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 July 31, 2005

[  ]     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 August 27, 2005. 6,828,160



<PAGE>





                     TRANSNATIONAL FINANCIAL NETWORK, INC.
                                  July 31, 2005
                                    UNAUDITED





TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION

Item 1.       Financial Statements
              Condensed Balance Sheets as of July 31, 2005
               (Unaudited) and April 30, 2005                               F-2
              Condensed Statements of Operations for the
                three months ended July 31, 2005 and  2004                  F-3
              Condensed Statements of Cash Flow for the
                three months ended July 31, 2005 and  2004                  F-4
              Notes to the Condensed Financial Statements             F-5 - F-9

Item 2        Management's Discussion and Analysis of Financial
                Condition and Results of Operations                 MD-1 - MD-16

Item 3.       Controls and Procedures                                       O-1

Part II.      OTHER INFORMATION

Item 5.       Other Information
              Compensation Committee Charter                            O1 - O2

Item 6.       Exhibits and Reports on Form 8K                                O2



                                      F-1
<PAGE>



PART 1. FINANCIAL INFORMATION

Item 1.  Financial Statements

                      TRANSNATIONAL FINANCIAL NETWORK, INC.
                            CONDENSED BALANCE SHEETS
                     As of July 31, 2005 and April 30, 2005
<TABLE>
<CAPTION>

                                                                         July 31,                   April 30
                                                                           2005                       2005
                                                                       -------------             -------------
                                                                        (unaudited)
ASSETS

<S>                                                                    <C>                       <C>
Cash and cash equivalents                                              $   3,420,335             $   3,058,140
Restricted cash                                                            1,025,000                 1,020,000
Short-term mortgage related receivables, net of allowance
   for early loan payoff penalties of $35,881 and $18,313,
   respectively                                                              714,535                   639,550
Mortgage loans held for sale                                               1,464,162                 1,721,450
Fair value of derivative financial instruments                                23,451                         -
Goodwill                                                                   1,257,789                 1,257,789
Property and equipment, net of accumulated depreciation of
     $922,834 and $904,678, respectively                                      94,999                    94,999
Other assets                                                                 332,492                   313,234
                                                                         -----------               -----------
TOTAL ASSETS                                                           $   8,332,763             $   8,105,162
                                                                         ===========                 =========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Accrued interest payable                                               $      79,140             $      62,184
Accounts payable and other liabilities                                       674,400                   682,411
Income taxes payable                                                             336                       336
Fair value of derivative financial instruments                                     -                    47,496
Subordinated debt                                                          3,737,700                 3,737,700
                                                                         -----------               -----------
TOTAL LIABILITIES                                                          4,491,576                 4,530,127
                                                                         -----------               -----------

STOCKHOLDERS' 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 shares issued and outstanding
   at July 31, 2005 and April 30, 2005 respectively.                      13,559,038                13,559,038
Accumulated deficit                                                       (9,717,851)               (9,984,003)
                                                                          ----------                ----------
TOTAL STOCKHOLDERS' EQUITY                                                 3,841,187                 3,575,035
                                                                         -----------               -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $   8,332,763             $   8,105,162
                                                                           =========                 =========
</TABLE>




             See accompanying notes to these financial statements.

                                       F-2
<PAGE>


                      TRANSNATIONAL FINANCIAL NETWORK, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                  For the Quarters Ended July 31, 2005 and 2004
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                           2005                       2004
                                                                       -------------             -------------

Revenue:
<S>                                                                    <C>                       <C>
Net gain on sale of loans                                              $   1,967,973             $     945,241
Production income                                                          1,494,851                 1,358,721
Other income                                                                  20,283                    29,525
                                                                         -----------               -----------

Total Revenue                                                              3,483,107                 2,333,487
                                                                         -----------               -----------

Direct Expenses:
Commissions and production incentives                                      1,043,754                   826,879
Production                                                                   208,780                   154,456
Provisions for early loan payoff penalties                                    15,000                     3,500
Pairoff fees                                                                       -                     1,500
                                                                         -----------               -----------

Total direct expenses                                                      1,267,534                   986,335
                                                                         -----------               -----------

Interest income (expense):
Interest income from loans in warehouse                                      486,745                   251,987
Interest expense on loans in warehouse                                      (405,740)                 (179,417)
Warehouse transactions fees                                                  (45,475)                        -
                                                                         -----------               -----------

Net warehouse interest income                                                 35,530                    72,570

Interest expense on subordinated debt                                        (87,081)                  (59,354)
                                                                         -----------               -----------

Net interest (expense) income                                                (51,551)                   13,255
                                                                         -----------               -----------

Gross profit on mortgage activities                                        2,164,022                 1,360,407

Indirect expenses:
Salaries and benefits                                                      1,118,796                   950,609
General and administrative                                                   586,277                   559,461
Occupancy                                                                    174,641                   173,809
Depreciation and amortization                                                 18,156                    18,856
                                                                         -----------               -----------

Total indirect expenses                                                    1,897,870                 1,702,735
                                                                         -----------               -----------

Operating income (loss)                                                      266,152                  (342,328)
                                                                         -----------               -----------

Income tax provision                                                               -                         -

Net income (loss)                                                      $     266,152             $    (342,328)
                                                                         ===========               ===========

Basic net income (loss) per share                                             $0.04                    ($0.05)
Fully diluted income (loss) per share                                         $0.04                    ($0.05)

Weighted-average shares outstanding
Basic                                                                      6,791,360                 6,794,787
Diluted                                                                    6,795,110                 6,794,787
</TABLE>



             See accompanying notes to these financial statements.

                                       F-3
<PAGE>


                      TRANSNATIONAL FINANCIAL NETWORK, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                  For the Quarters Ended July 31, 2005 and 2004
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                         2005                      2004
                                                                  ------------------         -----------------

Cash flows from operating activities:

<S>                                                               <C>                        <C>
Net income (loss)                                                 $          266,152         $        (342,328)
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
     Depreciation & amortization                                              18,156                    18,856
     Provision for early loan payoffs                                         15,000                     3,500
     Changes in Restricted Cash Requirement                                   (5,000)                  900,000
     Fair Value of Financial Instruments                                     (70,947)                  157,900
Net effect of changes in assets and liabilities:
     Other assets                                                            (19,258)                   57,256
     Accrued interest payable                                                 16,956                    (2,382)
     Accounts payable and other liabilities                                   (8,011)                  (67,348)
     Income taxes payable                                                          -                   (20,918)
Net effect of changes in mortgage lending activities:
     Short-term mortgage related receivable                                  (89,985)                   34,708
     Mortgage loans originated for sale                                 (129,989,923)              (97,672,404)
     Proceeds from sales of mortgage loans                               130,247,211                97,298,890
                                                                     ---------------           ---------------

Net cash provided by (used in) operating activities:                         380,351                   365,730
                                                                     ---------------           ---------------


Cash flows from investing activities:

Purchases of property and equipment                                          (18,156)                   (5,309)
                                                                     ---------------           ---------------


Net cash (used in) investing activities:                                     (18,156)                   (5,309)
                                                                     ---------------           ---------------

Cash flows from financing activities:


Payment on Settlement payable                                                      -                  (286,920)
Payment on Capital Leases obligations                                              -                    (5,921)
Repurchase Common Stock                                                            -                   (37,198)
                                                                     ---------------           ---------------

Net cash (used in) financing activities:                                           -                  (330,039)
                                                                     ---------------           ---------------

Net increase in unrestricted
     cash and cash equivalents                                               362,195                    30,382

Unrestricted cash and cash equivalents, beginning of period                3,058,140                 1,585,034
                                                                     ---------------           ---------------

Unrestricted cash and cash equivalents, end of period             $        3,420,335         $       1,615,416
                                                                     ===============           ===============

Interest                                                          $          386,289         $         222,532
Income taxes                                                      $                -         $          20,918
</TABLE>



             See accompanying notes to these financial statements.

                                       F-4
<PAGE>



Note 1 - Description of Operations and Summary of Significant Accounting
Policies

The accompanying financial statements of Transnational Financial Network, Inc.
(the "Company") as of and for the three-month periods ended July 31, 2005 and
2004 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, 2005. 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-months ended July 31, 2005 and 2004 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:


                                      F-5
<PAGE>


                      Transnational Financial Network, Inc.

                    Notes to Financial Statements (Continued)



                                                    Three Months Ended
----------------------------------      --------------------------------
                                                   July 31          July 31
                                                     2005            2004
                                                     ----            ----
NetIncome(loss):
As reported                                      $  266,152      $ (342,327)
Add:  compensation expense previously
          recorded                               $        -      $
Deduct:  fair value amount net of tax            $               $  (49,310)

Pro forma                                        $  266,152      $ (391,637)
Basic income (loss) per common share:
As reported                                      $     0.04      $    (0.05)

Pro forma                                        $     0.04      $    (0.06)
Diluted (loss) income per common share:
As reported                                      $     0.04      $    (0.05)
Pro forma                                        $     0.04      $    (0.06)


There were no options granted during the quarter ended July 31, 2005 and 2004.
As mentioned in Note 6 below, the Board of Directors on March 10, 2005, elected
to accelerate the vesting of all outstanding options as of that date. All
outstanding options are fully vested as of July 31, 2005.

Note 3 - Financing Facilities

As of July 31, 2005, the Company had a maximum mortgage loan financing capacity
of $70 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 agreements
at the date of the sale. During the three-month period ended July 31, 2005 the
Company was required to repurchase three loans in the total amount of $395,500.
Two of the loans were refinanced by the borrowers and the Company recovered its
entire principal, as well as the direct and carrying costs associated with these
two loans. The remaining loan in the amount of $137,500 is reflected in the
balance sheet as of July 31, 2005 under Mortgage Loans Held for Sale. During the
three-month period ended July 31, 2004 the Company was required to repurchase
one loan in the amount of $263,646.

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
July 31, 2005. 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 6.25% at July 31, 2005. 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 July 31, 2005
was 6.25%. 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 $30 million as of
July 31, 2005. Interest on the facility is at 1 month LIBOR plus a margin
ranging from 1.875% to 2.50%. The rate paid by the Company on this line as of
July 31, 2005 was between 5.38% and 6.01%. The Company is required to maintain a
non-interest bearing cash collateral deposit with this lender of $25,000, which
has been included as restricted cash in the balance sheets.

These two master sale agreements are each for a one-year period and are

                                      F-6
<PAGE>

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 customary covenants including minimum
liquidity, profitability and net worth requirements, and limitations on other
indebtedness. If we fail to comply with any of these covenants or otherwise
default, the lender has the right to terminate the facility and require
immediate repayment that may require sale of the collateral at less than optimal
terms. As of July 31, 2005, the Company was in compliance with all covenants
required for each of the warehouse 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 July 31, 2005, the Company had a total of $3,737,700 of subordinated
debentures outstanding. In January, 2005, we received $2,687,700 of convertible
subordinated debt that is due on January 12, 2015, bears interest at 8.50% and
is convertible into common shares at $1.00 per share. The remaining $1,300,000
of subordinated debt bears interest at 10%, and has maturities ranging from
October 31, 2006 to October 1, 2007.

Subordinated debt interest expense of $87,081 and $59,135 was incurred in the
three month periods ended July 31, 2005 and 2004, respectively.

Note 6 - Stock Option Programs and Warrants to Purchase Common Stock

On March 10, 2005, the Board of Directors of the Company accelerated the vesting
of all outstanding options, such that on that date, all outstanding options are
fully vested. The Company accelerated the vesting of the options principally to
avoid the administrative complexities of required disclosures associated with
SFAS 123. The Board of Directors continues to evaluate the situation with
respect to future option issuance. The acceleration of options resulted in the
immediate vesting of options to purchase 228,989 shares of the Company's common
stock. Using the intrinsic value method for valuing these accelerated employee
options, compensation expense of $2,010 was recognized in the year ended April
30, 2005. Using the fair value method for valuing these accelerated independent
contractors' options, an additional $4,402 in expense was recognized in the year
ended April 30, 2005.

Information about stock options outstanding as of July 31, 2005 is summarized as
follows:
<TABLE>
<CAPTION>


                                                              Weighted                            Weighted
                                                              Average                             Average
                                            Average           Exercise                            Exercise
     Range of                              Remaining          Price of                            Price of
     Exercise            Options          Contractual         Options           Options           Options
      Prices           Outstanding      Life in Years        Outstanding       Exercisable       Exercisable
    --------           -----------      -------------        -----------       -----------       -----------
<S>                    <C>                   <C>               <C>            <C>                <C>
  $0.22 to $1.00         692,345             6.04              $0.73            692,345            $0.73
  $1.01 to $2.45         243,201             7.23              $1.24            243,201            $1.24
      $7.50              258,000             3.53              $7.50            258,000            $7.50
                         -------                                                -------
                       1,193,546             6.15              $2.30          1,193,546            $2.30
                       =========                                              =========
</TABLE>

                                      F-7

<PAGE>

As of July 31, 2005, 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 July 31, 2005,
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 expire in June 2009.

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 ten years from the date of
issuance. Of the total grant, 180,000 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 unanimously 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 are vested as of
April 30, 2005, and as noted above expire in four years. Under the 2000 Plan, a
total of 750,000 shares were initially reserved. 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.

Accordingly, the following table is a roll forward of the share reserve limit
through July 31, 2005:

                                                      Number of Options

                  Initially Reserved                       750,000
                  January 1, 2001                          171,172
                  January 1, 2002                          205,503
                  January 1, 2003                          270,407
                  January 1, 2004                          272,640
                  January 1, 2005                          271,654
                                                        -----------
                  Reserve amount at January 31, 2005     1,941,376

                                      F-8

<PAGE>

         The table below summarizes aggregate activity for all options programs
for the three-month period ended July 31, 2005:

                                                All Programs
                                     ---------------------------------------
                                                               Weighted
                                                                Average
                                      Stock                    Exercise
                                     Options                    Price
                                   -------------               ---------

Outstanding at April 30, 2005      1,193,546                   $2.30
Grants and Adjustments                     0                       -
Forfeitures                                0                       -
                                   -----------                 -------
Outstanding at July 31, 2005       1,193,546                   $2.30
                                   =========                    ====

As of July 31, 2005, there were 45,000 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 7 - Basic and Diluted Net Income (loss) Per Share

Basic net income (loss) per share is based on net income (loss) divided by the
weighted-average common shares outstanding. Diluted net income (loss) is
computed based on the weighted-average number of common shares outstanding
adjusted for potentially dilutive securities, which include stock options and
warrants. The computations of basic and diluted net income per share are as
follows:

<TABLE>
<CAPTION>

Year Ended                                                      July 31, 2005       July 31, 2004
                                                                -------------       -------------

<S>                                                              <C>                 <C>
Net (loss) income                                                $  266,152          $ (342,328)
Weighted average number of shares outstanding                     6,791,360           6,794,787
Basic net (loss) income per share                                    $0.04            $ (0.05)
Effect of dilutive options                                            3,750                   -
Diluted weighted average number of shares outstanding             6,795,110           6,794,787
Diluted net income/(loss) per share                                 $ 0.04            $ (0.05)
</TABLE>


As of July 31, 2005 and 2004, potential dilutive securities of 3,926,246 and
748,104, respectively, have not been included in the calculation of diluted net
income per share because their effects are anti-dilutive.

Note 8 - 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 July 31, 2005, and April 30, 2005, including financial
instruments whose contract amount represents credit risk only is as follows:

                                           July 31, 2005          April 30, 2005
                                           -------------          --------------

Commitments to extend credit               $  22,989,899          $  21,772,820
Mandatory forward delivery commitments         2,697,820              2,741,500

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 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").

                                      F-9
<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.

QUARTER ENDED JULY 31, 2005 COMPARED TO QUARTER ENDED JULY 31, 2004

For the recently ended quarter, year-over-year revenues increased 49%, gross
profits increased 59% and net income swung from a loss of about $342,000 to a
gain of $266,000.

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

                                     TABLE 1
                               ORIGINATION VOLUMES
                                  ($ MILLIONS)

                              Fiscal Quarter Ended
<TABLE>
<CAPTION>

                         7-31-05    4-30-05    1-31-05  10-31-04    7-31-04   4-30-04   1-31-04   10-31-03   7-31-03
                         -------    -------    -------  --------    -------   -------   -------   --------   -------

<S>                      <C>        <C>        <C>      <C>         <C>       <C>       <C>       <C>        <C>
Wholesale                $  130     $   84     $  91    $   94      $   98    $   128   $   103   $   135    $  247
Retail                       79         71        72        64          83        144        88       183       216
                         ------     ------     -----    ------      ------    -------   -------   -------    ------

Total                    $  209     $  155     $ 163    $  158      $  181    $   272   $   191   $   318    $  463
                         ======     ======     ======   ======      ======    =======   =======   =======    ======
</TABLE>


REVENUE ANALYSIS

Our overall Revenues increased 49%, sharply higher than the 15% increase in our
total mortgage originations. The following are the principal factors affecting
our year-over-year revenue comparisons:Wholesale mortgage originations increased
33% year-over-year. Approximately half of this gain came from our Alt Funding
operations, with the remaining half coming across the board in our regional
offices, largely a result of an improved Account Executive team.

As we noted in our annual report, about half way through our last fiscal year,
we set up a wholesale origination operation (Alt Funding) that operates in
parallel to our existing one. The purpose is to focus on a different market
segment than the Alt-A borrowers of our traditional focus. This market is for
borrowers with lower credit scores, but higher than what normally sees in
sub-prime mortgage lending. We consider them to be Alt-A-Minus borrowers. We
initially set this operation up on a pilot basis in our Arizona office, and are
currently in the early stages of rolling it out to our other markets.

The secondary market pays a much higher gain on sale margin to us for loans
originated from our Alt-Funding operations.

                                      MD-1
<PAGE>

1.            Our revenues from the gain on sale of mortgages increased 108% on
              a year-over-year basis. The acceleration of our loan originations
              was significantly leverage by a 34% increase in our gain on sale
              margin. This margin improved from 113 basis points a year ago to
              151 basis points in the quarter just ended. We received $125,000
              in Forward Commitment Payout Fees in the the quarter just ended,
              in contrast to having received no such fees in the comparable
              quarter a year ago. In the absence of receiving these fees, our
              gain on sale margin would have increased 26%.

2.            Our Retail mortgage originations were relatively static on a
              year-over-year basis, declining 5%. As discussed in our Annual
              Report, the actions we have taken to improve our retail mortgage
              originations have not yet taken effect.

There were two main influences on our year-over-year improved gain on sale
margin. First, and as mentioned previously, our Alt Funding operations have a
higher margin for us in the secondary mortgage market than the regular Alt A
mortgage we originate. Second, and as discussed in our last two reports, in the
latter part of our last fiscal year, we began accumulating loans for sale in
bulk packages. This results in a higher gain on sale than when we sell loans on
a loan-by-loan basis as originated.

                                     TABLE 2
                             WHOLESALE GAIN ON SALE*
                                 (BASIS POINTS)

                              Fiscal Quarter Ended
<TABLE>
<CAPTION>

                         7-31-05    4-30-05    1-31-05  10-31-04    7-31-04   4-30-04  1-31-04  10-31-03    7-31-03
                         -------    -------    -------  --------    -------   -------  -------  --------    -------

<S>                       <C>        <C>          <C>      <C>        <C>        <C>     <C>        <C>        <C>
Gain on Sale              151        142          119      145        113        106     140        133        93
</TABLE>


* - As originally reported.

                                     Table 3
                     Forward Commitment Payout Fees Received
                                    ($ 000's)

                              Fiscal Quarter Ended
<TABLE>
<CAPTION>

                         7-31-05    4-30-05    1-31-05  10-31-04    7-31-04   4-30-04  1-31-04  10-31-03    7-31-03
                         -------    -------    -------  --------    -------   -------  -------  --------    -------

<S>                      <C>        <C>        <C>      <C>         <C>       <C>      <C>      <C>         <C>
FCP Fees Received        $ 125      $ 98       $ 105    $ 271       $ 0       $ 51     $ 335    $ 528       $ 27
</TABLE>


GROSS PROFIT ANALYSIS

Gross profits for the quarter just ended were 59% higher than what we generated
in the comparable quarter a year ago, a moderately higher increase than our
total revenues. Given the 108% increase in our gain on sale of mortgage loans,
one might have expected our gross margin to improve more significantly on a
year-over-year basis. There were two factors that kept it from doing so,
however.

First, our year-over-year interest expense on subordinated debt was about
$43,000 higher this year, reflecting the debt we raised in January of the
current calendar year. This increased interest expense diminished our gross
margin from what it would have been by approximately 1.3 percentage points. This
will continue to exert a negative year-over-year influence on our gross margin
until the fourth quarter of our current fiscal year.

Second, the positive spread on our warehouse activities is diminishing,
reflecting the progressively higher short-term interest rate environment. We
estimate that this effect on our gross margin was approximately 1.8 percentage
points. Assuming a further rise in short-term interest rates, one should expect
our net warehouse interest margin to continue shrinking, or perhaps even turn
negative.


                                      MD-2
<PAGE>


                                     Table 4
                           GROSS PROFIT MARGIN TRENDS

                              Fiscal Quarter Ended
<TABLE>
<CAPTION>

                         7-31-05    4-30-05    1-31-05  10-31-04*   7-31-04*  4-30-04* 1-31-04* 10-31-03*   7-31-03*
                         -------    -------    -------  --------    -------   -------  -------  --------    -------

<S>                      <C>        <C>        <C>      <C>         <C>       <C>      <C>      <C>         <C>
Gross Profit Margin      62.1%      56.5%      61.8%    66.9%       61.5%     50.2%    59.8%    52.0%       51.0%
</TABLE>


         * - These margins are different than previously reported because we are
         now reporting Subordinated Debt Interest and SFAS 133-related effects
         (income or expense) above the Gross Profit line going forward from
         January 31, 2005.

INDIRECT EXPENSE ANALYSIS

Our Indirect Expenses increased 11% on a year-over-year basis. We have been
suggesting since the Fall of last year that we believed we had reached a bottom
in how low we could take our Indirect Expenses. As the table below clearly
shows, this has been the case.

While we have been selectively increasing our staffing to enable us to build
loan production to higher levels, there were some events of the last two
quarters that have had the effect of overstating the normalized quarterly
run-rate of our Indirect Expenses by about $90-100,000.

First, we had substantial turn-over in our accounting and finance department
early this calendar year. As a result, we needed to hire temporary personnel and
consultants to help us restaff in this area. Second, in the fourth quarter of
last year, we had a one time increase in our compensation expense related to
stock options previously granted.

                                     TABLE 5
                         INDIRECT EXPENSE AND COMPONENTS
                                    ($ 000s)

                              Fiscal Quarter Ended
<TABLE>
<CAPTION>

                         7-31-05    4-30-05    1-31-05  10-31-04    7-31-04   4-30-04  1-31-04  10-31-03    7-31-03
                         -------    -------    -------  --------    -------   -------  -------  --------    -------

<S>                     <C>        <C>         <C>        <C>       <C>       <C>      <C>       <C>        <C>
Total Indirect Exp.     $1,898     $1,823      $1,660     $1,637    $1,702    $1,771   $1,699    $1,799     $2,093
    Percent of Rev.       54.5%      67.1%       74.5%      66.9%     68.3%     50.5%    57.5%     40.6%      35.9%

Selected Components:
    Salaries and Ben.   $1,119     $1,086      $  948     $  895    $  950    $1,012   $1,024    $1,096     $1,249
    Percent of Rev.       32.1%      40.0%       42.6%      36.6%     38.1%     28.8%    34.7%     24.7%      21.4%

    Gen. and Admin.     $  586     $  515      $  520     $  550    $  559    $  559   $  480    $  503     $  635
    Percent of Rev.       16.8%      18.9%       23.4%      22.5%     22.5%     15.9%    16.3%     11.4%      10.9%
</TABLE>


NON-OPERATING EXPENSE ANALYSIS

The Company's past non-operating expense has historically consisted of other
interest expense. This is interest expense not associated with the Company's
mortgage lending activities (warehouse loans) or the financing of its capital
base. It resulted solely from a single past obligation: An obligation related to
an acquisition the Company made in 1999, accounted for the entire amount of
Non-operating quarterly interest expense.

This obligation (principal and accrued interest) was paid in full during the
third quarter of our last fiscal year. This is the reason there was no such
interest expense in the currently reported quarter, thus accounting for about
$44,000 of improvement in our Non-Operating Expense. We do not expect to incur
other interest expense in the foreseeable future.


                                      MD-3
<PAGE>


Liquidity And Capital Resources

Our unrestricted and restricted cash position as of July 31, 2005, increased by
$367,195 from what it was at the end of our last fiscal year, April 30, 2005.
Management and the Company's board of directors believe this is a more
appropriate figure to examine than unrestricted cash alone. The restricted cash
is cash held on deposit with the Company's warehouse lenders and represent a
management decision and strategy. We can negotiate for lower deposit
requirements, but at the expense of other variables associated with the lending
facility, including, but not limited to, nominal interest rate, per transaction
fees, and loan haircuts. Hence, the total of unrestricted and restricted cash
plus short-term (cash-like) investments is what we measure in evaluating our
overall liquidity.

The principal changes to our aggregate cash and investments positions during the
year are shown in Table 6, "Simplified Sources/(Uses) of Cash," below. The
FASB-compliant sources and uses of funds statement is included with the other
financial statements in Item 1 of this filing. The short-form table below is how
management and the Company's board of directors monitor the Company's changes in
cash and investments position.

                                     TABLE 6

                        SIMPLIFIED SOURCES/(USES) OF CASH
<TABLE>
<CAPTION>

                                                                                    Quarter Ended     Quarter Ended
         Sources (Uses)                                                                   7-31-05           4-30-05
         ----------------------------------------------------------------------------------------------------------

          Operating Cash Flows
          Income Statement Related Cash Flows
<S>                                                                                     <C>            <C>
          Net Income/(Loss)                                                             $ 266,152      $ (3,273,171)
                  Add back non-cash charges
                      Depreciation & Amortization                                          18,156            21,054
                      Impairment of Goodwill                                                    0         2,714,516
                      Fair value of financial derivatives changes                         (70,947)           85,896
                      Stock option expense                                                      0           136,762
                      Deferred income taxes                                                     0           291,365
                      Provision for early payoff penalties, net of payments                15,000            14,000
                                                                                                                   -
                      Actual early payoff penalties paid                                   (1,850)           (5,333)
                                                                                           -------            ------
                  Operational Cash Flows from the Income Statement                      $ 226,511      $    (14,911)

          Balance Sheet Related Cash Flows
          Mortgages held for sale                                                       $ 257,288      $   (229,706)
          Short-term mortgage receivables                                                 (88,135)          (71,292)
          Other Assets                                                                    (19,258)           26,479
          Accounts payable and other accrued liabilities                                    8,945           121,958
                                                                                            -----           -------
                  Operational Cash Flow from the Balance Sheet                          $ 158,840      $   (152,561)

          Total Cash Flow Generated/(Used) in Operations                                $ 385,351      $   (167,472)

          Financing Activity Cash Flows
                      Issuance of subordinated debt                                           $ 0      $          0
                      Repayments of subordinated debt                                           0          (250,000)
                      Stock purchases                                                           0                 0
                      Settlement paid                                                           0                 0
                      Capital lease obligations change                                          0            (3,252)
                                                                                                -            ------

          Total Cash Flow from Financings Activities                                          $ 0      $   (253,252)

          Investing Activity Cash Flows
                      Purchase of property and equipment                                $ (18,156)     $     (3,560)

          Total Cash Flow from Investing Activities                                           $ 0      $     (3,560)

          Net Change to Aggregate Cash and Investments                                  $ 367,195      $   (424,284)
</TABLE>


In summary form, this table says the following regarding the changes in the
Company's aggregate cash resources in the recently ended quarter.

1.            The Company generated about $227,000 in positive cash flow from
              income statement-related operations during the recently ended
              quarter, consistent with the improving trend in recent quarters.

2.            The Company decreased the total of Mortgage Loans Held for Sale
              and Short-Term Mortgage-Related Receivables by about $169,000.
              This merely reflects timing differences in when pools of mortgages
              are sold and not some underlying change in policy, practice or
              strategy.

3.            The Company spent about $18,000 on purchases of property and
              equipment during the quarter just ended.

4.            Immaterial (less than $20,000 in each case) changes in the
              remaining other asset and liability categories, aggregating a net
              use of cash in the amount of about $10,000.

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. As of July 31, 2005, the Company had a total of two financing
facilities for a maximum financing capacity of up to $70 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 currently require compensating balances of $1.02
million.

More detailed data on these facilities is presented in Note Number 3 to the
Financial Statements presented in Item 1.

Our overall funding strategy is to use committed facilities, summarized as of
July 31, 2005:

                                     TABLE 7
                          LOAN FACILITIES AND BALANCES
<TABLE>
<CAPTION>

                             Committed      Outstanding    Required        Interest Rate
Type of Facility             Facility         Balance    Cash Deposit      July 31, 2005      Maturity
                           -------------   ------------  ------------      -------------      --------

<S>                          <C>           <C>           <C>            <C>                  <C>
Master sales agreement       $40,000,000   $11,474,425   $1,000,000          6.25%(1)        Annual or 30 days notice
Master sales agreement        30,000,000     9,139,760       25,000     5.38-6.01%(2)        Annual or 30 days notice
                              ----------   -----------    ---------
Totals                       $70,000,000   $20,614,185   $1,025,000
                              ==========   ===========   ==========
</TABLE>
                                      MD-5

<PAGE>
(1)  For the first $30 million of this facility, the contractual interest rate
     facility was 3.99% or Prime, whichever is greater. The rate for the next
     $10 million is 0.05% greater than the rate for the first $30 million.

(2)  The contractual interest rate on this facility is one month LIBOR plus a
     margin ranging from 1.875% to 2.50%.

FUTURE NON-OPERATIONAL CASH REQUIREMENTS

The Company has certain non-operational requirements for cash in the future. The
material requirements are those for repayment of the subordinated debt issued in
recent years to bolster our capital position. The schedule of maturities for
these is as follows:

                                     TABLE 8
                   NON-OPERATIONAL CASH REPAYMENT REQUIREMENTS

         October 31, 2006                                   $   50,000
         March 31, 2007                                     $  800,000
         May 31, 2007                                       $  200,000
         January 12, 2015                                   $2,687,700

OFF BALANCE SHEET RISKS

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 9
                     NOTIONAL VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>


                                                      July 31,                      April 30,
                                                        2005                          2005
                                            -------------------------------------------------------

<S>                                         <C>                                 <C>
Commitments to extend credit                $   22,989,899                      $ 21,772,820
Mandatory forward delivery commitments           2,697,820                         2,741,500
</TABLE>





                                      MD-6
<PAGE>


                                  MD&A APPENDIX

               UPDATED GENERAL AND OPERATIONAL COMPANY INFORMATION

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 July 31, 2005, the Company maintained one net branch 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.


                                      MD-7
<PAGE>


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

                                    TABLE 10
                        DIVISIONAL LOAN PRODUCTION VOLUME
                                    ($ 000S)
<TABLE>
<CAPTION>

Quarter Ending                      07/31/05          04/30/05          01/31/05         10/31/04          07/31/04
-------------------------------------------------------------------------------------------------------------------
Wholesale Division
<S>                                 <C>               <C>               <C>              <C>               <C>
         Volume                     $129,989          $ 84,427          $ 90,571         $ 93,636          $ 97,672
         Percent of Volume                62%               54%               56%              59%               54%
         Number of Loans                 619               379               407              425               504
         Average Loan Size              $210              $223              $223             $220              $194

Retail Division
         Volume                     $ 79,092          $ 71,100          $ 72,261         $ 63,897          $ 83,258
         Percent of Volume                38%               46%               44%              41%               46%
         Number of Loans                 223               203               201              167               250
         Average Loan Size              $355              $350              $360             $383              $333

Total Loan Production
         Volume                     $209,081          $155,527          $162,832         $157,533          $180,930
         Number of Loans                 842               582               608              592               754
         Average Loan Size              $248              $267              $268             $266              $240
</TABLE>


THE WHOLESALE LOAN DIVISION

OVERVIEW

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

During the quarter ended July 31, 2005, 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:


                                      MD-8
<PAGE>


                                    TABLE 11
                               PULL THROUGH RATES
<TABLE>
<CAPTION>


         Fiscal Quarter Ended    Jul 05  Apr 05   Jan 05   Oct 04   Jul 04   Apr 04  Jan 04   Oct 03   Jul 03
                                 ------  ------   ------   ------   ------   ------  ------   ------   ------
<S>                               <C>     <C>      <C>      <C>      <C>      <C>     <C>      <C>      <C>
         Rate                     75.0%   74.2%    76.8%    64.7%    66.2%    71.0%   74.5%    69.2%    76.5%
</TABLE>


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. As of July 31, 2005, we had
two financing facilities in place for a total borrowing capacity of up to $70
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

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 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 48 to 72 hours to underwrite a mortgage loan
from the initial receipt of the application from the broker. Quality
underwriting affects both our exposure to loss from fraud and our ability to
sell the mortgages we originate quickly for favorable prices. For this reason,
we are retaining our underwriting staff, even though we are not currently making
full use of it. We believe we could process 2-3 times the number of loans we are
currently doing with our current staff.

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 borrower. We perform a pre-funding audit on all mortgage loans, which

                                      MD-9
<PAGE>

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 is 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 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
$359,650) are called Jumbo loans. Jumbo loans comprised approximately 41% and
38%% of the wholesale mortgage loans we originated for the quarters ended July
31, 2005 and 2004, 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 primarily originate prime first lien residential mortgage loans. The Company
also originates a lesser amount of second mortgage loans and home equity lines
of credit, although these products have constituted an increasing portion of our
business recently.

The following table details the mortgage loan types originated by the wholesale
division, as measured by principal balance, for the past five quarters:

                                    TABLE 12
                        WHOLESALE MORTGAGE LOANS BY TYPE
<TABLE>
<CAPTION>

                                                                              Quarters Ending
                                                            ----------------------------------------------------
Loan Type                                                    07/31/05   04/30/05   01/31/05  10/31/04   07/31/04
---------                                                    ---------------------------------------------------
<C>                                                           <C>        <C>        <C>       <C>        <C>
1 month adjustable-rate (various total terms)                   4.2%       1.9%       1.7%      0.7%       0.2%
6 month adjustable-rate (various total terms)                   4.7        2.6        3.9       4.7        2.2
2 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                        0.5        7.9        7.6       8.9        7.0
3 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                        1.0       16.9       16.5      12.5        5.6
5 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                       33.5       21.6       19.4      25.4       34.4
7 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                        1.2        0.0        0.7       0.9        0.8
10 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                        0.0        0.0        0.0       0.0        0.0
10 year term fixed-rate                                         0.0        0.0        0.0       0.0        0.0
15 year term fixed-rate                                         1.5       13.9       13.3      10.2        7.7
20 year term fixed-rate                                         0.5        0.0        0.0       0.0        0.2
30 year term fixed-rate                                        28.3       19.9       24.6      23.1       27.8
Federal Housing Authority (various total terms and rates)       0.0        0.0        0.5       0.7        1.4
HELOC                                                          12.4        6.4        2.5       1.4        0.0

                                     MD-10
<PAGE>

Equity Line                                                     7.0        8.9        8.3      11.5       12.7
Other                                                           2.4        0.0        1.0       0.0        0.0
Total                                                         100.0%     100.0%     100.0%    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.

The table below shows the wholesale division's first lien mortgage loan
origination volume, as measured by principal balance, within the following LTV
ranges:

                                    TABLE 13
                      WHOLESALE LOAN TO VALUE DISTRIBUTION
<TABLE>
<CAPTION>

                                 Quarters Ending
                                        07/31/05     04/30/05    01/31/05    10/31/04     07/31/04
                                        ----------------------------------------------------------
                  LTV
                  <S>                    <C>          <C>         <C>         <C>          <C>
                  50 or less               8.9%         4.9%        8.1%        9.9%        10.9%
                  50.01 - 60               4.9          5.7         6.2         9.9          7.6
                  60.01 - 70              20.2         20.2        28.5        21.1         15.1
                  70.01 - 80              63.4         65.0        55.3        58.2         61.9
                  80.01 - 85               2.0          2.1         0.4         0.3          0.8
                  85.01 - 90               0.0          1.4         0.4         0.3          2.0
                  90.01 - 95               0.6          0.7         0.4         0.0          0.6
                  95.01 or more            0.0          0.0         0.7         0.3          1.1
                  Total                  100.0%       100.0%      100.0%      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.

The table below shows the trend of FICO scores on mortgages the company
originated over the last five quarters:


                                     MD-11
<PAGE>




                                    TABLE 14
                        WHOLESALE FICO SCORE DISTRIBUTION
<TABLE>
<CAPTION>


                                     ------------------------ Quarters Ending -----------------------
                  FICO Score            07/31/05     04/30/05    01/31/05    10/31/04     07/31/04
                  ----------            ----------------------------------------------------------
                  <S>                    <C>          <C>         <C>         <C>          <C>
                  800 +                    1.7%         0.7%        2.0%        2.3%         3.2%
                  775 - 799                7.1          7.9         7.1        10.8          7.3
                  750 - 774               11.8         10.5        14.0        16.2         13.3
                  725 - 749               17.9         19.7        16.6        18.1         16.1
                  700 - 724               15.8         15.8        17.7        17.4         26.3
                  675 - 699               20.5         16.9        22.4        15.7         15.5
                  650 - 674               11.4         10.7        13.0        12.9         10.5
                  625 - 649                8.7          7.3         4.9         5.4          4.6
                  600 - 624                3.6          4.5         1.0         0.7          1.0
                  575 - 599                0.0          2.4         0.2         0.2          0.0
                  550 - 574                0.2          0.6         0.2         0.0          0.0
                  Below 550                0.2          2.1         0.2         0.0          0.2
                  No score available       1.1          0.9         0.7         0.3          2.0
                  Total                  100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


WHOLESALE LOAN PROPERTY TYPES AND SIZES

During the years ended April 30, 2005 and 2004, 100% of our wholesale loan
origination volume, as measured by principal balance, was collateralized by
residential property.

The following table shows the trend of loans originated by property type:

                                    TABLE 15
                    WHOLESALE MORTGAGE LOANS BY PROPERTY TYPE
                            (QUARTERS ENDING JULY 31)
<TABLE>
<CAPTION>

                                 Quarters Ending
                                        07/31/05     04/30/05    01/31/05    10/31/04     07/31/04
                                        ----------------------------------------------------------
<S>                                      <C>          <C>         <C>         <C>          <C>
                  Single family           46.4%        46.0%       49.4%       56.5%        50.4%
                  Planned Unit Dev.       35.4         34.5        34.4        32.2         32.7
                  Condominium             10.3          6.9         8.4         7.5         10.5
                  2 - 4 family             7.9         12.3         7.8         3.8          6.2
                  Other                    0.0          0.0         0.0         0.0          0.2
                  Total                  100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>



The table below shows the trend of the wholesale division's first lien mortgage
loan origination volume, as measured by principal balance:

                                     MD-12
<PAGE>


                                    TABLE 16
                WHOLESALE MORTGAGES BY ORIGINAL PRINCIPAL BALANCE
                            (QUARTERS ENDING JULY 31)
<TABLE>
<CAPTION>

                                 Quarters Ending
                                        07/31/05     04/30/05    01/31/05    10/31/04     07/31/04
                                        ----------------------------------------------------------

               <S>                       <C>          <C>         <C>         <C>          <C>
               $100,000 or less           37.3%        37.0%       36.6%       32.9%        32.1%
               $100,001-200,000           26.9         30.8        29.5        26.1         33.3
               $200,001-300,000           15.3         12.4        10.1        14.6         14.1
               $300,001-400,000            8.1          6.2         9.3        12.0         10.1
               $400,001-500,000            3.9          4.5         4.7         5.4          5.6
               $500,001-600,000            2.3          2.6         3.2         3.1          1.8
               $600,001-700,000            2.1          3.6         2.2         3.3          1.2
               $700,001-800,000            1.1          0.4         1.5         0.9          0.8
               $800,001-900,000            1.7          0.6         0.2         0.0          0.2
               $900,001-1,000,000          0.7          1.1         1.5         1.2          0.4
               $1,000,001-1,500,000        0.3          0.6         0.0         0.5          0.2
               over $1,500,001             0.3          0.2         1.2         0.0          0.2
                                         100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>

First lien mortgage loan originations represented 83% and 92% of our wholesale
loan originations, as measured by principal balance, for the quarters ended July
31, 2005 and 2004, respectively.

WHOLESALE MORTGAGE LOAN FUNDING AND 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 July 31, 2005, we had relationships to sell to approximately 20
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

                                     MD-13

<PAGE>

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.

Historically, we have normally sold each loan as it is funded. Doing so has
limited our exposure to changes in the market value of the loan due to interest
rate changes since the period of time from which we fund a loan to when we
receive the proceeds from a secondary market buyer has been in the area of only
two weeks. At the same time, we get a lower gain on sale from the secondary
market for mortgages when we sell the loans one-by-one.

During the quarter ended January 31, 2005 we initiated a program to accumulate
certain types of loans and then sell them in bulk. The types of loans we have
done bulk or mini-bulk sales on to date have been Home Equity Lines of Credit
(HELOCs) and adjustable rate mortgages (ARMs), both of which are less
susceptible to value changes from changes in interest rates than are fixed rate
mortgages.

The purpose of doing this is to increase our gain on sale, while still limiting
our exposure to changes in loan values from interest rate changes. Subject to
our available capital, we expect to continue to expand our activities in this
area.

WHOLESALE MORTGAGE LOAN FUNDING

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 July 31, 2005, the Company had a maximum mortgage loan financing capacity
of $70 million through two master sale agreements. When the loans funded under
these arrangements are already sold, 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 addition, each of these facilities allows the company to accumulate loans
into bulk or mini-bulk pools for sale as a group at the Company's discretion.
Presently we have a firm purchase advice from an investor prior to funding under
the master sale agreements for bulk and mini-bulk pools. We anticipate that in
the future the total dollar amount of a given bulk will increase and that we
will have to modify existing agreements or enter additional agreements which
would not necessarily require a firm purchase advice at the time the mortgage
loan was funded.

In addition, both of these facilities have offered to expand our borrowing
capability to permit the Company to accumulate loans for bulk resale. We have
not yet needed to make use of this additionally available borrowing capacity.

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 quarter ended July 31, 2005, the Company was
required to repurchase three loans in the amount of $395,500, of which $137,500
is shown on the balance sheet for that year in the line item "Mortgage loans
held for sale". The comparable amount for the quarter ended July 31, 2004 is one
loan in the amount of $263,646.

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.
                                     MD-14

<PAGE>

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 17
                       AVERAGE NUMBER OF DAYS IN WAREHOUSE
<TABLE>
<CAPTION>

                              Fiscal Quarter Ended

                                 Jul 05  Apr 05   Jan 05   Oct 04   Jul 04   Apr 04  Jan 04   Oct 03   Jul 03
                                 ------  ------   ------   ------   ------   ------  ------   ------   ------
<S>                                <C>     <C>      <C>      <C>      <C>      <C>     <C>      <C>      <C>
         Average # of Days         19      16       15       15       15       13      14       14       11
</TABLE>


To the extent we continue to expand our mortgage pooling activities and utilize
larger pools, we may see the average number of days our loans are financed start
to increase.

THE RETAIL LOAN ORIGINATION DIVISION

Our retail division was established in 1985 and as of April 30, 2005 contracted
with 18 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 18% and 15% of the aggregate dollar
value of mortgage loans originated by the retail division were funded by our
wholesale division during the quarters ended July 31, 2005 and 2004.

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
quarters ended July 31, 2005 and 2004, the average loan size originated by the
retail division was approximately $424,000 and $335,000, 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.

An additional factor contributing to the decrease was a reduction in the number
of loan officers who were contracted with the Company during this period. This
reduction was primarily the result of the intense competition in the mortgage
industry to recruit experienced mortgage brokers.

RETAIL LOAN PRODUCTS

Jumbo loans comprised approximately 58% and 43% of the retail mortgage loans we
originated for the quarters ended July 31, 2005 and 2004, 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.


                                     MD-15
<PAGE>


The following table details the mortgage loan types originated by our retail
division, as measured by principal balance, the quarters ended July 31, 2005 and
2004:

                                    TABLE 18
                         RETAIL LOAN ORIGINATION BY TYPE
<TABLE>
<CAPTION>

                                 Quarters Ending
                                        07/31/05     04/30/05    01/31/05    10/31/04     07/31/04
                                        ----------------------------------------------------------
<S>                                      <C>          <C>         <C>         <C>          <C>
         Jumbo mortgages                  58.0%        37.1%       50.8%       52.3%        42.7%
         Conventional ARMs                12.6         43.1        34.0        34.1         31.2
         Conventional Fixed               22.7         11.9        10.0         9.1         13.2
         HELOC & Seconds                   6.7          7.9         5.2         4.5         12.9
         Total                           100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


RETAIL GEOGRAPHIC CONCENTRATION

The Company originates retail loans primarily in California. During the quarters
ended July 31, 2005 and 2004, the Company's retail loan origination volume, as
measured by principal balance, came from the following states:

                                    TABLE 19
                       RETAIL LOAN GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>

                                 Quarters Ending
                                        07/31/05     04/30/05    01/31/05    10/31/04     07/31/04
                                        ----------------------------------------------------------
<S>                                      <C>          <C>         <C>         <C>          <C>
         California                       93.3%        95.5%       97.9%       98.5%        97.7%
         Others                            6.7          4.5         2.1         1.5          2.3
         Total                           100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


RETAIL LOAN PROPERTY TYPES

During the quarters ended July 31, 2005 and 2004, 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 20
                 RETAIL MORTGAGES BY ORIGINAL PRINCIPAL BALANCE
<TABLE>
<CAPTION>

                                 Quarters Ending
                                        07/31/05     04/30/05    01/31/05    10/31/04     07/31/04
                                        ----------------------------------------------------------

               <S>                       <C>          <C>         <C>         <C>          <C>
               $100,000 or less            7.6%        21.7%       14.4%       15.9%        18.4%
               $100,001-200,000           16.0         16.3        18.6        18.2         15.4
               $200,001-300,000           19.3         15.8        17.7         8.3         14.0
               $300,001-400,000           11.8         12.9        16.5        12.9         16.4
               $400,001-500,000           11.8         10.9        17.5        14.4         15.0
               $500,001-600,000            9.2          4.0         8.8        11.4          8.9
               $600,001-700,000           10.9          9.9         5.2         8.3          5.2
               $700,001-800,000            5.0          2.5         4.1         3.0          2.0
               $800,001-900,000            3.4          1.5         3.6         0.0          3.1
               $900,001-1,000,000          2.5          2.5         3.1         5.3          0.3
               $1,000,001-1,500,000        1.7          2.0         0.5         2.3          1.0
               over $1,500,001             0.8          0.0         0.0         0.0          0.3
                                         100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


First lien retail mortgage loan originations represented 93% and 87% of our
total loan originations, as measured by principal balance, for the quarters
ended July 31, 2005 and 2004, respectively.


                                     MD-16
<PAGE>


                                       O-4

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 our most recent evaluation of internal controls.


                            PART 2. OTHER INFORMATION
Item 5.  OTHER INFORMATION

Set forth below is the registrant's Charter for its Compensation Committee.

PURPOSE

The primary purpose of the Compensation Committee is to assist the Board of
Directors (the "Board") in fulfilling its oversight responsibilities with
respect to all types of compensation of the directors, officers and employees of
the Company, including, without limitation, salary, bonus and stock option or
other forms of stock related compensation.

PHILOSOPHY

The Compensation Committee' policies are governed by the following beliefs:

     1.       Total executive compensation should be dependent upon the
              financial performance of the Company;

     2.       Such compensation should align the executives' personal financial
              interests with those of the shareholders;

     3.       A material part of the executives' total compensation should
              provide incentives for the Company earning in excess of its cost
              of capital.

At the same time, the Compensation Committee seeks to have executive
compensation set at levels that are sufficiently competitive so that the Company
may attract, retain and motivate high quality executives to contribute to the
Company's success.

RESPONSIBILITIES

The responsibilities of the Compensation Committee include:

     1.       Reviewing and making recommendations to the Board regarding the
              compensation policy for executive officers and directors of the
              Company, and such other employees of the Company as directed by
              the Board;

     2.       Reviewing and making recommendations to the Board regarding all
              forms of compensation (including all "plan" compensation, as such
              term is defined in Item 402(a)(7) of Regulation S-K promulgated by
              the Securities and Exchange Commission, and all non-plan
              compensation) to be provided to the executive officers of the
              Company;

                                      O-1
<PAGE>

     3.       Reviewing and making recommendations to the Board regarding
              general compensation goals and guidelines for the Company's
              employees and the criteria by which bonuses to the Company's
              employees are determined;

     4.       Acting as administrator of the Company's 2000 Stock Option Plan
              (the "Plan"). If the authority is so delegated by the full Board,
              in its administration of the Plans, the Compensation Committee may
              (i) grant stock options and stock purchase rights to entities or
              individuals eligible for such grants, including grants to
              individuals subject to Section 16 of the Exchange Act in
              compliance with Rule 16b-3 promulgated thereunder, and (ii) amend
              such stock options and stock purchase rights. The Compensation
              Committee shall also make recommendations to the Board with
              respect to amendments to the Plan and changes in the number of
              shares reserved for issuance under the each Plan.

     5.       By this paragraph four of this Charter, the Compensation Committee
              hereby assumes all the responsibilities previously held by both
              the Primary and Secondary Committees under the provisions of the
              Company's 2000 Stock Incentive Plan.;

     6.       Reviewing and making recommendations to the Board regarding other
              plans that are proposed for adoption or adopted by the Company for
              the provision of compensation to employees of, directors of and
              consultants to the Company; and

     7.       Preparing a report (to be included in the Company's proxy
              statement) which describes: (a) the criteria on which compensation
              paid to the top four executive officers of the Company for the
              last completed fiscal year was based; (b) the relationship of such
              compensation to the Company's performance; and (c) the
              Compensation Committee's executive compensation policies
              applicable to executive officers.

COMPOSITION

The Compensation Committee shall, at all times and until the board of directors
votes otherwise, consist of all of the "independent directors" of the Company,
as that term is defined, from time to time, by the Exchange or entity upon which
its common stock is traded.

MEETINGS AND QUORUM

The Compensation Committee shall meet no less often than annually. If it so
chooses, it may admit members of management or non-independent directors to its
meetings on a non-voting basis as it determines in its sole discretion.

The Compensation Committee may, if it chooses, meet telephonically via
conference call in addition to or in place of in-person meetings.

A quorum for a meeting of the Compensation Committee meetings shall consist of
more than 50% of the independent directors then serving on the Company's board
of directors.

Minutes of Compensation Committee meetings may be kept, but are not required to
be kept. The Compensation Committee shall report the results of its meetings to
the full board of directors at the board's next regularly scheduled meeting
after the Compensation Committee meeting.


Item 6.  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

                                      O-2

<PAGE>

         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

                                      O-3
<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: September 13, 2005           /s/ Joseph Kristul
      ------------------           --------------------------------------------
                                   Joseph Kristul, Chief Executive and
                                   Chief Financial Officer

                                      O-4