U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

                For the quarterly period ended September 30, 1999

Commission File Number     0-17832

                         ALLSTATE FINANCIAL CORPORATION

--------------------------------------------------------------------------------
                (Name of registrant as specified 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

--------------------------------------------------------------------------------
                         (Registrant's telephone number)

         Indicate  by check  mark  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 November 5, 1999, was 2,324,616.

                     [THIS SECTION INTENTIONALLY LEFT BLANK]


<PAGE>



                         ALLSTATE FINANCIAL CORPORATION
                                   FORM 10-QSB

                                      INDEX

                                                                      Page
                                                                      Number

PART I - FINANCIAL INFORMATION

Item 1 -  Financial Statements

    Consolidated Balance Sheets at September 30, 1999 and
    December 31, 1998                                                          4

    Consolidated Statements of Operations for the Three and Nine
    Months Ended September 30, 1999 and 1998                                   5

    Consolidated Statements of Shareholders' Equity for the Nine Months
    Ended September 30, 1999 and the Year Ended December 31, 1998              6

    Consolidated Statements of Cash Flows for the Nine Months Ended
    September 30, 1999 and 1998                                                7

    Notes to Consolidated Financial Statements                              8-11

Item 2 -  Management's Discussion and Analysis or Plan of
         Operation                                                         12-22

PART II - OTHER INFORMATION

     Item 1 - Legal Proceedings                                               23

     Item 3 - Defaults Upon Senior Securities                                 23

     Item 6 - Exhibits and Reports on Form 8-K                                23

     Signatures                                                               24

                                       2
<PAGE>




                         PART I - FINANCIAL INFORMATION

                                       3
<PAGE>

<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<CAPTION>
                                                                                         September 30,    December 31,
                                                                                             1999              1998
                                                                                             ----              ----
                                                                                         (UNAUDITED)
                    ASSETS

<S>                                                                                      <C>             <C>
CASH .................................................................................   $    492,243    $  2,420,644
                                                                                          ------------    -----------

Purchased receivables ................................................................      6,763,944      22,302,284
ADVANCES RECEIVABLE ..................................................................     20,161,557      15,652,457
                                                                                         ------------    ------------
                                                                                            26,925,501     37,954,741
LESS: ALLOWANCE FOR CREDIT LOSSES ....................................................    (11,787,839)     (2,799,931)
                                                                                          ------------    -----------
TOTAL RECEIVABLES - NET ..............................................................     15,137,662      35,154,810
                                                                                         ------------    ------------

Income tax receivable ................................................................          8,824         831,656
Deferred income taxes ................................................................           --         3,960,946
Furniture, fixtures and equipment, net ...............................................        222,267         166,400
OTHER ASSETS .........................................................................         26,327         653,957
--------------------------------------------------------------------------------------   ------------    ------------
TOTAL ASSETS .........................................................................   $ 15,887,323    $ 43,188,413
                                                                                         ============    ============
                             LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accrued expenses ................................................   $    796,754    $  1,081,655
Credit balances of factoring clients .................................................        413,144       4,559,570
Notes payable ........................................................................      7,570,666      15,014,717
CONVERTIBLE SUBORDINATED NOTES .......................................................      4,954,000       4,958,000
--------------------------------------------------------------------------------------   ------------    ------------
TOTAL LIABILITIES ....................................................................     13,734,564      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; 2,324,616 outstanding at September
    30, 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, 781,212 shares at September 30, 1999

    and 781,745 shares at December 31, 1998 ..........................................     (4,970,301)     (4,986,520)

  (DEFICIT) RETAINED EARNINGS ........................................................    (11,791,122)      3,646,809
                                                                                         ------------    ------------
TOTAL SHAREHOLDERS' EQUITY ...........................................................      2,152,759      17,574,471
--------------------------------------------------------------------------------------   ------------    ------------
                                                                                         $ 15,887,323     $43,188,413
                                                                                         ============     ===========


                 See Notes to Consolidated Financial Statements
</TABLE>

                                       4
<PAGE>

<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>

                                           THREE MONTHS ENDED SEPTEMBER 30,  NINE MONTHS ENDED SEPTEMBER 30,
                                                1999            1998               1999          1998
                                                ----            ----               ----          ----
                                              (UNAUDITED)     (UNAUDITED)     (UNAUDITED)     (UNAUDITED)
<S>                                         <C>             <C>             <C>             <C>
REVENUE .................................
  Earned discounts and interest .........   $    592,511    $  1,831,083    $  2,805,244    $  6,846,331
  FEES AND OTHER REVENUE ................         34,736         244,966         359,182       1,253,401

    TOTAL REVENUE .......................        627,247       2,076,049       3,164,426       8,099,732

EXPENSES

  Compensation and fringe benefits ......        523,171         700,026       1,786,867       2,640,356
  General and administrative ............        563,375       1,712,599       2,318,024       4,803,356
  Interest expense ......................        319,874         482,308       1,030,839       1,341,463
  Provision for credit losses ...........        800,000       3,865,502       9,176,057       9,323,503
  RESTRUCTURING CHARGE ..................        259,221            --           259,221            --

    TOTAL EXPENSES ......................      2,465,641       6,760,435      14,571,008      18,108,678

LOSS BEFORE INCOME TAX EXPENSE ..........     (1,838,394)     (4,684,386)    (11,406,582)    (10,008,946)

INCOME TAX EXPENSE (BENEFIT) ............          9,500      (1,732,913)      4,031,349      (3,703,000)

NET LOSS ................................   $ (1,847,894)   $ (2,951,473)   $(15,437,931)   $ (6,305,946)


NET LOSS PER COMMON SHARE  - BASIC ......   $      (0.79)   $      (1.27)   $      (6.64)   $      (2.72)

WEIGHTED AVERAGE NUMBER OF SHARES - BASIC      2,324,616       2,320,966       2,324,400       2,321,195


                 See Notes to Consolidated Financial Statements
</TABLE>

                                       5
<PAGE>


<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                          YEAR ENDED DECEMBER 31, 1998
                  AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
                                 COMMON STOCK     ADDITIONAL      TREASURY        RETAINED         TOTAL
                                                   PAID IN         STOCK          EARNINGS/
                                                   CAPITAL                        (DEFICIT)

<S>                              <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                                       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                                       12,221                          12,221

Conversion of Convertible
Subordinated Notes to 533
shares of common stock                                                3,998                           3,998

NET LOSS (UNAUDITED) .........                                                  (15,437,931)    (15,437,931)


BALANCE - SEPTEMBER 30, 1999 .   $     40,000   $ 18,874,182   $ (4,970,301)   $(11,791,122)   $  2,152,759






                 See Notes to Consolidated Financial Statements
</TABLE>
                                       6
<PAGE>

<TABLE>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                                         Nine Months Ended September 30

                                                                                               1999                  1998
CASH FLOWS FROM OPERATING ACTIVITIES:                                                        (UNAUDITED)          (UNAUDITED)
<S>                                                                                        <C>                   <C>
      Net Loss                                                                             $(15,437,931)         $(6,305,946)
      Adjustments to reconcile net loss
           to cash provided by operating activities:
           Depreciation - net                                                                     53,587              313,000
           Loss on disposition of furniture, equipment, and
               Automobiles                                                                        65,440               51,497
           Provision for credit losses                                                         9,176,057            9,323,503
           Changes in operating assets and liabilities:
               Other assets                                                                      627,630            4,078,056
               Accounts payable and accrued expenses                                           (284,901)            1,408,795
               INCOME TAXES RECEIVABLE AND DEFERRED INCOME TAXES                               4,783,778          (4,122,740)

NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES                                             (1,016,340)            4,746,165

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of receivables and advances                                                 (106,562,864)        (169,947,755)
      Collection of receivables, including life insurance
           contracts, and advances                                                           117,403,655          156,445,190
      (Decrease)/Increase in credit balances of factoring clients                            (4,146,426)            2,904,273
      Sale of automobiles                                                                          6,800
      PURCHASE OF FURNITURE, FIXTURES AND EQUIPMENT                                            (181,394)             (50,197)

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                                               6,519,771         (10,648,489)

CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from line of credit                                                            76,427,897          101,014,904
      Principal payments on line of credit                                                  (83,871,948)         (96,509,963)
      Treasury stock acquisition costs                                                            12,219                    -
      OPTIONS EXERCISED                                                                                -               21,860

NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                             (7,431,832)            4,526,801

NET DECREASE IN CASH                                                                         (1,928,401)          (1,375,523)

CASH, BEGINNING OF PERIOD                                                                      2,420,644            4,200,050

CASH, END OF PERIOD                                                                            $ 492,243          $ 2,824,527


INTEREST PAID                                                                                  $ 283,111          $ 1,341,463

INCOME TAXES PAID                                                                              $    -               $ 418,051

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                                                   $  3,998            $  12,990

                 See Notes to Consolidated Financial Statements
</TABLE>

                                       7
<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  September  30,  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 nine
months ended September 30, 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. SENIOR AND  SUBORDINATED  DEBT. The Company is operating  under a forbearance
agreement  negotiated with its bank lenders.  The line of credit availability at
September 30, 1999 is limited to the lesser of  $10,000,000  and a percentage of
the Company's  collateral  position less a fixed amount. The $10,000,000 line of
credit is reduced as collections of certain assets are received. As of September
30, 1999 the Company had approximately  $1,300,000 available.  The interest rate
on the line of credit is equal to the agent  lender's base rate plus 2.25%.  The
agreement  was  scheduled to expire  October 31, 1999, at which time all amounts
under the line of credit  was to become  due.  The  Company is seeking to obtain
replacement  financing  or to sell some of its  assets to repay the  lenders  in
whole or in part,  and the Company  obtained  an  extension  of the  forbearance
period to November 30, 1999. See Note 7.

The  Company  has  obtained  a  $1,000,000  working  capital  loan  from a major
stockholder.  The working  capital loan bears a 10% rate of  interest,  which is
payable quarterly,  and repayment terms of 25% of collections of certain assets.
The outstanding  balance of the loan is due March 31, 2000. The Company may seek
to extend the due date of the  outstanding  balance of the loan. As of September
30, 1999, the Company owed $1,000,000 on the working capital loan.

The Company also has  outstanding  $4,954,000 in aggregate  principal  amount of
convertible  subordinated notes, of which $357,000 are due in September 2000 and
$4,597,000  are due in  September  2003.  The Company is currently in default on
certain financial  covenants relating to the subordinated debt due September 30,
2003. There are no financial covenants in the convertible  subordinated debt due
September 30, 2000.

3. CERTAIN  CONTINGENCIES.  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

                                       8
<PAGE>

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 Surety's  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.

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 a 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 nine months ended September 30, 1999,  three
clients accounted for 30.9% of the Company's total earned discounts and interest
as  compared  to  50.3%  for the same  period  in 1998.  For the  quarter  ended
September  30, 1999,  three clients  accounted for 39.0% of the Company's  total
earned  discounts  and  interest,  as compared  to 60.9% for the  quarter  ended
September 30, 1998.

At September 30, 1999, three clients  accounted for 49.5% of the Company's total
receivables,  while at December 31, 1998 three clients  accounted for 48.7%. All
three of the Company's largest clients at September 30, 1999 are non-performing.

5. STOCK OPTIONS. The Company maintains two stock option plans: (1) an Incentive
Stock  Option  Plan  (Qualified),  and (2) a  Non-Qualified  Stock  Option  Plan
(Non-Qualified). The Company continues to account for stock options under APB 25
and provides the additional disclosures as required by SFAS No. 123.

QUALIFIED PLAN

The Company has reserved  275,000  shares of common stock for issuance under its
qualified stock option plans.  Options to purchase common stock are granted at a

                                       9
<PAGE>

price equal to the fair  market  value of the stock on the date of grant or 110%
of fair market value of the stock at the date of grant for  stockholders  owning
10% or more of the combined voting stock of the Company.

NON-QUALIFIED PLAN

The Company has reserved  150,000  shares of common stock for issuance under its
non-qualified  stock option plan. Options to purchase shares of common stock are
granted  at a price  equal to the fair  value of the  stock at the date of grant
except in the case of options  granted to  directors,  in which case the minimum
price is the greater of $7.00 or 110% of fair value at the time of grant.

The table  below  summarizes  the option  activity  for both the  Qualified  and
Non-Qualified Stock Option plans for the nine months ended September 30, 1999:

                      Nine Months Ended September 30, 1999

   Outstanding January 1                                            219,600
   Granted                                                          155,000
   Exercised                                                              -
   FORFEITED OR EXPIRED                                             (87,200)
   OUTSTANDING                                                      287,400
   EXERCISABLE                                                      272,021

The weighted  average fair value at the date of grant for options granted during
1999 was $0.77.  The fair  value of  options at the date of grant was  estimated
using the  Black-Scholes  model with an expected option life of 3.0 years,  zero
dividend yield, interest rates of 5.70% and volatility of 161%.

                      Nine Months Ended September 30, 1999

   Per share
   Outstanding January 1                                              $6.37
   Granted                                                             6.03
   Exercised                                                              -
   FORFEITED OR EXPIRED                                               (5.74)
   OUTSTANDING                                                        $6.28
   EXERCISABLE                                                        $6.34

The Company's net loss would have been  increased by $100,218 or $0.04 per share
basic and dilutive for the nine months ended  September 30, 1999, in stock-based
compensation  cost for the Company's  qualified and  non-qualified  stock option
plans if the cost of the plans had been  determined  based on the fair  value at
the grant dates for awards under the plans.

6. NEW ACCOUNTING PRONOUNCEMENT.  IN JUNE OF 1998, THE FASB ISSUED SFAS NO. 133,
ACCOUNTING FOR DERIVATIVE  INSTRUMENTS  AND HEDGING  ACTIVITIES.  This statement
establishes  accounting  and  reporting  standards  for  derivative  instruments
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities. It requires a company to recognize all derivatives as either
assets or liabilities  in the balance sheet and to measure those  instruments at
fair value.  This statement is effective for fiscal years  beginning  after June
                                       10
<PAGE>

15, 2000.  Management  is in the process of evaluating  the potential  impact of
this standard on the Company's financial position and results of operations.

7.  SUBSEQUENT  EVENTS.  The  Company's  board of directors  elected to evaluate
alternatives to increase shareholder value,  including  investigating  strategic
and financial  partners or purchasers for the factoring and ABL  businesses.  On
October 29, 1999 the Company  sold the  Purchased  Receivables  and the Advances
Receivable related to its Factoring business to Metro Factors,  Inc.  ("Metro"),
for  $5,990,252,  a price that  approximated  the  carrying  value of the assets
involved.  Simultaneous  with the sale, the Company purchased a participation in
certain of the Advances  Receivable  associated  with the Factoring  clients for
$1,528,796.  Metro will act as the servicer with regard to these participations.
The Company  will receive a premium  over time based on the  performance  of the
Purchased  Receivables sold. The Company did not record any gain or loss on this
transaction.  See the Proforma financial  statements in Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations  under the
Subsequent Events section.  Management has also met with potential purchasers of
other assets, and continues to explore a sale or refinancing.

On November 8, 1999,  the Company's  lenders  agreed to extend the  Forebearance
Agreement  into which they and the Company  had  entered on August 1, 1999.  The
term of the agreement  was extended to November 30, 1999,  and the amount of the
facility  was  decreased to  $3,500,000  or the  availability  as defined in the
revolving credit agreement, whichever is less. The interest rate on the facility
is a rate equal to the agent lender's base rate plus 2.25%. The Company plans to
use a portion of the  proceeds of the sale of other  assets to repay the lenders
before the  expiration  of the  agreement.  In the event that the Company is not
able to repay the lenders,  there can be no  assurance  that the Company will be
able to continue  to operate on an  independent  basis or that the  shareholders
will receive any distributions if the Company is liquidated.

                     [THIS SECTION INTENTIONALLY LEFT BLANK]

                                       11
<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,  seasonality,  and variability of quarterly  results,  ability of the
Company to continue its business plan, 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.

SUBSEQUENT EVENTS

The Company's  board of directors  elected to evaluate  alternatives to increase
shareholder value, including  investigating  strategic and financial partners or
purchasers for the factoring and ABL businesses. On October 29, 1999 the Company
sold the  Purchased  Receivables  and the  Advances  Receivable  related  to its
Factoring business to Metro Factors, Inc. (Metro), for a price that approximated
the  carrying  value of the assets  involved.  Simultaneous  with the sale,  the
Company  purchased  a  participation  in  certain  of  the  Advances  Receivable
associated  with the  Factoring  clients.  Metro will act as the  servicer  with
regard to these  participations.  The net consideration  received by the Company
was approximately $4.5 million, plus a premium to be received over time based on
the  performance of the Purchased  Receivables  sold. The Company did not record
any gain or loss on this  transaction.  Management  has also met with  potential
purchasers of other assets.

                     [THIS SECTION INTENTIONALLY LEFT BLANK]

                                       12
<PAGE>


Pro-Forma Financial Statement

The following tables shows the Company's  Pro-forma  Condensed Balance Sheet and
Statement of  Operations  as of September  30, 1999  adjusted by the sale of the
purchased receivables.

                             Pro-forma Balance Sheet

                                         BEFORE SALE   SALE OF   AFTER SALE OF
                                          OF ASSETS    ASSETS      ASSETS

Cash .....................................   $   493     4,407    $ 4,900
Total Receivables, net ...................    15,138    (4,758)    10,380
OTHER ASSETS .............................       257      --          257
TOTAL ASSETS .............................   $15,888   $  (351)   $15,537
                                             =======   =======    =======

Total liabilities ........................   $13,735   $  (351)   $13,384
TOTAL SHAREHOLDERS' EQUITY ...............     2,153      --        2,153
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $15,888   $  (351)   $15,537
                                             =======   =======    =======

<TABLE>

                        Pro-forma Statement of Operations
<CAPTION>

                                                      BEFORE SALE OF    SALE OF ASSETS  AFTER SALE OF
                                                           ASSETS                         ASSETS

<S>                                                     <C>            <C>            <C>
REVENUE
  Earned discounts and interest .....................   $     2,805    $    (1,093)   $     1,712
  Fees and other revenue ............................           359           (313)            46
  INCOME FROM DISCONTINUED OPERATIONS ...............          --              141            141
    TOTAL REVENUE ...................................         3,164         (1,265)         1,899

EXPENSES
  Compensation and fringe benefits ..................         1,787           (568)         1,219
  General and administrative ........................         2,318           (513)         1,805
  Interest expense ..................................         1,031           (438)           593
  Provision for credit losses .......................         9,176           --            9,176
  Restructuring Charge ..............................           259           (259)          --
  INCOME TAX EXPENSE ................................         4,031           --            4,031
    Total Expenses ..................................        18,602         (1,778)        16,824

NET LOSS ............................................   $   (15,438)   $       513    $   (14,925)
                                                        ===========    ===========    ===========

NET LOSS PER COMMON SHARE - Basic ...................   $     (6.64)   $      0.22    $     (6.42)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC     2,324,400      2,324,400      2,324,400
                                                        ===========    ===========    ===========
</TABLE>

ASSUMPTIONS

Balance  Sheet - The  Pro-forma  Balance  Sheet  adjusts the  September 30, 1999

                                       13

<PAGE>

Balance Sheet by the sale of the factoring  portfolio.  Since the portfolio sale
took place on October  29,  1999 and the Balance  Sheet is dated  September  30,
1999, there were some immaterial  fluctuations  between the book balances of the
factoring portfolio on September 30, 1999 and October 29, 1999.  Therefore,  the
Pro-forma Balance Sheet does not represent actual account balances on any date.

Statement of  Operations - The  Pro-forma  Statement of  Operations  adjusts the
Statement of Operations for the nine months ending  September 30, 1999 as if the
sale of the  factoring  portfolio  took place on  January  1, 1999.  The sale of
assets column in this  pro-forma are  management's  estimates as to what revenue
and  expenses  would and would have been earned or incurred  had the sale of the
factoring portfolio taken place on January 1, 1999.

The proceeds of the sale were used to reduce the  Company's  line of credit,  in
accordance with the forbearance agreement. This paydown in the Company's line of
credit is not reflected in the above Pro-forma Balance Sheet.

Subsequent events, continued

On November  8,1999,  the Company's  lenders  agreed to extend the  Forebearance
Agreement  into which they and the Company  had  entered on August 1, 1999.  The
term of the agreement  was extended to November 30, 1999,  and the amount of the
facility was  decreased to $3.5  million or the  availability  as defined in the
revolving credit agreement, whichever is less. The interest rate on the facility
is a rate equal to the agent lender's base rate plus 2.25%. The Company plans to
use a portion of the  proceeds of the sale of other  assets to repay the lenders
before the  expiration  of the  agreement.  In the event that the Company is not
able to repay the lenders,  there can be no  assurance  that the Company will be
able to continue  to operate on an  independent  basis or that the  shareholders
will receive any distributions if the Company is liquidated.

GENERAL

The Company is a commercial  finance  institution,  which provides  financing to
small businesses,  usually those with annual sales of $1 million to $10 million.
Through  its  offering of 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'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 bank lenders.
Accordingly,  there is a significant risk of default and client failure inherent
in the Company's business.

The Company faces  competition from factoring  companies,  asset-based  lenders,
diversified lenders,  and commercial banks that offer secured financing.  Due to
the size of facilities that it offers,  the Company  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.  Although  the  Company  has

                                       14
<PAGE>

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 was materially  adversely  affected
when the financial  condition of its three largest clients  deteriorated in June
30, 1999 quarter.  The curtailment of the Company's credit line according to the
terms of the  forebearance  agreement  limited the Company's  ability to replace
those clients, which has had 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 any 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  levels of its
investment in  receivables  and its operating  results.  The Company funds these
needs  through  its  revolving  credit  line,  its  working  capital  loan,  its
convertible subordinated notes, and internally generated funds.

The Company is operating under a forbearance  agreement negotiated with its bank
lenders. The line of credit availability at September 30,1999 was limited to $10
million  or a  percentage  of the  Company's  collateral  position  less a fixed
amount. The $10 million line of credit was reduced by the sale proceeds from the
Purchased  Receivables as  collections  of certain  assets were received.  As of
September 30, 1999 the Company had approximately  $1.3 million available under a
$9.9 line of  credit.  The  interest  rate on the line of credit is equal to the
agent lender's base rate plus 2.25%. The agreement  expired October 31, 1999, at
which time the Company requested and received an extension to November 30, 1999.
The Company is still  seeking to obtain  replacement  financing or to sell other
assets to repay  the  lenders  in whole or in part.  See the  subsequent  events
sections in the notes to the financial statement and management's discussion and
analysis.

The  Company  has  obtained  a $1  million  working  capital  loan  from a major
stockholder.  The working  capital loan bears a 10% rate of  interest,  which is
payable quarterly,  and repayment terms of 25% of collections of certain assets.
The outstanding  balance of the loan is due March 31, 2000. The Company may seek
to extend the due date of the  outstanding  balance of the loan. As of September
30, 1999, the Company owed $1 million on the working capital loan.

The Company is also seeking to obtain  replacement  financing or to sell some of
its assets to repay the lenders in whole.  There can be no assurance  that these
efforts will be  successful.  Given the Company's  current cash position and the
restrictions  on the use of the  line of  credit  imposed  by the  lenders,  the
Company is not in a position  to fund or acquire  new  clients.  The  Company is
currently working with its current ABL clients to meet their needs. In addition,
because of the amount of non performing assets in the portfolio,  the Company is
not operating profitably,  and does not expect to return to profitability unless
it can add new  performing  assets to the  portfolio,  which is dependent on the
Company's  ability to obtain  replacement  financing.  The Company is  currently
reviewing options to cut costs and increase liquidity,  including selling all or
a portion of the ABL portfolio, and using the proceeds to repay the lenders, and
has  contacted  new  sources of  financing.  The  Company  has met with  several
potential buyers of this portfolio.  Should the Company sell the portfolio,  the

                                       15
<PAGE>

Company may incur costs to eliminate the positions associated with the portfolio
sold.

The Company had expended  approximately $500 thousand in the first six months of
1999  relating to  acquiring a $30  million ABL  portfolio  and a $5 million ABL
company.  Since the Company has decided not to pursue  either the  portfolio  or
company,  no further funds will be expended for these purposes during the second
half of 1999.

The Company also has outstanding approximately $5 million in aggregate principal
amount of  convertible  subordinated  notes,  of which $357  thousand are due in
September  2000 and $4.6  million  are due in  September  2003.  The  Company is
currently in default on certain financial covenants relating to the subordinated
debt due September 30, 2003. There are no financial covenants in the convertible
subordinated debt due September 30, 2000.

The Company  believes that the proceeds of the working capital loan,  borrowings
under its current credit  facility (as modified by the  forbearance  agreement,)
and internally generated funds from the collection of non-performing assets will
be sufficient  to finance the Company's  working  capital  requirements  for the
remainder of 1999.  Further,  the Company  believes  that,  given the results of
efforts to date to obtain new financing or to sell assets to increase liquidity,
it will generate sufficient funds to repay the existing lenders.  However, there
can be no assurance that collections from non-performing assets or sale of other
assets can be  accomplished  in the  required  time frames,  or that  sufficient
replacement  financing can be obtained to restore the portfolio to a level where
the Company can operate profitably.

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
date-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  or upgrade  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 completed. Each new system selected is "off the shelf", and
is certified Year 2000 compliant,  and, therefore, the third phase, installation
and  testing,  will be limited and is expected to be  completed  by November 30,

                                       16
<PAGE>

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  December 31, 1999.  The cost of
becoming Year 2000 compliant through  acquisition of new systems is estimated at
$50 thousand, all of which has been incurred.

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 has evaluated  their
responses.  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.  Due  to the  Company's  reduced  size,  the  Company  has
determined  that such  possible  events are unlikely to have a material  adverse
effect on its  financial  condition.  The Company  will  continue to analyze the
uncertainty  through  monitoring the Year 2000 compliance efforts of clients and
obligors.

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.

                         Nine Months Ended September 30

                                          1999                    1998
                                      (UNAUDITED)             (UNAUDITED)
REVENUE ..........................                     %                     %
  Earned discounts and interest ..   $  2,805,244     88.6  $  6,846,331   84.5
  FEES AND OTHER REVENUE .........        359,182     11.4     1,253,401   15.5
    TOTAL REVENUE ................      3,164,426    100.0     8,099,732  100.0

EXPENSES

  Compensation and fringe benefits      1,786,867     56.5     2,640,356   32.6
  General and administrative .....      2,318,024     73.3     4,803,356   59.3
  Interest expense ...............      1,030,839     32.6     1,341,463   16.6
  Provision for credit losses ....      9,176,057    290.0     9,323,503  115.1
  RESTRUCTURING CHARGE ...........        259,221      8.1          --      --
    TOTAL EXPENSES ...............     14,571,008    460.5    18,108,678  223.6

LOSS BEFORE INCOME TAX EXPENSE ...    (11,406,582)  (360.5)  (10,008,946)(123.6)

INCOME TAX EXPENSE (BENEFIT) .....      4,031,349    127.4    (3,703,000) (45.7)

NET LOSS .........................   $(15,437,931)  (487.9) $ (6,305,946) (77.9)
                                     ============   =====    ============ =====

NET LOSS PER COMMON SHARE - BASIC    $      (6.64)          $      (2.72)
                                     ============            =============

WEIGHTED AVERAGE NUMBER OF SHARES       2,324,400               2,321,195


                                       17
<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 and 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 those clients
"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.

                     For the Nine Months Ended September 30,
                                      1999                 1998
             TYPE OF REVENUE                    %                       %

Discount on purchased invoices   $  982,183    31.0   $3,733,476      46.1

Earnings on advances .........    1,823,061    57.6    3,112,855      38.4

FEES AND OTHER REVENUE .......      359,182    11.4    1,253,401      15.5

TOTAL REVENUE ................   $3,164,426   100.0   $8,099,732     100.0
                                 ==========   =====   ==========   =====

                    For the Three Months Ended September 30,
                                    1999               1998
             TYPE OF REVENUE                    %                    %

Discount on purchased invoices   $  288,910    46.1   $1,117,357    53.8

Earnings on advances .........      303,601    48.4      713,726    34.4

FEES AND OTHER REVENUE .......       34,736     5.5      244,966    11.8

TOTAL REVENUE ................   $  627,247   100.0   $2,076,049   100.0
                                 ==========   =====   ==========   =====

Total  revenue  decreased by 60.9% in the nine months ended  September  30, 1999
versus the same period in 1998, to $3.2 million from $8.1 million.  In the three
months ended  September 30, 1999,  total  revenue  decreased by 69.8% versus the
same period in 1998, to $627 thousand from $2.1 million.

Within total revenue,  discounts on purchased invoices decreased 73.7% and 74.1%
in the  September 30, 1999 nine month and three month periods as compared to the

                                       18
<PAGE>

same  periods in the prior year.  The volumes of invoices  purchased  were $35.2
million and $9.9 million in the nine and three months ending  September 30, 1999
as  compared  to $107.4  million  and $30.7  million in the nine and three month
periods  ending  September  30,1998,  representing  67.2% and  67.8%  decreases,
respectively.  The  major  reasons  for the  decreases  were a  conversion  of a
significant  client  from  a  factoring  relationship  to an  Asset  Based  Loan
relationship and a reduced flow of factoring  business as the Company emphasized
its ABL line in 1999.  The average  earned  discounts as a  percentage  of total
invoices  purchased in the nine and three months ended  September  30, 1999 were
2.8% and 2.9%. The comparable average  percentages in the 1998 periods were 3.2%
and 3.6%,  representing  decreases of 12.5% and 19.4%.  The  decreases  were the
result of the default of a client in 1998.

Earnings on  advances  receivable  decreased  by 41.4% and 57.5% in the nine and
three month periods ending September 30, 1999 versus the comparable year earlier
periods.  The earnings  decreases were attributable to the three largest clients
defaulting  on their  loans  during the second  quarter of 1999.  Fees and other
revenue decreased in the nine and three months ended September 30, 1999 by 71.3%
and 85.8% as compared to the September 30, 1998 periods. Two of the same clients
that  defaulted on their loans during 1999 caused the majority of the  reduction
in transaction fees in 1999 as compared to 1998.

The  downward  trend in  revenue is highly  likely to  continue  throughout  the
remainder  of the year.  Given the  Company's  liquidity  position as  discussed
earlier,  the  Company  cannot  acquire  or fund  new  clients.  The sale of the
Factoring  portfolio will decrease  future  earnings,  and the Company may incur
certain costs in reducing staff levels in addition to the restructuring  charge,
if other portions of the portfolio are sold.

COMPENSATION AND FRINGE BENEFITS.  In the nine-month period ending September 30,
1999, compensation expense was $853 thousand lower than in the comparable period
in 1998.  Compensation  as a  percentage  of revenue  was up by 73.3% due to the
significantly  lower revenue.  In the  three-month  period ending  September 30,
1999, compensation expense was $177 thousand lower than in the comparable period
in 1998, while compensation as a percentage of revenue was up, by 147.5%,  again
due to lower revenue.  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 $2.5 million (51.7%) to $2.3 million from $4.8 million for the nine
month period ended  September 30, 1999  compared with 1998,  and by $1.1 million
(67.1%)  to $600  thousand  from  $1.7 for the three  month  period  then  ended
compared with the previous year. Client  litigation  expenses were $452 thousand
and $136 thousand for the nine and three month periods ending September 30, 1999
compared to $914  thousand and $284  thousand in the  corresponding  periods the
previous  year.  Other  professional  fees  increased $118 thousand for the nine
months and decreased  $109  thousand for the three months  ending  September 30,
1999  versus the same  periods in 1998.  Included  in G&A  expense  for the nine
months ended  September  30, 1999 was  approximately  $500  thousand in fees and
expenses paid in connection with the planned  purchase of a loan portfolio.  The
Company decided not to pursue the portfolio.

INTEREST EXPENSE.  Interest expense was $1.0 million versus $1.3 million for the
nine months ended September 30, 1999 and 1998,  respectively,  and $181 thousand
and $482 thousand respectively for the three months ended September 30, 1999 and
1998.  Interest  expense for the  nine-month  period  ended  September  30, 1999
includes a one-time payment of $20 thousand in  non-operating  interest due to a

                                       19
<PAGE>

tax agency.  The  decrease in interest  expense is primarily  attributable  to a
decrease in the average amount  outstanding and, for the nine-month period only,
a lower average interest rate on the Company's line of credit. The average daily
outstanding  balances on the  Company's  line of credit  were $10.4  million and
$15.6 million for the nine-month  periods and $7.3 million and $18.5 million for
the  three-month  periods ended September 30, 1999 and 1998,  respectively.  The
average  interest rate paid on the Company's  line of credit  decreased to 7.83%
for the nine months ended  September  30, 1999 from 8.07% during the  comparable
period in 1998, and increased to 9.63% from 8.05% during the three-month periods
then ended.  The increase in the quarter ending September 30, 1999 was due to an
increase  of 2  percentage  points by the  lender on the bank line of credit and
interest  on the  working  capital  loan which  bears an  interest  rate of 10%.
Interest  expense on the  Convertible  Subordinated  Notes was comparable in the
nine months and three months ended  September 30, 1999 to that in the comparable
periods of 1998.

PROVISION FOR CREDIT LOSSES.  During the three months ended  September 30, 1999,
the Company had charge-offs of $11 thousand,  while recovering $39 thousand,  as
compared  to  1998,  when the  comparable  figures  were  $3.7  million  and $40
thousand,  respectively. The Company provided $800 thousand for estimated losses
during the three months  ended  September  30, 1999,  compared to a $3.9 million
provision in third quarter of 1998.

For the  nine-month  period  ending  September  30,  1999,  the  Company  took a
provision  of $9.2  million as compared  to $9.3  million for the same period in
1998. Charge-offs for the nine months ended September 30, 1999 were $96 thousand
as compared to $3.7  million for 1998.  The  provision  taken  during 1999 is in
accordance  with the  Company's  policy of  increasing  reserves when it becomes
apparent that the Company's collateral position has deteriorated and the Company
will not realize the entire  amount of the loan  outstanding.  The Company has a
policy of charging-off amounts when the loss amount is reasonably  determinable.
The allowance for credit losses ended at a balance of $11.8 million at September
30, 1999 as compared to a balance of $7.9 million at September 30, 1998.

The following  table  provides a summary of activity in the Company's  allowance
for losses for the  three-month  periods ending  September 30, 1999 and 1998, in
dollars and percentages of the receivable portfolio.


                               Three Months Ended

                                  1999                 1998
                             (IN THOUSANDS)  %      (IN THOUSANDS)  %
ALLOWANCE FOR CREDIT LOSSES
Balance Beginning of Period   $ 10,960      40.7    $  2,739       6.6
Additions .................        800       3.0       8,823      21.2
Write-Offs ................        (11)      --       (3,740)     (9.0)
RECOVERIES ................         39       0.1          40       0.1
BALANCE - END OF PERIOD ...   $ 11,788      43.8    $  7,862      18.9
                              ========      ====    ========      ====

The  Company's  three  largest  clients,   all  classified  as   non-performing,
experienced  severe financial problems in the three month and nine month periods

                                       20
<PAGE>

ending  September  30, 1999. On September 30, 1999,  one client  refinanced  its
obligations to the Company with two notes. The first note is secured by a second
lien on all of the client's assets, and requires monthly interest plus principal
amortization.  The second note is an obligation of the client's principals,  and
is  secured  by their  stock in the  client's  parent  company.  Both notes bear
interest at rates that are lower than the original contractual rates. The client
defaulted  on the first note during the month of November  1999.  The Company is
working with the client to resolve this default and attempt  collection  on both
notes.  There can be no assurance  that the Company will realize any payments of
principal and interest and may have to incur further  provisions and write-downs
of this asset. The other two clients,  who are related through common ownership,
have ceased operations. The Company is pursuing legal action against the clients
and related  guarantors  to liquidate  collateral  and recover  amounts due. The
Company has allocated  $11.5  million of its  allowance  for losses  against the
$13.5  million  amount of the assets  involved with these three  clients,  which
management   deems   impaired.   However,   management  has  not  made  a  final
determination as to the amount of the losses that will actually be incurred.

The remaining  non-performing  assets have  previously  been written down to net
realizable value.

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. Based on this analysis,  the Company believes the
allowance for credit losses,  net of the amounts  allocated to specific impaired
accounts, is adequate in light of the risks inherent in the performing portfolio
at September 30, 1999.

RESTRUCTURING CHARGE

During the three-month  period ending September 30, 1999 the Company developed a
plan to sell certain finance assets to cut its outstanding senior debt and lower
its cost. As a result,  the Company  expected to incur certain costs of employee
severance,  termination of office and equipment leases. The total of these costs
was  estimated at $259  thousand,  and the Company  provided for these  expenses
through a charge to earnings  in the period.  As of November 8, 1999 the Company
has  disbursed  $202  thousand  of the  total.  The  balance is  expected  to be
substantially disbursed for the purposes intended by December 31, 1999.

                     [THIS SECTION INTENTIONALLY LEFT BLANK]

                                       21
<PAGE>

RECEIVABLES

Receivables consist of the following:

                        September 30, 1999 December 31, 1998
Invoices ..................   $  5,868,409    $ 23,731,826
  Less: Unearned discount .     (1,248,235)     (3,299,175)
  Less: Participations ....           --          (759,424)
LIFE INSURANCE POLICIES ...      2,143,770       2,629,057

TOTAL PURCHASED RECEIVABLES   $  6,763,944    $ 22,302,284
                              ============    ============

Advances receivable .......   $ 20,909,855    $ 16,288,673
  Less: Participations ....       (748,298)           --
  LESS: UNEARNED DISCOUNT .           --          (636,216)

TOTAL ADVANCES RECEIVABLE .   $ 20,161,557    $ 15,652,457
                              ============    ============


Life  insurance  policies  purchased are stated net of a valuation  allowance of
$760 thousand at September 30, 1999 and $275 thousand at December 31, 1998.  The
Company  periodically  updates  information  on  the  life  expectancies  of the
insureds,  and computes an  allowance  for the  difference  between the carrying
value of the policies and the policy benefit  amounts  discounted to the date of
the calculation.

Non-performing  receivables  included  within the above totals were $14.1
million at  September  30, 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  nine-month  periods ended  September 30,
1999 and  1998.  In  addition,  three  clients'  portion  of  total  receivables
outstanding  increased to 49.5% of the  portfolio  as of  September  30, 1999 as
compared to 48.7% of the  portfolio as of December 31,  1998.  During 1998,  the
Company adopted a policy to generally restrict the size of any one new client to
a maximum of $3 million.  Although  the Company  carefully  monitors  client and
industry   concentration,   the  risks   associated   with  client  or  industry
concentration  could have a material adverse effect on the Company.  The Company
was  materially  adversely  affected when the  financial  condition of its three
largest clients deteriorated in the nine-month period ended September 30, 1999.

INCOME TAXES

The  provision  for  income  taxes of $4.0  million  for the nine  months  ended
September 30, 1999 relates to a valuation allowance which completely offsets the
deferred tax asset. The Company recorded the valuation  allowance as of June 30,
1999, because it concluded that it was unlikely to generate  significant taxable
income for the foreseeable future.

NEW ACCOUNTING PRONOUNCEMENT

IN JUNE OF 1998,  THE  FASB  ISSUED  SFAS NO.  133,  ACCOUNTING  FOR  DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES.  This statement  establishes  accounting and

                                       22
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reporting  standards for derivative  instruments  including  certain  derivative
instruments embedded in other contracts, and for hedging activities. It requires
a company to recognize all  derivatives  as either assets or  liabilities in the
balance sheet and to measure those  instruments at fair value. This statement is
effective for fiscal years beginning  after June 15, 2000.  Management is in the
process of  evaluating  the  potential  impact of this standard on the Company's
financial position and results of operations.

                     [THIS SECTION INTENTIONALLY LEFT BLANK]

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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  on  several  financial  covenants  with  respect to its $10
     million line of credit.  The Company is operating under an extension of its
     forbearance  agreement that will expire November 30, 1999 with the lenders.
     The Company  believes that,  given the results of efforts to date to obtain
     new  financing or to sell assets to increase  liquidity,  it will  generate
     sufficient funds to repay the existing  lenders.  However,  there can be no
     assurance  that  collections  from  non-performing  assets or sale of other
     assets can be accomplished in the required time frames

ITEM 6(a). - EXHIBITS

     Exhibit  10.1  Material  Contract.  Agreement  for  Purchase  and  Sale  of
     Financing  Arrangements,  between Allstate Financial  Corporation and Metro
     Factors,  Inc.,  dated October  29,1999.  Portions of the exhibit have been
     omitted pursuant to a request for confidential treatment.

     Exhibit 10.2  Material Contract.  Extension of the Forbearance Agreement
dated August 1, 1999.

     Exhibit 27.  Financial Data Schedule

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

     Form 8-K filed September 7, 1999 is hereby  incorporated by reference.  The
Company  announced a short-term  working capital loan of $1 million from a large
shareholder.  The Company also  announced that it had entered into a forbearance
agreement with its senior debt lenders. No financial statements were required to
be filed.

     Form 8-K filed October 15, 1999 is hereby  incorporated  by reference.  The
Company reported that is was delisted from the Nasdaq National Stock Market.  No
financial statements were required to be filed.

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                                                     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:    NOVEMBER 15, 1999                                /S/ CHARLES G. JOHNSON
                                                          ----------------------
                                                              Charles G. Johnson
                                                         Chief Executive Officer

DATE:    NOVEMBER 15, 1999                                   /S/ C. FRED JACKSON
                                                             -------------------
                                                                 C. Fred Jackson
                                                         Chief Financial Officer