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

(Mark One)
     |X| QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

     |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________


Commission File Number 0-17832

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

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

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

                                 (703) 931-2274
                           (Issuer's telephone number)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been  subject to such  filing  requirements  for the past 90 days.
  Yes  X         No
     -------       --------



The number of shares  outstanding of the issuer's common stock, no par value, as
of August 6, 1999, was 2,324,616.

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







                     [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 June 30, 1999 and
     December 31, 1998                                                       1

     Consolidated Statements of Operations for the Three and Six
     Months Ended June 30, 1999 and 1998                                     2

     Consolidated Statements of Shareholders' Equity for the Six Months
     Ended June 30, 1999 and the Year Ended December 31, 1998                3

     Consolidated Statements of Cash Flows for the Six Months Ended
     June 30, 1999 and 1998                                                  4

     Notes to Consolidated Financial Statements                             5-8

 Item 2 -  Management's Discussion and Analysis or Plan of
     Operation                                                             9-17


Part II - Other Information

     Item 1 - Legal Proceedings                                              18

     Item 3 - Defaults Upon Senior Securities                                18

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

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

     Signatures                                                              19

                                       2
<PAGE>





                         PART I - FINANCIAL INFORMATION

                                       3

<PAGE>




<TABLE>
                                            ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                June 30,              December 31,
                                                                  1999                    1998
                                                                  ----                    ----

                                                               (Unaudited)
                    ASSETS

<S>                                                              <C>                   <C>
Cash                                                             $ 569,131             $2,420,644
                                                                 ---------             ----------

Purchased receivables                                            6,630,399             22,302,284
Advances receivable                                             21,664,501             15,652,457
                                                                ----------             ----------
                                                                28,294,900             37,954,741
Less: Allowance for credit losses                             (10,959,981)            (2,799,931)
                                                              ------------            ----------
Total receivables - net                                         17,334,919             35,154,810
                                                                ----------             ----------

Income tax receivable                                                8,824                831,656
Deferred income taxes                                                    -              3,960,946
Furniture, fixtures and equipment, net                             300,080                166,400
Other assets                                                        58,676                653,957
                                                                    ------                -------
TOTAL ASSETS                                                   $18,271,630            $43,188,413
                                                               ===========            ===========

       LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accrued expenses                            $ 662,411             $1,081,655
Credit balances of factoring clients                               745,193              4,559,570
Notes payable                                                    7,913,447             15,014,717
Convertible subordinated notes                                   4,954,000              4,958,000
                                                                 ---------              ---------
TOTAL LIABILITIES                                               14,275,051             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 June
    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 June 30, 1999
    and 781,745 shares at December 31, 1998                     (4,974,375)            (4,986,520)

  (Deficit) Retained earnings                                   (9,943,228)             3,646,809
                                                                -----------            -----------
TOTAL SHAREHOLDERS' EQUITY                                       3,996,579             17,574,471
                                                               ------------            -----------
                                                               $18,271,630            $43,188,413
                                                               ============           ============
</TABLE>



                 See Notes to Consolidated Financial Statements

                                       1
<PAGE>

<TABLE>

                                                ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                                                     CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                                                 Three Months Ended June 30,    Six Months Ended June 30,

                                                                      1999           1998           1999             1998
                                                                      ----           ----           ----             ----
                                                                 (Unaudited)     (Unaudited)     (Unaudited)    (Unaudited)
<S>                                                             <C>             <C>             <C>             <C>
REVENUE
  Earned discounts and interest .............................   $    598,262    $  2,578,581    $  2,212,733    $  5,015,246
  Fees and other revenue ....................................        142,872         481,618         324,446       1,008,435
                                                                ------------    ------------    ------------    ------------

    TOTAL REVENUE ...........................................        741,134       3,060,199       2,537,179       6,023,681
                                                                ------------    ------------    ------------    ------------

EXPENSES
  Compensation and fringe benefits ..........................        653,683       1,128,096       1,263,696       1,940,330
  General and administrative ................................      1,349,357       2,105,932       1,754,650       3,090,756
  Interest expense ..........................................        335,390         448,824         710,964         859,155
  Provision for credit losses ...............................      8,376,057       4,911,000       8,376,057       5,458,000
                                                                ------------    ------------    ------------    ------------

    TOTAL EXPENSES ..........................................     10,714,487       8,593,852      12,105,367      11,348,241
                                                                ------------    ------------    ------------    ------------

LOSS BEFORE INCOME TAX EXPENSE ..............................     (9,973,353)     (5,533,653)     (9,568,188)     (5,324,560)

INCOME TAX EXPENSE (BENEFIT) ................................      3,871,938      (2,047,452)      4,021,849      (1,970,087)
                                                                 ------------    ------------    ------------    ------------

NET LOSS ....................................................   $(13,845,291)   $ (3,486,201)   $(13,590,037)   $ (3,354,473)
                                                                 ============    ============    ============    ===========

NET LOSS PER COMMON SHARE
  Basic                                                            ($5.96)           ($1.50)       ($5.85)          ($1.44)
                                                                   =======           =======       =======          =======
  Diluted                                                          ($5.96)           ($1.50)       ($5.85)          ($1.44)
                                                                   =======           =======       =======          =======

WEIGHTED AVERAGE NUMBER OF SHARES
    OUTSTANDING
  Basic                                                           2,324,438         2,320,966     2,324,289        2,319,930
  Diluted                                                         2,324,438         2,324,251     2,324,289        2,323,215


</TABLE>

                 See Notes to Consolidated Financial Statements

                                       2
<PAGE>



<TABLE>
                                                ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                         YEAR ENDED DECEMBER 31, 1998
                                                    AND THE SIX MONTHS ENDED JUNE 30, 1999

                                                                                                          (Deficit)
<CAPTION>
                                                                      Additional Paid      Treasury       Retained
                                                         Common Stock     in Capital        Stock         Earnings         Total
                                                        -------------  --------------   --------------  ------------  -------------
<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
acquisition costs ...................................         28,084          28,084

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

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

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

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

Amortization of treasury stock
acquisition costs (unaudited) .......................          8,147           8,147

Conversion of Convertible
Subordinated Notes to 533 shares of
common stock (unaudited) ............................          3,998           3,998

Net Loss (Unaudited) ................................                                                    (13,590,037)   (13,590,037)
                                                         ------------    ------------    ------------    ------------    -----------

Balance - June 30, 1999 .............................   $     40,000    $ 18,874,182    ($ 4,974,375)   ($ 9,943,228)  $  3,996,579
                                                            ========    ============    ============     ============   ============


</TABLE>



                 See Notes to Consolidated Financial Statements

                                       3
<PAGE>

<TABLE>

                                            ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                                                Six Months Ended June 30
                                                                                                  1999                1998
                                                                                             --------------   -------------
                                                                                               (Unaudited)    (Unaudited)

<S>                                                                                          <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES: ....................................................
      Net Loss ...........................................................................   ($ 13,590,037)   ($  3,354,473)
      Adjustments to reconcile net loss
           to cash provided by operating activities:
           Depreciation - net ............................................................          33,039           75,000
           Provision for credit losses ...................................................       8,376,057        5,458,000
           Changes in operating assets and liabilities:
               Other assets ..............................................................         595,281        1,768,808
               Accounts payable and accrued expenses .....................................        (419,244)         861,666
               Income taxes receivable and deferred income taxes .........................       4,783,778       (2,388,138)
                                                                                             -------------    -------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES .........................................        (221,126)       2,420,863


CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of receivables and advances ...............................................     (88,329,796)    (131,818,340)
      Collection of receivables, including life insurance
           contracts, and advances .......................................................      97,773,630      123,211,572
      (Decrease)/Increase in credit balances of factoring clients ........................      (3,814,377)       1,992,718
      Sale of automobiles ................................................................          30,013
      Purchase of furniture, fixtures and equipment ......................................        (166,719)         (42,826)
                                                                                             -------------    -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES .........................................       5,462,738       (6,626,863)
                                                                                             -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from line of credit .......................................................      54,129,626       86,122,438
      Principal payments on line of credit ...............................................     (61,230,898)     (84,227,275)
      Treasury stock acquisition costs ...................................................           8,147              (10)
      Options exercised ..................................................................            --             21,870
                                                                                             -------------    -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES .........................................      (7,093,125)       1,917,023
                                                                                             -------------    -------------

NET DECREASE IN CASH .....................................................................      (1,851,513)      (2,288,977)

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

CASH, End of period ......................................................................   $     569,131    $   1,911,073
                                                                                             =============    =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
      Interest paid ......................................................................   $     375,285    $     798,104
                                                                                             =============    =============
      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
                                                                                             =============    =============
</TABLE>

                 See Notes to Consolidated Financial Statements


<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 June 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 six months ended
June 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.  As of  June  30,  1999,  the  Company  had
approximately  $650,000 available under a $25,000,000  secured revolving line of
credit.  The revolving line of credit  contains  various sub  facilities,  which
limit its use. The entire  facility is available  for  borrowings by the Company
secured by Factored  Accounts  Receivable or  Collateralized  Advances backed by
pledged client receivables;  however, the Company may (i) borrow only $5,000,000
secured by  Collateralized  Advances  backed by client  machinery and equipment,
(ii) borrow only $2,000,000 secured by Collateralized  Advances backed by client
inventory,  and (iii) issue up to  $5,000,000  of letters of credit.  Borrowings
under the credit facility bear interest at a spread over the lender's base rate.
The current  maturity date of this credit  facility is May 12, 2000. The Company
is subject to  covenants,  which are typical in revolving  credit  facilities of
this  type.  At June 30,  1999,  the  Company  was in  default of several of the
financial covenants.

The lenders have  restricted  the Company's use of the line of credit because of
the  defaults.  The  line of  credit  availability  is  currently  limited  to a
percentage of the Company's collateral position less a fixed amount. The Company
has reached an  agreement  in  principle  with the lenders  under the  revolving
credit agreement.  In exchange for the lenders'  agreement not to demand payment
of the amount due under the revolving  credit as a result of the defaults in the
financial  covenants,  the Company has  obtained a  commitment  for a $1 million
working capital loan from a major  stockholder,  and will restrict the amount of
borrowings  under the  revolving  credit to $10 million or the  availability  as
defined  in  the  revolving  credit  agreement  less  an  undrawn   availability
requirement,  and pay a rate equal to the agent  lender's  base rate plus 2.25%.
The agreement  will expire October 31, 1999, at which time all amounts under the
line of credit  will 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 may seek to extend the forbearance period.

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


                                       5

<PAGE>

York. In a 1993 action,  the Company undertook an attempt to recover against AG.
An answer and  counterclaim  was filed  against the  Company.  The  counterclaim
asserted  claims  for  usury,   diversion  of  proceeds  of  public  improvement
contracts,  and  overpayments  to the  Company  by AG in  excess  of  $2,000,000
(hereinafter  the  "Counterclaims").  No specific  damage  claims amount was set
forth in the Counterclaims.


No action was ever  taken by the  trustee in the AG  bankruptcy  proceedings  to
pursue the  Counterclaims.  On June 2, 1997,  the trustee for the AG  bankruptcy
estate filed a motion to abandon these claims against the Company. On October 7,
1997, New York Surety Company (hereinafter  referred to as the "Surety"),  which
provided  the  payment  and  performance  bond  to AG  in  connection  with  the
construction jobs performed for the City of New York, filed pleadings  objecting
to the  abandonment  of such claims  against the Company,  asserting that it was
subrogated to AG's claims.  The 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 six months ended June 30, 1999, three clients
accounted  for 34.1% of the  Company's  total earned  discounts  and interest as
compared  to 45.6% for the same period in 1998.  For the quarter  ended June 30,
1999, three clients  accounted for 29.8% of the Company's total earned discounts
and  interest,  as compared  to 53.7% for the  quarter  ended March 31, 1999 and
88.0% at December 31, 1998.

At June 30, 1999,  three  clients  accounted  for 50.0% 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 June 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 plan.  Options to purchase common stock are granted at a
price equal to the fair market

                                       6
<PAGE>



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 six months ended June 30, 1999:


                                               Six Months Ended June 30, 1999

   Outstanding January 1                                            219,600
   Granted                                                          155,000
   Exercised                                                            -
   Forfeited or expired                                             (62,200)
                                                                   ---------
   Outstanding                                                      312,400
                                                                   =========
   Exercisable                                                      254,447
                                                                   =========

The weighted  average fair value at the date of grant for options granted during
1999 was $0.76.  The fair  value of  options at the date of grant was  estimated
using the  Black-Scholes  model with an expected option life of 2.5 years,  zero
dividend yield, interest rates of 5.67% and volatility of 96%.


                                              Six Months Ended June 30, 1999
   Per share
   Outstanding January 1                                              $6.37
   Granted                                                             6.03
   Exercised                                                             -
   Forfeited or Expired                                                5.62
                                                                      -----
   Outstanding                                                        $6.18
                                                                      =====
   Exercisable                                                        $6.32
                                                                      =====

The Company's net loss would have been  increased by $100,218 or $0.04 per share
basic and  dilutive  for the six months  ended  June 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. INCOME TAXES.  The  provision  for income taxes of $3,871,938  for the period
ended June 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  sufficient
taxable income in the foreseeable future to realize the value of the asset.

7. NEW ACCOUNTING PRONOUNCEMENT.  In June of 1998, the FASB issued SFAS No. 133,
Accounting for Derivative  Instruments  and Hedging  Activities.  This statement
establishes

                                       7
<PAGE>

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 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.



8. SUBSEQUENT  EVENTS.  The Company's board of directors has elected to evaluate
alternatives to increase shareholder value,  including  investigating  strategic
and  financial  partners or purchasers  for the  factoring  and ABL  businesses.
Management  has met with  potential  purchasers of the  portfolios  and analyzed
several  possible  business  combinations.  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.

                                       8

<PAGE>


MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS FORWARD-LOOKING INFORMATION

This Form 10-QSB contains certain  "forward-looking  statements" relating to the
Company  which  represent  the  Company's   current   expectations  or  beliefs,
including,  but not limited to, statements  concerning the Company's operations,
performance,  financial  condition and growth. For this purpose,  any statements
contained in this Form 10-QSB that are not statements of historical  fact may be
deemed to be forward-looking statements.  Without limiting the generality of the
foregoing,  words  such as "may",  "will",  "expect",  "believe",  "anticipate",
"intend", "could", "estimate", or "continue", or the negative or other variation
thereof or  comparable  terminology  are  intended to  identify  forward-looking
statements.  These  statements  by their nature  involve  substantial  risks and
uncertainties,   such  as  credit  losses,  dependence  on  management  and  key
personnel,  seasonally,  and  variability of quarterly  results,  ability of the
Company to continue its 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 EVENT
Subsequent to June 30, 1999,  the board of directors has directed  management to
pursue strategies for maximizing  shareholder value including but not limited to
investigating  strategic and financial  partners or liquidating  some if not all
assets.

Subsequent to June 30, 1999 the Company  obtained a commitment  for a $1 million
working  capital loan from a large  shareholder.  The Company intends to use the
proceeds  of this loan to  augment  its  working  capital to  operations  of the
Company  for the  remainder  of the  year.  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 and  middle-market  businesses,  usually  those  with  annual  sales of $1
million to $30  million,  through  the  discounted  purchase  of  invoices  with
recourse  to the  seller,  and through  loans  secured by  accounts  receivable,
inventory,  machinery and equipment, and, on occasion, real estate. In addition,
the Company may provide other financial  assistance to businesses in the form of
guarantees  and letters of credit.  Through its offering of both the purchase of
invoices with recourse to the seller  ("Recourse  Factoring" or "Factoring") and
advances secured by accounts receivable, inventory, machinery and equipment, and
real estate  ("Asset-Based  Lending" or "ABL"), the Company provides its clients
with the ability to expand their working capital and acquire productive business
assets. The Company may also allow a client to use the Company's credit standing
by  providing a letter of  guaranty  or by  obtaining a letter of credit for the
client from the Company's lender.  These forms of credit enhancement are used by
the clients to acquire inventory for sale to their customers.  Through its range
of products,  the Company  believes it offers a single  source of financing  for
these businesses throughout their life cycles.

The Company's  clients do not typically  qualify for traditional  bank financing
because they are either too new, too small,  undercapitalized  (over-leveraged),
unprofitable  or otherwise  unable to

                                       9
<PAGE>


satisfy the  requirements of bank lenders.  Accordingly,  there is a significant
risk of default and client failure inherent in the Company's business.

In its Factoring and ABL businesses,  the Company faces  competition  from other
factoring  companies,  asset-based  lenders,  diversified lenders who offer both
products,  and commercial banks who offer secured financing.  Due to the size of
facilities that it offers,  the Company  competes with both regional  sources of
financing  and large  national  organizations.  Many of these  competitors  have
significant financial,  marketing and operational resources, and may have access
to capital at lower costs than the Company can obtain.

Historically,  the Company has not  expected to maintain a funding  relationship
with a client for more than two years.  The  Company  expected  that its clients
would qualify for more competitively priced bank or asset-based financing within
that time period, or would be liquidated. Therefore, the Company's major clients
have  tended to change  significantly  over time.  Today,  however,  because the
Company  is  offering  a wider  range of  products,  at lower  rates than it has
historically,   it  is  possible  that  the  length  of  the  Company's  funding
relationships  with its  clients  may be  extended.  Although  the  Company  has
historically been successful in replacing major clients, the loss of one or more
major  clients and an inability to replace  those  clients could have a material
adverse  effect on the Company.  The Company was materially  adversely  affected
when the financial  condition of its three largest clients  deteriorated in June
30, 1999 quarter.

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

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

LIQUIDITY AND CAPITAL RESOURCES
The  Company's  requirement  for  capital  is a  function  of the  levels of its
investment in  receivables  and its operating  results.  The Company funds these
needs through its revolving credit line; its convertible subordinated notes, and
internally generated funds.

The Company  maintains a $25  million  revolving  line of credit with a group of
lenders.  The line of credit is secured by  substantially  all of the  Company's
assets.  The total  facility  may be used by the Company to fund the purchase of
invoices or advances  secured by accounts  receivable  or other  client  assets.
There are sub limits  available  for the funding of  advances  secured by client
inventory and machinery and equipment,  and for issuance of letters of credit by
the lender group. Borrowings under the credit facility bear interest at a spread
over the lender's base rate.  The maturity date of the line of credit is May 12,
2000.  The credit  line has  covenants  of the type  which are  typical of those
required of borrowers in the  Company's  business  line.  At June 30, 1999,  the
Company was in default of several of the financial covenants.

The lenders have restricted the Company's use of the line of credit. The line of
credit  availability  is  currently  limited to a  percentage  of the  Company's
collateral position less a fixed amount. The Company has reached an agreement in
principle with the lenders under the revolving credit agreement. In exchange for
the  lenders'  agreement  not to  demand  payment  of the  amount  due under the
revolving  credit as a result of the defaults in the  financial  covenants,  the
Company has

                                       10
<PAGE>

obtained  a  commitment  for a $1  million  working  capital  loan  from a major
stockholder,  and will  restrict the amount of  borrowings  under the  revolving
credit to $10 million or the  availability  as defined in the  revolving  credit
agreement less an undrawn availability requirement,  and pay a rate equal to the
agent lender's base rate plus 2.25%. The agreement will expire October 31, 1999,
at which time all amounts under the line of credit will become due. Although the
Company,  the lenders, and the major stockholder have agreed on the terms, there
can be no assurance that the agreement will be adopted as described, or that the
lenders will continue to lend funds to the Company as needed.  In the event that
the agreement is not adopted,  the Company may have to be  liquidated  and there
can be no assurance that the shareholders will receive any distributions.


The Company is also seeking to obtain  replacement  financing or to sell some of
its assets to repay the lenders in whole or in part,  and may seek to extend the
forbearance  period.  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 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,  or cut its costs.  The Company is  currently  reviewing
options to cut costs and increase liquidity,  including selling the factoring or
ABL portfolios,  and using the proceeds to repay the lenders,  and has contacted
new sources of financing.  The Company has met with several  potential buyers of
these  portfolios.  Should the Company  sell either  portfolio,  the Company may
incur significant 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.

To comply  with the  proposed  forebearance  agreement  and  provide for working
capital,  the Company has  obtained a  commitment  for a $1 million  loan from a
large shareholder of the Company.  The Company believes that the proceeds of the
working capital loan,  borrowings under its current credit facility (as modified
by the contemplated  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
refinancings, collections from non-performing assets or sale of other assets can
be accomplished in the required time frames.

                                       11
<PAGE>



YEAR 2000 DISCLOSURES
The Year 2000 issue is the result of computer  programs  being written using two
digits  rather  than  four  digits  to  define  the  applicable  year.  Computer
equipment,  software  and  other  devices  with  embedded  technology  that  are
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 October 31,
1999.  The fourth  phase,  limited  conversion  of certain  existing data to the
replacement systems, is expected to be substantially completed at the end of the
testing  phase,  and finally  completed  before  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 will evaluate  their
responses  prior to September  30, 1999.  If a material  client or obligor has a
business  interruption,  the Company's operations could be affected. In the most
likely worst case Year 2000 scenario,  the Company will not be able to determine
whether certain clients and obligors have unresolved Year 2000 issues,  and some
clients and obligors  may have  business  interruptions  even though the Company
believes they will be compliant.  In these cases,  the Company may have to cease
doing  business  with  clients or  obligors  that could have a material  adverse
effect on the  Company's  financial  condition.  The Company has not  determined
whether such possible events may have a material adverse effect on its financial
condition,  but is continuing to analyze the uncertainty  through monitoring the
Year 2000 compliance efforts of clients and obligors.

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


                     [THIS SECTION INTENTIONALLY LEFT BLANK]

                                       12
<PAGE>


RESULTS OF OPERATIONS
The  following  table sets forth  certain  items of revenue  and expense for the
periods  indicated and indicates the  percentage  relationships  of each item to
total revenue.

<TABLE>
<CAPTION>
                                                          Six Months Ended June 30
                                                    1999                      1998
                                                 (Unaudited)               (Unaudited)
                                                          %                       %

<S>                                         <C>                <C>   <C>                <C>
REVENUE
  Earned discounts and interest ........... $  2,212,733       87.2  $  5,015,246       83.3
  Fees and other revenue ..................      324,446       12.4     1,008,435       12.7
                                            ------------       -----    ----------     -----
    TOTAL REVENUE .........................    2,537,179      100.0     6,023,681      100.0
                                               ---------      -----     ---------      -----

EXPENSES
  Compensation and fringe benefits ........    1,263,696       49.8     1,940,330       32.2
  General and administrative ..............    1,754,650       69.2     3,090,756       51.3
  Interest expense ........................      710,964       28.0       859,155       14.3
  Provision for credit losses .............    8,376,057      330.1     5,458,000       90.6
                                               ---------      -----     ---------       ----

    TOTAL EXPENSES ........................   12,105,367      477.1    11,348,241      188.4
                                              ----------      -----    ----------      -----

LOSS BEFORE INCOME TAX EXPENSE ............   (9,568,188)    (377.1)   (5,324,560)      88.4

INCOME TAX EXPENSE (BENEFIT) ..............    4,021,849      158.5    (1,970,087)     (32.7)
                                               ---------      -----    ----------      -----


NET LOSS .................................. $(13,590,037)    (535.6) $ (3,354,473)     (55.7)
                                            ============     ======  ============      =====

NET LOSS PER COMMON SHARE
  Diluted                                       ($5.85)                   ($1.44)
                                                ======                    ======
 Basic                                          ($5.85)                   ($1.44)
                                                ======                    ======

WEIGHTED AVERAGE NUMBER OF SHARES
    OUTSTANDING
  Diluted                                     2,324,289                  2,323,215
  Basic                                       2,324,289                  2,319,930

</TABLE>


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.

                                       13
<PAGE>



                        For the Six Months Ended June 30,
                                          1999                    1998

        Type of Revenue             Earned       Percent    Earned      Percent
                                   Revenue                 Revenue

Discount on purchased invoices .  $  693,273      27.3%   $2,616,119      43.5%

Earnings on advances
    receivable .................   1,519,460      59.9     2,399,127      39.8

Fees and other revenue .........     324,446      12.8     1,008,435      16.7
                                     -------      ----     ---------      ----

Total revenue ..................  $2,537,179     100.0%   $6,023,681     100.0%
                                  ==========     =====    ==========     =====


                       For the Three Months Ended June 30,
                                           1999                  1998


        Type of Revenue            Earned       Percent    Earned      Percent
                                  Revenue                 Revenue

Discount on purchased invoices . $  312,582      42.2%    1,085,667      35.5%

Earnings on advances
    receivable .................    285,680      38.5     1,492,914      48.8

Fees and other revenue .........    142,872      19.3       481,618      15.7
                                    -------      ----     ---------      ----

Total revenue .................. $  741,134     100.0%   $3,060,199     100.0%
                                 ==========     =====    ==========     =====

Total  revenue  decreased  by 58.9% in the six months ended June 30, 1999 versus
the same period in 1998, to $2.5 million from $6.0 million.  In the three months
ended June 30, 1999, total revenue  decreased by 75.8% versus the same period in
1998, to $741 thousand from $3.1 million.

Within total revenue,  discounts on purchased invoices decreased 73.5% and 80.9%
in the June 30, 1999 six month and three  month  periods as compared to the same
periods in the prior year. The volumes of invoices  purchased were $25.3 million
and $10.9  million in the six and three months  ending June 30, 1999 as compared
to $76.7  million and $44.3  million in the six and three month  periods  ending
June 30,1998,  representing 67.0% and 75.4% 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 six and
three  months  ended June 30, 1999 were 2.8% and 2.8%.  The  comparable  average
percentages  in the 1998 periods were 3.1% and 3.3%,  representing  decreases of
9.7% and 15.2%.  The decreases were the result of high discount rates charged to
a client, who subsequently defaulted, in 1998.

Earnings  on  advances  receivable  decreased  by 36.7% and 80.9% in the six and
three month  periods  ending June 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 six and three months ended June 30, 1999 by 67.8% and

                                       14

<PAGE>



70.3% as compared to the June 30, 1998 periods.  The  difference  was due to the
reduction in 1998  transaction fees related to the earnings from two clients who
subsequently defaulted.

The downward trend is revenue may continue throughout the remainder of the year.
Given the Company's  liquidity  position as discussed  earlier in the MD&A,  the
company  cannot  acquire or fund new clients.  A sale of either the factoring or
ABL portfolio will decrease future  earnings,  and the Company may incur certain
costs in reducing staff levels if portions of the portfolio are sold. During the
third quarter of 1999,  several  clients have found other lending  relationships
and therefore,  the Company's  revenue potential is projected to decrease if the
Company cannot find new sources of funding to replace them.

COMPENSATION AND FRINGE BENEFITS.  In the six-month period ending June 30, 1999,
compensation  expense was $677 thousand lower then in the  comparable  period in
1998.  Compensation  as a  percentage  of  revenue  was up by  17.6%  due to the
significantly  lower revenue.  In the  three-month  period ending June 30, 1999,
compensation  expense was $676 thousand lower than in the  comparable  period in
1998, while  compensation as a percentage of revenue was up, by 54.7%, 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 $1.3 million  (69.2%) to $1.7 million from $3.1 million for the six
month period ended June 30, 1999 compared with 1998, and by $1.3 million (43.2%)
to $1.8 million from $3.1 for the three month  period then ended  compared  with
the  previous  year.  Client  litigation  expenses  were $316  thousand  and $40
thousand for the six and three month  periods  ending June 30, 1999  compared to
$629 thousand and $447 thousand in the corresponding  periods the previous year.
Other  professional  fees  decreased  $90  thousand  for the six months and $196
thousand  for the three  months  ending June 30, 1999 versus the same periods in
1998.  Included  in G&A  expense  for the three  months  ended June 30, 1999 was
approximately  $500 thousand in fees and expenses  paid in  connection  with the
planned purchase of a loan portfolio. This loan portfolio purchase was suspended
due to the Company's inability to obtain financing for the purchase.

INTEREST  EXPENSE.  Portfolio  interest  expense was $690  thousand  versus $859
thousand for the six months ended June 30, 1999 and 1998, respectively, and $315
thousand and $433 thousand respectively for the three months ended June 30, 1999
and 1998.  Interest  expense  for the  quarter  ended June 30,  1999  includes a
one-time payment of $20 thousand in non-operating  interest due to a tax agency.
The decrease in interest expense is primarily  attributable to a decrease in the
average  amount  outstanding  and a lower interest rate on the Company's line of
credit.  The average daily outstanding  balances on the Company's line of credit
were $11.2  million and $14.2  million for the  six-month  and $10.4 million and
$14.9  million  for the  three-month  periods  ended  June 30,  1999  and  1998,
respectively.  The average  interest rate paid on the  Company's  line of credit
decreased  to 7.23% for the six months ended June 30, 1999 from 8.07% during the
comparable  period in 1998,  and to 7.18%  from  8.04%  during  the  three-month
periods then ended.  Interest expense on the Convertible  Subordinated Notes was
comparable in the six months and three months ended June 30, 1999 to that in the
comparable periods of 1998.

PROVISION  FOR CREDIT  LOSSES.  During the six months ended June 30,  1999,  the
Company had  charge-offs of $85 thousand,  while  recovering  $355 thousand,  as
compared  to  1998,  when the  comparable  figures  were  $3.4  million  and $26
thousand,  respectively.  For the three months ended June 30, 1999,  the Company
had charge-offs of $8 thousand,  while recovering $178 thousand,  as

                                       15
<PAGE>




compared  to  1998,  when the  comparable  figures  were  $4.9  million  and $13
thousand,  respectively.  The Company  recorded a provision  of $7.9 million for
estimated  losses during the six months ended June 30, 1999,  compared to a $5.4
million  provision in 1998. The provision was taken during the second quarter of
1999 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 Company recorded a provision of $7.9 million for losses during
the second  quarter of 1999,  compared to a $4.9 million  provision in 1998. The
allowance for credit losses ended at a balance of $10.9 million at June 30, 1999
as compared to a balance of $4.8 million at June 30, 1998.

The following  table  provides a summary of activity in the Company's  allowance
for losses for the six-month periods ending June 30, 1999 and 1998.


                                               Six Months Ended
                                                 June 30,
                                     1999                          1998

Allowance for Credit Losses  (In Thousands)    %       (In Thousands)      %

Balance Beginning of Period     $2,800        9.9          $ 2,739        6.3
Additions                        7,890       27.9            5,453       12.4
Write-Offs                         (85)      (0.3)          (3,428)      (7.8)
Recoveries                         355        1.2               26          -
                                   ---        ---               --
Balance - End of Period        $10,960      38.7%           $4,790      10.9%
                               =======      =====           ======      =====


There has been  deterioration in the financial  condition of the Company's three
largest  clients.  One of the  clients is still  operating,  and the Company has
agreed to forbear  from  accelerating  the amount due while the client  explores
alternative  financing sources.  The other two clients,  who are related through
common  ownership,  have ceased  operations  and the  Company is pursuing  legal
action  against the clients and related  guarantors to recover  amounts due. The
Company has allocated  $10.6  million of its  allowance  for losses  against the
$14.1  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  actually  incurred.  The  Company
believes  that the  remaining  $700  thousand in  non-performing  assets will be
realized.

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 is adequate in light of the risks  inherent in the
performing portfolio at June 30, 1999.



                     [THIS SECTION INTENTIONALLY LEFT BLANK]

                                       16
<PAGE>


Receivables
Receivables consist of the following:


                                          June 30, 1999      December 31, 1998

Invoices                                    $5,688,164            $23,731,826
  Less: Unearned discount                   (1,201,535)            (3,299,175)
  Less: Participations                               -               (759,424)
Life Insurance policies                      2,143,770              2,629,057
                                             ---------              ---------
Total Purchased receivables                 $6,630,399            $22,302,284
                                            ==========            ===========

Advances receivable                        $22,423,926            $16,288,673
  Less: Participations                        (759,425)                      -
  Less: Unearned discount                          -                 (636,216)
                                             ---------              ---------
Total Advances receivable                  $21,664,501            $15,652,457
                                           ===========            ===========


Life  insurance  policies  purchased are stated net of a valuation  allowance of
$760 thousand at June 30, 1999 and $275 thousand at December 31, 1998.

Non-performing  receivables  included within the above totals were $14.8 million
at June 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 six-month  periods ended June 30, 1999 and
1998.  In addition,  three  clients'  portion of total  receivables  outstanding
increased  to 50% of the  portfolio  as of June 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 not 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
June 30, 1999 quarter.

INCOME TAXES
The provision for income taxes of $3,871,938  for the period ended June 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
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

                                       17
<PAGE>

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.

                                       18
<PAGE>



                           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 line of
     credit.  The Company has  negotiated  a  forbearance  agreement  which will
     expire  October  31,  1999 with the  lenders  to  resolve  these  defaults.
     Although the Company and the lenders have agreed on the terms, there can be
     no assurance that the proposed  agreement  will be adopted as expected,  or
     that the lenders  will  otherwise  continue to lend funds to the Company as
     needed.

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

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

         The Company's  annual meeting of shareholders was held on May 11, 1999.
         The shareholders voted as follows:

         Nominees elected as directors:
                                                   # of votes for
                  C. Scott Bartlett                  1,807,050
                  David W. Campbell                  1,807,050
                  Charles G. Johnson                 1,807,050
                  Steven W. Lefkowitz                1,807,050
                  Edward A. McNally                  1,807,050
                  William H. Savage                  1,807,050
                  Lindsay R. Trittipoe               1,807,050

         There were no broker votes at the meeting or votes withheld.

ITEM 6(a). - EXHIBITS

     Exhibit 27.  Financial Data Schedule

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

     On May 24, 1999;  the Company  filed a form 8-K to report its  dismissal of
     its certifying  accountant,  Deloitte & Touche, LLP. Form 8-K filed May 24,
     1999 is incorporated by reference.



                                       19
<PAGE>



                                   SIGNATURES

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

                         ALLSTATE FINANCIAL CORPORATION



Date:    August 16, 1999                           /s/ Charles G. Johnson
                                                   ----------------------
                                                       Charles G. Johnson
                                                  Chief Executive Officer

Date:    August 16, 1999                              /s/ C. Fred Jackson
                                                      -------------------
                                                          C. Fred Jackson
                                                  Chief Financial Officer