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

FORM 10-QSB

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 2002

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

For the Transition Period from ________ To_______________

Commission File No. 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)

Issuer's telephone number (913) 535-1072

APPLICABLE ONLY TO CORPORATE ISSUERS

As of June 30, 2002, the Issuer had 5,866,137 shares of its common stock
outstanding.

Transitional Small Business Disclosure Format: Yes____ No___X___

FORM 10-QSB

Part 1
------

Item 1. Financial Statements
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Page
----

Unaudited Consolidated Balance Sheet -June 30, 2002 3

Unaudited Consolidated Statement of Operations for
the three months ended June 30, 2002 and 2003 4
Unaudited Consolidated Statement of Cash Flows for
the three months ended June 30, 2002 and 2003 5

Notes to Consolidated Financial Statements 6

Part 1I

Items 1-5. 16

ADVANCED FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

September 30,
2002
-----------
ASSETS (Unaudited)

Cash $ 34,686
Collection fees receivable 52,405
Finance receivables 53,921
Other 7,697
Property, furniture and equipment, net 82,526
Customer lists, net of amortization 224,612
Escrow deposit, net of $75,000 reserve --

-----------
Total Assets $ 455,847
===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

LIABILITIES

Accounts payable and accrued expenses $ 287,581
Accounts payable - related party 372,536
Notes payable 1,035,548

-----------
-----------
Total Liabilities 1,695,665
-----------

STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, Series B, $.005 par value; 1,000,000
shares authorized, none issued and outstanding --
Common stock, $.001 par value; 10,000,000 shares
authorized, 5,866,137 issued
and outstanding 5,866
Paid-in capital 1,253,260
Accumulated deficit (2,498,944)

-----------
Total Stockholders' Equity (Deficiency) (1,239,818)
-----------

-----------
$ 455,847
===========

The accompanying notes are an integral part of these statements.

ADVANCED FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Three Months Six Months Six Months
09/30/2001 09/30/2002 09/30/2001 09/30/2002
----------- ----------- ----------- -----------

REVENUES
Collection, servicing, and other fees $ 337,053 $ 284,943 $ 640,445 $ 575,168
Other 4,376 2,695 11,307 25,386
Interest 173 68 1,017 140

----------- ----------- ----------- -----------
Total revenues 341,602 287,706 652,769 600,694
----------- ----------- ----------- -----------

EXPENSES
Operating expenses, including general and
administrative costs 391,136 348,790 785,851 721,042
Interest 7,656 3,237 11,657 5,005
Depreciation and amortization 50,123 6,347 100,388 12,694
Escrow reserve -- -- -- 75,000

----------- ----------- ----------- -----------
Total expenses 448,915 358,374 897,896 813,741
----------- ----------- ----------- -----------

----------- ----------- ----------- -----------
NET LOSS $ (107,313) $ (70,668) $ (245,127) $ (213,047)
=========== =========== =========== ===========

Weighted-average shares outstanding 5,866,137 5,866,137 5,866,137 5,866,137
=========== =========== =========== ===========

Loss per common share $ (0.02) $ (0.01) $ (0.04) $ (0.04)
=========== =========== =========== ===========

The accompanying notes are an integral part of these statements.

ADVANCED FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Six Months
Sept 30, Sept 30,
2001 2002
--------- ---------

Cash flows from operating activities
Net loss $(245,127) $(213,047)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 100,388 12,695
Escrow reserve -- 75,000
Net change in current assets and current liabilities 86,607 5,543

--------- ---------
Net cash used in operating activities (58,132) (119,809)
--------- ---------

Cash flows from investing activities
Collections applied to finance receivables 37,248 34,978
Acquisitions of finance receivables -- --
Acquisition escrow deposit -- (75,000)
Acquisitions of property, furniture, and equipment (49,979) 21,006
--------- ---------
Net cash provided by (used in) investing activities (12,731) (19,016)
--------- ---------

Cash flows from financing activities
Change in checks issued in excess of cash balances (23,689) --
Proceeds from notes payable 149,183 --
Payments on notes payable -- (30,979)
Payments on capitalized lease obligations (11,842) --
Advances from related party -- 166,696
--------- ---------
Net cash provided by financing activities 113,652 135,717
--------- ---------

Net increase (decrease) in cash 42,789 (3,108)
Cash, beginning of period -- 37,794
--------- ---------
Cash, end of period $ 42,789 $ 34,686
========= =========

Cash paid for interest $ 3,753 $ 7,512

The accompanying notes are an integral part of these statements.

Advanced Financial, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.

1. Organization and Principles of Consolidation

Advanced Financial, Inc. (the Company) owns 100% of AFI Mortgage Corp. (AFI), a
mortgage lender with no current operations and 100% of Cannon Financial Company
(Cannon). Subsequent to March 31, 2001, AFI changed its name to Allen Drilling
Acquisition Company ("ADAC"). See Note C. Cannon collects debts for others for a
fee and purchases charged-off credit card debt to collect at a profit from
debtors located throughout the United States. On November 15, 1999, pursuant to
an Asset Purchase Agreement between AIH Services, Inc. and Cannon, Cannon
acquired certain assets for use in the operation and conduct of the businesses
of AIH Services, Inc. known as AIH Receivable Management Services and AIH Early
Recovery Systems. AIH Receivable Management Services and AIH Early Recovery
Systems are engaged in the business of collecting nonperforming receivables on
behalf of third parties. Cannon and AIH Services, Inc. combined operating assets
and operations, and Cannon changed its name to AIH Receivable Management
Services, Inc. (AIH) effective December 1, 1999.

The consolidated financial statements include the accounts of the Company, ADAC
and AIH. All significant intercompany accounts and transactions have been
eliminated.

2. Finance Receivables And Revenue Recognition

The Company accounts for its investment in finance receivables under the
guidance of the American Institute of Certified Public Accountants Practice
Bulletin 6, Amortization of Discounts on Certain Acquired Loans (PB6) using
unique and exclusive static pools. The pools are established with underlying
accounts having similar attributes, based on acquisition timing and by seller.
Once a static pool is established, the accounts in the pool are not changed.
Each pool is initially recorded at cost. Until it is determined that the amount
and timing of collections are reasonably estimable and collection is probable,
PB6 requires the receivable be accounted for under the cost-recovery method. All
of the Company's pools are accounted for under the cost-recovery method.
Application of the cost-recovery method requires that any amounts received be
applied first against the recorded amount of the pool; when that amount has been
reduced to zero, any additional amounts received are recognized as income. The
discount between the cost of each pool of receivables purchased and the
contractual receivable of the accounts in the pool is not recorded since the
Company expects to collect a relatively small percentage of each pool's
contractual receivable balance.

3. Property and Equipment

Property, furniture, and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of the
assets; the lives have been determined by management to be seven years.

4. Income Taxes

The Company accounts for income taxes under the asset and liability method where
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
applied to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are recognized to the extent
management believes that it is more likely than not that they will be realized.

5. Loss Per Common Share

Loss per common share is based on the weighted average number of common shares
outstanding during the periods presented. Because the effect of the inclusion of
stock options and warrants is anti-dilutive, diluted per share information is
not presented.

6. Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options exceeds the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123).

7. Customer Lists

Intangible assets consist of customer lists obtained in acquisitions and are
being amortized over 15 years. During the year ended March 23, 2000, the Company
estimated that the value and future benefits of certain of these customer lists,
based on discounted cash flows, indicated the unamortized costs should be
reduced. Accordingly, an impairment charge of $45,070 was recorded.

8. Accounting Pronouncements and Recent Regulatory Developments

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. Goodwill and other intangible assets having an indefinite useful life
acquired in business combinations completed after June 30, 2001, are no longer
subject to amortization to earnings. Effective April 1, 2002, all goodwill and
other intangible assets having an indefinite useful life are no longer amortized
to earnings. The useful lives of other intangible assets must be reassessed, and
the remaining amortization periods must be adjusted accordingly. Goodwill and
other intangible assets having an indefinite useful life will be tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the assets might be impaired, using a two-step impairment

assessment. The first step of the goodwill impairment test compares the fair
value of a reporting unit with its carrying amount, including goodwill. If the
fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered impaired, and the second step of the impairment
test is not necessary. If the carrying amount of a reporting unit exceeds its
fair value, the second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any. The Company adopted the
provisions of SFAS 142 on April 1, 2002 and completed the first step of the
two-step impairment test. There was no impairment charge upon completion of the
impairment review. The Company's consolidated results of operations will be
impacted with the adoption of SFAS 142, when approximately $23,000 in annual
amortization will cease.

Also in June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations, which requires that the fair value of the liability for asset
retirement costs be recognized in an entity's balance sheet, as both a liability
and an increase in the carrying value of such assets, in the periods in which
such liabilities can be reasonably estimated. It also requires allocation of
such asset retirement cost to expense over its useful life. This Statement is
effective for fiscal years beginning after June 15, 2002. The Company has
determined the impact of this Statement on its consolidated financial position
or results of operations is not material.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS 144
supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of and related literature and establishes a
single accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by sale. The Company implemented the
provisions of SFAS 144 as required on January 1, 2002. The adoption did not have
a material effect on the Company's consolidated financial position or
consolidated results of operations.

In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections",
to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
are similar to sale-leaseback transactions. The statement also amends other
existing pronouncements. This statement is effective for fiscal years beginning
after May 15, 2002. The impact of adopting this statement on the consolidated
financial position or results of operations will not be material.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which addresses accounting and reporting for
costs associated with exit and disposal activities and replaces Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". This Statement is effective for exit or
disposal activities that are initiated after December 31, 2002. The impact of
adopting this statement on the consolidated financial position or results of
operations will not be material.

Effective July 30, 2002, the Sarbarnes-Oxley Act of 2002 (the "Act") was signed
into law. The Act encompasses a broad range of new legislation designed to
increase accountability of public companies and investor confidence. The Act
establishes a new regulatory body, the "Public Company Accounting Oversight
Board", under the auspices of the Securities and Exchange Commission (the "SEC")
to oversee audits of companies offering equity or debt securities to the public,
and further regulates and redefines the relationship between a registered public
accounting firm and its audit clients. The Act establishes new disclosure
requirement for public companies, financial certification standards for public
company CEOs and CFOs restriction on the ability of officers and directors to

engage in certain types of transactions, accelerated reporting of certain types
of transactions and new rules of analysts. In addition, the Act enhances a
number of criminal penalties and enforcement measures available for securities
related offenses. The SEC was directed to study and issue final rules to
implement a number of directives contained in the Act, and some of the ensuing
rules are discussed below.

In August 2002, among other matters, the SEC adopted amendments to accelerate
filing deadlines for certain public reports, and adopted new rules to implement
Section 302 of the Act pertaining to financial statement certification and
clarify disclosure controls and procedures. The Company is not subject to the
accelerated filing deadlines at this time due to its size, however, it is
subject to the financial statement certification and disclosure control rules.
The Company intends to fully comply with all applicable new rules as they become
effective.

In December 2002, the FASB issued SFAS No. 148. "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
SFAS No. 123 of the same name to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
This statement is effective for fiscal years and interim periods ending after
December 15, 2002 and the Company has implemented it effective with this filing.
The Company intends to continue using the intrinsic method of accounting for
stock-based compensation first allowed under APB Option No. 25, "Accounting for
Stock Issued to Employees". Therefore, the impact of adopting SFAS No. 148 on
the consolidated financial statements of the Company is limited to the expanded
disclosure requirements of the statement.

In January 2003, the SEC adopted rules implementing Sections 406 and 407 of the
Act. Section 406 of the Act requires public companies to annually disclose
whether the company has adopted a code of ethics for its principal executive and
financial officers, and if it has not, to explain why it has not. Additionally,
the rules will required disclosure on a Form 8-K filing any amendments to or
waivers from the code of ethics relating to those officers. Section 407 of the
Act required public companies to disclose annually whether it has at least one
"audit committee financial expert", as defined in the rules, on the Company's
audit committee, and if so, the name of the audit committee financial expert and
whether the expert is independent of management. A company that does not have an
audit committee financial expert will be required to disclose this fact and
explain why it has no such expert. Both rules are effective for small business
issuers' annual reports for fiscal years ending on or after December 15, 2003.
The Company intends to comply with these rules on a timely basis.

Also in January 2003, the SEC adopted rules implementing section 401(a) of the
Act, which required public companies to disclose "all material off-balance sheet
financing transactions, arrangements, obligations (including contingent
obligations), and other relationships of the issuer with consolidated entities
or other persons, that may have a material current or future effect on financial
condition, changes in financial condition, results of operations, liquidity,
capital expenditures, capital resources, or significant components of revenues
or expenses." The rules require an additional section in Management's Discussion
and Analysis for the presentation of this new disclosure, and there are
additional rules for companies that are not small business issuers. The rules
are effective for interim and annual filings for periods ending on or after June
15, 2003. The impact of adopting this statement on the consolidated financial
position or results of operations will not be material

9.Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.

NOTE B - BANKRUPTCY AND REORGANIZATION

As a result of numerous events, on November 7, 1997 (the Filing Date), the
Predecessor Company filed a voluntary petition for reorganization in the United
States Bankruptcy Court for the District of Kansas (Bankruptcy Court) under
Chapter 11 of the United States Bankruptcy Code (Bankruptcy Code). On November
13, 1998, the Bankruptcy Court confirmed the Company's First Amended Joint Plan
of Reorganization (the Plan) dated July 29, 1998. Until February 19, 1999, the
Company operated its business as debtor in possession. On February 19, 1999 (the
effective date), all material conditions precedent to the Plan becoming binding
were resolved, the Plan became effective, and the following provisions of the
Plan commenced:

Argus Investment Group, Inc. (Argus) formerly First Mortgage Investment Co.
(FMIC), a creditor of the Company, released its secured claims against, and
acquired certain assets in exchange for 1,800,000 shares of Company common stock
of the Company; these shares initially constituted 60% of the 3,000,000 new
shares issued as part of the Company's recapitalization and reorganization and
an option to acquire an additional 3,000,000 shares at $.50 per share or
$1,500,000. Argus is controlled by Phillip J. Holtgraves, a member of the Board
of Directors of the Company and the father of Charles A. Holtgraves, the
Company's Chairman and President.

The Company issued shares of common stock and warrants and made partial payments
to certain other creditors in exchange for a release of their claims. The
creditors received 900,000 shares of Company common stock; these shares
constituted 30% of the 3,000,000 new shares issued as a part of the Company's
recapitalization and reorganization. The creditors also received 900,000
warrants each of which allowed the holder to purchase one share of common stock
per warrant at a price of $1.25. The warrants are callable by the Company at
130% of the strike price and expired on March 31, 2002.

Shares held by preferred and common stockholders of the Predecessor Company were
canceled; these stockholders received 300,000 shares of new Company common
stock, constituting 10% of the 3,000,000 new shares issued as part of the
Company's recapitalization and reorganization.

NOTE C - ACQUISITIONS AND AGREEMENTS

1. AIH Services, Inc.

On November 15, 1999, Cannon purchased certain assets of AIH Services, Inc.
Cannon paid a negotiated purchase price of $210,000, less cash received of
$38,154, which purchase price was paid in three non-interest-bearing
installments during the year ended March 31, 2000. The funds used to purchase
the AIH assets were loaned to Cannon by Argus. The assets included principally

furniture, equipment, and customer lists. Based on management's estimate of
relative fair market values, $100,000 of the purchase price was allocated to
furniture and equipment; the remainder was allocated to customer lists.

2. AFI Capital Corporation Agreement

In July 2001, the Company entered into a four-year agreement with AFI Capital
Corporation (Capital), a Nebraska corporation. Pursuant to the agreement,
Capital will provide financial, acquisition, and general public company business
consulting services. Compensation for such services will be based on a
successful-efforts basis and will consist primarily of the Company's common
equity. The proposed acquisition transaction discussed in the following
paragraph is subject to the terms and conditions of this agreement, wherein
Capital will be compensated for the successful completion of the acquisition.
Larry J. Horbach, who was appointed assistant secretary of the Company, and
elected to fill a vacant Company director position in March 2003, is the
president and a director of AFI Capital Corporation.

3. Allen Drilling Acquisition Company Agreement

On June 7, 2001, the Company executed a Letter of Intent, which Letter of Intent
was amended in February 2002, to acquire, through a wholly owned subsidiary,
100% of the Common Stock of a private company in the energy field services (
primarily natural gas) industry. On April 22, 2002, the Company executed a
definitive Stock Purchase Agreement, the closing of which was subject to several
conditions. As a result of a material adverse change in the operating results
for the company to be acquired ( which results were generally consistent with
other companies in the same industry), the transaction did not close. The
parties, by mutual agreement, continued to leave the definitive agreement open,
and $75,000 of escrow deposits in place in anticipation of a turn around in the
industry. During the second quarter of fiscal year 2003, with the prices of
natural gas at unusual highs along with predicted natural gas production
shortfalls for sometime in the future, the anticipated industry turn occurred.
The Company intends to pursue the closing of the transaction, however the
closing will depend upon the availability of adequate financing at reasonable
rates and a favorable re-valuation of the field services company's fixed assets.

With the proposed transaction under the April 22, 2002 agreement, the completion
of the Madisonville Project as described in NOTE F- SUBSEQUENT EVENTS and the
pending venture with Gateway, the Company has determined that the ability to
generate long-term value for the common shareholders could be enhanced if the
present Company operations, (as described under the NATURE OF THE COMPANY'S
BUSINESS) were sold. The Company would then concentrate its growth efforts in
the energy industry. Negotiations have been entered into with an entity
controlled by the Company's principal creditor and majority stockholder, Argus,
wherein these operations would be exchanged for the debt held by Argus. The
Board of Directors has engaged an investment banking firm (Morgan Stanley) to
determine the fair market value as of September 30, 2003, of the operations to
be sold. The transaction is anticipated to result in a gain to the Company.

Upon completion of the transaction, the Company intends to amend its Certificate
of Incorporation to effect a 1 for 3 reverse stock split and a name change.

Argus, the holder of over 71% of the presently outstanding common stock of the
Company has indicated its intent to vote in favor of the above transactions.

NOTE D - NOTES PAYABLE

At June 30 Notes Payable consisted of the following:

Due ARGUS, $875,747 interest at prime, due on demand, secured by
substantially all of he Company's assets.

Due AFI Capital Corporation, $75,000, interest at 8%, unsecured, due on
demand.

Due bank, $92,302 under a $100,000 Line of Credit, interest at 2% over
prime, unsecured, due March 31, 2004.

NOTE E - ACCOUNTS PAYABLE - RELATED PARTY

Accounts payable - related party consisted of amounts advanced to the Company by
ARGUS and AFI Capital. No interest or repayment terms exist.

NOTE F - SUBSEQUENT EVENTS

On April 30, 2003, the Company announced the closing of an Agreement with
Gateway Energy Corporation and certain of its subsidiaries of Houston, Texas
("Gateway") under which it provided, through the Company's wholly-owned
subsidiary, Allen Drilling Acquisition Company ("ADAC"), $900,000 of credit
enhancements in the form of Letters of Credit. These credit enhancements enabled
Gateway to obtain additional financing, in the form of a three year Balloon Note
from a Houston bank to complete the construction of certain natural gas pipeline
facilities ("Pipeline Facilities") located in Madison County, Texas, (The
"Madisonville Project"). ADAC secured the Letters of Credit through the private
placement of a new series of preferred stock (the "Series A"), to two investor
groups. The Certificate of Designation for the Series A provides, among other
things, for dividend payments to the named holders thereof, equal to sixty-six
and two thirds, (66.67%) of distributions received by ADAC from Gateway, and an
unanimous vote of the Series A to exercise the Equity Participation Option as
further described below.

The Agreement provides, among other things, that ADAC will receive, during the
term of the additional financing, one-half (50%) of the price upside portion
only, if any, of the monthly fee to be received by Gateway from the Madisonville
Project. The Agreement also provides that ADAC will have the option to either:
(i) receive at the end of the Balloon Note term a lump-sum payment, which when
added to the payments received, if any, for the price upside portion, will
result in a 15% pre-tax internal rate of return on the $900,000, or (ii) to
exercise the Equity Participation Option by paying off the Balloon Note on or
before the end of the Balloon Note term in exchange for a thirty-three and
one-third (33.33%) ownership interest in the Pipeline Facilities from that date
forward. Gateway is obligated to pay the periodic interest payments on the
Balloon Note during the three year term of the Balloon Note. Further, Gateway
has granted liens to ADAC, subordinate to its banks, on its economic interest in
the Madisonville Project and certain other natural gas operating systems and
natural gas operating assets. The Agreement contains cross collateral and cross
default provisions linking it to an additional Gateway term note at the same
bank, the proceeds of which were used by Gateway to fund the Madisonville
Project.

The Madisonville Project is operated under a long-term agreement between
Gateway, Hanover Compression Limited Partnership, and Redwood Energy Production,
L. P. and is designed to treat gas to remove impurities from the gas to enable
the gas to meet pipeline sales quality specifications. The Madisonville Project
employs the state-of-the-art, patented, absorption based technology developed by
Advanced Extraction Technologies, Inc., for which Gateway has the exclusive U.
S. license, to remove nitrogen from the gas.

NOTE G - GOING CONCERN

The accompanying consolidated financial statements have been prepared on going
concern basis, which contemplates the Company's continuity of operations,
realization of assets, and liquidation of liabilities in the ordinary course of
business. These statements do not reflect adjustments that might result if the
Company is unable to continue as a going concern. As a result of continued poor
operating performance such matters are subject to significant uncertainty. As
set forth in NOTE F-SUBSEQUENT EVENTS, the Company, in fiscal year 2004, has
closed an initial investment in the oil and gas industry with Gateway Energy
Corporation of Houston, Texas (the Madisonville Project). The Company intends to
continue investing in the oil and gas industry through a field services
acquisition, as is described in Note B. In addition, the Company, as of the
filing of this Annual Report, has entered into negotiations to participate in an
additional venture with Gateway Energy Corporation, which project has an
anticipated closing late in the calendar year 2003. Management believes this
industry and the future acquisitions and project ventures with Gateway Energy
could bring profits and capital to sustain future growth and operations.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

GENERAL
- -------

As described in ITEM 1 hereof, the Company's Plan of Reorganization was
confirmed by the United States Bankruptcy Court on November 13, 1998 and became
effective on February 19, 1999. In accordance with the American Institute of
Certified Public Accountants Statement Position No. 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, the Company accounted for
the reorganization using "Fresh-Start Reporting," whereby all remaining assets
and liabilities were adjusted to their fair market values as of February 19,
1999.

The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report.

This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, competition, which has and will continue to put
price pressure on the Company's third party collection business, the cost and
availability of capital to finance its portfolio receivables, and overall
macro-economic conditions.

RESULTS OF OPERATIONS
- ---------------------
Three Month's Ended June 30, 2002
- ----------------------------------

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

The Company had a nominal cash balance at June 30, 2002 of $69. The Company's
working capital requirements are being funded by Argus Investment Group, Inc.
("ARGUS ") the Company's majority shareholder, On February 5, 1999, ARGUS agreed
to make available to the Company a line of credit in the amount of $875,000 for
five years with an interest rate of 7% annually. This line of credit was used to
acquire charged off credit card debt. During the year ended March 31, 2001, the
maximum was reached under the line of credit and Argus converted such amount to
common stock and entered into a series of 7% demand secured notes with the
Company and advances. The balance due under the secured notes at June 30, 2002
was $875,747, and $364,740 under the advances.

As of June 30, 2002, the Company's total assets were $484,855 and stockholders'
equity was a deficit of $1,169,150. Argus has agreed to provide funding as and
when required by the Company to meet its cash flow requirements through two
lines of credit.

Operations
- ----------

Consolidated operations for the quarter ended June 30, 2002 resulted in a net
loss of $142,379 on collection, servicing and fee gross income of $290,225.
Revenues from the collection of the Company's portfolio receivables are
recognized only after the cost of such portfolios has been recovered. During the
period, the Company recovered $67,597 from its portfolio receivables of which
$18,800 was applied to reduce the carrying value of its finance receivables
asset leaving a portfolio carrying value of $70,099. As of June 30, 2002, the
remaining outstanding balance of the receivables portfolio was approximately
$14,000,000.

Operating expenses, including general and administrative costs, for the quarter
ended June 30, 2002, were $372,252 compared to $394,715 for the same period in
2001. which was a decrease of 6% for the similar period in 2000. The reduction
was primarily a reflection of a reduction in payroll resulting from a
re-organization of various employee departments.

During the quarter the Company provided a reserve of $75,000 with respect to an
escrow deposit for an earnest deposit on a possible acquisition transaction as
there is no assurance that the delayed transaction can be closed under the
existing contract terms.

RESULTS OF OPERATIONS
- ---------------------
Three Month's Ended June 30, 2001
- ----------------------------------

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

The Company had a deficit cash balance at June 30, 2001 of $21,149. The
Company's deficit cash balance and working capital requirements are being funded
by Argus Investment Group, Inc. ("ARGUS ") the Company's majority shareholder,
On February 5, 1999, ARGUS agreed to make available to the Company a line of
credit in the amount of $875,000 for five years with an interest rate of 7%
annually. This line of credit was used to acquire charged off credit card debt.
During the year ended March 31, 2001, the maximum was reached under the line of
credit and Argus converted such amount to common stock and entered into a series
of 7% demand secured notes with the Company and advances. The balance due under
the secured notes at June 30, 2001 was 651,930, and $205,840 under the advances.

As of June 30, 2001, the Company's total assets were $691,533 and stockholders'
equity was a deficit of $668,807. Argus has agreed to provide funding as and
when required by the Company to meet its cash flow requirements through two
lines of credit totaling $1,040,000.

Operations

Consolidated operations for the quarter ended June 30, 2001 resulted in a net
loss of $137,814 on collection, servicing and fee gross income of $303,392.
Revenues from the collection of the Company's portfolio receivables are
recognized only after the cost of such portfolios has been recovered. During the
period, the Company recovered $30,901 from its portfolio receivables of which
$11,103 was applied to reduce the carrying value of its finance receivables
asset leaving a portfolio carrying value of $224,704. As of June 30, 2001, the
remaining outstanding balance of the receivables portfolio was approximately
$14,000,000.

Operating expenses, including general and administrative costs, for the quarter
ended June 30, 2001, were $394,715. which was an estimated decrease of over 25%
for the similar period in 2000. The reduction was primarily a reflection of a
reduction in payroll resulting from a re-organization of various employee
departments.

Part II

Item 1. Legal Proceedings
None

Item 2. Changes in Securities
None

Item 3. Defaults Upon Senior Securities
None

Item 4. Submission of Matters to a Vote of Security Holders
None

Item 5. Exhibits and Reports on Form 8-K

(a) Exhibits

31 Certification Pursuant to Rule 13a or 15d-14 of the
Securities Exchange Act of 1934, As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

32 Certification Pursuant to Rule 13a or 15d-14 of the
Securities Exchange Act of 1934, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

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: 11-21-03 By: /s/ Charles A. Holtgraves
-------- --------------------------------
Charles A. Holtgraves
Chairman, President, and
Treasurer