SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  FORM 10 - QSB

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

                         SECURITIES EXCHANGE ACT OF 1934



FOR QUARTER ENDED MARCH 31, 1998                  COMMISSION FILE NUMBER 0-17832

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


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


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



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



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

2,319,717 Common Shares were outstanding as of May 15, 1998.


<PAGE>




                         ALLSTATE FINANCIAL CORPORATION
                                   FORM 10-QSB
                                      INDEX

                                                                         Page
                                                                        Number
PART I - FINANCIAL INFORMATION

  Item 1 -  Financial Statements

      Consolidated Balance Sheets at March 31, 1998
      and December 31, 1997                                                1-2

      Consolidated Statements of Operations Three Months Ended
      March 31, 1998 and 1997                                                3

      Consolidated Statements of Shareholders' Equity Three
      Months Ended March 31, 1998 and Year Ended
      December 31, 1997                                                      4

      Consolidated Statements of Cash Flows Three Months Ended
      March 31, 1998 and 1997                                              5-6

      Notes to Consolidated Financial Statements                           7-10

  Item 2 -  Management's Discussion and Analysis of Results of
      Operations and Financial Conditions                                 11-17


PART II - OTHER INFORMATION

     Item 1 - Legal Proceedings                                             18

     Item 6 - Exhibits                                                      18

     Signatures                                                             19



<PAGE>





















                         PART I - FINANCIAL INFORMATION









<PAGE>


<TABLE>
<CAPTION>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                      March 31,     December 31,
                                                        1998             1997
                                                     -----------    ------------
                                                    (Unaudited)
                                     ASSETS



<S>                                                 <C>             <C>        
CURRENT ASSETS:                                      
     Cash ......................................    $ 3,100,630     $ 4,200,050
     Receivables:
         Finance Receivables, net ..............     38,192,059      33,847,276
         Receivables - Other, net ..............      2,591,312       2,988,927

     Prepaid expenses ..........................        205,058         127,741

     Deferred income taxes .....................      1,145,486       1,056,686
                                                    -----------     -----------

     TOTAL CURRENT ASSETS ......................     45,234,545      42,220,680

FURNITURE, FIXTURES AND EQUIPMENT, net .........        477,309         494,240

OTHER ASSETS, net ..............................      3,476,319       4,203,727
                                                    -----------     -----------

      TOTAL ASSETS .............................    $49,188,173     $46,918,647
                                                    ===========     ===========



                      LIABILITIES AND SHAREHOLDERS' EQUITY


CURRENT LIABILITIES:
     Accounts payable and accrued expenses .....    $   552,859     $   420,356
     Notes payable .............................     16,218,621      14,373,724
     Income tax payable ........................           --           240,226
     Credit balances of factoring clients ......      3,680,410       3,285,974
                                                    -----------     -----------

      TOTAL CURRENT LIABILITIES ................     20,451,890      18,320,280
                                                    -----------     -----------


                                        1

<PAGE>



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                   (continued)


                                                        March 31,   December 31,
                                                          1998          1997
                                                     -----------    ------------
                                                      (Unaudited)

NONCURRENT PORTION OF NOTES PAYABLE:
     Convertible Subordinated Notes and Other
         Non Current Notes .......................     5,032,899      5,034,327
                                                      ----------     ----------

         TOTAL LIABILITIES .......................    25,484,789     23,354,607
                                                      ----------     ----------

COMMITMENTS AND CONTINGENCIES

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

     Common stock,  authorized .................      10,000,000
         shares with no par value; .............       3,102,328
         issued,  2,319,717 outstanding at
         March 31, 1998 and 2,318,451 December
         31, 1997, exclusive of shares held in
         the Treasury ..........................         40,000          40,000

     Additional paid-in-capital ................     18,857,932      18,852,312

     Treasury Stock - 783,611 shares
         at March 31, 1998 and 783,877 at
         December 31, 1997  ....................    (5,028,599)     (5,030,594)

     Retained Earnings .........................     9,834,051       9,702,322
                                                  ------------    ------------

         TOTAL SHAREHOLDERS' EQUITY ............     23,703,384      23,564,040
                                                   ------------    ------------

                                                   $ 49,188,173    $ 46,918,647
                                                   ============    ============

</TABLE>

                 See Notes to Consolidated Financial Statements

                                        2

<PAGE>


<TABLE>
<CAPTION>

                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS




                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        1998             1997
                                                    -----------     ------------
                                                     (Unaudited)     (Unaudited)
<S>                                                  <C>             <C>       
REVENUE:
     Earned discount ...........................     $2,436,665      $2,292,585
     Fees and other income .....................        526,817         439,521
                                                     ----------      ----------

         Total Revenue .........................      2,963,482       2,732,106
                                                     ----------      ----------

EXPENSES:
     Compensation and fringe benefits ..........        812,234         731,950
     General and administrative expense ........        868,116         538,736
     Interest expense ..........................        410,331         403,997
     Provision for credit losses ...............        547,000         555,000
     Commission ................................        116,708          93,151
                                                     ----------      ----------

          TOTAL EXPENSES .......................      2,754,389       2,322,834
                                                     ----------      ----------

INCOME BEFORE INCOME TAXES .....................        209,093         409,272

INCOME TAXES ...................................         77,364         151,400
                                                     ----------      ----------

NET INCOME .....................................     $  131,729      $  257,872
                                                     ==========      ==========

NET INCOME PER COMMON SHARE
         Diluted ...............................     $      .06      $      .11
                                                     ==========      ==========
         Basic .................................     $      .06      $      .11
                                                     ==========      ==========

WEIGHTED AVERAGE NUMBER OF SHARES
         Diluted ...............................      2,322,160       2,321,199
                                                     ==========      ==========
         Basic .................................      2,318,878       2,317,919
                                                     ==========      ==========
</TABLE>




                 See Notes to Consolidated Financial Statements

                                        3

<PAGE>



<TABLE>
<CAPTION>
                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                          YEAR ENDED DECEMBER 31, 1997
                      AND THREE MONTHS ENDED MARCH 31, 1998


                                                        Common          Paid in        Treasury           Retained
                                                         Stock          Capital          Stock            Earnings          Total
                                                      ---------      -----------      ------------      -----------

<S>               <C>                               <C>              <C>              <C>               <C>              <C>        
BALANCE - January 1, 1997 ....................      $    40,000      $18,852,312      $(5,034,584)      $ 8,668,809      $22,526,537

  Conversion of Convertible
     Subordinated Notes to 532
     shares of Common Stock ..................             --               --              3,990              --              3,990

  Net Income .................................             --               --               --           1,033,513        1,033,513
                                                    -----------      -----------      -----------       -----------      -----------



BALANCE - December 31, 1997 ..................           40,000       18,852,312       (5,030,594)        9,702,322       23,564,040
  Conversion of Convertible
     Subordinated Notes to 266
     shares of Common Stock ..................             --               --              1,995              --              1,995
  1,000 options exercised at $5.620 ..........             --              5,620             --                --              5,620

  Net Income .................................             --               --               --             131,729          131,729
                                                    -----------      -----------      -----------       -----------      -----------

BALANCE - March 31, 1998 .....................      $    40,000      $18,857,932      $(5,028,599)      $ 9,834,051      $23,703,384
                                                    ===========      ===========      ===========       ===========      ===========
</TABLE>



                 See Notes to Consolidated Financial Statements

                                        4

<PAGE>



<TABLE>
<CAPTION>
                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        1998             1997
                                                    -----------     ------------
                                                     (Unaudited)     (Unaudited)
<S>                                                <C>             <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net Income .................................   $    131,729    $    257,872
    Adjustments to reconcile net income
      to cash provided by operating
       activities:
      Depreciation - net .......................         36,000          49,100
      Provision for credit losses ..............        547,000         555,000
      Changes in operating assets and
       liabilities:
         Decrease in other receivables .........        397,615          71,367
         (Increase)/Decrease in prepaid expenses        (77,317)         47,178
         Decrease in other assets ..............        727,408           2,644
         Increase/(Decrease) in accounts payable
           and accrued expenses ................        132,503         (15,941)
         (Increase)/Decrease in income taxes
           receivable and deferred income taxes         (88,800)        350,982
         (Decrease) in income taxes payable ....       (240,226)           --
                                                   ------------    ------------


NET CASH PROVIDED BY
    OPERATING ACTIVITIES .......................      1,565,912       1,318,202
                                                   ------------    ------------


CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of finance receivables,
      including repurchases and life
      insurance contracts ......................    (70,968,743)    (56,897,683)
    Collection of finance receivables,
      including accounts receivable,
      secured advances, repurchases
      and life insurance contracts .............     66,076,960      62,521,661
    Increase in credit balances of
      factoring clients ........................        394,436          34,922
    Purchase of furniture, fixtures
      and equipment ............................        (19,069)        (48,805)
                                                   ------------    ------------

NET CASH (USED FOR OR) PROVIDED BY
  INVESTING ACTIVITIES .........................     (4,516,416)      5,610,095
                                                   ------------    ------------


                                        5

<PAGE>



                 ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)


                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        1998             1997
                                                    -----------     ------------
                                                     (Unaudited)     (Unaudited)
ASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from line of credit and
         other borrowings ....................       49,565,581      20,527,792
     Principal payments on line of credit
         and other borrowings ................      (47,720,112)    (26,201,559)
     Treasury stock acquisition costs ........               (5)           --
     Exercise of Option ......................            5,620            --
                                                   ------------     ------------

NET CASH PROVIDED BY (OR USED
  IN) FINANCING ACTIVITIES ...................        1,851,084      (5,673,767)
                                                   ------------     ------------

NET (DECREASE)/INCREASE IN CASH ..............       (1,099,420)      1,254,530

CASH, Beginning of period ....................        4,200,050       1,624,899
                                                   ------------     ------------

CASH, End of period ..........................     $  3,100,630    $  2,879,429
                                                   ============    ============



SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:

     Interest paid ...........................     $    410,331    $    403,779
                                                   ============    ============

     Income taxes paid .......................     $    390,226    $       --
                                                   ============     ============

     Issuance of Common Stock in exchange
     for Convertible Subordinated Notes ......     $      2,000    $       --
                                                   ============     ============
</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
all periods ended March 31, 1998 and 1997; 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, 1998 are not necessarily indicative of the results of operations to be
expected for the remainder of the year.

It is  suggested  that  these  consolidated  financial  statements  be  read  in
conjunction  with  the  consolidated  financial  statements  and  notes  thereto
included in Allstate Financial Corporation's Annual Report on Form 10-KB for the
year ended December 31, 1997.

2. NET INCOME PER SHARE. In March 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 128,  "Earnings Per Share".  SFAS No. 128  supersedes APB
No. 15 to conform earnings per share with international  standards as well as to
simplify  the  complexity  of the  computation  under APB No.  15.  SFAS No. 128
requires dual  presentation of basic and diluted  earnings per share on the face
of the income  statement.  Basic  earnings  per share  excludes  dilution and is
computed  by  dividing   income   available  to  common   shareholders   by  the
weighted-average  number of common shares  outstanding  for the period.  Diluted
earnings  per  share  reflects  the  potential  dilution  that  could  occur  if
securities or other  contracts to issue common stock were exercised or converted
into common stock. SFAS No. 128 is effective for both interim and annual periods
ending after  December 15, 1997.  Accordingly,  the Company has adopted SFAS No.
128 and the basic and dilutive earnings per share are reflected in the statement
of operations.

3. LINE OF CREDIT.  As of March 31,  1998 the  Company  had  approximately  $8.4
million  available under a $25.0 million secured  revolving line of credit.  The
revolving line of credit  contains  various sub facilities  which limit its use.
The entire  facility is  available  for the  purchase  of  accounts  receivable;
however,  the Company may (i) borrow only $5.0 million  secured by machinery and
equipment,  (ii) borrow only $2.5 million secured by inventory,  and (iii) issue
up to $5.0 million 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.  The current  maturity date of this
credit facility is May 27, 2000.

4. CONVERTIBLE  SUBORDINATED  NOTES PAYABLE.  As of March 31, 1998 and March 31,
1997,  the Company had  outstanding  approximately  $4,972,000  and  $4,978,000,
respectively,  in aggregate  principal amount of Convertible  Subordinated Notes
issued in exchange for shares of the Company's common stock

                                        7

<PAGE>



(currently held by the Company as treasury stock). The Convertible  Subordinated
Notes  were  issued  in  exchange  for  785,475  shares  of  common  stock.  The
Convertible  Subordinated Notes (i) mature on September 30, 2000, (ii) currently
bear  interest at a rate of 9.5% per annum,  which rate of  interest  fluctuates
with the prime  rate,  but may not fall  below 8% nor rise  above 10% per annum,
(iii) are convertible into common stock of the Company at $7.50 per share,  (iv)
are  subordinated  in right of payment to the  Company's  obligations  under its
secured  revolving  credit facility and (v) were issued pursuant to an indenture
which contains certain covenants which are less restrictive than those contained
in the Company's  secured  revolving  credit  facility.  Upon the  occurrence of
certain "fundamental changes", the holders of the Convertible Subordinated Notes
have the right to have their Notes  redeemed at par. The results of the recently
concluded  proxy  contest for control of the  Company's  Board of Directors  may
constitute  a  "fundamental  change".  The two  largest  holders of  Convertible
Subordinated  Notes have indicated,  however,  that if a fundamental  change has
occurred,  they  have no  present  intention  to  request  that  their  Notes be
redeemed.

5. NEW  ACCOUNTING  PRONOUNCEMENTS.  In February  1997, The FASB issued SFAS No.
129,   DISCLOSURE  OF  INFORMATION  ABOUT  CAPITAL   STRUCTURE.   SFAS  No.  129
consolidates the existing guidance from several other pronouncements relating to
an  entities'capital  structure.  At March 31, 1998, the  implementation of this
statement did not  materially  impact the  presentation  of any component of the
Company's financial statements and related footnote disclosures.


     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This   pronouncement   establishes   standards  for  reporting  and  display  of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general purpose  financial  statements.  SFAS No. 130 is effective
for financial statements beginning after December 15, 1997. For the three months
ended March 31, 1998 and 1997 net income equaled comprehensive income.

     Additionally,  in June of 1997,  the FASB issued SFAS No. 131,  Disclosures
about  Segments  of  an  Enterprise  and  Related  Information.   SFAS  No.  131
establishes  standards for the way that public  enterprises  report  information
about operating  segments in the annual  financial  statements and requires that
those  enterprises  report  selected  information  about  operating  segments in
interim financial reports issued to shareholders.  It also establishes standards
for related disclosures about products and services,  geographic areas and major
customers.  SFAS No. 131 is effective for financial  statements  beginning after
December 15, 1997. At March 31, 1998, the  implementation  of this statement did
not  materially  impact  the  presentation  of any  component  of the  Company's
financial statements and related footnote disclosures.

6.  CERTAIN  CONTINGENCIES.  The  Company is a  defendant  in WHITE,  TRUSTEE V.
ALLSTATE  FINANCIAL  CORPORATION  pending in the U.S.  Bankruptcy  Court for the
Western District of Pennsylvania. The Company provided receivables financing and
advances for Lyons Transportation  Lines, Inc. ("Lyons").  Lyons was the subject
of a leveraged buy-out and subsequently  filed a bankruptcy  petition.  In 1991,
the Lyons' trustee brought an action against the Company  claiming,  among other
things,  fraudulent  transfer and breach of contract.  In late 1994, the Company
reached a settlement  agreement with the Lyons' trustee,  subject to approval by
the bankruptcy court, which would have released the Company from all claims upon
the payment of $300,000. In connection with the settlement, the Company paid and
added

                                        8

<PAGE>



$300,000  to the  provision  for  credit  losses  in  1994.  A  creditor  in the
bankruptcy  proceeding,  Sherwin-Williams  Company,  objected  to  the  proposed
settlement  amount  and, in March  1995,  the  objection  was  sustained  by the
bankruptcy  court.  The $300,000  previously paid by the Company was returned to
the  Company  in April  1996;  however,  the  Company  continues  to  maintain a
liability  for this  amount.  The matter is  currently  being  litigated  in the
District Court. It is anticipated  that the court will set a trial date later in
1998.  Management  does not believe at this time that the Company has a material
exposure  significantly  in  excess of the  previously  agreed  upon  settlement
amount.

     In  connection  with the same  transaction,  the  Company was also named in
January 1994 as a defendant in  SHERWIN-WILLIAMS  COMPANY V. ROBERT CASTELLO ET.
AL.  pending in the United States  District  Court for the Northern  District of
Ohio.  Sherwin-Williams  is  suing  all  parties  with  any  involvement  in the
transaction  to  recover  damages  allegedly  incurred  by  Sherwin-Williams  in
connection  with the leveraged  buy-out and the  bankruptcy  litigation  arising
therefrom.  Sherwin-Williams  asserts  that it has or will  incur  pension  fund
liabilities  and  other  liabilities  as a  result  of  the  transaction  in the
approximate amount of $11 million and has asserted claims against the Company in
that amount. The complaint asserts,  among other things,  that the purchasers of
Lyons breached their purchase  agreement with  Sherwin-Williams  by pledging the
assets of Lyons to the Company to obtain the down payment. The Company was not a
party to the purchase agreement. In response to the complaint, the Company filed
a motion to dismiss all claims. In March 1997, a Federal magistrate  recommended
to the  District  Court  that the  Company's  motion to  dismiss  the six claims
contained  in  the  original  complaint  be  granted.  However,  the  magistrate
recommended that the Company's motion to dismiss two new claims,  i.e., tortious
interference  with  contract and civil  conspiracy  to defraud,  contained in an
amended  complaint be denied.  The District  Court  sustained  the  magistrate's
recommendation.  The  Company  believes  that it has  meritorious  defenses  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. The case is scheduled for trial April 12, 1999.

     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 pending in the United
States  Bankruptcy  Court for the  Southern  District  of New York.  The Company
provided receivable financing to A.G. Construction,  Inc. (n/k/a/ A.G. Plumbing,
Inc.) in 1988 and to American  General  Construction  Corp.  (hereinafter,  A.G.
Construction, Inc. (n/k/a A.G. Plumbing) and American General Construction shall
be  collectively  referred  to as "AG")  in  1991.  AG's  primary  business  was
renovation of public housing for the City of New York.  Adam and Cheryl Guziczek
(hereinafter  collectively referred to as "Guziczek")  personally guaranteed the
obligation  due the  Company  under  the  financing  arrangement.  In  1993,  AG
defaulted on its obligations  under the financing  arrangement with the Company.
Thereafter,  the Company confessed  judgment against AG and Guziczek in Virginia
and  commenced  actions in New York to  enforce  the  guaranties  and to attempt
recovery  on the  confessed  judgments.  In one of the  actions,  an answer  and
counterclaim against the Company was filed. 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.



                                        9

<PAGE>



     On August 1, 1994, Guziczek filed a voluntary Chapter 11 petition under the
United States  Bankruptcy  Code and on June 14, 1995 the case was converted to a
Chapter 7 proceeding.  On January 3, 1996, AG filed a separate voluntary Chapter
7  petition.  No action was ever  taken by the  trustee  in the  Guziczek  or AG
bankruptcy proceedings to pursue the Counterclaims. On June 2, 1997, the trustee
for the AG bankruptcy  estate filed a motion to abandon  certain  claims against
the Company,  including all claims that the Company diverted  proceeds of public
improvement contracts.  On October 7, 1997, New York Surety Company (hereinafter
referred to as the "Surety")  filed  pleadings  objecting to the  abandonment of
such claims against the Company. The Surety provided the payment and performance
bond to AG in connection  with the  construction  jobs performed for the City of
New York.  In its  pleadings,  the Surety  asserts that it is subrogated to AG's
claims and thereby seeks to intervene and file an intervenor's complaint against
the  Company.  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.  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  proceedings  will  have a  material  adverse  effect on the
Company.  From time to time,  the Company is required to initiate  litigation to
collect  amounts owed by former clients,  guarantors or obligors.  In connection
with such  litigation,  the Company  periodically  encounters  counterclaims  by
defendant(s) for material amounts.  Such counterclaims are typically without any
factual  basis and,  management  believes,  are usually  asserted for  defensive
purposes by the litigant.










                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       10

<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  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 specialized commercial finance company principally engaged
in providing small-to  medium-sized,  high risk growth and turnaround companies,
including debtors-in-possession, with capital through the discounted purchase of
their  accounts  receivable.  The  Company  also makes  advances  to its clients
collateralized   by   inventory,   equipment,   real  estate  and  other  assets
(collectively,  "Collateralized  Advances").  On occasion, the Company will also
provide  other  specialized   financing  structures  which  satisfy  the  unique
requirements  of the  Company's  clients.  In  addition,  the  Company  provides
financial  assistance to clients in the form of  guaranties,  letters of credit,
credit  information,  receivables  monitoring,  collection  service and customer
status information.

     In May 1997 the Company established a new division,  Allstate Factors.  The
Allstate Factors division is engaged in traditional  "non-recourse" factoring of
accounts  receivable  in which the  factor  typically  assumes  the risk that an
account debtor may become insolvent.  The Company expects that Allstate Factors'
clients  typically  will have lower  risks of default and will  generate  higher
volumes of accounts  receivable  than the Company's  traditional  clients,  and,
therefore,   will  broaden  the  Company's  sources  of  revenue  and  diversify
significantly the risk profile of the Company's portfolio.

     The  Company's  clients  are small- to  medium-sized,  high risk growth and
turnaround  companies  with  annual  revenues  typically  between  $600,000  and
$100,000,000.  The Company's  clients do not typically  qualify for  traditional
bank or  asset-based  financing  because  they are  either  too new,  too small,
undercapitalized  (over-leveraged),  unprofitable or otherwise unable to satisfy
the requirements of a bank or traditional asset-based lender. Accordingly, there
is a significant  risk of default and client  failure  inherent in the Company's
business.


                                       11

<PAGE>



     The Company often competes against banks,  traditional  asset-based lenders
and  small  independent   finance  companies.   The  Company   anticipates  that
competition  will remain  intense  through all of 1998 and may continue to exert
downward  pressure  on  pricing,  especially  in the  Company's  core  factoring
business.  In order to remain  competitive,  the Company is, where necessary and
appropriate, offering lower rates than it has historically. The Company believes
that its ability to respond  quickly and to provide  specialized,  flexible  and
comprehensive  financial  arrangements  to its  clients  enables  it to  compete
effectively.  Although the Company has historically been successful in replacing
major  clients,  competition  resulting in the loss of one or more major clients
and an inability to replace those clients could have a material  adverse  effect
on the Company.

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

     Lifetime Options, Inc., a Viatical Settlement Company ("Lifetime Options"),
a wholly-owned  subsidiary of the Company, was engaged in the business of buying
life insurance  policies at a discount from individuals  facing life threatening
illnesses.  During 1997,  Lifetime Options  curtailed any further  purchasing of
policies.  Lifetime  Options may elect to collect  policies as they mature or to
sell some or all of its 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.

  RESULTS OF OPERATIONS

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



                                       12

<PAGE>


<TABLE>
<CAPTION>

                                                                        For The Three Months Ended March 31,
                                                                   -----------------------------------------------
                                                                           1998                      1997
                                                                   -------------------        --------------------
                                                                                    (Unaudited)
<S>                                                                <C>            <C>         <C>            <C>  
         REVENUE
            Earned discounts                                       $2,436,665     82.2%       $2,292,585     83.9%
            Fees and other revenue                                    526,817     17.8           439,521     16.1
                                                                   ----------    -----       -----------    -----
              TOTAL REVENUE                                         2,963,482    100.0         2,732,106    100.0%
                                                                   ----------    -----        ----------    -----

         EXPENSES
            Compensation and fringe benefits                          812,234     27.4           731,950     26.8
            General and administrative expense                        868,116     29.3           538,736     19.7
            Interest expense                                          410,331     13.8           403,997     14.8
            Provision for credit losses                               547,000     18.5           555,000     20.3
            Commissions                                               116,708      3.9            93,151      3.4
                                                                   ----------    -----      ------------    -----

              TOTAL EXPENSES                                        2,754,389     92.9         2,322,834     85.0
                                                                    ---------     ----        ----------     ----


INCOME BEFORE INCOME TAXES                                            209,093      7.1           409,272     15.0

INCOME TAXES                                                           77,364      2.6           151,400      5.5
                                                                   ----------    -----       -----------     ----

NET INCOME                                                         $  131,729      4.5%      $   257,872      9.5%
                                                                   ==========     ====       -----------     ====

NET INCOME PER COMMON SHARE
         DILUTED                                                                  $0.06                 $0.11
                                                                                  =====                 =====
         BASIC                                                                    $0.06                 $0.11
                                                                                  =====                 =====

WEIGHTED AVERAGE NUMBER OF SHARES
         DILUTED                                                              2,322,160                  2,321,199
                                                                             ==========                 ==========
         BASIC                                                                2,318,878                  2,317,919
                                                                             ==========                 ==========
</TABLE>


         TOTAL REVENUE.  Total revenue consists of (i) earned discounts and (ii)
fees and other income.  "Earned  discounts" consist primarily of income from the
purchase of accounts receivable and income from Collateralized  Advances.  "Fees
and other income" consist primarily of closing or application  fees,  commitment
or  facility  fees,   certain   interest,   other  related  financing  fees  and
supplemental  discounts  paid by clients who do not sell the  minimum  volume of
accounts  receivable  required by their  contracts  with the Company  (including
those clients who  prematurely  terminate  their  agreements with the Company to
move to a lower cost source of funding).

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


                                       13

<PAGE>



<TABLE>
<CAPTION>
                                                          For the Three Months Ended March 31,
                                                      1998                                      1997
                                                  (Unaudited)                                (Unaudited)
                                      ------------------------------------        ---------------------------------
                                               Earned            % of Total               Earned         % of Total
         Type of Transaction                   Income               Income                Income            Income
         -------------------                 -----------           --------             ----------         --------

<S>                                          <C>                     <C>                <C>                   <C>  
Discount on Factored
     Accounts Receivable                     $1,530,452              51.6%              $1,484,327            54.4%
Earnings on Collateralized
     Advances                                   400,498               13.5                 471,243             17.2
Earnings on Purchased Life
     Insurance Policies                               -                  -                 100,000              3.6
Other Earnings                                  505,715               17.1                 237,015              8.7
                                            -----------             ------            ------------           ------
     Total                                    2,436,665               82.2               2,292,585             83.9
Fees and Other Income                           526,817               17.8                 439,521             16.1
                                           ------------             ------            ------------           ------
     Total Revenue                           $2,963,482             100.0%              $2,732,106           100.0%
                                             ==========             =====               ==========           =====
</TABLE>

         Total  revenue  increased  8.5% in the  first  three  months of 1998 as
compared to the same period in 1997.  Earned  discounts  from factored  accounts
receivable  increased 3.1% in the first quarter of 1998 as compared to the first
quarter of 1997. Earned discounts from factored accounts receivable in the first
quarter of 1998 as a percentage of total factored accounts receivable  purchased
in the first quarter of 1998 was 2.5%.  The  comparable  percentage in the first
quarter  of 1997 was  2.8%.  In 1998 and 1997  earned  discounts  from  Factored
Accounts Receivable comprised of 51.6% and 54.4% of total revenue, respectively.

         Earned discounts from  Collateralized  Advances  decreased 15.3% in the
first  quarter of 1998 as compared to the same period in 1997,  from $471,000 to
$400,000.  This  decrease  is  attributable,  in large part,  to more  stringent
underwriting  procedures  implemented during 1997. In the first quarters of 1998
and 1997, earned discounts from Collateralized  Advances accounted for 13.5% and
17.2%,  respectively,  of total income.  Collateralized  Advances currently bear
interest  at a rate,  on  average,  of  approximately  1.8%  per  month.  Earned
discounts from  Collateralized  Advances are required to be paid in cash monthly
in arrears.

         In May 1997 the Company  established a new division,  Allstate Factors.
The Allstate Factors division is engaged in traditional "non-recourse" factoring
of accounts  receivable in which the factor  typically  assumes the risk that an
account debtor may become insolvent.  The Company expects that Allstate Factors'
clients  typically  will have lower  risks of default and will  generate  higher
volumes of accounts  receivable  than the Company's  traditional  clients,  and,
therefore,   will  broaden  the  Company's  sources  of  revenue  and  diversify
significantly the risk profile of the Company's portfolio.  As of March 31, 1998
Allstate  Factors' accounts  receivable  included on the Company's balance sheet
were $7.3 million (or 15.4%) of gross finance receivables. For the first quarter
of 1998, Allstate Factors' revenues of $220,000 represent 7.4% of total revenue.

                                       14

<PAGE>



         Fees and other  income  increased  19.9% in the first  quarter  of 1998
compared to the first quarter of 1997,  from $440,000 to $527,000.  The increase
in 1998 is attributable primarily to increase in servicing fees and supplemental
discounts offset by a decrease in facility fees and interest income.

         COMPENSATION  AND FRINGE  BENEFITS.  Compensation  and fringe  benefits
increased  11.0% in the first  quarter of 1998 versus the  comparable  period in
1997, from $732,000 (26.8% of total revenue) in 1997 to $812,000 (27.4% of total
revenue)  in 1998.  For the  first  quarter  of 1998,  compensation  and  fringe
benefits  include $89,000  attributable to the Company's new division,  Allstate
Factors.  There was no  comparable  expense in the first quarter of 1997 because
Allstate Factors was first established in May 1997.

         GENERAL  AND  ADMINISTRATIVE  EXPENSE.  In the first  quarter  of 1998,
general and  administrative  expense increased by 61.1%, from $539,000 (19.7% of
total revenue) in the first quarter of 1997 to $868,000 (29.3% of total revenue)
in the first quarter of 1998. Of the $359,000 increase in general administrative
expenses  during the first  quarter of 1998,  $159,000  is  attributable  to the
operations of Allstate Factors and $178,000 is attributable to expenses incurred
in connection  with the Company's  recently  concluded proxy contest and certain
related  litigation.  Excluding  these two  items,  general  and  administrative
expenses would have been $531,000 (17.9% of total revenue) for the first quarter
of 1998 compared to $539,000  (19.7% of total  revenue) for the same period last
year.  The Company will  recognize  additional  proxy contest  related  expenses
during the second quarter of 1998.

         INTEREST  EXPENSE.  Interest  expense  was  $410,000  (13.8%  of  total
revenue)  versus  $404,000 (14.8% of total revenue) in the first quarter of 1998
and 1997, respectively.  The net increase in interest expense is attributable to
additional borrowing by the Company to fund increased business volume (including
that of  Allstate  Factors) in the first  quarter of 1998 versus 1997  partially
offset by a lower cost of funds and the  collection  of  certain  non-performing
assets in the latter  part of 1997.  Gross  receivables  purchased  in the first
quarter of 1998 were $71.0 million (including $9.1 million for Allstate Factors)
compared to $56.9  million in 1997, an increase of 24.7% in the first quarter of
1998. The average daily outstanding  balance on the Company's  revolving line of
credit was $13.4  million and $11.6  million for the first  quarters of 1998 and
1997,  respectively,  and  the  average  interest  rate  paid  on the  Company's
revolving  line of credit was 8.1% in the first quarter of 1998 compared to 9.0%
in the first quarter of 1997.

         PROVISION FOR CREDIT LOSSES.  The provision for credit losses decreased
from $555,000  (20.3% of total revenue) in the first quarter of 1997 to $547,000
(18.6% of total  revenue) in the first quarter of 1998. As of March 31, 1998 and
December 31, 1997 the allowance  for credit  losses was 6.4% ($3.0  million) and
6.3% ($2.7  million) of gross finance  receivables,  respectively.  At March 31,
1998 the accrual of earnings  was  suspended  on $1.1  million of gross  finance
receivables as compared to $0.8 million of gross finance receivables at December
31, 1997. In addition,  "other  receivables" and "other assets" appearing on the
Company's balance sheet typically do not accrue earnings for financial statement
purposes.  The following table provides a summary of the Company's gross finance
receivables   (which   includes   primarily   factored   accounts    receivable,
Collateralized  Advances and non-earning  receivables),  "other receivables" and
"other assets" and  information  regarding the allowance for credit losses as of
the dates indicated.



                                       15

<PAGE>



<TABLE>
                                                      As of (or for                  As of or for the three
                                                    the Year Ended)                  Months Ended March 31,
                                                 December 31, 1997                  1998                 1997
                                                 -----------------                 ------               -----
                                                                       (Dollars in thousands)
                                                                                           Unaudited
<S>                                                      <C>                      <C>                  <C>   
Non-Earning Receivables, Other
  Receivables and Other Assets data:
Non-Earning Receivables                                  $   829                   $1,112               $3,726
Other Receivables                                          3,748                    3,698                4,321
Other Assets (excluding miscellaneous)                     3,941                    3,244                1,881
                                                         -------                    -----                -----
                                                          $8,518                   $8,054               $9,928
                                                          ======                   ======               ======

ALLOWANCE FOR CREDIT  LOSSES:
Balance, January 1                                        $2,579                   $2,739              $2,579
Provision for credit losses                                1,594                      547                 555
Receivables charged off                                   (1,776)                    (274)               (233)
Recoveries                                                   342                       13                   3
Balance at December 31, 1997 and
   March 31, 1998 and 1997 (including
   $275,000 allocated to Life Insurance
   Contracts at December 31, 1997 and
   March 31, 1998)                                        $2,739                   $3,025              $2,904

Allowance for Credit Losses AS A PERCENT OF:
Gross Finance Receivables                                  6.32%                    6.40%               8.94%


Non-Earning Receivables                                  330.40%                  272.03%              77.90%
Non-Earning Receivables, Other  
  Receivables and Other Assets                            32.16%                   37.56%              29.25%

As a percent of the sum of Gross
  Finance Receivables, Other
  Receivables and Other Assets:
Non-Earning
  Receivables                                              1.63%                    2.05%               9.63%
Other Receivables                                          7.35%                    6.82%              11.17%
Other Assets                                               7.73%                    5.99%               4.86%
 
Amount of Allowance Allocated to
 Non-earning Receivables, Other Receivables
   Other Assets                                           $1,055                   $1,484                $925
   Life Insurance Contracts                                  275                      275                 -
</TABLE>


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

                                       16

<PAGE>



     COMMISSIONS. Commission expense was $117,000 (3.9% of total revenue) in the
first  quarter of 1998 as  compared  to $93,000  (3.1% of total  revenue) in the
first  quarter  of 1997.  The  increase  in 1998 is due to more  referrals  from
outside brokers and commissions paid for Allstate Factors.

IMPACT OF INFLATION

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

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

CHANGES IN FINANCIAL CONDITION

     The  Company's  total assets  increased  4.8% to $49.2 million at March 31,
1998 from $46.9  million at December  31, 1997.  The  increase is primarily  the
result of a increase in net finance receivables.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  principal  funding  sources are the  collection of factored
accounts receivable,  retained cash flow and external borrowings.  Additionally,
the reduction of other assets ($727,409) primarily reflects the sale of property
held by the Company.  This  porperty  was held as  additional  collateral  for a
non-performing account.

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

     At March 31, 1998 and December 31, 1997, the Company had working capital of
$28.7 million and $23.9 million,  respectively, and a ratio of current assets to
current  liabilities  of 2.21 to 1 and 2.30 to 1,  respectively.  Cash flow from
operations  together with availability  under its credit facilities are adequate
to support the Company's current operations.





                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       17

<PAGE>



                           PART II - OTHER INFORMATION



ITEM 1. -LEGAL PROCEEDINGS

         For details  regarding legal  proceedings,  see Note 6 to the unaudited
financial statements contained in this Form 10-QSB.

ITEM 6. - EXHIBITS

         (a) Exhibit 27 - Financial Data Schedule

         (b) Reports on form 8-K

             - None


                                       18

<PAGE>


SIGNATURES

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

                         ALLSTATE FINANCIAL CORPORATION



Date:        May 15, 1997                   By:  /S/ LAWRENCE M. WINKLER
                                                 -----------------------
                                                     Lawrence M. Winkler
                                    Principal Financial Officer, Duly Authorized



                                       19

<PAGE>