U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB

(Mark One)
     |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
     |_| TRANSITION REPORTUNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________

Commission File Number 0-17832

                         Allstate Financial Corporation
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

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

   2700 S. Quincy Street, Arlington, VA                    22206
   (Address of principal executive offices)             (Zip Code)

                                 (703) 931-2274
--------------------------------------------------------------------------------
                           (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, no par value, as
of May 10, 1999, was 2,324,216.

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


<PAGE>



                         ALLSTATE FINANCIAL CORPORATION
                                   FORM 10-QSB
                                     INDEX

                                                                           Page
                                                                          Number
Part I - Financial Information

 Item 1 -  Financial Statements

     Consolidated Balance Sheets at March 31, 1999 and
     December 31, 1998                                                      1-2

     Consolidated Statements of Operations for the Three
     Months Ended March 31, 1999 and 1998                                    3

     Consolidated Statements of Shareholders' Equity for the Year Ended
     December 31, 1998 and Three Months Ended March 31, 1999                 4

     Consolidated Statements of Cash Flows for the Three Months Ended
     March 31, 1999 and 1998                                               5-6

     Notes to Consolidated Financial Statements                            7-9

 Item 2 -  Management's Discussion and Analysis of Results of
     Operations and Financial Condition                                  10-18


Part II - Other Information

     Item 1 - Legal Proceedings                                            18

     Item 3 - Defaults Upon Senior Securities                              18

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

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

     Signatures                                                            19


<PAGE>






















                         PART I - FINANCIAL INFORMATION



<PAGE>

<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                   March 31,        December 31,
--------------------------------------------------------------------------------
                                                     1999             1998
                                                     ----             ----
------------------------------------------------------------------------------- 
                                                  (Unaudited)
                 ASSETS
<S>                                               <C>                <C>       
Cash                                              $1,432,751         $2,420,644
                                                  ----------         ----------

Purchased receivables                             12,289,180         22,302,284
Advances receivable                               23,198,725         15,652,457
                                                  ----------         ----------
                                                  35,487,905         37,954,741
Less: Allowance for credit losses                 (2,898,582)        (2,799,931)
                                                 -----------        ----------
Total receivables - net                           32,589,323         35,154,810
                                                  ----------         ----------

Income tax receivable                                831,656            831,656

Deferred income taxes                              3,800,005          3,960,946

Furniture, fixtures and equipment, net               165,357            166,400

Other assets                                         211,300            653,957
                                                    --------            -------

TOTAL ASSETS                                     $39,030,392        $43,188,413
                                                 ===========        ===========
                                                                     (Continued)
------------------------------------------------------------------------------- 
</TABLE>


<PAGE>


<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                   March 31,        December 31,
--------------------------------------------------------------------------------
                                                     1999               1998
                                                     ----               ----
--------------------------------------------------------------------------------
                                                 (Unaudited)

         LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                               <C>                <C>       
Accounts payable and accrued expenses              $ 592,080         $1,081,655
Credit balances of factoring clients               2,534,667          4,559,570
Notes payable                                     13,111,848         15,014,717
Convertible subordinated notes                     4,957,000          4,958,000
                                                   ---------          ---------

TOTAL LIABILITIES                                 21,195,595         25,613,942
                                                  ----------         ----------


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; 3,105,828
   issued; 2,324,216 outstanding at
   March 31, 1999 and 2,324,083
   outstanding at December 31, 1998,
   exclusive of shares held in treasury              40,000             40,000

  Additional paid-in-capital                      18,874,182         18,874,182

  Treasury stock, 781,612 shares at
   March 31, 1999 and 781,745 shares
   at December 31, 1998                           (4,981,448)        (4,986,520)

  Retained earnings (restricted)                   3,902,063          3,646,809
                                                   ---------          ---------
TOTAL SHAREHOLDERS' EQUITY                        17,834,797         17,574,471
                                                  ----------         ----------
                                                $ 39,030,392        $43,188,413
                                                ============        ===========
                                                                    (Concluded)
------------------------------------------------------------- -------------------
</TABLE>









                 See Notes to Consolidated Financial Statements
                                        2


<PAGE>


<TABLE>

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

                                                    Three Months Ended March 31,
--------------------------------------------------------------------------------
                                                      1999               1998
                                                      ----               ----
------------------------------------------------------------- ------------------
<S>                                               <C>               <C>       
REVENUE
  Earned discounts and interest                   $1,614,471        $2,436,665
  Fees and other revenue                             181,574           526,817
                                                     -------           -------

    TOTAL REVENUE                                  1,796,045         2,963,482
                                                   ---------         ---------

EXPENSES
  Compensation and fringe benefits                   610,013           812,234
  General and administrative                         405,293           984,824
  Interest expense                                   375,574           410,331
  Provision for credit losses                            -             547,000
                                                   ---------           -------

    TOTAL EXPENSES                                 1,390,880         2,754,389
                                                   ---------         ---------

INCOME BEFORE INCOME TAX EXPENSE                     405,165           209,093

INCOME TAX EXPENSE                                   149,911            77,364
                                                     -------            ------

NET INCOME                                         $ 255,254         $ 131,729
                                                   =========         =========

NET INCOME PER COMMON SHARE
  Diluted                                            $  0.11           $  0.06
                                                     =======           =======
  Basic                                              $  0.11           $  0.06
                                                     =======           =======

WEIGHTED AVERAGE NUMBER OF SHARES
    OUTSTANDING
  Diluted                                          2,327,016         2,322,160
  Basic                                            2,324,138         2,318,878
------------------------------------------------------------- ---------------
</TABLE>










                 See Notes to Consolidated Financial Statements
                                        3


<PAGE>


<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                          YEAR ENDED DECEMBER 31, 1998
                    AND THE THREE MONTHS ENDED MARCH 31, 1999

<CAPTION>

                                                                       Additional Paid    Treasury         Retained                 
                                                         Common Stock     in Capital       Stock           Earnings        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>               <C>                                   <C>             <C>             <C>             <C>            <C>         
Balance - January 1, 1998 ...........................   $     40,000    $ 18,852,312    $ (5,030,594)   $  9,702,322   $ 23,564,040

Amortization of treasury stock
acquisition costs ...................................         28,084          28,084

Conversion of Convertible
Subordinated Notes to 2,132 shares
of common stock .....................................         15,990          15,990

3,500 Options exercised .............................         21,870          21,870

Net Loss ............................................     (6,055,513)     (6,055,513)
                                                         ------------    ------------    ------------    ------------   ------------

Balance  - December 31, 1998 ........................   $     40,000    $ 18,874,182    $ (4,986,520)   $  3,646,809   $ 17,574,471

Amortization of treasury stock
acquisition costs (unaudited) .......................          4,074           4,074

Conversion of Convertible
Subordinated Notes to 133 shares of
common stock (unaudited) ............................            998             998

Net Income (Unaudited) ..............................        255,254         255,254
                                                          ------------    ------------    ------------    ------------   -----------

Balance - March 31, 1999 ............................   $     40,000    $ 18,874,182    $ (4,981,448)   $  3,902,063   $ 17,834,797
                                                         ============    ============    ============   ============   ============

</TABLE>

                 See Notes to Consolidated Financial Statements
                                        4


<PAGE>


<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                     <CAPTION>
 Three Months Ended March 31
-------------------------------------------------------------------------------------------------
                                                                           1999            1998
-------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net Income .................................................   $    255,254    $    131,729
      Adjustments to reconcile net income
           to cash provided by operating activities:
           Depreciation - net ....................................         13,000          36,000
           Provision for credit losses ...........................           --           547,000
           Changes in operating assets and liabilities:
               Other assets ......................................        442,657         650,091
               Accounts payable and accrued expenses .............       (489,575)        132,503
               Income taxes receivable and deferred
                    income taxes .................................        160,941         (88,800)
               Income taxes payable ..............................           --          (240,226)
                                                                     ------------    ------------ 
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................        382,277       1,168,297
                                                                     ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of receivables and advances .......................    (63,915,174)    (70,968,743)
      Collection of receivables, including life insurance
           contracts, and advances ...............................     66,480,661      66,474,575
      (Decrease)/Increase in credit balances of factoring clients      (2,024,903)        394,436
      Purchase of furniture, fixtures and equipment ..............        (11,957)        (19,069)
                                                                      ------------    ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES .................        528,627      (4,118,801)
                                                                      ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from line of credit ...............................     32,592,132      49,565,581
      Principal payments on line of credit .......................    (34,495,000)    (47,720,112)
      Treasury stock acquisition costs ...........................          4,071              (5)
      Options exercised ..........................................           --             5,620
                                                                      ------------      ---------
NET CASH PROVIDED (USED) BY FINANCING
      ACTIVITIES .................................................     (1,898,797)      1,851,084
                                                                      ------------    ------------

NET (DECREASE) IN CASH ...........................................       (987,893)     (1,099,420)

CASH, Beginning of period ........................................      2,420,644       4,200,050
                                                                      ------------    ------------

CASH, End of period ..............................................   $  1,432,751    $  3,100,630
                                                                      ============      =========
                                                                                    (Continued)


</TABLE>
                                        5


<PAGE>


<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)

<CAPTION>
                                                    Three Months Ended March 31
                                                      1999                1998
--------------------------------------------------------------------------------
<S>                                                  <C>              <C>   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
      INFORMATION:

      Interest paid                                   $ 388,691       $ 410,331
                                                      ==========      =========

      Income taxes paid                               $   8,529       $ 390,226
                                                      ==========      =========

SUPPLEMENTAL SCHEDULE OF NONCASH
      ACTIVITIES


      Conversion of Factoring Clients to ABL Loans   $9,309,511       $    -
                                                     ==========        ======

      Issuance of common stock in exchange
           for convertible subordinated notes          $    998       $   2,000
                                                      =========       =========
                                                                    (Concluded)
</TABLE>





See Notes to Consolidated Financial Statements
6


<PAGE>


                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  General.  The  consolidated   financial  statements  of  Allstate  Financial
Corporation and subsidiaries  (the "Company")  included herein are unaudited for
the periods ended March 31, 1999 and 1998; 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, 1999 are not necessarily indicative of the results of operations to be
expected for the remainder of the year.

It is  suggested  that  these  consolidated  financial  statements  be  read  in
conjunction  with  the  consolidated  financial  statements  and  notes  thereto
included in Allstate  Financial  Corporation's  Annual Report on Form 10-KSB for
the year ended December 31, 1998.

2.  Line of  Credit.  As of  March  31,  1999,  the  Company  had  approximately
$4,500,000  available under a $25,000,000  secured revolving line of credit. The
revolving line of credit  contains  various sub facilities  which limit its use.
The entire  facility is  available  for  borrowings  by the  Company  secured by
Factored Accounts Receivable or Collateralized Advances backed by pledged client
receivables;  however,  the Company may (i) borrow  only  $5,000,000  secured by
Collateralized  Advances backed by client  machinery and equipment,  (ii) borrow
only $2,000,000  secured by Collateralized  Advances backed by client inventory,
and (iii)  issue up to  $5,000,000  of letters of credit.  Borrowings  under the
credit  facility bear interest at a spread over the bank's base rate or a spread
over LIBOR, at the Company's election. The Company is subject to covenants which
are typical in revolving credit  facilities of this type. At March 31, 1999, the
Company was in default of the financial  covenant related to interest  coverage,
and has received  waivers of those defaults from the participants in the line of
credit. The current maturity date of this credit facility is May 12, 2000.

3. Certain  Contingencies.  The Company was a defendant in Skiba, Trustee (f/k/a
White, Trustee) v. Allstate Financial Corporation in the U.S. District Court for
the Western District of Pennsylvania. The Company provided receivables financing
and advances  for Lyons  Transportation  Lines,  Inc.  ("Lyons"),  which filed a
bankruptcy  petition  subsequent to a leveraged  buy-out (the LBO).  The Trustee
brought  suit against the Company  making  fraudulent  conveyance  and breach of
contract  claims and the Company  counter-claimed  for its  attorneys'  fees and
costs.  The case was tried in December  1998,  at which time a jury found in the
Company's  favor both as to the  Trustee's  claims,  as well as on the Company's
counter-claim  against the Trustee for the Company's  legal fees and costs.  The
court  entered a judgment in favor of the Company and against the  Trustee.  The
Trustee  noted an appeal  on  January  11,  1999.  There was an  indemnification
agreement between the Trustee and principal creditor/person of the Lyons Estate,

                                        7
<PAGE>

Sherwin-Williams.  According to the agreement,  Sherwin-Williams  was ultimately
responsible for payment of such judgement.

In connection with the same LBO, the Company was also named in January,  1994 as
a defendant in Sherwin-Williams Company v. Robert Castello, et.al. in the United
States District Court for the Northern District of Ohio.  Sherwin-Williams  sued
parties  involved  in the Lyons LBO to recover  damages  allegedly  incurred  by
Sherwin-Williams  in connection with the LBO and Lyons'  subsequent  bankruptcy.
Sherwin-Williams  asserted  that it had incurred  pension fund  liabilities  and
other damages as a result of the Lyons  transaction  and asserted claims against
the Company and its  co-defendants  for such sums.  During the first  quarter of
1999, the Company and Sherwin-Williams  agreed to settle Sherwin-Williams claims
against the Company in return for the Company's agreement to forego the judgment
entered  in the  Company's  favor  in  Skiba,  Trustee  vs.  Allstate  Financial
Corporation.  All parties  executed a  settlement  agreement  in March 1999 with
mutual  releases as to all claims and all  parties.  The  Company  filed a joint
motion with the Lyons Trustee to have such settlement approved as to the Trustee
and the Company in the Western District of Pennsylvania  bankruptcy  proceeding,
and the Court  granted it on April 22,  1999.  The U.S.  District  Court for the
Northern District of Ohio has now dismissed  Sherwin-Williams  Company v. Robert
Castello, et.al as to all parties as well.

The Company is a  counterclaim  defendant in Allstate  Financial  Corporation v.
A.G.   Construction,   Inc.  (n/k/a  A.G.  Plumbing,   Inc.),  American  General
Construction   Corp.,  Adam  Guziczek  and  Cheryl  Lee  Guziczek   (hereinafter
collectively  referred to as "AG") pending in the United States Bankruptcy Court
for the Southern District of New York. In a 1993 action the Company undertook an
attempt to recover against AG. An answer and  counterclaim was filed against the
Company.  The counterclaim  asserted claims for usury,  diversion of proceeds of
public improvement contracts, and overpayments to the Company by AG in excess of
$2,000,000  (hereinafter the "Counterclaims").  No specific damage claims amount
was set forth in the Counterclaims.

No action was ever  taken by the  trustee in the AG  bankruptcy  proceedings  to
pursue the  Counterclaims.  On June 2, 1997,  the trustee for the AG  bankruptcy
estate filed a motion to abandon these claims against the Company. On October 7,
1997, New York Surety Company (hereinafter  referred to as the "Surety"),  which
provided  the  payment  and  performance  bond  to AG  in  connection  with  the
construction jobs performed for the City of New York, filed pleadings  objecting
to the  abandonment  of such claims  against the Company,  asserting that it was
subrogated to AG's claims.  The proposed  complaint adopts the Counterclaims and
seeks an accounting.  The Surety asserts damages of approximately $4,000,000. On
April 9, 1998, the bankruptcy court remanded the matter to state court.

On  June  24,  1998,  the  Surety  was  formally   declared   insolvent  by  the
Superintendent of Insurance of the State of New York (hereinafter referred to as
the "Superintendent") and as such the Superintendent was judicially appointed as
rehabilitator  of the  Surety to  conduct  its  business.  At this  time,  it is
uncertain  whether the  Superintendent  will  continue to pursue the  litigation
against the Company.


                                        8
<PAGE>

The  Company  believes it has  meritorious  defenses  to the  Counterclaims  and
intends to  vigorously  defend all claims.  However,  the  litigation  is in the
preliminary stage and the probability of a favorable or unfavorable  outcome and
the potential  amount of loss, if any, cannot be determined or estimated at this
time.

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 other proceedings will have a material adverse effect on the Company.

4. Credit  Concentrations.  For the quarter  ended March 31, 1999 three  clients
accounted for 53.7% of the  Company's  total earned  discounts and interest,  as
compared to 88.0% for the quarter  ended  December 31, 1998.  At March 31, 1999,
these three  clients  accounted for 28.3% of the  Company's  total  receivables,
while at December 31, 1998 these three clients accounted for 48.7%.

5. Subsequent Event. On May 13, 1999, Business Funding of America, Inc. ("BFA"),
a  wholly  owned  subsidiary,   entered  into  an  agreement  with  a  financial
institution   (the   "Assignment   Agreement")   to  purchase  a  portfolio   of
approximately   $32,500,000  of  asset-based   loans.  BFA  paid  a  premium  of
approximately  $329,000  to the  seller  as  consideration  for  the  Assignment
Agreement.  The  Company is required  to pay the  principal  amount of the loans
outstanding to the seller on or before June 15, 1999, and has applied to several
financial  institutions  for an  increased  line of credit,  on terms  which are
comparable  to  those  contained  in the  current  agreement,  to  complete  the
purchase.  Although  the  Company  believes  that such a line of  credit  can be
obtained on acceptable terms,  there can be no assurance that such financing can
be obtained.  If the Company  fails to pay the amounts due to the seller  before
June  15,  1999 or the  date is not  otherwise  extended,  the  premium  will be
forfeited and such assets will not be transferred to the Company.








                      [THIS SPACE INTENTIONALLY LEFT BLANK]





                                        9


<PAGE>



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

FORWARD-LOOKING INFORMATION

This Form 10-QSB contains certain  "forward-looking  statements" relating to the
Company  which  represent  the  Company's   current   expectations  or  beliefs,
including,  but not limited to, statements  concerning the Company's operations,
performance,  financial  condition and growth. For this purpose,  any statements
contained in this Form 10-QSB that are not statements of historical  fact may be
deemed to be 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 negative or other variation
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,  seasonally,  and  variability of quarterly  results,  ability of the
Company  to  continue  its  growth   strategy,   competition,   and   regulatory
restrictions  relating to potential new activities,  certain of which are beyond
the  Company's  control.  Should  one or more of these  risks  or  uncertainties
materialize  or  should  the  underlying  assumptions  prove  incorrect,  actual
outcomes  and  results  could  differ  materially  from those  indicated  in the
forward-looking statements.

GENERAL

The Company is a commercial  finance  institution  which  provides  financing to
small and  middle-market  businesses,  usually  those  with  annual  sales of $1
million to $30  million,  through  the  discounted  purchase  of  invoices  with
recourse  to the  seller,  and through  loans  secured by  accounts  receivable,
inventory,  machinery and equipment,  and real estate. In addition,  the Company
provides other financial  assistance to businesses in the form of guarantees and
letters of credit.  Through its offering of both the  purchase of invoices  with
recourse  to the seller  ("Recourse  Factoring"  or  "Factoring")  and  advances
secured by accounts  receivable,  inventory,  machinery and equipment,  and real
estate  ("Asset-Based  Lending" or "ABL"), the Company provides its clients with
the ability to expand  their  working  capital and acquire  productive  business
assets. The Company may also allow a client to use the Company's credit standing
by  providing a letter of  guaranty  or by  obtaining a letter of credit for the
client from the Company's  bank.  These forms of credit  enhancement are used by
the clients to acquire inventory for sale to their customers.  Through its range
of products,  the Company  believes it offers a single  source of financing  for
these businesses throughout their life cycles.

The Company's  clients do not typically  qualify for traditional  bank financing
because they are either too new, too small,  undercapitalized  (over-leveraged),
unprofitable or otherwise  unable to satisfy the  requirements of a bank lender.
Accordingly,  there is a significant risk of default and client failure inherent
in the Company's business.

In its Factoring and ABL businesses,  the Company faces  competition  from other
factoring  companies,  asset-based  lenders,  diversified lenders who offer both
products,  and commercial banks who offer secured financing.  Due to the size of
facilities that it offers, the Company

                                       10
<PAGE>

competes   with  both  regional   sources  of  financing   and  large   national
organizations.  Many of these competitors have significant financial,  marketing
and  operational  resources,  and may have access to capital at lower costs than
the Company can obtain.

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 qualify for more competitively priced bank or asset-based financing within
that time period, or would be liquidated. Therefore, the Company's major clients
have  tended to change  significantly  over time.  Today,  however,  because the
Company  is  offering  a wider  range of  products,  at lower  rates than it has
historically,   it  is  possible  that  the  length  of  the  Company's  funding
relationships  with its  clients  may be  extended.  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.

The Company's  subsidiary  Lifetime  Options,  Inc.  manages a portfolio of life
insurance  policies  it  purchased  from  individuals  facing   life-threatening
illnesses. During 1997, Lifetime Options ceased purchasing policies.

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

LIQUIDITY AND CAPITAL RESOURCES

The  Company's  requirement  for  capital  is a  function  of the  level  of its
investment  in  receivables.  The  Company  funds this  investment  through  its
revolving bank credit line, its convertible  subordinated  notes, and internally
generated funds.

The Company  maintains a $25  million  revolving  line of credit with a group of
banks.  The line of credit is  secured  by  substantially  all of the  Company's
assets.  The total  facility  may be used by the Company to fund the purchase of
invoices  or  advances  secured  by  accounts  receivable.  There are  sublimits
available for the funding of advances  secured by client inventory and machinery
and  equipment,  and for  issuance  of  letters  of  credit  by the bank  group.
Borrowings  under the line of credit bear interest at the agent bank's base rate
or a margin over the London  Interbank  Offering Rate, at the Company's  option.
The credit line has covenants of the type which are typical of those required of
borrowers in the Company's  business line. At March 31, 1999, the Company was in
default of the financial covenant related to interest coverage, and has received
waivers of those  defaults  from the  participants  in the line of  credit.  The
maturity date of the line of credit is May 12, 2000.

The Company also has outstanding approximately $5 million in aggregate principal
amount of  convertible  subordinated  notes of which  $361  thousand  are due in
September 2000 and $4.6 million are due in September 2003. The Company  believes
that  borrowings  under  its  current  credit  facility,  the  proceeds  of  the
convertible   subordinated  notes,  and  internally   generated  funds  will  be
sufficient to finance the Company's funding requirements for the near term.

                                       11

<PAGE>

YEAR 2000 DISCLOSURES

The Year 2000 issue is the result of computer  programs  being written using two
digits  rather  than  four  digits  to  define  the  applicable  year.  Computer
equipment,  software  and  other  devices  with  embedded  technology  that  are
time-sensitive  may recognize a date using "00" as the year 1900 rather than the
year 2000.  This could  result in system  failures  or  miscalculations  causing
disruptions of operations,  including, among other things, a temporary inability
to process  transactions,  send  invoices,  or engage in other  normal  business
activities.  The inability of business  processes to function  correctly in 2000
could have serious  adverse  effects on companies  and entities  throughout  the
world.  Management has determined that the  consequences of its Year 2000 issues
could have a material  adverse  effect on the Company's  business,  results,  or
financial  condition if the Company and certain  material  third  parties do not
become Year 2000 compliant.

The  Company  has  identified  all  significant  information  technology  ("IT")
applications  that are not Year 2000  compliant.  Management does not believe it
has any non-IT  systems,  (those other than  computers or software which include
microprocessors),  which are not certified by their  vendors as  compliant.  The
Company has determined to replace all of the  non-compliant  IT applications and
hardware  with  applications  and hardware  certified by third party  vendors as
compliant and tested for compliance.  The first phase of Year 2000  remediation,
identifying the appropriate replacement  applications,  has been completed.  The
second phase, purchasing or contracting to license or purchase the applications,
is expected to be completed  prior to May 31, 1999.  Each new system selected is
"off the shelf", and is certified Year 2000 compliant,  so, therefore, the third
phase, installation and testing, will be limited and is expected to be completed
by July 31, 1999. The fourth phase,  limited conversion of certain existing data
to the replacement systems, is expected to be substantially completed at the end
of the testing phase, and finally  completed before September 30, 1999. The cost
of becoming Year 2000 compliant through  acquisition of new systems is estimated
at $100  thousand,  of which $5 thousand has been incurred for the quarter ended
March 31,1999. The funds for these expenditures are available from the Company's
expected cash flows during the periods of expenditure.

The Company's IT systems are not  interdependent  with those of any third party.
Major  suppliers,  who are  primarily  telecommunications  companies,  financial
institutions  and public  utilities,  have disclosed that they do not expect any
significant   interruptions   in  their   businesses.   The   Company  has  sent
questionnaires  to its clients and material  obligors,  and will evaluate  their
responses  prior to September  30, 1999.  If a material  client or obligor has a
business  interruption,  the Company's operations could be affected. In the most
likely worst case Year 2000 scenario,  the Company will not be able to determine
whether certain clients and obligors have unresolved Year 2000 issues,  and some
clients and obligors  may have  business  interruptions  even though the Company
believes they will be compliant.  In these cases,  the Company may have to cease
doing  business  with  clients or  obligors  that could have a material  adverse
effect on the  Company's  financial  condition.  The Company has not  determined
whether such possible events may have a material adverse effect on its financial
condition,  but is continuing to analyze the uncertainty  through monitoring the
Year 2000 compliance efforts of clients and obligors.


                                       12
<PAGE>

A  contingency  plan  has not yet  been  developed  for  dealing  with  the most
reasonably  likely  worst case  scenario.  The Company  expects to complete  its
analysis and contingency planning by September 30, 1999.

RESULTS OF OPERATIONS

The  following  table sets forth  certain  items of revenue  and expense for the
periods  indicated and indicates the  percentage  relationships  of each item to
total revenue.
<TABLE>
<CAPTION>

                                                            Three Months Ended March 31,
----------------------------------------------------------------------------------------------
                                                           1999                   1998
----------------------------------------------------------------------------------------------
                                                        (Unaudited)           (Unaudited)
<S>                                               <C>            <C>     <C>             <C>  
REVENUE
  Earned discounts and interest ...............   $1,614,471     89.9%   $2,436,665      82.2%
  Fees and other revenue ......................      181,574     10.1       526,817      17.8
                                                  ----------   --------   ----------   -------

    TOTAL REVENUE .............................    1,796,045    100.0%    2,963,482     100.0%
                                                  ----------   -------    ---------    -------

EXPENSES
  Compensation and fringe benefits ............      610,013     33.9       812,234      27.4
  General and administrative ..................      405,293     22.5       984,824      33.2
  Interest expense ............................      375,574     21.0       410,331      13.8
  Provision for credit losses .................         --         --       547,000      18.5
-----------------------------------------------   ----------     ----    ----------     ----- 

    TOTAL EXPENSES ............................    1,390,880     77.4     2,754,389      92.9
                                                  ----------     ----    ----------     ----- 

INCOME BEFORE INCOME TAX EXPENSE ..............      405,165     22.6       209,093       7.1

INCOME TAX EXPENSE ............................      149,911      8.3        77,364       2.6
-----------------------------------------------   ----------     ----     ----------     ----- 

NET INCOME ....................................   $  255,254     14.3%   $  131,729       4.5%
                                                   ==========    =====      =======   =========

NET INCOME PER COMMON SHARE
  Diluted .....................................   $  0.11                $    0.06
                                                    =======               =========
  Basic .......................................   $  0.11                $    0.06
                                                    =======               =========

WEIGHTED AVERAGE NUMBER OF SHARES
    OUTSTANDING
  Diluted .....................................    2,327,016              2,322,160
  Basic .......................................    2,324,138              2,318,878
                                                  ----------           -------------
</TABLE>






                                       13

<PAGE>

  Total Revenue. Total revenue consists of (i) discounts on purchased invoices
earned  in the  Company's  factoring  business  from the  purchase  of  accounts
receivable,  interest  earnings on ABL  advances  receivable,  and (ii) fees and
other  revenue,  which  consist  primarily of  application  fees,  commitment or
facility  fees,  other  transaction  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  "graduating"
to a lower cost source of funding).

The  following  table breaks down total revenue by type of  transaction  for the
periods indicated and the percentage relationship of each type of transaction to
total revenue.
<TABLE>
<CAPTION>

                                                              For the Three Months Ended March 31,
                                                            1999                                   1998
------------------------------------------ ----------------- -------------------- ----------------- ----------------
             Type of Revenue                  Earned Revenue              Percent     Earned Revenue         Percent
------------------------------------------ ----------------- -------------------- ----------------- ----------------
<S>                                               <C>                       <C>          <C>                   <C> 
Discount on purchased invoices                    $ 380,691                21.2%        $1,308,990            44.2%

Earnings on advances                                                                                                
    Receivable                                    1,233,780                 68.7         1,127,675             38.0

Fees and other revenue                              181,574                 10.1           526,817             17.8
                                                    -------                 ----           -------             ----
                                           
Total revenue                                    $1,796,045               100.0%        $2,963,482           100.0%
                                                 ==========               =====         ==========           ===== 

</TABLE>


Total revenue decreased by 39.4% in the three months ended March 31, 1999 versus
the same  period in 1998,  to $1.8  million  from  $3.0  million.  Within  total
revenue,  discounts on purchased  invoices decreased 70.9% in the March 31, 1999
quarter as  compared  to the March 31,  1998  quarter.  The  volume of  invoices
purchased  was  $13.1  million  in the three  months  ending  March 31,  1999 as
compared to $44.2  million in the  comparable  period in 1998,  a $31.1  million
decrease.  The major reasons for the decrease include: (1) the Company converted
two large clients from factoring  relationships  to asset based loans; and (2) a
client  whose  volume was included in the March 31, 1998 volume in the amount of
$36.7  million  has filed for  bankruptcy.  The  average  earned  discount  as a
percentage of total invoices  purchased in the three months ended 1999 was 2.9%.
The  comparable  average  percentage  in the  same  period  in  1998  was  2.5%,
representing an increase of 16.0%.  As the  composition of the Company's  client
base may change over time,  there is no assurance  that the  increased  discount
level can be maintained.

Earnings on advances  receivable  increased by 9.4% in the three  months  ending
March 31,  1999  versus  the same  period in 1998.  The  earnings  increase  was
attributable to a higher average balance of advances  receivable,  $23.8 million
in the March 31, 1999 quarter versus $19.9 million in the March 31, 1998 quarter
due to the client  conversions  from factoring to ABL  relationships  previously
noted, and a higher yield on the portfolio, 15.6% versus 12.9%, respectively. As
a result of the  Company's  intent to increase  its ABL business to decrease the
risk in the  portfolio,  the  composition  of the  Company's ABL client base may
change over time, and there is no assurance  that the increased  yield level can
be maintained.

                                       14
<PAGE>

Fees and other revenue  decreased  65.6% in three months ended March 31, 1999 as
compared  to the same  period in 1998,  to $182  thousand  from  $527  thousand,
respectively.  The  difference  was due to the  reduction  in  transaction  fees
related to the decreased volume of Purchased Receivables.

COMPENSATION AND FRINGE BENEFITS. In three months ended March 31, 1999 and 1998,
compensation and fringe benefits were $610 thousand (34.0% of total revenue) and
$812 thousand (27.4% of total revenue), respectively. The lower compensation and
fringe  benefits during 1999 were chiefly the result of a decrease in the number
of employees.

GENERAL AND ADMINISTRATIVE  EXPENSE.  Total general and  administrative  expense
decreased by $579  thousand  (58.9%) to $405 thousand from $984 thousand for the
three month periods ended March 31, 1999 compared with 1998. Rent,  office,  and
selling  expenses were down 29%, 39%, and 71%,  respectively,  due to closing an
office  the  Company  had  maintained  in  New  York.   Client   litigation  and
professional fees decreased 78% and 68%, respectively, due to a decrease in open
legal cases.

INTEREST  EXPENSE.  Interest  expense was $376 thousand (21.0% of total revenue)
versus $410 thousand  (13.9% of total  revenue) for the three months ended March
31, 1999 and 1998,  respectively.  The decrease in interest expense is primarily
attributable to a decrease in the average interest rate on the Company's line of
credit. The average interest rate paid on the Company's line of credit decreased
to 7.5% for the  three  months  ended  March  31,  1999  from  8.1%  during  the
comparable  period  in  1998.  The  average  daily  outstanding  balance  on the
Company's line of credit was $13.2 million and $13.4 million for the three-month
periods  ended March 31, 1999 and 1998,  respectively.  Interest  expense on the
Convertible Subordinated Notes was comparable in the three months ended March 31
1999 to that in the comparable period of 1998.

PROVISION FOR CREDIT  LOSSES.  During the three months ended March 31, 1999, the
Company had charge-offs of $78 thousand,  while  recovering  $177 thousand.  Net
recoveries for the three months ended March 31, 1999 of $99 thousand resulted in
an increase to allowance for credit losses, bringing it to $2.9 million, or 8.9%
of  total  receivables  (net of  earned  income),  exclusive  of life  insurance
policies,  outstanding as of March 31, 1999.  None of the allowance at March 31,
1999  was  allocated  to  non-performing  accounts,  which  are  carried  at net
realizable value of $2.9 million.  During the three months ended March 31, 1998,
the Company had  charge-offs  of $274 thousand  while  recovering  $13 thousand,
resulting in net  charge-offs  of $261  thousand.  The  Company's  provision for
credit  losses of $547 thousand in the three months ended March 31, 1998 brought
the allowance for credit losses to $2.8 million,  or 8.0% of receivables (net of
earned income).


                                       15
<PAGE>

The following  table  provides a summary of activity in the Company's  allowance
for losses for the three-month periods ending March 31, 1999 and 1998.



                                                 Three Months Ended
                                                      March 31,
                                            1999                     1998
                                           -----                     ----

                                                 (In Thousands)
Allowance for Credit Losses

Balance Beginning of Period          2,800        7.8%       2,739        7.2%
Additions                                -                     547         1.4
Write-Offs                             (78)      (0.2)        (274)       (0.7)
Recoveries                             177        0.5           13         0.0
                                       ---        ---           --         ---

Balance - End of Period            $ 2,899        8.2%     $ 3,025        8.0%
                                   =======        ====     =======        ====




At March 31, 1999, the Company is maintaining a larger reserve for losses (in an
absolute amount and as a percentage of receivables net of life insurance polices
and unearned  revenue) than at December 31, 1998. There has been a deterioration
in the  collateral  position of the Company's  largest  client,  an  asset-based
borrower,  which has caused the amount of their  advance as of March 31, 1999 to
be larger  than the amount to which  they were  entitled  based on their  agreed
collateral  formula.  The Company  determines overall reserve levels based on an
analysis which takes into account a number of factors  including a determination
of the risk involved with each individual client, plus additional considerations
based on concentration and asset class, such as the "overformula"  advance cited
above.  Based on this  analysis,  the Company  believes the allowance for credit
losses is adequate in light of the risks  inherent in the portfolio at March 31,
1999. The Company is carefully  monitoring the  overformula  advance and working
with  its  client  to  correct  it,  but  there  can be no  assurance  that  the
overformula  situation,  particularly as it is concentrated  with a single large
client, could not have a material adverse effect on the Company.






                      [THIS SPACE INTENTIONALLY LEFT BLANK]







                                       16
<PAGE>

RECEIVABLES

Receivables consist of the following:


                                      March 31, 1999     December 31, 1998
----------------------------------------------------------------------------
Invoices                              $11,829,274            $23,731,826
  Less: Unearned discount              (1,409,726)            (3,299,175)
  Less: Participations                   (759,425)              (759,424)
Life Insurance policies                 2,629,057              2,629,057
                                        ---------              ---------

Total Purchased receivables           $12,289,180            $22,302,284
                                     =============           ===========

Advances receivable                   $23,746,383            $16,288,673
  Less: Unearned discount                (547,658)              (636,216)
                                         --------               -------- 

Total Advances receivable             $23,198,725            $15,652,457
                                    =============            ===========
-------------------------------------------------- ----------------------

Non-performing receivables included within the above totals were $2.9 million at
March 31,1999 and $3.8 million at December 31,1998.

From  time to time,  a single  client  or  single  industry  may  account  for a
significant portion of the Company's  receivables.  As detailed in Note 4 to the
Financial  Statements,  three clients each  accounted for more than 10% of total
earned  discounts  and interest for the three month periods ended March 31, 1999
and December 31, 1998.  These three clients  portion of total  revenue  declined
39.0% for the quarter  ended  March 31,  1999 as  compared to the quarter  ended
December 31, 1998. In addition, these three clients portion of total receivables
outstanding  decreased  23.3% from  December 31, 1998 to March 31, 1999.  During
1998, the Company adopted a policy to generally restrict the size of any one new
client to a maximum of $3  million,  and to take steps to reduce the size of the
two existing  clients who are  currently  over that limit.  Although the Company
carefully monitors client and industry concentration,  there can be no assurance
that the risks associated with client or industry concentration could not have a
material adverse effect on the Company.

SUBSEQUENT EVENT

As detailed in note 4 to the  consolidated  financial  statements for the period
ended March 31, 1999 as presented  in form 10-QSB,  the Company has entered into
an  agreement  to acquire a portfolio of asset based  loans.  The  purchase,  if
completed, would substantially increase the size of the Company's ABL portfolio.
The Company expects that an increase in personnel experienced in negotiating and
servicing  ABL  relationships  will be  required  to  administer  the  accounts.
Appropriate  staff has been identified and arrangements have been made to open a
loan servicing  office in Illinois.  The  receivables to be acquired  consist of
borrowers that are primarily  located in the Midwest.  The Company  expects that
the acquisition

                                       17

<PAGE>

will improve the geographic  dispersion of the ABL  portfolio,  most of which is
currently  concentrated in four East Coast states and  California,  and that the
increase in the overall size of the receivable  base will lessen the reliance on
a small  number of  clients  for  substantial  portions  of total  interest  and
discount revenue, as well as decreasing the risks of asset concentration.


                           PART II - OTHER INFORMATION


ITEM 1. - LEGAL PROCEEDINGS

For details regarding legal proceedings,  see Note 3 to the unaudited  financial
statements contained in this Form 10-QSB.

ITEM 3. - DEFAULTS UPON SENIOR SECURITIES

As discussed in Note 2 to the unaudited financial statements, the Company was in
default of certain financial covenants related to interest coverage requirements
with  respect to its line of credit.  The Company has  received  waivers of such
defaults.  There can be no assurance that such defaults will not re-occur in the
future or that any future defaults will also be waived.

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

The  Company's  proxy  statement  on  Schedule  14A  dated  April  15,  1999  is
incorporated by reference.

ITEM 6(a). - EXHIBITS

EXHIBIT 10.  EMPLOYMENT CONTRACTS

Employment and Compensation Agreement with Charles G. Johnson dated as of
 January 20, 1999.

EXHIBIT 27.  FINANCIAL DATA SCHEDULE

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

None.








                                       18


<PAGE>



                                   SIGNATURES

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

                         ALLSTATE FINANCIAL CORPORATION



Date:     May 17, 1999            /s/ Charles G. Johnson           
                                  ---------------------------------
                                      Charles G. Johnson
                                      Chief Executive Officer

Date:    May 17, 1999             /s/ C. Fred Jackson              
                                  ---------------------------------
                                      C. Fred Jackson
                                      Chief Financial Officer






                                       19