SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  FORM 10 - QSB

               QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934



FOR QUARTER ENDED SEPTEMBER 30, 1996      COMMISSION FILE NUMBER 0-17832

Allstate Financial Corporation
(exact name of registrant as specified in its charter)


Virginia                                     54-1208450
(State of Incorporation)                    (I.R.S. Employer Identification No)


2700 South Quincy Street, Suite 540, Arlington, VA                 22206
(address of principal executive offices)                          (zip code)



Registrant's Telephone Number, Including Area Code:  (703) 931-2274



Indicate  by the check mark  whether  the  Registrant  (1) has filed all reports
required to be filed by Section 13 and 15 of the  Securities and Exchange Act of
1934  during the  preceding  12 months and (2) has been  subject to such  filing
requirements for the past 90 days. Yes [ X ]  No  [   ]

2,317,519 Common Shares were outstanding as of September 30, 1996.








<PAGE>




                         ALLSTATE FINANCIAL CORPORATION
                                   FORM 10-QSB
                                      INDEX

                                                                          Page
                                                                        Number
Part I.  Financial Information

  Item 1 -  Financial Statements

   Consolidated Balance Sheets at September 30, 1996
   and December 31, 1995 ..................................................  1-2

   Consolidated Statements of Income Three and Nine Months Ended
   September 30, 1996 and 1995 ............................................    3

   Consolidated Statements of Shareholders' Equity Three
   Months Ended September 30, 1996 and Year Ended
   December 31, 1995 ......................................................    4

   Consolidated Statements of Cash Flows Nine Months Ended
   September 30, 1996 and 1995 ............................................  5-6

   Notes to Consolidated Financial Statements..............................  7-9

  Item 2 - Management's Discussion and Analysis of Results of
   Operations and Financial Conditions .................................... 9-19

Part II 
  Item 1 -  Legal Proceedings .............................................   20

  Item 4 -  Submission of Matters To a Vote of Security Holders ...........   21

  Item 5 -  Other Information .............................................   21

  Item 6 -  Exhibits and Reports on Form 8-K ...........................   21-22

Signatures  ...............................................................   23


<PAGE>

                       PART I - FINANCIAL INFORMATION


<PAGE> 1



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                    September 30,   December 31,
                                                       1996             1995
                                                    -------------   ------------
                                                     (Unaudited)
                                     ASSETS
                                   ----------

CURRENT ASSETS:
  Cash ...........................................    $ 1,471,585    $   754,295
    Receivables:
      Finance, net ...............................     29,959,723     32,670,706
      Purchased life insurance contracts, net ....      4,499,389      4,292,332
      Other ......................................      3,575,826      2,756,342

    Prepaid expenses .............................        225,025        204,823

    Prepaid income taxes .........................      1,546,211        722,081

    Deferred income taxes ........................        893,000        893,000
                                                      -----------    -----------
      TOTAL CURRENT ASSETS .......................     42,170,759     42,293,579

PROPERTY AND EQUIPMENT, Net ......................        491,484        537,629

OTHER ASSETS .....................................        822,549      2,049,323
                                                      -----------    -----------
                                                      $43,484,792    $44,880,531
                                                      ===========    ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES:
   Accounts payable and accrued expenses .......     $   502,875     $   292,602
   Notes payable ...............................      12,840,215      13,516,938
   Note payable-related party ..................         103,000         103,000
   Credit balances of factoring clients ........       2,841,823       2,333,729
                                                     -----------     -----------
      TOTAL CURRENT LIABILITIES ................      16,287,913      16,246,269


                                        

<PAGE> 2




                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                   (continued)


                                                     September 30,  December 31,
                                                         1996          1995
                                                     ------------   ------------
                                                      (Unaudited)
NONCURRENT PORTION OF NOTES PAYABLE:
  Related parties ..............                             60,532       58,788
  Convertible Subordinated Notes                          4,981,000    2,838,000
  Other ........................                              7,110        7,110
                                                         ----------   ----------
     TOTAL LIABILITIES .........                         21,336,555   19,150,167
                                                         ----------   ----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
 Preferred stock, authorized 2,000,000
  shares with no par value; no shares
  issued or outstanding ........................             --              --

 Common stock, authorized 10,000,000 shares
  with no par value; issued and outstanding
  2,317,519 shares at September 30, 1996 and
  2,655,128 at December 31, 1995 ...............         40,000          40,000

 Additional paid-in-capital ....................     18,852,312      18,852,312

 Treasury Stock (785,475 shares at September 30,
  1996 and 447,200 shares at December 31, 1995)      (5,037,584)     (2,871,901)

  Retained Earnings ............................      8,293,509       9,709,953
                                                   ------------    ------------
   TOTAL SHAREHOLDERS' EQUITY ..................     22,148,237      25,730,364
                                                   ------------    ------------
                                                   $ 43,484,792    $ 44,880,531
                                                   ============    ============

                 See Notes to Consolidated Financial Statements

                                        

<PAGE> 3

<TABLE>
<CAPTION>
                                          ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF INCOME
                                                            (Unaudited)

                                                          Three Months Ended September 30,          Nine Months Ended September 30,
                                                          --------------------------------         ---------------------------------
                                                                 1996               1995                 1996               1995
                                                             -----------         ----------         ------------         -----------
<S>                                                           <C>                <C>                <C>                   <C>
INCOME:
  Earned discounts ..................................         $2,423,715         $2,578,345         $  7,479,676          $7,876,644
  Fees and other income .............................            499,802            600,245            1,615,052           1,656,397
                                                              ----------         ----------         ------------          ----------
                                                               2,923,517          3,178,590            9,094,728           9,533,041
                                                              ----------         ----------         ------------          ----------
EXPENSES:
  Compensation and fringe benefits ..................            737,910            785,161            2,584,291           2,345,710
  General and administrative expense ................            632,985            642,766            2,184,707           1,981,763
  Interest expense ..................................            360,627            205,307            1,142,970             629,833
  Provision for credit losses .......................            527,341            859,000            5,079,570           2,770,600
  Commission ........................................            126,248             64,928              352,034             199,645
                                                              ----------         ----------         ------------          ----------
      TOTAL EXPENSES ................................          2,385,111          2,557,162           11,343,572           7,927,551
                                                              ----------         ----------         ------------          ----------

INCOME/(LOSS) BEFORE INCOME TAXES ...................            538,406            621,428           (2,248,844)          1,605,490

INCOME TAXES/(BENEFIT) ..............................            198,800            228,700             (832,400)            591,200
                                                              ----------         ----------         ------------          ----------
NET INCOME/(LOSS) ...................................         $  339,606         $  392,728         $ (1,416,444)         $1,014,290
                                                              ==========         ==========         ============          ==========

NET INCOME/(LOSS) PER SHARE .........................         $      .15         $      .13         $      (0.61)         $      .33
                                                              ==========         ==========         ============          ==========

WEIGHTED AVERAGE NUMBER OF SHARES ...................          2,317,237          3,009,971            2,331,797           3,071,204
                                                              ==========         ==========         ============          ==========

</TABLE>
                                 

<PAGE> 4

<TABLE>
<CAPTION>

                                          ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                                   YEAR ENDED DECEMBER 31, 1995
                                             AND NINE MONTHS ENDED SEPTEMBER 30, 1996


                                                           Common              Paid in             Treasury              Retained
                                                            Stock              Capital               Stock               Earnings
                                                         ----------           -----------        ------------         -------------
<S>                                                         <C>              <C>                  <C>                   <C>
BALANCE - January 1, 1995 ........................          $40,000          $18,852,312          $        --           $ 9,228,853

  Exchange of Convertible
  Subordinated Notes for
  447,200 shares of common stock .................               --                   --           (2,871,901)                   --

  Net Income .....................................               --                   --                   --               481,100
                                                            -------          -----------          -----------           -----------

BALANCE - December 31, 1995 ......................          $40,000          $18,852,312           (2,871,901)            9,709,953
  Exchange of Convertible
   Subordinated Notes for
   338,275 shares of common stock ................               --                   --           (2,165,683)                   --

   Net (Loss) ....................................               --                   --                   --            (1,416,444)
                                                            -------          -----------          -----------           -----------

BALANCE - September 30, 1996 .....................          $40,000          $18,852,312          $(5,037,584)          $ 8,293,509
                                                            =======          ===========          ===========           ===========















                                        

<PAGE> 5



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                 Nine Months Ended September 30,
                                                 -------------------------------
                                                        1996            1995
                                                     -----------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ................................   $(1,416,444)   $ 1,014,290
Adjustments to reconcile net income/(loss)
  to cash provided by operating activities:
  Depreciation - net .............................        97,400        106,104
  Provision for credit losses ....................     5,079,570      2,770,600
  Changes in operating assets and liabilities:
    (Increase)/Decrease in other receivables .....      (819,484)       186,966
    (Increase) in prepaid expenses ...............       (20,202)       (74,820)
    (Increase)/Decrease in other assets ..........     1,226,774        (40,982)
    Increase in accounts payable
      and accrued expenses .......................       210,273         85,979
    (Increase)/Decrease in prepaid income taxes ..      (824,130)       182,242
                                                     -----------    -----------

NET CASH PROVIDED BY OPERATING ACTIVITIES ......       3,533,757      4,230,379
                                                   -------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of finance receivables, including
    accounts receivable, secured advances,
    repurchases and life insurance contracts ...    (142,451,717)  (121,242,831)
  Collection of finance receivables, including
    accounts receivable, secured advances,
    repurchases and life insurance contracts ...     139,876,073    123,398,808
  Increase (Decrease) in credit balances of
    factoring clients ..........................         508,094        (68,152)
  Purchase of property and equipment ...........         (51,255)      (140,689)
                                                   --------------   ------------

NET CASH PROVIDED (USED) BY
  INVESTING ACTIVITIES .........................      (2,118,805)     1,947,136
                                                   --------------    -----------

                                        

<PAGE> 6



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)

                                                 Nine Months Ended September 30,
                                                 -------------------------------
                                                     1996               1995
                                                 -------------     -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from line of credit and
    other borrowings .........................      45,155,265       51,228,768
  Principal payments on line of credit
    and other borrowings .....................     (45,830,244)     (57,371,467)
  Treasury Stock Acquisition Costs ...........         (22,683)          (1,726)
                                                  ------------     ------------
NET CASH (USED) IN
  FINANCING ACTIVITIES .......................        (697,662)      (6,144,425)

                                                  ------------     ------------
INCREASE (DECREASE) IN CASH ..................         717,290           33,090

CASH, Beginning of period ....................         754,295        1,763,930
                                                  ------------     ------------
CASH, End of period ..........................    $  1,471,585     $  1,797,020
                                                  ============     ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
    Interest paid ............................    $  1,142,970     $    615,643
                                                  ============     ============

    Income taxes paid ........................    $         --     $    408,958
                                                  ============     ============

    Supplemental Schedule of
      Noncash Activities

    Transfer of finance and
      other receivables to
      other assets ...........................    $         --     $    125,000
                                                  ============     ============
    Issuance of Convertible
      Subordinated Notes in
      exchange for Common Stock ..............    $  2,148,000     $  2,838,000
                                                  ============     ============
    Issuance of Common Stock in exchange
      for Subordinated Notes .................    $      5,000     $         --
                                                  ============     ============

                                        

<PAGE> 7



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  General.  The  consolidated   financial  statements  of  Allstate  Financial
Corporation (the "Company")  included herein are unaudited for all periods ended
September 30, 1996 and 1995; 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  pursuant to the rules and regulations
of the  Securities  and  Exchange  Commission.  Allstate  Financial  Corporation
believes that the disclosures are adequate to make the information presented not
misleading.  The  results  of  operations  for the three and nine  months  ended
September 30, 1996 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 Allstate  Financial  Corporation's  Annual Report on Form 10-KSB for
the year ended December 31, 1995.

2. Net  income/(loss) per share. Net income/(loss) per share of common stock has
been computed by dividing net  income/(loss)  by the weighted  average number of
common shares outstanding  during the periods presented.  For the quarters ended
September 30, 1996 and 1995,  weighted average shares outstanding were 2,317,237
and 3,009,971,  respectively.  At September 30, 1996 and December 31, 1995 there
were 123,700 and 42,167 stock  options  outstanding,  respectively,  at exercise
prices  ranging from $5.375 to $14.00 per share.  During the year ended December
31, 1995, 53,470 options were forfeited.  There were no options exercised during
1995 or during the nine months ended September 30, 1996.

3. Line of credit. As of September 30, 1996, the Company had approximately $12.9
million  available  under a $25.0  million  secured  revolving  line of  credit.
Borrowings  under the credit facility bear interest at the bank's base rate plus
 .75%.  The current  maturity date of this credit  facility is May 13, 1997.  The
Company is subject  to  restrictive  covenants  which are  typical in  revolving
credit facilities of this type.

     As of September 30, 1996,  Lifetime  Options,  Inc., a Viatical  Settlement
Company  ("Lifetime  Options"),  a wholly owned  subsidiary of the Company,  had
approximately  $1.2 million  available  under a $2.0 million  revolving  line of
credit and an additional $1.3 million available under a $4 million  availability
from the  Company.  Lifetime  Options'  revolving  line of credit is  payable on
December 31, 1996;  (ii) bears  interest at the prime rate of interest  plus 1%;
and (iii) is collateralized by specific purchased life insurance contracts.

4. Convertible Subordinated Notes Payable. As of September 30, 1996, the Company
had  outstanding   $4,981,000  in  aggregate  principal  amount  of  Convertible
Subordinated  Notes issued in exchange for 785,475 shares of common stock of the
Company.  The Notes (i)  mature on  September  30,  2000;  (ii)  currently  bear
interest at the rate of 9.5% per annum which rate may  fluctuate  in  accordance
with the prime  rate,  but may not fall  below 8% nor rise  above 10% per annum;
(iii) are convertible  into common stock of the Company at the rate of $7.50 per
share; (iv) are subordinated to Senior  Indebtedness (as defined) of the Company
and (v) were issued  pursuant to an indenture which contains  certain  covenants
which are less restrictive than

                                 

<PAGE> 8



those contained in the Company's  secured  revolving credit  facility.  Upon the
occurrence of certain  change of control  events,  holders of the Notes have the
right to have their Notes redeemed at par.

5.  Certain  Contingencies.  The  Company is a  defendant  in White,  Trustee v.
Allstate  Financial  Corporation  pending in the U.S.  Bankruptcy  Court for the
Western District of Pennsylvania. The Company provided receivables financing and
advances for Lyons Transportation  Lines, Inc. ("Lyons").  Lyons was the subject
of a leveraged buy-out and subsequently  filed a bankruptcy  petition.  In 1991,
the Lyon's trustee brought an action against the Company  claiming,  among other
things,  fraudulent  transfer and breach of contract.  A summary  judgement  was
granted in favor of the Company which reduced the  fraudulent  transfer claim by
$1.6 million.  As a  consequence,  the remaining  fraudulent  transfer claim was
approximately  $1,000,000.  In late  1994,  the  Company  reached  a  settlement
agreement with the Lyons trustee,  subject to approval by the bankruptcy  court,
which  would have  released  the  Company  from all claims  upon the  payment of
$300,000. In connection with the settlement, the Company paid and added $300,000
to the  provision  for  credit  losses in 1994.  A  creditor  in the  bankruptcy
proceeding, Sherwin-Williams Company, objected to the proposed settlement amount
and, in March 1995,  the objection was sustained by the  bankruptcy  court.  The
Company  appealed  the order  sustaining  the  objection,  but in April 1996 the
appellate  court  exercised its  discretion not to hear the appeal at that time.
The $300,000 previously paid by the Company was returned to the Company in April
1996. The matter is currently being litigated in the District Court.  Management
does  not  believe  at this  time  that  the  Company  has a  material  exposure
significantly in excess of the previously agreed upon settlement amount.

        In connection with the same  transaction,  the Company was also named in
January 1994 as a defendant in  Sherwin-Williams  Company v. Robert Castello et.
al.  pending in the United States  District  Court for the Northern  District of
Ohio.  Sherwin-Williams  is  suing  all  parties  with  any  involvement  in the
transaction  to  recover  damages  allegedly  incurred  by  Sherwin-Williams  in
connection  with the leveraged  buy-out and the  bankruptcy  litigation  arising
therefrom.  Sherwin-Williams  asserts  that it has or will  incur  pension  fund
liabilities  and  other  liabilities  as a  result  of  the  transaction  in the
approximate amount of $11 million and has asserted claims against the Company in
that amount. The complaint asserts,  among other things,  that the purchasers of
Lyons breached their purchase  agreement with  Sherwin-Williams  by pledging the
assets of Lyons to the Company to obtain the down payment. The Company was not a
party to the purchase agreement.  The complaint seeks relief against the Company
based upon a claim of "acting in concert" and  "misrepresentation" in connection
with this purchase  agreement  without a specific  identification of the alleged
misrepresentation made by the Company. The Company filed a motion to dismiss the
claims and a motion to stay discovery pending a ruling on the motion to dismiss.
The  motion  to stay  discovery  was  granted  and,  in March  1996,  a  federal
magistrate  recommended  to the  District  Court  that the  Company's  motion to
dismiss be  granted.  Prior to the  District  Court  ruling on the  magistrate's
recommendation,   Sherwin-Williams  filed  an  amended  complaint.  The  amended
complaint retains the claims for "acting in concert" and "misrepresentation" and
adds two additional  claims for "civil  conspiracy"  and "tortious  interference
with contract".  The two new claims arise from  essentially the same allegations
set forth in the earlier claims,  i.e., that the Company  assisted in the breach
of the purchase agreement.  Management does not believe the litigation will have
a material  effect on the  financial  position or results of  operations  of the
Company because, in management's opinion, the claims are without merit.


                                 

<PAGE> 9



        The Company is a  defendant  in Harold B.  Murphy,  Chapter 7 Trustee v.
Allstate Financial  Corporation,  et al. pending in the U.S. Bankruptcy Court in
the District of Massachusetts.  The Company factored the accounts  receivable of
Clearpoint  Research  Corporation  ("CRC") from late 1992 through early 1993. In
July 1993 CRC filed a petition in  bankruptcy,  after the Company had  collected
all amounts  owed to it. The  bankruptcy  trustee  has sued the Company  seeking
recovery  of  alleged  preferential  transfers  made  during  the  course of the
factoring relationship.  The bankruptcy trustee alleges that the Company did not
properly perfect its security interest in the accounts  receivable.  No specific
damage  amount is specified in the  complaint  but it is assumed the  bankruptcy
trustee is seeking recovery of the full amount of accounts receivables collected
(approximately  $4  million).  The Company has filed an answer to the  complaint
denying the  substantive  allegations  asserted by the bankruptcy  trustee.  The
Company has removed the action to federal  district court. The Company has filed
a motion for summary  judgement  which is currently  pending before the District
Court.  In the event the motion  for  summary  judgement  is  unsuccessful,  the
Company believes it has a number of strong defenses to the complaint and intends
to vigorously  defend all claims.  The litigation is in a preliminary  stage and
the probability of an unfavorable  outcome and the potential  amount of loss, if
any, cannot be determined or estimated at this time.

        As  previously  disclosed in the  Company's  Form 10-QSB for the quarter
ended September 30, 1995, the Company has reached a settlement of 1,400,000 with
the Trustee in the bankruptcy of Premium Sales  Corporation,  a former client of
one of the Company's wholly-owned subsidiaries. The settlement is intended to be
a full release of any and all claims between the Company (and its  subsidiaries)
and the Trustee including,  without limitation, any alleged preference liability
of the  Company  and  its  subsidiaries.  The  settlement  was  approved  by the
bankruptcy court in January 1996. The settlement will become fully effective and
the settlement  monies will be disbursed at the time a plan of  distribution  in
the Premium Sales  Corporation  bankruptcy is approved by the bankruptcy  court.
The impact of this  settlement  has been  reflected in the  Company's  financial
statements.

        Except as described  above,  the Company is not party to any  litigation
other than routine proceedings  incidental to its business, and the Company does
not expect that these  proceedings  will have a material  adverse  effect on the
Company.  From time to time,  the Company is required to initiate  litigation to
collect  amounts owed by former clients,  guarantors or obligors.  In connection
with such  litigation,  the Company  periodically  encounters  counterclaims  by
defendant(s) for material amounts.  Such counterclaims are typically without any
factual  basis and,  management  believes,  are usually  asserted for  defensive
purposes by the litigant.


         Management's Discussion and Analysis of Financial Condition and
                              Results of Operations

General

         The Company's principal business is the discounted purchase of accounts
receivable,  usually on a full recourse,  full notification  basis. In addition,
the Company also makes advances collateralized by inventory,  equipment and real
estate  (collectively,  "Collateralized  Advances").  The Company has elected to
more aggressively pursue the making of Collateralized  Advances, as it perceives
the need by its  targeted  customers  for such  funding and such  funding is not
readily  available from many of the Company's  competitors.  As of September 30,
1996,  Collateralized  Advances  constituted  approximately 34% of the Company's
portfolio of finance

                                 

<PAGE> 10



receivables.  On occasion,  the Company will provide other specialized financing
structures which satisfy the unique  requirements of the Company's clients.  The
Company also  provides  its clients  with letters of guaranty,  arranges for the
issuance  of  letters of credit  for its  clients  and  provides  other  related
financial services.

         The Company's clients are small- to medium-sized businesses with annual
revenues  typically  ranging  between  $600,000 and  $50,000,000.  The Company's
clients do not typically  qualify for traditional bank or asset-based  financing
because   they  are   either   too  new,   too   small,   undercapitalized   (or
over-leveraged), unprofitable or otherwise unable to satisfy the requirements of
a bank or traditional,  asset-based lender. Accordingly,  there is a significant
risk of default and client  failure  inherent  in the  Company's  business.  The
Company  addresses  these  risks in various  ways,  including:  (i) the  Company
thoroughly  evaluates the collateral to be made  available by each client;  (ii)
the Company  usually  collects its factored  accounts  receivable  directly from
account debtors,  which are frequently  (though not always) large,  creditworthy
companies or  governmental  entities;  (iii) the Company  purchases,  or takes a
first  priority  security  interest in, all accounts  receivable of each client;
(iv) the Company takes, whenever available, blanket liens on all of its clients'
other assets and, when making Collateralized  Advances, the Company employs what
management believes to be conservative  loan-to-value ratios based on auction or
liquidation  value  appraisals  performed  by  independent  appraisers;  (v) the
Company usually requires personal  guaranties  (either  unlimited  guaranties or
validity  guaranties  limited to the  validity  and  collectibility  of factored
accounts  receivable)  from its clients'  principals;  (vi) the Company actively
monitors  its  portfolio  of  factored   accounts   receivable,   including  the
creditworthiness  of account  debtors and  periodically  evaluates  the value of
other  collateral  securing   Collateralized  Advances  and  (vii)  the  Company
maintains loss reserves which  management  believes are adequate and appropriate
for its business.  Notwithstanding the foregoing,  clients (and account debtors)
may fail and the  collateral  available to the Company  (together  with personal
guaranties) may prove  insufficient to enable the Company to recover all amounts
due in full.

         Lifetime Options,  a wholly-owned  subsidiary of the Company,  provides
financial  assistance  to  individuals  facing  life-threatening   illnesses  by
purchasing  their life  insurance  policies at a discount  from face value.  The
amount of the discount is  determined  by Lifetime  Options based on the size of
the policy being  purchased,  the maximum life  expectancy  of the insured,  the
amount of the  anticipated  premiums  payable  with  respect to the policy being
purchased and the  anticipated  financing cost  associated  with  purchasing and
carrying the policy. In general,  the purchase price for a policy is between 55%
and 85% of the  benefits  payable  under the  policy.  Because  most of the life
insurance  policies  purchased by Lifetime  Options are  underwritten  by highly
rated insurance  companies (and, in many cases, backed by state guaranty funds),
management of Lifetime  Options believes that credit risk is not material to its
business.

         Before  purchasing  each policy,  Lifetime  Options has each  insured's
medical  records  reviewed by at least one  independent  physician  who provides
Lifetime Options with an opinion of the insured's life expectancy. Historically,
Lifetime Options typically  required up to three independent  reviews but, based
on its experience,  management of Lifetime  Options no longer believes  multiple
medical  reviews  are  necessary.  To date,  the  physician  engaged by Lifetime
Options has provided life  expectancies  which, on average,  fairly  approximate
actual lifespans.  However,  there is no assurance that the physician engaged by
Lifetime Options will in the future be able to perform as he has in the past. If
the physician engaged by Lifetime Options were to  systematically  underestimate
life expectancies or if life extending treatments (or a cure)

                                

<PAGE> 11



were found for AIDS  (almost all of the life  insurance  policies  purchased  by
Lifetime Options to date have been purchased from individuals with AIDS),  there
would be a material adverse effect on the earnings of Lifetime Options. Lifetime
Options  relies on its  independent  physician to assist in  monitoring  medical
advances (and potential  medical  advances).  In particular,  Lifetime  Options'
independent  physician is closely  monitoring  the effects of a  relatively  new
family of drugs known as protease inhibitors.  These drugs, while not a cure for
AIDS, may extend the lives of certain individuals infected with HIV.

         Other than  Lifetime  Options,  none of the Company's  subsidiaries  is
currently engaged in business which could have a material effect on the Company.

  Results of Operations

       The  following  table sets forth  certain items of income and expense for
the periods indicated and indicates the percentage  relationship of each item to
total income.

                                      For the Three Months Ended September 30,
                                    -------------------------------------------
                                          1996                     1995
                                    -------------------    --------------------
                                                   (Unaudited)

INCOME
  Earned discounts .............    $2,423,715     82.9%  $2,578,345       81.1%
  Fees and other income ........       499,802     19.1      600,245       18.9
                                    ----------    ------   ----------    ------
   TOTAL INCOME ................     2,923,517    100.0%   3,178,590      100.0%
                                    ----------    ------   ----------    ------
EXPENSE
  Compensantion and fringe benefits    737,910     25.3      785,161       24.7
  General and administrative expense   632,985     21.7      642,766       20.2
  Interest Expense                     360,627     12.3      205,307        6.5
  Provision for credit losses          527,341     18.0      859,000       27.0
  Commissions                          126,248      4.3       64,928        2.0
                                    ----------    ------   ----------    ------
                                     2,385,111     81.6    2,557,162       80.4 
                                    ----------    ------   ----------    ------

INCOME/(LOSS) BEFORE INCOME TAXES      538,406     18.4      621,428       19.6

INCOME TAXES                           198,800      6.8      228,700        7.2
                                    ----------     -----   ----------     -----
NET INCOME                            $339,606     11.6%    $392,728       12.4%
                                    ==========     =====   ==========     =====
NET INCOME PER SHARE                     $ .15                 $ .13
                                         =====                  =====
WEIGHTED AVERAGE NUMBER OF SHARES      2,317,237                  3,009,971
                                       =========                  =========


                                       

<PAGE> 12



                                         For the Nine Months Ended September 30,
                                       -----------------------------------------
                                               1996                  1995
                                       -------------------   -------------------
                                                      (Unaudited)
INCOME
  Earned discounts .............       $7,479,676     82.2%  $7,876,644   82.6%
  Fees and other income ........        1,615,052     17.8    1,656,397    17.4
                                       ----------    -----    ----------  -----
   TOTAL INCOME ................        9,094,728    100.0%   9,533,041   100.0%
                                       ----------    -----    ----------  ------
EXPENSE
Compensation and fringe benefits ...    2,584,291      28.4% 2,345,710     24.6
General and administrative expense .    2,184,707      24.0  1,981,763     20.8
Interest expense ...................    1,142,970      12.6    629,833      6.6
Provision for credit losses ........    5,079,570      55.8  2,770,600     29.1
Commissions ........................      352,034       3.9    199,645      2.1
                                       ----------    ------    ----------  -----
  TOTAL EXPENSES ...................   11,343,572     124.7  7,927,551     83.2
                                       ----------    ------    ---------   -----

INCOME (LOSS) BEFORE INCOME TAXES      (2,248,844)   (24.7)   1,605,490     6.2

INCOME TAXES/(BENEFIT)                   (832,400)     9.2      591,200     6.2
                                       ----------    ------- -----------  ------
NET INCOME/(LOSS)                    $(1,416,444)    (15.5)% $1,014,290    10.6%
                                     ============    ======= ===========  ======
NET INCOME/(LOSS) PER SHARE                $(0.61)                 $ 0.33
                                           =======                 ======
WEIGHTED AVERAGE NUMBER OF SHARES        2,331,797               3,071,204
                                         =========               =========

     Total Income.  Total income consists of (i) earned  discounts and (ii) fees
and other  income.  "Earned  discounts"  consist  primarily  of income  from the
purchase of accounts  receivable  and life  insurance  policies  and income from
Collateralized   Advances.   "Fees  and  other  income"  consist   primarily  of
application fees,  commitment or facility fees, other related financing fees and
supplemental  discounts  paid by clients who do not sell the  minimum  volume of
accounts receivable required by their contracts with the Company (including as a
result of "graduating" to a lower cost source of funding).

         The following table breaks down total income by type of transaction for
the  periods  indicated  and  the  percentage   relationship  of  each  type  of
transaction to total income.




                                       

<PAGE> 13



                                        For the Three Months Ended September 30,
                                               1996                  1995
                                        -------------------   ------------------
                                        Earned   % of Total   Earned  % of Total
                                        Income     Income     Income     Income
                                        --------- ---------  --------- ---------
Discount on Factored Accounts
   Receivable ......................   $1,471,677      50.4% $1,707,513    53.7%

Earnings on Collateralized
  Advances .........................      685,778      23.4     517,578    16.3

Earnings on Purchased Life
Insurance Policies .................      149,172       5.1     191,581     6.0

Other Earnings .....................      118,088       4.0     161,673     5.1
                                       ----------      -----    --------   -----

   Total ...........................    2,423,715      82.9   2,578,345    81.1

Fees and Other Income ..............      499,802      17.1     600,245    18.9
                                       ----------     ------  ---------   -----
   Total Income ....................   $2,923,517     100.0% $3,178,590   100.0%
                                       ==========     ====== ==========   ======


                                        For the Nine Months Ended September 30,
                                               1996                     1995
                                      ---------------------   ------------------
                                       Earned     % of Total  Earned  % of Total
                                       Income        Income    Income    Income
                                       ---------   --------- ---------- --------
Discount on Factored Accounts
   Receivable ......................   $4,033,922      44.3% $4,455,384    46.7%

Earnings on Collateralized
  Advances .........................    2,345,413      25.8   2,111,793    22.1

Earnings on Purchased Life
Insurance Policies .................      491,244       5.4     702,408     7.4

Other Earnings .....................      609,097       6.7     607,059     6.4
                                       ----------   -------   ---------   -----
   Total ...........................    7,479,676      82.2   7,876,644    82.6

Fees and Other Income ..............    1,615,052      17.8   1,656,397    17.4
                                       ----------   -------   ---------   -----
   Total Income ....................   $9,094,728     100.0% $9,533,041   100.0%
                                       ==========   =======  ==========   =====

                                       

<PAGE> 14



        Total  income  decreased  4.6% in the first nine months of 1996 from the
same period in 1995, from $9.5 million to $9.1 million;  total income  decreased
8.0% for the  third  quarter  of 1996 over the same  period  in 1995,  from $3.2
million to $2.9 million.  Earned  discounts  from factored  accounts  receivable
decreased  9.5%,  from $4.5  million to $4.0 million in the first nine months of
1996  versus  the first  nine  months  of 1995.  In the  third  quarter,  earned
discounts  from  factored  accounts  decreased  13.8% to $1.5  million from $1.7
million.  Earned discounts from factored accounts  receivable as a percentage of
total  factored  accounts  receivable  purchased  were 3.4% and 4.4% in the nine
months ended September 30, 1996 and 1995, respectively; in the third quarters of
1996 and 1995,  earned discounts were 3.4% and 4.6%,  respectively,  of factored
accounts  receivable  purchased.  The reduction during the three and nine months
ended  September  30, 1996 versus the three and nine months ended  September 30,
1995 in the average earned discount from factored accounts  receivable  reflects
the  downward  pressure  on  pricing  from  competition  in the  Company's  core
factoring business.  In the first nine months of 1996 and 1995, earned discounts
from factored accounts receivable  accounted for 44.3% and 46.7%,  respectively,
of total income.  In the third quarters of 1996 and 1995,  earned discounts from
factored accounts  receivable  accounted for 50.4% and 53.7%,  respectively,  of
total income.

         Earned discounts from Collateralized  Advances increased  approximately
11.0% in the first nine months of 1996 over the comparable  period in 1995, from
approximately $2.1 million to $2.3 million and increased  approximately 32.0% in
the third quarter of 1996 over the same quarter in 1995, from approximately $518
thousand to $685  thousand.  In the first nine  months of 1996 and 1995,  earned
discounts  from  Collateralized  Advances  constituted  approximately  25.8% and
22.1%,  respectively,  of total income.  In the third quarters of 1996 and 1995,
earned  discounts  from  Collateralized  Advances  constituted  23.4% and 16.3%,
respectively,  of total income.  Collateralized Advances currently bear interest
at a rate, on average, of approximately 2% per month calculated generally on the
highest  outstanding  amount of the  Collateralized  Advance  during  the month.
Earned  discounts from  Collateralized  Advances are required to be paid in cash
monthly in arrears. See Provision for Credit Losses below.

        As of  September  30, 1996 and  December  31,  1995,  factored  accounts
receivable  included on the Company's  balance sheet were $21.8 million  (61.4%)
and $25.2 million (64.5%),  respectively,  of gross finance  receivables.  As of
September 30, 1996 and December 31, 1995,  Collateralized  Advances  included on
the  Company's  balance  sheet  were $12.0  million  (32.4%)  and $10.8  million
(27.8%),  respectively,  of gross finance  receivables.  The Company  intends to
pursue its strategy of making  Collateralized  Advances in conjunction  with its
core factoring business.

             Fees and other income remained relatively flat,  approximately $1.7
million,  in the first nine months of 1996 as  compared to $1.6  million for the
same  period  in 1995.  In the third  quarter  of 1996,  fees and  other  income
decreased approximately 16.7% from the third quarter of 1995, from approximately
$600 thousand to $500 thousand.  The decrease for the third quarter of 1996 from
the  comparable  period  in 1995  is  largely  attributable  to a  reduction  in
supplemental discounts. This reflects a decrease in client turnover.

        Compensation and Fringe  Benefits.  In the first nine months of 1996 and
1995, compensation and fringe benefits were $2.6 million (28.4% of total income)
and $2.3 million (24.6% of total income),  respectively.  For the third quarters
of 1996 and 1995,  compensation and fringe benefits were $738 thousand (25.2% of
total income) and $785 thousand  (24.7% of total income),  respectively.  Within
compensation and fringe benefits, executive compensation

                                       

<PAGE> 14



increased  in the first nine  months of 1996 as  compared  to the same period in
1995,  from $749 thousand (7.9% of total income) to $904 thousand (9.9% of total
income).  Executive  compensation  decreased  in the  third  quarter  of 1996 as
compared to the same period in 1995,  from $275 thousand  (8.6% of total income)
to $190  thousand  (6.5%  of  total  income).  All of the  increases  in 1996 in
compensation and fringe benefits (including executive  compensation) are chiefly
the result of expenses associated with the severance of a key employee and costs
associated  with  replacing  that  employee,  including  hiring a former Company
executive on an interim basis to help identify and train the severed  employee's
replacement.

        General and Administrative  Expense.  General and administrative expense
was $2.2 million  (24.0% of total income) as compared to $2.0 million  (20.8% of
total income) for the first nine months of 1996 and 1995, respectively.  For the
third  quarters of 1996 and 1995,  general and  administrative  expense was $633
thousand  (21.7% of total  income) and $643  thousand  (20.2% of total  income),
respectively.  The  increase  for the first  nine  months of 1996 was  primarily
attributable to an increase in professional  fees offset  partially by decreases
in  licenses  and taxes and  duplicating  expense.  Professional  fees were $980
thousand  (10.8% of total  income) in the first nine  months of 1996 versus $653
thousand  (6.8% of total income) in the first nine months of 1995.  The increase
in 1996 in professional fees was attributable,  in part, to on-going  litigation
and, in part, to the final resolution of legal  proceedings  instituted in prior
years. General and administrative expense (other than professional fees) for the
nine months ended  September 30, 1996 and 1995 was $1.2 million (13.2%) and $1.3
million (10.0%), respectively. For the three months ended September 30, 1996 and
1995,  general  and  administrative  (other  than  professional  fees)  was $407
thousand (13.9%) and $409 thousand (12.9%), respectively.

        Interest  Expense.  Interest  expense was $1.1  million  (12.6% of total
income) versus $630 thousand (6.5% of total income) for the first nine months of
1996 and 1995,  respectively,  and $360 thousand  (12.3% of total income) versus
$205 thousand  (6.4% of total  income) for the third  quarters of 1996 and 1995,
respectively.  The rise in interest  expense is attributable to interest expense
related to the  Company's  Convertible,  Subordinated  Notes issued in September
1995  and  January  1996  and  to an  increase  in  the  average  daily  balance
outstanding on the Company's revolving lines of credit.  Interest expense on the
Convertible Subordinated Notes was $347 thousand (3.8%) in the first nine months
of 1996 and $118 thousand (4.0%) in the third quarter of 1996. The average daily
outstanding  balance on the Company's revolving line of credit was $10.4 million
and $7.9 million for the first nine months of 1996 and 1995,  respectively,  and
$9.5 million and $6.6 million for the three months ended  September 30, 1996 and
1995,  respectively.  The average interest rate paid on the Company's  revolving
line of credit  decreased  to 9.15%  during the first  nine  months of 1996 from
9.48% during the first nine months of 1995 and to 9.12% during the third quarter
of 1996 as compared to 9.28% during the third quarter of 1995.

        Provision  for Credit  Losses.  The provision for credit losses was $5.1
million  (55.9% of total  income)  for the first nine months of 1996 versus $2.8
million  (29.1%  of total  income)  for the first  nine  months of 1995 and $527
thousand  (18.0% of total  income)  for the third  quarter of 1996  versus  $859
thousand  (27.0% of total income) for the third quarter of 1995. As disclosed in
the Company's Form 10-QSB for the period ended June 30, 1996,  following certain
events  in the  second  quarter  of  1996,  management  determined  that  it was
necessary and appropriate to write off or write down nine non-performing  assets
totalling $4.2 million.  Prior to the  write-offs and write downs,  these assets
were included in non-earning receivables, other

                                       

<PAGE> 16



receivables and other assets on the Company's  balance sheet.  The provision for
credit  losses  in the  second  quarter  of 1996  reflected  the  amount  deemed
necessary by management to enable the Company to charge the allowance for credit
losses for the foregoing  write-offs and to leave a balance in the allowance for
credit  losses deemed  sufficient  to cover  potential  future  write-offs.  The
allowance for credit losses was 4.9% ($1.7 million) of gross finance receivables
at September 30, 1996 and 6.0% ($2.4  million) of gross finance  receivables  at
December 31, 1995.

        At  September  30, 1996 the accrual of earnings  was  suspended  on $300
thousand of gross  finance  receivables  as  compared  to $1.6  million of gross
finance  receivables at December 31, 1995. In addition,  "other receivables" and
"other assets"  appearing on the Company's balance sheet typically do not accrue
earnings for  financial  statement  purposes.  The  following  table  provides a
summary of the Company's gross finance  receivables  (which  includes  primarily
factored   accounts   receivable,   Collateralized   Advances  and   non-earning
receivables),  "other receivables" and "other assets" and information  regarding
the allowance for credit losses as of the dates indicated.

                                                          As of September 30,
                                                      --------------------------
                                                          1996            1995
                                                      -----------    -----------
                                                         (Dollars in thousands)
Gross Finance Receivables, Other
  Receivables and Other Assets Data:
Gross Finance Receivables ..........................     $ 35,416      $ 27,404
Non-Earning Receivables (also included
  in Gross Finance Receivables) ....................          313         2,726
Other Receivables (excluding miscellaneous) ........        3,565         3,188
Other Assets (excluding miscellaneous) .............          590         2,210

Allowance for credit
  losses:
Balance, January 1 .................................     $  2,351      $  2,511
Provision for credit
  losses ...........................................        5,080         2,771
Receivables charged off ............................       (5,708)       (3,131)
Recoveries .........................................           15            42
                                                         --------      --------
Balance, September 30 ..............................     $  1,738      $  2,193
                                                         ========      ========



                                       

<PAGE> 17



                                                             As of September 30,
                                                             -------------------
                                                                 1996     1995
                                                              --------  --------
                                                          
Allowance for Credit Losses as a percent of:
Gross Finance Receivables .............................           4.91%    8.00%
Non-Earning Receivables ...............................         555.27%   80.45%
Non-Earning Receivables, Other
  Receivables and Other Assets ........................          39.00%   27.00%

As a percent of the sum of Gross
  Finance Receivables, Other
  Receivables and Other Assets:
Non-Earning
  Receivables .........................................           0.1%     8.3%
Other Receivables .....................................           8.95%    9.7%
Other Assets ..........................................           0.9%     6.7%


        Although  the Company  maintains an  allowance  for credit  losses in an
amount  deemed by  management  to be  adequate  to cover  potential  losses,  no
assurance  can be given that the  allowance  will in fact be adequate or that an
inadequacy, if any, in the allowance could not have a material adverse effect on
the  Company's  earnings in future  periods.  Furthermore,  although  management
believes  that its periodic  estimates of the value of "other  receivables"  and
"other assets" are appropriate, no assurance can be given that the amounts which
the Company  ultimately  collects  with respect to other  receivables  and other
assets will not differ  significantly from management's  estimates or that those
differences,  if any, could not have a material  adverse effect on the Company's
earnings in future periods.

        Management recognizes that Collateralized Advances entail different, and
possibly  greater,   risks  to  the  Company  than  the  factoring  of  accounts
receivable. Risks associated with the making of Collateralized Advances (but not
the factoring of accounts receivable) include, among others (i) certain types of
collateral  securing  Collateralized  Advances may  diminish in value  (possibly
precipitously)  over time (sometimes short periods of time), (ii)  repossessing,
safeguarding and liquidating  collateral  securing  Collateralized  Advances may
require the Company to incur  significant fees and expenses some or all of which
may not be recoverable, (iii) clients may dispose of (or conceal) the collateral
securing  Collateralized  Advances  and (iv)  clients or natural  disasters  may
destroy the collateral securing Collateralized Advances. The Company attempts to
manage these risks,  respectively,  by (i) engaging  independent  appraisers  to
review periodically the value of collateral securing  Collateralized Advances at
intervals  established  by  management  based  on  the  characteristics  of  the
underlying collateral,  (ii) employing  conservative  loan-to-value ratios which
management  believes  should  generally  enable  the  Company  to  recover  from
liquidation  proceeds most of the fees and expenses  incurred in connection with
repossessing,  safeguarding and liquidating collateral, (iii) using its internal
field  examiners  to inspect  collateral  periodically  and,  when  appropriate,
engaging  independent  collateral  monitoring  firms  to  implement  appropriate
collateral  control systems including bonding certain of the client's  employees
and (iv) requiring clients to maintain appropriate amounts and

                                       

<PAGE> 18



types of  insurance  issued by insurers  acceptable  to the  Company  naming the
Company as the party to whom loss is paid. Although management believes that the
Company  has (or  third  parties  acting  on  behalf  of the  Company  have) the
requisite  skill to evaluate,  monitor and manage the risks  associated with the
making of  Collateralized  Advances,  there can be no assurance that the Company
will in fact be successful in doing so.

        Commissions.  Commission  expense rose to $352  thousand  (3.9% of total
income)  in the first  nine  months of 1996  from $200  thousand  (2.1% of total
income) in the first  nine  months of 1995 and to $126  thousand  (4.3% of total
income) in the third quarter of 1996 from $65 thousand (2.0% of total income) in
the third  quarter of 1995.  The increase was the result of a larger  portion of
gross  finance  receivables  acquired in 1996 being  generated  by  commissioned
brokers and other professionals to whom the Company paid referral fees.

Impact of Inflation

     Management  believes that  inflation  has not had a material  effect on the
Company's income, expenses or liquidity during the past three years.

     Changes in interest rate levels do not  generally  affect the income earned
by the Company in the form of discounts  charged.  Rising  interest rates would,
however,  increase  the  Company's  cost of borrowed  money based on its current
borrowing arrangements which are prime or base rate adjusted credit facilities.

Changes in Financial Condition

             The  Company's  total  assets  decreased  3.1% to $43.5  million at
September 30, 1996 from $44.9 million at December 31, 1995. The decrease for the
nine months is primarily  the result of the decrease in net finance  receivables
and other assets.

        Liquidity and Capital Resources. The Company's principal funding sources
are the  collection  of factored  accounts  receivable,  retained  cash flow and
external borrowings.

        As of September  30, 1996 the Company had  approximately  $12.9  million
available  under a $25.0 million  secured  revolving line of credit.  The credit
facility  contains a $5.0  million  sub-facility  for the issuance of letters of
credit and, as of April 1996, a new $2 million sub-facility (which under certain
circumstances  may  increase to $4 million) the proceeds of which may be used by
the Company to make advances to clients secured by machinery and equipment and a
$2.5  million  sub-facility  the proceeds of which may be used by the Company to
make  advances  to clients  secured by  inventory.  Borrowings  under the credit
facility bear interest at the bank's base rate plus .75%.  The current  maturity
date of this  credit  facility  is May 13,  1997.  The  Company  is  subject  to
covenants which are typical in revolving credit facilities of this type.

        As of September 30, 1996 Lifetime Options had approximately $1.2 million
available  under a $2.0  million line of credit and an  additional  $1.3 million
available under a $4 million  availability  from the Company.  Lifetime Options'
revolving  line of credit:  (i) is payable on on December 31,  1996;  (ii) bears
interest at the prime rate of interest  plus 1% and (iii) is  collateralized  by
specific purchased life insurance contracts.


                                       

<PAGE> 19



        As of  September  30,  1996 and  December  31,  1995,  the  Company  had
outstanding approximately $4,981,000 and $2,838,000,  respectively, in aggregate
principal amount of Convertible Subordinated Notes issued in exchange for shares
of the Company's common stock. The Convertible Subordinated Notes outstanding at
December 31, 1995 were issued in exchange for 447,200 shares of common stock and
the Convertible Subordinated Notes outstanding at September 30, 1996 were issued
in exchange for 785,475 shares of common stock  (including the 447,200 shares of
common  exchanged prior to December 31, 1995). The Notes (i) mature on September
30, 2000;  (ii) currently bear interest at the rate of 9.5% per annum which rate
may fluctuate in accordance  with the prime rate,  but may not fall below 8% nor
rise above 10% per annum; (iii) are convertible into common stock of the Company
at the rate of $7.50 per share; (iv) are subordinated to Senior Indebtedness (as
defined)  of the Company and (v) were  issued  pursuant  to an  indenture  which
contains  certain  covenants which are less  restrictive than those contained in
the Company's secured revolving credit facility.  Upon the occurrence of certain
change of  control  events,  holders  of the Notes  have the right to have their
Notes redeemed at par.

        At September  30, 1996 the Company had working  capital of $25.9 million
and a ratio of current assets to current liabilities of 2.59 to 1 as compared to
December 31, 1995 working capital of $26.0 million and a ratio of current assets
to current liabilities of 2.60 to 1.




                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       

<PAGE> 20



PART II -OTHER INFORMATION

ITEM 1. -LEGAL PROCEEDINGS

        The  Company is a  defendant  in White,  Trustee v.  Allstate  Financial
Corporation  pending in the U.S.  Bankruptcy  Court for the Western  District of
Pennsylvania.  The Company provided receivables financing and advances for Lyons
Transportation  Lines,  Inc.  ("Lyons").  Lyons was the  subject of a  leveraged
buy-out  and  subsequently  filed a  bankruptcy  petition.  In 1991,  the Lyon's
trustee  brought an action  against the Company  claiming,  among other  things,
fraudulent  transfer and breach of contract.  A partial  summary  judgement  was
granted in favor of the Company which reduced the  fraudulent  transfer claim by
$1.6 million.  As a  consequence,  the remaining  fraudulent  transfer claim was
approximately  $1,000,000.  In late  1994,  the  Company  reached  a  settlement
agreement with the Lyons trustee,  subject to approval by the bankruptcy  court,
which  would have  released  the  Company  from all claims  upon the  payment of
$300,000. In connection with the settlement, the Company paid and added $300,000
to the  provision  for  credit  losses in 1994.  A  creditor  in the  bankruptcy
proceeding, Sherwin-Williams Company, objected to the proposed settlement amount
and, in March 1995, the objection,  was sustained by the bankruptcy  court.  The
Company appealed the order sustaining the objection,  however, in April 1996 the
appellate  court  exercised its  discretion not to hear the appeal at that time.
The $300,000 previously paid by the Company was returned to the Company in April
1996. The matter is currently being litigated in the District Court.  Management
does  not  believe  at this  time  that  the  Company  has a  material  exposure
significantly in excess of the previously agreed upon settlement amount.

        In connection with the same  transaction,  the Company was also named in
January 1994 as a defendant in  Sherwin-Williams  Company v. Robert Castello et.
al.  pending in the United States  District  Court for the Northern  District of
Ohio.  Sherwin-Williams  is  suing  all  parties  with  any  involvement  in the
transaction  to  recover  damages  allegedly  incurred  by  Sherwin-Williams  in
connection  with the leveraged  buy-out and the  bankruptcy  litigation  arising
therefrom.  Sherwin-Williams  asserts  that it has or will  incur  pension  fund
liabilities  and  other  liabilities  as a  result  of  the  transaction  in the
approximate amount of $11 million and has asserted claims against the Company in
that amount. The complaint asserts,  among other things,  that the purchasers of
Lyons breached their purchase  agreement with  Sherwin-Williams  by pledging the
assets of Lyons to the Company to obtain the down payment. The Company was not a
party to the purchase agreement.  The complaint seeks relief against the Company
based upon a claim of "acting in concert" and  "misrepresentation" in connection
with this purchase  agreement  without a specific  identification of the alleged
misrepresentation made by the Company. The Company filed a motion to dismiss the
claims and a motion to stay discovery pending a ruling on the motion to dismiss.
The  motion  to stay  discovery  was  granted  and,  in March  1996,  a  federal
magistrate  recommended  to the  District  Court  that the  Company's  motion to
dismiss be  granted.  Prior to the  District  Court  ruling on the  magistrate's
recommendation,   Sherwin-Williams  filed  an  amended  complaint.  The  amended
complaint retains the claims for "acting in concert" and "misrepresentation" and
adds two additional  claims for "civil  conspiracy"  and "tortious  interference
with contract".  The two new claims arise from  essentially the same allegations
set forth in the earlier claims,  i.e., that the Company  assisted in the breach
of the purchase agreement.  Management does not believe the litigation will have
a material  effect on the  financial  position or results of  operations  of the
Company because, in management's opinion, the claims are without merit.


                                       

<PAGE> 21




        The Company is a  defendant  in Harold B.  Murphy,  Chapter 7 Trustee v.
Allstate Financial  Corporation,  et al. pending in the U.S. Bankruptcy Court in
the District of Massachusetts.  The Company factored the accounts  receivable of
Clearpoint  Research  Corporation  ("CRC") from late 1992 through early 1993. In
July 1993 CRC filed a petition in  bankruptcy,  after the Company had  collected
all amounts  owed to it. The  bankruptcy  trustee  has sued the Company  seeking
recovery  of  alleged  preferential  transfers  made  during  the  course of the
factoring relationship.  The bankruptcy trustee alleges that the Company did not
properly perfect its security interest in the accounts  receivable.  No specific
damage  amount is specified in the  complaint  but it is assumed the  bankruptcy
trustee is seeking recovery of the full amount of accounts receivables collected
(approximately  $4  million).  The Company has filed an answer to the  complaint
denying the  substantive  allegations  asserted by the bankruptcy  trustee.  The
Company has removed the action to federal  district court. The Company has filed
a motion for summary  judgment  which is currently  pending  before the District
Court. In the event the motion for summary judgment is unsuccessful, the Company
believes  it has a number of strong  defenses  to the  complaint  and intends to
vigorously  defend all claims.  The litigation is in a preliminary stage and the
probability of an unfavorable  outcome and the potential amount of loss, if any,
cannot be determined or estimated at this time.

        As  previously  disclosed in the  Company's  Form 10-QSB for the quarter
ended June 30, 1995,  the Company has reached a  settlement  with the Trustee in
the  bankruptcy  of Premium  Sales  Corporation,  a former  client of one of the
Company's  wholly-owned  subsidiaries.  The  settlement is intended to be a full
release of any and all claims between the Company (and its subsidiaries) and the
Trustee including,  without limitation,  any alleged preference liability of the
Company and its  subsidiaries.  The  settlement  was approved by the  bankruptcy
court in January  1996.  The  settlement  will become  fully  effective  and the
settlement  monies will be disbursed at the time a plan of  distribution  in the
Premium Sales  Corporation  bankruptcy is approved by the bankruptcy  court. The
impact  of  this  settlement  has  been  reflected  in the  Company's  financial
statements.

        Except as described  above,  the Company is not party to any  litigation
other than routine proceedings  incidental to its business, and the Company does
not expect that these  proceedings  will have a material  adverse  effect on the
Company.  From time to time,  the Company is required to initiate  litigation to
collect  amounts owed by former clients,  guarantors or obligors.  In connection
with such  litigation,  the Company  periodically  encounters  counterclaims  by
defendant(s) for material amounts.  Such counterclaims are typically without any
factual  basis and,  management  believes,  are usually  asserted for  defensive
purposes by the litigant.

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

          None.

ITEM 5. -OTHER INFORMATION

          None.

ITEM 6(a). -EXHIBITS

          Exhibit 27.


                                       

<PAGE> 22




ITEM 6(b). -REPORTS ON FORM 8-K

          None.


                                       

<PAGE> 23





                           SIGNATURES

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

                                   ALLSTATE FINANCIAL CORPORATION



Date   November 12, 1996              /s/ Lawrence M. Winkler
                                   ------------------------------
                                   Lawrence M. Winkler
                                   Secretary/Treasurer
                                   Chief Financial Officer

                                       

<PAGE>




</TABLE>