Conformed
     _________________________________________________________ 
                              ---------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              ---------------------


                                   FORM 10-QSB


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


     For the Quarter ended:                               Commission file number
          December 31, 1997                                            0-19485



                            ADVANCED FINANCIAL, INC.
                 (Name of small business issuer in its charter)



     DELAWARE                                         84-1069416
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)


      5425 Martindale, Shawnee, KS                           66218
 (Address of principal executive offices)                  (Zip Code)


                                 (913) 441-2466
                            Issuer's telephone number
                               -------------------


      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the Securities and 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 ___ No X

     State the number of shares  outstanding of each of the issuer's  classes of
common equity as of January 25, 1999: 5,836,476

      Check  whether the issuer has filed all  documents and reports to be filed
by  Section  12,  13 or 15(d) of the  Exchange  Act after  the  distribution  of
securities under a plan confirmed by a court. Yes___ No___

     Transactional Small Business Disclosure Format Yes___ No X



<PAGE>

                               TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION

         ITEM 1. - Financial Statements..................................... 1

            
         ITEM 2. - Management's Discussion and Analysis or
                   Plan of Operation........................................ 7

       
PART II.  OTHER INFORMATION

        ITEM 1. - Legal Proceedings......................................... 9

        ITEM 2. - Changes in Securities and Use of Proceeds................. 9

        ITEM 3. - Default Upon Senior Securities............................ 9

        ITEM 4. - Submission of Matters to a Vote of Security Holders....... 9

        ITEM 5. - Other Information......................................... 9

        ITEM 6. - Exhibits and Reports on Form 8-K..........................10

Signatures..................................................................12

                                       i
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM I.    FINANCIAL STATEMENTS


























                                    Page - 1

<PAGE>


                     ADVANCED FINANCIAL, INC. AND SUBSIDIARY
                      Condensed Consolidated Balance Sheets
                      December 31, 1997 and March 31, 1997

      Assets                      December 30, 1997         March 31, 1997
                                  -----------------         --------------
                                     (Unaudited)

Cash and investments                 $        6,029    $               -
Mortgage servicing advances and
     accounts receivable                    200,115              440,367
Mortgage loans held for sale                      -              305,193
Mortgage loans held for                      11,959               12,713
investment
Property and equipment, net               1,078,107            1,303,802
Prepaid expenses                              2,617               23,121
Other                             
                                             14,883               72,906
                                     ---------------     ---------------

      Total assets                $       1,313,711    $       2,158,102
                                   =================     ===============
                                        

      Liabilities

Bank overdraft                    $               -    $         106,676
Accounts payable and accrued              3,015,205            2,919,541
expenses
Notes payable                             1,374,034            1,768,427
Notes payable investors                     200,000              200,000
Capitalized lease obligations                65,426              178,886
Other                                        12,375                    -
                                     --------------      ---------------

      Total liabilities           $       4,667,039    $       5,173,530
                                    ===============      ===============
                     

      Stockholders' Equity

Preferred stock, Series B, $.005
  par value; 100,000,00 shares 
  authorized; $363,000 issued and
  outstanding                      $          1,815    $           1,815  
Common Stock, $.001 par value;
25,000,000 shares authorized;
5,836,476 issued and outstanding              5,836                5,836
Paid-in capital                           9,959,840            9,959,840
Deficit                                 (12,879,474)         (12,541,574)
                                     --------------      ---------------  

                                         (2,911,983)          (2,574,083)
Treasury stock, 99,869 shares of
    Common Stock, at cost                  (441,345)            (441,345)
                                     --------------      ---------------   
      Total stockholders' equity         (3,353,328)          (3,015,428)
                                     --------------      ---------------

Total liabilities and              $      1,313,711    $       2,158,102
stockholders' equity                 ===============     ===============

     See accompanying notes to condensed consolidated financial statements.

                                    Page - 2
<PAGE>
                                                       Advanced Financial, Inc.

                     ADVANCED FINANCIAL, INC. AND SUBSIDIARY
                 Condensed Consolidated Statement of Operations
    For the three month period ended December 31, 1997 and December 31, 1996

                                                Three Months Ended
                                  December 31, 1997         December 31, 1996
                                  -----------------         -----------------
                                     (Unaudited)         
Revenues:

Servicing fee income              $           1,694    $         246,420
Other fee income                              1,170              137,244
Gain/(Loss) on sale of mortgage                (104)             408,115
loans
Loss on sale of servicing rights                  -              (36,650)
Interest                                        134              155,610
Other                                        37,125               (2,079)
                                     --------------      ---------------   
      Total operating revenues    $          40,019    $         908,660
                                    ===============      ===============

Expenses:

Servicing Expense                             (776)              349,753
Personal                                     15,943              709,094
General and administrative                   23,006              327,963
Interest                                     35,021              158,574
Depreciation and amortization                 7,553              200,238
Consulting Expense                                -              593,750  
Other                                       (19,257)               7,919
                                     --------------      ---------------

      Total operating expenses               61,490            2,347,291
                                     --------------      ---------------
      Loss before income taxes              (21,471)          (1,438,631)

Income tax expense                                -             (101,884)
                                    ---------------      ---------------

      Net loss                    $         (21,471)   $      (1,540,515)
                                    ===============      ===============

Weighted average shares                   5,736,607            6,342,177
outstanding

Loss per common share             $           (0.01)   $           (0.24)
                                    ===============      =============== 


     See accompanying notes to condensed consolidated financial statements.

                                    Page - 3


<PAGE>
                                                       Advanced Financial, Inc.


                     ADVANCED FINANCIAL, INC. AND SUBSIDIARY
                 Condensed Consolidated Statement of Operations
    For the nine month period ended December 31, 1997 and December 31, 1996

                                             Nine Months Ended
                                  December 31, 1997         December 31, 1996
                                  -----------------         ----------------- 
                                     (Unaudited)         
Revenues:

Servicing fee income              $          56,916    $       1,312,943
Other fee income                             22,311              539,274
Gain/(Loss) on sale of mortgage             (45,261)           1,947,427
 loans
Gain on sale of servicing rights                  -              764,595
Interest                                     10,937              580,372
Other                                       136,329               13,710
                                    ---------------      ---------------
      Total operating revenues    
                                            181,232            5,158,321
                                  $ ---------------    $ ---------------
Expenses:

Servicing expense                 $          80,371    $         873,116
Personel                                    152,487            2,547,424
General and administrative                  114,749            1,101,823
Interest                                    135,823              675,179
Depreciation and amortization                56,852              920,161
Consulting expense                                -              593,750
Other                             
                                            (21,150)              79,664
                                    ---------------      ---------------
      Total operating expenses    
                                            519,132            6,791,117
                                    ---------------      ---------------

      Loss before income taxes             (337,900)          (1,632,796)

Income tax expense                                -             (441,884)
                                    ---------------      ---------------

      Net loss                    $        (337,900)   $      (2,074,680)
                                   ================      ===============

Weighted average shares                   5,736,607            4,776,110
 outstanding

Loss per share of Common Stock    $           (0.08)   $          $(0.45)
                                   ================      =============== 


     See accompanying notes to condensed consolidated financial statements.


                                    Page - 4
<PAGE>
                                                       Advanced Financial, Inc.


                     ADVANCED FINANCIAL, INC. AND SUBSIDIARY
                 Condensed Consolidated Statements of Cash Flows
     For the nine month period ended December 31, 1997 and December 31, 1996

                                                  Nine Months Ended
                                       December 31, 1997    December 31, 1996
                                       -----------------    -----------------
                                          (Unaudited)          (Unaudited)

Net cash (used in) provided by
 operating activities                    $  438,585         (1,042,301)
Cash flows from investing activities:
  Acquisition of property and                
    equipment                               168,844             (8,505)
  Proceeds/Acquisition of mortgage
    servicing right                               -          2,054,847
  Acquisition/Principal payments on 
    mortgage loans held for investment,         754             12,773
    net
                                         ----------         ----------
  Net cash provided by (used
     in) investing activities               169,598          2,059,115
       

Cash flows from financing activities:
   Proceeds from issuance of
     common stock, net                            -          1,498,677
   Notes payable, net                      (394,393)        (3,064,322)
   Checks outstanding in excess
     of bank balance                       (106,676)           140,955
   Payments on capitalized lease                  
     obligations                           (101,085)          (177,767)
                                         -----------       -----------
   Net cash provided by (used
     in) financing activities              (602,154)        (1,602,457)

   Net increase/(decrease)in cash             6,029           (585,643)

Cash at beginning of period                       0            585,643
                                         ----------        -----------
Cash at end of period                      $  6,029                  0
                                         ==========        ===========       
                                           

Supplemental disclosure of cash flow:
     Cash paid for interest                $  27,059           427,436
     Cash paid for income taxes                    -             1,881


     See accompanying notes to condensed consolidated financial statements.

                                     Page - 5
<PAGE>
                                                       Advanced Financial, Inc.


                     ADVANCED FINANCIAL, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                     December 31, 1997 and December 31, 1996

(1)  Organization and Summary of Significant Accounting Policies
     -----------------------------------------------------------

     The  Company's  financial  statements  include  the  accounts  of  Advanced
Financial,  Inc. (the  "Company" or "AFI") and its  wholly-owned  subsidiary AFI
Mortgage, Corp. ("AFIM").

     The  condensed  consolidated  financial  statements  have been  prepared in
accordance with the instructions to Form 10-QSB.  To the extent that information
and footnotes required by generally accepted accounting  principles for complete
financial  statements are contained in or consistent with the audited  financial
statements  incorporated  by reference in the  Company's  Annual  Report on Form
10-KSB for the year ended March 31, 1997,  such  information  and footnotes have
not been  duplicated  herein.  In the  opinion of  management,  all  adjustments
considered  necessary for fair  presentation  of financial  statements have been
reflected herein.  The March 31, 1997 condensed  consolidated  balance sheet has
been derived from the audited balance sheet as of that date.

                                    Page - 6

<PAGE>


ITEM  2.  MANAGEMENT'S   DISCUSSION  AND  ANALYSIS  OR  PLAN  OF OPERATION
          ----------------------------------------------------------------

GENERAL
-------

     The  Company  and AFIM  continue  to suffer  losses for the  quarter  ended
December 31, 1997. In April 1997, the Company and its  wholly-owned  subsidiary,
AFI Mortgage,  Corp. ("AFIM"),  decided that it would be in the best interest of
the continuity of the Company's business  enterprise to temporarily  suspend its
active  mortgage  operations.  On November 7, 1997,  AFIM filed for relief under
Chapter 11 of the  United  States  Bankruptcy  Code  ("Bankruptcy  Code") in the
United States Bankruptcy  Court,  District of Kansas,  Topeka Division,  Case No
97-43122.  On May 8, 1998, the Company also filed for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy  Court,  District of Kansas,
Topeka Division,  Case No. 98-41228.  The two cases were consolidated on July 2,
1998. On November 13, 1998, the United States  Bankruptcy Court for the District
of Kansas  entered  an order (the  "Confirmation  Order")  confirming  the First
Amended Joint Plan of Reorganization dated July 29, 1998 of the Company and AFIM
("Plan of  Reorganization").  The confirmation of the Plan of Reorganization was
reported in a Current  Report on Form 8-K filed with the Securities and Exchange
Commission  on November 25, 1998. A copy of the Plan was filed as Exhibit 2.1 to
the Form 8-K and a copy of the  Confirmation  Order was filed as Exhibit 99.1 to
the Form  8-K.  See also the  Company's  Annual  Report on Form  10-KSB  Item 1:
"Description  of  Business"  and Item 7:  Note B to the  Consolidated  Financial
Statements of the Company.

     Under the Plan of  Reorganization,  and subject to the terms and conditions
set  forth in the Plan of  Reorganization,  the  Company  will  sell its  office
building to First  Mortgage  Investment  Co.  ("FMIC") for $1,030,000 and FMIC's
release  of its  second  mortgage.  The net  proceeds  will  satisfy  the  first
mortgage.  The remaining  net proceeds  received by AFIM will be used to satisfy
the claims of creditors in accordance with the Plan of Reorganization.

     The  following  discussion  of  the  Company's  financial  condition  as of
December 31, 1997 and the Company's  results of operations for the quarter ended
December 31, 1997 should be read in  conjunction  with the  discussion of events
subsequent  to June 30,  1997 set  forth in Item 1:  "Description  of  Business"
contained  in the  Company's  Annual  Report on Form  10-KSB for the fiscal year
ended  March  31,  1997 and set  forth in the  Current  Report on Form 8-K filed
November 25, 1998, described above.

RESULTS OF OPERATIONS
---------------------
Quarter and Nine Months Ended December 31, 1997 
-----------------------------------------------
Compared To The Quarter and Nine Months Ended December 31, 1996
---------------------------------------------------------------

      Liquidity and Capital Resources
      -------------------------------

     The Company's cash and short-term  investments increased from ($106,676) at
March  31,  1997 to  $6,029 at  December  31,  1997.  The  increase  in cash and
short-term  investments is attributable  to the fact that the Company  suspended
its active mortgage  operations and reduced its staff to the extent necessary to
operate  under  protection  of  Chapter  11 of the  Bankruptcy  Code,  sold  its
remaining  assets,  other  than  its  office  building,  and  collected  various
receivables  due the  Company.  Also  see  Item  1:  "Description  of  Business"
contained  in the  Company's  Annual  Report on Form  10-KSB for the fiscal year
ended March 31, 1997.


                                    Page - 7
<PAGE>

                                                       Advanced Financial, Inc.

      Losses
      ------

     Consolidated operating results for the three months ended December 31, 1997
reflect a net loss of $21,471 as  compared to a net loss of  $1,540,515  for the
three months ended  December 31, 1996.  Consolidated  operating  results for the
nine months ended December 31, 1997 reflect a net loss of $377,900 compared to a
net loss of $2,074,680 for the nine months ended December 31, 1996. The decrease
in losses was  attributable  to the Company's  suspension of its active mortgage
operations  and sale of its remaining  assets,  other than its office  building,
thereby  reducing  the  quarterly  depreciation  expense.  The decrease was also
attributable to the Company's  reduction of staff from 20 full time employees to
1 full time employee, thereby reducing its administrative expense, and reduction
of debt,  thereby reducing interest expense,  to the extent necessary to operate
under  protection  of  Chapter  11 of the  Bankruptcy  Code.  Also  see  Item 1:
"Description  of Business"  contained  in the  Company's  Annual  Report on Form
10-KSB for the fiscal year ended March 31, 1997.

FINANCIAL POSITION
------------------

     During  the three  months  ended  December  31,  1997,  the  Company  saw a
continued  decrease  in the  Company's  assets  and  stockholders'  equity.  The
Company's  total  assets  were  $1,313,711  at  December  31,  1997  compared to
$2,158,102 at March 31, 1997.  Stockholders' equity was ($3,353,328) at December
31, 1997 compared to  ($3,015,428)  at March 31, 1997.  This decrease was due to
the fact that the  Company  suspended  its active  mortgage  operations  and had
limited revenues, causing  the Company to continue  to operate at a loss during
the nine months ended  December 31, 1997.  The Company sold its loan  production
operations  in February,  1997 causing its loans held for sale to decrease to $0
at December 31, 1997 compared to $305,193 at March 31, 1997. Because the Company
was no longer borrowing on its warehouse  facility to fund loan  originations,
Notes  Payable also  decreased to  $1,374,034  at December 31, 1997  compared to
$1,768,427 at March 31, 1997.

     At December 31, 1997, the Company had a cash position of $6,029 compared to
a negative cash  position of $106,676 at March 31, 1997.  During the nine months
ended December 31, 1997, the Company covered its negative cash position from the
collection of receivables  and the funding of the remaining  Mortgage Loans Held
for Sale.  Since December 31, 1997, and while  operating under the protection of
Chapter 11 of the  Bankruptcy  Code,  the  Company  was able to fund its limited
operations  from the sale of various  assets and the  collection  of  additional
receivables.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
----------------------------------------------


           None

                                    Page - 8
<PAGE>
                                                       Advanced Financial, Inc.

                                     PART II
                                     -------

ITEM - 1   Legal Proceedings

     Various lenders initiated lawsuits against the Company and AFIM as a result
of the  Company's  inability to make  required  payments on various  debt.  As a
result  of AFIM and the  Company  filing  for  relief  under  Chapter  11 of the
Bankruptcy Code, all pending  litigation was suspended pending the final outcome
of the Chapter 11 proceeding.  See Item 2: "Management's Discussion and Analysis
or Plan of Operation-General" Pursuant to the Plan of Reorganization,  Claims of
Creditors, including persons asserting claims against the Company in litigation,
will be deemed  satisfied  and,  upon  discharge  of the  Company  and AFIM from
bankruptcy, all litigation will have been dismissed.

ITEM - 2   Change in Securities and Use of Proceeds.

     See Item 3 (b) Below

ITEM - 3   Defaults upon Senior Securities.

     (a) The following table sets forth any indebtedness which exceeds 5% of the
Company's  assets,  for which the  Company was in  default  at the time of this
filing.  Interest accrued on such indebtedness until November 7, 1997, the date
on which AFIM filed for protection under Chapter 11 of the Bankruptcy Code.

                             Default             Default             Total
     Lender                 Principal           Interest            Arrearage
     ------                 ---------           --------            ---------

  Commercial Federal Bank   $364,393            $ 41,653            $406,046
  Argo Federal Savings      $ 75,148            $  8,022            $ 83,170

   
     (b) The Company suspended payment of its regular quarterly  dividend on its
Series "B" Cumulative  Convertible  Preferred  Stock in January 1996. The unpaid
cumulative  dividends at the time of this filing were $499,275.  Pursuant to the
Plan of Reorganization  all preferred stock will be converted to common and each
shareholders shall receive such shareholder's pro rata share of new common stock
as  defined  in the Plan of  Reorganization.  No unpaid  dividends  will be paid
pursuant to the Plan of Reorganization.

ITEM - 4   Submission of Matters to a Vote of Securities Holders.

     No matters were submitted to a vote of security  holders during the quarter
ended  December  31,  1997,  either  through  the  solicitation  of  proxies  or
otherwise.

ITEM - 5   Other Information.

     See   Item  2:   "Management's   Discussion   and   Analysis   or  Plan  of
Operation-General" and the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1997 Item 1: "Description of Business." 

                                   Page - 9
<PAGE>
                    
                                                       Advanced Financial, Inc.


ITEM - 6 Exhibits and Reports on Form 8-K.

(a) Exhibits

*2.1      First  Amended  Joint Plan of  Reorganization  dated July 29,  1998 of
          Advanced  Financial,  Inc. and AFI MOrtgage Corp.  (Exhibit 2.1 to the
          Current  Report on Form 8-K filed  with the  Securities  and  Exchange
          Commission on November 25, 1998).

*3.1      Articles of  incorporation  and by-laws  (Exhibit 3.2 to  Registration
          Statement  on Form S-2 of  Advanced  Financial,  Inc.  filed  with the
          Securities   and  Exchange   Commission   on  January  31,  1993  (No.
          33-45406)).

*4.1      Instruments  Defining  Rights of Holders  (Exhibit 4.0 to Registration
          Statement  on Form S-2 of  Advanced  Financial,  Inc.  filed  with the
          Securities   and  Exchange   Commission   on  January  31,  1993  (No.
          33-45406)).

*4.2      Variable Rate Commercial Note Secured With Loan Servicing Rights dated
          July 27, 1994 made by AFI Mortgage  Corp.,  successor  to  Continental
          Mortgage,  Inc.  ("AFIM"),  to the order of  Commercial  Federal Bank,
          successor to Railroad Savings Bank, FSB ("Lender") and Agreement dated
          October  11,  1996  between  Advanced  Financial,  Inc.  and AFIM,  as
          Borrower,  and  Lender  and  Matrix  Financial  Servicers  Corporation
          (Exhibit  4.2 to  Advanced  Financial,  Inc.'s  Annual  Report on Form
          10-KSB  for the  fiscal  year  ended  March 31,  1997  filed  with the
          Securities and Exchange Commission on February 16, 1999).

*4.3      Variable Rate  Commercial  Balloon Note For Purchase of Loan Servicing
          Rights dated December 31, 1993 made by AFI Mortgage  Corp.,  successor
          to  Continental  Mortgage,  Inc.  ("Borrower"),  to the  order of Argo
          Federal  Savings Bank, FSB ("Lender") and Security  Agreement For Sale
          of Mortgage  Loan  Servicing  Rights  dated  December 31, 1993 between
          Borrower and Lender (Exhibit 4.3 to Advanced Financial,  Inc.'s Annual
          Report on Form  10-KSB for the fiscal  year ended March 31, 1997 filed
          with the Securities and Exchange Commission on February 16, 1999).

*10.1     Commercial Real Estate Contract with Standard  Builders  (Exhibit 10.1
          to  Registration  Statement  on Form S-2 of Advanced  Financial,  Inc.
          filed with the Securities and Exchange Commission on February 11, 1993
          (No. 33-58186)).

*10.2     Contract  for  Services  between  the  Company  and Rollie C.  Johnson
          (Exhibit  10.1  to  Registration  Statement  on Form  S-2 of  Advanced
          Financial,  Inc. filed with the Securities and Exchange  Commission on
          February 11, 1993 (No. 33-58186)).

*10.3     Real Estate Mortgage to Secure a Loan from Citizen's  National Bank of
          Fort Scott ("Bank") dated February 3, 1997 made by AFI Mortgage Corp.,
          as Mortgagee, to Bank and accompanying notes as amended. (Exhibit 10.3
          to Advanced  Financial,  Inc.'s  Annual  Report on Form 10-KSB for the
          fiscal  year  ended  March 31,  1997  filed  with the  Securities  and
          Exchange Commission on February 16, 1999).

*10.4     Second Mortgage dated March 29, 1996 made by Advance  Financial,  Inc.
          and AFI Mortgage  Corp.,  as Mortgagor,  to First Mortgage  Investment
          Co., as Mortgagee.  (Exhibit 10.4 

                                   Page - 10
<PAGE>

          to Advanced  Financial,  Inc.'s  Annual  Report on Form 10-KSB for the
          fiscal  year  ended  March 31,  1997  filed  with the  Securities  and
          Exchange Commission on February 16, 1999).

27.1      Financial Data Schedule

*         Asterisk  indicates  exhibits  incorporated by reference as indicated,
          all other exhibits are filed herewith.

(b)  Reports on Form 8-K
     -------------------

      None


                                   Page - 11
<PAGE>



                                   SIGNATURES


     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                            ADVANCED FINANCIAL, INC.
                                  (Registrant)


Dated:  February 16, 1999    By:   /s/William B. Morris
                                   --------------------
                                   William B. Morris
                                   Chairman


     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/ William B. Morris                Chairman, Secretary,     February 16, 1999
---------------------                Principal Accounting
    William B. Morris                Officer 
                                     


                                   Page - 12

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