U.S. 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 THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001




                         Commission File Number 0-17832

                        Harbourton Financial Corporation
        (Exact name of small business issuer as specified in its charter)

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


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

                                 (703) 883-9757
                           (Issuer's telephone number)



Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

  Yes      X    No
          ----        ----


The number of shares outstanding of the issuer's common stock, $.01 par value,
as of November 13, 2001, was 15,184,164.


Transitional Small Business Disclosure Format

(check  one):       No X        Yes


<PAGE>



                        Harbourton Financial Corporation
                                   Form 10-QSB
                                      Index
                                                                            Page
                                                                          Number
Part I
     Item 1.  Financial Statements
      Consolidated Balance Sheets..............................................1
      Consolidated Statements of Operations (unaudited)........................2
      Consolidated Statements of Comprehensive Income (unaudited)..............2
      Consolidated Statements of Shareholders' Equity (unaudited)..............3
      Consolidated Statements of Cash Flows (unaudited)........................4
      Notes to Consolidated Financial Statements...............................5
     Item 2.  Management's Discussion and Analysis or Plan of Operation........8
Part II.......................................................................13
     Item 1.  Legal Proceedings...............................................13
     Item 2.  Changes in Securities and Use of Proceeds.......................13
     Item 3.  Defaults Upon Senior Securities.................................13
     Item 4.  Submission of Matters to a Vote of Security Holders.............13
     Item 5.  Other Information...............................................13
     Item 6.  Exhibits and Reports on Form 8-K................................13
Signatures....................................................................14



<PAGE>
                Harbourton Financial Corporation and Subsidiaries

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

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

                                                                            September  30, 2001        December 31, 2000
                                                                            -------------------        -----------------

  ---------------------------------------------------------------------
  ---------------------------------------------------------------------
                                                                               Unaudited
  --------------------------------------------------------------------- ------------------------ ------------------------
<S>                                                                             <C>                      <C>

 Assets
  ---------------------------------------------------------------------
   Cash and cash equivalents                                                          $ 601,039                $ 447,184
  ---------------------------------------------------------------------
   Loans receivable, net                                                             13,651,559               12,199,912
  ---------------------------------------------------------------------
   Purchased receivables, net                                                         1,518,454                1,575,969
  ---------------------------------------------------------------------
   Securities available for sale                                                             79                   60,000
  ---------------------------------------------------------------------
   Deferred income taxes, net                                                         3,205,198                3,126,714
  ---------------------------------------------------------------------
   Furniture, fixtures and equipment, net                                                30,479                   55,617
  ---------------------------------------------------------------------
   Other assets                                                                         179,662                  154,328
                                                                                        -------                  -------
  ---------------------------------------------------------------------
  Total assets                                                                     $19,186,469              $17,619,724
                                                                                   ============             ============
  ---------------------------------------------------------------------
  Liabilities and shareholders' equity
  ---------------------------------------------------------------------
  Liabilities
  ---------------------------------------------------------------------
    Notes payable                                                                    $1,680,000               $1,420,000
  ---------------------------------------------------------------------
    Convertible subordinated notes                                                      266,000                  266,000
  ---------------------------------------------------------------------
    Accounts payable and accrued expenses                                               446,548                  793,867
  ---------------------------------------------------------------------
    Income taxes payable                                                                 24,189                   24,189
                                                                                         ------                   ------
  ---------------------------------------------------------------------
   Total liabilities                                                                  2,416,737                2,504,056
                                                                                      ---------                ---------
  ---------------------------------------------------------------------
   Shareholders' equity:
  ---------------------------------------------------------------------
    Common stock, $.01 par value, authorized 20,000,000 shares;
       15,184,164 issued and outstanding                                                151,841                  151,841
  ---------------------------------------------------------------------
    Additional paid-in-capital                                                       24,612,674               24,612,674
  ---------------------------------------------------------------------
    Accumulated deficit                                                             (7,990,862)              (9,704,847)
  ---------------------------------------------------------------------
    Accumulated other comprehensive income: unrealized
    (loss) gain on  investment securities                                               (3,921)                   56,000
                                                                                        -------                   ------
  ---------------------------------------------------------------------
   Total shareholders' equity                                                        16,769,732               15,115,668
                                                                                     ----------               ----------
  ---------------------------------------------------------------------
  Total liabilities and shareholders' equity                                       $19,186,469               $17,619,724
                                                                                   ============              ===========
  ---------------------------------------------------------------------
</TABLE>

                 See Notes to Consolidated Financial Statements

                                       1
<PAGE>

                Harbourton Financial Corporation and Subsidiaries

                Consolidated Statements of Operations (unaudited)

<TABLE>
<CAPTION>
                                                        Three Months Ended                  Nine Months Ended
                                                           September 30,                       September 30,

                                                       2001             2000             2001               2000
<S>                                           <C>                  <C>              <C>               <C>
  Revenue
  Earned discounts and interest                          707,721          $ 70,807         1,779,161           $287,735
  Fees and other revenue                                 345,982            93,686         1,249,370            284,233
  Profit participations                                   81,817                 -           178,995                  -
                                                   -------------          --------        ----------
  Total Revenue                                        1,135,520           164,493         3,207,526            571,968
                                                     ----------            -------        ----------            -------
  Expenses
  Compensation and fringe benefits                       291,775           112,805          897,903             398,048
  General and administrative                             264,291           307,204          572,190             850,035
  Interest expense                                        49,258           169,809          101,931             516,523
  Provision for  recovery                                      -         (473,830)                -           (839,319)
                                                   --------------        ---------  ---------------           ---------
                                                               -
  Total Expenses                                         605,324            115,988       1,572,024              925,286
                                                        --------           -------       ----------             -------
  Income (Loss) Before Income
  Tax benefit                                            530,196            48,505        1,635,502           (353,318)

  Income tax (benefit)                                  (15,000)                 -         (78,484)                  -
                                                     ------------         --------       ----------          ---------

  Net income (loss)                                     $545,196           $48,505      $1,713,986           $(353,318)
                                                       =========           =======      ===========          ==========
  Net income (loss) per common  share
  Basic and diluted                                         $.04              $.02             $.11              ($.15)
                                                            ====              ====             ====              ======
   Weighted  average
   Number of shares outstanding                       15,184,164          2,499,616       15,184,164          2,403,644
                                                     ===========          =========      ===========          =========
    Basic and diluted
</TABLE>
<TABLE>
<CAPTION>
                     Harbourton Corporation and Subsidiaries

           Consolidated Statements of Comprehensive Income (unaudited)
  ---------------------------------------------- ---------------------------------- -----------------------------------
                                                 Three Months Ended September 30,            Nine Months Ended
                                                                                               September 30,
                                                      2001             2000              2001              2000
  ---------------------------------------------- ---------------- ----------------- ----------------- -----------------
<S>                                              <C>              <C>              <C>                <C>

  Net income (loss)                                    $545,196          $ 48,505         $1,713,986         $(353,318)
                                                      =========          ========        ===========         ==========
  Other comprehensive income:
  Unrealized  (loss) gain on securities
   available for sale                                     (788)          (144,000)          (59,921)           232,000
                                                          -----          ---------          --------           -------
  Comprehensive income (loss)                          $544,408         $ (95,495)        $1,654,065         $(121,318)
                                                       ========         ==========        ==========         ==========
</TABLE>
<TABLE>
<CAPTION>

                 See Notes to Consolidated Financial Statements

                                       2
<PAGE>

                Harbourton Financial Corporation and Subsidiaries

                 Consolidated Statements of Shareholders' Equity

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

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

Net income (unaudited)                        -               -              -        1,713,986                 -          1,713,986
Unrealized loss on investment
securities (unaudited)                                                                                    (59,921)          (59,921)
                                      ---------      ----------      --------       -----------          ---------


Balance- September 30, 2001

(unaudited)                           $151,841      $24,612,674        $     -      $(7,990,862)         $ (3,921)       $16,769,732
                                      =========    ============       ========      ============         =========       ===========
</TABLE>



                 See Notes to Consolidated Financial Statements


                                       3
<PAGE>

                Harbourton Financial Corporation and Subsidiaries

                Consolidated Statements of Cash Flows (unaudited)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------

                                                                                       Nine months ended

                                                                         September 30, 2001         September 30, 2000

----------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                    <C>
Cash flows from operating activities:
            Net income (loss)                                                        $1,713,986                 $(353,318)
            Adjustments to reconcile net income (loss)
              to cash provided by (used in) operating activities:
              Depreciation                                                               30,024                     62,679
              Amortization of valuation allowance                                      (67,941)                          -
              Provision for recoveries                                                        -                  (839,319)
              Changes in operating assets and liabilities:
                Other assets                                                           (25,334)                  (150,148)
                Accounts payable and accrued expenses                                 (347,319)                      9,192
                Deferred income taxes                                                  (78,484)                          -
                                                                                       --------                  ---------
Net cash provided by (used  in) operating activities                                  1,224,932                (1,270,896)
                                                                                      ---------                -----------
Cash flows from investing activities:
            (Increase in) collection of receivables, net                            (1,326,191)                  4,570,139
            (Purchase) sale of furniture, fixtures and equipment                        (4,886)                     11,221
                                                                                        -------                    -------
Net cash (used in) provided by investing activities                                 (1,331,077)                  4,558,918
                                                                                    -----------                  ---------
Cash flows from financing activities:
            Principal borrowings (payments) on notes payable, net
                                                                                        260,000                (1,366,050)
            Treasury stock acquisition costs                                                  -                     13,449
                                                                                     ----------                     ------
Net cash provided by (used in) financing activities                                     260,000                (1,322,601)
                                                                                        -------                -----------
Net increase in cash                                                                    153,855                  1,965,421
Cash, beginning of period                                                               447,184                    353,962
                                                                                        -------                    -------
Cash, end of period                                                                   $ 601,039                 $2,319,383
                                                                                      =========                 ==========
Supplemental disclosure of cash flow information:
            Cash paid for interest                                                     $109,419                    $67,250
                                                                                       ========                    =======
            Unrealized (loss) gain on securities available for sale
                                                                                      $(59,921)                   $232,000
                                                                                      =========                   ========
            Issuance of common stock as directors' fees                                  $    -                    $89,250
                                                                                         ======                    =======
</TABLE>
                 See Notes to Consolidated Financial Statements


                                       4
<PAGE>
                Harbourton Financial Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements


     1. General.  The consolidated  financial statements of Harbourton Financial
     Corporation (f/k/a Allstate Financial  Corporation,  prior to its name
     change on May 1, 2001) and subsidiaries (the "Company")  included herein
     are unaudited for the  periods  ended  September  30,  2001 and 2000;
     however,  they  reflect all adjustments (consisting only of normal
     recurring accruals) which, in the opinion of  management, are  necessary to
     present  fairly the  results for the periods presented.  The December 31,
     2000 balance sheet has been  extracted from audited financial  information.
     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. The Company
     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, 2001 are not  necessarily  indicative of the
     results of operations to be expected forthe 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, 2000.

2.   Receivables. At September 30, 2001 and December 31, 2000, loans receivable,
     net, comprises the following:

<TABLE>
<CAPTION>

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

                                                                September 30, 2001           December 31, 2000
                                                                ------------------           -----------------

     -------------------------------------------------- ---------------------------- ---------------------------
<S>                                                           <C>                           <C>

     Loans receivable - gross                                          $54,377,641                 $55,340,066
     Portion sold to participants                                     (39,358,683)                (41,833,057)
     Deferred interest and fees                                        (1,387,546)                   (979,971)
     Amount allocated from purchase of minority
     interest                                                             (30,196)                    (98,137)
     Investment in real estate ventures                                    670,058                     311,237
     Allowance for  credit losses                                        (619,715)                   (540,226)
                                                                         ---------                   ---------
     Loans receivable, net                                            $ 13,651,559                 $12,199,912
                                                                      =============                ===========


     At September 30, 2001 and December 31, 2000, purchased receivables, net,
     is as follows:
</TABLE>
<TABLE>
<CAPTION>
     --------------------------------------------------- --------------------------- ---------------------------

                                                                September 30, 2001           December 31, 2000
                                                                ------------------           -----------------

     --------------------------------------------------- --------------------------- ---------------------------
<S>                                                            <C>                        <C>
     Life insurance policies                                            $2,814,868                  $2,914,868
     ---------------------------------------------------
     Valuation allowance                                               (1,336,560)                 (1,386,045)
                                                                       -----------                 -----------
     ---------------------------------------------------
     Life insurance policies, net                                        1,478,308                   1,528,823
                                                                        ----------                  ----------
     ---------------------------------------------------
     Litigation claims, net of unearned discount                            40,146                      59,872
     ---------------------------------------------------
     Allowance for credit losses                                                 -                    (12,726)
                                                                         ---------                    --------
     ---------------------------------------------------
     Litigation claims, net                                                 40,146                      47,146
     ---------------------------------------------------
     Total purchased receivables,  net                                  $1,518,454                  $1,575,969
     =================================                                 ===========                 ===========
     ---------------------------------------------------

</TABLE>

                                       5
<PAGE>

     Activity in the allowance for losses accounts for the three and nine months
     ended September 30, 2001 was as follows:
<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------------------------

                                                                   Three Months Ended     Nine Months Ended
                                                                    September 30, 2001    September 30, 2001

     ------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                     <C>
     Beginning Balance                                                        $618,526                 $552,954
     Charge-offs                                                                     -                   31,909
     Recoveries of amounts previously charged-off                                1,189                   98,670
                                                                                 -----                 --------
     Ending Balance                                                           $619,715                 $619,715
                                                                              ========                 ========

</TABLE>


     Impaired loans are measured based on the present value of expected future
     cash flows discounted at a rate determined by management, or, as a
     practical expedient, the loan's observable market price or the fair value
     of the collateral if the loan is collateral dependent. Changes in the
     present value of impaired loans are recognized as bad debt expense in the
     same manner in which impairment was initially recognized or as a reduction
     in the amount of bad-debt expense that otherwise would be reported.


     Information regarding impaired loans at September 30, 2001 and December 31,
     2000 is as follows:
<TABLE>
<CAPTION>
     --------------------------------------------------------- ------------------------- ------------------------

                                                                 September 30, 2001      December 31, 2000

     --------------------------------------------------------- ------------------------- ------------------------
<S>                                                                   <C>                      <C>

     Number of impaired loans                                                        1                        1

     ---------------------------------------------------------
     Total  recorded  investment in impaired  loans,  net of
     deferred income                                                        $1,424,003                 $463,746
     ---------------------------------------------------------
     Recorded investment in impaired loans
     for which there is a related allowance                                 $1,424,003                 $463,746
     ---------------------------------------------------------
     Related allowance for impaired loans                                     $350,884                 $232,000
     ---------------------------------------------------------
</TABLE>


3.   Credit Concentrations. For the three months ended September 30, 2001, the
     total revenue from the two largest borrowers, each of which accounted for
     10% or more of the Company's total revenues (net of non-recurring item),
     was 42.1% of the Company's total revenues, compared to revenues from two
     clients, each accounting for over 10% of the Company's total revenue,
     representing 31.2% of the total in the same period in 2000. At September
     30, 2001, three borrowers (counting as a single borrower those related by
     common ownership) whose balances were more than 10% of the Company's
     outstanding loan balances net of deferred income and participations sold,
     accounted for 38.9% of the Company's total receivables, while at December
     31, 2000 four such borrowers accounted for 61.5%.


4.   Stock Options.  The Company maintains two stock option plans: (1) the
     Incentive Stock Option Plan  ("Qualified"),  and (2) the 2000 Stock Option
     Plan ("2000 Plan"),  under which either qualified or non-qualified options
     may be issued. The Company continues to account for stock options under
     APB 25 and provides the additional disclosures as required by SFAS No. 123.

                                       6
<PAGE>

     There was no activity in the Qualified plan during the three and nine
     months ended September 30, 2001.

     The Company reserved the lesser of 450,000 shares or 8% of the then issued
     and outstanding shares of common stock for issuance under its 2000 Plan. As
     of September 30, 2001, the amount of shares reserved was 450,000. On May 2,
     2001, 400,000 options were granted under the 2000 Plan. The exercise price
     of the options was $1.00 per share and is indexed to the rate on US
     Treasury securities of the same maturity as the options, 5.0 %. The terms
     of the awards will require that the Company use variable plan accounting to
     measure compensation expense in subsequent periods. The options vest by
     December 31, 2003 and expire on December 31, 2008. Because the exercise
     price of the options exceeded the market value of the underlying stock on
     every day during the period, no compensation cost has been recognized under
     the provisions of APB 25 for the 2000 Plan for the three and nine months
     ended September 30, 2001.

     The fair value at date of grant for options granted during the three and
     nine months ended September 30, 2001 was $0.34. The fair value of options
     at date of grant was estimated using the Black-Scholes model with an
     expected option life of 5.7 years, and the following assumptions: dividend
     yield - none, interest rate - 0% (the "risk-free" rate minus the index rate
     referred to above), and volatility 68.00% (average daily volatility for the
     period November 30, 2000-June 30, 2001).

     In accordance with the additional disclosures as required by SFAS No. 123,
     had we determined compensation cost for the 2000 Plan based on the fair
     value at date of grant for options granted during the three and nine months
     ended September 30, 2001, our net profit for the three and nine months
     ended September 30, 2001 would have been reduced to the proforma amounts
     indicated below:

<TABLE>
<CAPTION>
     ------------------------- ----------------------- ------------------------------ ------------------------------

                                                                Three Months Ended          Nine Months Ended
                                                                -------------------   ----------------------------
                                                                 September 30, 2001      September 30, 2001
                                                                 ------------------    ---------------------------
     ------------------------- ----------------------- ------------------------------ ------------------------------
<S>                       <C>                                         <C>                         <C>
     Net income                As reported                                 $545,196                     $1,713,986
                               Pro forma                                   $524,460                     $1,629,961
     Basic and diluted         As reported                                    $0.04                          $0.11
     earnings per share
                               Pro forma                                      $0.03                          $0.11
</TABLE>


     The table below summarizes the option activity for both plans for the nine
     months ended September 30, 2001:

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

     Outstanding at January 1, 2001                                              30,600
     -------------------------------------------------
     Granted                                                                    400,000
     -------------------------------------------------
     Forfeited or expired                                                             0
                                                                                -------
     Outstanding at September 30, 2001                                          430,600
                                                                                -------
     -------------------------------------------------

     Exercisable at September 30, 2001                                          130,600
                                                                                =======
     -------------------------------------------------
</TABLE>

5.   Income taxes. The Company determined that a portion of the valuation
     allowance for the deferred tax asset was not required because of projected
     future profitability and recorded reductions to the allowance in the three
     and nine month periods ended September 30, 2001.

                                       7
<PAGE>

     Activity in the net deferred income taxes account for the three and nine
     months ended September 30, 2001 was as follows:

<TABLE>
<CAPTION>
     -------------------------------------------------------- ------------------------- ----------------------------

                                                                  Three months ended            Nine months ended
                                                                  -------------------           ------------------
                                                                   September 30, 2001           September 30, 2001
                                                                   ------------------           ------------------

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

<S>                                                               <C>                               <C>
     Beginning balance                                                     $3,190,198                   $3,126,714
     Income taxes                                                             203,012                      626,234
     Reduction in valuation allowance                                       (218,012)                    (704,718)
                                                                            ---------                    ---------
     Ending Balance                                                        $3,205,198                   $3,205,198
                                                                           ==========                   ==========
</TABLE>


Item 2.  Management's Discussion and Analysis or Plan of Operation

This Form 10-QSB may contain certain  "forward-looking  statements"  relating to
the Company  (defined in the notes to the financial  statements  above, and also
referred  to  herein  as  "we,"  "our,"  or "us")  that  represent  our  current
expectations or beliefs,  including,  but not limited to, statements  concerning
our operations,  performance,  financial condition and growth. For this purpose,
any  statements  contained  in this  Form  10-QSB  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,  our ability to
continue our growth strategy,  competition, and regulatory restrictions relating
to potential new activities, certain of which are beyond our 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.

General Description.  Harbourton Financial Corporation, f/k/a Allstate Financial
Corporation,  was formed in 1982 as a Virginia corporation.  On August 28, 2000,
we changed our state of  incorporation  to Delaware  and, on November  30, 2000,
acquired Harbourton Financial Corp. ("Old Harbourton") by merger. Old Harbourton
was a  Delaware  corporation  formed in August  1998 to  acquire  the  assets of
Harbourton  Residential Capital Co., L.P. On May 1, 2001, we changed our name to
Harbourton  Financial  Corporation to better reflect our business plan, which is
to provide  financing to the  residential  building and  development  community,
through products that were previously offered by Old Harbourton. Although we are
no longer active in these  business  lines,  we have a liquidating  portfolio of
commercial  finance  loans to small  and  middle-market  businesses  secured  by
inventory  and  machinery  and equipment  collateral  ("Asset-Based"  loans,  or
"ABL").  In October  1999, we sold our  factoring  business,  the portion of the
business that purchased  discounted invoices with recourse.  We will continue to
receive revenue from this sale for the near future,  under an agreement with the
purchaser  to pay us part  of  their  net  revenue  earned  from  new  factoring
activities with the borrowers acquired from us. Our 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.

The market for residential real estate is sensitive to, among other factors, the
general level of consumer and business  confidence,  interest  rates,  and macro
economic  conditions.  Although  the  Company  has not  experienced  any  marked

                                       8
<PAGE>

downturn in sales at the  various  building  projects  in its finance  portfolio
following  the events of September  11, 2001,  it is  carefully  monitoring  the
national and local economic conditions and trends. In addition,  the Company has
modified its  underwriting  criteria with the objective of further  limiting the
risk associated with new financing transactions.  Such increased selectivity may
limit the amount of new  lending  arrangements  that the Company  originates  in
future periods.

Liquidity and Capital  Resources.  Our  requirement for capital is a function of
the level of our  generation  of and  investment  in  receivables.  We fund this
investment in receivables  through loan  participations,  shareholders'  equity,
bank lines of credit,  convertible  subordinated notes, and internally generated
funds.

The Company sells  participation  interests in selected loans, using a structure
designed to provide credit enhancement to participants as well as incentives for
the Company to efficiently  service and administer  loans. The Company currently
has  participations  with  four  sources  including  banks  and a major  nonbank
financial  services  company.  The Company can not be assured  that the existing
sources will continue to purchase new  participations or that additional sources
can be located to purchase participations.

On March 15, 2001,  our bank  approved an increase in our secured line of credit
from $2.5 million to $3.0 million,  and an extension of the maturity to December
31, 2002. On September 30, 2001, there was $1.3 million available to the Company
under the line.


Financial condition at September 30, 2001 and December 31, 2000.

Total assets were $19.2  million at September 30, 2001 compared to $17.6 million
at  December  31,  2000.  Our  total  loans   receivable   before  the  sale  of
participations  ("Managed  Loan  Portfolio")  was $54.4 million at September 30,
2001 and $55.3  million at December  31, 2000.  Participations  sold as of those
same dates were $39.4 million and $41.8 million.  Purchased receivables declined
by $100 thousand  with the  collection of two life  insurance  policies.  Equity
loans, which represent amounts due based on the Company's entitlement to receive
a  percentage   share  of  underlying   project   profits  in  certain   lending
arrangements,  increased to $620 thousand at September 30, 2001 compared to $311
thousand at December 31, 2000.  We increased the net balance of our deferred tax
asset by $78  thousand as a result of a  reduction  in the  valuation  allowance
applied to the asset. The value of our securities held for resale (consisting of
stock  accepted in partial  settlement  of a loan) fell to less than $1 thousand
from $60 thousand. Other assets increased to $180 thousand from $154 thousand.

The cash flows from our  operations  during the nine months ended  September 30,
2001,  along with an  increase in our bank debt of $260  thousand,  were used to
increase our net receivables by $1.5 million.  We also reduced  accounts payable
and accrued expenses,  primarily through the payments of merger-related expenses
and bonus compensation for the year ended December 31, 2000.

The following table indicates the composition of our portfolio,  net of deferred
income and  participations  sold (gross of the allowance  for losses),  by loans
receivable and purchased receivables,  as of September 30, 2001 and December 31,
2000 (dollars in thousands and as a percentage of the total portfolio).

                                       9
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                       Composition of Receivable Portfolio

                                                        September 30, 2001                December 31, 2000
                                                                    Percent of                       Percent of

                                                           Amount      total                Amount      total
--------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>             <C>           <C>
Loans receivable                                          $14,301           90.1%          $12,838           89.0%
Purchased receivables                                       1,518            9.9%            1,589           11.0%
                                                            -----            ----           ------           -----
Total portfolio                                           $15,820          100.0%          $14,427          100.0%
                                                          =======          ======          =======          ======
</TABLE>


The following  table  indicates the  composition of our retained loan portfolio,
net of deferred income and participations  sold (gross of the allowance for loan
losses),  by loan  product,  as of  September  30,  2001 and  December  31, 2000
(dollars in thousands and as a percentage of the total portfolio).
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

                              Loans Receivable, Net of Deferred Income, by Loan Product
                                                         September 30, 2001               December 31, 2000

                                                                    Percent of                       Percent of
                                                           Amount      total                Amount      total
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>             <C>              <C>
Acquisition, development and construction                  $6,169           43.1%           $6,205           48.3%
Mezzanine                                                   6,711           46.9%            5,059           39.4%
Equity loans                                                  671            4.7%              311            2.4%
Asset-based                                                   638            4.5%            1,146            8.9%
Other                                                         112            0.8%              117            0.9%
                                                           ------            ----             ----           ------
All products                                              $14,301          100.0%          $12,838           100.0%
                                                         ========          =======         ========          ======
</TABLE>


Within the asset-based portfolio, we had no non-performing accounts at September
30, 2001 and one at December 31,  2000.  At  September  30, 2001,  there are two
related  non-performing  loans, to the same borrower,  in the mezzanine loan and
equity loan portfolios, with a combined balance (net of deferred income) of $1.4
million.  Except for the asset-based loan referenced above,  there were no other
non-performing loans at December 31, 2000.


                          This space intentionally left
                                     blank.


                                       10
<PAGE>

          Three and nine months ended September 30, 2001 vs. three and
                     nine months ended September 30, 2000.

The following tables show the components of revenue for the three and nine-month
periods ended  September  30, 2001 vs.  September 30, 2000 (dollars in thousands
and as a percentage of total revenues).
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

                                                        Three Months Ended September 30,

                                         2001                       2000
                                         ----                       ----
                                              Percent                     Percent           Increase    Increase
                                              --------                    --------          --------    --------
                                      Amount   of total           Amount  of total            amount    percent
                                      ------   --------           ------  --------            ------    -------
--------------------------------------------------------------------------------------------------------------------
<S>                            <C>            <C>              <C>        <C>              <C>          <C>

Interest, discounts, and
loan fees                              $ 708        62.3%            $71       43.0%            $637        899.6%
Administration fees and
other revenue                            346        30.5%             94       57.0%             252        269.2%
Profit participations                     82         7.2%              -          -               82            -
                                      ------         ---            ----      ------            ----
Total revenues                        $1,136       100.0%           $165      100.0%            $971        590.3%
                                      =======      ======           =====     ======            =====       ======

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

                                                         Nine Months Ended September 30,

                                           2001                        2000
                                           ----                        ----
                                              Percent of                  Percent of        Increase    Increase
                                              -----------                 -----------       --------    --------
                                     Amount      total           Amount      total            amount     percent
                                     ------      -----           ------      -----            ------     -------
------------------------------- ------------- ------------- ------------- ------------- -------------- -------------
<S>                             <C>           <C>            <C>          <C>           <C>           <C>

Interest, discounts, and
loan fees                            $1,779         55.5%          $288         50.3%         $1,491        518.4%
Administration fees and
other revenue                         1,249         39.0%           284         49.7%            965        339.6%
Profit participations                   179          5.6%             -            -             179             -
                                       ----          ----          ----         -----           ----

Total revenues                       $3,208        100.0%          $572         100.0%        $2,636        460.9%
                                     =======       ======          =====        ======        =======       ======

</TABLE>

During  the  three  and nine  months  ended  September  30,  2001,  the  results
predominantly    reflect   our   current    core    business   of   lending   to
builders/developers of residential real estate. During the three and nine months
ended September 30, 2001, we had other, non-recurring,  revenue of $137 thousand
and $387 thousand, respectively, from the sale of intellectual property.

Because we may  provide  higher  amounts of funding  based on loan to costs than
traditional  bank  lenders,  our loan  structures  provide  for  fees and  other
revenue,  including profit  participations  in the properties being developed by
borrowers.  These fees and other revenues  enhance our yield and provide returns
that may approach those traditionally earned by equity investments. In addition,
we have subordinated our retained interest in selected loans to the participant.
This has the effect of increasing both our yields and our risk exposures on the
portions of loans we retain.

For the same period in 2000,  the revenues  were  derived  from the  liquidating
portfolio of  commercial  finance  loans to small and  middle-market  businesses
secured by inventory and machinery and  equipment,  as well as the fees from the
buyer of the factoring business.

The  following  tables show our  expenses for the three and  nine-month  periods
ended  September 30, 2001 vs.  September 30, 2000 (dollars in thousands and as a
percentage of total revenues).

                                       11
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

                                                          Three Months Ended September 30,

                                             2001                       2000
                                             ----                       ----
                                                                                           Increase/   Increase/
                                                Percent of                 Percent of     (decrease)  (decrease)
                                                ----------                 ----------     ----------  ----------
                                      Amount     revenue          Amount     revenue          amount    percent
                                      ------     -------          ------     -------          ------    -------
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>          <C>          <C>            <C>         <C>
Compensation and fringe
 benefits                              $ 292           25.7%       $ 113          68.7%         $179        158.2%
General and administrative               264           23.3%         307         186.6%         (43)       (13.9%)
Interest expense                          49            4.3%         170         103.3%        (121)       (71.0%)
Provision for (recoveries)                 -               -       (474)       (288.1%)         474       (100.0%)
                                      ------         --------      -----       --------         ----      --------
Total expenses                           605            46.7%        116          70.5%         489        421.8%
                                        ----           -----        ----          -----         ----       ------
Income before
income tax benefit                       530           46.7%          49          29.8%          481        982.0%
Income tax ( benefit)                   (15)          (1.3%)           -              -         (15)            -
                                        ----          ------       ------       --------         ---

Net income                             $ 545           48.0%       $ 49           29.8%         $496       1012.6%
                                       ======          =====       =====          =====        =====       =======

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

                                                            Nine Months Ended September 30,

                                                 2001                       2000
                                                 ----                       ----
                                                                                             Increase/   Increase/
                                                  Percent of                 Percent of     (decrease)   (decrease)
                                                  ----------                 ----------     ----------   ----------
                                      Amount       revenue        Amount      revenue         amount      percent
                                      ------       -------        ------      -------         ------      -------
----------------------------------- ------------ -------------- ----------- -------------- ------------ --------------
<S>                                <C>           <C>           <C>          <C>            <C>         <C>

Compensation and fringe
 benefits                                 $898          28.0%        $398          69.6%         $500         125.6%
General and administrative                 572          17.8%         850         148.6%        (278)         (32.7%)
Interest expense                           102           3.2%         517          90.4%        (415)         (80.3%)
Provision for (recoveries)                   -              -        (839)       (146.7%)         839        (100.0%)
                                       -------        -------       -----       --------         ----       --------
Total expenses                           1,572           49.0%        925         161.7%          647           69.9%
                                        ------          -----        ----         ------         ----          -----
Income (loss) before
income tax benefit                       1,636          51.0%       (353)        (61.7%)        1,989       (563.3%)
Income tax (benefit)                      (78)          (2.4%)         -              -           (78)            -
                                          ----          ------       ----       --------         ----


Net income (loss)                       $1,714           53.4%      $(353)        (61.7%)      $2,067        (585.5%)
                                        =======          =====      ======        =======      =======       ========

</TABLE>


During the three and nine months ended September 30, 2001, the expenses  reflect
the  operations  of the merger of the Company with Old  Harbourton  (the "Merged
Operation").  Compensation expenses were higher for the Merged Operation in part
because it employs a greater  number of people to effect the new business  model
as compared to our liquidating  operation in the same period last year.  General
and  administrative  expenses  were lower in the 2001 periods  primarily  due to
lower legal and professional costs, rent and occupancy expenses and depreciation
expense.  Most of  these  savings  relate  to the  expenses  of  collection  and
downsizing  during 2000.  Interest  expense is lower because the majority of our
financing now comes from participations  instead of lines of credit, and because
we converted  the majority of our  convertible  subordinated  notes to equity in
October 2000.  Interest on the convertible  subordinated  notes in the three and
nine  months  ended  September  30,  2001  was $7  thousand  and  $20  thousand,
respectively,  vs. $170 and $429 thousand,  respectively, in the same periods in
2000, reflecting the note conversion.

                                       12
<PAGE>

Based  on our  projected  profitability  we  determined  that a  portion  of the
valuation  allowance  for the deferred tax asset was not required and recorded a
$218 thousand reduction to the allowance in September 2001. Combined with income
taxes at our statutory rate of $203  thousand,  this led to a net tax benefit of
$15 thousand for the three months ended  September 30, 2001. For the nine months
ended  September 30, 2001 the  corresponding  amounts were $705  thousand,  $626
thousand,  and $78  thousand,  respectively.  In 2000, we did not record any tax
expense or benefit.

We did not record a  provision  for losses or  recoveries  in the three and nine
months ended  September  30,  2001.  In the three and nine month  periods  ended
September  30, 2000,  we recorded  provisions  for  recoveries  of $484 and $839
thousand,  respectively.  During the three and nine months ended  September  30,
2001,  we  charged  off  no  receivables   and  $32  thousand  in   receivables,
respectively.  In those same periods,  we recovered $2 thousand and $99 thousand
of receivables  charged-off  in prior periods.  During the three and nine months
ended  September  30, 2000,  the Company had  charge-offs  of $0 and $4 million,
respectively, while recovering $600 thousand and $624 thousand. At September 30,
2001, our allowance for losses on loans  receivable  was $620  thousand.  Of the
total  allowance,  $351  thousand was  allocated to one  impaired  account.  The
remaining reserve,  $269 thousand,  is 2.1% of performing  receivables,  net, at
September  30, 2001.  At December 31, 2000,  $232  thousand of the $553 thousand
allowance was allocated to one impaired account. The balance, $321 thousand, was
2.7% of performing receivables, net, as of that date.

 Part II


Item 1.  Legal Proceedings.
None

Item 2.  Changes in Securities and Use of Proceeds
None

Item 3.  Defaults Upon Senior Securities
None

Item 4.  Submission of Matters to a Vote of Security Holders
None

Item 5.  Other Information.
None

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

 No Reports were filed on Form 8-K during the period.



                                       13
<PAGE>





Signatures

In accordance with the requirements of the Securities and Exchange Act of 1934,
Harbourton Financial Corporation caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

Harbourton Financial Corporation


Date:    November 14, 2001

         /s/ J. Kenneth McLendon
         J. Kenneth McLendon
         President and Chief Executive Officer


Date:    November 14, 2001

         /s/  C. Fred Jackson
         C. Fred Jackson
         Senior Vice President and Chief  Financial  Officer



                                       14
<PAGE>