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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended July 31, 2003

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

For the transition period from _______________ to _______________.


Commission file number O-24512


Anza Capital, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
(State or other jurisdiction of
incorporation or organization)
 
88-1273503
(I.R.S. Employer
Identification No.)
 
3200 Bristol Street, Suite 700
Costa Mesa, CA
(Address of principal executive offices)
 
 
92626
(Zip Code)
 

Registrant’s telephone number, including area code (714) 866-2100


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 __        

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes __   No X     

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes __   No __       

Applicable only to corporate issuers

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. As of September 10, 2003, there were 4,967,460 shares of common stock issued and 4,829,960 shares of common stock outstanding.

 
     
 
 

ANZA CAPITAL, INC.



TABLE OF CONTENTS




 
PART I
 
 
 
 
ITEM 1
Financial Statements
3
 
 
 
ITEM 2
Management’s Discussion and Analysis
12
 
 
 
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
20
 
 
 
ITEM 4
Controls and Procedures
21
 
 
 
 
PART II
 
 
 
 
ITEM 1
Legal Proceedings
22
 
 
 
ITEM 2
Changes in Securities and Use of Proceeds
22
 
 
 
ITEM 3
Defaults Upon Senior Securities
22
 
 
 
ITEM 4
Submission of Matters to a Vote of Security Holders
22
 
 
 
ITEM 5
Other Information
23
 
 
 
ITEM 6
Exhibits and Reports on Form 8-K
23

 
  2  
 
 

PART I

 
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading "Management’s Discussion and Analysis of Financial Condition or Plan of Operation." Forward-looking statements also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "consider" or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company’s future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

ITEM 1      Financial Statements


 
  3  
 

 
ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 
  
 
 
 
  
July 31, 2003
April 30, 2003
 
  
(Unaudited)
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
 
$
4,477,164
 
$
2,755 659
 
Commissions receivable
   
3,212,588
   
2,512,741
 
Loans held for sale, net
   
13,483,933
   
7,601,623
 
Marketable securities
   
834,375
   
34,375
  
Advances to employees
   
13,852
   
6,516
 
Prepaids and other current assets
   
68,127
   
35,857
  
   
 
 
Total current assets
   
22,090,039
   
12,946,771
 
 
    
 
    
 
  
Property and equipment, net
   
281,871
   
253,723
 
Goodwill, net
   
195,247
   
195,247
 
Other assets
   
-
   
22,879
 
   
 
 
 
  
$
22,567,157
 
$
13,418,620
 
   
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
   
 
    
 
  
Current liabilities:
   
 
    
 
  
Accounts payable
 
$
1,104,729
 
$
677,951
 
Commissions payable
   
4,315,928
   
2,687,511
 
Warehouse line of credit
   
13,361,041
   
7,514,209
 
Accrued liabilities
   
561,389
   
532,337
 
Other liabilities
   
201,075
   
75,601
 
   
 
 
Total current liabilities
   
19,544,162
   
11,487,609
 
   
 
 
Preferred stock of subsidiary
   
800,000
   
-
 
 
    
 
    
 
  
Total liabilities
   
20,344,162
   
11,487,609
 
   
 
 
 
    
 
    
 
  
Stockholders’ equity:
   
 
    
 
  
Preferred stock, 2,500,000 shares authorized:
   
 
    
 
  
Class D convertible preferred stock, no par value; liquidation
value of $126.81 per share; 15,000 shares authorized; 8,201.5
shares outstanding
   
 
 
1,040,222
   
 
 
1,040,222
 
Class E convertible preferred stock, no par value; liquidation
value of $1.00 per share; 250,000 shares authorized; 193,429
and 217,278 shares issued and outstanding, respectively
   
 
 
193,429
   
 
 
217,278
 
Class F convertible preferred stock, no par value; liquidation
value of $16.675 per share; 25,000 shares authorized, 18,800
shares issued and outstanding
   
 
 
313,490
   
 
 
313,490
 
Common stock, $0.001 par value; 100,000,000 shares
authorized; 4,967,460 shares issued and 4,829,960 shares
outstanding as of July 31, 2003 and April 30, 2003
   
 
 
96,597
   
 
 
96,597
 
Additional paid in capital
   
13,547,347
   
13,547,347
 
Accumulated deficit
   
(12,968,090
)
 
(13,283,923
)
   
 
 
Total stockholders’ equity
   
2,222,995
   
1,931,011
 
   
 
 
 
  
$
22,567,157
 
$
13,418,620
 
   
 
 

See accompanying notes

 
  4  
 

ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


 
  
Three Months Ended
   
 
  
July 31, 2003
July 31, 2002
   
Revenues:
 
 
 
Broker commissions
 
$
18,393,906
 
$
10,951,066
 
Sales of loans, net
   
239,160
   
5,221
 
Notary and other
   
960,277
   
363,059
 
   
 
 
 
    
19,593,343
   
11,319,346
 
   
 
 
Cost of revenues:
   
 
    
 
  
Broker commissions
   
13,365,223
   
7,891,685
 
     
Notary and other
   
552,606
   
270,285
 
   
 
 
 
    
13,917,829
   
8,161,970
 
   
 
 
Gross profit
   
5,675,514
   
3,157,376
 
   
 
 
Operating expenses:
   
 
    
 
  
General and administrative
   
2,643,215
   
1,631,104
 
Salaries and wages
   
2,649,937
   
1,177,900
 
Selling and marketing
   
116,845
   
107,838
 
   
 
 
 
    
5,409,997
   
2,916,842
 
   
 
 
Operating income
   
265,517
   
240,534
 
 
    
 
    
 
  
Interest expense
   
(72,800
)
 
(28,667
)
Interest income
   
129,268
   
16,983
 
Net income
 
$
321,985
 
$
228,850
 
   
 
 
 
    
 
    
 
  
Earnings per common share:
   
 
    
 
  
 
    
 
    
 
  
Basic:
   
 
    
 
  
Weighted average number of common shares
   
4,829,960
   
2,119,335
 
Net income per common share
 
$
0.07
 
$
0.10
 
 
    
 
    
 
  
Diluted:
   
 
    
 
  
Weighted average number of common shares
   
8,006,380
   
6,557,060
 
Net income per common share
 
$
0.04
 
$
0.03
 










See accompanying notes



  5  

ANZA CAPITAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
  
Three Months
Ended
July 31, 2003
Three Months
Ended
July 31, 2002
   
Cash flows from operating activities:
 
 
 
Net income
 
$
321,985
 
$
228,850
 
Adjustments to reconcile net income to net cash used
in operating activities:
   
 
    
 
  
Depreciation
   
12,685
   
10,438
 
Stock compensation to consultants and employees
   
-
   
1,080
 
Amortization of discounts on loans
   
-
   
10,242
 
Amortization of deferred stock compensation
   
-
   
30,958
 
Changes in operating assets and liabilities:
   
 
    
 
  
Increase in commissions and accounts receivable
   
(699,847
)
 
(298,041
)
Increase in loans held for sale, net 
    
(5,882,310
)
 
(1,479,546
)
Increase in prepaids and other current assets
   
(16,728
)
 
(12,179
)
Increase in accounts payable
   
426,779
   
497,880
 
Increase in commissions payable
   
1,628,417
   
401,267
 
Increase in accrued and other liabilities
   
154,526
    
19,481
 
   
 
 
 
    
 
    
 
  
Net cash used in operating activities
    
(4,054,493
)
 
(589,570
)
   
 
 
 
    
 
    
 
  
Cash flows from investing activities:
   
 
    
 
  
Acquisitions of property and equipment
   
(40,833
)
 
(16,572
)
Advances to employees, net
   
-
   
(51,336
)
   
 
 
               
Net cash used in investing activities
    
(40,833
)
 
(67,908
)
   
 
 
 
    
 
    
 
  
Cash flows from financing activities:
   
 
    
 
  
Payments on bridge loan
   
-
   
(199,100
)
Advances from warehouse line of credit, net
    
5,846,832
   
1,449,580
 
Repurchase of E Preferred
   
(23,849
)
 
(7,257
)
Dividends on E Preferred
   
(6,152
)
 
(9,743
)
Payment on capital lease obligation
   
-
   
(19,319
)
   
 
 
Net cash provided by financing activities
   
5,816,831
   
1,214,161
 
   
 
 
 
    
 
    
 
  
Net increase in cash
   
1,721,505
   
556,683
 
Cash at beginning of period
   
2,755,659
   
707,851
 
   
 
 
Cash at end of period
 
$
4,477,164
 
$
1,264,534
 
   
 
 
Non-cash financing activities:
   
 
    
 
  
Conversion of C Preferred to common stock
 
$
-
 
$
34,359
 
   
 
 
        Issuance of preferred stock of subsidiary for marketable
    securities
 
$
800,000
 
$
-
 
   
 
 
Supplemental cash flow information:
   
 
    
 
  
Cash paid for interest
 
$
70,800
 
$
27,937
 
   
 
 
Income taxes were not significant during the periods presented
   
 
    
 
  


See accompanying notes

  6  

NOTES TO INTERIM FINANCIAL STATEMENTS


Note 1. Unaudited interim financial statements

The interim financial data as of July 31, 2003 is unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position as of July 31, 2003, and the results of their operations and their cash flows for the three months ended July 31, 2003 and 2002. The results of operations are not necessarily indicative of the operations, which may result for the year ending April 30, 2004. Also, in the opinion of management, all disclosures required on Form 10-Q were fully furnished. The Company’s annual report on Form 10-KSB for the year ended April 30, 2003 should be read in connection with this quarterly report.


Note 2. Reclassifications

Certain prior year amounts have been reclassified for comparative purposes. The amounts reclassified are summarized in the table below.

 
  
Three Months Ended July 31, 2002
 
  
As Originally Filed
As Reclassified
Difference
 
  
 
 
 
Broker commissions
 
$
10,956,287
 
$
10,951,066
 
$
(5,221
)
Sales of loans, net
   
-
   
5,221
   
5,221
 
Cost of revenues – broker commissions
   
7,999,523
   
7,891,685
   
(107,838
)
General and administrative expenses
   
1,930,687
   
1,631,104
   
(299,583
)
Salaries and wages
   
878,317
   
1,177,900
   
299,583
 
Selling and marketing expenses    

 -

    

 107,838

    
107,838
  


The amounts were reclassified to appropriately disclose costs and expenses directly related to revenue generating activities. Further, salaries and wages, and selling and marketing expenses have been broken out of general and administrative expenses as these costs has become individually significant. In addition, all expenses relating to compensation, such as payroll taxes, have been reclassified into salaries and wages.


Note 3. Segment disclosure

Segments were determined based on services provided by each segment. Performance of the segments is evaluated on net income. For the three months ended July 31, 2003 and 2002, management has provided the following information with respect to its operating segments (in thousands).

 
  7  
 



 
  
Revenues
Net Income
Assets
 
  
2003
2002
2003
2002
2003
2002
   
 
  
 
 
 
 
 
 
Loan brokering
 
$
18,393
 
$
10,951
 
$
107
 
$
284
 
$
8,353
 
$
3,046
 
Mortgage banking
   
239
   
5
   
(34
)   
(9
)
 
13,378
   
2,549
 
Notary Services
   
810
   
157
   
243
   
28
   
457
   
86
 
Real Estate Brokerage
   
151
   
206
   
1
   
(7
)
 
8
   
4
 
   
 
 
 
 
 
 
 
  
$
19,593
 
$
11,319
   
317
   
296
   
22,196
   
5,685
 
   
 
                         
Corporate
   
 
    
 
    
5
   
(67
)
 
371
   
495
 
               
 
 
 
 
Total
   
 
    
 
  
$
322
 
$
229
 
$
22,567
 
$
6,180
 
               
 
 
 
 




Note 4. Impact of recently issued accounting statements
 
In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure ("SFAS 148") which addresses financial accounting and reporting for recording expenses for the fair value of stock options. SFAS 148 provides alternative methods of transition for a voluntary change to fair value-based method of accounting for stock-based employee compensation. Additionally, SFAS 148 requires more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002, with early application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after Decembe r 15, 2002. ANZA has elected to continue to apply the intrinsic value-based method of accounting as allowed by APB No. 25 for employee stock-based compensation. The disclosure effects of SFAS 148 are not significant to the Company for quarters presented since minimal activity occurred in 2003 and no grants were made to employees during the quarter.
 
In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also requires that at all times a company issues a guarantee, ANZA must recognize an initial liability for the fair market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions of FIN 45 apply on a prospective basis to guarantees issued or modified after December 31, 2002. ANZA will apply the provisions of FIN 45 to any guarantees issued after December 31, 2002. As of July 31, 2003, ANZA had certain guarantees relating to its mortgage banking operations which are not considered significant. Such guarantees, and ANZA's potential liability for those guarantees were satisfied soon after the quarter. ANZA did not incur any costs or expense in satisfying these guarantees.

 
  8  
 
 
Note 5. Loans Held for Sale
 
Loans held for sale consist of conventional uninsured mortgages originated by the Company, with various interest rates. Details of the loans are as follows:
 
 
  
July 31, 2003
April 30, 2003
   
 
  
 
(Unaudited)
 
 
 
  
 
 
 
 
Loans Range
 
Number of
Loans
Total Loan Amount
Average
Interest Rate
Number of Loans
Total Loan Amount
Average Interest Rate
 
 
  
 
 
 
 
 
 
$20,000 to $100,000
   
11
 
$
561,646
   
6.82
%
 
9
 
$
533,712
   
9.33
%
$100,001 to $200,000
   
24
   
3,565,862
   
6.01
%
 
11
   
1,677,968
   
5.89
%
$200,001 to $300,000
   
15
   
3,473,700
   
5.25
%
 
5
   
1,181,350
   
5.63
%
$300,001 to $400,000
   
8
   
2,771,525
   
5.83
%
 
4
   
1,356,800
   
5.63
%
Over $400,000
   
6
   
3,111,200
   
4.88
%
 
6
   
2,851,793
   
5.81
%
   
 
       
 
       
Total
   
64
 
$
13,483,933
   
 
    
35
 
$
7,601,623
   
 
  
   
 
       
 
       


Note 6. Marketable Securities

The Company’s marketable equity securities are classified as "available-for-sale" in accordance with the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities."  Accordingly, such investments are presented as current assets and are carried at their estimated fair values, based on market quotations, in the accompanying financial statements. Unrealized gains and losses are excluded from net income (loss) and reported as a separate component of shareholders’ equity, net of related deferred taxes, and as a component of comprehensive income at July 31, 2003. At July 31, 2003, there are no current year or cumulative gains or losses to be recorded.&nb sp; When management determines that investments are permanently impaired, it records a provision for loss to operations. Marketable securities may include restricted common stock of publicly traded companies.

Note 7. Goodwill

For purchase business combinations completed prior to June 30, 2001, the net carrying amount of goodwill is $195,247 at July 31, 2003. Goodwill, during the periods presented, was not amortized in accordance with SFAS 142. Management believes the carrying value of goodwill will be recovered through future cash flows.

Note 8. Warehouse Line of Credit

The Company maintains a $13,000,000 warehouse line of credit which expires on March 31, 2004. It is likely that the line will be increased to $25,000,000 based on recent discussions with the lender. The agreement is personally guaranteed by ANZA’s chief executive officer. The credit agreement calls for various ratios and net worth requirements, minimum utilization requirements, and limits the warehouse period to 45 days for any specific loan. The interest rate is adjustable, based upon a published prime rate, plus an additional 1% to 3% and is payable monthly. The rate varies depending on the type of loan (conforming or non-conforming) with higher rates on non-conforming loans. The line of credit is collateralized by our loans held for sale.

 
  9  
 
 
Note 9. Accrued Liabilities

Accrued liabilities consist of the following as of:

 
  
July 31, 2003
April 30, 2003
 
  
(unaudited)
 
Accrued salary and benefits
 
$
138,489
 
$
143,645
 
Accrued losses for brokered loans
   
300,000
   
300,000
 
Accrued losses for states audits
    
100,000
   
-
 
Accrued professional fees
   
22,900
   
71,210
 
Accrued interest
   
-
   
17,482
 
   
 
 
 
  
$
561,389
 
$
532,337
 
   
 
 

 
Note 10. Earnings Per Share

Dilutive securities which are included in the calculation of dilutive EPS for the three months ended July 31, 2003, include the Series D Convertible Preferred Stock, the Series E Convertible Preferred Stock, and the Series F Convertible Preferred Stock into approximately 3,176,420 shares of common stock.
Dilutive securities included in the calculation of dilutive EPS for the three months ended July 31, 2002, include the Series C Preferred, the Series A Preferred, Laguna warrants and employee options convertible into approximately 4,437,725 shares of common stock.


Note 11. Stockholders’ Equity

From time to time, the Company’s board of directors authorizes the issuance of common stock. The Company values shares of common stock based on the closing ask price of the securities on the date the directors approve such issuance. In the event the Company issues common stock subject to transferability restrictions under Rule 144 of the Exchange Act of 1933, the Company discounts the closing ask prices by 10% to value its common stock transactions. No such issuances occurred for either period presented.

SERIES E CONVERTIBLE PREFERRED STOCK

During the three months ended July 31, 2003, ANZA repurchased 23,849 shares of Series E Convertible Preferred Stock for $23,849. Also during the period, the Company declared and distributed $6,152 of dividends relating to the Series E Convertible Preferred Stock.

ISSUANCE OF PREFERRED STOCK OF SUBSIDIARY

AMRES authorized 1,250,000 shares of Class A preferred stock on July 18, 2003. The Class A preferred stock is no par value and accrues dividends at a rate of 10% per annum. There are no voting, liquidation, redemption or conversion rights associated with the Class A Preferred Stock.

On July 18, 2003 (with an effective closing date of July 31, 2003), the Company entered into a transaction to issue 1,000,000 shares of Class A preferred stock in exchange for 66,946 shares of Sutter Holding Company, Inc. ("Sutter") restricted common stock. As additional consideration, the Company issued to Sutter warrants to acquire 1,000,000 shares of its common stock. The value of the Class A preferred stock and warrants was determined using the value of the shares of Sutter common stock amounting to $800,000, or $11.95 per share. The warrants are exercisable beginning in one (1) year, and for a period of four (4) years thereafter. There is no exercise price associated with the warrants as the warrants can only be exercised by delivering one (1) share of AMRES Preferred Stock for each shar e of Anza common stock to be acquired.

 
  10  
 
 
Under the terms of the agreement with Sutter, if during the first twelve (12) months following the closing, the value of the Sutter Shares drops below $800,000 during the thirty (30) days before the end of each of the Company’s fiscal quarters, then Sutter will issue to AMRES additional shares of Sutter common stock so that the value of the original shares plus the incremental shares equals $800,000. Either party may rescind the Agreement on ninety (90) days written notice up until the date which is 275 days after the closing date. Finally, AMRES and Sutter have each executed an Irrevocable Proxy granting all voting rights in the Sutter Shares and the shares of Anza common stock acquired upon exercise of the Anza Warrants to the respective Board of Directors of each company.

The Company has accounted for the Class A preferred stock of its subsidiary by reflecting such preferred stock as a non-current liability in the consolidated financial statements.


Note 12. Contingencies

Oaktree Litigation

In March 2003, AMRES was served with a lawsuit brought by Oaktree Funding Corporation ("Oaktree") against nineteen defendants, including AMRES, the appraiser, escrow company, notary public, and borrowers involved in six (6) different loan transactions brokered by AMRES and funded by Oaktree. The Complaint alleges, among other things, that the defendants committed fraud, breach of contract, negligent misrepresentation, RICO violations, and unfair business practices. The Complaint requests damages in excess of $1,500,000, plus attorneys fees, interest, penalties, and punitive damages.

The Company is vigorously defending this lawsuit although the Company believes that the action lacks merit. The Company has not yet filed an Answer to the Complaint, but has filed a demurrer to the complaint in an effort to have the court dismiss AMRES, or in the alternative to dismiss certain causes of action against AMRES. However, it is the belief of the Company and of legal counsel that the maximum exposure attributable to this lawsuit is $140,000. The Company has accrued a liability for this amount in the consolidated financial statements as of July 31, 2003 and April 30, 2003.

Other Actions

AMRES is named in two actions in which plaintiffs have alleged certain improprieties against certain branch managers. Management is vigorously defending these actions. It is the belief of AMRES management and of legal counsel that the maximum exposure attributable to these lawsuits is $105,000. The Company has accrued a liability for this amount in the consolidated financial statements as of July 31, 2003, and April 30, 2003.

The Company is subject to a limited number of claims and actions, which arise in the ordinary course of business. The litigation process is inherently uncertain, and it is possible that the resolution of the Company s existing and future litigation may adversely affect the Company’s financial position, results of operations and cash flows. All legal costs are expensed as incurred.

 
  11  
 
 
Indemnifications

On December 9, 2002, the Company received notification from HUD requesting indemnification on up to 23 loans brokered by a former loan officer of the Company. AMRES executed and provided an indemnification agreement to HUD, as requested. On February 13, 2003, HUD notified AMRES that (i) without the loans originated by this particular loan officer, AMRES’ default and claim rate would be an acceptable level to HUD, and (ii) as a result of the termination of that loan officer, and the indemnification agreement, the matter was closed. The Company carries errors and omissions insurance coverage, which may offset any potential losses, which may be incurred by the Company with respect to these loans. The Company’s insurance carrier has granted representation by counsel to AMRES. The Compan y maintained an accrual of $55,000 in the accompanying consolidated financial statements at July 31, 2003 and April 30, 2003 to account for the potential deductible the Company could incur if all of these loans result in losses.
 
State Audits

AMRES is currently in the process of undergoing several state audits, which are typical in this industry. Often these audits uncover instances of non-compliance with various state licensing requirements. These instances of non-compliance may also translate into a particular state levying a fine or penalty against the Company.  In August of 2003, the Company resolved an action with the State of Arizona and paid a settlement in the amount of $10,000. The Company is also in the process of settling actions raised by the states of Nevada and Kansas. AMRES is close to final resolution of these matters and expects the total settlement to be in the range of $70,000 - $90,000, with Kansas accounting for the m ajority of the settlement (approximately $50,000 - $60,000).  

The Company does not expect any of these audits to uncover significant non-compliance issues which would impair its ability to conduct business in a particular state in the future. However, based on the status of certain ongoing audits, the Company believes it is likely that a certain amount of fines or penalties could be assessed in particular states. As such, the Company has recorded a liability in the consolidated financial statements in the amount of $100,000 related to these state audits in the quarter ended July 31, 2003, which are included in general and administrative expenses.
 
 
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ITEM 2  Management’s Discussion and Analysis

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. The following discussion should be read together with our financial statements and the notes to those financial statements included elsewhere in this quarterly report.

Except for historical information, the materials contained in this Management’s Discussion and Analysis are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and involve a number of risks and uncertainties. These include the Company’s historical losses, the need to manage its growth, general economic downturns, intense competition in the financial services and mortgage banking industries, seasonality of quarterly results, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. Although forward-looking statements in this Quarterly report reflect the good faith judgment of management, such statements can only be based on facts and factor s currently known by the Company. Consequently, forward-looking statements are inherently subject to risks and uncertainties, actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by the Company in this Quarterly report, as an attempt to advise interested parties of the risks and factors that may affect the Company’s business, financial condition, and results of operations and prospects.

OVERVIEW

We are a holding company which currently operates through five (5) subsidiaries, namely American Residential Funding, Inc., a Nevada corporation (AMRES), Expidoc.com, Inc., a California corporation (Expidoc), Titus Real Estate LLC, a California limited liability company (Titus Real Estate), Bravo Realty.com, a Nevada corporation (Bravorealty.com), and Bravo Real Estate Services, Inc. (Bravo Real Estate Network).

Anza Capital, Inc. (ANZA) is a financial services company, whose primary subsidiary, American Residential Funding, Inc. (AMRES), provides home financing through loan brokerage and banking. Another subsidiary, Expidoc.com, arranges for notaries to perform loan document signing services for lenders, the largest being Ditech.com. Bravo Real Estate Services, Inc. is in the process of launching a real estate brokerage franchise business. Bravo Realty.com has had limited operations in the last two years and Titus Real Estate LLC is currently non-operational.

AMRES has provided the majority of consolidated revenue and profitability for the three months ended July 31, 2003, representing approximately 95% of consolidated revenues. AMRES has benefited greatly by the historic drop in interest rates, which created a home refinancing boom. Over sixty percent (60%) of the loan business AMRES has experienced has been home refinancing. As rates appear to have bottomed in late June 2003, AMRES has seen a significant drop in loan applications. This should be reflected in a revenue drop in November 2003 through March 2004, at which time the spring rebound in home sales should occur. With loan production currently around 1,100 loans per month, and without the effect of offsetting measures, business may drop to an estimated 600 loans per month.

 
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AMRES is establishing various business initiatives to reduce its reliance on the refinancing market. These initiatives include:
 

AMRES continues its plan to spend a significant amount of its operating profit to establish the firm’s new business model, as well as the costs associated with managing our rapid growth.
 
Subsequent to the quarter ended July 31, 2003, AMRES mortgage banking operations sold 21 loans, incurring a loss of approximately $106,000, which was recorded as a reserve at July 31, 2003. The loss incurred on these loans was a result of several factors as follows: a sudden increase in interest rates prior to our committing the loans for sale, our lack of internal systems to monitor our loan portfolio which prevented us from reacting to market changes in a timely manner, and a lack of experienced personnel in key positions within our mortgage banking division. We have recorded a provision in the consolidated financial statements as of July 31, 2003 to account for the loss incurred upon the sale of these loans. We do have in place guaranteed contracts in which we can "pre-sell" loans funded on our line.  These guaranteed contracts are only valid provided we "lock a rate" and complete all funding procedures required prior to the rate lock expiration. As discussed below, we believe we have adequately addressed the issues that created the losses on these particular loans, limiting our exposure in future periods for similar losses to occur.

The AMRES mortgage banking platform, which will allow the transformation from predominately a mortgage broker to a banker, is currently closing approximately $15,000,000 loans monthly, versus over $200,000,000 in brokered loans for AMRES as a whole. This increase in banking will allow profitable operations at lower levels of volume. AMRES mortgage banking currently has a staff of 15, and is expanding as quickly as quality control and additional experienced employees allow. It is anticipated that monthly loan production could double to $30,000,000 in four to six months. Warehouse lines to fund loans have been increased to $13,000,000 with First Collateral Services, and new and experienced senior management is currently in place. AMRES mortgage banking has established relationships with severa l investors to purchase our funded loans, including IndyMac Bank, Countrywide Funding, Flagstar Bank and New Century Mortgage. AMRES has purchased software (DataTrack) to manage the mortgage banking process, as well as software to provide our branches with automated underwriting (LoanScore).

 
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AMRES has recently established a corporate managed "direct to consumer" loan production division. The corporate loan officers and processors are purchasing Internet leads from proven providers such as LendingTree.com. As with AMRES mortgage banking, this division has had negative cash flow as loan production ramps up. We are targeting 10-20% of AMRES total loan production to come from this new division by Spring 2004.

AMRES continues to add new branches, at a pace of five to six a month. We have slowed down the number of new branches due to an increase in quality standards, minimum volume requirements, and state preferences. While branches number approximately 200, we have targeted 50 branches for "probation" and possible termination. AMRES has been fortunate to acquire some loan production branches of several of our competitors. As the mortgage industry continues to contract, AMRES is investing in human and cash capital to attract branches, production and staff from other firms in the industry. While our net worth does not allow any major acquisition efforts, we have made various contacts in our industry soliciting referrals of new business.
 
The mortgage industry, heading into the last quarter of 2003, has seen a 50% drop in loan originations, which has affected AMRES. As such, we are taking plans to both reorganize our operating structure, as well as reduce the expense required to support this platform. ANZA incurred over $75,000 in costs associated with moving corporate office personnel into new operating stations and upgrading software and hardware. Our target is to reduce our operating expenses by 25%, and more if required.

If we experience a significant slow down in the refinance business, and are unsuccessful in the business initiatives described above to expand our sources of revenue, we are prepared to take aggressive and immediate actions to reduce our cost structure. If our total loan volume should decline, we will need fewer personnel to carry out the functions needed to support the loan process. Specifically, we would reduce headcount in such areas as compliance, accounting and marketing. In addition, we will continually monitor our branch performance, closing under-producing branches to help control our expenses. If implemented, these measures should offset any potential decline in revenues from loans brokered. However, should we experience significant and rapid declines in loan volume; it is unlikely that our cost containment measures will be able to completely offset the impact of the potential lost revenue.

Due to the record loan production through August 2003, staffing requirements will remain high through early October to complete compliance requirements. Continued, and increased, expenses will occur from state compliance audits, loans brokered with recourse back to AMRES, and unpaid branch liabilities. While we believe we have set aside adequate reserves for these issues, there are no guarantees, due to the very high volume of past loans, that these reserves are sufficient.

Expidoc.com, our loan document signing/notary service, has benefited greatly from the refinance boom, having provided ANZA Capital with over $150,000 in cash flow for the quarter ending July 31, 2003. This trend has continued through September 2003. However, Expidoc has seen a 50% drop in new orders from their largest customer, Ditech.com. We anticipate Expidoc will remain profitable as we continue our marketing efforts to secure additional clients.

Bravo Real Estate Network has completed all approvals to sell real estate brokerage franchises. They are concentrating efforts, through November 2003, to sell master regions, in an effort to jump start the program. To the extent we are not as successful as we would plan, Bravo will be "shelved" until the market conditions warrant a re-start of operations.

 
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We achieved an annual profit for the first time during the year ended April 30, 2003; however, significant changes in interest rates could have a negative impact on our profitability in future periods.

CRITICAL ACCOUNTING POLICIES

Anza’s consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in the external disclosures of Anza including information regarding contingencies, risk and financial condition. Anza believes its use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. Valuations based on estimates are reviewed for reasonableness and conservatism on a consisten t basis throughout Anza. Primary areas where financial information of Anza is subject to the use of estimates, assumptions and the application of judgment include accounts receivable allowances, and loan losses on loans held for sale, which have been historically and favorably low. These significant estimates also include our evaluation of impairments of intangible assets (see further discussion below). In addition, the recoverability of deferred tax assets must be assessed as to whether these assets are likely to be recovered by Anza through future operations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 
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Loans Held for Sale

Mortgage loans held for sale represent mortgage loans originated and held by AMRES, pending sale, to interim and permanent investors. AMRES sells loans it originates, typically within 30 days of origination, rather than hold them for investment. AMRES sells loans to institutional loan buyers under an existing contract. AMRES sells the servicing rights to its loans at the time it sells those loans. At the time a loan is sold, AMRES has no continuing interest since servicing rights are transferred at the time of sale in accordance with paragraph 5 of SFAS 140. Recourse provisions generally relate to first payment defaults, or breach of representations and warranties, or fraud, with respect to the loans sold. The recourse provision, because of its very brief term (30 days), is not practical to value in accordance with paragraph 6 of SFAS 140, since the value is deminimus. In the event AMRES management becomes aware of a default, the financial asset and liability is reinstated and an assessment of the impact of losses is made. To date, AMRES has not repurchased a loan as a result of its origination practices.

Fair Value of Assets Acquired and Liabilities Assumed In Purchase Combinations and Review for Impairments

The purchase combinations we evaluate and complete require us to estimate the fair value of the assets acquired and liabilities assumed in the combinations. These estimates of fair value may be based on independent appraisal or our business plan for the entities acquired including planned redundancies, restructuring, use of assets acquired and assumptions as to the ultimate resolution of obligations assumed for which no future benefit will be received. Should actual use of assets or resolution of obligations differ from our estimates, revisions to the estimated fair values would be required. If a change in estimate occurs after one year of the acquisition, the change would be recorded in our statement of operations.
 
Valuation of Long-Lived and Intangible Assets

The recoverability of these assets requires considerable judgment and is evaluated on an annual basis or more frequently if events or circumstances indicate that the assets may be impaired. As it relates to goodwill and indefinite life intangible assets, we apply the impairment rules in accordance with SFAS No. 142. As required by SFAS No. 142, the recoverability of these assets is subject to a fair value assessment, which includes several significant judgments regarding financial projections and comparable market values. As it relates to definite life intangible assets, we apply the impairment rules as required by SFAS No. 142, "Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed Of" which also requires significant judgment and assumptions related to the expected fu ture cash flows attributable to the intangible asset. The impact of modifying any of these assumptions can have a significant impact on the estimate of fair value and, thus, the recoverability of the asset. The net carrying amount of goodwill is $195,247 ($20,000 related to Titus and $175,247 related to Expidoc) at July 31, 2003. Management believes the carrying value of goodwill will be recovered through future cash flows. 
 
Income Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. During 2003 and 2002, we estimated the allowance on net deferred tax assets to be one hundred percent (100%) of the net deferred tax assets.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 2002 COMPARED TO THE THREE MONTHS ENDED JULY 31, 2003

Revenues

Revenues increased by $8,273,997, or 73.1%, to $19,593,343 for the three months ended July 31, 2003, compared to $11,319,346 for the three months ended July 31, 2002. The growth in revenues is primarily attributable to the expansion and growth of AMRES primarily through the brokering of loans, and the growth of Expidoc.com. AMRES accounted for over 95% of consolidated revenues for both periods. AMRES, as did most of the mortgage industry, benefited greatly from the decline in interest rates over the last three months. Typically, as interest rates fall, the refinance market grows, expanding the market of interested borrowers beyond those borrowing for the purchase of their primary residence. During May 2003 and the early part of June 2003, interest rates were at near record lows. AMRES benefi ted from this market upturn, as they had the capacity in terms of people and infrastructure to accommodate the additional business. Management believes that a significant increase in interest rates could slow the rapid growth ANZA has experienced over the last two fiscal years. Beginning in late June of 2003, interest rates appeared to have bottomed out and actually started to rise at that point.

More significantly, the increase in loan production in the branch program at AMRES was the major contributor to the growth in revenue. AMRES was comprised of approximately 200 branches as of July 31, 2003, compared to over 300 branches as of July 31, 2002. We made a concerted effort to close certain net branches that were not producing an adequate volume in monthly loan production. This has allowed us to concentrate our resources on the best performing branches. For the three months ended July 31, 2003, the total revenue associated with the AMRES Branches was approximately $15.0 million, compared to total revenue associated with the AMRES Branches of $8.5 million for the three months ended July 31, 2002. The Net Branch program is expected to continue to be a primary growt h vehicle in the future. In addition, the mortgage banking division of AMRES is expected to continue its expansion over the next several months.

 
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Revenues for Expidoc also increased significantly, $809,619 for the period ended July 31, 2003 compared to $156,685 for the period ended July 31, 2002. The increase is primarily a result of Expidoc.com refocusing its market strategy to secure higher volume customers as compared to servicing many low-volume customers. This change in focus is evidenced by the securing of business with such customers as Ditech.com. Management believes this to be the best strategy to focus on, as it allows Expidoc to both benefit from economies of scale and provide the highest level of service to its customer base. Management realizes that the loss of any one significant customer could have a material negative impact on the growth and profitability of Expidoc. As such, we have begun a marketing campaign to acqui re new customers and have increased our customer base to 15 as of July 31, 2003.
 
Bravorealty.com became operational in January of 2001. For the three months ended July 31, 2003, revenues declined slightly to $150,658 compared with revenues of approximately $206,374 for the period ending July 31, 2002. This decline can be attributed to our shift in focus to launch a franchise type model. We have reviewed the current model and have determined that a franchise type model will provide us the best opportunity to grow our real estate business quicker and with a higher degree of profitability. As such, during the current quarter, we invested capital and management resources in this venture. Continuing startup costs related to the franchise operations are not expected to be significant, and will be paid from the cash generated from our operations.

Revenues from Titus were not material for either period presented. Titus is currently not operating.

Costs of Revenues

Commissions are paid on oans funded. Commissions increased by $5,473,538 or 69.4%, for the three months ended July 31, 2003, to $13,365,223 from $7,891,685 for the three months ended July 31, 2002. This increase is primarily related to the increased revenues discussed above. As a percentage of revenue, the cost of revenue increased by 0.6%, to 72.7% compared to 72.1% for the three months ended July 31, 2003 and the three months ended July 31, 2002, respectively. This increase is attributable to a higher percentage of total loan volume being closed by the branch operations. We earn a flat percentage on all loans closed within the branch program (.375% of the total loan value, with a minimum fee of $550). By comparison, our split with the corporate branches fluctuates based on the level of mon thly commissions, with AMRES earning a higher percentage of the total commission as the monthly revenue increases. Thus, in any period in which there is a larger percentage of revenue growth associated with the net branches, our total commissions expense would tend to be higher as a percentage of revenue.

Notary and other costs associated with Expidoc.com and Bravorealty.com increased by $282,321, or 104.4%. This increase is directly related to the increase in revenues generated from these entities, especially Expidoc.com.

Consolidated gross profit increased by $2,518,138, or 80.0% for the three months ended July 31, 2003 to $5,675,514 from $3,157,376 for the three months ended July 31, 2002.

 
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General and Administrative Expenses

General and administrative expenses totaled $2,643,215 for the three months ended July 31, 2003, compared to $1,631,104 for the three months ended July 31, 2002. This increase of $1,012,111 can be attributed primarily to the business growth of the operating subsidiaries, namely AMRES, as additional personnel, office space and other administrative costs are required to handle the expansion .
 
    For the three months ended July 31, 2003, we have recorded a provision for State audits in the amount of $100,000. This amount relates to fines and penalties which can be expected as a result of those audits due to non-material compliance issues with state licensing requirements. We have grown rapidly over the last year or so and have attempted to put in place the appropriate infrastructure and resources to meet the demands of our growth. We believe that our infrastructure has caught up to the rapid growth and that many of the issues which may result in compliance fees and or penalties being levied in the current period have been addressed to minimize such fines and penalties in future periods. Fines and penalties for t he three months ended July 31, 2002 were not significant.
 
Salaries and Wages

Salaries and wages totaled $2,649,937 in fiscal three months ended July 31, 2003, compared to $1,177,900 for the fiscal three months ended July 31, 2002. The increase of $1,472,037 is directly related to the expansion of AMRES operations. As of July 31, 2003, our employee base was approximately 600 individuals. Further, the addition of many high producing branches has added significant payroll costs. In an order support the rapid increase in loan volume, we nearly doubled the number of support staff at our corporate headquarters in the areas of compliance, accounting and human resources.
 
Selling and Marketing Expense

Selling and marketing expense relates primarily to costs incurred for prospecting activities to obtain new clients (borrowers). These costs include acquiring "leads" which translate into funded loans. Selling and marketing expenses for the three months ended July 31, 2003 amounted to $116,845 compared to $107,838 in the prior period. The primary reason for the decline as a percentage of total revenue is that during the most recent three months, interest rates were at such record low points that the "pool" of borrowers interested in refinancing was abundant, thus helping us limit the amount of funds we had to direct toward acquiring prospective clients.
 
Interest Expense

Interest expense was $72,800 as of July 31, 2003, compared to $28,667 as of July 31, 2002. This increase is associated with higher average balances on our warehouse line of credit. This line is utilized to fund loans in our mortgage banking operations. During the first quarter of 2003, the mortgage banking operations were just getting started. As of July 31, 2003, we have authorization for $13,000,000 to be drawn against our warehouse line of credit

Interest Income

Interest income amounted to $129,268 for the three months ended July 31, 2003 compared to $16,983 for the three months ended July 31, 2002. The increase in interest income during the current period is directly related to our increased cash balances available to earn interest. As of July 31, 2003, our cash balance was $4,477,164 compared to a cash balance of $1,264,534 as of July 31, 2002.

 
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Income Taxes

Our income taxes have not been material during the periods presented because of utilization of Anza's net operating loss carryforwards for federal income tax reporting purposes. California suspended net operating losses usage for fiscal 2003 and 2004. In 2003, we deducted losses associated with the LoanNet transactions, as we sold our rights to the shares originally issued for the exchange transaction in February 2000. The loss deduction amounted to approximately $2.1 million. No deferred tax asset was previously recorded for this loss deduction. The Company has no significant current or deferred income tax expense during the periods presented.
 
Net Income

We achieved a net income for the three months ended July 31, 2003 in the amount of $321,985, or $0.07 per share compared with a net income of $228,850, or $0.10 per share for the three months ended July 31, 2002. The improved profitability experienced in 2003 is directly related to the increase in revenues, and the increase in interest income ($129,268 for the three months ended July 31, 2003 compared to $16,983 for the three months ended July 31, 2002). 

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash used in operating activities was $4,054,493 and $589,570 for the three months ending July 31, 2003 and 2002, respectively. For the three months ended July 31, 2003, we recorded a net profit of $321,985 compared to a net profit of $228,850 for the three months ended July 31, 2002. During both periods, the increase in our loans held for sale was the primary contributor the net cash used in operating activities.

Net cash used in investing activities was $40,833 and $67,908 for the three months ended July 31, 2003 and 2002, respectively. For the three months ended July 31, 2003, net cash used in investing activities relates solely to the purchase of equipment. For the prior period, net cash used in investing activities related to the purchases of fixed assets in the amount of $16,572 and to an increase in amounts due from employees totaling $51,336.

Net cash provided by financing activities was $5,816,831 and $1,214,161 for the three months ended July 31, 2003 and July 31, 2002 respectively. The most significant increase in the cash provided by financing activities during the periods presented relates primarily to advances on our warehouse line of credit. For the three months ended July 31, 2003, advances on the warehouse line of credit amounted to $5,846,832 compared to $1,449,580 for the three months ended July 31, 2002. The warehouse line of credit is secured by first and second trust deed mortgages.

Our stockholders equity increased to $2,222,995 as of July 31, 2003 from $689,055 as of July 31, 2002. In addition, our working capital as of July 31, 2003 amounted to $2,545,877. Our current obligations consist primarily of liabilities generated in the ordinary course of business. ANZA has begun to build modest cash reserves in the event that a sudden change in interest rates translates into a downturn in business.

 
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During the fourth quarter of fiscal 2003, ANZA completed a series of transactions intended to recapitalize the Company and position it for growth and acquisition opportunities in the future. These recapitalization activities improved the working capital position of the Company, reduced the overhang on the Company s common stock and provided ANZA more favorable terms on our preferred shares outstanding. Due to ANZA's improved financial position, the use of our common stock as compensation to outside consultants is expected to be minimal in future periods.

On December 9, 2002, we received notification from HUD requesting indemnification on up to 23 loans brokered by a former loan officer of the Company. We executed and provided an Indemnification Agreement to HUD as requested. On February 13, 2003, HUD notified us that (i) without the loans originated by this particular loan officer, AMRES default and claim rate would be an acceptable level to HUD, and (ii) as a result of our termination of that loan officer, and the indemnification agreement, the matter was closed. As we continue to develop our branch program, our risks of such similar events occurring in the future could increase. We are continually monitoring our internal control structure to help minimize the risk of future loss related to such events in the future.
 
As of July 31, 2003, our warehouse line of credit has been formally extended to $13,000,000, with a likely additional increase to $25,000,000 in future periods. Maintaining an adequate warehouse line of credit is critical to our growth plans for our mortgage banking operations. Any significant reduction in the borrowing limits or significant changes in terms could have a negative impact on our ability to expand the mortgage banking operations at the pace and with the degree of profitability we desire. Further, we have traditionally experienced no defaults on loans funded through our mortgage banking operations. As we continue to grow this segment of our business, our default rate on these loans may increase. Any significant change in our default rate would have a negative impact on our conso lidated financial condition, results of operations and cash flows.
 
We are pleased with the current direction and financial improvement of ANZA. The operating subsidiaries are expanding in tough economic times. AMRES and Expidoc.com are currently profitable. The franchising initiatives for Bravo Real Estate Network are progressing as planned and could lead to increased revenues and profitability in future periods. The cash flow of ANZA has markedly improved, with cash on hand ending July 31, 2003 of $4,477,164 versus $1,264,534 the year earlier. Short-term debt is manageable and consists primarily of obligations generated in the ordinary course of business.

We generated an annual net income for the first time in the previous fiscal year. We plan to continue our growth strategy to generate revenues sufficient to meet our cost structure. We made significant investments in the fourth quarter of the previous fiscal year and in the current quarter, in such areas as enhancing our technology for tracking loans, improving intranet communications programs, relocation and redistribution of staff and office support, and start-up costs for our real estate franchise model. We will continue to evaluate our costs relating to infrastructure and business expansion to ensure that the investment will pay off from the standpoint of increased profitability. We are prepared to modify current plans, namely restricting our cash outlay for expansion should business con ditions change and our revenue base decline. We believe these actions will allow us to fund our daily operations and service our remaining debt obligations primarily through the cash generated by operations; however, there are no assurances that our plans will be successful.

 
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ITEM 3  Quantitative and Qualitative Disclosures About Market Risk

Interest rate movements significantly impact our volume of closed loans and represent the primary component of market risk to us. In a higher interest rate environment, consumer demand for mortgage loans, particularly refinancing of existing mortgages, declines. Interest rate movements affect the interest income earned on loans held for sale, interest expense on the warehouse lines payable, the value of mortgage loans held for sale and ultimately the gain on sale of mortgage loans.

Our primary financial instruments are cash in banks and money market instruments. We do not believe that these instruments are subject to material potential near-term losses in future earnings from reasonably possible near-term changes in market rates or prices. We do not have derivative financial instruments for speculative or trading purposes. We are not currently exposed to any material currency exchange risk.
 
 
ITEM 4  Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this quarterly report (the "Evaluation Date"), have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There wer e no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.

 
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PART II

ITEM 1   Legal Proceedings

There are no changes to the matters set forth in our Annual Report on Form 10-KSB/A for the fiscal year ended April 30, 2003.

In the ordinary course of business, the Company is from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon the financial condition and/or results of operations of the Company. However, in the opinion of the Company’s management, other than as set forth herein, matters currently pending or threatened against the Company are not expected to have a material adverse effect on the financial position or results of operations of the Company.

ITEM 2   Changes in Securities and Use of Proceeds

On July 31, 2003, in exchange for 66,496 shares of common stock of Sutter Holding Company, Inc., our subsidiary, AMRES, issued to Sutter One Million (1,000,000) shares of newly created Series A Preferred Stock (the "AMRES Preferred Stock"). As additional consideration, we issued to Sutter warrants to acquire One Million (1,000,000) shares of our common stock (the "Anza Warrants").

The AMRES Preferred Stock holder is entitled to receive a cumulative ten percent (10%) annual dividend, payable yearly. In addition, the AMRES Preferred Stock has a liquidation preference in an amount equal to its original issue price, or $0.80 per share. The AMRES Preferred Stock is not convertible, callable, redeemable, and does not have any voting rights.

The Anza Warrants are exercisable beginning in one (1) year, and for a period of four (4) years thereafter. The warrants can only be exercised by delivering one (1) shares of AMRES Preferred Stock for each share of Anza common stock to be acquired.

Under the terms of the agreement with Sutter, if during the first twelve (12) months following the closing, the value of the Sutter Shares drops below $800,000 during the thirty (30) days before the end of each of our fiscal quarters, then Sutter will issue to us additional shares of Sutter common stock. Either party may rescind the Agreement on ninety (90) days written notice up until the date which is 275 days after the closing date. Finally, AMRES and Sutter have each executed an Irrevocable Proxy granting all voting rights in the Sutter Shares and the shares of Anza common stock acquired upon exercise of the Anza Warrants to the respective Board of Directors of each company.

ITEM 3   Defaults Upon Senior Securities

There have been no events which are required to be reported under this Item.

ITEM 4   Submission of Matters to a Vote of Security Holders

There have been no events which are required to be reported under this Item.

 
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ITEM 5   Other Information

Beginning with the quarter covered by this quarterly report, we no longer meet the definition of a small business issuer under Rule 12b-2 under the Securities Exchange Act of 1934 and Section 405 of the Securities Act of 1933.


ITEM 6   Exhibits and Reports on Form 8-K

(a)    Exhibits

31.1
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 
 
 
31.2
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
 
 
32.1
 
Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(b)    Reports on Form 8-K

On August 4, 2003, we filed an Item 2 Current Report on Form 8-K dated August 1, 2003, regarding the Sutter Holding Company, Inc. Securities Exchange Agreement.


 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Dated: September 11, 2003
 
/s/ Vincent Rinehart
 
By:
Vincent Rinehart
 
Its:
President, Chairman, Chief
Executive Officer, Chief
Financial Officer, Chief
Accounting Officer, and
Director



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