--------------------------------------------------------------------------------

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


                                   Form 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required)
                   For the fiscal year ended December 31, 1997


                         Commission File Number 0-23484

                             STANDARD FUNDING CORP.
                 (Name of Small Business Issuer in Its Charter)

             New York                                   11-2523559
  (State or Other Jurisdiction of                    (I.R.S. Employer
  Incorporation or Organization)                    Identification No.)

335 Crossways Park Drive, Woodbury, New York               11797
  (Address of Principal Executive Offices)               (Zip Code)

                                 (516) 364-0200
                (Issuer's Telephone Number, Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, $.001 par value

      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
[_]

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

      State issuer's revenues for its most recent fiscal year: $6,327,115.

      State the aggregate market value of voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $3,893,760 based on the price at which the stock was sold on March 25,
1998.

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,760,000 shares of Common
Stock, $.001 par value per share, were outstanding at March 27, 1998.

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

                       DOCUMENTS INCORPORATED BY REFERENCE

      The information called for by Part III, Items 9, 10, 11 and 12 is
incorporated herein by reference from Standard Funding Corp.'s definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 21, 1998
which will be filed on or before April 21, 1998.

--------------------------------------------------------------------------------
<PAGE>

                             STANDARD FUNDING CORP.

                        1997 ANNUAL REPORT ON FORM 10-KSB

Item                                                                        Page
Number                                                                    Number
------                                                                    ------

                                     PART I

1.    Description of Business                                               1

2.    Description of Property                                               5

3.    Legal Proceedings                                                     5

4.    Submission of Matters to a Vote of Security-Holders                   5


                                     PART II

5.    Market for the Company's Common Equity and
         Related Shareholder Matters                                        6

6.    Management's Discussion and Analysis or Plan of Operation             6

7.    Financial Statements                                                 10

8.    Changes in and Disagreements with Accountants
         on Accounting and Financial Disclosure                            10


                                    PART III

9.    Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act                 11

10.   Executive Compensation                                               11

11.   Security Ownership of Certain Beneficial Owners and Management       11

12.   Certain Relationships and Related Transactions                       11


      Index to Financial Statements                                        F-1
<PAGE>

PART I

Item 1. Description of Business.

      General

      Standard Funding Corp. (the "Company"), incorporated in New York in 1978,
is a financial services company engaged in the business of financing the payment
of insurance premiums. The Company offers financing of approximately 75 to 85%
of an insurance premium to individual and commercial purchasers of property,
casualty and liability insurance who wish to pay their insurance premiums on an
installment basis. While many insurance carriers require advance payment of a
full year's premium, the Company allows the insured to spread the cost of the
insurance policy over time.

      The Company finances insurance premiums without assuming the risk of loss
borne by insurance carriers. When the insured buys an insurance policy from an
independent insurance agent or broker who offers financing through the Company,
the insured generally pays a down payment of approximately 15% to 25% of the
total premium and signs a premium finance agreement for the balance. Under the
terms of the Company's standard form of financing contract, the Company is given
the power to cancel the insurance policy if there is a default in the payment on
the finance contract and to collect the unearned portion of the premium from the
insurance carrier. The down payment is set at a level designed, in the event of
cancellation of a policy, such that the return premium from the insurance
carrier is sufficient to cover the loan balance plus interest and other charges
due to the Company. To finance its insurance premium loans, the Company relies
primarily on proceeds of short-term lines of credit, subordinated debt, the
issuance of commercial paper and the sale of equity. The Company derives profit
to the extent that interest earned and fees charged generate income exceeding
the interest expense for borrowed funds and the Company's operating and selling
expenses and provision for possible credit losses.

      The Company is licensed as an insurance premium finance company in the
States of New York, New Jersey, Connecticut, Pennsylvania, Massachusetts,
Missouri, Delaware, Illinois, New Hampshire, Maryland and in the District of
Columbia. The Company is in the process of obtaining a license as an insurance
premium financing company in the States of Virginia, Vermont, Michigan, Rhode
Island and Wisconsin. Management believes that approximately 81% of the total
premiums financed by the Company as of December 31, 1997 originated in New York.
Management estimates that approximately 95% of the Company's outstanding
receivables are commercial accounts and approximately 5% are personal lines. At
December 31, 1997, the Company had approximately 17,700 active outstanding
accounts.

      The Company's marketing strategy is based on establishing and maintaining
relationships with insurance agents by offering a high degree of service. Senior
management is directly involved in the Company's marketing efforts which
currently focus on commercial accounts. The Company believes that these accounts
provide higher returns at lower risk than other sectors of the marketplace. The
Company has three marketing sales executives.

      Industry Background

      Premium finance companies are licensed to finance property, casualty and
liability insurance premiums for corporate and individual insured's that are
unable to or do not wish to pay an entire insurance premium in one lump sum. The
insured may be able to finance a premium with an affiliated company of the
insurance carrier, if any, an independent premium finance company such as the
Company, a bank or other lending institution. Customarily, insurance agents
utilize the services of premium finance companies to assist in the sale of an
insurance policy to their customers. Upon the execution of a finance agreement
with the insured, the agent forwards the completed documents to a premium
finance company. The premium finance company then pays the premium in full to
the insurance carrier, agent, or broker. The premium finance company collects
principal and interest from the insured (borrower) in the form of an installment
payment. In the event the insured (borrower) defaults, the Company has the right
to cancel the insurance policy by mailing a notice of cancellation to the
insurance carrier. The insurance carrier is then required by state law to refund
the gross unearned premium in full to the finance company for the benefit of the
insured.


                                      -1-
<PAGE>

      Insurance Premium Financing Services

      The Company offers financing to qualified purchasers of various types of
insurance policies including coverage for property, casualty and liability
insurance, of up to approximately 75% to 85% of the entire premium for such
policies. The Company's standard form of premium finance agreement discloses to
the insured, among other things: the price of the total premium; the amount of
the cash down payment made; the amount financed; the amount of the finance
charge; the amount which will be paid after the insured has made all payments as
scheduled; the applicable annual percentage rate charged; the fact that a late
charge is due in the event a payment is late; the insureds entitlement to a
refund of part of the finance charge in the event of prepayment by the insured;
the grant of a security interest in any and all unearned return premiums which
may become payable under the policy; and the insured's appointment of the
Company as the attorney-in-fact with authority to cancel the policy and to
receive from the insurance carrier the unearned portion of the premium. The
Company's agreements generally provide for monthly payments over a period of
between seven to nine months on a one-year policy.

      Each insurance broker in the Company's referral network is provided with
financing kits. When an insured seeks premium financing, the broker completes
(and has the insured sign) the Company's form of premium finance agreement and
collects a down payment of approximately 15% to 25% of the total premium. The
broker also signs the contract to certify that the insurance policy has been
issued and delivered and warrants to the correctness of the information in the
premium finance agreement. The broker submits the original and one copy of the
executed premium finance agreement to the Company, along with its check or the
insured's certified check or money order for the down payment. Upon acceptance
of the finance contract, the Company issues a check payable to the insurance
carrier, agent, or broker for the total premium. The Company inputs all
information into its computer system and sends a payment book to the insured
with the first payment due approximately 30 days from the effective date of
coverage. The Company gives notice to the carrier of its interest in the policy
and informs the carrier that any return premium must be sent to the Company in
the event of cancellation of the policy.

      Although the insured is primarily liable on the finance contract, the
Company does not look solely to the insured's creditworthiness for payment.
Rather, the insured assigns to the Company its interest in any unearned premium
in the financed insurance policy as security for the loan and grants to the
Company the power to cancel the insurance policy and collect the unearned
premium if there is a default in payment on the finance contract. Thus, the
unearned premiums held by the insurance company provide a collateral source of
payment on a delinquent finance contract.

      The Company endeavors to increase revenues by using its resources to
finance as many premiums as is practicable. From the inception of the Company's
operations through December 31, 1997, the Company has financed the premiums on
more than 150,000 insurance policies. The Company currently does business with
more than 700 insurance brokers, more than 500 insurance companies and had,
during the year ended December 31, 1997, average amounts originally financed of
approximately $4,236 per finance contract.

      In order to minimize losses, the Company will not finance premiums unless
the insurance policy provides for the return of unearned premiums upon
cancellation. The Company generally requires policyholders to make loan payments
sufficient to insure that at all times the unearned premium available for refund
will pay the loan balance plus interest and other charges. Advance payment of
approximately 15% to 25% of the premium generally ensures such a margin. Any
monies paid for insurance coverage for time extending after the cancellation
date constitute "unearned premiums" and must, under applicable state statutes,
be refunded to the insured. The Company's form of premium finance agreement
provides that all such refunds be remitted by the insurance carrier to the
Company on behalf of the insured. Before it forwards the refund to the insured
(or to the broker on behalf of the insured where state regulations require), the
Company deducts all interest earned, service and late charges due. In the
Company's experience, the time periods between the cancellation date and receipt
of the refund of unearned premiums has averaged between 60 and 120 days. There
can be no assurances, however, that the Company will be able to collect, or will
not experience increasing delays in collecting, such refunds in the future.


                                      -2-
<PAGE>

      Upon receipt of the gross return premium from the insurance carrier, and
the crediting of this return to the insured's account, debit balances might
still be reflected in certain instances. The causes of such a situation include
improper disclosure of information to insurance agents on the insured's
application for insurance or clerical errors by Company personnel. The Company
uses its in-house collection department in an attempt to collect such balances.
If in-house efforts are unsuccessful, the use of external collection attorneys
is initiated. Certain transactions are written with recourse against the
producing agent, broker or agency and/or offsetting reserves to a few selected
insurance producers.

      The Company charges against income a general provision for possible credit
losses on finance receivables in such amounts as management deems appropriate.
Case-by-case direct write-offs, net of recoveries on finance receivables, are
charged to the Company's allowance for possible losses. The amount of such
allowance is reviewed periodically in light of economic conditions, the status
of the outstanding finance receivables and other factors. The following table
sets forth information concerning the Company's allowance for possible credit
losses on finance receivables and its loss experience for the year ended
December 31, 1997.

                                                                   Year Ended
                                                               December 31, 1997
                                                               -----------------
                                                                  (Dollars in
                                                                   Thousands)
Allowance for possible credit losses at beginning of period           $300
Provision for possible credit losses during period                     572
Charge offs during period                                             (607)
Amounts recovered during period                                         45
                                                                      ----
Allowance for possible credit losses at end of period                 $310
                                                                      ====
Percentage of allowance for possible credit losses to
  finance receivables outstanding at end of period                    .72%
Percentage of net credit losses to finance
  receivables liquidated during period                                .60%

      The Company bears the credit risk of collections from insurance carriers.
Upon a carrier becoming insolvent and unable to pay claims to an insured or
refund unearned premiums upon cancellation of a policy to a finance company,
each state provides a state guaranty fund that will pay such refund, less a per
claim deductible in certain states. The Company seeks to diversify its financing
activities among a wide range of brokers and insurance carriers.

      Sales and Marketing

      The Company generates business through referrals from independent
insurance agents and brokers, and through its own sales efforts. Such brokers
are associated with various insurance companies. Insurance brokers may refer
financing business to an insurance premium financing company because such
companies can assist them in servicing their clients, particularly where the
insurance carrier does not offer an installment payment option. Since the
Company has no contracts with any brokers to continue to refer business to the
Company, there can be no assurance that brokers presently directing financing
business to the Company will continue to do so, or that the Company will be able
to locate and establish relationships with additional brokers.

The Company believes that it offers more flexibility with regard to late
payments and policy cancellations than affiliated companies of insurance
carriers, banks and other lending institutions, which generally subject a policy
to automatic cancellation on a designated date if a premium payment is late. It
is the Company's general policy to notify the broker immediately when any
payment is past due, thereby allowing the broker to arrange with the insured for
payment and to prevent cancellation of the policy. Under certain circumstances
the grace period can be extended, thereby avoiding cancellation of the policy
and the loss of part of the broker's commission which may result from such
cancellation. No assurances can be given that the affiliated companies of the
insurance carriers, banks and other lending institutions will not add greater
flexibility to their insurance financing business practices and, in the event
this should occur, there may be a material adverse effect on the Company's
business operations.


                                      -3-
<PAGE>

      Regulation

      State statutes regulate the Company's operations, and regulations
promulgated thereunder, which provide for the licensing, administration and
supervision of premium finance companies. Such statutes and regulations impose
significant restrictions on the operation of the Company's business.

      The Company is licensed as an insurance premium company in the States of
New York, New Jersey, Connecticut, Pennsylvania, Massachusetts, Maine, Delaware,
Illinois, New Hampshire, Maryland and in the District of Columbia. The Company
must renew its license to operate as a premium finance company each year in
every state except New Jersey which requires renewal every two years. The
Company is also subject to periodic examinations and investigations by state
regulators.

      State statutes and regulations impose minimum capital requirements, govern
the form and content of financing agreements and limit the interest and service
charges the Company may impose. The Commonwealth of Pennsylvania requires a
minimum net worth of $50,000. The State of New York requires that equity capital
be equal to at least 10% of outstanding and, in any event, not less than $1,500.

      State statutes also prescribe notice periods prior to the cancellation of
policies for non-payment, limit delinquency and collection charges and govern
the procedure for cancellation of policies and collection of unearned premiums.

      Changes in the regulation of the Company's activities, such as increased
rate regulation, could have an adverse effect on the Company's operations. The
statutes do not provide for automatic adjustments in the rates a premium finance
company may charge. Consequently, during periods of high prevailing interest
rates on institutional indebtedness and fixed statutory ceilings on rates the
Company may charge its insured's, the Company's ability to operate profitably
could be adversely affected.

      Competition

      The Company encounters intense competition from numerous other firms,
including companies affiliated with insurance carriers, independent insurance
brokers who offer premium finance services, banks and other lending
institutions. Some of the Company's competitors are larger and have greater
financial and other resources and are better known to consumers than the
Company. In addition, there are few, if any, barriers to entry in the event
other firms, particularly insurance carriers and their affiliates, seek to
compete in this market.

      The market for premium finance companies is two-tiered. The first tier is
that of national companies that are owned by insurance companies, banks, and
commercial finance companies. In this group are five companies that on a
combined basis finance over $9 billion per annum of premium finance agreements.
Management believes that one of these companies financed over $3 billion in
insurance premiums in 1997 and is a major competitor of the Company. The second
tier is comprised of smaller local companies and is highly fragmented. The
Company believes that it offers better service and more flexibility with regard
to late payments and policy cancellations than affiliates of insurance carriers,
banks and other lending institutions. The Company competes with these entities
by emphasizing a high level of knowledge of the insurance industry, flexibility
in structuring financing transactions and the timely purchase of qualifying
contracts. The Company believes that its commitment to account service also
distinguishes it from its competitors. It is the Company's general policy to
notify the insurance agent when an insured is in default and to assist in
collection, if requested by the agent. To the extent that affiliates of
insurance carriers, banks, and other lending institutions add greater service
and flexibility to their financing practices in the future, the Company's
operations could be adversely affected. There can be no assurance that the
Company will be able to continue to compete successfully in its markets.

      Personnel

      The Company's staff consists of 30 employees (of whom 26 are full-time
employees and four part-time employees), including three executive officers,
four sales and marketing representatives and 23 clerical and administrative
employees.


                                      -4-
<PAGE>

Item 2. Description of Property.

      The Company's offices are located at 335 Crossways Park Drive, Woodbury,
New York 11797. The Company leases (from a non-affiliated person) approximately
5,676 square feet of office space at a cost of $8,967 per month under a
five-year lease expiring on the 31st day of May 2001.

Item 3. Legal Proceedings.

      The Company is not a party to any material pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

      None.


                                      -5-
<PAGE>

PART II

Item 5. Market for the Company's Common Equity and Related Shareholder Matters.

      The Company's Common Stock has been listed on the Nasdaq SmallCap Market
under the symbol "SFUN" and traded publicly since August 9, 1994. The table
below sets forth, for the periods indicated, the high and low bid prices per
share of Common Stock, as reported on the Nasdaq SmallCap Market. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.

                1996 Period                  High                     Low
                -----------                  ----                     ---

      First Quarter                         $ 6 1/16                 $ 4 3/4
      Second Quarter                        $ 5                      $ 4 7/16
      Third Quarter                         $ 4 7/16                 $ 3 3/4
      Fourth Quarter                        $ 4 3/4                  $ 3 3/4

                1997 Period                  High                     Low
                -----------                  ----                     ---

      First Quarter                         $ 5                      $ 4
      Second Quarter                        $ 4 3/4                  $ 4 1/4
      Third Quarter                         $ 4 1/2                  $ 4 1/4
      Fourth Quarter                        $ 3 1/8                  $ 2 3/8

      There were 433 shareholders of record of the Company's Common Stock as of
December 31, 1997. The Company has not declared or paid any dividends on its
Common Stock since its inception. It is the present intention of the Company to
retain any future earnings to provide funds for the operation and expansion of
its business. Future payment of dividends, if any, will be at the discretion of
the Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors may deem relevant. The Company is prohibited from
declaring or paying any dividends on its capital stock (other than dividends
payable solely in shares of its Common stock) pursuant to one of the Company's
subordinated debt arrangements which matures on December 27, 2000.


Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

      Results of Operations

      The Company derives profits to the extent that finance rates and fees
charged generate income exceeding the Company's cost of funds, operating and
selling expenses and provision for possible credit losses. The Company borrows
funds from various financial institutions in the wholesale market and from other
sources and lends such funds on a secured basis to individual and commercial
purchasers of property and casualty insurance. The cost of borrowed funds
(interest expense) constitutes by far the largest expense of the Company and to
a large degree is beyond the control of the Company. The difference between
finance charge income and the Company's cost of funds is sometimes referred to
as net interest income or "spread." The Company's "spread" is affected by
changes in market interest rates, competitive conditions and other factors.
Presently, all of the Company's lines of credit are on a variable rate basis and
all of its commercial paper and subordinated debt is on a fixed rate basis. See
"Liquidity and Capital Resources." While the Company's installment loans
receivable are all on a fixed rate basis, the rapid rate of turnover of the
Company's total loan portfolio, 3.1 times in both 1997 and 1996, and the short
term to maturity of its outstanding installment loans, with an average maturity
of approximately four months at December 31, 1997, help to reduce the Company's
exposure to interest rate fluctuations.


                                      -6-
<PAGE>

      The following table sets forth the spread that the Company has maintained
for the last two fiscal years, based upon average monthly receivable balances:

                                                    Year Ended December 31,
                                                    -----------------------
                                                     1997           1996
                                                     ----           ----
                                                    (Dollars in Thousands)

Average Installment Loans Receivable - net          $40,270       $27,578
Net Interest Income (Spread)                          3,796         3,743
% of Spread to Average Loans Receivable                 9.4          13.6

      The Company is licensed as an insurance premium company in the States of
New York, New Jersey, Connecticut, Pennsylvania, Massachusetts, Missouri,
Delaware, Illinois, New Hampshire, Maryland and in the District of Columbia. At
December 31, 1997, management estimates that approximately 81% of premium
finance receivables were with New York insured's.

      The following table sets forth certain income statement items as a
percentage of total finance charge income:

                                                       Year Ended December 31,
                                                       -----------------------
                                                          1997          1996
                                                          ----          ----

NET INTEREST INCOME:
    Finance charge income and other                        100.00%      100.00%
    Less: Interest and other expenses on borrowings         40.00        33.99
                                                          -------      -------
         Net interest income                                60.00        66.01
                                                          -------      -------
OTHER EXPENSES:
      Operating expenses                                    28.60        30.15
      Selling expenses                                      11.38         9.96
      Provision for possible credit losses                   9.05        10.29
                                                           ------      -------
           Total                                            49.03        50.40
                                                           ------      -------

INCOME BEFORE PROVISION FOR INCOME TAXES                    10.97        15.61

PROVISION FOR INCOME TAXES                                   4.90         5.99
                                                          -------      -------

NET INCOME                                                   6.07%        9.62%
                                                             ====         ====

      Finance charge income increased by 11.58% to $6,327,115 in the year ended
December 31, 1997 from $5,670,276 for the year ended December 31, 1996 primarily
because of an increase in total installment loans financed. Total installment
loans financed increased 21.7% to $103,320,694 from $84,900,735 and the number
of contracts representing these loans decreased 2% to 24,389 from 24,897. The
Company's average receivables for the year ended December 31, 1997 increased 46%
to $40,269,644 from $27,578,317 for the year ended December 31, 1996. Interest
expense for the year ended December 31, 1997 increased 31.3% to $2,530,859 from
$1,927,372 for the year ended December 31, 1996, an increase of $603,487. This
increase in interest expense is due primarily to the increase in average
receivables. Operating and selling expenses increased by 11.22% to $2,529,856 in
the year ended December 31, 1997 from $2,274,630 in the year ended December 31,
1996. This increase was primarily attributable to increases in salaries,
commission, and certain other administrative expenses. Due to the $656,839
increase in finance charge income, compared to only an $603,487 increase in
interest expense, there was a 1% increase in the "spread" to $3,796,256 for the
year ended December 31, 1997 from $3,742,904 for the year ended December 31,
1996.

      In 1997, the Company had gross write-offs of $606,801, of which $507,027
represented assigned risk automobile policies and $99,774 represented Commercial
policies. Management feels that with the curtailment of financing assigned risk
business in 1997, we have reduced the likelihood of large assigned risk
write-offs for the future. On a going forward basis, management believes that's
its reserves are sufficient to cover these write-offs.


                                      -7-
<PAGE>

      The provision for possible credit losses decreased by 1.9% to $572,297 for
the year ended December 31, 1997 from $583,398 for the year ended December 31,
1996. Past due amounts represent policies that the Company has canceled and is
waiting to receive return premiums, and include policies where the insurance
carrier has credited the return premium to the broker or agent who originated
the policy and who subsequently is required to forward such amount to the
Company. For the year ended December 31, 1997, the percentage of past due
finance receivables to total finance receivables outstanding decreased to 2.8%
from 4.1% for the year ended December 31, 1996.


      Liquidity and Capital Resources

      The Company's operations are dependent upon the continued availability of
funds on satisfactory terms and rates. The Company uses such funds principally
to finance the origination of installment loans under premium finance
agreements. The Company obtains required funds from a variety of sources,
including internal generation of funds, unsecured borrowings under lines of
credit, direct issuance of commercial paper, placement of subordinated debt and
the sale of common equity.

      As the Company increases the size of its business, it originates more
installment loans receivable than it collects, resulting in a larger outstanding
balance of installment loans receivable. For the years ended December 31, 1997
and 1996, the Company originated installment loans receivable of $103,320,694
and $84,900,735 respectively, compared to installment loans collected for each
period of $93,509,063 and $75,021,501 respectively. The result was an increase
in net outstanding installment loan receivables to $41,843,567 from $31,828,236
respectively, at December 31, 1997 and 1996.

      The growth in the Company's loan portfolio has been the single largest
factor influencing the Company's cash flow from operations. The determining
factor influencing the growth in the loan portfolio has been the extent to which
the Company has been able to leverage its capital into subordinated debt and
then into short-term senior debt. For years ended December 31, 1997 and 1996,
net cash provided by operating activities was $1,594,716 and $1,701,219
respectively, which amounts were comprised primarily of net earnings, loss
provisions, depreciation and amortization and other changes in assets and
liabilities. For the years ended December 31, 1997 and 1996, net cash provided
by financing activities was $8,388,734 and $7,526,440 respectively, comprised
primarily of proceeds from bank notes and repayment of bank notes, proceeds from
sales and repayments of commercial paper, net proceeds of subordinated debt and
the sale of accounts receivable participation program.

      The Company has no present plans related to significant capital
expenditures but does intend to add marketing locations in order to increase its
volume of new business. The Company does not expect that such additional
marketing locations will require any significant capital expenditures. The
Company is not aware of any pending legislation that would have a material
effect on its capital requirements or business prospects.

      The Company is subject to minimum capital requirements imposed by certain
of the states in which it is licensed. In addition, the Company is prohibited
from declaring or paying any dividends on its capital stock (other than
dividends payable solely in shares of Common Stock) pursuant to one of the
Company's subordinated debt arrangements which matures on December 27, 2000.

      The sources of funds (other than internal generation of funds) that are
presently available or have been utilized by the Company are described below.
Management believes that the sources of funds presently available to the Company
are adequate for the conduct of its business at its present level. To the extent
that the Company in the future expands its business and increases its total
installment receivables outstanding beyond its present levels of funding, which
may not be available or, if available, may not be on terms acceptable to the
Company.


                                      -8-
<PAGE>

      Lines of Credit. At December 31, 1997, the Company had unsecured
short-term lines of credit aggregating $41,000,000 available through six
commercial banks, under which $26,500,000 was outstanding. Amounts outstanding
under these lines bear interest at prime or a certain percentage over LIBOR. The
Company pays commitment fees to some of these banks in connection with these
lines. These lines expire on various dates through June 30, 1998, although there
can be no assurance that these lines will not be revoked, suspended or reduced
at any time. No bank is contractually obligated to renew any such line. During
the years ended December 31, 1997 and 1996, the maximum aggregate amount
outstanding under these lines at any time was $26,500,000 and $17,600,000,
respectively.

      The Company entered into a $45,000,000 line of credit agreement with a
consortium of banks in January 1998. Borrowings under this agreement bears
interest at a rate stipulated in this agreement which is contingent upon
borrowing levels. The borrowings will be unsecured and there are no compensating
balance agreements. This line of credit expires January 2001, although there can
be no assurance that these lines will not be revoked, suspended or reduced at
any time. None of the banks in the consortium is contractually obliged to renew
any such line.

      Commercial Paper. The Company directly issues its own commercial paper
with maturities of up to 270 days, which is unsecured and is unrated by
commercial paper rating agencies. Commercial paper outstanding at December 31,
1997 bore interest at fixed annual rates ranging from 6.2% to 7%. During the
years ended December 31, 1997 and 1996, the maximum outstanding commercial paper
at any month end was $2,481,337 and $2,649,355, respectively. Such commercial
paper is generally sold to officers of the Company and their affiliates and to
non-affiliated investors. The Company has obtained no commitments from any
purchaser of its commercial paper regarding additional or future purchases. It
is the Company's policy to maintain unused short-term bank lines of credit in an
amount in excess of the amount of commercial paper outstanding. The interest
rate on the Company's commercial paper has been and will continue to be
determined by reference to prevailing interest rates in the commercial paper
market. The Company does not anticipate any change in the level of financing
provided by affiliates of the Company or any changes in the costs of financing
provided by such affiliates. There can be no assurance, however, that such
levels of financing will be maintained in the future.

      Subordinated Debt. The Company has obtained unsecured senior subordinated
debt in the amount of $4,100,000 from outside investors. The notes bear interest
at fixed rates from 10.00 to 14.25% and are due from June 27, 1998 to March 31,
2002. The notes restrict the Company's ability, among other things, to merge,
pay dividends and permit its business to be heavily concentrated with a single
broker or agency. Several of the underlying agreements also contain various
covenants requiring the Company to meet certain financial ratios and other
restrictions on acquisitions and investments. The Company may, at its option,
prepay the loans in whole or in part. However, with respect to several of the
notes, the Company must reimburse the investors for any loss of margin on
reemployment of the funds so repaid. The Company does not currently anticipate
prepaying or otherwise refinancing its existing senior subordinated debt prior
to its maturity. In addition, the Company has obtained unsecured junior
subordinated debt from various investors. The interest rates are fixed and vary
in term. The following table indicates amounts, rates and maturity dates as at
December 31, 1997.

            Rate             Due Date                Amount
            ----             --------                ------
           14.25%            06/30/2001          $  810,000
           14.00%            11/01/2000             500,000
           14.00%            06/27/1998             400,000
           14.00%            12/27/1998             400,000
           14.00%            06/27/1999             400,000
           14.00%            12/27/1999             400,000
           14.00%            06/27/2000             400,000
           14.00%            12/27/2000           1,000,000
           12.50%            03/31/2001             510,000
           12.00%            02/16/2001              50,000
           11.25%            09/30/2001              43,000
           10.00%            03/31/2002              90,000
                                                 ----------
                                                 $5,003,000
                                                 ==========

      Subordinated debt is generally sold to officers and directors of the
Company and their affiliates and to non-affiliated investors. The Company has
obtained no commitments from any holder of its subordinated debt regarding
additional or future purchases.


                                      -9-
<PAGE>

      Other Sources. In addition to the sources of funds described above, the
Company has transferred to banks participating interests in certain receivables
under a financing arrangement. The interest in these receivables have been
transferred on a pari passu basis without any recourse to the Company. As of
December 31, 1997 there was a zero balance with these institutions.

      The Company continually engages in discussions with both current and
prospective lenders regarding obtaining increases in, extensions of or additions
to, both its short-term lines of credit, its subordinated borrowings and its
participation program. The Company is currently engaged in such discussions with
several lenders, but can give no assurance as to whether or when such
discussions will be favorably consummated.

      Year 2000 Matters

      The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions invoices, or engage
in similar normal business activities.

      In 1997, the Company initiated a conversion from existing accounting
software to programs that are year 2000 compliant. Management has determined
that the year 2000 issue will not pose significant operational problems for its
computer systems. All costs associated with this conversion are being expensed
as incurred.

      The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. There can be no guarantee that the systems
of other companies on which the Company's systems rely will be timely converted
or that the failure to make such a conversion will not have an adverse effect on
the Company's systems.

      The Company will utilize both internal and external resources to
reprogram, or replace, and test its software for Year 2000 modifications. The
Company anticipates completing the Year 2000 project during the third quarter of
1998, which is prior to any anticipated impact on its operating systems. The
total cost of the Year 2000 project is estimated at $15,000 and is being funded
through operating cash flows. The total project cost is attributable to the
re-engineering of current software and such costs will be expensed as incurred.

      The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material delays
or difficulties in implementing the project include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.

      Forward-Looking Statements

      The statements contained in this annual report that are not historical
facts are forward-looking statements subject to risks and uncertainties that
could cause actual results to differ materially from those set forth or implied.
These risks and uncertainties include the effect of business and economic
conditions, the impact of competitive products and pricing and other risks and
uncertainties.

Item 7. Financial Statements.

      The Company's financial statements begin on page F-3. Reference is made to
the Index to Financial Statements on page F-1 herein.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

      None.


                                      -10-
<PAGE>

                                    PART III

      The Proxy Statement for the Annual Meeting of Shareholders to be held on
April 25, 1998, which, when filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, will be incorporated by reference in this
Annual Report on Form 10-KSB pursuant to General Instruction E(3) of Form
10-KSB, will provide the information required under Part III (Items 9, 10, 11
and 12).

Item 13. Exhibits, List and Reports on Form 8-K.

(a) Exhibits

      *3.1    Restated Certificate of Incorporation of the Company.

      *3.2    By-laws of the Company.

      *4.1    Specimen certificate for shares of Common Stock of the Company.

      *4.2    Form of Representatives' Warrants.

      *4.3    Form of Registration Rights Agreement between the Company and
              Bernard G. Palitz.

      *10.1   Equity Incentive Plan of the Registrant, as amended.

      *10.2   Form of Financial Consulting Agreement between the Registrant and
              the Representatives.

      *10.3   Promissory Note in the amount of $3,000,000 payable to National
              Westminster Bank USA.

      *10.4   Grid Promissory Note in the amount of $2,500,000 payable to
              Atlantic Bank of New York.

      *10.5   Promissory Note in the amount of $3,000,000 payable to the Bank of
              New York.

      *10.6   Grid Demand Promissory Note in the amount of $3,000,000 payable to
              The Chase Manhattan Bank, N.A.

      *10.7   Demand Grid Note in the amount of $2,000,000 payable to Marine
              Midland Bank, N.A.

      *10.8   Fixed Rate Senior Subordinated Note in the amount of $2,000,000
              payable to National Westminster Bank USA, together with a Loan
              Agreement between the Registrant and National Westminster Bank USA
              with respect thereto.

      *10.9   Lease for premises at 335 Crossways Park Drive, Woodbury, New
              York.

      *10.10  Consulting Agreement between the Company and American Credit
              Management Inc.

      *10.11  Employment Agreement between the Company and Alan J. Karp.

      *10.12  Employment Agreement between the Company and David E. Fisher.

      **10.13 Promissory Note in the amount of $3,000,000 payable to Chemical
              Bank.

      **10.14 Promissory Note in the amount of $4,000,000 payable to the Bank of
              New York.

      **10.15 Letter agreement dated May 9, 1995 increasing demand Grid Note
              payable to Marine Midland Bank, N.A. previously filed as Exhibit
              10.7 herein, to $3,000,000.

      **10.16 Note agreement in the amount of $3,000,000 payable to Bernard G.
              Palitz, members of Mr. Palitz's family and persons affiliated with
              Mr. Palitz, together with form of 14% Senior Subordinated Note due
              December 27, 2000 with respect thereto.

      **10.17 Form of 12.50% Senior Subordinated Notes due March 31, 2001
              payable to various non-affiliated investors in the aggregate
              amount of $485,000.


                                      -11-
<PAGE>

      **10.18 14% Senior Subordinated Note due November 1, 2000 payable to
              Claire Cohn in the amount of $500,000.

      **10.19 14.25% Junior Subordinated Notes due June 30, 2001 payable to
              David Fisher in the aggregate amount of $490,000.

      **10.20 14.25% Junior Subordinated Notes due June 30, 2001 payable to U.S.
              Clearing Corp. - Alan Karp -IRA Rollover in the aggregate amount
              of $110,000.

      **10.21 Form of 14.25% Junior Subordinated Notes due June 30, 2001 payable
              to Sharon Goldaber in the amount of $80,000.

      **10.22 12% Junior Subordinated Note due February 16, 2001 payable to
              J.C.F. Consulting Corp. in the amount of $50,000.

      **10.23 14.25% Junior Subordinated Note due June 30, 2001 payable to Herb
              and Judi Pitch in the amount of $50,000.

      **10.24 Form of 11.25% Junior Subordinated Note due September 30, 2001
              payable to Kathleen Belz in the amount of $43,000.

      **10.25 Promissory Note in the amount of $6,000,000 payable to European
              American Bank.

      **10.26 Form of agreement of accounts receivable participation program
              with Atlantic Bank of New York.

      10.27   Form of agreement of accounts receivable participation program
              with Fleet Bank.

      10.28   Form of agreement of accounts receivable participation program
              with Interbank.

      10.29   Form of 10% Senior Subordinated Note due March 31, 2002 payable to
              Paul & Joyce Rand in the amount of $25,000.

      10.30   Form of 10% Senior Subordinated Note due March 31, 2002 payable to
              Estate of Ferdinand Harms in the amount of $25,000.

      10.31   Form of 10% Senior Subordinated Note due March 31, 2002 payable to
              Mildred Ebbighausen in the amount of $40,000.

      10.32   Letter agreement dated July 16, 1997 increasing promissory note
              payable to the Bank of New York previously filed as Exhibit 10.14
              herein, to $8,000,000.

      10.33   Letter agreement dated May 9, 1995 increasing demand Grid Note
              payable to Marine Midland Bank, N.A. previously filed as Exhibit
              10.7 herein, to $6,000,000.

      10.34   Promissory note in the amount of $10,000,000 payable to Mellon
              Bank.

      24      Power of attorney (included on signature page).

      27      Financial Data Schedules (for electronic submission only)

----------

*     Filed as same numbered exhibit to the Company's Registration Statement on
      Form SB-2 (Reg. No. 33-75130) and incorporated herein by reference.

**    Previously filed.

(b)   Reports on Form 8-K

The Company did not file any report on Form 8-K during the last quarter of the
period covered in this report.


                                      -12-
<PAGE>

                             STANDARD FUNDING CORP.

                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----

Independent Auditors' Report                                                F-2

Balance Sheet at December 31, 1997                                          F-3

Statements of Income for the years ended December 31, 1997 and 1996         F-4

Statements of Shareholders' Equity for the years ended December 31,
  1997 and 1996                                                             F-5

Statements of Cash Flows for the years ended December 31, 1997 and 1996     F-6

Notes to Financial Statements                                               F-7


                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
Standard Funding Corp.
Woodbury, New York

      We have audited the accompanying balance sheet of Standard Funding Corp.
(the "Company") as of December 31, 1997 and the related statements of income,
shareholders' equity and cash flows for each of the two years in the period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such financial statements present fairly, in all material
respects the financial position of Standard Funding Corp. at December 31, 1997
and the results of its operations and its cash flows for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.

/s/ Deloitte & Touche LLP

Jericho, New York
February 20, 1998


                                      F-2
<PAGE>

                             STANDARD FUNDING CORP.

                                  BALANCE SHEET

<TABLE>
<CAPTION>
                                                                             December 31, 1997
                                                                             -----------------
<S>                                                                            <C>
ASSETS
Cash                                                                           $    203,014
                                                                               ------------
Installment loans receivable under premium finance agreements                    43,167,571
Less:  Unearned interest                                                         (1,014,004)
       Allowance for possible credit losses                                        (310,000)
                                                                               ------------
Installment loans receivable under premium finance agreements - net (Note 2)     41,843,567
Due from officers (Note 3)                                                          153,933
Property and equipment - net (Note 4)                                               283,255
Other assets                                                                        454,961
                                                                               ------------
        Total                                                                  $ 42,938,730
                                                                               ============

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable to financial institutions (Note 5)                               $ 26,500,000
Commercial paper issued (Note 5)                                                  2,428,398
Amounts due to insurance companies                                                1,389,346
Accrued expenses and other                                                          313,053
Deferred income taxes (Note 7)                                                      192,027
                                                                               ------------
        Total, exclusive of subordinated debt                                    30,822,824
Subordinated debt (Note 6)                                                        5,003,000
                                                                               ------------
        Total Liabilities                                                        35,825,824
                                                                               ------------

COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)

SHAREHOLDERS' EQUITY (Note 8):
Preferred Stock, par value $.001 per share;
   1,000,000 authorized, none issued                                                     --
Common Stock, par value $.001 per share; 4,000,000 authorized,
   2,760,000 shares issued and outstanding                                            2,760
Additional paid-in capital                                                        3,991,501
Retained earnings                                                                 3,118,645
                                                                               ------------
        Total Shareholders' Equity                                                7,112,906
                                                                               ------------
        Total                                                                  $ 42,938,730
                                                                               ============
</TABLE>

                       See notes to financial statements.


                                      F-3
<PAGE>

                             STANDARD FUNDING CORP.

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                              -----------------------
                                                                 1997          1996
                                                                 ----          ----
<S>                                                           <C>          <C>
NET INTEREST INCOME:
   Finance charge income and other                            $6,327,115   $5,670,276
   Less: Interest and other expenses on borrowings (Notes 2,
         5, and 6)                                             2,530,859    1,927,372
                                                              ----------   ----------
        Net Interest Income                                    3,796,256    3,742,904
                                                              ----------   ----------

OTHER EXPENSES:
   Operating expenses (Note 10)                                1,809,713    1,709,674
   Selling expenses                                              720,143      564,956
   Provision for possible credit losses (Note 2)                 572,297      583,398
                                                              ----------   ----------
        Total                                                  3,102,153    2,858,028
                                                              ----------   ----------

INCOME BEFORE PROVISION FOR INCOME TAXES                         694,103      884,876

PROVISION FOR INCOME TAXES (Note 7)                              309,900      339,800
                                                              ----------   ----------

NET INCOME                                                    $  384,203   $  545,076
                                                              ==========   ==========

NET INCOME PER SHARE:
    BASIC                                                     $     0.14   $     0.20
                                                              ==========   ==========
    DILUTED                                                   $     0.14   $     0.20
                                                              ==========   ==========

WEIGHTED AVERAGE NUMBER OF SHARES
     OUTSTANDING                                               2,760,000    2,760,000
                                                              ==========   ==========
</TABLE>

                       See notes to financial statements.


                                      F-4
<PAGE>

                             STANDARD FUNDING CORP.

                       STATEMENTS OF SHAREHOLDERS' EQUITY

                 For the Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                             Preferred Stock     Common Stock     Additional
                             ---------------     ------------       Paid in       Retained
                              Shares  Amount   Shares    Amount     Capital       Earnings
                              ------  ------   ------    ------     -------       --------

<S>                            <C>   <C>     <C>         <C>      <C>            <C>
Balance, January 1, 1996        --    --     2,760,000   $2,760   $3,991,501     $2,189,366

Net Income                      --    --       --        --       --                545,076
                               ----   ----   ---------   -------  ----------     ----------

Balance, December 31, 1996      --    --     2,760,000    2,760    3,991,501      2,734,442
                               ----   ----   ---------   ------   ----------     ----------
Net Income                      --    --       --        --       --                384,203
                               ----   ----   ---------   -------  ----------     ----------

Balance, December 31, 1997      --     --    2,760,000   $2,760   $3,991,501     $3,118,645
                               ====   ====   =========   ======   ==========     ==========
</TABLE>

                       See notes to financial statements.


                                      F-5
<PAGE>

                             STANDARD FUNDING CORP.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                               -----------------------
                                                                 1997            1996
                                                                 ----            ----
<S>                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                $     384,203    $     545,076
Adjustments to reconcile net income to net
  cash provided by operating activities:
  Provision for possible credit losses                          572,297          583,398
  Deferred income taxes                                         (95,701)         102,000
  Depreciation and amortization                                 112,631           88,767
  Changes in assets and liabilities:
    Due from officers and other assets                         (229,610)         (54,059)
    Accrued expenses and other amounts
      due to insurance companies                              1,070,877          216,056
    Funds due-accounts receivable participation program        (219,981)         219,981
                                                          -------------    -------------
Net cash provided by operating activities                     1,594,716        1,701,219
                                                          -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Installment loans receivable originated                    (103,320,694)     (84,900,735)
Collections of installment loans receivable                  93,509,063       75,021,501
Purchase of equipment                                          (101,368)        (155,731)
                                                          -------------    -------------
Net cash (used in) investing activities                      (9,912,999)     (10,034,965)
                                                          -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from accounts receivable participation program       4,153,656        1,240,044
Payment of accounts receivable participation program         (4,929,652)        (464,047)
Proceeds from bank notes--net                                 8,900,000        7,300,000
Proceeds (Repayment) of commercial paper issued--net            174,730         (697,557)
Proceeds of subordinated debt                                    90,000          148,000
                                                          -------------    -------------
Net cash provided by financing activities                     8,388,734        7,526,440
                                                          -------------    -------------
INCREASE (DECREASE) IN CASH                                      70,451         (807,306)

CASH AT BEGINNING OF YEAR                                       132,563          939,869
                                                          -------------    -------------

CASH AT END OF YEAR                                       $     203,014    $     132,563
                                                          =============    =============

SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Income taxes paid                                         $     414,921    $     413,313
                                                          =============    =============
Interest paid                                             $   2,349,788    $   1,853,680
                                                          =============    =============
</TABLE>

                              See notes to financial statements.


                                      F-6
<PAGE>

                             STANDARD FUNDING CORP.

                          NOTES TO FINANCIAL STATEMENTS

                 For the years ended December 31, 1997 and 1996

1.    SIGNIFICANT ACCOUNTING POLICIES

      Business - Standard Funding Corp. (the "Company") is a financial service
      Company engaged in the business of financing the payment of insurance
      premiums. The Company finances substantially all forms of property,
      casualty and liability insurance premiums on policies, which are written
      through independent insurance agents, and brokers.

      Revenue Recognition - Unearned interest on installment loans receivable
      under premium finance agreements is recognized as income using a method
      which approximates the results which would be obtained using the interest
      method.

      The Company has entered into agreements to transfer, on a non-recourse
      basis, interests in its installment loans receivable under premium finance
      agreements to financial institutions. The differential of stated interest
      to be recorded over the course of the finance period and interest to be
      paid to the financial institution is recognized as interest expense over
      the course of the outstanding transfer.

      Loan processing costs incurred are deferred and amortized on the
      straight-line method over the term of the related installment loans
      receivable under premium finance agreements. Cancellation fees and late
      charges are recognized as income when received.

      Allowance for Possible Credit Losses - The balance in the allowance for
      possible credit losses are based on management's assessment of risk in the
      installment loan portfolio. The Company writes off receivables upon
      determination that no further collections are probable.

      Property and Equipment - net - Property and equipment are stated at cost.
      Depreciation is provided on the straight-line basis over such assets'
      estimated useful service lives which range from three to five years.
      Leasehold improvements are amortized over the shorter of their estimated
      useful lives or the remaining term of the lease.

      Revenue and Credit Concentration - The Company receives substantially all
      of its revenues from financing arrangements made within New York, New
      Jersey, Connecticut, Pennsylvania, and Massachusetts. Accordingly, as of
      December 31, 1997, substantially all of the Company's installment loans
      outstanding were from this geographic region.

      Income Taxes - The Company accounts for income taxes pursuant to Statement
      of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
      ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax assets
      and liabilities for the expected future tax consequences of events that
      have been included in the Company's financial statements or tax returns.
      Under this method, deferred tax assets and liabilities are determined
      based on the differences between the financial accounting and tax bases of
      assets and liabilities using enacted tax rates in effect for the year in
      which the differences are expected to reverse.

      Stock-based Compensation - The Company accounts for stock-based awards to
      employees using the intrinsic value method in accordance with APB No. 25,
      "Accounting for Stock Issued to Employees" ("APB 25").


                                      F-7
<PAGE>

                             STANDARD FUNDING CORP.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      Fair Value of Financial Instruments - The following methods and
      assumptions were used to estimate the fair value of each class of
      financial instruments:

      a.    Cash and Notes Payable to Financial Institutions - The carrying
            amount approximates fair value because of the short maturity of
            these instruments.

      b.    Installment Loans Receivable Under Premium Finance Agreements and
            Commercial Paper - It is management's belief that it is not
            practicable to estimate the fair value for these instruments for
            which there are no quoted market prices. A reasonable estimate of
            fair value could not be made without incurring excessive costs.

      Pervasiveness of Estimates - The preparation of financial statements in
      conformity with generally accepted accounting principles requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities at the date of the financial statements
      and the reported amounts of revenues and expenses during the reporting
      periods. Actual results could differ from those estimates.

      Impairment of Long-Lived Assets - In accordance with Statement of
      Financial Accounting Standards No. 121, "Accounting For the Impairment of
      Long-Lived Assets and For Long-Lived Assets To Be Disposed Of" ("SFAS No.
      121"), the Company reviews its long-lived assets, including property and
      equipment, and other assets for impairment whenever events or changes in
      circumstances indicate that the carrying amount of the assets may not be
      fully recoverable. To determine recoverability of its long-lived assets,
      the Company evaluates the probability that future undiscounted net cash
      flows, without interest charges, will be less than the carrying amount of
      the assets. Impairment is measured at fair value. SFAS No. 121 had no
      effect on the Company's financial statements.

      Earnings Per Share - The Company has adopted Financial Accounting
      Standards No. 128 "Earnings per Share" ("SFAS No. 128") which requires
      dual presentation of basic and diluted earnings per share on the face of
      the income statement.

      Basic earnings per share are based on the weighted average number of
      shares of common stock outstanding during the period. Diluted earnings per
      share are based on the weighted average number of shares of common stock
      and common stock equivalents (options and warrants) outstanding during the
      period, computed in accordance with the treasury stock method. The effect
      of common stock equivalents was antidilutive for 1997, and accordingly,
      such common stock equivalents were excluded from the weighted average
      number of common shares for 1997. There were no common stock equivalents
      outstanding prior to 1996. Therefore, weighted average number of shares
      for 1996 was based solely upon common stock shares outstanding for the
      period.

2.    INSTALLMENT LOANS RECEIVABLE UNDER PREMIUM FINANCE AGREEMENTS

      Substantially all installment loans receivable under premium finance
      agreements are repayable in less than one year. In the event of default by
      a borrower, the Company is entitled to cancel the underlining insurance
      policy financed and receive a refund for the unused term of such policy
      from the insurance carrier.

      In October 1996, the Company entered into an agreement with a financial
      institution to transfer, on a non-recourse basis, a fifty percent interest
      in certain designated installment loans receivable, not to exceed
      $1,000,000 at any one point. This agreement was extended to a limit of
      $2,000,000 in April 1997. The Company entered into similar financing
      agreements with two additional financial institutions. The aggregate
      borrowing limit for these agreements was $4,000,000 during 1997. Under
      terms of these agreements, the Company remitted the financial
      institution's share in monthly installment loans receivable collections.
      Interest was payable monthly based upon the average outstanding balance
      under this agreement at LIBOR (at the time of purchase) plus 200 or 225
      basis points as stipulated in these agreements. Installment loans
      receivable transferred under this agreement were approximately $4,154,000
      for the year ended December 31, 1997.


                                      F-8
<PAGE>

                             STANDARD FUNDING CORP.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      During 1997, the Company adopted the provision of Statement of Financial
      Accounting Standards No. 125, "Accounting For Transfers and Servicing of
      Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125").
      Installment loans receivable under this agreement were classified as
      securitized loan payable. As of December 31, 1997 the Company had no
      outstanding borrowings under these agreements. One of these agreements
      with aggregate maximum borrowings of $2,000,000 expires on October 1998.
      The agreements with the other financial institutions do not stipulate a
      termination date.

      A summary of activity in the allowance for possible credit losses is as
      follows:

                                                         December 31,
                                                    -----------------------
                                                      1997          1996
                                                      ----          ----
      Balance, beginning of period                 $ 300,000      $ 208,000
      Provision                                      572,297        583,398
      Charge-offs--net of recoveries of $44,504
          and $47,913, respectively                 (562,297)      (491,398)
                                                   ---------      ---------
      Balance, end of period                       $ 310,000      $ 300,000
                                                   =========      =========

3.    DUE FROM OFFICERS

      Amounts due from officers bear interest at the prime lending rate (8.50%
      at December 31, 1997) and have no specified maturity dates.

4.    PROPERTY AND EQUIPMENT - net

            Property and equipment - net consisted of the following:

                                                              December 31, 1997
                                                              -----------------

            Equipment including computer hardware and software    $  482,754
            Office furniture and fixtures                            159,503
            Leasehold improvements                                    43,281
                                                                  ----------
                                                                     685,538
            Less accumulated depreciation and amortization          (402,283)
                                                                  ----------
            Property and equipment--net                           $  283,255
                                                                  ==========

5.    LIABILITIES

      Included in liabilities is the following short-term debt at December 31,
      1997:

      Notes Payable to Financial Institutions - At December 31, 1997, the
      Company had line of credit agreements with several banks which aggregated
      $41,000,000. Borrowings under the agreements bear interest at prime or the
      LIBOR rate (5.81% at December 31, 1997) plus 1.15 to 1.50% points above
      such rate and may contain certain commitment fees. The outstanding
      borrowings are unsecured and there are no compensating balance
      arrangements. These lines of credit expire over various dates through June
      1998.

      The Company entered into a $45,000,000 line of credit agreement with a
      consortium of banks in January 1998. Borrowings under this agreement bears
      interest at a rate stipulated in this agreement which is contingent upon
      borrowing levels. The borrowings will be unsecured and there are no
      compensating balance agreements. This line of credit expires January 2001.


                                      F-9
<PAGE>

                             STANDARD FUNDING CORP.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      Commercial Paper Issued - The Commercial paper issued is privately placed
      by the Company. The weighted average interest rate in effect for
      outstanding obligations at December 31, 1997 was 6.76%. At December 31,
      1997, commercial paper outstanding held by the principals of the Company
      and other related parties aggregated approximately $1,821,613.

6.    SUBORDINATED DEBT

      Subordinated debt consists of the following:

                                                               December 31, 1997
                                                               -----------------

          14% senior subordinated note (1)                         $  3,000,000
          14.25% junior subordinated note (2)                           810,000
          12.50% senior subordinated note (3)                           510,000
          14% senior subordinated note (3)                              500,000
          10% senior subordinated note (3)                               90,000
          12% junior subordinated note (3)                               50,000
          11.25% junior subordinated note (3)                            43,000
                                                                   ------------
                                                                   $  5,003,000
                                                                   ============

      (1)   The 14% senior subordinated note payable in semi-annual installments
            through December 27, 2000 contains certain covenants which restrict
            the Company's ability, among other things, to merge, pay dividends
            and permit its business to be heavily concentrated with a single
            broker or agency. In the event the prime rate as defined increases
            to over 11%, the interest rate will increase on a pari passu basis.
            The underlying agreement also contains various covenants requiring
            the Company to meet certain financial ratios. Interest on this note
            is due monthly.

      (2)   At December 31, 1997, subordinated debt with an aggregate principal
            amount of $600,000 was held by the principal shareholders of the
            Company. Interest on these notes is due semi-annually.

      (3)   Interest on these subordinated notes is payable either monthly, or
            semi-annually, as designated under the terms of each specific note.

      Subordinated debt outstanding at December 31, 1997 matures as follows:

               Year Ending December 31,                        Amount
               ------------------------                        ------

                      1998                                  $  800,000
                      1999                                     800,000
                      2000                                   1,900,000
                      2001                                   1,413,000
                      2002                                      90,000
                                                            ----------
                      Total                                 $5,003,000
                                                            ==========


                                      F-10
<PAGE>

                             STANDARD FUNDING CORP.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

7.    INCOME TAXES

      The provision for income taxes consisted of the following components:

                            Years Ended December 31,
                            ------------------------
                               1997         1996
                               ----         ----
               Federal:
               Current       $282,000      $216,900
               Deferred       (69,800)       71,000
                             ---------     --------
                              212,200       287,900
                             ---------     --------

               State:
               Current        123,600        20,900
               Deferred       (25,900)       31,000
                             ---------     --------
                               97,700        51,900
                             ---------     --------
               Total         $309,900      $339,800
                             =========     ========

      Deferred income taxes substantially consists of differences in the methods
      in which the Company accounts for unearned interest and the allowance for
      possible credit losses for income tax purposes compared with financial
      reporting purposes.

      The deferred tax assets and liabilities at December 31, 1997 consisted of
      the following:

           Assets:
           Allowance for possible credit losses        $ 126,900
                                                       ---------
           Liabilities:
           Unearned interest                            (289,300)
           Other                                         (29,627)
                                                       ---------
           Total deferred tax liabilities               (318,927)
                                                       ---------
           Net deferred income tax liability           $(192,027)
                                                       =========

      A reconciliation of the differences between the federal statutory tax rate
      of 34% and the Company's effective tax rate is as follows:

                                                    Years Ended December 31,
                                                    ------------------------
                                                         1997     1996
                                                         ----     ----

         Federal statutory income tax rate               34.0%    34.0%
         State income taxes, net of federal benefit       6.8      7.8
         Permanent differences                           12.8      6.9
         Prior year income tax return reconciliation     (9.0)   (10.3)
                                                        -----    -----
         Effective income tax rate                       44.6%    38.4%
                                                        =====    =====

8.    SHAREHOLDERS' EQUITY

      (a) Initial Public Offering

      During August and September 1994, the Company consummated an initial
      public offering of its common stock by selling 1,060,000 shares at $4.25
      per share. Cash proceeds to the Company from this offering aggregated
      approximately $3,593,000, net of aggregate issuance costs of approximately
      $912,000. In addition, the Company issued 100,000 warrants at a purchase
      price of $.001 per warrant to purchase common stock at $6.17 per share to
      the underwriters' representatives. These warrants are exercisable for a
      period of four years, commencing on August 8, 1995. No warrants have been
      exercised as of December 31, 1997.


                                      F-11
<PAGE>

                             STANDARD FUNDING CORP.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      (b) Stock Option Plan

      The Company has an Equity Incentive Plan (the "Plan") that provides for
      the grant of up to 250,000 shares of Common Stock in the form of stock
      options (incentive and nonstatutory), stock appreciation rights,
      performance shares, restricted stock, stock units and other stock-based
      awards. Awards under the Plan can be granted to employees, consultants and
      non-employee directors as determined by the Board of Directors. The
      exercise price of all "incentive stock options" granted under the Plan
      must be at least equal to the fair market value of the option shares on
      the date of grant. The term of any incentive stock option granted under
      the Plan may not exceed ten years.

      During 1997, 58,525 options were granted to various officers, directors
      and employees of the Company. These options are exercisable from the date
      of grant and expire five years from the date of grant. No options were
      granted under the Plan prior to 1997.

      The weighted average remaining contractual life remaining on options
      granted under the plan is 4.2 years. The weighted average exercise price
      is $4.38. At December 31, 1997, 58,525 options are exercisable.

      As discussed in Note 1, the Company continues to account for its
      stock-based awards using the intrinsic value method in accordance with APB
      25 and its related interpretations.

      Statement of Financial Accounting Standards No. 123, "Accounting for
      Stock-Based Compensation", ("SFAS 123") requires the disclosure of pro
      forma net income and earnings per share had the Company adopted the fair
      value method as of the beginning of fiscal 1996. Under SFAS No. 123, the
      fair value of stock-based awards to employees is calculated through the
      use of option pricing models, even though such models were developed to
      estimate the fair value of freely tradable, fully transferable options
      without vesting restrictions, which significantly differ from the
      Company's stock option awards. These models also require subjective
      assumptions, including future stock price volatility and expected time to
      exercise, which greatly affect the calculated values. The Company's
      calculations were made using the Black-Scholes option pricing model with
      the following weighted average assumptions for 1997 and 1996: expected
      life, 5 years following vesting, stock volatility 76 percent, risk free
      interest rate of 6 percent and no dividends during the expected term. The
      Company's calculations are based on a multiple option valuation approach
      and forfeitures are recognized as they occur. If the computed fair values
      of the 1997 awards had been amortized to expense over the vesting period
      of the awards, pro forma net income would have been approximately $312,348
      ($.11 per share). The impact of SFAS No. 123 on pro forma net income for
      1996 was zero as there were no stock options, or any other stock-based
      awards granted prior to 1997.

      (c) Capital Requirements

      The Company is subject to minimum capital requirements imposed by certain
      of the states in which it is licensed. The Commonwealth of Pennsylvania
      requires an insurance premium finance company to have and maintain a
      minimum net worth of $50,000. The State of New York requires that
      insurance premium finance companies have and maintain equity capital equal
      to at least 10% of outstanding receivables and, in any event, not less
      than $1,500. In addition, the Company is prohibited from declaring or
      paying any dividends on its capital stock (other than dividends payable
      solely in shares of Common Stock) pursuant to a subordinated debt
      arrangement.


                                      F-12
<PAGE>

                             STANDARD FUNDING CORP.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

9.    PENSION PLANS

      The Company has a voluntary contribution pension plan which complies with
      Section 401(k) of the Internal Revenue Code. The Plan permits employees to
      make contributions to a pension trust, with a matching contribution by the
      Company, at the rate of 20% for every dollar contributed up to 6% of the
      employee's salary. For the years ended December 31, 1997 and 1996, the
      Company contributed $44,000 and $37,000, respectively to the plan.

10.   COMMITMENTS AND CONTINGENCIES

      Lease Commitments - The Company is obligated under operating lease
      commitments for its office facility and automobiles. Future minimum lease
      payments and other lease related costs are as follows:

               Year Ending December 31,             Amount
               ------------------------             ------
          1998                                      $158,484
          1999                                       138,878
          2000                                       107,604
          2001                                        44,835
                                                    --------
          Total                                     $449,801
                                                    ========

      The facility lease requires payment of real estate taxes, insurance and
      other related costs. Rent expense for the years ended December 31, 1997
      and 1996 aggregated approximately $107,799 and $97,000, respectively.

      Employment Agreements - The Company has employment agreements with two
      officers/shareholders of the Company. Such agreements, as renewed in July
      1997, provide for full-time employment to the Company from the officers in
      return for aggregate officers' salary of $381,100 per year plus bonus and
      other benefits. These contracts may be renewed on their anniversary date
      for successive one-year terms. These agreements also contain clauses on
      termination, severance and covenants not to compete after the date of
      termination.

      Consulting Agreement - As part of the underwriting arrangements for the
      Company's initial public offering, the Company has retained the
      underwriters' representatives as financial consultants to the Company for
      a three-year period ended July 1997. Fees payable under these arrangements
      aggregate $19,600 for the year ending December 31, 1997.


                                    * * * * *


                                      F-13
<PAGE>

                             STANDARD FUNDING CORP.

                                   SIGNATURES

      In Accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934 ("Exchange Act"), the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 27th day of March,
1998.

                                     STANDARD FUNDING CORP.


                                     /s/ Alan J. Karp
                                     ----------------
                                     By:  Alan J. Karp
                                     Its: President and Chief Executive Officer

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Alan J. Karp and David E. Fisher, and each
of them, his true and lawful proxies, attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to (i) act on, sign and file with the
Securities and Exchange Commission any and all amendments to this Annual Report
on Form 10-KSB, together with all exhibits thereto, (ii) act, sign and file such
certificates, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith, and (iii) take any and all actions which
may be necessary or appropriate in connection therewith, granting unto such
agents, proxies and attorneys-in-fact, and each of them and his and their
substitute or substitutes, full power and authority to do and perform each and
every act and thing necessary or appropriate to be done in connection therewith,
as fully for all intents and purposes as he might or could do in person, hereby
approving, ratifying and confirming all that such agents, proxies and
attorneys-in-fact, any of them or any of his or their substitute or substitutes
may lawfully do or cause to be done by virtue hereof.

      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

       Signature                        Title                             Date

   /s/ Alan J. Karp       President, Chief Executive Officer      March 27, 1998
------------------------  and Director (principal executive
     Alan J. Karp         officer)


  /s/ David E. Fisher     Director, Treasurer and Chief Financial March 27, 1998
------------------------  Officer (principal financial and
    David E. Fisher       accounting officer)


    /s/ James Faust       Director                                March 27, 1998
------------------------
      James Faust


    /s/ Joyce Karp        Director                                March 27, 1998
------------------------
      Joyce Karp


   /s/ Richard Belz       Director                                March 27, 1998
------------------------
     Richard Belz