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,  2000  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)

 8180 Greensboro Drive,  McLean, VA                            22102
------------------------------------------        ----------------------------
 (Address of principal executive offices)                   (Zip Code)

                                 (703) 883-9757

                           (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       N

The number of shares outstanding of the issuer's common stock, no par value, as
of August 8, 2000, was 2,499,616.

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




                                       1
<PAGE>



                         ALLSTATE FINANCIAL CORPORATION

                                   FORM 10-QSB

                                      INDEX

PART I                                                                   Page
Item 1 - Financial Statements                                           Number

Consolidated Condensed Balance Sheets at June 30, 2000 (unaudited)
and December 31, 1999                                                         3
Consolidated Condensed Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999 (unaudited)                               4
Consolidated Condensed Statements of Shareholders' Equity for the
Year Ended December 31, 1999 and Six Months Ended
June 30, 2000 (unaudited)                                                     5
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 (unaudited)                           6
Notes to Consolidated Condensed Financial Statements (unaudited)            7-11
Item 2 - Management's Discussion and Analysis or Plan

of Operations and Financial Condition                                      10-16
Part II - Other Information

Item 1 - Legal Proceedings                                                    17

Item 3 - Defaults Upon Senior Securities                                      17

Item 6 - Exhibits and Reports on Form 8-K                                     17

Signatures                                                                    17



                                       2
<PAGE>



PART I - FINANCIAL INFORMATION

ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

<S>                                                                             <C>                   <C>

                                                                                June 30, 2000         December 31,1999

                                                                                 (Unaudited)
ASSETS

Cash                                                                              $1,075,623                 $353,962

Purchased receivables                                                              1,985,640                2,110,454

Advances receivable                                                                2,943,520                9,329,366
                                                                                   ---------                ---------
                                                                                   4,929,160               11,439,820

Less: Allowance for credit losses                                                  (438,263)              (4,316,399)
                                                                                   ---------              -----------
Total receivables - net                                                            4,490,897                7,123,421
                                                                                   ---------                ---------
Securities Held for Sale                                                             380,000                        -

Furniture, fixtures and equipment, net                                               116,291                  151,375

Other assets                                                                          43,175                   43,643
                                                                                      ------                   ------
TOTAL ASSETS                                                                      $6,105,986               $7,672,401
                                                                                  ==========               ==========
LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accrued expenses                                               $740,471               $1,009,921

Notes payable                                                                          -                    1,366,051

Convertible subordinated notes                                                     4,954,000                4,954,000
                                                                                   ---------                ---------

TOTAL LIABILITIES                                                                  5,694,471                7,329,972
                                                                                   ---------                ---------
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; issued 3,105,828; outstanding 2,324,616
at December 31,1999,  2,499,616 at  June 30,2000.
exclusive of shares held in treasury                                                  40,000                   40,000

Additional paid-in-capital                                                        18,963,432               18,874,182

Treasury stock, 781,212 shares                                                   (4,961,812)              (4,967,472)



Accumulated Deficit                                                              (14,006,105)             (13,604,281)
Accumulated other comprehensive income:
Unrealized gains on investment securities                                            376,000                    -
                                                                                    --------                 --------
TOTAL SHAREHOLDERS' EQUITY                                                           411,515                  342,429
                                                                                     -------                  -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $6,105,986               $7,672,401

                                                                                  ==========               ==========
</TABLE>

See Notes to Consolidated Condensed Financial Statements



                                       3
<PAGE>

<TABLE>
<CAPTION>


ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)


                                    Three Months Ended June 30,       Six Months Ended June 30,
<S>                                <C>             <C>             <C>            <C>

                                           2000            1999            2000            1999
                                   ------------    ------------    ------------    ------------
REVENUE

Earned discounts and interest ..   $     85,038    $    598,262    $    216,928    $  2,212,733

Fees and other revenue .........        118,783         142,872         190,546         324,446
                                   ------------    ------------    ------------    ------------
TOTAL REVENUE ..................        203,821         741,134         407,474       2,537,179
                                   ------------    ------------    ------------    ------------
EXPENSES

Compensation and fringe benefits        116,254         653,683         285,242       1,263,696

General and administrative .....        324,969       1,349,357         542,831       1,754,650

Interest expense ...............        205,369         335,390         346,714         710,964

Provision for credit losses (recovery) (365,489)      8,376,057       8,376,057        (365,489)
                                   ------------    ------------    ------------    ------------
TOTAL EXPENSES .................        281,103      10,714,487         809,298      12,105,367
                                   ------------    ------------    ------------    ------------
LOSS BEFORE INCOME TAX
EXPENSE ........................        (77,282)     (9,973,353)       (401,824)     (9,568,188)

INCOME TAX EXPENSE  ...                    --         3,871,938            --         4,021,849
--------------------------------   ------------    ------------    ------------    ------------

NET LOSS .......................   $    (77,282)   $(13,845,291)   $   (401,824)   $(13,590,037)
                                   ============    ============    ============    ============
NET LOSS PER COMMON SHARE

Basic and Diluted ..............   $(       .03)   $ (    5.96)    $(      .17)   $(       5.85)
                                   ============    ============    ============    ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic and Diluted ..............      2,359,282       2,324,438       2,354,862       2,324,289
</TABLE>

See Notes to Consolidated Condensed Financial Statements



                                       4
<PAGE>



ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
<S>                         <C>        <C>             <C>                <C>              <C>               <C>

 -------------------------- ---------- --------------- ------------------ ---------------- ----------------- ---------------------
                               Common      Additional        Treasury         Accumulated  Retained Earnings      Total
                                Stock       Paid in            Stock             Other         (Deficit)
                                            Capital                          Comprehensive
                                                                                Income
 -------------------------- ---------- --------------- ------------------ ---------------- ----------------- ---------------------
   Balance - January 1,
   1999                        $40,000     $18,874,182         $4,986,520                        $3,646,809    $17,574,471

   Amortization of
   Treasury Stock Costs
                                                                   15,050                                           15,050
   Conversion of
   Convertible
   Subordinated Notes to
   533 shares of common
   stock
                                                                    3,998                                             3,998

   Net (Loss)                                                                                   (17,251,090)   (17,251,090)

   Balance - December 31,
   1999                        $40,000     $18,874,182       $(4,967,472)                      $(13,604,281)      $ 342,429
                               =======     ===========       ============                      =============      =========

   Amortization of
   treasury stock
   acquisition costs
   (unaudited)                                                      5,660                                             5,660

   Unrealized gains on
   Investment Securities
   (unaudited)                                                                     376,000                          376,000

   Issue of 175,000 Shares
   to Non-Employee
   Directors (unaudited)
                                                              89,250                                                 89,250
   Net (Loss) (unaudited)
                                                                                                    (401,824)      (401,824)

   Balance, June 30, 2000
   (unaudited)
                               $40,000     $18,963,432       $(4,961,812)          376,000       $(14,006,105)      $411,515
                               =======     ===========       ============          =======       =============      ========
</TABLE>

See notes to consolidated condensed financial statements

                                       5
<PAGE>

ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
                                                                                         Six Months Ended

<S>                                                                             <C>              <C>

                                                                                 June 30, 2000      June 30, 1999

CASH FLOWS FROM OPERATING ACTIVITIES:
          Net (Loss)                                                                $(401,824)      $(13,590,037)
          Adjustments to reconcile net (loss)
                 to cash provided (used) by operating activities:
                 Depreciation - net                                                     32,855             33,039
                 Provision for credit losses                                         (365,489)          8,376,057
                 Changes in operating assets and liabilities:
                       Other receivables                                                   468            595,281
                       Accounts payable and accrued expenses                         (269,450)          (419,244)
                       Income taxes receivable and deferred income taxes                     -          4,783,778

NET CASH  (USED) BY OPERATING ACTIVITIES                                           (1,003,440)          (221,126)

CASH FLOWS FROM INVESTING ACTIVITIES:
          Purchase of Receivables and  Advances                                      (886,000)       (88,329,796)
          Collection of purchased receivables
                 and advances receivable                                             3,959,994         97,773,630
          (Decrease) in credit balances of factoring clients                                 -        (3,814,377)
          Sale (Purchase) of furniture, fixtures and equipment                          11,498          (166,719)

NET CASH PROVIDED BY INVESTING ACTIVITIES                                            3,085,492          5,462,738

CASH FLOWS FROM FINANCING ACTIVITIES:
          Proceeds from lines of credit                                                      -         54,129,626
          Principal payments on lines of credit                                    (1,366,051)       (61,230,898)
          Treasury stock acquisition costs                                               5,660              8,147

NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                   (1,360,391)        (7,093,125)


NET  INCREASE (DECREASE) IN CASH                                                       721,661        (1,851,513)

CASH, Beginning of period                                                              353,962          2,420,644


CASH, End of period                                                                 $1,075,623           $569,131


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
          Interest paid                                                                $67,250           $375,285


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


          Issuance of common stock as directors' fees                                  $89,250              $   -
</TABLE>



See Notes to Consolidated Condensed Financial Statements

                                       6
<PAGE>

ALLSTATE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED 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, 2000 and 1999; however,  they reflect all adjustments
which, in the opinion of management, are necessary to present fairly the results
for the  periods  presented.  The  December  31,  1999  balance  sheet  has been
extracted  from audited  financial  information.  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 and six months ended June 30, 2000 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, 1999.

2. Lines of Credit.  In January  2000,  the Company  repaid its bank  lenders in
full. Previously the Company obtained a $1,000,000  supplemental working capital
loan from Value  Partners,  a major  shareholder.  On April 5, 2000 the  Company
repaid the working  capital loan in full.  The Company does not have any outside
source of  liquidity  to fund new  business,  and is relying on  collections  of
existing accounts and impaired assets to fund its current clients.

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
("AG") pending in the United States  Bankruptcy Court for the Southern  District
of New York.  In a 1993  action  the  Company  undertook  an  attempt to recover
against  AG. An answer and  counterclaim  was filed  against  the  Company.  The
counterclaim  asserted  claims  for  usury,  diversion  of  proceeds  of  public
improvement  contracts,  and  overpayments  to the  Company  by AG in  excess of
$2,000,000 (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 ( the  "Surety"),  which
provided  the  payment  and  performance  bond  to AG  in  connection  with  the
construction jobs performed for the City of New York, filed pleadings  objecting
to the  abandonment  of such claims  against the Company,  asserting that it was
subrogated to AG's claims.  The proposed complaint adopted the Counterclaims and
sought an accounting.  The Surety asserted 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 (the  "Superintendent")  and as such the
Superintendent  was  judicially  appointed  as  rehabilitator  of the  Surety to
conduct its business.  At that time, it was uncertain whether the Superintendent
would 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.

                                       7
<PAGE>

Except as described above, the Company is not party to any litigation other than
routine proceedings  incidental to its business, and the Company does not expect
that these other proceedings will have a material adverse effect on the Company.

The Company previously  occupied  approximately 8,000 square feet of space in an
office building in Arlington,  Virginia as its principal location. The Company's
lease on this property  would have expired in December 2001. The cost of renting
this office space was  approximately  $178,000 in 1999.  At the end of May, 2000
the Company was released  from its  obligations  for the  remainder of the lease
term. The Company sublets  approximately  1,500 square feet of office space in a
commercial building located in McLean,  Virginia. The cost of renting at the new
location will be approximately  $30,000 during 2000. The Company subleases from,
and shares  certain of the  expenses of  occupancy  with,  a separate  financial
services firm that is majority owned by Value Partners,  the Company's  majority
shareholder.

4. Credit Concentrations. For the three months ended June 30, 2000, interest and
fees from two clients each accounted for over 10% of the Company's  total earned
revenue, representing 30.6% of the Company's total revenue, as compared to 57.0%
of revenue from the three largest clients,  each of which accounted for over 10%
of the total,  in the three months ended March 31, 2000.

At June 30, 2000, one client  accounted for more than 10% of the Company's total
receivables.  The  loan,  which  represented  17.3% of total  receivables,  is a
participation  in a loan which was  originated  by and is serviced by a separate
financial services firm that is majority owned by Value Partners,  the Company's
majority  shareholder.  At March  31,  2000,  one  client,  not  including  non-
performing  clients whose allocated  reserves  reduced their net outstandings to
under 10% of  receivables,  accounted for more than 10% of the  Company's  total
receivables, with a total of 15.4%.

On April 5, 2000, the Company and a client entered into a settlement  agreement,
in which the Company  agreed to accept  $1,200,000  in cash in  settlement  of a
balance on an impaired loan of $4,735,684.  As a result, the Company charged off
$3,535,684   of  the  balance   against  a   previously   established   reserve.
Simultaneously the Company also exercised,  for a total consideration of $4,000,
a warrant to purchase four million shares of common stock in the Client's parent
corporation. These shares are held for sale with a market value on June 30, 2000
of  $380,000.  The common stock is subject to  restrictions  on sale or transfer
according to Rule 144 of the Securities Act of 1933.

5. Stock  Options.  The Company  maintains  three  stock  option  plans:  (1) an
Incentive Stock Option Plan ("Qualified Plan"), (2) a Non-Qualified Stock Option
Plan  ("Non-Qualified  Plan"), and (3) its 2000 Stock Option Plan ("2000 Plan"),
which  allows  for  grants  of both  qualified  and  non-qualified  options.  No
additional  grants can be made under the Qualified or Non-Qualified  Plans as of
February 7, 2000.  The 2000 Plan was  approved by the board of  directors of the
Company  on June 13,  2000,  and is  subject to the  approval  of the  Company's
shareholders.  Subsequently,  on August 8, 2000,  the plan was  approved  by the
shareholders.  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 had  reserved  275,000  shares of common stock for
issuance under its Qualified Plan. Options to purchase common stock were granted
at a price equal to the fair  market  value of the stock on the date of grant or
110% of fair  market  value of the stock at the date of grant  for  stockholders
owning 10% or more of the combined voting stock of the Company.

Non-Qualified Plan - The Company had reserved 150,000 shares of common stock for
issuance  under its  Non-Qualified  Plan.  Options to purchase  shares of common
stock were  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  was the  greater  of $7.00 or 110% of fair  value at the time of
grant.

                                       8
<PAGE>

2000 Plan - The Company  reserved the lesser of 450,000 or 8% of the then issued
and  outstanding  shares of common stock for issuance under its 2000 Plan. As of
June 30,2000 the amount of shares  reserved  was  199,969.  No options have been
granted under the 2000 Plan.

     The table below  summarizes the option activity for all three plans for the
three months ended June 30, 2000.


                                                              Three Months Ended
                                                                   June 30, 2000

                             Outstanding April 1                         155,400
                             Granted                                           -
                             Exercised                                         -
                             Forfeited or expired                              -
                             Outstanding                                 155,400
                                                                         =======

                             Exercisable                                 155,300
                                                                         =======



6.  Restricted  Stock  Plan.  The  Company's  board of  directors  approved  the
Company's  2000  Restricted  Stock Plan for  Non-Employee  Directors on June 13,
2000.  This  plan  reserved  175,000  shares of common  stock  for  issuance  to
non-employee directors for past services. All of the shares were awarded on June
13, 2000,  subject to the approval of the plan by the shareholders.  The closing
price of the  Company's  common stock as traded on the Nasdaq OTC Market on June
13 was $.51.  Subsequently,  on August 8, 2000,  this plan was  approved  by the
shareholders.

7. Income  taxes.  Deferred  taxes are  provided on a liability  method  whereby
deferred tax assets are  recognized  for deductible  temporary  differences  and
operating loss and tax credit  carryforwards  and deferred tax  liabilities  are
recognized for taxable  temporary  differences.  Temporary  differences  are the
differences between the reported amounts of assets and liabilities and their tax
bases.  Deferred tax assets are reduced by a valuation  allowance  when,  in the
opinion of  management,  it is more likely than not that some  portion or all of
the  deferred  tax  assets  will  not  be  realized.  Deferred  tax  assets  and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.  The Company has reduced the deferred tax assets by utilizing
a valuation allowance, because the deferred tax assets more than likely will not
be  realized.  The  remaining  tax assets  equal the  deferred  tax  liabilities
resulting from the unrealized gain on investment securities.


8.  Uncertainties  and  Subsequent  Events.  The Company  continued to incur net
losses in the quarter ended June 30, 2000,  although it has made further cuts in
expenses and overhead.  Through the collection of impaired  assets,  the Company
repaid the Value Partners supplemental working capital loan, and believes it now
has  sufficient  cash to support its  operations for the remainder of the fiscal
year.  The  Company  continues  to be in default on its  Subordinated  Notes Due
September 2003 ("New Notes").  As noted below, the Company has reached agreement
with the holders of the New Notes on a conversion to common stock.

                                      9
<PAGE>

The Company has also  continued to develop its  strategic  turnaround  plan (the
"Plan").  The committee of outside directors appointed by the board of directors
has  negotiated  the  conversion of the New Notes held by Value  Partners,  Ltd.
(plus  accrued  and unpaid  interest  thereon at 12.5%  through  the date of the
exchange)  into common stock of the Company at a price of $.95 per share,  which
is an important  element of the Plan.  The Company has offered the same terms of
exchange to the remaining holders of the New Notes, a majority of whom have also
agreed to the terms of the exchange.

Due to a low percentage of proxies obtained from shareholders,  at the Company's
annual meeting on August 8, 2000, the  consideration of certain  proposals which
are key elements of the plan was adjourned  until August 29, 2000. The proposals
included:

- The  re-incorporation  of the Company under  Delaware law to take advantage of
provisions favorable to the Plan.
- A limitation on transfers of common stock by
existing  or  potential  holders  of over 4.9% of  outstanding  shares,  thereby
helping to preserve the Company's net operating loss carryforwards ("NOL's") for
future use.
- An increase in the number of authorized  shares from 10,000,000 to
20,000,000  to  facilitate  the  conversion  and enable the  Company to consider
possible  acquisitions  of, or business  combinations  with,  firms in financial
services, involving the issuance of new shares.

The Company believes  sufficient  proxies can be gathered before the adjournment
to adopt the proposals and that when the Plan is  implemented,  the Company will
be positioned for future growth.  The conversion of the New Notes to equity will
reduce the Company's  interest costs and position it to more effectively  obtain
new senior funding to expand its loan portfolio or to make acquisitions of other
financial  services  businesses.  The  satisfactory  completion  of the  Plan is
essential,  as the  Company  continues  to  have  insufficient  cash  flow  from
operations to service the interest payments on the New Notes.

However,  there can be no assurance  that the  provisions  important to the plan
will be adopted at the  adjournment,  that the  Company  will be  successful  in
implementing  the Plan,  identifying and closing  possible  acquisitions  of, or
business  combinations  with,  firms in  financial  services,  re-deploying  the
amounts  it  currently  has  invested  in  nonperforming  assets  into  new  ABL
relationships, or in securing new financing.

If the Plan can be  accomplished,  management  believes  that the  Company  will
continue as a going concern.

9.  Securities  held for sale. The Company's  investments  in marketable  equity
securities  are  classified  as  available-for-sale.  Investments  classified as
available-for-sale  are  measured at market value and net  unrealized  gains and
losses are recorded as a component of stockholders' equity until realized.

10.  Comprehensive  Income.  SFAS  No.130, Reporting Comprehensive Income,
establishes  standards for reporting and display of comprehensive income and its
components   (revenues,   expenses,   gains,  and  losses)  in  a  full  set  of
general-purpose  financial  statements.  This statement  requires that all items
that are recognized  under  accounting  standards as components of comprehensive
income be reported  in a financial  statement  that is  displayed  with the same
prominence as other  financial  statements.  The following  table  discloses the
components of the Company's comprehensive income:
<TABLE>
<CAPTION>

                                   Three months ended  June 30,     Six months ended  June 30,
<S>                            <C>            <C>             <C>             <C>

                                     2000            1999            2000            1999

Net (loss) ................... $    (77,282)   $(13,845,291)   $   (401,824)   $(13,590,037)

Other  comprehensive  income:
unrealized gains
on investment securities            376,000                         376,000

                                  ----------    ------------       --------    ------------
Comprehensive income ........  $    278,718    $(13,845,291)   $    (25,824)   $(13,590,037)

</TABLE>

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


                                       10
<PAGE>

the  generality  of the  foregoing,  words  such  as  "may",  "will",  "expect",
"believe",  "anticipate",  "intend", "could",  "estimate", or "continue", or the
negative or other  variation  thereof or comparable  terminology are intended to
identify  forward-looking  statements.  These statements by their nature involve
substantial  risks and  uncertainties,  such as  credit  losses,  dependence  on
management and key personnel,  seasonally, and variability of quarterly results,
ability  of the  Company  to  continue  its growth  strategy,  competition,  and
regulatory  restrictions relating to potential new activities,  certain of which
are  beyond  the  Company's  control.  Should  one or more  of  these  risks  or
uncertainties  materialize or should the underlying assumptions prove incorrect,
actual outcomes and results could differ  materially from those indicated in the
forward-looking statements.

General.  The  Company  is  a  commercial  finance  institution  which  provides
financing to small businesses,  usually those with annual sales of $1 million to
$10 million, through loans secured by accounts receivable,  inventory, machinery
and equipment,  and real estate.  Prior to the sale of its factoring business in
October, 1999, the Company also purchased accounts receivable at a discount with
recourse to the seller.  Through  its  offering of advances  secured by accounts
receivable,  inventory,  machinery and equipment,  and real estate ("Asset-Based
Lending" or "ABL"),  the Company provides its clients with the ability to expand
their working capital and acquire productive business assets.

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

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

Historically,  the Company has not  expected to maintain a funding  relationship
with a client for more than two years.  The  Company  expected  that its clients
would qualify for more competitively priced bank or asset-based financing within
that time period, or would be liquidated. Therefore, the Company's major clients
have  tended to  change  significantly  over  time.  Although  the  Company  has
historically been successful in replacing major clients, the loss of one or more
major  clients and an inability to replace  those  clients could have a material
adverse effect on the Company.

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

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

Liquidity  and Capital  Resources.  The Company's  requirement  for capital is a
function of the level of its investment in  receivables.  The Company funds this
investment through internally  generated funds. 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  believes  funds  from  the
collection  of impaired  assets  will be  sufficient  to finance  the  Company's
funding  requirements  for the  remainder  of the  fiscal  year.  The  Company's
expenses continue to exceed revenues, although costs have been reduced.

                                       11
<PAGE>

Impact of Inflation.  Management  believes that inflation has not had a material
effect on the  Company's  income,  expenses  or  liquidity  during the six month
periods ending June 30, 2000 and 1999. The Company's  advances  receivable  bear
interest  primarily at fixed rates, and the majority of its notes payable are at
fixed rates. Therefore, an environment of rising or falling interest rates would
have little adverse affect on the Company's net interest spread.

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


                                        Three Months ended June 30,              Six Months ended June 30,

                                        2000                 1999                2000                    1999
                                        ----                 ----                ----                    ----
<S>                                <C>          <C>       <C>         <C>       <C>          <C>      <C>         <C>

                                                  % of                  % of                   % of                 % of
                                    ($   000)   REVENUE   ($   000)   REVENUE    ($   000)   REVENUE   ($   000)   REVENUE
                                    --------    ------    --------    -------    --------    ------    --------    -----
Earned discounts and interest ..   $     85        41.7   $   598         80.7   $   217        53.2  $  2,213       87.2
Fees and other revenue ...........      119        58.3       143         19.3       190        46.8       324       12.8
                                       ------    ------    --------    -------    --------    ------    --------    -----
TOTAL REVENUE ..................        204       100.0       741        100.0       407       100.0     2,537      100.0
                                     --------    ------    --------    -------    --------    ------    --------    -----

EXPENSES

Compensation & fringe benefits .....    116        57.0       654         88.2       285        70.0     1,264       49.8
General and administrative .........    325       159.4     1,349        182.0       543       133.2     1,755       69.2
Interest expense ..................     205       100.7       335         45.3       347        85.1       711       28.0
Provision for credit losses ...........(366)     (179.3)    8,376      1,130.2      (366)      (89.7)    8,376      330.1
                                        -----    ------    --------    -------    --------    ------    --------    -----
TOTAL EXPENSES ........................ 281       137.9    10,714      1,445.7       809       198.6    12,105      477.1
                                        ----    ------    --------    -------    --------    ------     --------     -----

LOSS BEFORE INCOME TAX EXPENSE
                                        (77)      (37.9)   (9,973)    (1,345.7)     (402)      (98.6)   (9,568)    (377.1)
                                         -----    ------    --------    -------    --------    ------    --------    -----

INCOME TAX EXPENSE ..................     --       0.00     3,872        522.4        --         0.00     4,021      158.5
                                       -------    ------    --------    -------    --------   ------    --------    -----
NET LOSS ..........................$    (77)     (137.9)  $(13,845)     (823.3) $   (402)      (98.6)  $(13,590)   (535.6)
</TABLE>

Total Revenue.  Total revenue consists of (i) interest  earnings on ABL advances
receivable and, in previous periods,  discounts on purchased  invoices earned in
the Company's  factoring  business from the purchase of accounts  receivable and
(ii) fees and other revenue,  which consists  primarily of the premium which the
Company receives over time based on the performance of the Purchased Receivables
sold during 1999, along with application  fees,  commitment or facility fees and
other transaction related financing fees.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]



                                       12
<PAGE>
The  following  tables break down total revenue by type of  transaction  for the
periods indicated and the percentage relationship of each type of transaction to
total revenue.

<TABLE>
<CAPTION>
                       For the Three Months Ended June 30,
<S>                               <C>        <C>      <C>       <C>
                                    2000                1999

                Type of Revenue   Earned     Percent  Earned    Percent
                                  Revenue             Revenue
Discount on purchased invoices    $312,582      42.2

Earnings on advances receivable   $ 85,038      41.7  285,680      38.5

Fees and other revenue ........    118,783      58.3  142,872      19.3
                                  --------   -----   --------     -----

Total revenue .................    $203,821     100.0 $741,134     100.0
                                   ========   =====   ========     =====
</TABLE>
<TABLE>
<CAPTION>
                        For the Six Months Ended June 30,
<S>                                <C>         <C>      <C>         <C>
                                   2000                  1999

             Type of Revenue ..   Earned        Percent Earned       Percent
                                  Revenue               Revenue
Discount on purchased invoices    $  693,273      27.3

Earnings on advances receivable   $  216,928      53.2  1,519,460      59.9

Fees and other revenue ........      190,546      46.8    324,446      12.8
                                  ----------   -----   ----------   -----

Total revenue .................   $  407,474     100.0 $2,537,179     100.0
                                  ==========   =====   ==========   =====
</TABLE>
Total revenue  decreased by $537 thousand and $2.1 million,  or 72.5% and 83.9%,
in the three and six month  periods  ended June 30, 2000 versus the same periods
in 1999.  Within  total  revenue,  the Company  had no  discounts  on  purchased
invoices in 2000 due to the sale of the factoring business. Earnings on advances
receivable  decreased by $200 thousand and $1.3  million,  or 70.2% and 85.7% in
the three and six months  ending June 30, 2000 versus the same  periods in 1999.
The  decrease in earnings on advances  was  attributable  to the decrease in the
outstanding balances of advances  receivable.  The Company added two new clients
during the quarter  ending June 30, 2000,  but the new  advances  were offset by
pay-downs by existing clients.

Fees and other revenue  decreased $24 thousand and $134  thousand,  or 16.9% and
41.3%,  in the three and six months  ended June  30,2000 as compared to the same
periods  in 1999.  Fee  income  related  to the  factoring  business  and to new
facilities or renewals and increases to existing  accounts  decreased due to the
lower level of direct business, while the premium the Company expects to collect
over time based on the  performance  of the Purchased  Receivables  sold in 1999
increased.

Compensation  and Fringe  Benefits.  Comparing  the three and six month  periods
ending June 30, 2000 and 1999,  compensation  and fringe  benefits  fell by $538
thousand and $979 thousand, respectively, or 82.2% and 77.4%. The differences in
each period were due to primarily to a decreased number of employees.

General and Administrative  Expense.  Total general and administrative  expenses
during the three and six month  periods  ended June 30,  2000 fell by $1 million
and $1.2 million, or 75.9% and 69.1%, compared with the corresponding periods in
1999,  respectively.  All  categories of expense were lower due to the Company's
greatly reduced operation.

Interest  Expense.  Interest  expense fell by $130 thousand,  or 38.8%,  for the
three months  ending June 30, 2000  compared  with the  corresponding  period in
1999.  For the six months  ending June 30,  2000,`  interest  was $364  thousand

                                       13
<PAGE>
lower, or 51.2%. The decrease in interest expense is primarily attributable to a
decrease in the  average  amount of debt  outstanding,  due to the payoff of the
bank revolving credit and the supplemental  working capital loan. The savings on
interest due to the  decrease in the amount of debt  outstanding  was  partially
offset in the three and six month  periods  ending  June 30,  2000  because  the
Company is subject to the penalty rate of 14% per annum on the New Notes.

Provision  for Credit  Losses.  During  the three and six months  ended June 30,
2000, the Company had charge-offs of $3.6 and $3.6 million,  while recovering $7
thousand and $23 thousand. During the three and six months ending June 30, 1999,
the Company had  charge-offs of $8 thousand and $78 thousand,  while  recovering
$178 thousand and $355  thousand.  During the three months ending June 30, 2000,
the Company also collected  $272 thousand in excess of the allocated  reserve on
an impaired asset. To account for that  collection,  and to adjust the amount of
unallocated  reserves in light of the decrease in the amount of  receivables  at
June 30, 2000, the Company took a negative  provision of ($365) thousand for the
three months and six months ended June 30, 2000. At $438 thousand, the allowance
was 14.0% of total  receivables  (net of  participations  and unearned  income),
exclusive of life insurance  policies,  outstanding as of June 30, 2000. At June
30,  2000,  $172  thousand of the  allowance  was  allocated  to  non-performing
accounts.  At March 31,2000 the comparable figures were $4.3 million,  or 50.4%,
with $4 million allocated to non-performing.

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.  Based on this analysis,  the Company believes the
allowance  for credit  losses is adequate in light of the risks  inherent in the
portfolio at June 30, 2000. The Company carefully monitors the portfolio,  but a
deterioration in one or more clients could have a material adverse effect on the
Company.

Receivables. Receivables consist of the following, at the dates indicated.
<TABLE>
<CAPTION>


                                                      June 30, 2000                        December 31,1999
<S>                                                        <C>                               <C>

      Invoices and insurance claims                            $209,631                            $234,445

        Less: unearned discount                                (13,953)                            (13,953)

      Life insurance policies (net)                           1,789,962                           1,889,962
                                                              ---------                           ---------

      Total purchased receivables                            $1,985,640                          $2,110,454
                                                             ==========                          ==========

      Advances receivable                                    $3,688,143                         $10,073,989

        Less: participation                                   (744,623)                           (744,623)
                                                              ---------                           ---------

      Total advances receivable                              $2,943,520                          $9,329,366
</TABLE>

Non-performing  receivables  included within the above totals were $983 thousand
at June 30, 2000 and $5.4 million at December 31, 1999.

From  time to time,  a single  client  or  single  industry  may  account  for a
significant  portion of the Company's  receivables.  See Note 4 to the unaudited
financial statements. The Company has adopted a policy to generally restrict the
size of any one new client to a maximum of $500  thousand,  and has  reduced the
size of the existing  clients who were over that limit.  The Company has entered
into a  participation  in the  amount of $850  thousand  which is  managed  by a


                                       14
<PAGE>

company  majority owned by Value Partners,  the Company's  largest  shareholder.
This facility is expected to be  outstanding  for a very limited term.  Although
the Company carefully monitors client and industry  concentration,  there can be
no assurance  that the risks  associated  with client or industry  concentration
could not have a material adverse effect on the Company.

On April 5, 2000, the Company and a client entered into a settlement  agreement,
in which the Company  agreed to accept $1.2 million in cash in  settlement  of a
balance on an impaired loan of $4.8 million.  As a result,  the Company  charged
off $3.6  million  of the  balance  against a  previously  established  reserve.
Simultaneously  the Company  also  exercised,  for a total  consideration  of $4
thousand,  a warrant to  purchase  four  million  shares of common  stock in the
Client's  parent  corporation,  with a market  value  on June  30,  2000 of $380
thousand.  The  common  stock is  subject to  restrictions  on sale or  transfer
according to Rule 144 of the Securities Act of 1933.

Uncertainties and Subsequent  Events.  The Company continued to incur net losses
in the  quarter  ended  June 30,  2000,  although  it has made  further  cuts in
expenses and overhead.  Through the collection of impaired  assets,  the Company
repaid the Value Partners supplemental working capital loan, and believes it now
has  sufficient  cash to support its  operations for the remainder of the fiscal
year. The Company  continues to be in default on its New Notes.  As noted below,
the  Company  has  reached  agreement  with a majority of the holders of the New
Notes on a conversion to common stock.

The Company has also  continued to develop its  strategic  turnaround  plan (the
"Plan").  The committee of outside directors appointed by the board of directors
has negotiated the conversion of the New Notes (plus accrued and unpaid interest
thereon at 12.5%  through the date of the  exchange)  into  common  stock of the
Company at a price of $.95 per share, which is an important element of the Plan.

Due to a low  number  of  proxies  obtained  from  shareholders  at the
Company's  annual  meeting  on August 8,  2000,  the  consideration  of  certain
proposals  which are key  elements of the plan was  adjourned  until  August 29,
2000. The proposals included:

- The  re-incorporation  of the Company under  Delaware law to take advantage of
provisions favorable to the Plan.
- A limitation on transfers of common stock by
existing  or  potential  holders  of over 4.9% of  outstanding  shares,  thereby
helping to preserve the Company's net operating loss carryforwards ("NOL's") for
future use.
- An increase in the number of authorized  shares from  10,000,000 to 20,000,000
to  facilitate  the  conversion  and enable the  Company  to  consider  possible
acquisitions of, or business  combinations  with,  firms in financial  services,
involving the issuance of new shares.

The Company believes  sufficient  proxies can be gathered before the adjournment
to adopt the proposals and that when the Plan is  implemented,  the Company will
be positioned for future growth.  The conversion of the New Notes to equity will
reduce the Company's  interest costs and position it to more effectively  obtain
new senior funding to expand its loan portfolio or to make acquisitions of other
financial  services  businesses.  The  satisfactory  completion  of the  Plan is
essential,  as the  Company  continues  to  have  insufficient  cash  flow  from
operations to service the interest payments on the New Notes.

However,  there can be no assurance  that the  provisions  important to the plan
will be adopted at the  adjournment,  that the  Company  will be  successful  in
implementing  the Plan,  identifying and closing  possible  acquisitions  of, or
business  combinations  with,  firms in  financial  services,  re-deploying  the
amounts  it  currently  has  invested  in  nonperforming  assets  into  new  ABL
relationships, or in securing new financing.

                                       15
<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 2.- CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 13, 2000 the Company issued  175,000 shares of its common stock,  no par
value,  to its  outside  directors  in return  for past  service.  The amount of
consideration charged to expense for directors' fees was $89,250.

ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
The  Company  has  defaulted  in the  payment  of  interest  on its  convertible
subordinated  notes due  September  30,  2003.  The total  interest  which is in
arrears as of the date of filing of this report is $421,398.68.

ITEM 6(a). - EXHIBITS
Exhibit 27.  Financial Data Schedule

ITEM 6(b). - REPORTS ON FORM 8-K None.

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 11, 2000

         /s/ Charles G. Johnson
         Charles G. Johnson
         Chief Executive Officer

Date:    August 11, 2000

         /s/ C. Fred Jackson
         C. Fred Jackson
         Chief Financial Officer

                                       16
<PAGE>