------------------------------------------------------------------
      Convertible subordinated notes                  266,000          4,954,000
  ------------------------------------------------------------------------------
      Accounts payable and accrued expenses           793,867          1,009,921
  ------------------------------------------------------------------------------
      Income taxes payable                             24,189                  -
  ------------------------------------------------------------------------------
   Total liabilities                                2,504,056          7,329,972
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
   Shareholders' equity:
  ------------------------------------------------------------------------------
      Preferred stock, no par value, authorized 2,000,000
       shares, no shares issued or outstanding              -                  -
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
    Common stock, $.01 par value, authorized 20,000,000 shares;
       15,184,164  issued and outstanding at
       December 31, 2000 and common stock, no par value,
       authorized 10,000,000 shares; 3,105,828 issued,
       2,324,616 outstanding, 781,212 held in treasury
       at December  31, 1999                          151,841             40,000
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
    Additional paid-in-capital                     24,612,674         18,874,182
  ------------------------------------------------------------------------------
    Treasury stock, no shares held at
    December 31, 2000 and 781,212
    shares held at December 31, 1999                        -        (4,967,472)
  ------------------------------------------------------------------------------
    Accumulated deficit                           (9,704,847)       (13,604,281)
  ------------------------------------------------------------------------------
    Accumulated other comprehensive income: unrealized
       gains on  investment securities                56,000                   -
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
   Total shareholders' equity                      15,115,668            342,429
  ------------------------------------------------------------------------------
  Total liabilities and shareholders' equity      $17,619,724        $ 7,672,401
  ------------------------------------------------------------------------------

                 See Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



                                       20
<PAGE>



                 Allstate Financial Corporation and Subsidiaries
                      Consolidated Statements of Operations

                                                  Years Ended December 31,
  ----------------------------------------- ----------------- ------------------
                                                        2000               1999
  ----------------------------------------- ----------------- ------------------

  ------------------------------------------------------------------------------
  Revenues
  ------------------------------------------------------------------------------
    Interest, discounts, and loan fees               $774,399        $ 3,555,766
  ------------------------------------------------------------------------------
    Administration fees and other revenue             644,327             65,570
  ------------------------------------------------------------------------------
    Profit participations                              46,389                  -
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  Total Revenues                                    1,465,115          3,621,336
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  Expenses
  ------------------------------------------------------------------------------
    Compensation and fringe benefits                  727,113          2,058,877
  ------------------------------------------------------------------------------
    General and administrative                      1,168,823          3,339,595
  ------------------------------------------------------------------------------
    Interest expense                                  594,128          1,293,217
  ------------------------------------------------------------------------------
    Provision for credit (recoveries) losses        (839,319)         10,177,825
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  Total Expenses                                    1,650,745         16,869,514
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  (Loss) before income tax (benefit) expense        (185,630)       (13,248,178)

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

  ------------------------------------------------------------------------------
  Income tax (benefit) expense                    (3,031,311)          4,002,912
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  Net income (loss)                                $2,845,681      $(17,251,090)
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  Net income (loss) per common share
  ------------------------------------------------------------------------------
    Basic and  diluted                              $   0.62         $   (7.42)
  ------------------------------------------------------------------------------

  ------------------------------------------------------------------------------
  Weighted average number of shares outstanding
  ------------------------------------------------------------------------------
    Basic and  diluted                              4,569,949          2,324,616
  ------------------------------------------------------------------------------

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

                 Allstate Financial Corporation and Subsidiaries
                 Consolidated Statements of Comprehensive Income
                                                        Years Ended December 31,
  ----------------------------------- ----------------------- ------------------
                                                         2000               1999
  ----------------------------------- ----------------------- ------------------
  Net income (loss)                                $2,845,681      $(17,251,090)
  Other comprehensive income:
    Unrealized gain on securities available for sale   56,000                  -
  Comprehensive income (loss)                      $2,901,681      $(17,251,090)

                 See Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



                                       21
<PAGE>
<TABLE>
<CAPTION>



                                               Allstate Financial Corporation and Subsidiaries
------------------------------------------------------------------------------------------------------------------------------------
                                               Consolidated Statements of Shareholders' Equity

-----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>           <C>            <C>           <C>    <C>              <C>
                                                                                                         Accumulated
                                                                                        Retained             Other
                                                      Additional                        Earnings        Comprehensive
                                            Common     Paid-in-   Treasury Stock      (Accumulated           Income
                                             Stock     Capital                          Deficit)                          Total

Balance - December 31, 1998                $40,000   $18,874,182   $(4,986,520)      $ 3,646,809          $   -        $17,574,471
Amortization of treasury stock
acquisition costs                                -             -         15,050                -              -             15,050
Reissuance of 533 shares of
treasury stock upon conversion of
convertible subordinated notes
                                                 -             -          3,998                -              -              3,998
Net (loss)                                       -                                  (17,251,090)              -       (17,251,090)
                                                               -              -

Balance - December 31, 1999                 40,000    18,874,182    (4,967,472)     (13,604,281)                           342,429
                                                                                                              -

Amortization of treasury stock
acquisition costs                                -             -         13,449                -              -             13,449
Unrealized gains on investment
securities                                       -             -              -                -         56,000             56,000
Issuance of restricted stock                     -        89,250              -
                                                                                               -              -             89,250
Conversion of no par value Virginia
shares to $.01 par value Delaware
shares                                     (7,192)         7,192              -                -              -                  -
Issuance of 5,168,388 shares in
exchange for convertible
subordinated notes                          51,684     4,688,415              -                               -          4,740,099
                                                                                               -
Issuance of 7,516,160 shares in
exchange for common stock of
Harbourton Financial Corp.                  75,161     7,931,878              -        1,053,753                         9,060,792
                                                                                                              -
Return of capital                                    (2,024,220)              -                -              -        (2,024,220)
                                                 -
Retirement of 781,212 shares of
treasury stock                             (7,812)   (4,954,023)      4,954,023                -              -            (7,812)
Net income                                                                             2,845,681              -          2,845,681
                                                 -             -              -

Balance-December 31, 2000                 $151,841   $24,612,674        $     -     $(9,704,847)        $56,000        $15,115,668

</TABLE>





                See Notes to Consolidated Financial Statements


                                       22
<PAGE>


                 Allstate Financial Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows




<PAGE>
<TABLE>
<CAPTION>

                                                                                         Years Ended December 31,
---------------------------------------------------------------------------------------------------------------------
                                                                                            2000               1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                <C>
Cash flows from operating activities:
          Net income (loss)                                                           $2,845,681       $(17,251,090)
          Adjustments to reconcile net income (loss)
           to cash used in operating activities:
           Depreciation                                                                  109,317              69,759
           (Gain) loss on disposition of furniture, fixtures, and
               equipment                                                                 (5,988)             113,895
           Amortization of valuation allowance                                           (7,547)                   -
           Provision for credit (recoveries) losses                                    (839,319)          10,177,825
           Deferred income taxes                                                     (3,126,714)           3,960,946
           Changes in operating assets and liabilities:
               Other assets                                                               27,599             610,314
               Accounts payable and accrued expenses                                     109,112            (71,734)
               Income taxes receivable                                                  (81,051)
               Income taxes payable                                                       24,189             831,656
Net cash used in operating activities                                                  (944,721)         (1,558,429)

Cash flows from investing activities:
      Collection and sale of receivables                                               3,669,520          17,853,564
      Recoveries of charged off assets, net                                              736,448                   -
      Decrease in credit balances of factoring borrowers                                       -         (4,559,570)
      Purchase of securities held for sale                                               (4,000)                   -
      Sale (purchase) of furniture, fixtures and equipment                                4,101            (168,629)

      Payment for stock of HFC, net of cash acquired                                 (1,517,457)                   -
Net cash provided  by investing activities                                             2,888,612          13,125,365

Cash flows from financing activities:
      Proceeds from working capital loan, net                                                  -             799,772
      Principal payments on lines of credit, net                                     (1,286,051)        (14,448,438)
      Principal payments on  convertible subordinated notes                            (357,000)             (4,000)
      Treasury stock acquisition costs                                                    13,449              19,048
      Interest paid in note conversion transaction                                      (28,448)                   -
      Expenses of note conversion transaction
                                                                                       (192,619)                   -
Net cash used in financing activities                                                (1,850,669)        (13,633,618)

Net increase (decrease) in cash                                                           93,222         (2,066,682)

Cash, beginning of period                                                                353,962           2,420,644
Cash, end of period                                                                      447,184             353,962

Supplemental disclosure of cashflow information:
     Cash paid for interest                                                              $98,953          $1,295,214
     Cash paid for income taxes                                                         $152,265            $ 32,466
</TABLE>


                 See Notes to Consolidated Financial Statements




                                       23
<PAGE>





                 Allstate Financial Corporation and Subsidiaries
                Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>


                                                                                    Years Ended December 31,
---------------------------------------------------------------------------------------------------------------------
                                                                                            2000                1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                 <C>
Supplemental schedule of noncash activities
       Conversion of factoring borrowers to ABL loans                                     $    -          $9,309,511
       Conversion of convertible subordinated notes
           to common stock                                                            $4,740,099            $  3,998
       Issuance of common stock as directors' fees                                       $89,250                   -
       Issuance of common stock in payment for stock of Harbourton
           Financial Corp.                                                            $7,036,572                   -
       Unrealized gain on securities available for sale received in
               settlement of non-performing advance                                      $56,000             $     -

</TABLE>





























                 See Notes to Consolidated Financial Statements



                                       24
<PAGE>






                 Allstate Financial Corporation and Subsidiaries


Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000 and 1999

1.         Summary of Significant Accounting Policies:

A. General
The accounting and reporting policies of Allstate Financial  Corporation and its
subsidiaries  (collectively,   the  "Company")  conform  to  generally  accepted
accounting  principles  ("GAAP")  and  general  practices  within the  financial
services  industry.  Those policies that materially  affect the determination of
financial position, results of operations, and cash flows are summarized below.

B. Use of Estimates
In preparing its financial  statements  in accordance  with GAAP,  management is
required to make estimates and  assumptions  that affect the reported  amount of
assets and liabilities,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses during the reporting period.  Actual results could differ significantly
from those estimates.  In the normal course of business,  the Company encounters
economic  risk.  Economic risk is comprised of interest rate risk,  credit risk,
and market risk.  Interest rate risk is the risk that unfavorable  discrepancies
will occur between the rates of interest earned by the Company on its receivable
portfolio and its own costs of borrowing funds in the market. Credit risk is the
risk of default on the Company's loan and purchased  receivable  portfolios that
results from the borrowers'  inability or  unwillingness  to make  contractually
required  payments.  Market  risk  reflects  changes in the value of  collateral
underlying  loans and purchased  receivables  and the valuation of the Company's
owned real estate, if any.

The determinations of allowances for credit losses and valuation  allowances are
based on estimates that are  susceptible to significant  changes in the economic
environment and market conditions.  Management believes that, as of December 31,
2000, the allowances are adequate based on the information  currently available.
A worsening in the state of the general economy or a protracted economic decline
could  increase the  likelihood  of  additional  losses due to credit and market
risks.

C. Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly owned  subsidiaries  after elimination of all material  inter-company
transactions. See Note 8.

D. Loans Receivable/ Purchased Receivables / Allowance for Credit Losses

Purchased  receivables consist of litigation claims and life insurance policies,
which have been purchased without recourse to the seller.  Litigation claims are
stated at the agreed amount of the  settlement  assigned to the Company,  net of
unearned  discounts and an allowance for credit losses.  Life insurance policies
are  stated  at  the  policy  amount  net  of a  valuation  allowance  based  on
management's  estimate of the  discounted  present  value of the  policies.  The
valuation allowance is adjusted based upon actual policy collections and changes
in management's  estimates of the timing of future collections.  Because most of
the purchased life insurance policies are underwritten by highly rated insurance
companies (and, in many cases,  backed by state guaranty funds),  management has
not provided an allowance for credit losses.

                                       25
<PAGE>

Allowances  for credit losses are  maintained  at a level that, in  management's
judgment, is sufficient to absorb losses inherent in the respective  portfolios.
Factors considered in the establishment of the allowances  include  management's
evaluation of the adequacy of underlying collateral, historical loss experience,
expectations  of  future  economic  conditions  and their  impact on  particular
industries  and  individual  borrowers,  and other  discretionary  factors.  The
allowances  for credit  losses are based on estimates,  and ultimate  losses may
vary from the current estimates.  These estimates are reviewed quarterly and, as
adjustments  become  necessary,  the effects of the changes are  included in the
statement of operations in the period in which they become known.

When any  receivable  becomes  doubtful as to collection of interest or discount
income,  the account is placed on non-performing  status and, in accordance with
the  Financial  Accounting  Standards  Board  ("FASB")  Statement  of  Financial
Accounting Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of
a Loan, as amended by SFAS No. 118,  Accounting by Creditors for Impairment of a
Loan - Income  Recognition  and  Disclosure,  is  considered by management to be
"impaired".  When a receivable becomes non-performing,  the Company discontinues
the  accrual of  earnings  for  financial  statement  purposes.  If the  Company
determines that it is not likely to recover,  from any source, the amount of its
initial advance and the earned but unpaid interest or discount thereon, then the
Company  increases the allowance for credit losses or reduces the carrying value
of the non-performing  receivable to its estimated fair value and makes a charge
to the allowance for credit losses in an amount equal to the difference  between
the Company's investment in the non-performing receivable and its estimated fair
value.

Loans and purchased  receivables are fully charged off against the allowance for
credit losses when the Company has  exhausted its efforts  against the borrower,
guarantors,  other third parties and any additional  collateral  retained by the
Company.  E.  Securities  available for sale  Securities  available for sale are
reported at fair market value,  with  unrealized  gains and losses excluded from
earnings and reported in a separate component of shareholders' equity.

F.       Revenues

i.           Interest, Discounts, and Loan Fees

The Company  receives two forms of interest  income,  current and deferred.  The
current portion is recognized in income monthly based on the outstanding  amount
of the  investment  in the loan at a market rate of interest.  In  addition,  on
certain loans, the Company is entitled to an additional deferred return based on
the  outstanding  amount of the  investment in the loan times the deferred rate.
The deferred  return is recognized in income on a pro rata basis as the borrower
conveys  title to each third party  purchaser.  Discount  income from  purchased
receivables  in the  Company's  factoring  operations  is recorded on an accrual
basis in accordance  with the terms of the agreements.  The financial  result of
this method of recognizing  such discounts does not differ  materially  from the
interest method.  Loan fees and certain direct loan origination costs related to
retained  interests are deferred and  recognized  over the life of the loan on a
straight-line  basis.  Loan fees  received and certain  direct loan  origination
costs allocated to the  participation  interest sold are deferred and recognized
as advances are made to borrowers and funded by the participants.

ii.      Administration Fees and Other Revenue

Administration fees are received from certain borrowers on a monthly basis or as
the borrower  conveys  title to third party  purchasers,  and are  recognized as
earned.

                                       26
<PAGE>

The  Company  receives  a fee  from  the  purchaser  of the  Company's  previous
factoring portfolio. The amounts are calculated by the purchaser as a percentage
of the purchaser's adjusted net revenues on the factoring accounts purchased and
accrued monthly.

iii.     Profit Participations

In certain lending  arrangements,  the Company is entitled to a percentage share
of  underlying  project  profits in addition to interest  and fees.  The Company
recognizes this income as the borrower conveys title to third party purchasers.

G.  Furniture, Fixtures and Equipment

Furniture,  fixtures,  and equipment are recorded at cost.  Major additions are
capitalized while routine  replacements,  maintenance and repairs are charged to
expense.  Depreciation is computed using the straight-line method over estimated
useful lives of the assets ranging from 3 to 7 years.  The cost and  accumulated
depreciation for the property and equipment retired, sold, or otherwise disposed
of are  removed  from  the  accounts,  and any  resulting  gains or  losses  are
reflected in income.

H. Cash and Cash Equivalents

For purposes of the  Statement  of Cash Flows,  the Company  considers  cash and
overnight  investments  with an original  maturity of 90 days or less to be cash
and cash equivalents.

I. Income Taxes

Deferred taxes are provided on a liability  method  whereby  deferred tax assets
are recognized for deductible  temporary  differences and operating loss and tax
credit  carryforwards  and deferred tax  liabilities  are recognized for taxable
temporary  differences.  Temporary  differences are the differences  between the
reported  amount of assets and  liabilities  and their tax basis.  Deferred  tax
assets are reduced by a valuation  allowance when, in the opinion of management,
it is more likely than not that some  portion or all of the  deferred tax assets
will not be realized.  Deferred tax assets and  liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.

J. Reclassifications

Certain 1999 amounts have been  reclassified  to conform with the 2000 financial
statement presentation.

2.            Receivables:

A.       Loans

The Company originates loans to  builders/developers  and, in certain instances,
sells a  participation  interest in those loans.  The participant is required to
fund  advances  on these  loans based upon its  participation  interest  and the
Company funds the remainder. The interest retained by the Company is subordinate
to that of the  participant,  such  that the  Company  assumes  the risk for any
credit losses up to the amount of the retained interest in the loan.  Currently,
the Company has participation  agreements with four entities. The Company passes
through  interest  to the  participants  based on their  participation  interest
amounts.

The Company's participations in asset based loans require monthly amortization.

                                       27
<PAGE>

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
125,   Accounting   for  Transfers   and  Servicing  of  Financial   Assets  and
Extinguishments  of Liabilities.  The statement requires  transferred  financial
assets to be accounted for on a  financial-component  basis. After a transfer of
financial  assets,  an entity  recognizes the financial and servicing  assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered,  and derecognizes  liabilities when  extinguished.
The transferor has surrendered  control over  transferred  assets if and only if
the transferred  assets have been isolated from the  transferor,  the transferee
obtains  the  right to  pledge  or  exchange  the  transferred  assets,  and the
transferor does not maintain effective control over the transferred  assets. Due
to the  nature of the  financial  assets  transferred,  it is not  practical  to
estimate the fair value of the residual  interest  assets,  or the fair value of
the  liability  representing  the  limited  recourse  obligation.   The  Company
recognizes no gain or loss at the time of the transfer.

At December 31, 2000 and 1999, loans receivable, net, comprises the following:

                                        2000                            1999
Loans receivable - gross             $55,651,303                     $10,073,989
Portion sold to participants        (41,833,057)                       (744,623)
Deferred interest and fees             (979,971)                               -
Amount allocated from purchase
of minority interest                    (98,137)                               -
Allowance for  credit losses           (540,226)                     (4,187,022)
Loans, net                                     $12,199,912           $ 5,142,344



B. Purchased Receivables
Subsidiaries of the Company service portfolios of purchased  receivables,  which
consist  of  litigation  claims  and life  insurance  policies,  which have been
purchased without recourse to the seller.

At December 31, 2000 and 1999, purchased receivables, net, is as follows:

                                         2000                            1999
 Life insurance policies              $2,914,868                     $ 3,922,267
 Valuation allowance                 (1,386,045)                     (2,032,305)
 Life insurance policies, net          1,528,823                       1,889,962

 Litigation claims, net of
 unearned discount                       220,492                          59,872

 Allowance for credit losses            (12,726)                       (129,377)
 Litigation claims, net                   47,146                          91,115

Total purchased receivables,  net     $1,575,969                      $1,981,077






                                       28
<PAGE>




C.  Allowance for Losses
Activity in the allowance for losses  accounts for the years ending December 31,
2000 and 1999 was as follows:

                                               2000                         1999

Beginning Balance                       $ 4,316,399                   $2,799,931
Provision for credit(recoveries) losses   (839,319)                   10,177,825
Charge-offs                              3,660,574)                  (9,197,053)
Recoveries                                  736,448                      535,696
Ending Balance                             $ 552,954                  $4,316,399

During 1999, the Company  provided  approximately  $10,200,000 of provisions and
charged off approximately  $9,200,000,  specifically  related to its asset-based
loans. The provisions and related charge-offs related primarily to the Company's
three largest  borrowers at December 31, 1998. All three  borrowers faced severe
financial difficulty,  resulting in one borrower  restructuring its debt and the
remaining two  borrowers,  who were related  through common  ownership,  ceasing
operations in 1999. The Company's efforts to locate and liquidate collateral and
to pursue the guarantors of the loan were generally unsuccessful. The charge-off
for 2000 represented the recognition of losses resulting from the failure of the
borrower that had  restructured its debt in 1999. The recoveries in both periods
resulted from  collections  from a number of borrowers that had filed bankruptcy
or gone out of business prior to 1999.

There have been no charge-offs or recoveries  related to the real estate lending
operations.

D. Impaired Loans

Impaired loans are measured  based on the present value of expected  future cash
flows  discounted  at the  loan's  effective  interest  rate or, as a  practical
expedient,  the  loan's  observable  market  price  or  the  fair  value  of the
collateral if the loan is collateral dependent.

Information  regarding  impaired  loans  at  December  31,  2000  and 1999 is as
follows:

                                                     2000                   1999
Total recorded investment in impaired loans      $463,746             $5,354,476
Amount of recorded  investment in impaired
loans for which there is no related allowance           -               $367,455

Amount of recorded  investment in impaired
loans for which there is a related allowance     $463,746             $4,987,021
Related allowance for impaired loans             $232,000             $3,987,021


The  average  recorded  investment  in impaired  loans  during 2000 and 1999 was
$1,833,818 and $7,809,301,  respectively.  All impaired loans during the periods
have been in the asset-based loan and purchased receivables portfolios.

                                       29
<PAGE>

3.             Commitments and Contingencies:

The Company  leases office space and  equipment  under  noncancelable  operating
leases.  Future minimum rental commitment under existing operating leases having
initial or remaining noncancelable lease terms in excess of one year at December
31, 2000 is as follows:

     Year Ended December 31,
     2001                                                             $120,869
     2002                                                              118,910
     2003                                                               47,517
     Total                                                            $287,296

Rent expense totaled $109,373 and $184,768 for the years ended December 31, 2000
and 1999, respectively.

The Company's lease on its former  headquarters was renegotiated during 1995 and
extended for six years to December 1, 2001 at a reduced  rental.  In March 2000,
the Company  moved to quarters  shared with  Harbourton,  and in June 2000,  the
lease on the former  headquarters  was  terminated  under an agreement  with the
landlord.  The Company was not  required to pay any amounts  other than  accrued
rent under the agreement.

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

4. Credit Concentrations and Financial Obligations with Off-Balance Sheet Risk:

For the year ended  December 31, 2000,  one borrower  accounted for greater than
10% of the Company's total revenue, at 20.2%. This borrower is not classified as
non-earning. For the year ended December 31, 1999, three borrowers accounted for
25.8%  of the  Company's  total  earned  discounts  and  interest.  Two of these
borrowers were  classified as non-earning and were  written-off  during 1999 and
the third borrower paid off all outstanding balances prior to the end of 1999.

The  Company  originates  acquisition,   development,   and  construction  loans
primarily in its market area of the Mid-Atlantic and Southeastern  states. These
loans are collateralized by deeds of trust on the underlying real property.  The
Company uses standard  underwriting  practices,  which are generally accepted in
the industry.

5.                 Estimated Fair Value of Financial Instruments:

The following estimated fair values of the Company's financial instruments as of
December 31, 2000 and 1999, are presented in accordance with generally  accepted
accounting  principles,  which  define  fair  value  as the  amount  at  which a
financial instrument could be exchanged in a current transaction between willing
parties,  other than a forced or liquidation  sale. These estimated fair values,
however,  may not  represent  the  liquidation  value or the market value of the
Company.

Cash and Cash Equivalents

Carrying amount approximates fair value.

                                       30
<PAGE>

Loans receivable, net and purchased receivables, net

Carrying amount of loans receivable  approximates fair value as all loans are at
rates that  approximate  current lending rates. The carrying amount of purchased
receivables approximates fair value.

Securities available for sale

Securities  held for sale are stated at the closing  price of the  securities in
the over the counter market where they are traded.

Notes payable and convertible subordinated notes

The revolving lines of credit and note payable carrying amounts  approximate the
respective  fair values  because the  revolving  lines of credit are  adjustable
rate,  and are recorded at book values,  while the note payable is short term in
nature with terms not significantly different from those obtainable at closing .

Convertible  subordinated  notes payable are adjustable  rate or fixed rate. The
carrying amount of these notes  approximates  fair value,  either because of the
rate adjustment or because the fixed rate terms are not significantly  different
from those currently obtainable.

6.              Income Taxes:

The income tax (benefit) expense for the years ended December 31, 2000 and 1999,
is summarized as follows:

                                                     2000                 1999
    Federal:
      Current                                       $     -             $ 32,466
      Deferred                                  (2,552,683)            3,683,680
                                                (2,552,683)            3,716,146
    State:
      Current                                             -                9,500
      Deferred                                    (478,628)              277,266
                                                  (478,628)              286,766

    Income tax (benefit) expense               $(3,031,311)           $4,002,912

                                       31
<PAGE>

A  reconciliation  of the  statutory  Federal  income tax rate to the  Company's
effective  income tax rate for the years ended  December 31, 2000 and 1999 is as
follows:

                                                    2000                 1999
Tax (benefit) expense at statutory rate            (55,646)         $(4,504,040)
Change in (benefit) expense resulting from:
 State income taxes, net of
 federal income tax effect                                -            (428,023)
 Change in deferred tax asset
 valuation allowance                            (3,031,311)            9,232,642
 Other                                               55,646            (297,667)
Income tax (benefit) ex                        $(3,031,311)           $4,002,912


Deferred  income taxes result from temporary  differences in the  recognition of
income and expense for tax versus financial reporting  purposes.  The sources of
these temporary differences and the related tax effects at December 31, 2000 and
1999 are as follows:

The deferred tax asset consists of:
                                                   2000                  1999
Deferred tax asset:
  Operating loss carryforwards                  $8,211,304            $7,506,082
  Allowance for credit losses                      210,122             1,726,560
  Valuation allowance                               37,292                     -
  Organization Costs                                 3,236                     -
  Deferred Interest                                202,190                     -
Total deferred tax asset                         8,664,144             9,232,642
Deferred tax liability:
   Equity income recognition:                    (110,023)                     -
Net deferred tax assets:                         8,554,121             9,232,642
Valuation allowance                            (5,427,407)           (9,232,642)
Total                                           $3,126,714               $     -

At December 31, 1999, the Company had provided a valuation allowance against the
entire net deferred tax asset due to the operating losses experienced.

In 2000, the Company acquired Harbourton  Financial Corp  ("Harbourton"),  which
had demonstrated profitable operations. As a result, the Company determined that
a portion of the valuation  allowance was not required and recorded a $3,031,311
reduction to the allowance in December 2000.

The  Company's  net  operating  loss ("NOL") at December  31, 2000,  amounted to
$21,608,694.  The Company's use of the NOL's prior to the  expirations  of their
carry-forward  periods  may be limited by the  provisions  of Section 382 of the
Internal  Revenue Code of 1986 ("the  Code"),  if it is  determined  that it has
undergone a change of ownership,  as defined by the section.  The  carry-forward
period associated with the NOL expires according to the following schedule:


     Year of expiration                                                   Amount
     2018                                                            $ 6,753,731
     2019                                                             11,394,770
     2020                                                              3,460,193
     Total                                                           $21,608,694




                                       32
<PAGE>




7. Notes Payable and Convertible Subordinated Notes:

Notes  payable and  convertible  subordinated  notes consist of the following at
December 31, 2000 and 1999:

                                                              2000          1999
Revolving line of credit; due on demand; interest at
prime plus 4.75%; secured ............................   $     --        566,279
Revolving line of credit; due May 11, 2001;  interest
at prime plus 1.5%; secured ..........................    1,420,000         --
Note payable; due March 31, 2000; interest at 10%;
unsecured ............................................         --        799,772
Total notes payable ..................................   $1,420,000   $1,366,051
Convertible subordinated notes; due September 30,
2000; interest at prime plus 1.25%; unsecured ........   $     --     $  357,000
Convertible subordinated notes; due September 30,
2003; interest  at 10% fixed; unsecured ..............      266,000    4,597,000
Total convertible subordinated notes .................   $  266,000   $4,954,000

At December 31, 2000 and 1999, the prime rate was 9.5% and 8.5%, respectively.

Aggregate   annual   principal   payments  on  notes  payable  and   convertible
subordinated  notes for the five years  subsequent to December 31, 2000,  are as
follows:

    Years Ending December 31,
         2001                                                         $1,420,000
         2002                                                                  -
         2003                                                            266,000
        Total                                                         $1,686,000

The Company has available a secured line of credit in the amount of  $2,500,000.
The facility  carries an interest rate of the prime rate plus 1.5%,  and expires
May 11, 2001. The lender has been granted a collateral  security interest in two
loans having a combined  original  principal  indebtedness of $4,370,000,  and a
balance at  December  31, 2000 of  $2,829,709  (net of a  participation  sold of
$1,069,180 ). In addition,  the lender has been granted a general  assignment of
the Company's right to all collections from loans receivable. The loan agreement
contains financial  covenants of the type usually required in such an agreement,
including a prohibition on the payment of dividends.

As of December 31, 1999, the Company was operating under a forbearance agreement
negotiated  with its bank  lenders.  As of December  24, 1999,  the  forbearance
agreement  expired.  The line of credit  availability  at December  31, 1999 was
zero.  The interest  rate on the line of credit was equal to the agent  lender's
base rate plus 4.75%. The loan was repaid in full in January 2000.

To augment  its  working  capital  during the  forebearance  period the  Company
obtained a $1,000,000  working  capital loan from Value Partners,  Ltd.  ("Value
Partners").  The working  capital  loan bore a 10% rate of  interest,  which was
payable quarterly,  and repayment terms of 25% of collections of certain assets.
The outstanding balance of the loan was paid in April 2000.

                                       33
<PAGE>

As of December  31, 1999,  the Company had  convertible  subordinated  notes due
September  30, 2000  convertible  into common  stock of the Company at $7.50 per
share and bearing an adjustable interest rate equal to the prime rate plus 1.25%
outstanding,  with an aggregate  principal  of $357,000.  The notes were paid at
maturity on September 30, 2000.

At December 31, 1999 the Company had $4,597,000 of 10% convertible  subordinated
notes  ("Notes")  due September  30, 2003  convertible  into common stock of the
Company at $6.50 per share.  The Notes are unsecured and  subordinate in payment
to all other  senior  debt of the  Company.  The  Company  was in default on the
interest  payments  due  December  31, 1999  through  September  30, 2000 and on
certain  financial  covenants as well.  On October 5, 2000,  the Company and the
noteholders filed a plan of arrangement with the Delaware Court of Chancery that
proposed a conversion of  $4,331,000 of Notes,  together with accrued but unpaid
interest  calculated  at a rate of 12.5%,  into common stock of the Company at a
price of $0.95 per share of common stock (the "Notes Conversion").  The Delaware
court  approved the Notes  Conversion on October 6, 2000, and minor changes were
made to the approval  order on October 11,  2000.  The  conversion  of the Notes
(plus accrued and unpaid interest  thereon) occurred on October 26, 2000. Of the
$4,597,000  of principal  outstanding  on the Notes,  $4,331,000,  together with
$578,970 of accrued but unpaid interest,  was converted into 5,168,388 shares of
newly issued  common stock.  Holders of the  remaining  $266,000 of notes waived
default interest and received interest at the 10% note rate on the same day. The
remaining  holders retained their right to convert their notes into common stock
of the Company at $6.50 per share.  Value  Partners  held Notes with a principal
balance of  $4,197,000,  plus  accrued  interest,  at 12.5%,  of $ 561,057,  and
received  5,008,481 shares of common stock as a result of the Notes  Conversion.
Because Value Partners owned  approximately 27% of the Company's common stock as
well  as 94% of the  Notes  before  the  conversion,  the  conversion  of  Value
Partners'  Notes was accounted for as a capital  transaction.  As of the date of
the Notes  Conversion,  Value  Partners  acquired a controlling  interest in the
Company.

8.       Merger:

On November  30, 2000,  the Company  acquired  Harbourton  . The Company  issued
7,516,160  new  common  shares  and  paid  $2,115,630  in cash  to  Harbourton's
shareholders.  Harbourton  was merged  into the  Company and the Company was the
surviving entity. The Company's majority  shareholder,  Value Partners,  was the
holder of 95.7% of Harbourton's  common shares and received  7,191,414 shares of
stock and $2,024,220 in cash.  Following the merger  transaction  Value Partners
owned  approximately  84.8% of the Company's  common  stock.  The portion of the
Harbourton net assets acquired from Value Partners,  $8,859,182, was recorded at
historical cost, in a manner similar to a pooling of interests  accounting.  The
portion of the Harbourton net assets acquired from the minority shareholders was
recorded at market value. The difference between the total consideration for the
minority  interest shares,  $294,376,  and the historical cost of the portion of
the Harbourton net assets acquired from the holders, $400,060, has been recorded
as a valuation allowance, which has been allocated to the non current portion of
loans  receivable and is being  amortized over the weighted  average life of the
related loans.

The historical financial statements have been restated retroactively to the date
of the Notes  Conversion.  (See note 7). The cash  portion of the  consideration
given  for the stock of  Harbourton  was  recognized  on the date  paid,  with a
corresponding adjustment of equity, in the historical financial statements.  The
effect of the minority interest during the period after which the companies came
under common  control but prior to the merger is not  material to the  financial
statements as a whole.

                                       34
<PAGE>

9.     Stock Option, Restricted Stock, and Retirement Plans:

A.       Stock Option Plans

The Company  maintains  three stock option plans:  (1) an Incentive Stock Option
Plan ("Qualified Plan"), (2) a Non-Qualified  Stock Option Plan  ("Non-Qualified
Plan"),  and (3) its 2000 Stock  Option Plan  ("2000  Plan"),  which  allows for
grants of both qualified and non-qualified  options. No additional grants can be
made under the Qualified or Non-Qualified Plans as of February 7, 2000. The 2000
Plan was approved by the board of  directors on June 13, 2000,  and on August 8,
2000, the plan was approved by the shareholders.

In  October  1995,  FASB  issued  SFAS  No.  123,   Accounting  for  Stock-Based
Compensation.  This  Statement  gives  the  Company  the  option of  either:  1)
continuing  to account for stock  options and other forms of stock  compensation
paid to employees under the current accounting rules (APB No. 25, Accounting for
Stock Issued to Employees)  while providing the disclosures  required under SFAS
No. 123, or 2) adopting SFAS No. 123 in its entirety.  The Company  continues to
account  for  stock  options  under  APB  No.  25 and  provides  the  additional
disclosures as required by SFAS No. 123.

i.          Qualified Plan

The Company had reserved  275,000  shares of common stock for issuance under its
qualified stock option plan. No further grants can be made under this plan as of
February 7, 2000.  Options to purchase common stock are granted at a price equal
to the  fair  market  value  of the  stock  at the date of grant or 110% of fair
market  value of the stock at the date of grant for  stockholders  owning 10% or
more of the combined voting stock of the Company. The following table summarizes
qualified  stock option  transactions  for the years ended December 31, 2000 and
1999.

                                             Number of Options     Option Price
                                                                    Per Share

Outstanding, December 31, 1998 ............        117,600        $5.00 to $7.75
Granted ...................................         95,000        $4.00 to $6.54
Forfeited or expired ......................       (112,000)       $4.00 to $7.75
Outstanding, December 31, 1999 ............        100,600        $4.00 to $6.50
Forfeited or expired ......................        (70,000)       $4.00 to $6.50
Outstanding, December 31, 2000 ............         30,600        $5.00 to $5.75
Exercisable, December 31, 2000 ............         30,600        $5.00 to $5.75

ii.      Non-Qualified Plan

The Company had reserved  150,000  shares of common stock for issuance under its
non-qualified  stock option plan. No further  grants can be made under this plan
as of February 7, 2000.  Options to purchase  shares of common stock are granted
at a price  equal to the fair value of the stock at the date of grant  except in
the case of options granted to directors, in which case the minimum price is the
greater  of $7.00  and 110% of fair  value at the time of grant.  The  following
table  summarizes  non-qualified  stock option  transactions for the years ended
December 31, 2000 and 1999.

                                       35
<PAGE>

                                                 Number of Options  Option Price
                                                                       Per Share
Outstanding, December 31, 1998 .................       102,000          $   7.00
Granted ........................................        30,000          $   7.00
Forfeited or expired ...........................       (67,000)         $   7.00
Outstanding, December 31, 1999 .................        65,000          $   7.00
Forfeited or expired ...........................       (65,000)         $   7.00
Outstanding, December 31, 2000 .................             --             --
Exercisable, December 31, 2000 .................             --             --


iii.          2000 Plan

The  Company  reserved  the  lesser  of  450,000  or 8% of the then  issued  and
outstanding  shares of common  stock for  issuance  under its 2000  Plan.  As of
December 31, 2000,  the amount of shares  reserved was 450,000.  No options have
been granted under the 2000 Plan.

iv.      Qualified and Non-Qualified Plans

The table below summarized the option activity for all three plans for the years
ended December 31:

                                                        2000              1999
Outstanding at January 1 ...................          165,600           219,600
Granted ....................................             --             125,000
Forfeited or expired .......................         (135,000)         (179,000)
Outstanding at December 31 .................           30,600           165,600
Exercisable at December 31 .................           30,600           155,501


The weighted average fair value at date of grant for options granted during 1999
was $1.85.  The fair value of options at date of grant was  estimated  using the
Black-Scholes  model with an expected  option life of 1.5-3.0 years in 1999, and
the following  weighted  average  assumptions for 1999:  dividend yield - none ;
interest rate - 6.29%; volatility 65.00%.

Weighted  average option exercise price  information (all plans) for years ended
December 31:

                                                             2000          1999
Per Share Outstanding at January 1 .................      $   5.84      $   6.37
  Granted ..........................................       --               5.76
  Forfeited or Expired .............................          6.16          6.26
Per Share Outstanding at December 31 ...............      $   5.01      $   5.84
Per Share Exercisable at December 31 ...............      $   5.01      $   5.94

Of options  granted in  previous  years,  100 shares  vested  during  2000.  The
Company's net loss would have increased by $166,614 or $0.07 per share basic and
dilutive for 1999, in stock-based  compensation cost for the Company's qualified
and  non-qualified  stock option plans if the plan had been determined  based on
the fair value at the grant dates for awards under the plans.

                                       36
<PAGE>

B.       Restricted Stock Plan

The Board of Directors  approved the Company's  2000  Restricted  Stock Plan for
Non-Employee  Directors on June 13, 2000.  This plan reserved  175,000 shares of
common stock for issuance to  non-employee  directors for past services.  All of
the shares were awarded on June 13, 2000, and vested immediately  subject to the
approval of the plan by the shareholders. The closing price of Allstate's common
stock as traded on the  Nasdaq OTC Market on June 13 , 2000 was $0.51 per share.
Compensation  expense of $89,250  was  recorded  as of the date the shares  were
awarded.  Subsequently,  on  August  8,  2000,  this  plan was  approved  by the
shareholders, and the shares vested.

C.        Retirement Plans

Effective   January  1,  1990,  the  Company  adopted  the  Allstate   Financial
Corporation 401(k) Retirement Plan (the "Plan") for the benefit of the Company's
employees.  The Plan  provides for the deferral of up to 15% of a  participating
employee's  salary,   subject  to  certain  limitations,   and  a  discretionary
contribution  by  the  Company.  The  Company's  contribution  is  allocated  to
participating  employees  based on relative  compensation.  The Company  made no
contribution  for the year ended  December 31, 1999.  During 1999,  the plan was
terminated and all monies were distributed.

Effective  April 1, 1999,  the  Company  became a  participant  in a  nationally
managed 401(k) plan (1999 plan) for the benefit of the Company's employees.  The
1999 plan  provides  for the  deferral  of up to 20% and 17% of a  participant's
salary in the years ending December 31, 2000 and 1999, respectively,  subject to
certain  annual  limitations,  and a  matching  contribution  of up to 3% by the
Company.  The Company's  contributions for the years ended December 31, 2000 and
1999 were $7,734 and $18,233, respectively.

10.      Related-Party Transactions:

Value  Partners  earned  approximately  $561,057  and $314,000 in 2000 and 1999,
respectively, in interest on convertible subordinated notes. Value Partners held
convertible  subordinated  notes of $0 and  $4,197,000  at December 31, 2000 and
1999,  respectively.  In  addition,  the  Company  owed Value  Partners  accrued
interest of $104,000 that was due December 31, 1999. The Company converted Value
Partners' Notes into common stock in October 2000. See Note 7.

In September  1999,  Value  Partners made a $1 million loan to the Company.  The
note bore interest at 10%, payable  quarterly,  and was paid in full on April 5,
2000.  Interest earned by Value Partners was $17,752 and $31,572 during 2000 and
1999, respectively. As of December 31, 1999 the loan balance was $799,772.

11.      Net Income Per Share:

In March  1997,  FASB  issued SFAS No.  128,  Earnings  Per Share.  SFAS No. 128
superseded APB No. 15 to conform earnings per share to  international  standards
as well as to simplify the complexity of the computation  under APB No. 15. SFAS
No. 128 requires dual  presentation  of basic and diluted  earnings per share on
the face of the income statement. Basic earnings per share excludes dilution and
is  computed  by  dividing  income  available  to  common  shareholders  by  the
weighted-average  number of common shares  outstanding  for the period.  Diluted
earnings per share reflect the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock.  SFAS No. 128 is  effective  for both interim and annual  periods  ending
after December 15, 1997. For the years ending December 31, 2000 and 1999,  there
is no difference between the basic and diluted earnings per share.

                                       37
<PAGE>

During  2000 and 1999,  respectively,  there were  various  options to  purchase
30,600  and  165,600  shares of common  stock  which  were not  included  in the
computation  of the diluted EPS because the options'  exercise price was greater
than the average market price of the common shares.

The Company  incurred net losses for the year ended December 31, 1999. Since the
inclusion of stock options in the  computation  of diluted EPS would have had an
antidilutive effect, the common shares associated with the options were excluded
from the computation.

The convertible  subordinated  notes,  which converted into the Company's common
stock at $6.50 and $7.50 per share,  were also excluded from the  computation of
the diluted EPS because the  conversion  price was greater than the market price
at any given point  during which they were  outstanding  for the two years ended
December 31, 2000.

12.      Treasury Stock:

On December 31, 2000, the Company retired  781,212 shares of common stock,  $.01
par value, held in treasury.

13.        Subsequent event:

On March 15,  2001 the  Company's  revolving  line of credit  was  increased  to
$3,000,000, and the maturity was extended to December 31, 2002.

14.      Uncertainties:

The  Company  incurred  net  losses of $17  million  and $6 million in the years
ending  December  31,  1999 and 1998,  respectively.  During the last four years
ending  December 31, 1999, the Company  incurred  severe loan losses that caused
the Company's bank lenders to restrict the line of credit and request repayment.
The Company was forced to sell assets to comply with the lenders'  request.  The
need to use the proceeds of sales to repay the bank lenders made it  impractical
for the Company to solicit and make loans to new  clients.  The Company was also
in default on its New Notes,  and had  outstanding  litigation,  which presented
additional contingent liabilities.

In response to this  situation,  the Company took several  steps in an effort to
return the Company to  profitability.  The Company  consummated  the sale of the
factoring portfolio and certain ABL loans,  reduced staffing and other expenses,
repaid the bank lenders, and moved to smaller office space.

The Company developed a strategic turnaround plan that contemplated, among other
things, a recapitalization of the Company in the form of the exchange of the
convertible subordinated notes due 2003 for common stock.


                                       38
<PAGE>

<TABLE>
<CAPTION>
    --------------------------------------- ------------------ ------------------ --------------- -----------------
    SCHEDULE IV
    --------------------------------------- ------------------ ------------------ --------------- -----------------
    INDEBTEDNESS TO RELATED PARTIES
    ---------------------------------------------------------------------------------------------------------------
<S>                                        <C>                 <C>               <C>             <C>

                                            Balance at                            Amounts            Balance at
    --------------------------------------  Beginning of                          Paid or               End
                                            Period                Additions       Converted              of
    Name of Creditor                                                                                    Period
    --------------------------------------- ------------------ ------------------ --------------- -----------------
    Year Ended December 31, 2000:
    ---------------------------------------

    ---------------------------------------
    All directors and officers as a
        Group
    ---------------------------------------
                                                    $ 102,000            $     -               $         $ 100,000
                                                                                           2,000
    ---------------------------------------
     Value Partners                                 4,996,772                          4,996,772                 -
                                                                               -
    ---------------------------------------
    Total                                          $5,098,772            $     -      $4,998,772          $100,000
    ---------------------------------------

    ---------------------------------------
    Year Ended December 31, 1999:
    ---------------------------------------

    ---------------------------------------
    All directors and officers as a
        group
    ---------------------------------------
                                                    $ 102,000            $     -          $    -         $ 102,000
    ---------------------------------------
     Value Partners                                 4,197,000          1,000,000         200,228         4,996,772
    ---------------------------------------
    Total                                          $4,299,000         $1,000,000        $200,228        $5,098,772
    ---------------------------------------

    --------------------------------------- ------------------ ------------------ --------------- -----------------
</TABLE>

                                       39
<PAGE>




Letterhead of Arthur Andersen LLP
Report of Independent Public Accountants

To the Board of Directors of Harbourton Financial Corp.:

We have audited the accompanying statements of financial condition of Harbourton
Financial  Corp.  (the  "Company")  as of December  31,  1999 and 1998,  and the
related statements of operations, changes in stockholders' equity and cash flows
for the year  ended  December  31,  1999,  and for the period  August  28,  1998
(Inception),   to  December  31,  1998.  These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Company as of December 31,
1999 and 1998, and the results of its operations and its cash flows for the year
ended  December 31, 1999,  and for the period  August 28, 1998  (Inception),  to
December 31, 1998, in conformity with accounting  principles  generally accepted
in the United States.

/s/ Arthur Andersen LLP
Vienna, Virginia
February 15, 2000



                                       40


<PAGE>

<TABLE>
<CAPTION>

Harbourton Financial Corp.
Statements of Financial Condition as of December 31, 1999 and 1998
<S>                                                                <C>               <C>

Assets
                                                                            1999             1998
Cash and cash equivalents                                              $ 971,317       $1,871,130
Restricted cash                                                           45,341           10,750
Loans held for investment, net of deferred income of $548,530
and $292,099, respectively                                             7,183,291        2,249,969
Interest receivable                                                      118,261           37,177
Other receivables                                                         76,298           99,125
Property and equipment, net of accumulated depreciation of
$18,661 and $32,060, respectively                                         19,243           19,784
Income taxes receivable                                                   32,267               --
Total assets                                                          $8,446,018       $4,287,935

Liabilities and Stockholders' Equity

Liabilities:
Accrued liabilities and accounts payable                               $ 209,039         $ 58,157
Income taxes payable                                                          --           77,733
Total liabilities                                                        209,039          135,890
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized,
no shares issued or outstanding                                               --               --
Common stock, $.01 par value, 1,000,000 shares authorized,
745,428 and 405,762 shares issued and outstanding,
respectively                                                               7,454            4,057
Additional paid-in capital                                             7,675,546        3,995,943
Retained earnings                                                        553,979          152,045
Total stockholders' equity                                             8,236,979        4,152,045
Total liabilities and stockholders' equity                            $8,446,018       $4,287,935

</TABLE>


The accompanying notes are an integral part of these statements.



                                       41
<PAGE>



<TABLE>
<CAPTION>


Harbourton Financial Corp.
Statements of Operations For the Year Ended December 31, 1999, and for the Period August 28, 1998 (Inception), to
December 31, 1998

<S>                                                                 <C>               <C>

                                                                            1999             1998
Revenues:
Loan income                                                           $1,331,992         $463,711
Other income                                                              85,358           11,971
Total revenues                                                         1,417,350          475,682
Expenses:
Salaries and benefits                                                    452,648          117,781
Depreciation and amortization                                             13,330            5,345
General and administrative                                               297,765          122,778
Total expenses                                                           763,743          245,904
Net income before provision for income taxes                             653,607          229,778
Provision for income taxes                                               251,673           77,733
Net income                                                             $ 401,934         $152,045






</TABLE>




The accompanying notes are an integral part of these statements.




                                       42
<PAGE>




Harbourton Financial Corp.
Statements of Changes in  Stockholders'  Equity for the Year Ended  December 31,
1999, and for the Period August 28, 1998 (Inception), to December 31, 1998

<TABLE>
<CAPTION>

                                                         Additional
                                        Common Stock   Paid-In Capital    Retained
                                                                          Earnings        Total
<S>                                         <C>           <C>            <C>          <C>

Balance, August 28, 1998 (Inception)              $--           $   --         $  --          $   --
Issuance of shares                              4,057        3,995,943            --       4,000,000
Net income                                         --               --       152,045         152,045
Balance, December 31, 1998                      4,057        3,995,943       152,045       4,152,045
Issuance of shares                              3,397        3,679,603            --       3,683,000
Net income                                         --               --       401,934         401,934
Balance, December 31, 1999                     $7,454       $7,675,546      $553,979      $8,236,979


</TABLE>











The accompanying notes are an integral part of these statements.





                                       43
<PAGE>






Harbourton Financial Corp.
Statements  of Cash  Flows for the Year Ended  December  31,  1999,  and for the
Period August 28, 1998 (Inception), to December 31, 1998

<TABLE>
<CAPTION>
<S>                                                                     <C>              <C>

                                                                                  1999              1998
Cash flows from operating activities:
Net income                                                                   $ 401,934         $ 152,045
Adjustments to reconcile net income to net cash flows
provided by operating activities-
  Depreciation and amortization                                                 13,330             5,345
  Changes in operating assets and liabilities:
  Interest receivable                                                         (81,084)           (2,489)
  Other receivables                                                             22,827          (75,413)
  Accrued liabilities and accounts payable                                     150,882            23,705
Income taxes, net                                                            (110,000)            77,733
Net cash provided by operating activities                                      397,889           180,926
Cash flows from investing activities:
  Increase in loans held for investment, net                               (4,933,322)         (485,267)
  Purchase of property and equipment, net                                     (12,789)          (11,201)
  Payment for purchase of assets of
  Harbourton
  Residential Capital Co. L.P., net of cash acquired                                --       (1,802,578)
Net cash used in investing activities                                      (4,946,111)       (2,299,046)
Cash flows from financing activities:
Proceeds from issuance of shares                                             3,683,000         4,000,000
Net cash provided by financing activities                                    3,683,000         4,000,000
Net (decrease) increase in cash and cash equivalents                         (865,222)         1,881,880
Cash and cash equivalents, beginning of period                               1,881,880                --
Cash and cash equivalents, end of period                                    $1,016,658        $1,881,880
Supplemental disclosure of cash flow information:
  Cash paid during the year for income taxes                                 $ 361,673            $   --

</TABLE>


The accompanying notes are an integral part of these statements.








                                       44
<PAGE>






Harbourton Financial Corp.
Notes to Financial  Statements for the Year Ended December 31, 1999, and for the
Period August 28, 1998 (Inception), to December 31, 1998

1.       Summary of Significant Accounting Policies:

General

Harbourton Financial Corp. (the "Company")  incorporated and began operations on
August 28, 1998.  The Company's  operations  began with the  acquisition  of the
assets and liabilities of Harbourton Residential Capital Corporation ("HRCC") on
August 28, 1998 (see Note 2). The Company  provides a broad range of services to
the  residential   building   community.   Its  primary  business  is  providing
development and construction financing to building companies in the Mid-Atlantic
region  in  Maryland,  Virginia,  North  Carolina  and the  Southeast  region in
Florida.  The Company operates as a standalone  entity with full capabilities of
administering  both debt and equity  investments in real estate  development and
construction.
The  accounting  and  reporting  policies  of the Company  conform to  generally
accepted  accounting  principles  ("GAAP") and prevailing  practices  within the
mortgage banking industry.

Use of Estimates

The  preparation  of  financial  statements  in  accordance  with GAAP  requires
management to make estimates and assumptions  that affect the reported amount of
assets and liabilities,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Loans Held for Investment

Loans held for investment  consist of the retained  interest in loans originated
by the Company, net of deferred income.

Loan Income

Loan  fees and  certain  direct  loan  origination  costs  related  to  retained
interests  are  deferred  and  recognized  over  the  life  of  the  loan  on  a
straight-line basis.

Loan fees received and certain direct loan  origination  costs  allocated to the
participation  interest  sold are  recognized as advances are made and funded by
the participants.

The Company  receives  two forms of  interest  income.  The  current  portion is
accrued into income monthly based on the outstanding amount of the investment in
the loan at a market  rate of  interest.  In  addition,  on certain  loans,  the
Company is entitled to an additional  preferred  return based on the outstanding
amount of the  investment  in the loan times the rate of preferred  return.  The
preferred  return  is  recognized  in income as the  borrower  conveys  title to
third-party   purchasers.   At  December  31,  1999,  the  Company  had  lending
arrangements with the following returns:

Current portion                                                       10% to 12%
Deferred portion                                                       3% to 13%

                                       45
<PAGE>

In certain lending  arrangements,  the Company is entitled to a percentage share
of underlying project profit in addition to loan fees and interest.  The Company
recognizes this income as the borrower conveys title to third-party purchasers.

Property and Equipment

Property and equipment includes furniture,  fixtures,  and equipment recorded at
cost. Major additions are capitalized  while routine  replacements,  maintenance
and  repairs  are  charged  to  expense.  Depreciation  is  computed  using  the
straight-line  method over estimated useful lives ranging from 3 to 5 years. The
cost and accumulated  depreciation for property and equipment retired,  sold, or
otherwise disposed of are removed from the accounts,  and any resulting gains or
losses are reflected in income.

Income Taxes

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS No. 109").
Under the asset and  liability  method of SFAS No. 109,  deferred tax assets and
liabilities  are  recognized  for the future tax  consequences  attributable  to
temporary  differences  between  the  financial  statement  carrying  amounts of
existing  assets and liabilities  and their  respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.

Statements of Cash Flow

For purposes of the  Statement  of Cash Flows,  the Company  considers  cash and
overnight  investments  with original  maturities of 90 days or less as cash and
cash equivalents.

Reclassification

Certain 1998 amounts have been  reclassified  to conform with the 1999 financial
statement presentation.

2.       Loans Held for Investment:

The Company's main line of business is originating acquisition,  development and
construction loans and, in certain instances,  selling a participation  interest
(typically between 80 percent and 95 percent) in those loans. The participant is
required to fund advances on these loans based upon their participation interest
and the Company  funds the  remainder.  The interest  retained by the Company is
subordinate to that of the  participant  such that the Company  assumes the risk
for any losses up to the amount of retained interest in the loan. Currently, the
Company  has  participation  agreements  with three  entities.  Pursuant  to the
current participation  arrangements,  the Company passes through interest to the
participants based on their participation interest amounts.

At December 31, 1999 and 1998,  loans held for  investment,  net is comprised of
the following:

                                          1999                           1998
Loans receivable - gross              $19,629,239                    $14,892,879
Portion sold to participa            (11,897,418)                   (12,350,811)
Deferred loan fees                      (326,067)                      (292,099)
Deferred interest income                (222,463)                             --
Loans held for investment              $7,183,291                     $2,249,969

                                       46
<PAGE>

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
125,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishments  of  Liabilities."  The  statement   significantly  changed  the
accounting  treatment  for  transfers of financial  assets  requiring  financial
assets to be accounted for on a  financial-component  basis. After a transfer of
financial  assets,  an entity  recognizes the financial and servicing  assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered,  and derecognizes  liabilities when  extinguished.
The transferor has surrendered  control over  transferred  assets if and only if
the transferred  assets have been isolated from the  transferor,  the transferee
obtains  the  right to  pledge  or  exchange  the  transferred  assets,  and the
transferor does not maintain effective control over the transferred assets.

3.       Commitments and Contingencies:

The Company  leases office space and  equipment  under  noncancelable  operating
leases. Future minimum rental commitments under existing operating leases having
an  initial  or  remaining  noncancelable  lease  terms in excess of one year at
December 31, 1999, are as follows:

Year Ended
December 31
2000                                                                    $109,449
2001                                                                     113,268
2002                                                                     116,621
2003                                                                      48,137
Total                                                                   $387,475

Rent expense totaled $59,947 for 1999 and $12,914 for the period August 28, 1998
(Inception), to December 31, 1998.

The Company originates  construction and land development loans primarily in its
market area of the  Mid-Atlantic and  Southeastern  states  including  Maryland,
Virginia,  District of  Columbia,  Delaware,  Pennsylvania,  North  Carolina and
Florida. These loans are collateralized by deeds of trust on the underlying real
property. The Company uses standard underwriting practices,  which are generally
accepted in the mortgage  banking  industry.  These  underwriting  practices are
designed to meet the requirements of the various  mortgage  agencies and attract
the best investment opportunities.

The  Company  also  sells  participation  interests  in  certain of its loans as
discussed  in Note 2 above.  The  Company is exposed to credit  risk under these
participation  agreements  to the extent that the  participant  fails to perform
under  the   participation   agreement.   Currently,   the   Company  has  three
participants,  all of which meet the credit  requirements  of the  Company.  Any
future  participants will be reviewed closely by the Company to ensure they meet
credit requirements.

The Company is required to fund advances under its loan agreements.  At December
31, 1999,  the Company is committed to fund  advances up to a maximum  amount of
$33,164,224   under  all  loan  agreements  for  the  life  of  the  agreements.
Participation interests in these commitments totaled $22,997,000 at December 31,
1999.

The aggregate  balance of custodial  escrow funds  maintained in connection with
the  loans  serviced  as of  December  31,  1999 and 1998,  was $0 and  $90,000,
respectively.  These balances are not included in the accompanying  statement of
financial  condition.  However,  the Company  receives income reflected as other
income on the accompanying statement of operations.



                                       47
<PAGE>




4.       Estimated Fair Value of Financial Instruments:

The following estimated fair values of the Company's financial instruments as of
December 31, 1999 and 1998, are presented in accordance with generally  accepted
accounting  principles,  which  define  fair  value  as the  amount  at  which a
financial instrument could be exchanged in a current transaction between willing
parties,  other than a forced or liquidation  sale. These estimated fair values,
however,  may not  represent  the  liquidation  value or the market value of the
Company.

<TABLE>
<CAPTION>
                                                           1999                                  1998
                                                Carrying            Fair            Carrying              Fair
                                                 Amount             Value             Amount              Value
Financial assets:
<S>                                          <C>               <C>              <C>                 <C>    <C>    <C>

Cash and cash equivalents                       $1,016,658        $1,016,658         $1,881,880         $1,881,880
Loans held for investment, net                   7,183,291         7,183,291          2,249,969          2,249,969
</TABLE>

The following  methods and assumptions  were used to estimate the fair values at
December 31, 1999 and 1998:

Cash and Cash Equivalents

Carrying amount approximates fair value.

Loans held for investment, net

Carrying  amount  approximates  fair  value  as  all  loans  are at  rates  that
approximate current lending rates.

5.  Income Taxes:

The provision for income taxes for the year ended  December 31, 1999 and for the
period  August 28, 1998  (Inception),  to December 31, 1998,  is  summarized  as
follows:
<TABLE>
<CAPTION>

                                             1999                                           1998
<S>                      <C>             <C>           <C>              <C>            <C>                  <C>

                             Current       Deferred           Total        Current        Deferred           Total
Federal                     $149,669        $62,194        $211,863       $129,147       $(65,335)         $63,812
State                         28,835         10,975          39,810         25,451        (11,530)          13,921
                            $178,504        $73,169        $251,673       $154,598       $(76,865)         $77,733
</TABLE>

A  reconciliation  of the  statutory  Federal  income tax rate to the  Company's
effective  income tax rate for the year ended  December  31,  1999,  and for the
period August 28, 1998 (Inception), to December 31, 1998 is as follows:
                                                 1999                       1998
Statutory Federal income tax rate               32.4%                      27.8%
State taxes, net of federal benefi               5.2%                       5.1%
Disallowed meal and entertainment expenses        .9%                        .9%
Effective income tax rate                       38.5%                      33.8%




                                       48
<PAGE>


Deferred  income taxes result from temporary  differences in the  recognition of
income and expense for tax versus financial reporting  purposes.  The sources of
these temporary differences and the related tax effects at December 31, 1999 and
1998 are as follows:
                                                 1999                       1998
Deferred tax assets:
Loan fees                                         $--                    $70,972
Organizational costs                            3,516                      5,893
                                               $3,516                    $76,865




                                       49
<PAGE>


<TABLE>
<CAPTION>

Harbourton Financial Corp.
Statements of Financial Condition as of November 30, 2000 and December 31,1999
<S>                                                                       <C>                    <C>

Assets
                                                                              November 30, 2000    December 31, 1999
                                                                                    (Unaudited)
Cash and cash equivalents                                                              $249,945             $971,317
Restricted cash                                                                               -               45,341
Loans held for investment, net                                                       11,253,730            7,183,291
Interest and other receivables                                                          451,691              118,261
Property and equipment, net                                                              10,727               19,243
Income taxes receivable                                                                       -              32,267
Total assets                                                                        $11,966,093           $8,446,018


Liabilities and Stockholders' Equity
Liabilities:
Loan Payable                                                                         $2,145,000                    -
Accrued liabilities and accounts payable                                                478,777              209,039
Income taxes payable                                                                    83,074                     -
Total liabilities                                                                     2,706,851              209,039
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized, no shares
issued or outstanding                                                                         -                    -
Common stock, $.01 par value, 1,000,000 shares authorized, 778,582 and
745,428 shares issued and outstanding, respectively                                       7,876                7,454
Additional paid-in capital                                                            8,146,624            7,675,546
Retained earnings                                                                    1,104,742              553,979
Total stockholders' equity                                                           9,259,242            8,236,979
Total liabilities and stockholders' equity                                          $11,966,093           $8,446,018






The accompanying notes are an integral part of these statements.
</TABLE>




                                       50
<PAGE>





<TABLE>
<CAPTION>




Harbourton Financial Corp.
Statements of Operations for the eleven month periods ended November 30, 2000 and 1999 (unaudited)
<S>                                                 <C>                      <C>

                                                                2000                  1999
Revenues:
Loan income                                               $1,411,960            $1,208,445
Other income                                               1,157,036                60,631
Total revenues                                             2,568,996             1,269,076
Expenses:
Salaries and benefits                                        752,759               377,833
Depreciation and amortization                                836,539               254,772
General and administrative                                    11,039                12,277
    Interest                                                 76,158                     0
Total expenses                                            1,676,495               644,882
Net income before provision for income taxes                 892,500               624,194
Provision for income taxes                                  341,739               236,944
Net income                                                  $550,762              $387,250

</TABLE>















The accompanying notes are an integral part of these statements.






                                       51
<PAGE>




<TABLE>
<CAPTION>


Harbourton Financial Corp.
Statement of Cash Flows for the eleven month periods ended November 30,
<S>                                                         <C>                  <C>

                                                                         2000              1999
Cash flows from operating activities:
Net income                                                           $550,763          $387,250
Adjustments to reconcile net income to net cash flows
provided by operating activities-
Depreciation and amortization                                          11,039            12,277
Changes in operating assets and liabilities:
Interest receivable                                                 (192,538)          (63,184)
Other receivables                                                    (64,594)            70,941
Accrued liabilities and accounts payable                              269,738            84,879
Income taxes, net                                                     115,342             4,878
Net cash provided by operating activities                             689,750           497,041
Cash flows from investing activities:
Increase in loans held for investment, net                        (4,070,439)       (4,885,235)
Purchase of property and equipment, net                               (2,524)          (12,789)
Net cash used in investing activities                             (4,072,963)       (4,898,024)
Cash flows from financing activities:
Increase from issuance of shares                                      471,500         2,600,000
Proceeds from bank loan                                             2,145,000                 0
Net cash provided by financing activities                           2,616,500         2,600,000
Net (decrease) increase in cash and cash equivalents                (766,713)       (1,800,983)
Cash and cash equivalents, beginning of period                      1,016,658         1,881,880
Cash and cash equivalents, end of period                             $249,945           $80,897
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes                          $ 226,283          $232,066


</TABLE>







The accompanying notes are an integral part of these statements.




                                       52
<PAGE>







Harbourton Financial Corp.
Notes to Financial Statements for the Eleven Months Ended  November 30, 2000


1. General.  The  consolidated  financial  statements  of  Harbourton  Financial
Corporation  ("Harbourton")  included herein are unaudited for the periods ended
November 30, 2000 and 1999; however,  they reflect all adjustments which, in the
opinion of  management,  are  necessary  to present  fairly the  results for the
periods presented. Certain information and note disclosures normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles  have  been  condensed  or  omitted.  Harbourton  believes  that  the
disclosures are adequate to make the information  presented not misleading.  The
results of  operations  for the eleven  months  ended  November 30, 2000 are not
necessarily  indicative  of the results of  operations  to be  expected  for the
remainder  of the  year.  It is  suggested  that  these  consolidated  financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in Harbourton's audited financial statements for the year
ended  December  31,  1999 and for the Period  August 28,  1998  (inception)  to
December 31, 1998.

2. Line of Credit. On May 11, 2000,  Harbourton obtained a senior secured credit
facility  in the  amount  of  $2,000,000  from a  local  FDIC-insured  financial
institution,.  The facility is a revolving  line of credit,  carries an interest
rate of the prime rate plus a premium,  and expires May 11, 2001. The lender has
been granted a collateral  security interest in two of Harbourton's loans having
a  combined  original  principal  indebtedness  of  $4,320,000,  and  a  general
assignment  of  Harbourton's  right  to all  collections  from  notes.  The loan
contains  financial  covenants  of the  type  generally  found  in this  type of
facility. On November 10, 2000 the facility was increased to $2,500,000.

3. Merger Agreement.  On October 25, 2000,  Harbourton entered into a definitive
merger agreement with Allstate  Financial  Corporation  ("Allstate"),  a company
controlled  by  Harbourton's  majority  shareholder.  The  agreement  calls  for
Allstate to issue  approximately  7,516,162 shares of common stock,  plus make a
cash payment of  approximately  $1,900,000,  to purchase all of the  outstanding
common stock of Harbourton

4.  Subsequent  Event.  On November  30,  2000  Allstate  Financial  Corporation
purchased  100%  of the  issued  and  outstanding  common  stock  of  Harbourton
Financial Corporation, for 7,516,160 shares of Allstate common stock plus a cash
payment of $2,115,630.  The  transaction was accounted for as a combination of a
pooling of interests  and a purchase.  Harbourton  was merged into Allstate with
Allstate being the surviving company.



                                       53
<PAGE>



Pro Forma Financial Information.

The pro forma  condensed  consolidated  financial  statements of the Company and
Harbourton  included  herein are  unaudited,  and are not prepared in accordance
with  generally  accepted  accounting  principles.  They  reflect  the  combined
operations  of Allstate  and  Harbourton  giving  effect to the  combination  at
January 1, 2000. Information and note disclosures normally included in financial
statements  have been  condensed  or  omitted.  The  Company  believes  that the
disclosures are adequate to make the information  presented not misleading.  The
results of operations for the year ending  December 31, 2000 are not necessarily
indicative of the results of  operations  to be expected in future years.  It is
suggested that these pro forma condensed  consolidated  financial  statements be
read in conjunction with the consolidated financial statements and notes thereto
included  in the  Company's  audited  financial  statements  for the years ended
December 31, 2000 and 1999 and Harbourton's audited financial statements for the
year ended  December 31, 1999 and for the Period August 28, 1998  (inception) to
December 31, 1998.

Unaudited  Pro Forma  Condensed  Combined  Income  Statement for the Year Ending
December 31, 2000.
<TABLE>
<CAPTION>
<S>                                              <C>            <C>             <C>                 <C>

                                                    Company        Harbourton       Adjustments       Combined
  ----------------------------------------------
                                                                    10 Months
                                                   Year ended     ended October
                                                  December 31,      31, 2000
                                                      2000
  ----------------------------------------------

  ----------------------------------------------
  Total Revenues                                     $1,465,115       $2,354,264          $     -       $3,819,379
  ----------------------------------------------

  ----------------------------------------------
  Expenses
  ----------------------------------------------
    Compensation and fringe benefits                    727,113          617,307         -               1,344,420
  ----------------------------------------------
    General and administrative                        1,168,823          783,764         -               1,952,587
  ----------------------------------------------
    Interest expense                                    594,128           65,973         -                 660,101
  ----------------------------------------------
    Provision for credit (recoveries) losses          (839,319)                -         -               (839,319)

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

  ----------------------------------------------
  Total Expenses                                      1,650,745        1,467,044         -               3,117,789
  ----------------------------------------------

  ----------------------------------------------
  (Loss) before income tax (benefit) expense          (185,630)          887,220         -                 701,590

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

  ----------------------------------------------
  Income tax (benefit) expense                      (3,031,311)          339,717  (339,717)(1)         (3,031,311)
  ----------------------------------------------

  ----------------------------------------------
  Net income (loss)                                  $2,845,681         $547,503         -              $3,732,901
  ----------------------------------------------

  ----------------------------------------------
  Net income (loss) per common share
  ----------------------------------------------
    Basic and  diluted                                 $   0.62            $0.71                             $0.35
  ----------------------------------------------
  Shares used in calculation                          4,569,949          770,384                        10,812,880
  ----------------------------------------------
</TABLE>

1 Assumes a combined tax return is filed for the period


                                       54
<PAGE>




SIGNATURES
In accordance  with Section 13 or 15(d) 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.

ALLSTATE FINANCIAL CORPORATION


By: /s/_ J. Kenneth McLendon
      J. Kenneth McLendon
     President and Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, the following persons on
behalf of the registrant  and in the capacities and on the dates  indicated have
signed this report below.

     /s/ J. Kenneth McLendon
      J. Kenneth McLendon
      President, Chief Executive Officer , Director
      Date :  March 29, 2001

       /s/ C. Fred Jackson
      C. Fred Jackson
     Secretary/Treasurer, Chief Financial Officer
      Date :  March 29, 2001

     /s/ Paula M. Morgan
      Paula M. Morgan
     Controller, Principal Accounting Officer
      Date :  March 29, 2001

      /s/ David W. Campbell
      David W.Campbell
      Chairman, Director
      Date :  March 29, 2001

     /s/ Timothy G. Ewing
      Timothy G.Ewing
      Director
      Date :  March 29, 2001

     /s/ William H. Savage
      William H.Savage
      Director
      Date :  March 29, 2001



                                       55
<PAGE>