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
      September 30, 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>



                     Advance Financial, Inc. and Subsidiary

                                Table of Contents

                                                                        Page No.
                                                                        --------

PART I.    FINANCIAL INFORMATION

      ITEM 1. - Financial Statements (Unaudited)                           1
      ITEM 2. - Management's Discussion and Analysis or
                Plan of Operations                                         7

PART II.   OTHER INFORMATION

      ITEM 1. - Legal Proceedings                                          9
      ITEM 2. - Changes in Securities and Use of Proceeds                  9
      ITEM 3. - Defaults 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
                      September 30, 1997 and March 31, 1997


<TABLE>
<CAPTION>
            Assets                            September 30, 1997      March 31, 1997
                                             ------------------      --------------
                                                 (Unaudited)

<S>                                        <C>                  <C>                
Cash and investments                       $              1,681 $                 -
Mortgage servicing advances and
      accounts receivable                               182,585             440,367
Mortgage loans held for sale                                  -             305,193
Mortgage loans held for investment                       12,341              12,713
Property and equipment, net                           1,085,660           1,303,802
Prepaid expenses                                              -              23,121
Other                                                    20,434              72,906
                                             ------------------   -----------------

           Total assets                    $          1,302,702 $         2,158,102
                                            ===================  ==================


           Liabilities

Bank overdraft                             $                  - $           106,676
Accounts payable and accrued expenses                 2,999,020           2,919,541
Notes payable                                         1,370,115           1,768,427
Notes payable investors                                 200,000             200,000
Capitalized lease obligations                            65,426             178,886
                                             ------------------   -----------------

           Total liabilities               $          4,634,560 $         5,173,530


           Stockholders' Equity

Preferred stock, Series B, $.005 par value;
      100,000,000 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                                            (12,858,004)        (12,541,574)
                                             ------------------   -----------------

                                                    (2,890,513)         (2,574,083)

Treasury stock, 99,869 shares of
      Common Stock, at cost                           (441,345)           (441,345)
                                             ------------------   -----------------

           Total stockholders' equity      $        (3,331,858) $       (3,015,428)
                                            -------------------  ------------------

Total liabilities and stockholders' equity $          1,302,702 $         2,158,102
                                            ===================  ==================

</TABLE>


                                    Page - 2


<PAGE>


                     ADVANCED FINANCIAL, INC. AND SUBSIDIARY
                 Condensed Consolidated Statement of Operations
   For the three month period ended September 30, 1997 and September 30, 1996

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                             September 30, 1997  September 30, 1996
                                             ------------------  ------------------
                                                 (Unaudited)          (Unaudited)

<S>                                        <C>                  <C>
Revenues:

Servicing fee income                       $              1,584 $           537,563
Other fee income                                            515             218,340
Gain/(Loss) on sale of mortgage loans                  (30,549)             845,200
Gain on sale of servicing rights                              -             814,727
Interest                                                  1,729             184,482
Other                                                    40,806                 346
                                             ------------------   -----------------

           Total operating revenues                      14,085           2,600,658
                                             ------------------   -----------------


Expenses:

Servicing expense                                         (842)             383,782
Personal                                                 18,700             818,347
General and administrative                               35,551             375,068
Interest                                                 45,948             294,416
Depreciation and amortization                            12,373             346,375
Other                                                  (40,645)              14,704
                                             ------------------   -----------------

           Total operating expenses        $             71,085 $         2,232,692
                                            -------------------  ------------------

           Loss before income taxes                    (57,000)             367,966

Income tax expense                                            -             340,000
                                             ------------------   -----------------

           Net loss                        $           (57,000) $            27,966
                                            ===================  ==================

Weighted average shares outstanding                   5,736,607           4,437,973

Loss per share of Common Stock             $             (0.02) $            (0.00)
                                            ===================  ==================
</TABLE>


                       See accompanying notes to condensed
                        consolidated financial statements



                                    Page - 3
<PAGE>


                    ADVANCED FINANCIAL, INC. AND SUBSIDIARY
                 Condensed Consolidated Statement of Operations
   For the three month period ended September 30, 1997 and September 30, 1996

<TABLE>
<CAPTION>

                                                         Six Months Ended
                                             September 30, 1997  September 30, 1996
                                             ------------------  ------------------
                                                 (Unaudited)          (Unaudited)

<S>                                        <C>                  <C>
Revenues:

Servicing fee income                       $             55,222 $         1,066,523
Other fee income                                         21,141             402,030
Gain/(Loss) on sale of mortgage loans                  (45,157)           1,539,312
Gain on sale of servicing rights                              -             801,245
Interest                                                 10,803             424,762
Other                                                    99,204              15,789
                                             ------------------   -----------------

           Total operating revenues                     141,213           4,249,661
                                             ------------------   -----------------


Expenses:

Servicing expense                                        81,147             523,363
Personal                                                136,545           1,838,330
General and administrative                               91,743             773,860
Interest                                                100,802             516,605
Depreciation and amortization                            49,298             719,923
Other                                                   (1,892)              71,745
                                             ------------------   -----------------

           Total operating expenses        $            457,643 $         4,443,826
                                            -------------------  ------------------

           Loss before income taxes                   (316,430)           (194,165)

Income tax expense                                            -             340,000
                                             ------------------   -----------------

           Net loss                        $          (316,430) $         (534,165)
                                            ===================  ==================

Weighted average shares outstanding                   5,736,607           3,988,797

Loss per share of Common Stock             $             (0.07) $            (0.15)
                                            ===================  ==================
</TABLE>


                       See accompanying notes to condensed
                        consolidated financial statements


                                    Page - 4
<PAGE>



                    ADVANCED FINANCIAL, INC. AND SUBSIDIARY
                 Condensed Consolidated Statements of Cash Flows
    For the six month period ended September 30, 1997 and September 30, 1996

<TABLE>
<CAPTION>

                                                         Six Months Ended
                                             September 30, 1997  September 30, 1996
                                             ------------------  ------------------
                                                 (Unaudited)          (Unaudited)
<S>                                         <C>                 <C>

Net cash (used in) provided by
  operating activities                       $          450,913         (1,220,286)

Cash flows from investing activities:
    Acquisition of property and equipment               168,844            (10,229)
    Proceeds/Acquisition of mortgage
      servicing rights                                        -           2,054,848
    Acquisition/Principal payments on
      mortgage loans held for investment, net               372               9,612
                                               ----------------    ----------------

    Net cash provided by (used in) investing
      activities                                        169,216           2,054,231

Cash flows from financing activities:
    Proceeds from issuance of common
      stock, net                                              -             806,556
    Notes payable, net                                (398,312)          (1,716,011)
    Checks outstanding in excess of
      bank balance                                    (106,676)                   -
    Payments on capitalized lease obligations         (113,460)            (120,090)
                                               ----------------    -----------------

    Net cash provided by (used in)
      financing activities                            (618,448)         (1,029,545)

    Net increase/(decrease) in cash                      1,681            (195,600)

Cash at beginning of period                                  0             585,643
                                             ------------------   -----------------

Cash at end of period                      $             1,681  $          390,043
                                            ===================  ==================


Supplemental disclosure of cash flow:
    Cash paid for interest                 $            27,920             358,387

Supplemental disclosure of noncash
  financing activities:
        Receivable recognized for
          exercise of options              $                 -             125,000
        Receivable Recognized for
          issue of stock                   $                 -             500,000
</TABLE>

                       See accompanying notes to condensed
                        consolidated financial statements

                                    Page - 5
<PAGE>


                    ADVANCED FINANCIAL, INC. AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                   September 30, 1997 and September 30, 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 II.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
           ---------------------------------------------------------

GENERAL
-------

     The  Company and AFIM  continued  to suffer  losses for the  quarter  ended
September 30, 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
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
September 30, 1997 and the Company's results of operations for the quarter ended
September 30, 1997 should be read in  conjunction  with the discussion of events
subsequent  to June 30, 1997 set forth in Item 1:  "Description  of Business" of
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 Six Months Ended September 30, 1997 
-----------------------------------------------
Compared To The Quarter and Six Months Ended June 30, 1996
----------------------------------------------------------

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

     The Company's cash and short-term  investments increased from ($106,676) at
March 31,  1997,  to $1,681 at  September  30,  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 limited  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" of the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.

                                    Page - 7
<PAGE>



      Losses
      ------

     Consolidated  operating  results for the three months ended  September  30,
1997  reflect a net loss of $57,000 as compared to a net gain of $27,966 for the
three  months  ended  September  30,  1996.  The gain for the three months ended
September  30,  1996  was due to a gain of  $814,727  recognized  on the sale of
servicing  rights compared to no such sales for the three months ended September
30, 1997. The six months ended September 30, 1997 reflect a net loss of $316,430
as compared to a net loss of $534,165  for the six months  ended  September  30,
1996.  The decrease in losses,  for the six months ended  September 30, 1997, is
attributable  to the fact that 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, and the Company's reduction
of its  staff  from 20 full  time  employees  to 1 full  time  employee, thereby
reducing  administrative  expenses,  and,  reduction of debt,  thereby  reducing
interest expense, to the limited extent necessary to operate under protection of
Chapter 11 of the Bankruptcy Code. Also see Item 1: "Description of Business" of
the  Company's  Annual Report on Form 10-KSB for the fiscal year ended March 31,
1997.

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

      During  the six  months  ended  September  30,  1997,  the  Company  saw a
continued  decrease  in the  Company's  assets  and  stockholders'  equity.  The
Company's  total  assets were  $1,302,702  at  September  30,  1997  compared to
$2,158,102 at March 31, 1997. Stockholders' equity was ($3,331,858) at September
30, 1997 compared to ($3,015,428) at March 31, 1997. These decreases were 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 six months ended  September 30, 1997.  The Company sold its loan  production
operations  in February,  1997 causing its loans held for sale to decrease to $0
at  September  30, 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 $1,370,115 at September 30, 1997
compared to $1,768,427 at March 31, 1997.

     At September 30, 1997,  the Company had a cash position of $1,681  compared
to a negative cash position of $106,676 at March 31, 1997. During the six months
ended  September 30, 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  September  30,  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
various receivables.

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

           None

                                    Page - 8
<PAGE>


                                     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 its various debt.
As a result of the filing for relief under  Chapter 11 of the  Bankruptcy  Code,
all  actions  against  the  Company  and AFIM were  suspended  pending the final
outcome  of the  Company's  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 the discharge of
the Company and AFIM from bankruptcy, all litigation will have been dismissed.

ITEM - 2   Change in Securities.

           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 was 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
shareholder 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  quarter
ended  September  30,  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 and Item 1: "Description of Business."


                                    Page - 9
<PAGE>


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