U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-QSB

                                   (Mark One)

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

                  For the fiscal period ended October 31, 2004

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

       For the transition period from __________________ to ______________

                         Commission file number: 1-14219

                      Transnational Financial Network, Inc
                      ------------------------------------
        (Exact name of small business issuer as specified in its charter)

         California                                     94-2964195
------------------------------------------------------------------------------
(State or other jurisdiction of               (IRS Employer Identification No.)
incorporation or organization)


      401 Taraval Street, San Francisco, CA                        94116
-------------------------------------------------------------------------------
(Address of principal executive offices)                        (Zip Code)

                                 (415) 242-7800
                        --------------------------------
                         (Registrant's telephone number)


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



                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of December 9, 2004: 6,791,360




<PAGE>






                      TRANSNATIONAL FINANCIAL NETWORK, INC.

                                October 31, 2004

                                    UNAUDITED




TABLE OF CONTENTS                                                   PAGE NUMBER


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Balance Sheets as of October 31, 2004
         (Unaudited) and April 30, 2004 ..................................2

         Condensed Statements of Operations for the  Three and
         Six Months Ended October 31, 2004 and 2003.......................3

         Condensed Statements of Cash Flows for the Six Months
         Ended October 31, 2004 and 2003..................................4

         Notes to Condensed Financial Statements......................5 - 9

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations..................................10 - 27

Item 3.  Controls and Procedures  .......................................28


PART II.  OTHER INFORMATION

Item 3.  Exhibits and Reports on Form 8-K................................29

Item 4.  Submission of Matters to a Vote of Security Holders.............29

Signatures...............................................................30















<PAGE>

PART 1. FINANCIAL INFORMATION

Item 1.  Financial Statements


                      TRANSNATIONAL FINANCIAL NETWORK, INC.

                            CONDENSED BALANCE SHEETS

                    as of October 31, 2004 and April 30, 2004
                               ------------------
<TABLE>
<CAPTION>

                            ASSETS                                                        OCTOBER 31,            APRIL 30,

                                                                                             2004                  2004
                                                                                             ----                  ----
                                                                                          (unaudited)


<S>                                                                                      <C>                  <C>
  Cash and cash equivalents, unrestricted                                                $   1,343,135        $  1,585,034
  Restricted cash                                                                            1,100,000           2,000,000
  Investments held-to-maturity                                                                 100,000           1,015,234
  Short-term mortgage related accounts receivable                                              568,697             448,705
  Mortgage loans held for sale                                                               1,381,202             365,918
  Deferred tax assets                                                                          291,365             291,365
  Goodwill                                                                                   3,972,305           3,972,305
  Property and equipment, net                                                                  114,192             142,223
  Fair value of derivative financial instruments                                                50,100             175,000
  Other assets                                                                                 149,002             230,901
                                                                                         -------------        --------------

         Total assets                                                                    $   9,069,998        $ 10,226,685
                                                                                         =============        ============


             LIABILITIES AND SHAREHOLDERS' EQUITY

  Warehouse lines of credit                                                              $     159,263        $          -
  Accrued interest payable                                                                      29,063              35,735
  Accounts payable and accrued liabilities                                                     506,608             615,035
  Income taxes payable                                                                           8,262              29,180
  Settlement payable                                                                            74,444             639,047
  Capital lease obligations                                                                      9,277              21,522
  Subordinated debt                                                                          1,256,000           1,512,000
                                                                                         -------------        ------------

         Total liabilities                                                                   2,042,917           2,852,519
                                                                                         -------------        ------------



  Shareholders' equity:
  Preferred stock, no par value: 2,000,000 shares authorized; no shares
         issued or outstanding                                                                       -                   -
  Common stock, no par value: 20,000,000 shares authorized;  6,791,360
         and 6,828,160 shares issued and outstanding at October 31,
         and April 30, 2004, respectively.                                                  13,422,276          13,459,474
  Accumulated deficit                                                                       (6,395,195)         (6,085,308)
                                                                                         --------------       -------------

         Total shareholders' equity                                                          7,027,081           7,374,166
                                                                                         -------------        ------------


         Total liabilities and shareholders' equity                                      $   9,069,998        $ 10,226,685
                                                                                         =============        ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       2
<PAGE>


                      TRANSNATIONAL FINANCIAL NETWORK, INC.

                                    CONDENSED

                            STATEMENTS OF OPERATIONS

               for the six months ended October 31, 2004 and 2003
                               ------------------
<TABLE>
<CAPTION>

                                                                             For the Three                     For the Six
                                                                         Months Ended October 31,          Months Ended October 31,
                                                                         ------------------------          -----------------------
                                                                         2004               2003             2004            2003
                                                                      (unaudited)        (unaudited)      (unaudited)    (unaudited)
         Revenue:
<S>                                                                  <C>               <C>               <C>           <C>
           Net gain from sale of loans                               $ 1,355,058       $ 1,794,020       $2,458,199    $  4,082,154
           Production income                                           1,074,001         2,620,944        2,432,722       6,145,158
           Other income                                                   20,899            19,955           50,424          32,798
                                                                     -----------       -----------       ----------    ------------

                  Total revenue                                        2,449,958         4,434,919        4,941,345      10,260,110


         Direct expenses:
           Commissions and production incentives                         657,892         1,677,588        1,484,771       3,842,617
           Production expense                                            152,140           342,155          306,596         800,457
           Pair-off fees                                                   1,500            (5,459)           3,000          (9,136)
           Early loan payoff penalties                                    15,000            30,000           18,500          70,000
                                                                     -----------       -----------       ----------    ------------

                  Total direct expenses                                  826,532         2,044,284        1,812,867       4,703,938
                                                                     -----------       -----------       ----------    ------------

         Interest income (expense):
           Interest income from loans in warehouse                       264,407           303,399          516,394         715,472
           Interest expense on warehouse financing                      (210,520)         (311,219)        (389,937)       (841,690)
                                                                     ------------      ------------      -----------   ------------

                  Net interest income (expense)                           53,887            (7,820)         126,457        (126,218)
                                                                     -----------       ------------      ----------    ------------

         Gross profit on mortgage activities                           1,677,313         2,382,815        3,254,935       5,429,954
                                                                     -----------       -----------       ----------    ------------

         Indirect expenses:
           Salaries and benefits                                         895,453         1,096,818        1,846,062       2,346,314
           General and administrative                                    550,879           503,422        1,110,340       1,139,365
           Occupancy                                                     174,406           174,837          348,215         354,286
           Depreciation and amortization                                  17,244            24,650           36,100          53,070
                                                                     -----------       -----------       ----------    ------------

                  Total indirect expenses                              1,637,982         1,799,727        3,340,717       3,893,035
                                                                     -----------       -----------       ----------    ------------

                  Operating income (loss)                                 39,331           583,088          (85,782)      1,536,919
                                                                     -----------       -----------       -----------   ------------

         Nonoperating income (expense):
           Other interest expense                                        (39,890)         (116,985)         (99,205)       (245,789)
           Other income (expense)                                         33,000          (162,600)        (124,900)       (230,900)
                                                                     -----------       ------------      -----------   ------------

                  Total nonoperating income (expense)                     (6,890)         (279,585)        (224,105)       (476,689)
                                                                     ------------      ------------      -----------   ------------

                  Income (loss) before income taxes                       32,441           303,503         (309,887)      1,060,230

         Income tax provision                                                 -             23,767               -           65,767
                                                                     -----------       -----------       ----------    ------------

                  Net income (loss)                                  $    32,441       $   279,736       $ (309,887)   $    994,463
                                                                     ===========       ===========       ===========   ============
         Net income (loss) per share
             Basic                                                   $      0.00       $      0.04       $   (0.05)    $      0.15
              Diluted                                                $      0.00       $      0.04       $   (0.05)    $      0.14

         Weighted averages shares outstanding
             Basic                                                     6,794,787         6,767,565        6,794,787       6,770,904
             Diluted                                                   6,806,234         7,165,936        6,839,833       7,094,565
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       3
<PAGE>


                      TRANSNATIONAL FINANCIAL NETWORK, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS

               for the six months ended October 31, 2004 and 2003
                               ------------------
<TABLE>
<CAPTION>

                                                                                                          For the Six
                                                                                                    Months Ended October 31,
                                                                                                  ----------------------------
                                                                                                      2004            2003
                                                                                                   (unaudited)     (unaudited)
Cash flows from operating activities:
<S>                                                                                             <C>               <C>
Net (loss) income                                                                               $    (309,887)    $    994,463
   Adjustments to reconcile net (loss) income to net cash flows from operating
             activities:
     Depreciation and amortization                                                                     36,100           53,070
     Net change in fair market value of financial derivatives                                         124,900          230,900
     Provision for early payoff penalties                                                              18,500           70,000
   Net effect of changes in assets and liabilities:
     Other assets                                                                                      63,399         (104,308)
     Accrued interest payable                                                                          (6,672)         (21,297)
     Accrued interest on settlement payable                                                                 -           77,443
     Accounts payable and accrued liabilities                                                        (108,427)        (326,017)

   Net effect of changes in mortgage loans activity:
     Mortgage related short-term accounts receivable                                                 (119,992)         842,621
     Mortgage loans originated for sale                                                          (192,323,930)    (381,306,844)
     Mortgage loans proceeds from sale                                                            191,308,646      375,390,021
                                                                                                -------------     ------------

         Net cash used in operating activities                                                     (1,338,281)      (4,099,948)
                                                                                                --------------    ------------

Cash flows from investing activities:
   Property and equipment purchases                                                                    (8,069)         (54,041)
   Decrease in restricted cash                                                                        900,000           50,000
   Proceeds from securities held-to-maturity                                                          915,234                -
                                                                                                -------------     ------------

         Net cash provided by (used in) investing activities                                        1,807,165           (4,041)
                                                                                                -------------     ------------

Cash flows from financing activities:
     Warehouse notes payable-net borrowings                                                           159,263        5,793,165
     Payments on settlement payable                                                                  (564,603)        (600,000)
   Proceeds from stock option exercises                                                                     -           39,403
   Common stock repurchases                                                                           (37,198)               -
   Payments on capital lease obligations                                                              (12,245)          (9,409)
   Borrowings on subordinated debt                                                                    144,000          200,000
   Repayments of subordinated debt                                                                   (400,000)        (200,000)
                                                                                                --------------    ------------

         Net cash (used in) provided by financing activities                                         (710,783)       5,223,159
                                                                                                --------------    ------------

Net (decrease) increase in cash and cash equivalents, unrestricted                                   (241,899)       1,119,170
                                                                                                --------------    ------------
Cash and cash equivalents, unrestricted, beginning of period                                        1,585,034        1,847,996
                                                                                                --------------    ------------

Cash and cash equivalents, unrestricted, end of period                                          $   1,343,135     $  2,967,166
                                                                                                =============     ============
Cash paid during the period for:
     Interest                                                                                   $     490,984     $  1,053,513
     Income taxes                                                                                      20,918          115,000

Schedule of non-cash investing and financing activities:
   Increase in goodwill and settlement payable                                                              -           88,218
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>

                      Transnational Financial Network, Inc.

                     Notes to Condensed Financial Statements

Note 1 - General

The accompanying financial statements of Transnational Financial Network, Inc.
(the "Company") as of and for the three and six month periods ended October 31,
2004 and 2003 are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
financial disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
Accordingly, these unaudited condensed financial statements should be read in
conjunction with the audited financial statements included in the Company's Form
10-KSB for the year ended April 30, 2004. These unaudited statements include all
adjustments, consisting only of normal recurring accruals, which are, in the
opinion of management, considered necessary for a fair presentation of financial
position and results of operations. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results could
differ from those estimates. The results of operations of the Company for the
three and six months ended October 31, 2004 and 2003 are not necessarily
indicative of the results to be expected for the full year. The Company operates
in one business segment - mortgage banking.

Note 2 - Summary of Significant Accounting Policies

Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions, including the
depreciable lives of assets, the fair value of goodwill and financial
derivatives, and the realizable portion of deferred tax assets, that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Statement of Cash Flows - For purposes of the statement of cash flows, the
Company considers cash equivalents to be short-term, highly liquid investments
used in its cash management activities and generally having a remaining maturity
of three months or less from the date of purchase.

Income Taxes - The Company uses the asset and liability method in accounting for
deferred income taxes. Deferred tax assets and liabilities are calculated by
applying applicable tax laws to the differences between the financial statement
base and the tax base of assets and liabilities. The effect on deferred taxes of
a change in tax rates is recognized in income in the period that includes the
enactment date.

Stock-Based Compensation - The Company follows APB 25 in accounting for its
employee stock options. The disclosure provisions of SFAS 148 have been
incorporated into these financial statements and accompanying footnotes.

The following table illustrates the effect on net (loss) income that would have
resulted if the Company had applied the fair value recognition provisions of
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation,
as amended by SFAS 148, Accounting for Stock-Based Compensation - Transition and
Disclosure, to stock-based employee compensation:




                                       5
<PAGE>

                      Transnational Financial Network, Inc.

               Notes to Condensed Financial Statements (continued)


Note 2 - Summary of Significant Accounting Policies (continued)

Stock-Based Compensation (continued)
<TABLE>
<CAPTION>
                                                  Three Months Ended                       Six Months Ended
                                           ----------------------------------      --------------------------------
                                                  October 31      October 31         October 31        October 31
                                                     2004            2003               2004              2003
                                                     ----            ----               ----              ----
Net (loss) income:
<S>                                              <C>            <C>                 <C>              <C>
As reported                                      $    32,441    $   279,736         $ (309,887)      $   994,463
Add:  compensation expense previously
          recorded                               $         -    $         -         $        -       $         -
Deduct:  fair value amount                       $   (41,380)   $   (40,868)        $  (98,187)      $  (114,238)
                                                 -----------    -----------         ----------       -----------
Pro forma                                        $    (8,939)   $   238,868         $ (408,074)      $   880,225

Basic (loss) income per common share:
As reported                                      $      0.00    $      0.04         $    (0.05)      $      0.15
Add:  compensation expense previously
          recorded                               $      0.00    $      0.00         $     0.00       $      0.00
Deduct:  fair value amount                       $      0.00    $      0.00         $    (0.01)      $     (0.02)
                                                 -----------    -----------         -------------    -----------
Pro forma                                        $      0.00    $      0.04         $    (0.06)      $      0.13

Diluted (loss) income per common share:
As reported                                      $      0.00    $      0.04         $    (0.05)      $      0.14
Add:  compensation expense previously
          recorded                               $      0.00    $      0.00         $     0.00       $      0.00
Deduct:  fair value amount                       $      0.00    $     (0.01)        $    (0.01)      $     (0.02)
                                                 -----------    -----------         -------------    -----------
Pro forma                                        $      0.00    $      0.03         $    (0.06)      $      0.12
</TABLE>


There were 29,000 and 137,750 option grants during the quarters ended October
31, 2004 and 2003, respectively. The fair value of the stock options granted
during these quarters was estimated as $0.25 and $1.08, respectively. This fair
value was determined as of the date of grant using an option-pricing model with
the following assumptions: $0 annual dividend, volatility ranging from 107.53%
to 92.15%, risk-free interest rate ranging from 2.20% to 2.63%, and an average
expected life of 1.0 and 5.0 years, respectively.

There were 29,000 and 134,000 option grants during the six months ended October
31, 2004 and 2003, respectively. The fair value of the stock options granted
during these six-month periods was estimated as $0.25 and $1.20, respectively.
This fair value was determined as of the date of grant using an option-pricing
model with the following assumptions: $0 annual dividend, volatility ranging
from 107.53% to 217.26%, risk-free interest rate ranging from 2.20% to 2.95%,
and an average expected life of 1.0 and 5.0 years, respectively.

Note 3 - Financing Facilities

As of October 31, 2004, the Company had a maximum mortgage loan financing
capacity of $60 million through two master sale agreements, or warehouse lines
of credit. Under these arrangements, the lending financial institutions purchase
a 100% loan participation interest in each loan upon the Company obtaining a
firm forward sale delivery commitment from investors and upon the financial
institutions' approval of the loan based on their underwriting criteria. The
Company recognizes income from loans transferred under these lines as a gain on
sale immediately upon the purchase and funding of the loans by the financial
institutions.

In connection with these agreements, the Company may be required to repurchase
certain loans that, subsequent to acquisition by the financial institutions,
fail to meet certain representations and warranties set forth in the


                                       6

<PAGE>

                      Transnational Financial Network, Inc.

               Notes to Condensed Financial Statements (continued)

Note 3 - Financial Facilities (continued)

agreements at the date of the sale. During the six-month period ended October
31, 2004, the Company was required to repurchase two loans in the total amount
of $895,546 which it resold during the period for a loss of approximately
$14,500. During the six-month period ended October 31, 2003, the Company was
required to repurchase one loan in the amount of $29,762 which has not yet been
resold as of October 31, 2004.

Loan interest charges incurred in connection with the purchase of loans are
estimated and recognized as a reduction in sales proceeds immediately upon the
loan being transferred. Loan interest expense is calculated based on the number
of days the loan remains with the financial institution, until it is ultimately
resold to a third party investor. During the intervening period the Company
sub-services the loans on behalf of the financial institutions.

The first master sale agreement provides a credit facility of $30 million as of
October 31, 2004. Under this arrangement, an additional bulge capacity of $10
million is available if needed, bringing the total capacity under this
arrangement to $40 million. The Company has not used this interim bulge capacity
to date. Interest on the $30 million portion of the line is at the Prime Rate or
3.99%, whichever is higher. Prime was 4.75% at October 31, 2004. Interest on the
remaining $10 million of the line is 0.05% higher than that charged on the $30
million portion. The rate paid by the Company on this line as of October 31,
2004 was 4.75%. The Company is required to maintain a non-interest bearing cash
collateral deposit with this lender of $1,000,000, which has been included as
restricted cash in the balance sheets.

The second master sale agreement provides a credit facility of $20 million as of
October 31, 2004. Interest on the facility is at LIBOR plus a margin ranging
from 1.875% to 2.375%. The rate paid by the Company on this line as of October
31, 2004 was 3.60%. The Company is required to maintain an interest bearing cash
collateral deposit with this lender of $100,000, which has been included as
restricted cash in the balance sheets.

As of October 31, 2004, the Company owed $159,263 to one of its financing
facility providers due to the fact that a borrower failed to complete the
closing of escrow. Subsequently, the Company received the proceeds back from the
escrow company and refunded the amount owed on the financing facility.

These two master sale agreements are each for a one-year period and are
typically renewed annually. However, the agreements give each party the right to
terminate the agreement upon 30 days' written notice. These financing facilities
have various financial and operational covenants with which the Company must
comply. As of October 31, 2004, the Company was in compliance with it's the
covenants contained in these facilities. The CEO and the President of the
Company have both personally guaranteed the above financing facilities.

Note 4 - Goodwill

Goodwill is attributable to the purchase of the Company's Campbell branch
(formerly LRS, Inc.) in 1999.

Note 5 - Subordinated Debt

As of October 31, 2004, the Company had $1,256,000 of subordinated debentures
outstanding, which bears interest at 10%. During the six months ended October
31, 2004 the Company repaid $400,000 of subordinated debt that carried interest
at 15% and issued $144,000 of subordinated debt at 10%. Of the $144,000 of
subordinated debt issued during the past six months, $50,000 was issued to the
spouse of the Company's Chief Financial Officer and $50,000 was issued to the
Company's Chief Compliance Officer. Subordinated debt interest expense of
$81,308 and $153,525 was incurred in the six-month periods ended October 31,
2004 and 2003, respectively.



<PAGE>

                                      7
                      Transnational Financial Network, Inc.

               Notes to Condensed Financial Statements (continued)

Note 6 - Settlement Payable

This obligation arises from the December 2002 settlement of litigation related
to the purchase price of the Campbell branch (formerly LRS, Inc.). The balance
of the obligation includes unpaid principal and accrued interest. Pursuant to
the Settlement Agreement, the Company is making monthly payments of $100,000.
During October 2004, the Company determined the final amount payable under the
earn-out provisions of the original purchase agreement. Accordingly, the Company
determined to pay an additional $20,000 in final settlement of all obligations
related to this purchase. Subsequent to October 31, 2004, the Company paid the
final payment in full settlement of this obligation.

Note 7 - Stock Option Programs and Warrants to Purchase Common Stock

As of October 31, 2004, the Company had options outstanding under the programs
described herein.

The Company has two stock option plans: the 1998 Stock Compensation Plan ("1998
Plan") for employees and the 2000 Stock Incentive Plan ("2000 Plan") for
directors, officers and other employees which replaced the 1998 Plan in February
2000.

Options issued and outstanding from the 1998 Plan will continue to be honored,
but no additional options may be issued under the 1998 Plan. As October 31,
2004, there were a total of 18,000 share options outstanding under the 1998
Plan, all with an exercise price of $7.50 per option, which vested over 4 years,
and which expire in August 2008.

In March 1999, four Directors of the Company were granted 240,000 non-qualifying
options to purchase common stock at an exercise price of $7.50 per share. The
options were vested on the grant date and expire in March 2009. Of the total
grant, 160,000 options may be exercised only in the event of a change in control
as defined in the option agreement. There are no forfeiture provisions
associated with the options granted, accordingly, the option granted to three of
the four directors who subsequently resigned remain outstanding until they are
exercised or expire.

In June 2002, the Board of Directors of the Company unamimously granted to
Joseph Kristul, the Chief Executive Officer of the Company, an option to
purchase 300,000 shares of the Company's common stock at an exercise price of
$0.73 per share. The shares will be unregistered. The options vest ratably over
four years, or immediately upon the occurance of certain events including a
change in control, or 60 days after the cessation of Mr. Kristul's full-time
employment by the Company, whichever events occur first. The options expire in
four years, unless previously exercised.

Under the 2000 Plan, a total of 750,000 shares were initially reserved. The
options typically vest over four to five years. As of October 31, 2004, there
were 827,166 options outstanding under the 2000 Plan. The share reserve
increases by 4% of total common shares outstanding each year, beginning on
January 1, 2001. The maximum annual increase in the share reserve is limited to
400,000 shares.


                                       8
<PAGE>


                      Transnational Financial Network, Inc.

               Notes to Condensed Financial Statements (continued)

Accordingly, the following table is a roll forward of the share reserve limit
through October 31, 2004:
<TABLE>
<CAPTION>

                                             Number of Options
<S>                                                         <C>
Initially Reserved                                          750,000
January 1, 2001                                             171,172
January 1, 2002                                             205,503
January 1, 2003                                             270,407
January 1, 2004                                             272,640
                                                            -------
Reserve amount at October 31, 2004                        1,669,722
                                                          =========
</TABLE>


The table below summarizes aggregate activity for all options programs for the
six-month period ended October 31, 2004:
<TABLE>
<CAPTION>


                                                             All Programs
                                                         ----------------------
                                                                        Weighted
                                                                         Average
                                                            Stock       Exercise
                                                           Options        Price
                                                        -------------   --------
<S>                                                       <C>            <C>
       Outstanding at April 30, 2004:                     1,446,072      $ 2.23
              Forfeitures                                   (13,750)       0.73
                                                          ---------        ----
       Outstanding at July 31, 2004                       1,432,322        2.08
          Grants                                             29,000        0.60
          Forfeitures                                       (76,156)       0.89
                                                          ---------        ----
       Outstanding at October 31, 2004                    1,385,166        2.12
                                                          =========        ====
</TABLE>



As of October 31, 2004, there were 53,000 warrants to purchase shares of the
Company's common stock outstanding. The exercise prices of the warrants ranged
from $0.55 to $7.50.

Note 8 - Basic and Diluted Net Income Per Share

Basic net (loss) income per share is computed by dividing net (loss) income by
the weighted average common shares outstanding during the period. Diluted net
(loss) income per share is computed based on the weighted average number of
common shares outstanding adjusted for potentially dilutive securities. For the
six-month period ended October 31, 2004, the effect of including potentially
dilutive securities in the calculation of diluted net loss per share was
antidilutive. For the three months ended October 31, 2004, the effect of
including potentially dilutive securities in the calculation of diluted net
income per share had no effect on basic earnings per share. Potentially dilutive
securities were 726,166 and 926,030 as of October 31, 2004 and 2003,
respectively.

Note 9 - Fair Value of Financial Instruments

A summary of the total contract value of the Company's exposure to off-balance
sheet credit risk as of October 31, 2004 and April 30, 2004, including financial
instruments whose contract amount represents credit risk only is as follows:
<TABLE>
<CAPTION>

                                                                October 31, 2004           April 30, 2004
                                                                ----------------           --------------

<S>                                                             <C>                        <C>
Commitments to extend credit                                    $     30,699,937           $   39,667,350
Mandatory forward delivery commitments                                 5,499,150                        -
</TABLE>




                                       9
<PAGE>


                      Transnational Financial Network, Inc.

               Notes to Condensed Financial Statements (continued)

Note 9 - Fair Value of Financial Instruments (continued)

Commitments to extend credit are contractual agreements entered into with
customers to fund mortgage loans, which remain valid as long as there is no
violation of any condition established in the contract. These commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
balance sheet value of these contracts, calculated in accordance with SFAS 133,
was $7,600 and $175,000 at October 31, 2004 and April 30, 2004, respectively.

The Company is exposed to credit risk on its mandatory forward delivery
commitments when the Company's position in these instruments becomes positive
(i.e. "in-the-money") and the Company is a net creditor to the counter party to
the agreement. If the Company cannot deliver the agreed-upon loans into the
commitment by the expiration date, the Company is subject to a financial penalty
("pair-off fee"). The balance sheet value of these contracts, calculated in
accordance with SFAS 133, was $42,500 and $0 at October 31, 2004 and April 30,
2004, respectively.

Note 10 - Subsequent Event

Subsequent to October 31, 2004, the Company paid an upfront commitment fee of
$125,000 to enter into a six-month $100 million forward delivery commitment
contract with one of its mortgage loan investors. Under this arrangement, the
Company will earn a fee of 25 basis points on loans sold under this commitment,
in addition to its normal gain on sale. If the Company fulfills all elements of
the arrangement, including delivering $100 million of loans within the six-month
period of the contract, the Company will earn an additional 12.5 basis points.
The final amount of forward payout fee earned by the Company is subject to the
following pull-through rate determination:

o        60.00% - 64.00% pull through receives 50% of forward payout fee
o        65.00% - 69.99% pull through receives 75% of forward payout fee
o        70.00% - above pull through receives 100% of forward payout fee




                                       10
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
condensed financial statements and the notes thereto included as Item 1 of this
Report. The discussion of results and trends does not necessarily imply that
these results and trends will continue.

The Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of the Form 10-QSB contain forward-looking
information. The forward-looking information involves risks and uncertainties
that are based on current expectations, estimates, and projections about the
Company's business, management's beliefs and assumptions made by management.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", and variations of such words and similar expressions are intended
to identify such forward-looking information. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking information due to numerous factors, including, but not limited
to, availability of financing for operations, successful performance of internal
operations, impact of competition and other risks detailed below, as well as
those discussed elsewhere from time to time in the Company's Securities and
Exchange Commission filings and reports. In addition, general economic and
market conditions and growth rates could affect such statements.

General

Transnational Financial Network, Inc. ("TFN" or the "Company") is a wholesale
and retail mortgage banker which originates, funds and sells mortgage loans
secured by one to four family residential properties, principally in the San
Francisco Bay Area, Southern California, and Arizona.

Since 1985, when the Company was incorporated, it has been engaged in the
origination of retail mortgage loans, and currently maintains wholly owned
retail offices in San Francisco and Campbell, California. In addition, the
Company maintains net branches in association with local mortgage brokerage
companies. As of October 31, 2004, the Company maintained two net branches, one
in San Diego, California and one in Scottsdale, Arizona. We expect to continue
our policy of adding and subtracting net branches from our branch network on an
opportunistic basis.

In 1995, the Company began a wholesale division to close and fund loans
originated by independent third party mortgage brokers as well as those
originated through the Company's retail division. The Company maintains
wholesale offices in San Francisco and Tustin, California, as well as
Scottsdale, Arizona. The Company operates in one business segment - mortgage
banking.

The Company's loan production and results of operations are strongly affected by
mortgage interest rates, with origination volumes increasing in periods of
declining interest rates, and declining during periods of increasing interest
rates. Increasing mortgage rates raises the qualifying income required of a
homebuyer and reduces housing affordability. Interest rate increases also cause
mortgage refinance activity to decline because fewer homeowners can successfully
obtain a mortgage at a lower interest rate than their original mortgage. Higher
interest rates increase the cost of home ownership resulting in diminished
demand for mortgage loans, whether the purpose of the mortgage loan is for the
purchase of a home, refinancing of a home to obtain a lower rate or longer term,
home improvement, debt consolidation, or obtaining cash. When rates are high,
the mortgage loan financing that does occur usually takes the form of variable
rate mortgage loans, that is, mortgage loans that have interest rates that
frequently change and, consequently, have lower initial interest rates than
those charged on longer term fixed interest rate mortgage loans.

To diminish the overall effects of a variable interest rate market, the Company
has employed other measures to stabilize business. These measures include
offering a broader menu of products, delivering mortgages to the secondary
market in volume packages, and expanding both the nature and scope of mortgage
originations. Wholesale operations are centralized in two regional centers for
both conventional and government programs to provide greater economic
efficiencies. Nonetheless, the Company's origination volume trends have been and
will continue to be heavily influenced by both the level and trend of interest
rates.

                                       11

<PAGE>

The following table summarizes mortgage loan production volume by division
(dollars in thousands):
<TABLE>
<CAPTION>


                                         Three month period ended              Six month period ended
                                        October 31,    October 31,           October 31,      October 31,
                                        -----------    -----------           -----------      -----------
                                               2004           2003                  2004             2003
                                               ----           ----                  ----             ----

         Wholesale Division
<S>                                         <C>            <C>                    <C>              <C>
               Volume                       $ 93,636       $134,254               $191,309         $381,567
               Percent of Total Volume            59%            43%                    57%              49%
               Number of Loans                   425            518                    929            1,491
               Average Loan Size            $    220       $    259               $    206         $    256

         Retail Division
               Volume                       $ 63,897       $178,894               $147,155         $395,001
               Percent of Total Volume            41%            57%                    43%              51%
               Number of Loans                   167            513                    417            1,149
               Average Loan Size            $    383       $    349               $    353         $    344

         Total Loan Production
               Volume                       $157,533       $313,148               $338,464         $776,568
               Number of Loans                   592          1,031                  1,346            2,640
               Average Loan Size            $    266       $    304               $    251         $    294

         Volume (Decline) Growth, as
               compared to equivalent            (50)%          (26)%                  (56)%              7%
               prior period
</TABLE>


The Wholesale Origination Division

Our wholesale lending division operates from our executive offices in San
Francisco with offices in Tustin, California and Scottsdale, Arizona.

During the six month period ended October 31, 2004, we originated mortgage loan
volume through a network of approximately 650 independent mortgage brokers and
other financial intermediaries who are all screened and approved by us. No
single source of independent brokers accounted for more than 3% of our total
wholesale mortgage originations. Mortgage brokers are qualified to participate
in our wholesale program after the completion of an application process that
includes our checking and verifying references, resumes, licenses and financial
statements. New broker relationships are established through business
development staff. Approved mortgage brokers are monitored by our wholesale
account representatives and the broker's financial statements are updated and
re-verified on an annual basis.

Our underwriters, all of whom have many years of experience, process and
underwrite mortgage loans. Only those mortgage loan applications that meet our
underwriting criteria are funded. Wholesale lending allows us to benefit from
cost efficiencies derived from not having to take a mortgage loan application, a
labor intensive function, thereby reducing mortgage loan processing time, as
well as being able to centralize support functions and reduce fixed operating
costs. Wholesale lending offers us economies of scale while building substantial
loan volume.

One measure of efficiency widely used in the mortgage banking business is the
"pull through rate", or a percentage that measures the dollar volume of loans
that are funded versus the dollar volume of loans that we contract for with
mortgage borrowers using interest rate lock commitments. The more loans that we
close and fund, the higher our pull through rate. If we end up not funding and
closing a loan for which we have provided an interest rate lock commitment, then
our pull through rate will be negatively affected. The following table presents
our pull through rates for each of the nine previous quarterly periods:
<TABLE>
<CAPTION>
                               Pull Through Rates


<S>                        <C>       <C>       <C>       <C>      <C>       <C>       <C>       <C>      <C>
Fiscal Quarter Ended       Oct 04    Jul 04    Apr 04    Jan 04   Oct 03    Jul 03    Apr 03    Jan 03   Oct 02
                           ------    ------    ------    ------   ------    ------    ------    ------   ------
Rate                       64.7%     66.2%     71.0%     74.5%     69.2%    76.5%     74.2%     76.0%     70.0%
</TABLE>

                                       12

<PAGE>

We generate revenues through gains on the sale of mortgage loans and related
servicing rights to investors, interest generated on mortgage loans held or
warehoused from the time the mortgage loan is originated until the mortgage loan
is sold and, in the case of retail operations, origination fees.

Our wholesale mortgage banking business is directly dependent upon the size of
our capital base. The Company's financing facilities are generally limited to a
maximum leverage ratio of 15 to 1, so for every dollar in additional capital
earned or raised by the company, our financing facilities could be increased by
$15, thereby supporting increased business volumes. We currently have two
financing facilities in place for a total borrowing capacity of up to $60
million. In the aggregate, the Company believes that its existing financing
facilities are adequate to support current business levels. However, failure to
obtain additional financing facilities could limit our ability to exceed current
business levels, and failure to maintain existing facilities would have a
material adverse effect on our operations and financial performance.

Wholesale loan production during the six-month period ended October 31, 2004 was
$191 million as compared to $382 million for the comparable period ended October
31, 2003. This decrease of approximately 50% is attributable to the overall
increase in interest rates since the summer months of 2003, when 30-year
mortgage rates were at record lows. Additionally, during the fiscal year ended
April 30, 2003, the Company made changes to its product mix and began to focus
on providing Alt-A type of mortgage loans. These loans generally have
characteristics such as lower documentation standards, higher loan to value
ratios, higher debt-to-income levels, and may be secured by non-owner occupied
properties. For investors in Alt-A mortgages, these products typically offer a
higher yield with a reduced prepayment tendency as compared to A mortgages.
Because of these characteristics, mortgage investors have increased their demand
for these types of products. As a result of this change in our product mix, we
were able to increase the gain that we earn on the sale of mortgage loans so
that for the six-month periods ended October 31, 2004 and 2003, the basis points
that we earned on our wholesale production was 128 versus 107, respectively.

Loan Production Administration

All mortgage loan applications must be underwritten and approved in accordance
with our underwriting standards and criteria. Underwriting standards used for
conforming loans are those promulgated by FNMA and FHLMC. Non-conforming (Jumbo)
loans are underwritten subject to credit and appraisal standards established by
specific private investors. We analyze the borrower's credit standing, financial
resources and repayment ability as well as the risk of the underlying
collateral. All mortgage loans must have a property appraisal provided by an
independent third party, fee-based appraiser. Nationally recognized credit
reporting agencies provide complete reports of the borrower's credit history
including bankruptcies and delinquencies.

A borrower may qualify for a mortgage loan through five unique mortgage loan
documentation programs:

1.   Full documentation - the borrower's assets, income and employment are all
     verified by written or verbal confirmation
2.   Limited documentation - more emphasis is placed on the ability to pay and
     the property value
3.   Alternative documentation - income and assets are confirmed by reviewing
     the borrower's supporting documentation
4.   No ratio loan documentation - no income ratios are calculated
5.   No income/no asset verification - no income/no asset program, the value of
     the loan collateral is as critical as the borrower's credit history

Each program places a heavy emphasis on credit scores and differing loan to
value ratios.

The Company's underwriting department consists of six underwriters who maintain
the consistent quality of mortgage loans expected by secondary market investors.
The Company generally takes from three to six days to underwrite a mortgage loan
from the initial receipt of the application from the broker. Upon completion of
the underwriting process and funding of the loan by one of our financing
facilities, the mortgage loan is closed by a title agency chosen by the

                                       13

<PAGE>

borrower. We perform a pre-funding audit on all mortgage loans, which includes a
verification of certain mortgage loan documentation to determine the integrity
of the data and a review for compliance with underwriting guidelines.
Post-funding audits are performed by an independent third party to monitor and
evaluate our origination policies and procedures. A sample of ten percent of all
mortgage loans closed are subjected to a full quality control review including
re-underwriting the mortgage loan. Our management receives a monthly report on
any deficiencies found in the randomly sampled mortgage loans and believes that
its use of the IRS Verification of Income program increases significantly the
quality of its originations.

Wholesale Mortgage Loan Sales

We originate and purchase all of our mortgage loans with the intent to sell the
mortgage loans, without retaining any interest in them, or in the related
servicing rights, into the secondary market. We sell the mortgage loans without
recourse primarily to institutional investors, national banks and mortgage
lenders. As of October 31, 2004, we had relationships to sell to approximately
30 mortgage investors.

As part of the sale, we provide representations and warranties that are
customary to the industry and which cover compliance with program standards,
laws and regulations as well as the accuracy of the information. In the event of
a breach of these representations and warranties, we may be required to
repurchase these mortgage loans and/or may be liable for certain damages.
Normally, any repurchased mortgage loan can be corrected and resold back to the
original investor, although a loss may be incurred on the sale due to subsequent
changes in market conditions since the original closing date of the loan.
Historically, loan repurchases and related losses have not been material or
significant.

We hold the originated or purchased mortgage loan for sale from the time that
the mortgage loan application is funded by us until the time the mortgage loan
is sold to an investor. During that time, the note rate on the mortgage loan
might be higher or lower than the market rate at which we can sell the mortgage
loan to an investor. Therefore, a market gain or loss results on the sale of the
mortgage loan. To protect against interest rate changes on mortgage loans that
are in the warehouse (mortgage loans that have been funded, but not sold) and
committed pipeline loans (loans which are not yet funded, but on which an
interest rate has been committed to the borrower) we undertake certain
activities to protect our mortgage position. We follow the practice of entering
into forward delivery commitments for the sale of whole mortgage loans to
mitigate our exposure to interest rate risk on substantially all funded and
committed mortgage loans. These forward delivery commitments are either on a
"best efforts" or "mandatory" basis. The best efforts commitments generally
result in a lower gain on sale, but simply require that we make an effort to
deliver a loan or group of loans at a specified interest rate and balance, with
no cost or penalty if we fail to make delivery of such loans. A mandatory
commitment generally results in a higher gain on sale; however, it requires that
we deliver loans as promised. Failure to do so results in the payment of a
penalty ("pair-off" fee) which can be significant in the event of large changes
in the interest rate environment. The Company has not designated its practice of
entering into forward delivery commitments as a hedging activity within the
definition of Statement of Financial Accounting Standard ("SFAS") No. 133,
Accounting for Derivative Instrument and Hedging Activities.

Funding of Wholesale Mortgage Loans

We need substantial cash resources to facilitate the funding and closing of the
originated and purchased loans. These funds are provided on a short-term basis
by financial institutions that specialize in purchasing loans or providing lines
of credit (collectively known as "master sale agreements"). We submit the
mortgage loan to the financial institutions for funding, along with the investor
commitment, if any, to purchase the loan.

As of October 31, 2004, the Company had a maximum mortgage loan financing
capacity of $60 million through two master sale agreements. Under these
arrangements, the lending financial institutions purchase a 100% loan
participation interest in each loan upon the Company obtaining a firm forward
sale delivery commitment from investors and upon the financial institutions'
approval of the loan based on their underwriting criteria. The Company

                                       14

<PAGE>

recognizes income from loans transferred under these lines as a gain on sale
immediately upon the purchase and funding of the loans by the financial
institutions.

In connection with these agreements, the Company may be required to repurchase
certain loans that, subsequent to acquisition by the financial institutions,
fail to meet certain representations and warranties set forth in the agreements
at the date of the sale. During the six-month period ended October 31, 2004, the
Company was required to repurchase two loans in the total amount of $895,546
which it resold during the period for a loss of approximately $14,500. During
the six-month period ended October 31, 2003, the Company was required to
repurchase one loan in the amount of $29,762 which had not yet been resold as of
October 31, 2004. The balance of these loans, along with loans that the Company
has funded with its own resources, are included in mortgage loans held for sale
in the balance sheet.

Loan interest charges incurred in connection with the sale are estimated and
recognized as a reduction in sales proceeds immediately upon the loan being
transferred. Loan interest expense is calculated based on the number of days the
loan remains with the financial institution, until it is ultimately resold to a
third party investor. During the intervening period the Company sub-services the
loans on behalf of the financial institutions.

The following table shows the average number of days that the Company's
wholesale mortgage loans are with a financial institution, or "in the
warehouse", for each quarter for the last nine fiscal quarters:
<TABLE>
<CAPTION>


                       Average Number of Days in Warehouse

<S>                              <C>        <C>       <C>       <C>      <C>      <C>      <C>      <C>      <C>
Fiscal Quarter Ended             Oct 04     Jul 04    Apr 04    Jan 04   Oct 03   Jul 03   Apr 03   Jan 03   Oct 02
                                 ------     ------    ------    ------   ------   ------   ------   ------   ------
Average Number of Days             15         15        13        14       14       11       14       21       19
</TABLE>


Wholesale Loan Products

We originate a variety of mortgage loan products. Conforming mortgage loans are
those that qualify for inclusion in guarantee programs sponsored by the Federal
National Mortgage Association (or FNMA) and the Federal Home Loan Mortgage
Corporation (or FHLMC). In addition, the Department of Housing and Urban
Development (or HUD) offers Government Insured loan programs through the Federal
Housing Administration (or FHA) and Veterans Administration (or VA).
Non-conforming mortgage loans are those that do not conform to FNMA, FHLMC, FHA
& VA requirements. The principal deviation from such standards relates to the
size of the mortgage loan although some do not conform because of lower
documentation standards where there is a higher loan-to-value ratio. Those loans
that exceed the FNMA/FHLMC guidelines (presently mortgage loans larger than
$333,700) are called Jumbo loans. Jumbo loans comprised approximately 46% of the
wholesale mortgage loans we originated for the six-month periods ended October
31, 2004 and 2003.

In periods of declining interest rates, our predominant products are fixed rate
mortgages with terms of either 15 or 30 years. When interest rates are rising,
adjustable rate mortgages make up a larger percentage of our originations. We
originate some home equity financing through second mortgages and lines of
credit using the home as collateral, but these products constitute a small
portion of our business.

Since inception, our marketing niche has been borrowers that have high credit
ratings and require large mortgage loans with low loan to value ratios. For the
six-month periods ended October 31, 2004 and 2003, the average loan size based
on principal balance was approximately $206,000 and $256,000, respectively.

We primarily originate prime first lien residential mortgage loans.
Approximately 98% of the loans that we originated and sold in the six-month
period ended October 31, 2004 were considered to be prime loans by the
purchasers of those loans according to the underwriting criteria of those
purchasers. The Company also originates a lesser amount of second mortgage loans
and home equity lines of credit.


                                       15
<PAGE>


The following table details the mortgage loan types originated by the wholesale
division, as measured by principal balance, during the six-month periods ended
October 31, 2004 and 2003:
<TABLE>
<CAPTION>

Loan Type                                                          October 31, 2004    October 31, 2003
---------                                                          ----------------    ----------------
<C>                                                                     <C>                  <C>
1 month adjustable-rate (various total terms)                             1.1%                 0.2%
6 month adjustable-rate (various total terms)                             6.3%                 3.2%
2 year fixed-rate, adjustable-rate hybrid (various total terms)           8.4%                 0.5%
3 year fixed-rate, adjustable-rate hybrid (various total terms)          15.1%                 2.0%
5 year fixed-rate, adjustable-rate hybrid (various total terms)          37.6%                29.5%
7 year fixed-rate, adjustable-rate hybrid (various total terms)           1.8%                 4.4%
10 year fixed-rate, adjustable-rate hybrid (various total terms)          0.0%                 0.1%
10 year term fixed-rate                                                   0.0%                 0.1%
15 year term fixed-rate                                                   4.0%                10.4%
20 year term fixed-rate                                                   0.1%                 0.3%
30 year term fixed-rate                                                  20.4%                44.8%
Federal Housing Authority (various total terms and rates)                 0.5%                 3.5%
Other                                                                     4.7%                 1.0%
                                                                          ----                 ----
Total                                                                   100.0%               100.0%
</TABLE>


The loans that fall into the "Other" category are comprised of second mortgage
loans and home equity lines of credit. "Other" loans can be either fixed or
adjustable rate loans and have a variety of terms to maturity.

Wholesale Geographic Concentration

The Company originates loans in states where it is approved to do so. As of
October 31, 2004, the Company was either licensed or qualified to do business in
17 states. On that same date, the Company had 71 employees located in two
retail-lending offices in two states and three wholesale origination offices.
During the six-month periods ended October 31, 2004 and 2003, the Company's
wholesale division's loan origination volume, as measured by principal balance,
came from the following states:
<TABLE>
<CAPTION>

                               Percent of Loan Origination Volume
                               ----------------------------------
State                          October 31, 2004     October 31, 2003
-----                          ----------------     ----------------
<S>                                  <C>                  <C>
California                            70.5%                87.5%
Arizona                               25.5%                11.1%
Others                                 4.0%                 1.4%
                                      ----                 ----
Total                                100.0%               100.0%
</TABLE>


Wholesale Loan to Value Ratios

A loan's loan-to-value ratio, or LTV, is an important way for many loan
originators and loan investors to discern risk within a loan. An LTV is
calculated by using the loan principal balance as the numerator and the lower of
the home's sales price or appraised value as the denominator. A loan is said to
have an 80% LTV if, for example, the home was purchased for $100,000 and the
loan amount is $80,000. This assumes the appraised value of the home is at least
$100,000.

During the six-month periods ended October 31, 2004 and 2003, the wholesale
division's first lien mortgage loan origination volume, as measured by principal
balance, contained loans within the following LTV ranges:
<TABLE>
<CAPTION>

                                Percent of Loan Origination Volume
                               ------------------------------------
LTV                            October 31, 2004     October 31, 2003
---                            ----------------     ----------------
<C>                                  <C>                  <C>
50 or less                            17.1%                24.7%
50.01 - 60                             9.7%                17.0%
60.01 - 70                            19.8%                19.2%
70.01 - 80                            20.9%                31.0%
80.01 - 85                            31.2%                 0.7%
85.01 - 90                             0.7%                 2.5%


                                       16

<PAGE>

90.01 - 95                             0.2%                 1.5%
95.01 or more                          0.4%                 3.4%
                                      ----                 ----
Total                                100.0%               100.0%
</TABLE>


Wholesale Loan Credit Scores

Borrower credit scores are also a very important tool in determining the quality
of loans produced by a lender. In underwriting a potential mortgage loan, we
will obtain credit scores from the borrower's credit report. A credit report
contains information on credit history, including existing and previously repaid
debt, and payment history on each obligation. There are three primary credit
repositories that keep historical data and provide credit reports on potential
borrowers. Each has a scoring model, the most common of which is referred to as
a FICO score. The FICO score is a 3-digit number that can range from 300 to 850
and is based on payment histories, amounts owed, length of credit history, new
credit and types of credit use.

Higher scores are considered better scores. That is, the higher the score, the
more favorably lenders look upon the borrower as a credit risk. Each primary
credit repository produces their own score based on the data they have on a
potential borrower. We compare the scores from the three repositories and
generally will use the middle of the three in rating the risk profile of a
proposed mortgage loan. We generally consider loans to borrowers with FICO
scores below the 600 - 650 range to have higher repayment risk than loans to
borrowers with higher FICO scores, although FICO scores alone do not always
accurately reflect repayment risk or a lack thereof.

During the six-month periods ended October 31, 2004 and 2003, the percentage of
loans, as measured by principal balance, that the wholesale division originated
in each specific middle FICO score range follows:
<TABLE>
<CAPTION>

                                 Percent of Loan Origination Volume
                               -------------------------------------
Middle FICO Score              October 31, 2004     October 31, 2003
-----------------              ----------------     ----------------
<C>                                  <C>                  <C>
800 +                                  2.6%                 1.8%
775 - 799                             11.0%                15.5%
750 - 774                             13.9%                19.5%
725 - 749                             17.0%                18.6%
700 - 724                             19.8%                13.9%
675 - 699                             15.3%                13.8%
650 - 674                             12.8%                 9.1%
625 - 649                              5.8%                 2.2%
600 - 624                              0.7%                 0.6%
575 - 599                              0.0%                 0.2%
550 - 574                              0.1%                 0.0%
Below 550                              0.0%                 0.0%
No score available                     1.0%                 4.8%
                                      ----                 ----
Total                                100.0%               100.0%
</TABLE>


Wholesale Loan Property Types

During the six-month periods ended October 31, 2004 and 2003, 100% of our
wholesale loan origination volume, as measured by principal balance, was
collateralized by residential property. The following table shows, for the
six-month periods ended October 31, 2004 and 2003, the percentage of loans
originated by property type:
<TABLE>
<CAPTION>

                                 Percent of Loan Origination Volume
                               -------------------------------------
Property Type                  October 31, 2004     October 31, 2003
-------------                  ----------------     ----------------
<S>                                  <C>                  <C>
Single family                         85.6%                84.6%
2 - 4 family                           6.2%                10.1%
Condominium                            8.1%                 5.3%
Other                                  0.1%                 0.0%
                                      ----                 ----
Total                                100.0%               100.0%
</TABLE>

                                       17
<PAGE>

During the six-month periods ended October 31, 2004 and 2003, the wholesale
division's first lien mortgage loan origination volume, as measured by principal
balance, was comprised of loans with original principal balances in the
following ranges:
<TABLE>
<CAPTION>

                                Percent of Loan Origination Volume
                               -------------------------------------
Principal Balance              October 31, 2004     October 31, 2003
-----------------              ----------------     ----------------
<C>                                  <C>                  <C>
$100,000 or less                       8.1%                 3.5%
$100,001 to $200,000                  20.8%                19.6%
$200,001 to $300,000                  17.4%                25.9%
$300,001 to $400,000                  18.4%                19.3%
$400,001 to $500,000                  12.1%                10.8%
$500,001 to $600,000                   6.3%                 8.0%
$600,001 to $700,000                   6.7%                 3.8%
$700,001 to $800,000                   3.1%                 1.2%
$800,001 to $900,000                   0.5%                 0.7%
$900,001 to $1,000,000                 3.6%                 3.0%
$1,000,001 to $1,500,000               2.0%                 2.3%
$1,500,001 to $2,000,000               1.0%                 1.9%
                                      ----                 ----
Total                                100.0%               100.0%
</TABLE>

First lien mortgage loan originations represented 92% and 99% of our wholesale
loan originations, as measured by principal balance, for the six-month periods
ended October 31, 2004 and 2003, respectively.

The Retail Origination Division

Our retail division was established in 1985 and as of October 31, 2004
contracted with 21 commissioned loan officers, who are based in our Campbell and
San Francisco, California offices. While our retail division advertises
frequently in Bay Area newspapers, most of our retail division's business is
generated through customer referrals. Approximately 19% and 16% of the aggregate
dollar value of mortgage loans originated by the retail division were funded by
our wholesale division during the six-month periods ended October 31, 2004 and
2003.

The retail division completes and processes the mortgage loan applications and
prepares and organizes necessary mortgage loan documents. The retail division
preliminarily underwrites these mortgage loans to conform to either agency
guidelines or private investor guidelines. Mortgage loans that are funded by our
wholesale division are re-underwritten by the wholesale division. During the
six-month periods ended October 31, 2004 and 2003, the average loan size
originated by the retail division was approximately $353,000 and $344,000,
respectively.

Our retail division generates revenues from the origination and closing fees
that it collects from the mortgage borrower. These are used to pay commissioned
mortgage loan officers, cover the cost of processing the mortgage loan and
contribute to the fixed operating costs of the retail offices. The retail
division contributes to the financial benefit of the Company as a source of
loans for the wholesale division and as a source of loan fees to improve total
profits.

Retail loan production for the six-month period ended October 31, 2004 was
approximately $147 million as compared to $395 million for the six-month period
ended October 31, 2003. This decrease is partially attributable to a reduction
in the number of brokers who were contracted with the Company during this

                                       18

<PAGE>

period. This reduction was primarily the result of the intense competition in
the mortgage industry to recruit experienced mortgage brokers. During the twelve
month period ended October 31, 2004, we experienced a higher attrition rate due
to the fact that better capitalized mortgage lenders were able to attract
brokers with signing bonuses and other incentives.

Retail Loan Products

Jumbo loans comprised approximately 70% and 66% of the retail mortgage loans we
originated for the six-month periods ended October 31, 2004 and 2003,
respectively.

In periods of declining interest rates, our predominant products are fixed rate
mortgages with terms of either 15 or 30 years. When interest rates are rising,
adjustable rate mortgages make up a larger percentage of our originations. We
originate some home equity financing through second mortgages and lines of
credit using the home as collateral, but these products constitute a small
portion of our business.

Since inception, our marketing niche has been borrowers that have high credit
ratings and require large mortgage loans with low loan to value ratios.

The following table details the mortgage loan types originated by our retail
division, as measured by principal balance, during the six-month periods ended
October 31, 2004 and 2003:
<TABLE>
<CAPTION>

Loan Type                                            October 31, 2004      October 31, 2003
---------                                            ----------------      ----------------
<S>                                                        <C>                  <C>
Fixed and variable Jumbo mortgage                           70.3%                65.6%
Conventional adjustable-rate mortgage                       13.5%                 7.5%
Conventional fixed-rate mortgage                             8.0%                22.6%
Second mortgages and home-equity lines                       8.2%                 4.3%
Total                                                      100.0%               100.0%
</TABLE>

The loans that fall into the "Other" category are comprised of second mortgage
loans and home equity lines of credit. "Other" loans can be either fixed or
adjustable rate loans and have a variety of terms to maturity.

Retail Geographic Concentration

The Company originates retail loans primarily in California. During the
six-month periods ended October 31, 2004 and 2003, the Company's retail loan
origination volume, as measured by principal balance, came from the following
states:
<TABLE>
<CAPTION>

                                 Percent of Loan Origination Volume
                               ------------------------------------
State                          October 31, 2004     October 31, 2003
-----                          ----------------     ----------------
<S>                                   <C>                  <C>
California                             97.7%                98.9%
Others                                  2.3%                 1.1%
Total                                 100.0%               100.0%
</TABLE>


Retail Loan Property Types

During the six-month periods ended October 31, 2004 and 2003, the Company's
first lien retail mortgage loan origination volume, as measured by principal
balance, was comprised of loans with original principal balances in the
following ranges:
<TABLE>
<CAPTION>

                                 Percent of Loan Origination Volume
                                ------------------------------------
Principal Balance               October 31, 2004    October 31, 2003
-----------------               ----------------    ----------------
<C>                                  <C>                  <C>
$100,000 or less                       3.5%                 2.4%
$100,001 to $200,000                   7.5%                 6.7%
$200,001 to $300,000                   7.7%                16.5%


                                       19

<PAGE>

$300,001 to $400,000                  13.3%                18.8%
$400,001 to $500,000                  20.9%                19.3%
$500,001 to $600,000                  13.1%                14.2%
$600,001 to $700,000                  10.4%                 8.4%
$700,001 to $800,000                   4.1%                 4.2%
$800,001 to $900,000                   4.8%                 2.6%
$900,001 to $1,000,000                 6.1%                 3.7%
$1,000,001 to $1,500,000               6.6%                 2.6%
$1,500,001 to $2,000,000+              1.3%                 0.4%
                                       ----                ----
Total                                100.0%               100.0%
</TABLE>

First lien retail mortgage loan originations represented 92% and 96% of our
total loan originations, as measured by principal balance, for the six-month
periods ended October 31, 2004 and 2003, respectively.


                                       20
<PAGE>


The data in the table below is presented to provide context for the discussion
that follows the table.

                      Transnational Financial Network, Inc.

                Condensed Statements of Operations and Production

                                   (Unaudited)
<TABLE>
<CAPTION>


                                                   For the 3 Months Ended October 31,       For the 6 Months Ended October 31,
                                                   ----------------------------------       ----------------------------------

                                                        2004         2003     % Chng.             2004          2003   % Chng.
                                                 ------------------------------------------------------------------------------

Revenue:
<S>                                              <C>          <C>             <C>          <C>          <C>            <C>
    Net gain on sale of mortgages                $ 1,355,058  $ 1,794,020     - 24%        $ 2,458,199  $  4,082,154   - 40%
    Production revenue                             1,074,001    2,620,944     - 59%          2,432,722     6,145,158   - 60%
    Other revenue                                     20,899       19,955        5%             50,424        32,798     54%
                                                 -----------  -----------                  -----------  ------------

    Total revenue                                  2,449,958    4,434,919     - 45%          4,941,345    10,260,110   - 52%

Direct expense:
    Commission and production incentives             657,892    1,677,588     - 61%          1,484,771     3,842,617   - 61%
    Production expense                               152,140      342,155     - 56%            306,596       800,457   - 62%
    Pair-off fees                                      1,500       (5,459)       nm              3,000        (9,126)     nm
    Provision for early payoff penalties              15,000       30,000     - 50%             18,500        70,000   - 74%
                                                 -----------  -----------                  -----------  ------------

    Total direct expense                             826,532    2,044,284     - 60%          1,812,867     4,703,938   - 61%

Net interest income (expense)
    Interest income on loans in warehouse            264,407      303,399     - 13%            516,394       715,472   - 28%
    Interest expense on loans in warehouse          (210,520)    (311,219)    - 32%           (389,937)     (841,690)  - 54%
                                                 ------------ ------------                 -----------  ------------

    Net interest income                               53,887       (7,820)       nm            126,457      (126,218)     nm
                                                 -----------  ------------                 -----------  ------------

Gross profit on mortgage activities                1,677,313    2,382,815     - 30%          3,254,935     5,429,954   - 40%

Indirect expense

    Salaries and benefits                            895,453    1,096,818     - 18%          1,846,062     2,346,314   - 21%
    General and administrative                       550,879      503,422        9%          1,110,340     1,139,365   -  3%
    Occupancy                                        174,406      174,837        0%            348,215       354,286   -  2%
    Depreciation                                      17,244       24,650     - 30%             36,100        53,070   - 32%
                                                 -----------  -----------                  -----------  ------------

    Total indirect expense                         1,637,982    1,799,727     -  9%          3,340,717     3,893,035   - 14%
                                                 -----------  -----------                  -----------  ------------

    Operating income (loss)                           39,331      583,088     - 93%            (85,782)    1,536,919   -106%

Non-operating income (expense):
    Other interest expense                           (39,890)    (116,985)    - 66%            (99,205)     (245,789)    42%
    Other income (expense), including
     SFAS 133 adjustment                              33,000     (162,600)    -120%           (124,900)     (230,900)  -181%
                                                 -----------  ------------                 -----------  ------------

    Total non-operating income (expense)              (6,890)    (279,585)     -98%           (224,105)     (476,689)  -523%
                                                 ------------ ------------                 -----------  ------------

Income (loss) before taxes                            32,441      303,503      -89%           (309,887)    1,060,230   -129%

Provision for income taxes                                -        23,767        nm                 -         65,767      nm
                                                 -----------  -----------                  -----------  ------------

                       Net income (loss)         $    32,441  $   279,736      -88%        $  (309,887) $    994,463   -131%
                                                 ===========  ===========                  ===========  ============


Production ($ millions):
Wholesale                                        $        94  $       134      -30%        $       191  $        382   - 50%
Retail                                                    64          179      -64%                147           395   - 63%
                                                 -----------  -----------                  -----------  ------------
    Total production                             $       158  $       313      -50%        $       338  $        777   - 57%
</TABLE>

                                       21
<PAGE>


The following table shows the Company's wholesale and retail production trends
by fiscal quarter for the last nine fiscal quarters:
<TABLE>
<CAPTION>

                                                    Origination Volumes
                                                       ($ millions)

Fiscal Quarter Ended     10-31-04   7-31-04    04-30-04  1-31-04   10-31-03   7-31-03   4-30-03   1-31-03   10-31-02

<S>                      <C>        <C>        <C>       <C>       <C>        <C>       <C>       <C>       <C>
Wholesale                $   94     $   98     $ 128     $  102    $   134    $   247   $   194   $   198   $  179
Retail                       64                   83        144         88        216       216       244      234
                         ------     ------     -----     ------    -------    -------   -------   -------   ------
244

Total                    $  158     $  181     $ 272     $  190    $   463    $   463   $   438   $   432   $  423
                         ======     ======     =====     ======    =======    =======   =======   =======   ======
</TABLE>



QUARTER AND SIX MONTHS ENDED OCTOBER 31, 2004 COMPARED TO QUARTER AND SIX MONTHS
ENDED OCTOBER 31, 2003

Revenue Analysis

Total revenues for the fiscal quarter ended October 31, 2004 decreased 45% to
$2.5 million from $4.4 million in the fiscal quarter ended October 31, 2003. The
decline in revenues was somewhat less than the 50% decline in our loan
production due to the receipt of a $146,480 forward commitment fee for
completing a $150 million forward delivery contract and a volume bonus of
$125,000 for loan production received from one of our primary mortgage loan
investors. Had these additional fees not been received, revenues would have
declined at approximately the same rate as our loan production.

Total revenues for the six-months ended October 31, 2004 decreased 52% from the
year earlier period. During the six-month period ended October 31, 2004,
mortgage related interest rates began increasing from the historically low
levels in the prior comparable period. At the other extreme, during the
six-month period ended October 31, 2003, we experienced significantly high
levels of wholesale and retail loan production as a result of historically high
loan refinancing in the mortgage industry. Moreover, for the six-month period
ended October 31, 2004, we have achieved a higher gain on sale, excluding the
forward commitment and volume based fees described above, as compared to the
prior comparable period. This increase in the base amount of our gain on sale is
attributable to the fact that we are able to obtain a higher marginal profit on
our whole loan sales, as well as the fact that we began offering and selling our
loans in small pools for a higher yield.

The year-over-year change in the Company's total revenues for the six-month
periods ended October 31, 2004 and 2003 were subject to the following principal
influences:

First, wholesale and retail loan originations declined 50% and 63%,
respectively. This reflects the dramatic downturn in industry-wide mortgage
originations during the recently ended fiscal period. The Company is continuing
to improve its wholesale loan production, including adding account executives
and expanding its net branch relationships. Additionally, the Company is
expanding its product mix to offer a more broad range of mortgage loan product.
We expect that we will begin to realize the positive effects on our loan
production toward the latter part of our fiscal year.

Second, although wholesale production decreased by 50%, the Company's gain on
sale revenues decreased by only 40% during the six-month period ended October
31, 2004 as compared to the prior comparable period. As outlined above, the
Company received additional fees of approximately $271,000 during the six-month
period ended October 31, 2004. Additionally, the Company received a $528,000
forward commitment fee during the six-month period ended October 31, 2003.
During the six-month period ended October 31, 2004, excluding such fees, our
gain on sale averaged 114 basis points, as compared to an average of 102 basis
points during the six-month period ended October 31, 2003. This increase in our
marginal gain primarily reflects the changes that we made to our product mix
during the last year as well as the fact that we have begun to sell some of our
mortgage loans in small pools for a higher yield.

                                       22
<PAGE>



As shown in the table below, the Company has increased its gain on sale
substantially over the last two years.
<TABLE>
<CAPTION>

                             Wholesale Gain on Sale
                                 (Basis Points)

Fiscal Quarter Ending      10-31-04    7-31-04   4-30-04   01-31-04  10-31-03    7-31-03   4-30-03    1-31-03   10-31-02
                           --------    -------   -------   --------  --------    -------   -------    -------   --------

<S>                        <C>         <C>       <C>       <C>       <C>         <C>       <C>        <C>       <C>
Gain On Sale               145         113       93        134       140         106       128        101       88
</TABLE>


The Company's gain on sale margin peaked during the quarter ended October 31,
2004. On balance, and excluding forward payout fees, the Company prices its
products to achieve a 100 basis points, or more, margin. With the overall
decrease in mortgage loan production in the industry, we have found that our
mortgage loan investors have increased their demand for our production.
Additionally, we have been able to use our available cash balances to fund small
pools of loans to sell for a higher yield, thereby increasing the base level of
gain on sale from this production.

During the recently ended quarter, the Company received a forward delivery fee
of $146,480 and a volume bonus of $125,000. During the comparable quarter in the
prior fiscal year, the Company received a $528,000 forward delivery fee. In the
absence of the receipt of these forward payout fees, the Company's gain on sale
for the second quarter of fiscal 2005 and 2004 would have been 115 and 94 basis
points, respectively.

In the current environment, the Company expects to continue to earn such forward
delivery fees from time to time. Subsequent to October 31, 2004, the Company
paid an upfront commitment fee of $125,000 to enter into a six-month $100
million forward delivery commitment contract with one of its mortgage loan
investors. Under this arrangement, the Company will earn a fee of 25 basis
points on loans sold under this commitment, in addition to its normal gain on
sale. If the Company fulfills all elements of the arrangement, including
delivering $100 million of loans within the six-month period of the contract,
the Company will earn an additional 12.5 basis points. The final amount of
forward payout fee earned by the Company is subject to the following
pull-through rate determination:

o        60.00% - 64.00% pull through receives 50% of forward payout fee
o        65.00% - 69.99% pull through receives 75% of forward payout fee
o        70.00% - above pull through receives 100% of forward payout fee

Gross Profit Analysis

Gross profits for the quarter just ended were lower by 30% when compared to that
earned in the year ago period. However, the gross margin increased to 68% as
compared to 53% in the prior comparable quarter, representing the Company's
highest gross margin in the last two years. Excluding the forward delivery and
volume bonus fees, the gross margin would have been 65%, as compared to 47% in
the prior comparable quarter. The receipt of these additional fees highlights
the leverage available to the Company in selling its mortgage loans without
incurring any substantial incremental costs.

Gross profits for the six months ended October 31, 2004 decreased 40% from the
like period a year ago. Again, this is largely due to the countervailing
inflection points experienced in our wholesale business in the six-month period
just ended compared to the prior comparable period of a year ago.

As shown in the table below, the Company has experienced generally increasing
gross margins over the last two years, although there has been
quarter-to-quarter variability. The peak gross margin shown in the most recent
calendar quarter is primarily attributable to the higher base gain on sale, the
forward delivery and volume bonus fees received, and the positive warehouse
interest margin. We expect the positive influence of these factors to continue
in the forthcoming quarters.

                                       23

<PAGE>

As previously discussed, the Company's gross margins in the recently ended
quarter and the comparable quarter of the prior year were enhanced by forward
delivery fees and a volume bonus fee in the most recent quarter. In the absence
of these fees, the Company's gross margin for the recently ended quarter would
have been approximately 65% and 47%, respectively.
<TABLE>
<CAPTION>

                           Gross Profit Margin Trends

Fiscal Quarter Ending    10-31-04    7-31-04   4-30-04    1-31-04  10-31-03    7-31-03    4-30-03    1-31-03  10-31-02
---------------------    --------    -------   -------    -------  --------    -------    -------    -------  --------
<S>                      <C>         <C>       <C>        <C>      <C>         <C>        <C>        <C>      <C>
Gross Profit Margin      68.5%       62.3%     56.9%      61.9%    53.7%       52.3%      53.8%      47.1%    43.9%
</TABLE>


The gross margin variability in the last four quarters principally reflects the
following three factors:

First, the Company's wholesale originations have higher gross profitability than
retail mortgage originations. Hence, relatively small changes in our total
wholesale originations, as percentage of our total originations, will have a
larger impact on our corporate-wide gross margin. This effect has been magnified
in the recently ended second fiscal quarter.

Second, as previously discussed, the Company benefited from changes it made to
its product mix as well as from increased market demand for its product types.
As a result, the Company's gain on sale margin has steadily increased, thus
magnifying the effects of the mix factor change.

Third, in the most recent quarter and six-month period, we have experienced a
positive net interest margin on our warehouse. This increase is attributable to
the types of facilities that the Company has been able to negotiate and obtain
during the last nine months, which resulted in a decrease in the interest costs
charged on the facilities.

Indirect Expense Analysis

While aggregate indirect expenses declined 9% to $1.6 million in the quarter
ended October 31, 2004 when compared to the like period a year earlier, they
increased to 66.9% of revenues. This increase, as a percentage of revenues, is
due to revenues declining faster than expenses. Notwithstanding the increase in
our indirect expense ratio, total absolute spending on indirect expenses for the
quarter just ended was approximately $65,000 lower than it was in the
immediately preceding first fiscal quarter. Indirect expenses for the six-months
ended October 31, 2004 declined 14% when compared to the like period a year
earlier.
<TABLE>
<CAPTION>

                         Indirect Expense and Components
                           (As a Percent of Revenues)

Fiscal Quarter Ending    10-31-04   7-31-04   4-30-04   1-31-04   10-31-03   7-31-03   4-30-03   1-31-03   10-31-02
---------------------    ------------------------------------------------------------------------------------------
<S>                        <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>        <C>
Total Indirect Expenses    66.9%     68.3%     51.1%     57.5%     40.6%     35.9%     33.6%     38.6%      38.9%

Selected Components:
   Salaries and Benefits   36.6%     38.1%     29.1%     34.7%     24.7%     21.4%     19.0%     20.4%      21.1%
   General and Admin.      22.5%     22.5%     16.4%     16.3%     11.4%     10.9%     11.3%     14.5%      13.6%
</TABLE>

While salaries and benefits increased as a percentage of revenues from the like
period a year ago, we have taken substantial steps to reduce expenses. This is
reflected in the decline in salaries and benefits from the first fiscal quarter
level.

General and administrative expenses have stabilized at the current absolute
level, and we do not expect them to change materially from here.

Non-Operating Expense Analysis

The Company's non-operating expenses consist of two types.

                                       24
<PAGE>

First, the Company incurs other interest expense. This is interest expense not
directly associated with the Company's mortgage lending activities (warehouse
loans). It results largely from two obligations. First, the subordinated debt
the Company has incurred to bolster its capital base accounted for approximately
$35,000 of quarterly interest expense. Subsequent to the end of the second
fiscal quarter, the Company repaid $400,000 of subordinated debt at 15%
interest, and issued $144,000 of new subordinated debt at 10% interest. As a
result, and absent any other repayments or subordinated debt refinancing, the
quarterly interest expense from subordinated debt will decline by approximately
$1,400.

Second, the obligation related to an acquisition the Company made in 1999,
accounted for approximately $15,000 of quarterly interest expense. This
obligation (principal and accrued interest) was paid in full subsequent to
October 31, 2004.

The second part of the Company's non-operating expense is labeled "Other
Income/Expense". It consists almost entirely of non-cash charges or credits that
derive from the application of Statement of Financial Accounting Standard Number
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
relating to the accounting for mortgage related derivative instruments. This
figure will be either positive or negative from quarter to (consecutive)
quarter, principally based upon whether or not the Company's locked mortgage
pipeline (mortgages where the Company has committed, or locked in, to a buyer to
fund a mortgage for a specific amount at a specific rate) rises or falls from
the immediately preceding quarter.

In the quarter just ended, there was a positive adjustment to this SFAS 133
asset of approximately $33,000. This gain contrasts to a charge of approximately
$162,000 the Company experienced in the second fiscal quarter a year ago. The
notional value of the locked pipeline increased from the prior quarter by
approximately $2,500,000 to $28,841,984 as of October 31, 2004. However, the
fair value of this derivative asset was substantially lower as of July 31, 2004
due to the fact that interest rates had mostly remained constant at that date as
compared to the date that we entered into the lock commitments.

Liquidity and Capital Resources

Our operations are funded through internally generated funds with warehouse
lines of credit (as set forth below) providing the funding necessary to fund
mortgage loans pending the mortgage loan's resale to investors. Our unrestricted
cash plus investments held-to-maturity position for the six months ended October
31, 2004, decreased by $1,157,133. The most significant factors affecting that
cash flow are summarized below.

Operational cash flows for the six months ended October 31, 2004.

With the exception of income taxes payable and non-cash accruals, including
depreciation, the cash effect reflected in the Company's statement of operations
is usually realized within 30 days of the close of the accounting period.
Accordingly, by adding non-cash items including depreciation of $36,100, the net
change in fair market value of financial derivatives of $124,900, and the
provision for early payoff penalties of $18,500 to net loss of $309,887, the
Company used $130,387 in cash in operations for the six month period ended
October 31, 2004.

In addition to this $130,387 decrease in cash are reductions in other assets,
accrued interest payable, and accounts payable and accrued liabilities for a
total of $182,147 use of cash.

Cash flows related to mortgage loan-financing activities.

Our mortgage loans are funded primarily through Master Sale Agreements. When we
fund a loan utilizing Master Sales Agreement facilities, the loan is considered
sold to the lending facility, and the asset and liability related to loans
funded in this manner normally do not appear on the Company's balance sheet. We
used $976,013 in cash in our mortgage loan financing activities during the
six-month period ended October 31, 2004, primarily related to our program to
fund pools of mortgage loans to sell in bulk.

During the six-month period ended October 31, 2004, we discontinued one of our
Master Sale Agreements so that we were able to obtain our $900,000 security

                                       25

<PAGE>

deposit under the arrangement, which was previously included in restricted cash.
Also during the six-month period ended October 31, 2004, we obtained the
proceeds from the maturity of security investments which were held-to-maturity
in the amount of $915,234.

As of October 31, 2004, the Company owed $159,263 to one of its financing
facility providers due to the fact that a borrower failed to complete the
closing of escrow. Subsequently, the Company received the proceeds back from the
escrow company and refunded the amount owed on the financing facility.

Cash flows related to debt payment

In December 2002, we settled certain litigation related to our acquisition of
LRS, Inc. The settlement required us to pay the former principals of that entity
$100,000 per month. Six payments were made in the fiscal year to date period
ended October 31, 2004. At October 31, 2003, the Company owed $74,444 on this
obligation (principal plus accrued interest). The entire balance of this payable
was paid subsequent to October 31, 2004.

In addition, in fiscal 2005, the Company repaid $400,000 of subordinated debt
and issued $144,000 of new subordinated debt, for a net repayment of $256,000
during the period. Outstanding subordinated debt was thereby reduced to
$1,256,000, and annual interest expense was reduced to $125,600.

Summary of financing facilities

The capital resources utilized by the Company to fund its mortgage lending
activities are primarily provided by warehouse lenders that fund the mortgage
loans through Master Sales Agreements ("warehouse facilities"). The size of the
Company's warehouse facilities is based on the Company's net worth and cash
resources. The Company's prior operating losses eroded its net worth and cash
position, which has made it more difficult to obtain adequate financing
facilities at favorable rates as needed to support further business expansion.
As of October 31, 2004, the Company had a total of two financing facilities for
a maximum financing capacity of up to $60.0 million.

The funding facilities have various financial and operational covenants with
which the Company must comply, including the requirement that the Company
maintain cash deposits with certain lenders as compensating balances.
Collectively, these facilities require compensating balances of $1.1 million. As
of October 31, 2004, the Company was in compliance with all financial and
operational covenants. The agreements are renewable on an annual basis, subject
to the lenders` evaluation of the Company's financial position at that time.
However, despite the fact that the agreements are for a year at a time, other
provisions included in the agreements give both the lender and the Company the
right to terminate the agreement without cause; either immediately upon
notification or with 30 days written notice. Termination of any of these
facilities could have a material adverse effect on the Company's operations and
its financial performance by constraining its ability to fund loans. If
termination were to occur, the Company would need to seek alternative sources of
financing, possibly under less favorable terms. Joseph Kristul, CEO, and Maria
Kristul, President, have both personally guaranteed the two facilities in place
at October 31, 2004. The Company believes that its relationships with its
existing lenders is satisfactory at the current time.

The level of financing facilities the Company can obtain is a multiple of the
Company's equity. For every dollar increase in the Company's equity, it can
expect a $15 increase in financing facility capacity. Conversely, every dollar
reduction in equity has the potential to constrain the Company's financing
facilities by $15. Given the improvement in the Company's results over the past
year, management was able to renegotiate the interest rates it pays on one
significant facility, lowering the rate paid by 1.50%, or 150 basis points,
effective August 1, 2004. The Company will negotiate for more favorable terms
from its other lenders, as well as seek to obtain other financing facilities at
favorable rates. Given the lower level of current fundings, the Company has
reduced the committed amount under one facility and is in the process of
eliminating two others. The Company continues to review its existing facilities
in an ongoing attempt to improve net interest income (expense), which has been a
significant contributor to prior years' operating losses.


                                       26
<PAGE>


Our overall funding strategy is to use committed facilities, summarized as of
October 31, 2004:
<TABLE>
<CAPTION>

                               Committed       Outstanding     Required        Interest Rate
Type of Facility               Facility        Balance       Cash Deposit    October 31, 2004  Maturity
----------------             -------------  ------------     ------------    ----------------  --------

<S>                            <C>            <C>            <C>                <C>            <C>
Master sales agreement (1)     $40,000,000    $ 9,178,798    $ 1,000,000        4.75%(2)       Annual or 30 days
notice
Master sales agreement (1)      20,000,000      5,166,784        100,000        3.60%(3)       Annual or 30 days notice
                               -----------    -----------    -----------
Totals                         $60,000,000    $14,345,582    $ 1,100,000
                               ===========    ===========    ===========
</TABLE>



(1) The Company accounts for the loans underlying these facilities as sold as of
    October 31, 2004.
(2) The contractual interest rate on this facility was 3.99% or Prime, whichever
    is greater.
(3) The contractual interest rate on this facility is one month LIBOR plus a
    margin ranging from 1.875% to 2.375%.

The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit in the form of
loans, and mandatory forward delivery commitments. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the balance sheet. The mandatory forward delivery
commitments also involve the risk of nonperformance on the part of the Company.
The Company manages these risks by entering into these agreements with major,
well-known financial institutions. The contract amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.

The notional value of financial instruments, whose contract amounts represent
credit and risk at the indicated dates, are as follows:
<TABLE>
<CAPTION>

                                                October 31,                         April 30,
                                                    2004                               2004
                                            -------------------------------------------------------

<S>                                         <C>                               <C>
Commitments to extend credit                $     30,699,937                  $      39,667,350
Mandatory forward delivery commitments             5,499,150                                 -
</TABLE>


Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract on the part
of the customer. Commitments generally have fixed expiration dates or other
termination clauses. Since many of the commitments to extend credit are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.

ITEM 3.  CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Securities
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. During the 90-day period prior to the date of this report, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, and no corrective actions taken with
regard to significant deficiencies or material weaknesses in such controls,
subsequent to the date of the Company's most recent evaluation of internal
controls.


                                       27
<PAGE>


PART 2. OTHER INFORMATION

Item 3.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

          31.1    Certification of the Chief Executive Officer pursuant to 18
                  U.S.C. Section 1350 as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002
          31.2    Certification of the Chief Financial Officer pursuant to 18
                  U.S.C. Section 1350 as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002
          32.1    Certification of the Chief Executive Officer pursuant to 18
                  U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
          32.2    Certification of the Chief Financial Officer pursuant to 18
                  U.S.C. Section 1350 as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

(b)      REPORTS ON FORM 8-K

                  NONE

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On October 1, 2004 the registrant held its annual meeting of stockholders. At
the meeting, all of the directors were reelected. The following table sets forth
the votes in that election:

              Name                          For      Against      Abstain

           Joseph Kristul               5,049,700      0          56,826
           Maria Kristul                5,049,700      0          56,826
           Robert Forrester             5,049,700      0          56,826
           Alex Rotzang                 5,049,700      0          56,826
           Peter Gaskins                5,049,700      0          56,826
           Paul Garrigues               5,049,700      0          56,826

The stockholders ratified the appointment of Burr, Pilger & Mayer LLP. The vote
was as follows:
                                            For      Against      Abstain
                                         5,055,010    33,366      18,150


                                       28
<PAGE>




                                   SIGNATURES

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


                                        Transnational Financial Network, Inc.

Date:      December 9, 2004             /s/ Joseph Kristul
      ---------------------             --------------------------------------
                                        Joseph Kristul, Chief Executive Officer


Date:      December 9, 2004             /s/ Jack Thrift
      ---------------------             --------------------------------------
                                        Jack Thrift
                                        Chief Financial Officer










                                       29
<PAGE>