UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 
 [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended January 31, 2004
 
 [  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from _______________ to _______________.
 
 
 Commission file number O-24512
  
 Anza Capital, Inc.
(Exact name of registrant as specified in its charter)****
**Nevada**
(State or other jurisdiction of
incorporation or organization)
****
**88-1273503**
(I.R.S. Employer
Identification No.)**3200 Bristol Street, Suite 700**
**Costa Mesa, CA**
(Address of principal executive offices)
**92626**
(Zip Code) 
 Registrants telephone number, including area code (714) 866-2100
  _X_
 
 _X_
 
 Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
  
 
 Applicable only to corporate issuers
 
  
   ANZA CAPITAL, INC.
  TABLE OF CONTENTS
 
  PART IITEM 1
Financial Statements
3ITEM 2
Managements Discussion and Analysis
15ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
27ITEM 4
Controls and Procedures
27PART IIITEM 1
Legal Proceedings
29ITEM 2
Changes in Securities and Use of Proceeds
29ITEM 3
Defaults Upon Senior Securities
30ITEM 4
Submission of Matters to a Vote of Security Holders
30ITEM 5
Other Information
30ITEM 6
Exhibits and Reports on Form 8-K
28


2


PART I
 
  
  
 ITEM 1  Financial Statements
 
 3
  ANZA CAPITAL, INC.
 AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEET S
 January 31, 2004
April 30, 2003(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
3,829,939

$
2,755,659Commissions and accounts receivable


1,629,806


2,512,741Loans held for sale, net


1,926,480


7,601,623Secured note receivable, current portion


30,000


-Prepaids and other current assets


72,597


76,748Total current assets


7,488,822


12,946,771Property and equipment, net


341,468


253,723Goodwill


-


195,247Secured note receivable


150,000


-Other assets


63,910


22,879$
8,044,200

$
13,418,620LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
425,428

$
677,951Commissions payable


3,234,361


2,687,511Warehouse line of credit


1,901,667


7,514,209Accrued liabilities


622,410


532,337Other current liabilities


386,825


75,601Total current liabilities


6,570,691


11,487,609Stockholders equity:Preferred stock, 2,500,000 shares authorized:Class D convertible preferred stock, no par value; liquidation
value of $126.81 per share; 15,000 shares authorized; 8,201.5
shares outstanding as of January 31, 2004 and April 30, 2003


1,040,222


1,040,222Class E convertible preferred stock, no par value; liquidation
value of $1.00 per share; 250,000 shares authorized; 149,593
and 217,278 shares issued and outstanding as of January 31, 2004
and April 30, 2003, respectively


149,593


217,278Class F convertible preferred stock, no par value; liquidation
value of $16.675 per share; 25,000 shares authorized, 18,800
shares issued and outstanding as of January 31, 2004 and April 30,
2003


313,490


313,490Common stock, $0.001 par value; 100,000,000 shares
authorized; 8,967,460 and 4,967,460 shares issued at
January 31, 2004 and April 30, 3003, respectively, and
4,829,960 shares outstanding as of January 31, 2004
and April 30, 2003


4,830


4,830Additional paid-in capital


13,639,114


13,639,114Accumulated deficit


(13,673,740
)

(13,283,923
)Total stockholders equity


1,473,509


1,931,011$
8,044,200

$
13,418,620
  
 4
    ANZA CAPITAL, INC.
 AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 
 
 Three Months Ended
Nine Months EndedJanuary 31, 2004
January 31, 2003
January 31, 2004
January 31, 2003Revenues:Broker commissions

$
12,431,253

$
14,785,313

$
46,858,850

$
40,546,084Sales of loans, net


97,897


140,921


208,516


205,950Notary and other


171,194


387,173


1,638,754


1,117,84112,700,344


15,313,407


48,706,120


41,869,875Cost of revenues:Broker commissions


8,094,274


9,825,448


32,359,506


28,829,652Notary and other


136,499


251,462


1,015,000


739,4288,230,773


10,076,910


33,374,506


29,569,080Gross profit


4,469,571


5,236,497


15,331,614


12,300,795Operating expenses:General and administrative


2,203,282


2,652,752


7,061,770


5,302,651Salaries and wages


2,525,064


1,955,153


8,168,243


5,346,746Selling and marketing


91,448


207,485


304,507


551,546Impairment of goodwill


195,247


-


195,247


150,0005,015,041


4,815,390


15,729,767


11,350,943Operating income (loss)


(545,470
)

421,107


(398,153
)

949,852Interest expense


(37,004
)

(38,477
)

(336,261
)

(103,085
)Interest income


61,556


41,371


359,700


96,258Net income (loss)

$
(520,918
)
$
424,001

$
(374,714
)
$
943,025Earnings (loss) per common share:Basic:Weighted average number of common shares


4,829,960


2,752,442


4,829,960


2,336,113Net income (loss) per common share

$
(0.11
)
$
0.15

$
(0.08
)
$
0.40Diluted:Weighted average number of common shares


4,829,960


8,027,033


4,829,960


7,610,705Net income (loss) per common share

$
(0.11
)
$
0.05

$
(0.08
)
$
0.12
 
  See accompanying notes
 5
 
  ANZA CAPITAL, INC.
 AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months
Ended
January 31, 2004
Nine Months
Ended
January 31, 2003Cash flows from operating activities:Net income (loss)

$
(374,714
)
$
943,025Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Depreciation


38,055


31,494Stock-based compensation


-


173,234Impairment of goodwill


195,247


150,000Gain on settlement of obligations


-


(51,543
)Amortization of discounts on loans


-


30,726Amortization of deferred stock compensation


-


57,958Provision for losses on brokered loans


-


350,000Changes in operating assets and liabilities:Decrease in commissions and accounts receivable


882,935


48,528Decrease in loans held for sale, net


5,675,143


1,001,225Decrease (increase) in prepaid and other current assets


4,151


(276,297
)(Decrease) increase in accounts payable


(252,523
)

743,198Increase in commissions payable


546,850


972,865Increase in accrued liabilities


90,073


13,587Increase (decrease) in other current liabilities


311,224


(30,272
)Net cash provided by operating activities


7,116,441


4,157,728Cash flows from investing activities:Acquisitions of property and equipment


(125,800
)

(49,004
)Net issuance of secured note receivable


(180,000
)

-Other assets


(41,031
)

(5,819
)Net cash used in investing activities


(346,831
)

(54,823
)Cash flows from financing activities:Payments on bridge loan


-


(200,000
)Net repayments on warehouse line of credit


(5,612,542
)

(982,184
)Repurchase of Class E Preferred Stock


(67,685
)

(20,423
)Dividends on Class E Preferred Stock


(15,103
)

(21,995
)Payments on capital lease obligation


-


(18,420
)Net cash used in financing activities


(5,695,330
)

(1,243,022
)Net increase in cash and cash equivalents


1,074,280


2,859,883Cash and cash equivalents at beginning of period


2,755,659


707,851Cash and cash equivalents at end of period

$
3,829,939

$
3,567,734Non-cash financing activities:Conversion of Class C Preferred Stock to common stock

$
-

$
122,950Supplemental cash flow information:Cash paid for interest

$
324,448

$
27,937Income taxes were not significant during the periods presented
   6
  NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
 Note 1. Unaudited interim consolidated financial statements
 
  
 Note 2. Liquidity, Risks and Uncertainties
 
  
  
  
  
 7
 
 Note 3. Impact of recently issued accounting statements
 
  
  
 Note 4. Reclassifications
 
    Three Months Ended January 31, 2003As Originally Filed
As Reclassified
DifferenceBroker commissions

$
14,926,234

$
14,785,313

$
(140,921
)Sales of loans, net


-


140,921


140,921General and administrative expenses


3,267,501


2,652,752


(614,749
)Salaries and wages expenses


1,547,889


1,955,153


407,264Selling and marketing expenses


-


207,485


207,485
  Nine Months Ended January 31, 2003As Originally Filed
As Reclassified
DifferenceBroker commissions

$
40,752,034

$
40,546,084

$
(205,950
)Sales of loans, net


-


205,950


205,950General and administrative expenses


6,465,093


5,302,651


(1,162,442
)Salaries and wages expenses


4,735,850


5,346,746


610,896Selling and marketing expenses


-


551,546


551,546
 
 8
    Note 5. Segment disclosure
 
    
 For the three months ended January 31, 2004 and 2003Revenues
Net Income (loss)
Assets2004
2003
2004
2003
2004
2003Loan brokering

$
12,431

$
14,786

$
15

$
721

$
5,726

$
5,724Mortgage banking


98


140


(131
)

128


1,927


68Notary Services


78


256


(207
)

57


35


197Real Estate Brokerage


93


131


(12
)

(4
)

4


8$
12,700

$
15,313


(335
)

902


7,692


4,962Corporate








(186
)

(478
)

352


783Total







$
(521
)
$
424

$
8,044

$
5,745
 
  
 For the nine months ended January 31, 2004 and 2003Revenues
Net Income (loss)2004
2003
2004
2003Loan brokering

$
46,859

$
40,546

$
326

$
1,424Mortgage banking


209


206


(213
)

155Notary Services


1,223


646


127


126Real Estate Brokerage


415


472


(1
)

(6
)$
48,706

$
41,870


239


1,699Corporate








(614
)

(756
)Total







$
(375
)
$
943
 
  9 Note 6. Loans Held for Sale
 
  
 January 31, 2004
April 30, 2003(Unaudited)Loans Range

Number
of Loans
Total Loan
Amount
Average
Interest Rate
Number of
Loans
Total Loan
Amount
Average
Interest Rate$10,000 to $100,000


7

$
332,100


9.59
%

9

$
533,712


9.33
%$100,001 to $200,000


4


544,660


7.63
%

11


1,677,968


5.89
%$200,001 to $300,000


1


250,000


6.00
%

5


1,181,350


5.63
%$300,001 to $400,000


1


315,000


6.87
%

4


1,356,800


5.63
%Over $400,000


1


484,720


6.38
%

6


2,851,793


5.81
%Total


14

$
1,926,480





35

$
7,601,623
 
 
 Note 7. Goodwill
 
  
 Note 8. Warehouse Line of Credit
 
  10 
 Note 9. Accrued Liabilities
 
  
 January 31, 2004
April 30, 2003(unaudited)Accrued loss contingencies

$
403,500

$
300,000Accrued salaries and benefits


117,997


143,645Accrued losses for state audits


36,200


-Accrued professional fees


52,900


71,210Accrued interest


11,813


17,482$
622,410

$
532,337
 
 Note 10. Per Share Information
 
  
 Note 11 . Contingencies
 
  
  
  
 11
   
  
  
  
  
  
  
  
  
  
 12  
  
  
  
  
 Note 12. Stockholders Equity
 
  
 13  
  
  
  
  
  
  
  
 Note 13. Secured Note Receivable
 
   14
 
  ITEM 2  Managements Discussion and Analysis
 
 The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. The following discussion should be read together with our financial statements and the notes to those financial statements included elsewhere in this Quarterly report.
 
 Except for historical information, the materials contained in this Managements Discussion and Analysis are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and involve a number of risks and uncertainties. These include the Companys historical losses, the need to manage its growth, general economic downturns, intense competition in the financial services and mortgage banking industries, seasonality of quarterly results, and other risks detailed from time to time in the Companys filings with the Securities and Exchange Commission. Although forward-looking statements in this Quarterly report reflect the good faith judgment of management, such statements can only be based on facts and factors currently known by the Company. Consequently, forward-looking statements are inherently subject to risks and uncertainties, actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by the Company in this Quarterly report, as an attempt to advise interested parties of the risks and factors that may affect the Companys business, financial condition, and results of operations and prospects.
 
 OVERVIEW
 
 We are a holding company which currently operates primarily through two (2) active subsidiaries.
 
 · American Residential Funding, Inc. , a Nevada Corporation ( AMRES) provides home financing through loan brokerage and banking.
 
 · Bravo Realty.com ,  a Nevada Corporation ( Bravo ), is a real estate sales company focused solely in California. Bravo has had limited operations over the last two years.
 
 Inactive Subsidiaries
 
 · Expidoc.Com , a California Corporation ( Expidoc ) arranges for notaries to provide document signing services for lenders across the country.
 
 Effective January 31, 2004, we suspended operations at Expidoc. This decision was a result of a sudden shift in customer mix, as Expidocs largest customer (Ditech.com) ceased using Expidoc as a third party provider of notary services. This event may have a significant impact on our profitability in future periods as Expidoc contributed in-excess of $127,000 net profit during the first three fiscal quarters of the current year. We are still assessing our options to proceed with Expidoc, however, we determined that the remaining goodwill related to our acquisition of Expidoc was impaired, and thus recorded an impairment charge in the amount of $175,247 during the current quarter. If we are unable to operate Expidoc in future periods at similar revenue levels, we will become even more dependant on AMRES to generate revenue and profits.
 
 15
  · Titus Real Estate LLC , a California limited liability company ( Titus Real Estate ) and Bravo Real Estate Services, Inc. ( Bravo Real Estate Network ) are currently non-operational.
 
 As shown below, AMRES has consistently provided the majority of our consolidated revenue. The industry in which AMRES operates can be highly volatile and is largely dependent on interest rates.
 
 Percentage of Total Revenues by Service
 
 % YTD Revenue
January 31, 2004
% YTD Revenue
January 31, 2003Loan Brokering


96.7
%

97.3
%Notary Services


2.5
%

1.5
%Real Estate Services


0.8
%

1.2
%Total


100
%

100
%
  The Mortgage Banking Association expects a decline in refinancing to $434 billion in 2004 versus $2.19 trillion in 2003. Brokerage activities are greatly influenced by changes in interest rates and comprise substantially all of the revenues of AMRES. As rates appear to have bottomed in late June 2003, AMRES has seen a significant drop in loan applications for refinancing compared to prior periods. Refinancing currently accounts for about 40% of our total loan production. This, coupled with seasonal declines, is the primary reason for our revenue declines in recent quarters compared to prior periods.
 
 Traditionally, we have experienced increases in our business during the spring and summer when home sales are at their highest levels. Loan production in our highest month of July 2003 totaled 1,394 loans. With loan production currently around 640 loans per month, and without the effect of offsetting measures, business may drop to an estimated 600 loans per month or lower.
 
 If we are unable to generate additional sources of revenue, our quarterly results will continue to fluctuate and it may be difficult for us to sustain profitable operations. AMRES is establishing various business initiatives to reduce its reliance on the refinancing market. These initiatives include:
 
 · Expanding its mortgage banking operations, with emphasis on sub-prime lending, as there is a higher level of profitability delivered from banking these loans compared to brokering these loans. This initiative includes establishing a wholesale operation, which would allow AMRES to fund loans brokered by other companies.
 
 · Building strategic alliances with other business models such as loan lead generators, builders, realtors and trade associations.
 
 · Promoting more direct-to-consumer lending, through marketing, with products that are less sensitive to fluctuations in interest rates, such as home equity loans, construction loans and sub-prime loans. Areas we will explore for expansion include Loancomp.com Loan.com, maxrelo.com, builder business, Lending Tree and joint ventures with other sources of loans such as debt counselors, realtor associations and affinity groups.
 
 16
  · Continuing to solicit new branches to join our network, especially those branch operations that are purchase-home sensitive.
 
 ·
 
  
  
  
  
  
 17
   
  
 CRITICAL ACCOUNTING POLICIES
 
  
 Loans Held for Sale
 
  
 18
  Fair Value of Assets Acquired and Liabilities Assumed In Purchase Combinations and Review for Impairments
 
  
 Valuation of Long-Lived and Intangible Assets
 
  
 Income Taxes
 
  
 19
 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2004 COMPARED TO THE THREE MONTHS ENDED JANUARY 31, 2003
 
 INTRODUCTION
 
  
 
 Period Ended
January 31, 2004
Period Ended
January 31, 2003
Dollar Change
% ChangeRevenues

$
12,700,344

$
15,313,407

$
(2,613,063
)

(17.1
%)Gross Profit %


35.2
%

34.2
%

N/A


1.0
%G&A Expenses


2,203,282


2,652,752


(449,470
)

(16.9
%)Compensation Expense


2,525,064


1,955,153


569,911


29.2
%Net Income (Loss)


(520,918
)

424,001


(944,919
)

(222.9
%)
 
 Revenues
 
  
  
  
 Costs of Revenues
 
  
 20
   
 General and Administrative Expenses
 
  
 Salaries and Wages
 
  
 Selling and Marketing Expense
 
  
 Goodwill Impairment
 
  
 21
  Interest Expense
 
  
 Income Taxes
 
  
 Net Loss
 
  
 RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JANUARY 31, 2004 COMPARED TO THE NINE MONTHS ENDED JANUARY 31, 2003
 
 INTRODUCTION
 
  
 Period Ended
January 31, 2004
Period Ended
January 31, 2003
Dollar Change
% ChangeRevenues

$
48,706,120

$
41,869,875

$
6,836,245


16.3
%Gross Profit %


31.5
%

29.4
%

N/A


2.1
%G&A Expenses


7,061,770


5,302,651


1,759,119


33.2
%Compensation Expense


8,168,243


5,346,746


2,821,497


52.8
%Net Income (Loss)


(374,714
)

943,025


(1,317,739
)

(139.7
%)
 
 22
  Revenues
 
  
  
  
  
 Costs of Revenues
 
  
  
 23
  General and Administrative Expenses
 
 .
 
  
 Salaries and Wages
 
  
 Selling and Marketing Expense
 
  
 24
  Goodwill Impairment
 
  
 Interest Expense
 
  
 Interest Income
 
 
 
 Income Taxes
 
  
 Net Loss
 
  
 25
 LIQUIDITY AND CAPITAL RESOURCES
 
 INTRODUCTION
 
  
 Cash Flows
 
  
  
  
 Liquidity
 
  
 26
   
 Interest Rates
 
  
 Seasonality
 
  
 ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
 
  
  
 27
  ITEM 4  Controls and Procedures
 
   28
 
 PART II
 
 ITEM 1  Legal Proceedings
 
 Oaktree Funding
 
  
 Former Employees
 
  
 Re-Opening of Matter with The Department of Housing and Urban Development
 
  
  
 Other Proceedings
 
  
 ITEM 2  Changes in Securities and Use of Proceeds
 
  
 29 
 ITEM 3  Defaults Upon Senior Securities
 
  
 ITEM 4  Submission of Matters to a Vote of Security Holders
 
 
 
 ITEM 5  Other Information
 
  
 ITEM 6  Exhibits and Reports on Form 8-K
  
 
 3.1 (1)

Restated Articles of Incorporation, as filed with the Nevada Secretary of State on April 14, 2003.3.2 (1)

Second Restated Bylaws of Anza Capital, Inc.4.1 (1)

Certificate of Designation for Series D Convertible Preferred Stock4.2 (1)

Certificate of Designation for Series E Convertible Preferred Stock4.3 (1)

Certificate of Designation for Series F Convertible Preferred Stock10.1 (2)

Mutual Rescission of Securities Exchange Agreement dated December 18, 200310.2

Amended and Restated Certificate of Designation for Series A Preferred Stock of American Residential Funding, Inc.31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1

Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 
 
 
 30
  
 
 
 
  
 
 SIGNATURES
 
  
 
 
 Dated: March 19, 2004______/s/ Vincent Rinehart________________By:
Vincent RinehartIts:
President, Chairman, Chief
Executive Officer, Chief
Financial Officer, Chief
Accounting Officer, and
Director
 
 31