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 MARCH 31, 1997 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 [ ]

2,317,919 Common Shares were outstanding as of March 31, 1997.


<PAGE>




                         ALLSTATE FINANCIAL CORPORATION
                                   FORM 10-QSB
                                   INDEX
                                                                          Page  
                                                                         Number

Part I - Financial Information

     Item 1 -  Financial Statements

         Consolidated Balance Sheets at March 31, 1997
         and December 31, 1996                                              1-2

         Consolidated Statements of Operations Three Months Ended
         March 31, 1997 and 1996                                             3

         Consolidated Statements of Shareholders' Equity Three
         Months Ended March 31, 1997 and Year Ended
         December 31, 1996                                                   4

         Consolidated Statements of Cash Flows Three Months Ended
         March 31, 1997 and 1996                                            5-6

         Notes to Consolidated Financial Statements                         7-9

     Item 2 -  Management's Discussion and Analysis of Results of
         Operations and Financial Conditions                              10-17


Part II - Other Information

     Item 1 - Legal Proceedings                                             18

     Item 4 - Submission of Matters To a Vote of Security Holders           18

     Item 5 - Other Information                                             18

     Item 6 - Exhibits and Reports on Form 8-K                              18

     Signatures                                                             19



<PAGE>





















                         PART I - FINANCIAL INFORMATION









<PAGE>



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                       March 31,    December 31,
                                                         1997           1996
                                                      ----------    ------------

                               ASSETS (Unaudited)

CURRENT ASSETS:
  Cash                                                $2,879,429      $1,624,899
  Receivables:
      Finance, net                                    24,696,611      30,574,239
      Purchased life insurance contracts, net          4,191,738       4,493,088
      Other                                            4,323,608       4,394,975

     Prepaid expenses                                    107,256         154,434

     Income Tax Receivable                               799,307       1,150,289

     Deferred income taxes                               893,000         893,000
                                                     -----------     -----------

     TOTAL CURRENT ASSETS                             37,890,949      43,284,924
FURNITURE, FIXTURES AND EQUIPMENT, Net                   537,869         538,164

OTHER ASSETS                                           2,113,699       2,116,343
                                                    ------------    ------------

                                                     $40,542,517     $45,939,431
                                                     ===========     ===========



                      LIABILITIES AND SHAREHOLDERS' EQUITY


CURRENT LIABILITIES:
  Accounts payable and accrued expenses              $   430,419    $    446,360
  Notes payable                                        9,176,724      14,851,582
  Note payable-related party                             103,000         103,000
  Credit balances of factoring clients                 2,999,795       2,964,873
                                                     -----------     -----------

   TOTAL CURRENT LIABILITIES                          12,709,938      18,365,815


                                        1

<PAGE>



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                   (continued)


                                                       March 31,    December 31,
                                                          1997           1996
                                                       ---------    ------------
                                                             (Unaudited)

NONCURRENT PORTION OF NOTES PAYABLE:
  Related parties                                         63,060          61,969
  Convertible Subordinated Notes                       4,985,110       4,985,110
                                                      ----------      ----------

      TOTAL LIABILITIES                               17,758,108      23,412,894
                                                      ----------      ----------

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;  3,102,328 issued,
      2,317,919 outstanding at March 31, 1997
      and December 31, 1996, exclusive of shares
      held in the Treasury                               40,000           40,000

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

  Treasury Stock (784,409 shares)                    (5,034,584)     (5,034,584)

  Retained Earnings                                   8,926,681        8,668,809
                                                     ----------       ----------

      TOTAL SHAREHOLDERS' EQUITY                     22,784,409       22,526,537
                                                     ----------       ----------

                                                    $40,542,517      $45,939,431
                                                    ===========      ===========



                 See Notes to Consolidated Financial Statements

                                        2

<PAGE>



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                 Three Months Ended March 31,
                                                   1997                  1996
                                               ----------            -----------
                                               (Unaudited)           (Unaudited)

INCOME:
     Earned discounts                          $2,292,585            $2,333,820
     Fees and other income                        439,521               551,852
                                              -----------               -------

         Total Income                           2,732,106             2,885,672
                                               ----------            ----------

EXPENSES:
     Compensation and fringe benefits             731,950               849,055
     General and administrative expense           538,736               612,069
     Interest expense                             403,997               355,360
     Provision for credit losses                  555,000               623,659
     Commission                                    93,151                89,641
                                              -----------           -----------

          TOTAL EXPENSES                        2,322,834             2,529,784
                                               ----------            ----------

INCOME BEFORE INCOME TAXES                        409,272               355,888

INCOME TAXES                                      151,400               131,700
                                              -----------           -----------

NET INCOME                                     $  257,872            $  224,188
                                               ==========            ==========

NET INCOME PER SHARE                        $         .11         $         .09
                                            =============         =============

WEIGHTED AVERAGE NUMBER OF SHARES               2,317,919             2,361,461
                                               ==========            ==========





                                        3

<PAGE>



<TABLE>
                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                          YEAR ENDED DECEMBER 31, 1996
                      AND THREE MONTHS ENDED MARCH 31, 1997


<CAPTION>
                                               Common     Paid in        Treasury      Retained
                                                Stock     Capital          Stock        Earnings

<S>                                            <C>       <C>           <C>             <C>       
BALANCE - January 1, 1996 ..............       $40,000   $18,852,312   $(2,871,901)    $9,709,953

  Exchange of Convertible
     Subordinated Notes for
     338,275 shares of common stock ....          --            --      (2,170,683)          --

  Conversion of Convertible Subordinated
     Notes to 1,066 shares of Common
     Stock .............................          --            --           8,000           --

  Net Loss .............................          --            --            --       (1,041,144)
                                              --------   -----------   -----------    -----------


BALANCE - December 31, 1996 ............        40,000    18,852,312    (5,034,584)     8,668,809

  Net Income ...........................          --            --            --          257,872
                                             ---------   -----------   -----------    -----------

BALANCE - March 31, 1997 ...............       $40,000   $18,852,312    (5,034,584)    $8,926,681
                                             =========   ===========   ===========    ===========
</TABLE>




                                        4

<PAGE>



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                    Three Months Ended March 31,
                                                         1997              1996
                                                    -----------       ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income                                         $  257,872       $  224,188
  Adjustments to reconcile net income
   to cash provided by operating activities:
    Depreciation - net                                   49,100           30,900
    Provision for credit losses                         555,000          623,659
    Changes in operating assets and liabilities:
    Decrease/(Increase) in other receivable              71,367         (36,320)
    Decrease/(Increase) in prepaid expenses              47,178         (37,770)
    Decrease/(Increase) in other assets                   2,644        (101,486)
    (Decrease)/Increase in accounts payable
       and accrued expenses                             (15,941)        148,061
   Decrease in income taxes receivable                  350,982         102,803
                                                     -----------      ----------


NET CASH PROVIDED BY
     OPERATING ACTIVITIES                             1,318,202         954,035
                                                      ---------      ----------


CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of finance receivables, including
      accounts receivable, secured advances,
      repurchases and life insurance contracts     (56,897,683)     (44,817,066)
  Collection of finance receivables, including
      accounts receivable, secured advances,
      repurchases and life insurance contracts      62,521,661       42,248,054
  Increase in credit balances of factoring clients      34,922          739,070
  Purchase of furniture, fixtures and equipment        (48,805)         (23,773)
                                                    -----------     ------------


NET CASH PROVIDED BY
   (OR USED) BY INVESTING ACTIVITIES                 5,610,095       (1,853,715)
                                                     ---------       -----------


                                                         5

<PAGE>



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)

                                                    Three Months Ended March 31,
                                                      1997              1996
                                                    ----------       ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from line of credit and       
      other borrowings                             20,527,792        15,824,877
  Principal payments on line of credit
      and other borrowings                        (26,201,559)      (14,927,618)
  Treasury Stock Acquisition Costs                     -             (   17,816)
                                                  -------------      -----------

NET CASH PROVIDED BY OR USED
  IN FINANCING ACTIVITIES                          (5,673,767)          879,443
                                                   -----------          -------

NET INCREASE (DECREASE) IN CASH                     1,254,530           (20,237)

CASH, Beginning of period                           1,624,899           754,295
                                                    ---------           -------

CASH, End of period                                $2,879,429          $734,058
                                                   ==========          ========



SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:

  Interest paid                                      $403,779          $355,015
                                                     ========          ========

  Income taxes paid                                  $   -            $  28,897
                                                     =========        =========

     Supplemental Schedule of
     Noncash Activities

     Transfer of finance and other
     receivables to other assets                     $   -             $280,000
                                                     =========         ========

     Issuance of Convertible Subordinated
     Notes in exchange for Common Stock              $   -           $2,148,000
                                                     =========       ==========


                                        6

<PAGE>






                 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
March 31, 1997 and 1996;  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 months ended March 31, 1997
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-KB for the
year ended December 31, 1996.

2. NET INCOME PER SHARE.  Net income per share of common stock has been computed
by  dividing  net  income  by the  weighted  average  number  of  common  shares
outstanding during the periods presented.  For the quarters ended March 31, 1997
and 1996,  weighted  average  shares  outstanding  were 2,317,919 and 2,361,461,
respectively.  At March 31, 1997 and December 31, 1996 there were 133,400  stock
options outstanding, at exercise prices ranging from $5.375 to $14.00 per share.
During the year ended December 31, 1996,  24,867 options were  forfeited.  There
were no options exercised during 1996 or during the three months ended March 31,
1997.

3. LINE OF CREDIT.  As of March 31, 1997,  the Company had  approximately  $15.8
million  available  under a $25 million  secured  revolving line of credit.  The
credit facility contains a $5.0 million sub-facility for the issuance of letters
of credit,  a $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 a spread  over the  bank's  base  rate.  The  Company is subject to
covenants  which are typical in revolving  credit  facilities of this type.  The
current  maturity  date of this  credit  facility is May 13,  1997.  The Company
currently  anticipates  that the credit facility will be renewed for a period of
three years.


                                        7

<PAGE>



     During  1996  Lifetime  Options,  Inc.,  a Viatical  Settlement  Company (a
wholly-owned  subsidiary of the  Company),  had a $2 million  revolving  line of
credit  with a local  federal  savings  bank.  This  line of credit  expired  on
December 31, 1996 at which time all indebtedness was paid in full.

4. CONVERTIBLE SUBORDINATED NOTES PAYABLE. As of March 31, 1997, the Company had
outstanding $4,978,000 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 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 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

                                        8

<PAGE>



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 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  added 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 complaint,  i.e., that the Company assisted
in the breach of the purchase  agreement.  In March 1997, the federal magistrate
again recommended to the District Court that the Company's motion to dismiss the
claims contained in the original complaint be granted.  However,  the magistrate
recommended that the Company's motion to dismiss the two new claims contained in
the amended complaint be denied. 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.

     As disclosed in the  Company's  Form 10-QSB for the quarter  ended June 30,
1995,  the Company  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.



                                        9

<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FORWARD-LOOKING INFORMATION

     Certain  disclosures  contained in this Form 10-QSB contain forward looking
information  based on current  information and  expectations of the Company that
involve a number of risks, uncertainties and assumptions,  including the overall
state of the  economy,  competition  among  financial  institutions,  the credit
quality of the Company's clients and account debtors,  and the Company's ability
to generate  growth in earning  assets  through the  generation of new business.
Should one or more of these risks or  uncertainties  materialize,  or should the
underlying  assumptions  prove incorrect,  actual outcomes could vary materially
from those expected.

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 to its clients  collateralized  by  inventory,
equipment, real estate and other assets ("Collateralized Advances"). The Company
has elected to continue to more aggressively pursue the making of Collateralized
Advances as it perceives  the need by its targeted  customers  for such advances
and  such  funding  is  not  readily   available  from  many  of  the  Company's
competitors.  On  occasion,  the Company  will also  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 $75,000,000.  Historically,  the
Company's  clients  have  not  qualified  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.  Banks and other asset-based lenders
have, however,  started to lend to the Company's traditional,  high risk type of
client. Given the Company's typical client profile,  there is a significant risk
of default and client failure inherent in the Company's business.

     Continuing  competition  within the  marketplace  from  banks,  asset-based
lenders and newly created  finance  companies have encroached upon the Company's
potential client base and have negatively  affected earned discounts on factored
accounts  receivable.  Additionally,  the Company has attracted  larger  clients
which  often  increases  the  amount of time  needed to  negotiate  and fund new
business.  Also,  Collateralized  Advances require more in-depth and diverse due
diligence which can further delay the funding of new business.  Nonetheless, the
Company believes that its ability to respond quickly and to provide specialized,
flexible and  comprehensive  financing  structures to its clients  enables it to
compete  effectively.  In order to remain  competitive,  the Company  is,  where
necessary and appropriate,  offering lower rates than it has  historically.  The
Company  believes that increased  competition  will continue for the foreseeable
future and will continue to exert  downward  pressure on pricing,  especially in
the  Company's  core  factoring  business.  To counter the downward  pressure on
pricing, the Company intends to continue to

                                       10

<PAGE>



diversify its sources of income,  primarily by  continuing to place  emphasis on
funding  relationships  which  include (in addition to the factoring of accounts
receivable) the making of Collateralized Advances.

     Historically,   the  Company  has  not   expected  to  maintain  a  funding
relationship  with a client for more than two years;  the Company  expected that
its  clients  would  ultimately  qualify for more  competitively  priced bank or
asset-based  financing within that time period.  Therefore,  the Company's major
clients have tended to change significantly over time. Today,  however,  because
the Company is, where necessary and appropriate, offering lower rates and making
Collateralized  Advances,  it is possible  that the  duration  of the  Company's
funding  relationships  with its  clients may be  extended.  Even if the Company
succeeds in extending the duration of its funding relationship with its clients,
there  will  not  be a  corresponding  increase  in  non-current  assets  on the
Company's  balance sheet.  This is because it is anticipated  that the Company's
funding relationships with its clients will continue to renew no less frequently
than once a year.  Although  the Company has  historically  been  successful  in
replacing major clients,  the loss of one or more major clients and an inability
to replace those clients could have a material adverse effect on the Company.

     Lifetime  Options,  a  wholly-owned  subsidiary  of the  Company,  provides
financial   assistance  to  individuals  facing   life-threatening   illness  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),
the 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,  the  management  of Lifetime  Options no longer  believes  multiple
medical  reviews are  necessary.  To date,  the  physicians  engaged by Lifetime
Options have 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(s)   engaged  by  Lifetime   Options   were  to   systematically
underestimate life expectancies or if life extending treatments (or a cure) 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  important  medical
advances (and potential  medical  advances).  In particular,  Lifetime  Options'
independent  physician is closely  monitoring  the effects of a  relatively  new
class of drugs known as protease  inhibitors.  These drugs, while not a cure for
AIDS, may extend the lives of certain individuals infected with HIV.


                                       11

<PAGE>



     During  1996,  Lifetime  Options  started to curtail its  operations.  This
decision  enables  management to better focus on the Company's  core  commercial
finance  business at a time when  competition  has reduced  yields,  and medical
advances  have created a certain  degree of  uncertainty,  in Lifetime  Options'
business.

     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 March 31,
                                                1997                  1996
                                          ------------------  ------------------
                                                       (Unaudited)
INCOME
   Earned discounts                       $2,292,585   83.9%  $2,333,820   80.9%
   Fees and other income                     439,521   16.1      551,852   19.1
                                         -----------   ----  -----------  -----
     TOTAL INCOME                          2,732,106  100.0%   2,885,672  100.0%
                                          ----------  -----  -----------  -----
EXPENSES
   Compensation and fringe benefits          731,950   26.8      849,055   29.4
   General and administrative expense        538,736   19.7      612,069   21.2
   Interest expense                          403,997   14.8      355,360   12.3
   Provision for credit losses               555,000   20.3      623,659   21.6
   Commissions                                93,151    3.4       89,641    3.1
                                          -----------   ---   -----------    ---
     TOTAL EXPENSES                        2,322,834   85.0    2,529,784   87.6
                                          ----------   ----   ----------

INCOME BEFORE INCOME TAXES                   409,272   15.0      355,888   12.4

INCOME TAXES                                 151,400    5.5      131,700    4.6
                                         -----------   ----   ----------    ---

NET INCOME                               $   257,872    9.5%  $  224,188    7.8%
                                         -----------   ====   ==========    ===

NET INCOME PER SHARE                           $0.11                     $ 0.09
                                               =====                     ======

WEIGHTED AVERAGE NUMBER OF SHARES          2,317,919                  2,361,461
                                           =========                  =========


         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).


                                       12

<PAGE>


         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.

                                            For the Three Months Ended March 31,

                                          1997                       1996
                                       (Unaudited)              (Unaudited)
                                  ---------------------   ----------------------
                                     Earned  % of Total     Earned    % of Total
         Type of Transaction         Income    Income       Income      Income

Discount on Factored
   Accounts Receivable .......    $1,484,327     54.4%    $1,183,864       41.0%
Earnings on Collateralized
   Advances ..................       471,243     17.2        775,908       26.9
Earnings on Purchased Life
   Insurance Policies ........       100,000      3.6        155,605        5.4
Other Earnings ...............       237,015      8.7        218,443        7.6
                                    ----------  -----      ----------     -----
     Total ...................     2,292,585     83.9      2,333,820       80.9
Fees and Other Income ........       439,521     16.1        551,852       19.1
                                    ----------  -----      ----------     -----
     Total Income ............    $2,732,106    100.0%    $2,885,672      100.0%
                                    ==========  =====     ==========      =====

         Total  income  decreased  5.3%,  in the first  three  months of 1997 as
compared to the same period in 1996.  Earned  discounts  from factored  accounts
receivable increased 25.4% in the first quarter of 1997 as compared to the first
quarter of 1996. The absolute dollar increase in earned  discounts from factored
accounts  receivable in the first quarter of 1997 versus 1996 is attributable to
a higher volume of factored accounts  receivable in the first quarter of 1997 as
compared  to  1996  -  $53,700,000  versus  $35,800,000,   respectively.  Earned
discounts  from factored  accounts  receivable in the first quarter of 1997 as a
percentage of total factored accounts receivable  purchased in the first quarter
of 1997 were 2.8%.  The  comparable  percentage  in 1996 was 3.3%, a decrease of
15.2% from the first quarter 1996 to the first  quarter  1997.  The reduction in
average earned  discounts from 1996 to 1997 reflects  downward  pricing pressure
from banks,  asset-based  lenders and small independent finance companies in the
Company's core factoring business.

         Earned discounts from  Collateralized  Advances  decreased 39.3% in the
first  quarter of 1997 as compared to the same period in 1996,  from $776,000 to
$471,000, respectively. In the first quarters of 1997 and 1996, earned discounts
from  Collateralized  Advances accounted for 17.2% and 26.9%,  respectively,  of
total  income.  Collateralized  Advances  currently  bear interest at a rate, on
average,  of  approximately 2% per month.  Earned discounts from  Collateralized
Advances are required to be paid in cash monthly in arrears.  See  Provision for
Credit Losses below.

         As  of  March  31,  1997  and  December  31,  1996,  factored  accounts
receivable  included on the Company's  balance sheet were $20.2 million  (62.2%)
and $22.4 million (59.5%),  respectively,  of gross finance  receivables.  As of
March 31, 1997 and December 31, 1996,

                                       13

<PAGE>



Collateralized  Advances  included  on the  Company's  balance  sheet  were $7.0
million  (21.6%)  and $8.6  million  (22.8%),  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  decreased  20.4% in the first  quarter  of 1997
compared to the first quarter of 1996,  from $552,000 to $440,000.  The decrease
in 1997 is attributable primarily to decreased application and other fees.

         COMPENSATION  AND FRINGE  BENEFITS.  Compensation  and fringe  benefits
decreased  13.9% in the first  quarter of 1997 versus the  comparable  period in
1996,  from $849,000 (29.4% of total income) in 1996 to $732,000 (26.8% of total
income) in 1997. Within compensation and fringe benefits, executive compensation
decreased  24.7% in the first  quarter of 1997,  from  $295,000  (10.2% of total
income) in the first  quarter of 1996 to $222,000  (8.1% of total income) in the
first  quarter of 1997.  The  decrease in  executive  compensation  in the first
quarter  of 1997 is  attributable  in  large  part to the  cessation  of  salary
continuation  payments  associated  with the  termination  of a key employee and
costs associated with replacing that employee.

         GENERAL  AND  ADMINISTRATIVE  EXPENSE.  In the first  quarter  of 1997,
general and administrative expense was reduced by 11.9%, from $612,000 (21.2% of
total income) in the first  quarter of 1996 to $539,000  (19.7% of total income)
in the first  quarter of 1997.  The  decrease  in the first  quarter of 1997 was
primarily  attributable  to a reduction in  professional  fees offset in part by
increases  in  depreciation,  taxes and  credit and  filing  fees.  In the first
quarter  of 1997,  professional  fees were  $158,000  (5.8% of total  income) as
compared  to  $247,000  (8.6% of total  income)  in the first  quarter  of 1996.
Professional  fees  decreased,  in part,  due to the final  resolution  of legal
proceedings instituted in prior years.

         INTEREST EXPENSE. Interest expense was $404,000 (14.8% of total income)
versus  $355,000  (12.3% of total income) in the first quarter of 1997 and 1996,
respectively.  The increase in interest  expense is  attributable  to additional
borrowing by the Company to fund increased  business volume in the first quarter
of 1997 versus 1996.  Gross  receivables  purchased in the first quarter of 1997
were $56.9  million as compared to $44.8  million in 1996, an increase of 27% in
the  first  quarter  of 1997.  The  average  daily  outstanding  balance  on the
Company's  revolving  line of credit was $11.6  million and $9.5 million for the
first  quarters of 1997 and 1996,  respectively,  and the average  interest rate
paid on the Company's  revolving line of credit was 9.0% in the first quarter of
1997 compared to 9.2% in the first quarter of 1996.

         PROVISION FOR CREDIT LOSSES.  Credit loss  experience,  the adequacy of
underlying  collateral,  changes  in the  character  and  size of the  Company's
receivables portfolio and management's judgement are factors used in determining
the  provision  for credit  losses and the adequacy of the  allowance for credit
losses.  Other factors given  consideration  in determining  the adequacy of the
allowance are the level of related credit balances of factoring  clients and the
current and anticipated impact of economic conditions on the creditworthiness of
the Company's clients and account debtors.  To mitigate the risk of credit loss,
the Company,  among other things: (I) thoroughly  evaluates the collateral to be
made  available by each  client;  (ii)  usually  collects its factored  accounts
receivable  directly  from account  debtors,  which are  frequently  (though not
always) large, creditworthy companies or governmental entities; (iii) purchases,
or takes a first

                                       14

<PAGE>



priority  security  interest in, all accounts  receivable  of each client;  (iv)
takes,  whenever  available,  blanket liens on all of its clients'  other assets
and, when making Collateralized Advances, it employs what management believes to
be  conservative  loan-to-value  ratios  based on auction or  liquidation  value
appraisals  performed by  independent  appraisers;  (v) almost  always  requires
personal  guaranties  (either unlimited  guaranties or guaranties limited to the
validity and  collectability of factored accounts  receivable) from its clients'
principals,  and (vi)  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.

         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  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.

         The provision for credit losses decreased from $624,000 (21.6% of total
income) in the first quarter of 1996 to $555,000  (20.3% of total income) in the
first  quarter of 1997. As of March 31, 1997 and December 31, 1996 the allowance
for credit  losses  was 8.9% ($2.9  million)  and 6.9% ($2.6  million)  of gross
finance receivables, respectively. At March 31, 1997 the accrual of earnings was
suspended  on $3.7  million of gross  finance  receivables  as  compared to $4.5
million of gross finance  receivables at December 31, 1996. 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.



                                       15

<PAGE>



                                        As of (or for
                                        the Year Ended)          As of March 31,
                                       December 31, 1996     1997         1996
                                      ------------------  ----------  ----------
                                                  (Dollars in thousands)

Gross Finance Receivables, Other
  Receivables and Other Assets Data:
Gross Finance Receivables ............       $ 37,600     $ 32,452     $ 41,198
Non-Earning Receivables (also included
  in Gross Finance Receivables) ......          4,548        3,726        1,760
Other Receivables ....................          4,390        4,321        2,793
Other Assets (excluding
miscellaneous) .......................          1,884        1,881        1,912

Allowance for credit
  losses:
Balance, January 1 ...................          2,351        2,579        2,351
Provision for credit
  losses .............................          5,878          555          624
Receivables charged off ..............         (5,711)        (233)        (284)
Recoveries ..........................              6            3
Ending Balance .......................       $  2,579     $  2,904     $  2,691

Allowance for Credit Losses as a percent of:
Gross Finance Receivables ............           6.85%        8.94%        6.53%
Non-Earning Receivables ..............           56.7%       77.90%      152.90%
Non-Earning Receivables, Other
  Receivables and Other Assets .......           28.3%       29.25%       41.62%

As a percent of the sum of Gross
  Finance Receivables, Other
  Receivables and Other Assets:
Non-Earning
  Receivables ........................           10.4%        9.63%        3.83%
Other Receivables ....................           10.0%       11.17%        6.08%
Other Assets .........................           4.29%        4.86%        4.17%

         The absolute increase in non-earning receivables, other receivables and
other assets (and the relative  decrease in the size of the allowance for credit
losses)  from  the end of the  first  quarter  of  1996 to the end of the  first
quarter of 1997 is  attributable,  in large  part,  to two large  clients put on
non-accrual status in late November 1996.

         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

                                       16

<PAGE>



estimates or that those  differences,  if any, could not have a material adverse
effect on the Company's earnings in future periods.

         COMMISSIONS.  Commission  expense was $93,000 (3.4% of total income) in
the first  quarter of 1997 as compared to $90,000  (3.1% of total income) in the
first quarter of 1996.

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  11.7% to $40.5 million at March
31, 1997 from $45.9 million at December 31, 1996.  The decrease is primarily the
result of a decrease in net finance receivables.

LIQUIDITY AND CAPITAL RESOURCES

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

         For additional detail regarding external borrowings,  see Notes 3 and 4
to the unaudited financial statements contained in this Form 10-QSB.

         At March 31,  1997 and  December  31,  1996,  the  Company  had working
capital of $25.2 million and $24.9 million, respectively, and a ratio of current
assets to current liabilities of 2.98 to 1 and 2.36 to 1, respectively.






                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       17

<PAGE>



                           PART II -OTHER INFORMATION



ITEM 1. -LEGAL PROCEEDINGS

         For details  regarding legal  proceedings,  see Note 5 to the unaudited
financial statements contained in this Form 10-QSB.

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

          None

ITEM 5. - OTHER INFORMATION

         None.

ITEM 6(a). - EXHIBITS

         Amendment  to Exhibit 10.7 - Revolving  Credit and  Security  Agreement
         dated as of May 13, 1994, among the Company,  the Lenders party thereto
         and IBJ  Schroder  Bank & Trust  Company  (as Lender and as Agent),  as
         amended to March 21, 1997.
                  Eleventh Amendment dated as of March 21, 1997.

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

         None.

                                       18

<PAGE>


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:     May 13, 1997                               /s/ Lawrence M. Winkler
                                                     -----------------------
                                                     Lawrence M. Winkler
                                                     Secretary/Treasurer
                                                     Chief Financial Officer



                                                        19

<PAGE>