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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



(Mark One)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



| | For the quarterly period ended March 31, 2004
| | ---------------------------------------------



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------



| | For the transition period from  to
| | ----------------------------------



Commission file number 333-86516



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Pilot Financial, Inc.

(Exact name of small business issuer as specified in its charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Florida                                                        |  | 75-2996764                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



1717 Second Street,
Suite D, Sarasota, Florida 34236

(Address of principal executive office)



941/364-9915

(Issuers telephone number)



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



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APPLICABLE ONLY TO CORPORATE ISSUERS



State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:



|                                                         |  |                                               
|-------------------------------------------------------- |  | ----------------------------------------------
|Title of Class                                           |  | Number of Shares Outstanding On April 15, 2003
|                                                         | 
|First Series Preferred Stock, $.01 par value             |  | 22,592                                        
|Second Series Convertible Preferred Stock, $01 par value |  | 740,800                                       
|Common Stock, $.01 par value                             |  | 740,800                                       



Transitional Small
Business Disclosure Format:    Yes ̈No  x



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PILOT FINANCIAL, INC.

FORMERLY RJ LENDING, INC.



REPORT ON REVIEWS OF

FINANCIAL STATEMENTS



FOR THE PERIOD ENDED

MARCH 31, 2004 AND 2003



Bobbitt, Pittenger & Company, P.A.



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PILOT FINANCIAL, INC.

FORMERLY RJ LENDING, INC.



CONTENTS



|                                         |  |     
|---------------------------------------- |  | ----
|                                         |  | PAGE
|FINANCIAL STATEMENTS                     |  |     
|                                         | 
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS |  | 1   
|                                         | 
|STATEMENT OF FINANCIAL CONDITION         |  | 2   
|                                         | 
|STATEMENTS OF OPERATIONS                 |  | 3   
|                                         | 
|STATEMENTS OF STOCKHOLDERS EQUITY       |  | 4   
|                                         | 
|STATEMENTS OF CASH FLOWS                 |  | 5   



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May 3, 2004



TO THE
STOCKHOLDERS

PILOT FINANCIAL, INC. FORMERLY RJ LENDING, INC.

Sarasota, Florida



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



We have reviewed the accompanying statement of financial condition of Pilot Financial, Inc. formerly RJ Lending, Inc. as of March 31, 2004 and the related statements of
operations, stockholders equity, and cash flows for the three months ended March 31, 2004 and the statements of operations and cash flows for the three months ended March 31, 2003 in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Pilot Financial, Inc. formerly RJ Lending, Inc.



A review consists principally of inquiries of Company personnel and analytical procedures
applied to financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.



Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of
America.



In accordance with United States Securities and Exchange Commission
Regulation S-X, footnotes have been omitted in these interim financial statements, as footnote disclosure would substantially duplicate the disclosure contained in the audited financial statements for the year ending December 31, 2003. These
financial statements should be read in conjunction with the December 31, 2003 financial statements.



/s/ Bobbit, Pittenger & Company, P.A.



Certified Public Accountants



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PILOT FINANCIAL, INC.

FORMERLY RJ LENDING, INC.



STATEMENT OF FINANCIAL CONDITION

MARCH 31, 2004



|                                                                                                                                                             |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | - | --------- | -
|ASSETS                                                                                                                                                       |  |   |           |  
|                                                                                                                                                             | 
|CURRENT ASSETS                                                                                                                                               |  |   |           |  
|Cash                                                                                                                                                         |  | $ | 78,900    |  
|Interest and fees receivable                                                                                                                                 |  |   | 152,554   |  
|Other receivables                                                                                                                                            |  |   | 45,000    |  
|Mortgages, current, net of unfunded reserves of $350,440 and net of loss reserves of $28,338                                                                 |  |   | 3,170,215 |  
|Other current assets                                                                                                                                         |  |   | 2,457     |  
|                                                                                                                                                             |  |   |           |  
|TOTAL CURRENT ASSETS                                                                                                                                         |  |   | 3,449,126 |  
|                                                                                                                                                             | 
|OTHER ASSETS                                                                                                                                                 |  |   |           |  
|Furniture and equipment, net                                                                                                                                 |  |   | 32,684    |  
|Software, net                                                                                                                                                |  |   | 36,144    |  
|Other real estate owned                                                                                                                                      |  |   | 10,386    |  
|Mortgages, long-term, net of loss reserves of $1,542                                                                                                         |  |   | 147,196   |  
|Deferred costs, net                                                                                                                                          |  |   | 22,954    |  
|Syndication costs, net                                                                                                                                       |  |   | 207,582   |  
|                                                                                                                                                             |  |   |           |  
|TOTAL OTHER ASSETS                                                                                                                                           |  |   | 456,946   |  
|INVESTMENT IN LIMITED LIABILITY COMPANIES                                                                                                                    |  |   | 382,818   |  
|                                                                                                                                                             |  |   |           |  
|TOTAL ASSETS                                                                                                                                                 |  | $ | 4,288,890 |  
|                                                                                                                                                             |  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                         |  |   |           |  
|                                                                                                                                                             | 
|CURRENT LIABILITIES                                                                                                                                          |  |   |           |  
|Accounts payable and accrued expenses                                                                                                                        |  | $ | 24,539    |  
|Investor pass-through                                                                                                                                        |  |   | 264,361   |  
|Notes payable, current portion                                                                                                                               |  |   | 910,000   |  
|Notes payable, related parties                                                                                                                               |  |   | 1,483,277 |  
|Lines of credit                                                                                                                                              |  |   | 486,081   |  
|Dividends payable                                                                                                                                            |  |   | 14,132    |  
|                                                                                                                                                             |  |   |           |  
|TOTAL CURRENT LIABILITIES                                                                                                                                    |  |   | 3,182,390 |  
|                                                                                                                                                             | 
|NOTES PAYABLE, LONG-TERM PORTION                                                                                                                             |  |   | 853,000   |  
|                                                                                                                                                             |  |   |           |  
|TOTAL LIABILITIES                                                                                                                                            |  |   | 4,035,390 |  
|                                                                                                                                                             | 
|STOCKHOLDERS EQUITY                                                                                                                                         |  |   |           |  
|                                                                                                                                                             | 
|Preferred stock, $0.01 par value, 10,000,000 shares authorized:                                                                                              |  |   |           |  
|First series, $0.16 cumulative voting stock, 22,592 shares issued and outstanding                                                                            |  |   | 226       |  
|Second series, $0.08 cumulative voting, convertible stock, 740,800 shares issued and outstanding, convertible to one share common for one
share of preferred |  |   | 7,408     |  
|Common stock, $0.01 par value, 40,000,000 shares authorized, 740,800 shares issued and outstanding                                                           |  |   | 7,408     |  
|Additional paid-in capital                                                                                                                                   |  |   | 514,958   |  
|Retained deficit                                                                                                                                             |  |   | (276,500  | )
|                                                                                                                                                             |  |   |           |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                   |  |   | 253,500   |  
|                                                                                                                                                             |  |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                   |  | $ | 4,288,890 |  
|                                                                                                                                                             |  |   |           |  



See Accountants
Review Report



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PILOT FINANCIAL, INC.

FORMERLY RJ LENDING, INC.



STATEMENTS OF OPERATIONS



|                                                                                                         |  |                              |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                         |  | Three months ended March 31, |        
|                                                                                                         |  | 2004                         |         |   | 2003 |  
|REVENUES                                                                                                 |  |                              |         |   |      |   |         |  
|Mortgage interest and fees                                                                               |  | $                            | 191,652 |   |      | $ | 129,544 |  
|Income from investment in Limited Liability Companies                                                    |  |                              | 2,111   |   |      |   |         |  
|                                                                                                         |  |                              |         |   |      |   |         |  
|TOTAL REVENUE                                                                                            |  |                              | 193,763 |   |      |   | 129,544 |  
|                                                                                                         |  |                             
|EXPENSES                                                                                                 |  |                              |         |   |      |   |         |  
|Depreciation and amortization                                                                            |  |                              | 18,675  |   |      |   | 5,464   |  
|General and administrative                                                                               |  |                              | 30,713  |   |      |   | 20,657  |  
|Interest                                                                                                 |  |                              | 79,412  |   |      |   | 61,729  |  
|Loan servicing                                                                                           |  |                              | 500     |   |      |   | 4,834   |  
|Payroll, payroll taxes, and employee benefits                                                            |  |                              | 71,309  |   |      |   | 50,045  |  
|Professional fees                                                                                        |  |                              | 7,401   |   |      |   | 12,590  |  
|                                                                                                         |  |                              |         |   |      |   |         |  
|TOTAL EXPENSES                                                                                           |  |                              | 208,010 |   |      |   | 155,319 |  
|                                                                                                         |  |                             
|LOSS BEFORE INCOME TAXES                                                                                 |  |                              | (14,247 | ) |      |   | (25,775 | )
|                                                                                                         |  |                             
|INCOME TAX BENEFIT                                                                                       |  |                              |         |   |      |   | 5,500   |  
|                                                                                                         |  |                              |         |   |      |   |         |  
|NET LOSS                                                                                                 |  | $                            | (14,247 | ) |      | $ | (20,275 | )
|                                                                                                         |  |                              |         |   |      |   |         |  
|NET LOSS PER SHARE, after adjustment for preferred stock dividends of $13,992 and $15,990, respectively. |  | $                            | (0.0381 | ) |      | $ | (0.0059 | )
|                                                                                                         |  |                              |         |   |      |   |         |  



See Accountants
Review Report



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PILOT FINANCIAL, INC.

FORMERLY RJ LENDING, INC.



STATEMENTS OF STOCKHOLDERS EQUITY

MARCH 31, 2004



|                                        |  |                            |     |                             |   |             |  |                          |       |                 |   |         |       |   |          |   |  |   |          |  
|--------------------------------------- |  | -------------------------- | --- | --------------------------- | - | ----------- |  | ------------------------ | ----- | --------------- | - | ------- | ----- | - | -------- | - |  | - | -------- | -
|                                        |  | First SeriesPreferredStock |     | Second SeriesPreferredStock |   | CommonStock |  | AdditionalPaid-InCapital |       | RetainedDeficit |   |         | Total |  
|STOCKHOLDERS EQUITY, January 1, 2003   |  | $                          | 226 |                             | $ | 7,408       |  | $                        | 7,408 |                 | $ | 514,958 |       | $ | (50,121  | ) |  | $ | 479,879  |  
|Net loss                                |  |                            |     |                             |   |             |  |                          |       |                 |   |         |       |   | (134,540 | ) |  |   | (134,540 | )
|Dividends on preferred stock            |  |                            |     |                             |   |             |  |                          |       |                 |   |         |       |   | (63,600  | ) |  |   | (63,600  | )
|                                        |  |                            |     |                             |   |             |  |                          |       |                 |   |         |       |   |          |   |  |   |          |  
|STOCKHOLDERS EQUITY, December 31, 2003 |  |                            | 226 |                             |   | 7,408       |  |                          | 7,408 |                 |   | 514,958 |       |   | (248,261 | ) |  |   | 281,739  |  
|Net loss                                |  |                            |     |                             |   |             |  |                          |       |                 |   |         |       |   | (14,247  | ) |  |   | (14,247  | )
|Dividends on preferred stock            |  |                            |     |                             |   |             |  |                          |       |                 |   |         |       |   | (13,992  | ) |  |   | (13,992  | )
|                                        |  |                            |     |                             |   |             |  |                          |       |                 |   |         |       |   |          |   |  |   |          |  
|STOCKHOLDERS EQUITY, March 31, 2004    |  | $                          | 226 |                             | $ | 7,408       |  | $                        | 7,408 |                 | $ | 514,958 |       | $ | (276,500 | ) |  | $ | 253,500  |  
|                                        |  |                            |     |                             |   |             |  |                          |       |                 |   |         |       |   |          |   |  |   |          |  



See Accountants
Review Report



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PILOT FINANCIAL, INC.

FORMERLY RJ LENDING, INC.



STATEMENTS OF CASH FLOWS



|                                                                            |  |                              |          |   |      |   |          |  
|--------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | -------- | -
|                                                                            |  | Three months ended March 31, |         
|                                                                            |  | 2004                         |          |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |                              |          |   |      |   |          |  
|Net loss                                                                    |  | $                            | (14,247  | ) |      | $ | (25,775  | )
|Depreciation and amortization                                               |  |                              | 18,675   |   |      |   | 5,464    |  
|Adjustments to reconcile net loss to net cash used by operating activities: |  |                              |          |   |      |   |          |  
|(Increase) decrease in interest receivable                                  |  |                              | (44,647  | ) |      |   | 3,862    |  
|Increase in other receivables                                               |  |                              |          |   |      |   | (15,061  | )
|Increase in prepaid expenses                                                |  |                              |          |   |      |   | (2,000   | )
|Increase in other assets                                                    |  |                              | (1,000   | ) |      |   | (195     | )
|Increase in due from related parties                                        |  |                              |          |   |      |   | (660     | )
|Increase in accounts payable and accrued expenses                           |  |                              | 20,466   |   |      |   | 21,910   |  
|                                                                            |  |                              |          |   |      |   |          |  
|NET CASH USED BY OPERATING ACTIVITIES                                       |  |                              | (20,753  | ) |      |   | (12,455  | )
|                                                                            |  |                              |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |                              |          |   |      |   |          |  
|Changes in investor pass-through                                            |  |                              | 217,325  |   |      |   | (2,810   | )
|Payments for syndication costs                                              |  |                              | (17,724  | ) |      |   | (18,314  | )
|(Increase) decrease in mortgages owned                                      |  |                              | (359,316 | ) |      |   | 474,423  |  
|Purchase of property and equipment                                          |  |                              | (4,207   | ) |      |   | (5,443   | )
|Purchase of software                                                        |  |                              |          |   |      |   | (3,352   | )
|Advances to joint ventures                                                  |  |                              | (374,921 | ) |      |   | (131,201 | )
|Proceeds from joint ventures                                                |  |                              | 196,850  |   |      |   |          |  
|                                                                            |  |                              |          |   |      |   |          |  
|NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES                            |  |                              | (341,993 | ) |      |   | 313,303  |  
|                                                                            |  |                              |          |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |                              |          |   |      |   |          |  
|Bank overdraft                                                              |  |                              |          |   |      |   | 1,570    |  
|Issuance of notes payable                                                   |  |                              | 534,000  |   |      |   |          |  
|Principal payments on notes payable                                         |  |                              | (196,650 | ) |      |   | (320,000 | )
|Borrowings on lines of credit                                               |  |                              | 199,000  |   |      |   |          |  
|Principal payments on lines of credit                                       |  |                              | (200,000 | ) |      |   |          |  
|Dividends paid to shareholders                                              |  |                              | (3,000   | ) |      |   | (39,191  | )
|                                                                            |  |                              |          |   |      |   |          |  
|NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                            |  |                              | 333,350  |   |      |   | (357,621 | )
|                                                                            |  |                              |          |   |      |   |          |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                   |  |                              | (29,396  | ) |      |   | (56,773  | )
|CASH AND CASH EQUIVALENTS, beginning of period                              |  |                              | 108,296  |   |      |   | 56,873   |  
|                                                                            |  |                              |          |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, end of period                                    |  | $                            | 78,900   |   |      | $ | 100      |  
|                                                                            |  |                              |          |   |      |   |          |  
|Supplemental Data:                                                          |  |                              |          |   |      |   |          |  
|Interest paid                                                               |  | $                            | 88,746   |   |      | $ | 61,729   |  
|                                                                            |  |                              |          |   |      |   |          |  



See Accountants
Review Report



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##### Table of Contents

MANAGEMENTS DISCUSSION AND ANALYSIS OF PLAN OF OPERATION.



In General



Effective February 14, 2003, our registration statement with the SEC was
declared effective and we became a reporting company under the provisions of section 15(d) of the Securities Exchange Act of 1934, as amended. During the fiscal quarter ended December 2003, we continued to conduct the lending business described in
our Prospectus. In our lending operations, we continue to make loans of relatively short duration secured by first or second liens which encumber collateral real estate. While our business is concentrated in the Tampa Bay Metropolitan Area of
Florida, we have originated real estate mortgage loans secured by properties located in other geographic locations.



How we Account for the Loans in our Portfolio



Set forth below is information concerning our loan portfolio and statistical data relating thereto. Such information reflects the value attributable to
the loans constituting our loan portfolio at March 31, 2004 and at March 31, 2003 with comparative loan portfolio information at March 31, 2004.



Our primary business activity is the origination of first mortgage loans for the purchase and renovation of affordable residential one to four family
homes. Additionally but to a lesser degree we originate conventional conforming residential mortgage loans as well as commercial real estate mortgage loans. We anticipate that the origination of conventional residential mortgage loans and commercial
real estate mortgage loans will increase and become a substantial part of our business. An additional activity in which we were previously active but no longer pursue as a regular business activity is the purchase of second mortgage loans which have
been originated by others.



In our financial statements, loans
originated by us are valued at the unpaid principal balance. Purchased loans are valued at our cost of acquisition less principal payments received. In our financial statements we separately categorize the current and long-term portion of our
portfolio loans. We also deduct from such portfolio loan amounts any unfunded reserves (the amount of any loan committed by us but which is yet to be disbursed) and appropriate loss reserves.



Certain of the financial and statistical data presented herein utilize loan
principal balances without taking into account whether such loans were originated by us or purchased and without adjustment for unfunded reserves or any loss reserves. Where such treatment is utilized in such financial and statistical data, it is
noted.



Income Taxes



As a corporate entity, our income is subject to federal corporate income tax
at applicable rates (expected to be 15%). As a corporation subject to federal corporate income tax, we are required to accrue all items of income for each tax reporting period (the fiscal quarter beginning January 1, 2003 through the fiscal quarter
ending March 31, 2004) from which we may deduct our accrued operating expenses,



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including interest accrued on our then-outstanding secured notes. Dividends declared with respect to our then-outstanding
first and second series preferred stock and our common stock are not deductible expenses for tax calculation purposes. After taking into account any applicable credits, loss carry forward and other adjustments to our net income, such will be subject
to tax at the applicable Code rate. We will also be subject to Florida corporate income tax at an effective rate of 5.5%. Provisions for such tax will then be made reducing net income available for dividend and other purposes.



Results of Operations, Fiscal quarter Ended March 31, 2004
and 2003



For the fiscal quarter ended March 31, 2004, we
generated mortgage interest and fees of $193,763 compared to $129,544 for the fiscal quarter ended March 31, 2003, an increase of $64,219. We recognize loan fee revenue when loans are funded by us. We generally hold the related loans for a very
short period of time. We believe that recognizing the loan fee revenue at the time the loans are funded approximates the revenue that would be recognized if the loan fees were capitalized and amortized into revenue.



At March 31, 2004, we reflected loans of $3,317,411 compared to $2,669,686 at
March 31, 2003 net of unfunded and loss reserves. This is an increase of $1,121,148. (However, this does not take into consideration investments in two limited liability companies totaling $382,818 described below. These investments have the same
characteristics as interim loans but are joint ventures rather than loans.) Loan demand has consistently exceeded our supply of loan funds since inception as a result of a greater awareness of the loan services we offer on the part of our existing
and new loan customers. As our source of funds increased during the fiscal quarter ended March 31, 2004 compared to the fiscal ended March 31, 2003, we were able to fund a greater number of loans. Our source of funds is explained in Liquidity and
Capital Resources below.



Our income during both of such fiscal
quarter was comprised primarily of mortgage interest and fees plus gains on sale of real estate renovated and sold by the two joint ventures described above. For the fiscal quarter ended March 31, 2004 we experienced a net operating loss in the
amount of ($14,247) compared to a net loss of ($20,275) for the fiscal quarter ended March 31, 2003. This was the result of significantly increased operating expense for the fiscal quarter ended March 31, 2004 being $208,010 compared to $155,319 for
the fiscal quarter ended March 31, 2003, an increase of $52,691. The loss was funded from shareholder equity.





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The increased expenses were primarily the result of staffing increases due to growth as well as increased
interest expense related to the acquisition of additional debt for loan originations. The categories with the greatest increases are discussed below:



General and administrative expenses were $30,713 for the fiscal quarter ended March 31, 2004 compared to $20,657 for the fiscal quarter ended March 31,
2003, an increase of $10,056. This is attributable to increased office overhead consisting of rent, utilities and other items related to additional personnel and increased loan volume.



For the fiscal quarter ended March 31, 2004, we experienced interest expense of $79,412 as compared to $61,729 for the
fiscal quarter ended March 31, 2003, an increase of $17,683. This resulted primarily from the increase in borrowed funds during the same period which were used to fund new loans. Despite the overall increase our average cost of funds declined
slightly due to the impact of lower cost capital raised through the sale of secured promissory notes in the amount of $973,000. We will continue to pursue the sale of secured notes in an attempt to further lower our average cost of funds. Additional
details are explained in Liquidity and Capital Resources below.



Salaries and benefits increased to $71,309 for the fiscal quarter ended March 31, 2004 from $50,045 for the fiscal quarter ended March 31, 2003, an increase of $21,264. All employee salaries are paid bi-weekly and are subject to
withholding.



As a result of our public offering of our secured
promissory notes, certain limitations are imposed on our ability to source additional capital from out existing note holders. These notes, which have higher rates and shorter maturities than our secured promissory notes now being sold to the public,
provided the initial capital that funded the company up to the effective date of the Prospectus relating to the public offering. The primary purpose of the public offering is to raise funds at a lower cost and in greater amounts than those raised
prior to our becoming public. Any additional funds will be invested in new loans which will increase revenues and offset increased general and administrative expenses. Funds raised under the public offering totaled $973,000 as of March 31, 2004.



Working Capital.



The key component of our business plan is the acquisition of lower cost
funds raised through the public sale of our debt and equity securities. During the early part of 2003 staff was increased to the minimum level necessary to provide adequate service to our customers but more importantly to ensure that the mortgage
loans we originate are closed and serviced correctly.



We
believe that our past and present portfolio of loans performs in a predictable manner and at the present time, revenue derived therefrom appears to be somewhat constant. Accordingly, we believe that it is important that we increase the amount of
funds which we may use in our lending while at the same time reducing the cost of such funds. This places even greater emphasis on achieving success in our efforts to publicly sell our secured notes and common stock.





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As a Florida Licensed Mortgage Lender we may offer various services and products to the public. One such
product is the sale of mortgage loans to non-institutional purchasers who purchase whole loans with a view to enhancing portfolio return. Under this scenario we sell mortgage loans to purchasers which are evidenced by an endorsed promissory note and
a recorded assignment of mortgage. The terms of each sale are individually negotiated but generally we retain servicing on the note and receive a spread between the note coupon rate and the rate passed through to the borrower, plus any fees
associated with the loan.



We have only engaged in the sale of
whole loans in negotiated transactions on a limited basis.



Income.



Our primary revenues
are derived from interim mortgage loans via origination fees, renewal fees and interest payments made by borrowers during the holding period of the loan. A constraint against increasing rates and fees (in addition to economic and competitive
factors) is Floridas usury laws, which limit annual interest from both sources to 18.00%.



In order to increase fee income we have participated in financing flip transactions wherein the purchaser of a real estate parcel will
flip the contract without renovating the property, typically within thirty days of taking title. (These transactions meet the same underwriting criteria as if the purchaser were buying the property to renovate.) These transactions
increase fee income as loan proceeds are returned in a shorter period of time, allowing us to earn additional fees by originating more loans. This has been a successful strategy and we will continue to identify and fund these transactions whenever
appropriate.



During the fourth quarter of fiscal 2003, we
began offering conventional residential real estate and commercial real estate loans. This lending activity involves the origination of new residential or commercial loans utilizing appropriate underwriting standards and represents an activity which
is in addition to our more specialized short term lending activities.



In order to conduct residential real estate lending on an economic scale, we have hired an employee that we believe has appropriate experience in conventional residential lending. We have also hired an employee with approximately 20 years
of experience in the origination of all types of commercial loans in the southwest Florida area and elsewhere. These new activities are intended to augment the interest and other revenue that we realize from our short term lending activities as
described elsewhere herein and in this Prospectus.



We believe
we will breakeven or show a modest profit during the second quarter of fiscal year 2004. The combination of interest and fee income generated by increased capital and fee revenue generated from the two new lending activities are expected to provide
a foundation for continued profitability.





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Liquidity and Capital Resources



The sources of liquidity and capital for Pilot Financial, Inc. are and have been constituted by the capital contributions of
the companys shareholders, loans made by shareholders, lines of credit utilizing banks which were also provided by related parties, unsecured notes payable to non-related parties and funds raised through the sale of our secured promissory
notes. At March 31, 2004 the capital contributions made by the holders of our Second Series Preferred Stock were $500,000.



The table below reflects the various note obligations and credit arrangements between related and non-related parties.



|                                     |  |                |           |                |   |          
|------------------------------------ |  | -------------- | --------- | -------------- | - | ---------
|                                     |  | March 31, 2004 |           | March 31, 2003
|Notes payable: non-related parties   |  | $              | 790,000   |                | $ | 1,090,000
|Notes payable: related parties       |  |                | 1,483,277 |                |   | 1,204,277
|Notes payable: sec. promissory notes |  |                | 973,000   |                |   | 0        
|Lines of credit: related parties     |  |                | 486,081   |                |   | 497,081  
|                                     |  |                |           |                |   |          
|Total                                |  | $              | 3,732,358 |                | $ | 2,791,358



Such indebtedness reflects an increase
of $604,650 from March 31, 2003 to March 31, 2004.



All of such
credit arrangements are generally serviced by the payment of interest on a monthly basis at various rates of interest ranging from 10.0010.25%. All of the notes have annual maturities and are renewable. The item identified as lines of
creditrelated parties refers to an arrangement that we have as a result of the establishment of lines of credit by certain of our shareholders with First National Bank of Florida. The aggregate amount of these lines of credit is $400,000
and we may access them directly for use in our lending business. Additionally one of our shareholders has advanced funds directly to us in the amount of $100,000 at the same rate, raising the total funds available from this source to $500,000. The
interest expense incurred in the utilization of these lines of credit is the prime rate as charged by First National Bank of Florida, from time to time, plus an average of 80 basis points. The lines of credit are evidenced by promissory notes
existing between First National Bank of Florida and the borrowers and are for a period of 12 months with annual renewals permitted.



At March 31, 2004, we were not in violation of any of the various loan terms governing such described credit arrangements. The lines of credit, to the
extent not fully utilized, remain available to us.



At March
31, 2004, we have not made any material commitment for any capital expenditures. The only commitments in place with those loan commitments made in connection with then pending loan applications.



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Loan Portfolio Composition



We invest in loans which we categorize in the following manner: a)interim loans (first mortgage loans with terms of fiscal
quarter or less and involving the renovation of a property,) b)warehouse loans (first or second mortgage loans with terms greater than six months on properties requiring no renovation) and c) second mortgage loans (loans purchased from our interim
and warehouse loan customers to end users on completed properties with terms of 12 months or longer.)



Our loan portfolio composition can and has changed as a result of the comparative demand for the type of lending and financing services that we provide.
We are unable to predict which of our loan types and services will be applied for by our existing and new borrowers although the primary (and preferred) types of loans resulting from our primary referral sources are interim loans.



The table below sets forth our loan portfolio composition at March 31, 2004
and 2003 and the percent of increase or decrease. This table does not take into consideration investments in two limited liability companies described below totaling $382,818. These investments have the same characteristics as interim loans but are
joint ventures rather than loans. As such they are reflected separately in our financial statements.



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|                   |  |                               |           |                       |   |           |  |       
|------------------ |  | ----------------------------- | --------- | --------------------- | - | --------- |  | ------
|                   |  | For the fiscal quarter ending
|Type of Loan       |  | March 31, 2004Balance         |           | March 31, 2003Balance |   | % +/-    
|Interim Loans      |  | $                             | 2,463,800 |                       | $ | 1,241,810 |  | +98.41
|Warehouse Loans    |  |                               | 668,423   |                       |   | 661,320   |  | +1.07 
|Second Mortgages   |  |                               | 215,038   |                       |   | 307,701   |  | -30.11
|                   |  |                               |           |                       |   |           |  |       
|Gross Total        |  | $                             | 3,347,291 |                       | $ | 2,210,831 |  | +51.40
|Less Loss Reserves |  |                               | 29,880    |                       |   | 15,568    |  | +91.93
|                   |  |                               |           |                       |   |           |  |       
|Loans, net         |  | $                             | 3,317,411 |                       | $ | 2,195,263 |  | +51.12



Investment in Limited Liability Companies.



Through
the period ended March 31, 2004, we effected investments in two limited liability companies in the amount of $382,818. Such investments were made in two limited liability companies where we act as one of the members and two of our lending referral
sources act as the other member. In that regard, Tager Properties is the Managing Member of one of the limited liability companies and Sharp Properties is the Managing Member of the second limited liability company. These two limited liability
companies hold the funds provided by us and utilize same in the renovation of existing residential real estate properties. In terms of investment there is no difference in the nature of the collateral or the use of funds as compared to lending funds
for the same purpose. The benefit to us is that the total return includes 50% of the profits that are normally retained by the borrower. As a result yields on invested funds may be substantially higher than those on funds that are used for interim
loans. At this time we have limited participation in these ventures since they produce gain at the time of the renovated property sale rather than monthly income, thereby affecting cash flow. This program may be expanded at such time as available
capital increases.



Other Real Estate Owned
(ORE)



As of March 31, 2004 the Company owned one piece of
foreclosed real estate in St. Louis, Missouri. The property was collateral for a loan purchased by the Company rather than originated by the Company. We have elected to complete renovations of the property with a local St. Louis firm either as a
partner or on a fee basis. Sale prices in the neighborhood on comparable properties range indicated a finished value of $40,000. Our basis a of March 31, 2004 was $10,386 and repairs are estimated between $10,000 and $15,000. Management has elected
not to reserve against losses on this property because it believes the total investment will be recouped.



Business Trends or Uncertainties.



We view the ongoing demand for the type of loans and lending services we provide as a niche or boutique lending business. We
believe the growth in our lending business has been influenced by the more restrictive credit policies adopted by banks and other lenders regarding this aspect of mortgage lending. While there are numerous competing private investors that provide
mortgage financing few focus exclusively on renovation lending. Our continued emphasis on this type of lending backed by a professional support staff has resulted in high customer retention and interest from new customers.



The business of residential home renovation continues to gain popularity and
has increased substantially over the past year. Presently we are unable to meet loan demand from existing customers and are limited in the amount of funds we can make available to new customers. The specialized nature of renovation lending has
tended to limit the amount of competition within this niche and we do not anticipate substantial new competition from institutional or private lenders which would significantly reduce the demand for our products and services.



Summary



Since our inception in October 1999, our lending business has shown
continued growth in terms of demand. The primary factor controlling the volume of our lending business has been the comparatively limited amount of funds having an appropriate cost with which to make loans.



We will continue to raise capital though the public sale of our secured
promissory notes and common stock in Florida. We anticipate that the continued sale of our securities will provide the capital needed to invest in additional mortgage loans which will in turn produce revenues sufficient to return the company to
profitability.





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PART II



OTHER INFORMATION



During the fiscal quarter ended March 31, 2003 we obtained a license permitting us to function in Florida as a Licensed Mortgage Lender as defined and
regulated by Section 494 of the Florida Statutes.



Following
the signature portion of this Report, there is a certification by John F. Kurz the Executive Vice President of the registrant. During the fiscal quarter ended March 31, 2004, there were no significant changes in internal controls or in other factors
that could significantly affect internal control subsequent to the date of the most recent evaluation, as referred to in the Certification.



As of a date within 90 days of the filing date of this quarterly report, the registrant has evaluated the effectiveness of the registrants
disclosure, controls and procedures and believes such controls and procedures to be effective based upon such evaluation.





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SIGNATURES



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



Pilot Financial, Inc./s/    John F. KurzJohn F. Kurz Executive Vice
President




Date: May 17, 2004



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