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 January 31, 2006

[ ] 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 March 10, 2006. 6,791,360



<PAGE>




                      TRANSNATIONAL FINANCIAL NETWORK, INC.
                                January 31, 2006
                                    UNAUDITED





                                TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION

                                                                           Page
Item 1.  Financial Statements
         Condensed Balance Sheets as of January 31, 2006
         (Unaudited) and April 30, 2005                                    F-2
         Condensed Statements of Operations for the nine months
         ended January 31, 2006 and 2005                                   F-3
         Condensed Statements of Cash Flow
         for the nine months ended January 31, 2006 and 2005               F-4
         Notes to the Condensed Financial Statements                F-5 - F-11

Item 2   Management's Discussion and Analysis of Financial
                Condition and Results of Operations               MD-1 - MD-18

Item 3.  Controls and Procedures                                           O-1

Part II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8K                                   O-1

Signatures                                                                 O-1




                                      F-1
<PAGE>



PART I. FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

                      TRANSNATIONAL FINANCIAL NETWORK, INC.
                            CONDENSED BALANCE SHEETS
                    As of January 31, 2006 and April 30, 2005
<TABLE>
<CAPTION>


                                                                       January 31, 2006          April 30, 2005
                                                                       ----------------          --------------
                                                                       (Unaudited)                (As Restated)

ASSETS

<S>                                                                    <C>                       <C>
Cash and cash equivalents                                              $   2,898,369             $   3,058,140
Restricted cash                                                              125,000                 1,020,000
Restricted - Certificate of deposit                                          900,000                         -
Short-term mortgage related receivables, net of allowance
   for early loan payoff penalties of $6,617 and $18,313
   respectively                                                              588,969                   639,550
Mortgage loans held for sale                                               1,095,321                 1,721,450
                                                                                                             -
Goodwill                                                                   1,257,789                 1,257,789
Property and equipment, net of accumulated depreciation of
     $961,389 and $904,678, respectively                                     109,295                    94,999

Fair value of financial instruments                                           36,463                    14,905
Other assets                                                                 303,035                   313,234
                                                                         -----------               -----------
TOTAL ASSETS                                                           $   7,314,241             $   8,120,067
                                                                         ===========                 =========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Accrued interest payable                                               $      47,955             $      62,184
Accounts payable and other liabilities                                       335,282                   682,411
Income taxes payable                                                             336                       336
Fair value of financial instruments                                           10,163                    56,136
Subordinated debt                                                          3,737,700                 3,737,700
                                                                         -----------               -----------
TOTAL LIABILITIES                                                          4,131,436                 4,538,767
                                                                         -----------------------------------------

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 January 31, 2006 and April 30, 2005 respectively.                   13,559,038                13,559,038
Accumulated deficit                                                      (10,376,233)               (9,977,738)
                                                                         ------------               -----------
TOTAL STOCKHOLDERS' EQUITY                                                 3,182,805                 3,581,300
                                                                         -----------               -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $   7,314,241             $   8,120,067
                                                                           =========                 =========
</TABLE>



             See accompanying notes to these financial statements.

                                       F-2
<PAGE>


                      TRANSNATIONAL FINANCIAL NETWORK, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                For the Periods Ending January 31, 2006 and 2005

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                For the 3 Months Ended 1-31             For the 9 Months Ended 1-31
                                                ---------------------------             ---------------------------
                                                          As Restated                            As Restated
                                                 2006         2005    % Chg              2006         2005   % chg.
                                                 ----         ----    -----              ----         ----   ------
Revenue:
<S>                                        <C>          <C>          <C>           <C>          <C>          <C>
Net Gain on Sale of Loans                  $1,356,477   $1,073,635    26.3%        $4,642,097   $3,531,834    31.4%
Production Income                           1,152,488    1,067,179     8.0%         4,119,655    3,499,901    17.7%
Other Income                                    5,216       56,671   -90.8%           186,219       83,150   123.9%
                                                -----       ------                    -------       ------

Total Revenue                               2,514,181    2,197,485    14.4%         8,947,971    7,114,885    25.8%

Direct Expenses:                              802,939      660,366    21.6%         2,383,566    2,145,137    11.1%
Production Expenses                           285,663      148,298    92.6%           685,664      454,894    50.7%
Early Loan Payoff Penalties                      -          15,000       nm                         33,500       nm
Pair-Off Fees                                                1,500       nm                          4,500       nm
                                            ---------       -------                 ---------        ------

Total Direct Expenses                       1,088,602      825,164    31.9%         3,069,230    2,638,031    16.3%

Interest Income (Expenses):
Interest Income from loans in warehouse       301,356      227,535    32.4%         1,129,443      743,929    51.8%
Interest Expense on loans in warehouse       (324,367)    (169,318)   91.6%        (1,039,343)    (497,997)  108.7%
Warehouse transaction fees                    (22,606)     (30,675)   26.3%           (99,781)     (91,933)    8.5%
                                              --------     --------                   --------    ---------

Net warehouse interest income (expense)       (45,617)      27,542       nm            (9,681)     153,999       nm

Interest Expense - Subordinated Debt          (83,367)     (44,774)   86.2%          (257,529)    (128,582)  100.3%
                                             ---------     --------                 ----------   ----------
Net Interest Income (Expense)                (128,984)     (17,232)      nm          (267,210)      25,417       nm

Gross Profit on Mortgage Activities         1,296,595    1,355,089    -0.4%         5,611,531    4,502,271    29.2%

Indirect Expenses:
Salaries & Benefits                           962,026      948,513     1.4%         3,778,954    2,794,575    35.2%
General & Administrative                      686,646      520,481    31.9%         1,793,771    1,630,819     9.9%
Occupancy                                     174,332      174,759     0.0%           524,475      522,974     0.0%
Depreciation & Amortization                    20,595       17,052    20.8%            56,711       53,152     6.7%
                                              -------       ------                     ------      -------

Total Indirect Expenses                     1,843,599    1,660,805    11.0%         6,153,911    5,001,520    23.0%

Operating Loss                             $ (547,004)  $ (305,716)   78.9%        $ (542,380)  $ (499,249)    8.6%

Other Interest Income (Expense)                33,332        1,776       nm            76,354       10,324       nm
Chg in fair value of financial instrument      25,106      (34,475)      nm            67,531       24,134       nm
                                               ------      --------                    ------       ------
Total Other Income (Expense)                   58,438      (32,699)      nm           143,885       34,458       nm

Net Loss before Taxes                        (488,566)    (338,415)   50.0%          (398,495)    (464,791)  -14.3%
                                             =========    =========                  =========    =========

Basic net loss per share                      $(0.07)      $(0.05)      40%           $(0.06)      ($0.07)   -14.3%
Fully diluted loss per share                  $(0.07)      $(0.05)      40%           $(0.06)      ($0.07)   -14.3%

Weighted-average shares outstanding
Basic                                       6,791,360    6,791,360        -         6,791,360    6,795,040        -
Diluted                                     6,791,360    6,791,360        -         6,795,238    6,795,040        -
</TABLE>








             See accompanying notes to these financial statements.

                                       F-3

<PAGE>


                      TRANSNATIONAL FINANCIAL NETWORK, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
               For the Nine Months Ended January 31, 2006 and 2005
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                         2006                      2005
                                                                  ------------------         -----------------

Cash flows from operating activities:                                                            (As Restated)

<S>                                                               <C>                        <C>
Net loss                                                          $         (398,495)        $        (464,791)
Adjustments to reconcile net loss to net cash
   Used in operating activities:
     Depreciation and amortization                                            56,711                    53,152
     Provision for early loan payoffs                                              -                    33,500
     Changes in Restricted Cash Requirement                                   (5,000)                  900,000
     Change in fair value of financial instruments                           (67,531)                  (24,134)
Net effect of changes in assets and liabilities:
     Other assets                                                             10,199                  (112,529)
     Accrued interest payable                                                (14,229)                    9,693
     Accounts payable and other liabilities                                 (347,129)                  (66,670)
                                                                                   -
Net effect of changes in mortgage lending activities:
     Short-term mortgage related receivable                                   50,581                  (161,720)
     Mortgage loans originated for sale                                 (310,560,628)             (283,006,239)
     Proceeds from sales of mortgage loans                               311,186,757               281,880,413
                                                                     ---------------           ---------------

Net cash used by operating activities:                                       (88,764)                 (959,325)
                                                                     ----------------          ----------------


Cash flows from investing activities:

Purchases of property and equipment                                          (71,007)                  (19,705)
Proceeds from securities held to maturity                                          -                 1,015,234
                                                                     ---------------                 ---------


Net cash (used) provided by investing activities:                            (71,007)                  995,529
                                                                     ---------------           ---------------

Cash flows from financing activities:

Borrowing on Subordinated debt                                                     -                 2,875,700
Repayments on Subordinated debt                                                    -                  (400,000)
Payment on Settlement payable                                                      -                  (639,047)
Payment on Capital Leases obligations                                              -                   (18,269)
Repurchase Common Stock                                                            -                   (37,198)
                                                                     ---------------           ---------------

Net cash provided by financing activities:                                         -                 1,781,186
                                                                     ---------------           ---------------

Net (decrease) increase in unrestricted
     cash and cash equivalents                                              (159,771)                1,817,390

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

Unrestricted cash and cash equivalents, end of period             $        2,898,369         $       3,402,424
                                                                     ===============           ===============

Interest paid                                                     $        1,248,916         $         716,261
Income taxes paid                                                 $               -0--       $          28,844
</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 nine-month periods ended January 31, 2006 and
2005 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, in addition to our most recently filed
Form 8K relating to non-reliance on previous financial statements as well as
Note 9 - Restatements. 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 nine-months
ended January 31, 2006 and 2005 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 Accounting Points Bulletin (APB)
25 in accounting for its employee stock options. The disclosure provisions of
Statement of Financial Accounting Standards SFAS 148 have been incorporated into
these financial statements and accompanying footnotes.

The following table illustrates the effect on net loss 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)

<TABLE>
<CAPTION>


                                   Three Months Ended              NineMonths Ended
                                   ------------------              ----------------
                                 January 31   January 31           Januay 31    January 31
                                   2006         2005                2006          2005
                                   ----         ----                ----          ----
                                             (as restated)                      (as restated)
Net loss:
<S>                               <C>           <C>               <C>            <C>
As reported                       (488,566)     (338,415)         (398,495)      (464,791)

Deduct:  fair value amount                0      (31,736)                 0      (146,701)
                                          -     ---------                 -      ---------
Pro forma                         (488,566)     (370,151)         (398,495)      (611,492)

Basic (loss) per common share:
As reported                           (0.07)       (0.05)             (0.06)        (0.07)
Deduct:  fair value amount             0.00         0.00               0.00         (0.02)
                                       ----         ----               ----         ------
Pro forma                             (0.07)       (0.05)             (0.06)        (0.09)

Diluted (loss) per common share:
As reported                           (0.07        (0.05)             (0.06)        (0.07)
Deduct:  fair value amount             0.00        (0.00)              0.00         (0.02)
                                       ----        ------              ----        -------
Pro forma                             (0.07)       (0.05)             (0.06)        (0.09)
</TABLE>


There were no options granted during the quarter ended January 31, 2006. 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 were fully vested as of April 30, 2005

Reclassification - With the reexamination of the application of SFAS 133 and
related pronouncements to our operations, we have made the following changes to
the form of our presentation:

     -   On the Balance Sheet, we show both the asset and liability amounts
         related to SFAS 133 calculations with respect to mortgage-related
         derivatives. In the past we netted these two figures against one
         another and showed only the net amount.

     -   On the Income Statement, we have moved back to the presentation form we
         used prior to 4/30/05. I.e., we now report a separate category of Other
         Income (Expense) below the Operating Income line wherein we report both
         non-warehouse interest income and SFAS 133 - related income (expense).

Note 3 - Financing Facilities

As of January 31, 2006, the Company had a maximum mortgage loan financing
capacity of $75 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 nine-month period ended January 31, 2006 the
Company was required to repurchase three loans in the total amount of $395,500.
All 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
loans. During the nine-month period ended January 2005 the Company was required

                                      F-6

<PAGE>

to repurchase two loans in the amount of $895,546. 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 $15 million as of
January 31, 2006. Under this arrangement, an additional bulge capacity of $20
million is available if needed, bringing the total capacity under this
arrangement to $35 million. The Company has not used this interim bulge capacity
to date. Interest on the $15 million portion of the line is at the Prime Rate or
3.99%, whichever is higher. Prime was 7.25% at January 31, 2006. Interest on the
remaining $20 million of the line is 0.05% higher than that charged on the $15
million portion. The rate paid by the Company on this line as of January 31,
2006 was 7.25%. The Company is required to maintain a non-interest bearing cash
collateral deposit with this lender of $100,000, which has been included as
restricted cash in the balance sheets. Additionally, the company arranged to
have $900,000 of its restricted funds to be held in an interest-bearing
twelve-month restricted certificate of deposit with the warehouse lender. The
second master sale agreement provides a credit facility of $40 million as of
January 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
January 31, 2006 was between 6.45% and 7.07%. 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
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 January 31, 2006 the Company was not in compliance with its net
income financial covenant but anticipates compliance prior to its fiscal year
end, April 30, 2006.

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 January 31, 2006, 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 $1,050,000
of subordinated debt bears interest at 10%, and has maturities ranging from
October 31, 2006 to October 1, 2007.

Subordinated debt interest expense of $83,367 and $44,774 was incurred in the
three-month periods ended January 31, 2006 and 2005, 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

                                      F-7

<PAGE>

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 January 31, 2006 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 - $1.00        692,345            6.04             $0.73            692,345           $0.73
                $1.01 - $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>


As of January 31, 2006, 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 January 31,
2006, 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 January 31, 2006:

                                             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, 2006            1,941,376


                                      F-8
<PAGE>


The table below summarizes aggregate activity for all options programs for the
nine-month period ended January 31, 2006:
<TABLE>
<CAPTION>

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

<S>                                                                    <C>                         <C>
Outstanding at April 30, 2005                                          1,193,546                   $2.30
Grants and Adjustments                                                         -                       -
Forfeitures                                                                    -                       -
                                                                       -----------                 -------
Outstanding at October 31, 2005                                        1,193,546                   $2.30
                                                                       =========                   =====
</TABLE>


As of January 31, 2006, 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 Loss Per Share

Basic net loss per share is based on net loss divided by the weighted-average
common shares outstanding. Diluted net loss is computed based on the
weighted-average number of common shares outstanding adjusted for potentially
dilutive securities, which include stock options, warrants and contingently
convertible subordinated debt. The computations of basic and diluted net loss
per share are as follows:
<TABLE>
<CAPTION>
                                                         Three Months Ended                  Nine Months Ended
                                                         ------------------                  -----------------
                                                      January 31      January 31          January31       January 31
                                                          2006           2005                2006           2005
                                                          ----           ----                ----           ----
                                                                     (As restated)                      (As restated)
---------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>                <C>            <C>
Net loss                                               $(488,566)     $(338,415)         $(398,495)     $(464,791)
Weighted average of shares outstanding                 6,791,360      6,791,360          6,791,360      6,795,040
Basic net loss per share                               $  (0.07)      $  (0.05)          $  (0.06)      $  (0.07)
Effect of dilutive options                                     -              -                  -              -
Diluted weighted average of shares outstanding         6,791,360      6,791,360          6,791,360      6,795,040
Diluted net loss per share                             $  (0.07)      $  (0.05)          $  (0.06)      $  (0.07)
</TABLE>


As of January 31, 2006 and 2005, potential dilutive securities of 4,166,772 and
4,230,866 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 January 31, 2006 and April 30, 2005, including financial
instruments whose contract amount represents credit risk only is as follows:
<TABLE>
<CAPTION>

                                                                          January 31, 2006         April 30, 2005
                                                                          ----------------         --------------

<S>                                                                      <C>                       <C>
Commitments to extend credit                                             $    19,449,001           $   21,772,820
Mandatory forward delivery commitments                                        10,502,550                2,741,500
</TABLE>


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>

Note 9 - Restatements

As disclosed in a Form 8-K filing dated February 23, 2006, pursuant to internal
management review, our management, audit committee, and outside independent
accountant, Burr, Pilger & Mayer, LLP have concluded that our accounting for the
Fair value of derivative instruments pursuant to SAB 105, which we adopted at
the end of fiscal year 2004, and SFAS 133 has been incorrect.

There were two errors detected. First, there was an error in the underlying
worksheets calculating the change in value of our Locked Pipeline of mortgage
loan commitments to borrowers. This error resulted in a reversal of the sign of
the change in value the Locked Pipeline. Second, we did not properly account for
the derivative value of the Best Efforts loan locks we secure with secondary
market investors upon making loan commitments to borrowers.

We report the "Fair value of derivative financial instruments" as an asset or
liability on our balance sheet. The change in this amount from period to period
is included in our statement of operations.

These matters affect our Annual Report on Form 10-KSB for the years ended April
30, 2004 and 2005 and our Quarterly Reports on Form 10-QSB for the quarters
ended July 31, October 31, 2004 and 2005 and our Quarterly Report on Form 10-QSB
for the quarter ended January 31, 2005.

Pending completion of this current filing of our Form 10-QSB for the period
ended January 31, 2006, we will file the following amended filings:

     o   Form 10-KSB for the year ended April 30, 2005 with amended financial
         reports for the fiscal year ended April 30, 2004.

     o   Form 10-QSB for the quarters ended October 31, 2005 and July 31, 2005
         with amended financial reports for the comparable prior year period.

Within the current filing, we are restating the balance sheet at January 31,
2005 and the results of operations for the quarter and nine months ended January
31, 2005 and the balance sheet for April 30, 2005. The effects of these
restatements is immaterial to Revenues, Assets, Liabilities and Equity. Because
of the volatility of our Net Income, the restatements are material on percentage
basis to Net Income.

The table below presents the changes to the Statement of Operations for the
third quarter and nine months for the period ended January 31, 2005 and the
changes to the balance sheet for the period ending April 30, 2005 and January
2005.
<TABLE>
<CAPTION>

                                     Third Quarter ended January 31, 2005         Nine Months ended January 31, 2005
                                     ------------------------------------         ----------------------------------
                                 As Reported          Restated     % Chg.    As Reported          Restated     % Chg.
                                 -----------          --------     ------    -----------          --------     ------
Changes in fair value
<S>                                <C>               <C>           <C>          <C>               <C>          <C>
 of financial instruments          $ (11,700)        $ (34,475)    194.6%       $(136,600)        $  24,134       nm
Net Loss                           $(315,640)        $(338,415)      7.2%       $(625,525)        $(464,791)   -25.7%
Earnings per Share                 $  (0.05)         $  (0.05)       0.0%       $  (0.09)         $  (0.07)    -22.2%
</TABLE>

<TABLE>
<CAPTION>

Balance Sheet Items at:
April 30, 2005               As Reported          Restated        % Chg
----------------------------------------          --------        -----
Fair value
of financial instruments-
<S>                           <C>               <C>              <C>
Asset                                  -        $   14,905
Liability                     $   47,496        $   56,136
                              ----------            ------
Net                           $   47,496        $   41,231       -13.2%
Accumulated Deficit           $9,984,003        $9,977,738          nm
</TABLE>


                                      F-10

<PAGE>
<TABLE>
<CAPTION>

Balance Sheet Items at
January 31, 2005             As Reported          Restated    %Chg
----------------             -----------          --------
Fair value
of financial instruments-
<S>                           <C>               <C>             <C>
Asset                         $   38,400        $   38,474
Liability                              -        $   10,162
                              ----------        ----------
Net                           $   38,400        $   28,312      26.3%
Accumulated Deficit           $6,710,833        $6,720,921        nm
</TABLE>



                                      F-11
<PAGE>



                                      MD-18
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 AND NINE MONTHS ENDED JANUARY 31, 2006 COMPARED TO QUARTER AND NINE
MONTHS ENDED JANUARY 31, 2005

For the recently ended quarter, year-over-year revenues increased 17%, gross
profits did not change and the net loss increased from $326,000 to $489,000. For
the nine months, revenues increased 26%, gross profits increased 30% and the net
loss decreased 31% from $465,000 to $405,000.

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

                                     TABLE 1
                               ORIGINATION VOLUMES
                                  ($ millions)

Quarter Ended            1-31-06   10-31-05    7-31-05  4-30-05  1-31-05 10-31-04   7-31-04      4-30-04    1-31-04
-------------            -------     ------     ------   ---------------   ------   -------       ------     ------

<S>                        <C>        <C>       <C>       <C>        <C>        <C>       <C>       <C>       <C>
Wholesale                  $ 81       $100      $130      $ 84       $ 91       $ 94      $ 98      $128      $103
Retail                       47         69        79        71         72         64        83       144        88
                           ----       ----      ----      ----       ----       ----      ----      ----      ----
Total                      $128       $169      $209      $155       $163       $158      $181      $272      $191
                           ====       ====      ====      ====       ====       ====      ====      ====      ====
</TABLE>


REVENUE ANALYSIS

In the third quarter, our overall Revenues increased 17%, in contrast to the 21%
decline in our overall mortgage orginations. The reasons for this disparity are:

     1.  The most significant factor was an increase in our Gain on Sale from
         119 basis points in the quarter a year ago to 166 basis points in the
         recently ended quarter. This 39% increase more than offset the 10% year
         over year decline in wholesale orginiations.

     2.  Secondarily, Production Income increased 8%, reflecting an increase in
         the proportion of loans (such as HELOCs, for example) that have higher
         processing fees as a percentage of the loan amount associated with them
         than do conventional mortgages.

     3.  Our retail mortgage originations declined 35% in the quarter just
         ended. The reason for this greater decline than our wholesale
         originations rests with the geographic concentration of our retail
         business in the Greater San Francisco area, a region that is vulnerable
         for reasons discussed in the immediately following paragraphs.

                                      MD-1

<PAGE>

We believe two factors are at work here that can be putting pressure on the
mortgage markets in which we participate.

First, housing sales typically contract for a period of time in markets that
experience declining home prices. To the extent that this occurs, it then also
negatively affects mortgage loan volumes for home purchases (as opposed to
refinancings).

Second, higher interest rates make mortgages less affordable, and reduce the
ability of home owners to use mortgages to pull equity out of their homes for
other uses.

In the first nine months of our current fiscal year, Revenues increased by 26%,
on a virtually flat dollar value of total mortgage originations. Here are the
major reasons why:

     1.  Our Gain on Sale of Loans increased 32% in the first nine months of the
         year. As explained in our last report, this was the result of a loan
         mix shift toward higher margin types of loans.

     2.  The geographic mix of our loans is broadening from our traditional
         markets of California and Arizona, with lower average loan sizes as we
         expand in these markets. For example, the percentage of our wholesale
         mortgages (see Table 16) funded in the recently ended quarter which
         were funded outside of California and Arizona was 15.7%, a sharp
         increase from the 3.9% we experienced in the like quarter a year ago.
         This contributed to Production Income for the first nine months
         increasing 18% year-over-year.

As we noted in our last several reports, 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 one 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
rolling it out to our other markets.

The growth in our Alt Funding business has two effects on the types of loans we
originate. First, since they are smaller, on average, than our traditional
business, our average loan size is declining, although intermittently so. This
is shown in the MD&A Appendix in Table 11. Second, the average credit scores of
our loans are going down in parallel.

Specifically, the percentage of our loans (by principal loan balance) where the
borrower's FICO score is 650 or above has declined from 92.8% to 73.8% over the
last year. The most significant increase occurred among borrowers with FICO
scores in the 600 to 649 range, rising from 5.9% to 17.2% in the same period of
time.

This is shown below in Table 2, a condensation of Table 15 in the MD&A Appendix.

                                     TABLE 2
                                    CONDENSED
                        WHOLESALE FICO SCORE DISTRIBUTION
<TABLE>
<CAPTION>

                  Quarter Ended          1/31/06     10/31/05    07/31/05    04/30/05      1/31/05
                  -------------          -------     --------    --------    --------      -------

                  <S>                    <C>          <C>         <C>         <C>          <C>
                  Above 700               45.5%        49.4%       54.3%       54.6%        57.4%
                  650-699                 31.3         30.0        31.9        27.6         35.4
                  600-649                 17.2         16.6        12.3        11.8          5.9
                  550-599                  4.8          2.6        .2           3.0          0.4
                  Below 550                0.6          1.2        .2           2.1          0.2
                  Not available            0.6          0.2         1.1         0.9          0.7
                                           ---          ---        ----         ----        ----
                  Total                  100.0%       100.0%      100.0%      100.0%       100.0%

</TABLE>
                                      MD-2
<PAGE>

In addition the Loan-to-Value (LTV) ratio of our loans has declined materially
over the last year. For example, the percentage (by dollar value) of our loans
with less than 70% LTVs decreased from 42.8% in the quarter a year ago to 26.8%
in the recently ended quarter. Part of this is due to the growth of our
Alt-Funding business. However, it also is consistent with overall increased debt
leverage of our society, and may be another indicator of why overall mortgage
volumes are under pressure industry-wide.

Notwithstanding the increase in the quarter just ended, the large year-over-year
improvements in our Gain on Sale of Loans margin are beginning to diminish, and
year-over-year comparisons may be more problematic in the future. Specifically,
it is unlikely we will exceed the 142 basis point gain on sale we experienced in
the fourth quarter of a year ago by anything like the year-over-year improvement
we experienced in the recently ended quarter.

                                     TABLE 3
                          WHOLESALE GAIN ON SALE MARGIN
                                 (Basis Points)
<TABLE>
<CAPTION>

Quarter Ended          1-31-06   10-31-05   7-31-05    4-30-05   1-31-05   10-31-04    7-31-04   4-30-04    1-31-04
-------------          -------   --------   -------    -------   -------   --------    -------   -------    -------

<S>                       <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Gain on Sale              166       136        151       142        119       145        113       106        140
</TABLE>


As we have observed in the past the magnitude and time of our receipt of Forward
Commitment Payout Fees can have a material impact on our reported Gain on Sale
margin. While this was not material in the recently ended quarter, it will
likely be, although intermittently so, in the future.

                                     TABLE 4
                     FORWARD COMMITMENT PAYOUT FEES RECEIVED
                                    ($ 000's)
<TABLE>
<CAPTION>

Quarter Ended          1-31-06   10-31-05   7-31-05    4-30-05   1-31-05   10-31-04    7-31-04   4-30-04    1-31-04
-------------          -------   --------   -------    -------   -------   --------    -------   -------    -------

<S>                     <C>         <C>      <C>        <C>        <C>      <C>          <C>      <C>       <C>
Fees Received           $ 125       $87      $ 125      $ 98       $105     $ 271        $ 0      $ 51      $ 335
</TABLE>

GROSS PROFIT ANALYSIS

Gross profits for the quarter just ended were effectively the same as what we
generated in the comparable quarter a year ago, a substantial difference from
the 17% increase in total revenues. The following factors held our gross profit
growth back in the quarter:

     1.  Our Direct Expenses increased 32% while revenues increased only 17%.
         The environment we spoke of in our last quarterly report worsened
         materially in the recently ended quarter. I.e, we experienced an
         increasingly competitive environment for individuals who can originate
         and process mortgage loans, which forced us to raise our compensation
         levels to recruit and retain people.

     2.  Our Net Interest Income/(Expense) showed a materially negative
         comparison in the quarter just ended for two reasons. First,
         Subordinated Interest expense increased by about $39,000, reflecting
         the offering that was completed in January of a year ago. This negative
         comparison (Subordinated Interest expense) will not continue in the
         immediate quarter ahead because the level of subordinated debt will
         remain the same on a year over year basis. Second, Net Warehouse
         Interest Income changed from a positive $29,318 to a negative of
         $12,286, a negative swing of $42,000 , reflecting rising financing
         costs and lower origination volumes in the quarter just ended.


                                     TABLE 5
                           GROSS PROFIT MARGIN TRENDS
<TABLE>
<CAPTION>

Quarter Ended            1-31-06   10-31-05   7-31-05    4-30-05    1-31-05  10-31-04     7-31-04   4-30-04     1-31-04
-------------            -------   --------   -------    -------    -------  --------     -------   -------     -------

<S>                        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Gross Profit Margin        53.4%     59.7%      62.1%     56.5%      61.8%     66.9%      61.5%     50.2%      59.8%
</TABLE>


                                      MD-3
<PAGE>


INDIRECT EXPENSE ANALYSIS

Our Indirect Expenses increased 11% on a year-over-year basis during the
recently ended quarter. 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.

Since Indirect Expenses are relatively fixed over short-to-intermediate periods
of time, by definition, pressures on our ability to originate mortgage loans
will also result in pressure on our operating profitability.

The major driver of our increasing Indirect Expenses in the last year has been
the Salaries and Benefits paid to non-production personnel. These have increased
for two reasons:

First, we have been expanding our operations in Arizona throughout this period
of time and we opened an office in Overland Park, Kansas at the beginning of the
recently ended quarter. This requires us to pay for support staff and guaranteed
salary draws for production personnel in advance of seeing mortgage loan
production and funding. These expenses are paid well in advance of loan
production volume ramping up, thus putting pressure on our operating
profitability.

Second, we are starting to experience inflationary pressures on compensation
generally.

                                     TABLE 6
                         INDIRECT EXPENSE AND COMPONENTS
                                    ($ 000s)
<TABLE>
<CAPTION>

Quarter Ended            1-31-06   10-31-05    7-31-05   4-30-05   1-31-05   10-31-04    7-31-04    4-30-04    1-31-04
-------------            -------   --------    -------   -------   -------   --------    -------    -------    -------

<S>                     <C>        <C>         <C>        <C>       <C>        <C>       <C>        <C>        <C>
Total Indirect Exp.     $1,844     $1,976      $1,898     $1,823    $1,661     $1,637    $1,702     $1,771     $1,699
    Percent of Rev.      73.3%      65.4%       54.5%      67.1%     75.6%      66.9%     68.3%      50.5%      57.5%

Selected Components:
    Salaries and Ben.   $  962     $1,262      $1,119     $1,086    $  949     $  895    $  950     $1,012     $1,024
    Percent of Rev.      38.3%      41.8%       32.1%      40.0%     43.2%      36.6%     38.1%      28.8%      34.7%

    Gen. and Admin.     $  687     $  521      $  586     $  515    $  520     $  550    $  559     $  559     $  480
    Percent of Rev.      27.3%      17.8%       16.8%      18.9%     23.7%      22.5%     22.5%      15.9%      16.3%
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

Our unrestricted and restricted cash position plus liquid investments as of
January 31, 2006, decreased by $705,708 from what it was at the end of our last
fiscal quarter, October 31, 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. For example, in
renegotiating some of the conditions of our various warehouse borrowing
facilities during the last quarter, we lowered our restricted cash position from
$1,025,000 to $125,000. The company agreed to invest the negotiated $900,000
into an interest-bearing twelve month restricted certificate of deposit with the
warehouse lender.

Hence, the total of unrestricted and restricted cash plus short-term (cash-like)
investments is what we measure in evaluating our overall liquidity.

                                      MD-4
<PAGE>

The principal changes to our aggregate cash and investments positions during the
year are shown in Table 7, "Simplified Sources/(Uses) of Cash," below. The
statement of cash flows is included with the other financial statements in Item
1 of this filing. The sum of the cash flow from operations in Table 7 for the
first three quarters of the current fiscal year is $895,000 lower than that
shown in the the statement of cash flows because Table 7 includes changes in all
forms of cash and short-term investments, including Restricted Cash, while the
FASB-compliant table only addresses unrestricted forms of cash and excludes cash
that has been placed in short-term investments. 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.


                                      MD-5
<PAGE>




                                     TABLE 7
                        SIMPLIFIED SOURCES/(USES) OF CASH
<TABLE>
<CAPTION>

                                                                               Change from Prior Period End
                                                                 Quarter           Quarter           Quarter          Quarter
Sources (Uses)                                                   1-31-06          10-31-05           7-31-05          4-30-05
-----------------------------------------------------------------------------------------------------------------------------
                                                                               as restated       as restated      as restated

Operating Cash Flows
Income Statement Related Cash Flows
<S>                                                          <C>              <C>                <C>            <C>
Net Income (Loss)                                            $ (488,566)      $ (152,312)        $ 242,383      $(3,256,815)
Add back non-cash charges/(income)
Depreciation & Amortization                                      20,595           17,960            18,156           21,054
Accrued liability write-down                                          0          (61,333)
Impairment of goodwill                                                0                0                 0        2,714,516
Fair value of financial derivatives changes                     (25,106)           4,753           (47,178)          69,540
Stock option expense                                                  0                0                 0          136,762
Deferred income taxes                                                 0                0                 0          291,365
Provision for early payoff penalties,
   net of payments                                                    0                0            15,000           14,000
                                                                                                                          -
Actual early payoff penalties paid                              (13,790)         (20,475)           (1,850)          (5,333)
                                                                --------         --------           -------           ------
Operational Cash Flows from the Income Statement             $ (506,867)      $ (211,405)        $ 226,511      $   (14,911)

Balance Sheet Related Cash Flows
Mortgages held for sale                                      $ (198,574)      $  574,032         $ 257,288      $  (229,706)
Short-term mortgage receivables                                 286,709         (133,495)          (88,135)         (71,292)
Other Assets                                                     13,349           16,108           (19,258)          26,479
Accounts payable and other accrued liabilities                 (278,424)         (30,548)            8,945          121,958
                                                               ---------         --------            -----          -------
Operational Cash Flow from the Balance Sheet                 $ (176,940)      $  426,097         $ 158,840      $  (152,561)

Total Cash Flow Generated/(Used) in Operations               $ (683,807)      $  214,692         $ 385,351      $  (167,472)

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

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

Investing Activity Cash Flows
Purchase of property and equipment                           $  (21,901)      $  (30,950)        $ (18,156)     $    (3,560)

Total Cash Flow from Investing Activities                    $  (21,901)      $  (30,950)        $ (18,156)     $    (3,560)

Net Change to Aggregate Cash                                 $ (705,708)      $  183,742         $ 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:

                                      MD-6
<PAGE>


     1.  The Company lost about $489,000 in cash flow from income
         statement-related operations during the recently ended quarter. This
         reflects our low level of mortgage originations in the period.

     2.  The Company decreased Short-Term Mortgage-Related Receivables by about
         $287,000. This largely reflects the large drop in mortgage origination
         volume in the quarter.

     3.  The Company increased its Mortgages Held for Sale by about $199,000 in
         the recently ended quarter. This asset tends to fluctuate from quarter
         to quarter due to where the Company is at any particular point in time
         with respect to its accumulation of mortgages for bulk sale.

     4.  The Company spent about $22,000 on purchases of property and equipment
         during the quarter just ended.

     5.  The paying down of Accounts Payable and other Accrued Liabilities in
         the quarter resulted in the use of about $278,000 of cash in the
         quarter just ended. This principally reflects the low level of business
         the company generated during the past quarter, thus creating a
         corresponding low level of payables and accruals.

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 January 31, 2006, the Company had a total of two financing
facilities for a maximum financing capacity of up to $75 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 cash balances of
$125,000 and a restricted certificate of deposit of $900,000.

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
January 31, 2006:
<TABLE>
<CAPTION>

                                     TABLE 8
                          LOAN FACILITIES AND BALANCES

                             Committed        Outstanding     Required        Interest Rate
Type of Facility             Facility           Balance     Cash Deposit    January 31, 2006     Maturity
----------------           -------------    --------------  ------------    ----------------     --------

<S>                            <C>           <C>             <C>                <C>              <C>
Master sales agreement         $35,000,000   $ 4,330,800     $ 100,000          7.25%(1)         Annual or 30 days notice
Master sales agreement          40,000,000     6,798,250        25,000          6.45 - 7.07%(2)  Annual or 30 days notice
                                ----------   -----------      --------
Totals                         $75,000,000   $11,129,050     $ 125,000
                               ===========   ===========      ========
</TABLE>



(1)  For the first $15 million of this facility, the contractual interest rate
     facility was 3.99% or Prime, whichever is greater. The rate for the next
     $20 million is 0.05% greater than the rate for the first $15 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

                                      MD-7
<PAGE>

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 9
                   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 10
                     NOTIONAL VALUE OF FINANCIAL INSTRUMENTS

                                            January 31,              April 30,
                                               2006                   2005
                                            -----------------------------------

Commitments to extend credit                $ 19,449,001          $  21,772,820
Mandatory forward delivery commitments        10,502,550              2,741,500




                                      MD-8
<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 January 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. At January 31, 2006 the
Company maintained wholesale offices in San Francisco and Costa Mesa,
California, Scottsdale, Arizona and Overland Park, Kansas. 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.

Furthermore, the Company's mortgage origination capability is also affected by
the direction of housing prices in the markets it serves. To the extent local
housing prices peak and begin declining, mortgage originations normally fall
off, at least for a period of time before the market adjusts to the new levels.

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, as well
as housing prices if they decline.


                                      MD-9
<PAGE>


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

                                    TABLE 11
                        DIVISIONAL LOAN PRODUCTION VOLUME
                                    ($ 000s)

Quarter Ending                       1/31/06          10/31/05          07/31/05          4/30/05           1/31/05
--------------                       -------          --------          --------          -------           -------

Wholesale Division
<S>                                 <C>               <C>               <C>              <C>               <C>
         Volume                     $ 80,624          $100,467          $129,989         $ 84,427          $ 90,571
         Percent of Volume                63%               59%               62%              54%               56%
         Number of Loans                 357               532               619              379               407
         Average Loan Size          $    226          $    189          $    210         $    223          $    223

Retail Division
         Volume                     $ 47,391          $ 68,617          $ 79,092         $ 71,100          $ 72,261
         Percent of Volume                37%               41%               38%              46%               44%
         Number of Loans                 123               205               223              203               201
         Average Loan Size          $    385          $    335          $    355         $    350          $    360

Total Loan Production
         Volume                     $128,015          $169,084          $209,081         $155,527          $162,832
         Number of Loans                 480               737               842              582               608
         Average Loan Size          $    267          $    229          $    248         $    267          $    268
</TABLE>


THE WHOLESALE LOAN DIVISION

OVERVIEW

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

During the quarter ended January 31, 2006, 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-10
<PAGE>

<TABLE>
<CAPTION>
                                    TABLE 12
                               PULL THROUGH RATES

         Quarter Ended            Jan06   Oct05   Jul 05   Apr 05   Jan 05   Oct 04  Jul 04   Apr 04   Jan 04
         -------------            -----   -----   ------   ------   -------  ------  ------   ------   ------

<S>                                <C>    <C>     <C>     <C>         <C>      <C>    <C>      <C>       <C>
         Rate                      73%    75.0%   75.0%   74.2%       76.8%    64.7%  66.2%    71.0%     74.5%
</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 January 31, 2006, we
had two financing facilities in place for a total borrowing capacity of up to
$75 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 expand
substantially our 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 four underwriters who maintain
the consistent quality of mortgage loans expected by secondary market investors.
The Company generally takes from 24 to 48 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
includes a verification of certain mortgage loan documentation to determine the
integrity of the data and a review for compliance with underwriting guidelines.

MD-11
<PAGE>

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
$417,000) are called Jumbo loans. Jumbo loans comprised approximately 41% and
48% of the wholesale mortgage loans we originated for the quarters ended January
31, 2006 and 2005, 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>
<CAPTION>

                                    TABLE 13
                        WHOLESALE MORTGAGE LOANS BY TYPE

Quarter Ending                                                1/31/06  10/31/05   7/31/05   4/30/05      1/31/05
--------------                                                -------   -------------------- ------      -------

<S>                                                           <C>        <C>        <C>       <C>        <C>
1 month adjustable-rate (various total terms)                   9.6%       5.9%       4.1%      1.9%       1.7%
6 month adjustable-rate (various total terms)                   0.6        0.4        2.3       2.6        3.9
2 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                       16.9       16.4        4.0       7.9        7.6
3 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                        0.3        0.8        1.0      16.9       16.5
5 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                       23.0       24.2       33.5      21.6       19.4
7 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                        2.5        0.4        1.2       0.0        0.7
10 year fixed-rate, adjustable-rate hybrid
   (various total terms)                                        0.6        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                                         7.3        4.9        3.2      13.9       13.3
20 year term fixed-rate                                         2.5        2.8        0.5       0.0        0.0
30 year term fixed-rate                                        19.1       21.4       28.4      19.9       24.6
Federal Housing Authority (various total terms and rates)       0.0        0.0        0.0       0.0        0.5
HELOC                                                          11.2       11.0       12.4       6.4        2.5
Equity Line                                                     5.6        5.9        7.0       8.9        8.3
Other                                                           0.8        5.9        2.4       0.0        1.0
Total                                                         100.0%     100.0%     100.0%    100.0%     100.0%
</TABLE>



                                     MD-12
<PAGE>




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>
<CAPTION>

                                    TABLE 14
                      WHOLESALE LOAN TO VALUE DISTRIBUTION

                  Quarter Ended          1/31/06     10/31/05    07/31/05    04/30/05      1/31/05
                  -------------          -------      -------    --------    --------      -------

                  <S>                    <C>          <C>         <C>         <C>          <C>
                  50 or less               4.3%         6.0%        8.9%        4.9%         8.1%
                  50.01 - 60               4.8          4.9         4.9         5.7          6.2
                  60.01 - 70              17.1         19.1        20.2        20.2         28.5
                  70.01 - 80              70.3         65.7        63.4        65.0         55.3
                  80.01 - 85               1.0          1.8         2.0         2.1          0.4
                  85.01 - 90               1.0          1.8         0.0         1.4          0.4
                  90.01 - 95               0.5          0.0         0.6         0.7          0.4
                  95.01 or more            1.0          0.7         0.0         0.0          0.7
                  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-13
<PAGE>

<TABLE>
<CAPTION>

                                    TABLE 15
                        WHOLESALE FICO SCORE DISTRIBUTION

                  Quarter Ended          1/31/06     10/31/05    07/31/05    04/30/05      1/31/05
                  -------------          -------      -------    --------    --------      -------

<S>               <C>                    <C>          <C>         <C>         <C>          <C>
                  800 +                    0.6%         1.2%        1.7%        0.7%         2.0%
                  775 - 799                5.3          4.5         7.1         7.9          7.1
                  750 - 774                8.4         12.8        11.8        10.5         14.0
                  725 - 749               12.4         15.0        17.9        19.7         16.6
                  700 - 724               18.8         15.9        15.8        15.8         17.7
                  675 - 699               18.4         15.0        20.5        16.9         22.4
                  650 - 674               12.9         15.0        11.4        10.7         13.0
                  625 - 649               12.1          9.7         8.7         7.3          4.9
                  600 - 624                5.1          6.9         3.6         4.5          1.0
                  575 - 599                3.1          1.8         0.0         2.4          0.2
                  550 - 574                1.7          0.8         0.2         0.6          0.2
                  Below 550                0.6          1.2         0.2         2.1          0.2
                  No score available       0.6          0.2         1.1         0.9          0.7
                  Total                  100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


WHOLESALE GEOGRAPHIC CONCENTRATION

The Company originates wholesale loans most heavily in California and Arizona.
During the quarters ended January 31, 2006 and 2005, the Company's wholesale
loan origination volume, as measured by principal balance, came from the
following states:
<TABLE>
<CAPTION>

                                    TABLE 16
                     WHOLESALE LOAN GEOGRAPHIC DISTRIBUTION

         Quarter Ended                   1/31/06     10/31/05    07/31/05     4/30/05      1/31/05
         -------------                   ---------------------------------------------------------

<S>                                      <C>          <C>         <C>         <C>          <C>
         California                       44.1%        36.9%       44.7%       35.8%        45.0%
         Arizona                          40.2%        54.3%       43.1%       56.1%        51.1%
         Nevada                            2.0%         2.6%        5.3%        1.5%         1.0%
         Florida                           4.5%         2.4%        3.9%        2.8%         1.0%
         Washington                        4.2%         0.0%        0.0%        0.0%         0.0%
         Others                            5.0%         3.8%        3.0%        3.8%         1.9%
         Total                           100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


WHOLESALE LOAN PROPERTY TYPES AND SIZES

During the quarters ended January 31, 2006 and 2005, 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:


                                     MD-14
<PAGE>
<TABLE>
<CAPTION>


                                    TABLE 17
                    WHOLESALE MORTGAGE LOANS BY PROPERTY TYPE
                          (Quarters Ending January 31)

                  Quarter Ended          1/31/06     10/31/05    07/31/05     4/30/05      1/31/05
                  -------------          ---------------------------------------------------------

<S>                                      <C>          <C>         <C>         <C>          <C>
                  Single family           57.0%        48.4%       46.4%       46.0%        49.4%
                  Planned Unit Dev.       22.5         26.4        35.4        34.5         34.4
                  Condominium             12.9         19.3        10.3         6.9          8.4
                  2 - 4 family             7.6          5.5         7.9        12.6          7.8
                  Other                    0.0          0.4         0.0         0.0          0.0
                  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:
<TABLE>
<CAPTION>

                                    TABLE 18
                WHOLESALE MORTGAGES BY ORIGINAL PRINCIPAL BALANCE

              Quarter Ended              1/31/06     10/31/05    07/31/05     4/30/05      1/31/05
              -------------              ---------------------------------------------------------

               <S>                       <C>          <C>         <C>         <C>          <C>
               $100,000 or less           34.8%        33.8%       37.3%       37.0%        36.6%
               $100,001-200,000           24.4         29.7        26.9        30.8         29.5
               $200,001-300,000           17.1         16.3        15.3        12.4         10.1
               $300,001-400,000            9.0          9.6         8.1         6.2          9.3
               $400,001-500,000            6.2          3.7         3.9         4.5          4.7
               $500,001-600,000            2.6          3.3         2.3         2.6          3.2
               $600,001-700,000            2.2          1.2         2.1         3.6          2.2
               $700,001-800,000            0.6          0.4         1.1         0.4          1.5
               $800,001-900,000            0.6          0.6         1.7         0.6          0.2
               $900,001-1,000,000          1.1          0.8         0.7         1.1          1.5
               $1,000,001-1,500,000        1.1          0.4         0.3         0.6          0.0
               over $1,500,001             0.3          0.2         0.3         0.2          1.2
                                         100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


First lien mortgage loan originations represented 86% and 91% of our wholesale
loan originations, as measured by principal balance, for the quarters ended
January 31, 2006 and 2005, 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 January 31, 2006, 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

                                     MD-15

<PAGE>

might be higher or lower than the market rate at which we can sell the mortgage
loan to an investor. Therefore, a market gain or loss results on the sale of the
mortgage loan.

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

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 January 31, 2006, the Company had a maximum mortgage loan financing
capacity of $75million 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

                                     MD-16

<PAGE>

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 quarters ended January 31, 2006 and 2005,
the Company had no loans subject to any repurchase agreements. Loan interest
charges incurred in connection with the sale are estimated and recognized as a
reduction in sales proceeds immediately upon the loan being transferred. Loan
interest expense is calculated based on the number of days the loan remains with
the financial institution, until it is ultimately resold to a third party
investor. During the intervening period the Company sub-services the loans on
behalf of the financial institutions.

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

                                    TABLE 19
                       AVERAGE NUMBER OF DAYS IN WAREHOUSE

         Quarter Ended           Jan 06  Oct 05   Jul 05   Apr 05   Jan 05   Oct 04  Jul 04   Apr 04   Jan 04
         -------------           ------  ------   ------   ------   ------   ------  ------   ------   ------

<S>                                <C>     <C>      <C>      <C>      <C>      <C>     <C>      <C>      <C>
         Average # of Days         20      19       19       16       15       15      15       13       14
</TABLE>


The increase in our average number of days loans remain financed by our
warehouse facilities is due to our increasing use of mini-bulk and bulk sales of
mortgage loans, ie. loans we sell via this method remain financed longer than
loans we sell immediately upon funding to the borrower.

THE RETAIL LOAN ORIGINATION DIVISION

Our retail division was established in 1985 and as of January 31, 2006
contracted with 20 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 24% and 18% of the aggregate
dollar value of mortgage loans originated by the retail division were funded by
our wholesale division during the quarters ended January 31, 2006 and 2005.

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 January 31, 2006 and 2005, the average loan size originated by
the retail division was approximately $385,000 and $360,000, respectively.

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

RETAIL LOAN PRODUCTS

Jumbo loans comprised approximately 41% and 51% of the retail mortgage loans we
originated for the quarters ended January 31, 2006 and 2005, respectively.

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

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

The following table details the mortgage loan types originated by our retail
division, as measured by principal balance, the quarters ended January 31, 2006
and 2005:

                                     MD-17
<PAGE>
<TABLE>
<CAPTION>

                                    TABLE 20
                         RETAIL LOAN ORIGINATION BY TYPE

         Quarter Ended                   1/31/06     10/31/05    07/31/05     4/30/05      1/31/05
         -------------                   ---------------------------------------------------------

<S>                                      <C>          <C>         <C>         <C>          <C>
         Jumbo mortgages                  40.6%        28.1%       58.0%       37.1%        50.8%
         Conventional ARMs                18.7         24.3        12.6        43.1         34.0
         Conventional Fixed                9.8         11.9        22.7        11.9         10.0
         HELOC & Seconds                  30.9         35.7         6.7         7.9          5.2
         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 January 31, 2006 and 2005, the Company's retail loan origination volume,
as measured by principal balance, came from the following states:
<TABLE>
<CAPTION>

                                    TABLE 21
                       RETAIL LOAN GEOGRAPHIC DISTRIBUTION

         Quarter Ended                   1/31/06     10/31/05    07/31/05     4/30/05      1/31/05
         -------------                   ---------------------------------------------------------

<S>                                      <C>          <C>         <C>         <C>          <C>
         California                       78.9%        69.0%       93.3%       95.5%        97.9%
         Arizona                          15.4         29.6         5.0         0.5          1.6
         New Mexico                        3.3          0.0         0.0         0.0          0.0
         Others                            2.4          1.4         1.7         4.0          0.5
         Total                           100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


RETAIL LOAN SIZES

During the quarters ended January 31, 2006 and 2005, the Company's first lien
retail mortgage loan origination volume, as measured by principal balance, was
comprised of loans with original principal balances in the following ranges:
<TABLE>
<CAPTION>

                                    TABLE 22
                 RETAIL MORTGAGES BY ORIGINAL PRINCIPAL BALANCE

               Quarter Ended             1/31/06     10/31/05    07/31/05     4/30/05      1/31/05
               -------------             ---------------------------------------------------------

               <S>                       <C>          <C>          <C>        <C>          <C>
               $100,000 or less           19.5%        22.8%        7.6%       21.7%        14.4%
               $100,001-200,000           15.5         21.0        16.0        16.3         18.6
               $200,001-300,000           12.2         16.2        19.3        15.8          7.7
               $300,001-400,000           13.8         11.9        11.8        12.9         16.5
               $400,001-500,000           14.6          8.1        11.8        10.9         17.5
               $500,001-600,000            8.9          7.6         9.2         4.0          8.8
               $600,001-700,000            5.7          3.8        10.9         9.9          5.2
               $700,001-800,000            3.3          2.4         5.0         2.5          4.1
               $800,001-900,000            0.0          1.4         3.4         1.5          3.6
               $900,001-1,000,000          1.6          3.3         2.5         2.5          3.1
               $1,000,001-1,500,000        3.3          0.5         1.7         2.0          0.5
               over $1,500,001             1.6          1.0         0.8         0.0          0.0
                                         100.0%       100.0%      100.0%      100.0%       100.0%
</TABLE>


First lien retail mortgage loan originations represented 91% and 91% of our
total loan originations, as measured by principal balance, for the quarters
ended January 31, 2006 and 2005, respectively.


                                     MD-18
<PAGE>

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, who also is 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, who also is 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.

The conditions leading to the restatements referred to in this filing were
discovered by management and the Audit Committee as part of their normal review
processes. Management and the Audit Committee believe the errors that lead to
the aforementioned restatements were neither significant nor material because
the figures were immaterial by any reasonable standard, did not affect cash
flows and did not affect the company's ability to conduct its business.
Furthermore, the issues discovered revolved around relatively arcane accounting
issues where there tends not be general agreement in its application.


PART II. OTHER INFORMATION

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.

                     Certification of the Chief Financial Officer pursuant to 18
                     U.S.C. Section 1350 as adopted pursuant to Section 302 of
                     the Sarbanes-Oxley Act of 2002.

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

                     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-1
<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: March 21, 2006                    /s/ Joseph Kristul
      --------------                    --------------------------------------
                                        Joseph Kristul, Chief Executive




                                        /s/ Thomas Schott
                                        -----------------------------------
                                        Thomas Schott, Chief Financial Officer


<PAGE>