UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB
(Mark One)
(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934
                                   For the quarterly period ended March 31, 2005

                                       OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                                               Commission File Number: 333-11625

       CAPITAL ALLIANCE INCOME TRUST LTD., A REAL ESTATE INVESTMENT TRUST

              (Exact name of small business issuer in its charter)

          Delaware                                               94-3240473
--------------------------------                          ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

       100 Pine Street
       Suite 2450
       San Francisco, California                                   94111
--------------------------------                          ----------------------
       (Address of principal executive office)                   (zip code)

                                 (415) 288-9575
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

    Title of each class                Name of each exchange on which registered
    -------------------                -----------------------------------------
Common Stock $0.01 par value                             American Stock Exchange

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
   ---      ---

As of May 2, 2005, the issuer's common shares closed at $13.00 and the aggregate
market value of the issuer's shares of Common Stock, $.01 par value, held by
non-affiliates of the issuer was approximately $3,965,000. At that date
approximately 418,000 common shares were outstanding and 305,000 common shares
were held by non-affiliates.

Transitional Small Business Disclosure Format.   Yes        No X
                                                    ---       ---

<PAGE>
                                TABLE OF CONTENTS



PART I

     ITEM 1          FINANCIAL STATEMENTS                                3-5

                     NOTES TO FINANCIAL STATEMENTS                      6-20

     ITEM 2          MANAGEMENT'S DISCUSSION AND ANALYSIS              21-25

     ITEM 3          CONTROLS AND PROCEDURES                              26

PART II

     OTHER INFORMATION                                                 26-27

     SIGNATURES                                                           28

     CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT                     29

     CERTIFICATION OF FORM 10-QSB                                         30




                                     PART I
                                     ITEM 1.


                              FINANCIAL STATEMENTS

                                   [Pages 3-5]

                                       2
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                          March 31,      December 31,
                                                                            2005             2004
                                                                            ----             ----
                                                                         (Unaudited)
<S>                                                                     <C>             <C>
    Cash and cash equivalents                                           $    324,416    $    155,462
    Restricted cash                                                           39,575          98,755
    Marketable securities                                                     20,344           1,724
    Accounts receivable                                                    1,046,558         706,461
    Other assets, net                                                         33,250              --
    Due from affiliates                                                          940          23,170
    Notes receivable:
       Warehousing facilities to related parties                                  --              --
       Mortgage notes receivable                                          19,886,959      19,053,474
       Allowance for losses                                                 (185,000)       (175,000)
                                                                        ------------    ------------
          Net notes receivable                                            19,701,959      18,878,474
    Real estate owned                                                        660,000         680,000
    Investments in affiliates                                                     --              --
    Asset held for sale                                                    4,662,987       4,981,303
    Origination costs (net)                                                  236,952         243,899
                                                                        ------------    ------------
    Total assets                                                        $ 26,726,981    $ 25,769,248
                                                                        ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities
        Mortgage note holdbacks                                         $     39,575    $     98,755
        Loans payable                                                      9,276,541       8,247,541
        Mortgage payable                                                     551,922         551,922
        Liability of asset held for sale                                   2,650,175       2,521,650
        Due to affiliate                                                      25,215              --
        Other liabilities                                                    425,431         274,210
                                                                        ------------    ------------
    Total liabilities                                                     12,968,859      11,694,078
                                                                        ------------    ------------

    Stockholders' Equity
        Preferred stock, $.01 par value; 430,000 shares authorized;            2,138           2,138
              213,820 shares issued and outstanding at March 31, 2005
              and December 31, 2004
        Additional paid in capital - preferred stock                       5,669,123       5,669,123
              Less treasury stock: 3,176 preferred shares
              at March 31, 2005 and December 31, 2004                        (86,944)        (86,944)

        Common stock, $.01 par value; 1,700,000 shares authorized;             5,001           5,001
              500,032 shares issued and outstanding at March 31, 2005
              and December 31, 2004
        Additional paid in capital - common stock                          9,414,685       9,414,685
          Less treasury stock: 72,000 and 57,707 common shares
          at March 31, 2005 and December 31, 2004                         (1,223,965)     (1,026,861)
        Minority interest in subsidiary                                      (13,033)        (12,593)
        Accumulated other comprehensive income                                   287             287
        Retained earnings                                                     (9,170)        110,334
                                                                        ------------    ------------
    Total stockholders' equity                                            13,758,122      14,075,170
                                                                        ------------    ------------

    Total liabilities and stockholders' equity                          $ 26,726,981    $ 25,769,248
                                                                        ============    ============
</TABLE>

                See accompanying notes to financial statements.

                                       3
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                            Statements of Operations
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                       Three Months Ended
                                                                                            March 31,
                                                                                        2005         2004
                                                                                        ----         ----
<S>                                                                                  <C>          <C>
REVENUES
       Interest income                                                               $ 508,766    $ 579,669
       Interest income from affiliates                                                      --       41,622
       Equity in gain (loss) of affiliate                                                   --       90,157
       Other income                                                                      1,861          172
                                                                                     ---------    ---------
           Total revenues                                                              510,627      711,620
                                                                                     ---------    ---------

EXPENSES
       Loan servicing fees to related parties                                          121,983      112,623
       Management fees to related parties                                               59,680       76,231
       Interest expense on loans                                                       160,764       83,332
       Interest expense on loans from related parties                                     --           --
       Provision for loan losses                                                        10,000       24,000
       Taxes                                                                             8,750        5,000
       Amortization                                                                      8,241        8,619
       General and administrative                                                       74,357      101,012
                                                                                     ---------    ---------
             Total expenses                                                            443,775      410,817
                                                                                     ---------    ---------

INCOME FROM CONTINUING OPERATIONS                                                       66,852      300,803

       Operating expenses of real estate owned                                         (11,785)      (3,035)
       (Loss) on real estate owned                                                     (20,000)     (20,000)
       Income from asset held for sale                                                 (17,712)          --
                                                                                     ---------    ---------
             Total loss and income from assets held for sale and real estate owned     (49,497)     (23,035)

NET INCOME                                                                           $  17,355    $ 277,768
                                                                                     =========    =========

PREFERRED DIVIDENDS                                                                  $  93,077    $  76,788
                                                                                     ---------    ---------

NET INCOME AVAILABLE TO COMMON                                                       $ (75,722)   $ 200,980
                                                                                     =========    =========

BASIC EARNINGS PER COMMON SHARE
       BEFORE GAIN ON ASSETS HELD FOR SALE                                           $   (0.06)   $    0.51
       FROM ASSETS HELD FOR SALE                                                         (0.11)       (0.05)
                                                                                     ---------    ---------
       TOTAL EARNINGS PER SHARE                                                      $   (0.17)   $    0.46
                                                                                     =========    =========

DILUTED EARNINGS PER COMMON SHARE
       BEFORE GAIN ON ASSETS HELD FOR SALE                                           $   (0.06)   $    0.43
       FROM ASSETS HELD FOR SALE                                                         (0.11)       (0.04)
                                                                                     ---------    ---------
       TOTAL EARNINGS PER SHARE                                                      $   (0.17)   $    0.39
                                                                                     =========    =========

DIVIDENDS PAID PER PREFERRED SHARE                                                   $    0.44    $    0.36
                                                                                     =========    =========

DIVIDENDS PAID PER COMMON SHARE                                                      $    0.10    $    0.45
                                                                                     =========    =========
</TABLE>

                See accompanying notes to financial statements.

                                       4
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                            Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                              March 31,
                                                                         2005           2004
                                                                         ----           ----
<S>                                                                 <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                    $    17,355    $   277,768
      Adjustments to reconcile net income to net cash provided by
      operating activities:
        Provision for loan losses                                        10,000         24,000
        Amortization                                                      8,241          8,619
        Loss on real estate owned                                        20,000         20,000
        Equity in gain (loss) of affiliate                                   --        (90,157)
        (Increase) in accounts receivable                              (340,097)      (125,153)
        (Increase) decrease in other assets                             (15,656)       (11,898)
          (adjusted for: amortization and capitalized loan fees)
        Change in due to / due from affiliates                           47,445         16,417
        Increase (decrease) in other liabilities                        151,221        (33,403)
                                                                    -----------    -----------
          Net cash (used in) provided by operating activities          (101,491)        86,193

CASH FLOWS FROM INVESTING ACTIVITIES
      Sale of (investment in) marketable securities                     (18,620)            --
      (Increase) decrease in origination costs                            6,947            271
      (Increase) decrease in related party warehousing facilities       402,846        124,222
      Payment of mortgage payable                                            --             --
      (Loss) from asset held for sale                                    17,712             --
      Investments in mortgage notes receivable                       (3,810,000)      (659,000)
      Payments of mortgage notes receivable                           2,976,515      4,271,392
                                                                    -----------    -----------
        Net cash (used in) provided by investing activities            (424,600)     3,736,885

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from bank loans                                        1,029,000             --
      Payments of bank loans                                                 --     (3,273,436)
      Issuance of common stock                                               --         (1,058)
      Purchase of treasury stock                                       (197,104)        (1,833)
      Sale of treasury stock and exercised options                           --         14,868
      Preferred dividends paid                                          (93,077)       (76,788)
      Common dividends paid                                             (43,774)      (196,057)
                                                                    -----------    -----------
        Net cash provided by (used in) financing activities             695,045     (3,534,304)

NET INCREASE IN CASH AND CASH EQUIVALENTS                               168,954        288,774
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                        155,462      1,038,010
                                                                    -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                          $   324,416    $ 1,326,784
                                                                    ===========    ===========

SUPPLEMENTAL CASHFLOW INFORMATION:
      Cash paid for interest                                        $         -    $    92,106
      Cash paid for taxes                                           $         -    $     2,798

NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Foreclosures, net of reserves                                 $         -    $         -
      Assumption of debt on real estate owned                       $         -    $         -
      Common stock provided to exercised options                    $         -    $         -
</TABLE>

                See accompanying notes to financial statements.

                                       5
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)
1.   Organization
     ------------

     References to the "Company" refer to Capital Alliance Income Trust Ltd., A
     Real Estate Investment Trust (the "Trust"), a Delaware corporation, and
     Capital Alliance Funding Corporation ("CAFC"), collectively. The Trust was
     formed December 12, 1995 as a mortgage investment trust, which invests
     primarily in loans secured by deeds of trust on one-to-four unit
     residential properties as the loan's primary collateral. The Trust's
     investment in CAFC, a taxable subsidiary, is consolidated. The Trust holds
     100% of the non-voting preferred stock of CAFC with a 99% economic interest
     in CAFC. CAFC acquires loans for sale, secured by deeds of trust on
     one-to-four unit residential property as the loans primary collateral.

     On November 11, 2004, CAFC's common shareholder notified the Trust of its
     intention to retire 100% of CAFC's preferred stock. The Trust's investment
     in CAFC is entirely comprised of preferred stock. The Trust's preferred
     shares are available for immediate delivery and the transaction is expected
     to be completed within one year of CAFC's common shareholder's
     notification. Management expects the sale of its CAFC's preferred stock
     investment to approximate its fair value.

     For the period ended March 31, 2005, CAFC is presented on the Trust's
     consolidated balance sheet as "Asset held for sale" and the minority
     interest not owned as "Minority interest in subsidiary" and CAFC's
     operating results are reported as "Income from asset held for sale" on the
     Trust's consolidated statement of operations. As of December 31, 2004, CAFC
     is presented on the Trust's consolidated balance sheet as "Asset held for
     sale" and the minority interest not owned as "Minority interest in
     subsidiary" and CAFC's operating results are reported as "Income from asset
     held for sale" on the Trust's consolidated statement of operations. For the
     three months ended March 31, 2004, CAFC's operating results are presented
     as "Equity in gain (loss) of affiliates" in the Trust's statement of
     operations. CAFC's comparable period balance sheets and statements of
     operations are summarized in Note 10.

     Capital Alliance Advisors, Inc. (the "Manager") originates, services, and
     sells the Company's loans.

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------

     These financial statements should be read in conjunction with the financial
     statements and notes thereto for the year ended December 31, 2004 filed
     pursuant to 15d-2 on Form 10-KSB with the Securities and Exchange
     Commission.

     Basis of presentation. The financial information presented has been
     prepared from the unaudited books and records. The accompanying financial
     statements have been prepared in accordance with the instructions to Form
     10-QSB and do not include all of the information and the footnotes required
     by accounting principles generally accepted in the United States of America
     for complete statements. In the opinion of management, all adjustments,
     consisting only of normal recurring adjustments, necessary for a fair
     presentation of such financial statements, have been included.

     Basis of accounting. The Company prepares its financial statements on the
     accrual basis of accounting consistent with accounting principles generally
     accepted in the United States of America. The Company's year-end for tax
     and financial reporting purposes is December 31. FIN 46 requires the
     consolidation of CAFC into the Trust's financial statements as of December
     31, 2004. Pursuant to the reporting requirement of FAS 144, CAFC's
     consolidation is reported as "Asset held for sale" and "Minority interest
     in subsidiary" on the Trust's balance sheet and as "Income from asset held
     for sale" on the Trust's statement of operating results.

     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 estimates and assumptions that affect
     the amounts reported in the financial statements and accompanying notes.
     Actual results could differ from those estimates.

                                       6
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)

     Cash and cash equivalents. Cash and cash equivalents include cash and
     liquid investments with an original maturity of three months or less from
     the date of acquisition. The Company deposits cash in financial
     institutions insured by the Federal Deposit Insurance Corporation. At
     times, the Trust's account balances may exceed the insured limits.

     Marketable securities. Marketable securities are classified as either
     trading, or available-for-sale. Management has not acquired any securities
     classified as trading securities. Trading securities, if acquired, would be
     reported at fair value, and changes in their fair value would be reported
     in the statement of operations. Available-for-sale securities are reported
     at fair value with unrealized gains and losses excluded from earnings and
     reported in accumulated other comprehensive income. Realized gains and
     losses on sales of both trading and available-for-sale securities are
     determined on an average cost basis and are reported in the statement of
     operations.

     Concentration of credit risk. The Company holds numerous mortgage notes
     receivable. These notes are secured by deeds of trust on residential
     properties located primarily in California, which results in a
     concentration of credit risk. The value of the loan portfolio may be
     affected by changes in the economy or other conditions of the geographical
     area.

     Allowance for loan loss reserve. Management reviews its loan loss provision
     periodically and the Company maintains an allowance for losses on mortgage
     notes receivable at an amount that management believes is sufficient to
     protect against potential losses inherent in the loan portfolio. The
     Company's actual losses may differ from the estimate. Notes receivable
     deemed uncollectible are written off. The Company does not accrue interest
     income on impaired loans.

     Real estate owned. Real estate owned results from foreclosure of mortgage
     notes receivable and at time of foreclosure is recorded at the lower of
     carrying amount or fair value of the property minus estimated costs to
     sell. Subsequent to foreclosure, the foreclosed asset value is periodically
     reviewed and is adjusted to fair value. No depreciation is taken on the
     real estate owned. Income and expenses related to real estate owned are
     recorded as rental income, interest expense and operating expenses of real
     estate owned in the statements of operations.

     Origination costs. Origination costs relating to mortgage notes receivable
     are capitalized and amortized over the term of the mortgage notes
     receivable.

     Impairment policy. The Company assesses the impairment of long-lived assets
     when events or changes in circumstances indicate that the carrying value of
     such assets exceeds the future undiscounted cash flows attributable to such
     assets, then an impairment loss, measured as the excess, if any, of the net
     book value of the assets over their fair value is recorded. The Trust has
     identified CAFC as an "Asset held for sale" within the guidelines Statement
     of Financial Accounting Standards No. 144, "Accounting for the Impairment
     or Disposal of Long-Lived Assets" ("FAS 144") (see "Assets held for sale"
     within Note 2 - below). There were no impairment losses recognized during
     the three-month period ended March 31, 2005 and 2004.

     Fair value of financial instruments. For cash and cash equivalents, the
     carrying amount is a reasonable estimate of fair value. For mortgage notes
     receivable, fair value is estimated by discounting the future cash flows
     using current interest rates at which similar loans would be made to
     borrowers with similar credit ratings and for the same remaining
     maturities. It was determined that the difference between the carrying
     amount and the fair value of the mortgage notes receivable is immaterial.
     For loans payable, fair value is estimated by discounting the future cash
     flows using current interest rates as determined by the Trust's current
     borrowing rates. It was determined that the difference between the carrying
     amount and the fair value of loans payable is immaterial.

     Income taxes. The Trust intends at all times to qualify as a real estate
     investment trust ("REIT") for federal income tax purposes, under Sections
     856 through 860 of the Internal Revenue Code of 1986, as amended and
     applicable Treasury Regulations. Therefore, the Trust generally will not be
     subject to federal corporate income taxes if the

                                       7
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)

     Trust distributes at least 90% of its taxable income to its stockholders.
     To qualify as a REIT, the Trust must elect to be so treated and must meet
     on a continuing basis certain requirements relating to the Trust's
     organization, sources of income, nature of assets, and distribution of
     income to stockholders. The Trust must maintain certain records and request
     certain information from its stockholders designed to disclose actual
     ownership of its stock.

     In addition the Trust must satisfy certain gross income requirements
     annually and certain asset tests at the close of each quarter of its
     taxable year. If the Trust fails to qualify for taxation as a REIT in any
     taxable year, and the relief provisions do not apply, the Trust will be
     subject to tax on its taxable income at regular corporate rates.
     Distributions to stockholders in any year in which the Trust fails to
     qualify will not be deductible by the Trust nor will they be required to be
     made. Unless entitled to relief under specific statutory provisions, the
     Trust will also be disqualified from taxation as a REIT for the four
     taxable years following the year during which qualification was lost.

     Based on the Trust's belief that it has operated in a manner so as to allow
     it to be taxed as a REIT since inception, no provision for federal income
     taxes has been made in the financial statements.

     State taxes. The state of Delaware imposes a tax on the capitalization of
     the Trust. Each year, the Trust also incurs a franchise tax to the state of
     California.

     Revenue recognition. Interest income is recorded on the accrual basis of
     accounting in accordance with the terms of the loans. When the payment of
     principal or interest is 90 or more days past due, management reviews the
     likelihood that the loan will be repaid. For these delinquent loans,
     management continues to record interest income. However, if the mortgage's
     collateral is considered insufficient to satisfy the outstanding balance,
     after estimated foreclosure and selling costs, interest is not accrued.

     Stock options. Statement of Financial Accounting Standards No. 148 ("FAS
     148") "Accounting for Stock-Based Compensation - Transition and Disclosure"
     was issued in December of 2002. This Statement amends Statement of
     Financial Accounting Standards No.123 ("FAS 123"), "Stock-Based
     Compensation," to provide alternative methods of transition for a voluntary
     change to the fair value based method of accounting for stock-based
     compensation. In addition, the Statement amends the disclosure requirements
     of FAS 123 to require prominent disclosures in both annual and interim
     financial statements about the method used on reported results. The
     alternative methods of transition of FAS 148 follows Accounting Principles
     Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
     Employees", in accounting for stock options to employees. The disclosure
     provision of FAS 148 is effective for years ending after December 15, 2002.
     The Company follows APB 25 in accounting for stock options. The disclosure
     provision of FAS 148 is effective for years ending after December 15, 2002
     and has been incorporated into these financial statements and accompanying
     footnotes.

     The 2005 and 2004 calculation of the fair value of the stock-based awards
     to the Manager and its employees is not applicable because no awards were
     issued.

     The Trust accounts for stock options under APB 25. Since the exercise price
     of each option granted has been equal to or higher than the closing market
     price of the Company's Common Shares at the date of grant, no expense is
     recognized. Basic and diluted net loss per share information for all
     periods is presented under the requirement of FAS No. 128, "Earnings per
     Share" ("FAS 128"). Basic earnings per share have been computed using the
     weighted-average number of shares outstanding during the period and
     excludes any dilutive effects of stock options, warrants, and convertible
     securities. Potentially dilutive securities have been excluded from the
     computation of diluted net loss per share, as their inclusion would be
     antidilutive. If the Company had reported net income available to common
     shareholders, the calculation of diluted earnings per share would have
     included approximately an additional 38,400 common shares (computed using
     the treasury stock method) related to the outstanding options and warrants
     not included above for the period ended March 31, 2004.

                                       8
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)

     The pro forma results of reporting the Company's stock option grants using
     the fair value method consistent with FAS 123, is presented for the months
     ended March 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                      2005         2004
                                                                      ----         ----
<S>                                                              <C>            <C>
     Net income available to common stock                        $  (75,722)    $ 200,980
     Less: Stock based expense using the fair value method              ---           ---
                                                                 ----------     ---------
     Pro forma net income available to common stock              $  (75,722)    $ 200,980
                                                                 ==========     =========

     Net income per common share:
     Basic:
         As reported                                                 $(0.17)        $0.46
         Pro forma                                                   $(0.17)        $0.46
     Diluted:
         As reported                                                 $(0.17)        $0.39
         Pro forma                                                   $(0.17)        $0.39
</TABLE>

     Reclassifications. Certain 2004 amounts may have been reclassified to
     conform to the 2005 presentation. Such reclassifications had no effect on
     previously reported net income or earnings per share.

     Assets held for sale. On November 11, 2004, CAFC's common shareholder
     notified the Trust of its intention to retire 100% of the CAFC Preferred
     Stock owned by the Trust and concurrently issue a new class of CAFC
     Preferred Shares within twelve months. The new Preferred Shares will not be
     issued or available to the Trust for purchase. Therefore, pursuant to FAS
     144, the Trust has reported CAFC as an asset held for sale. The Trust does
     not expect to recognize a loss on the transaction. During the three months
     ended March 31, 2004, the Trust reported its ownership of CAFC as an
     investment pursuant to the equity method of accounting as the Trust does
     not own the voting common shares of CAFC or control CAFC. (See "Recent
     accounting pronouncements" within Note 2 - below.) CAFC's March 31, 2005
     and 2004 financial statements are reported in Note 10.

     Recent accounting pronouncements. In December 2004, the FASB issued FASB
     Statement No. 123 (revised 2004) ("FAS 123(R)"), "Share-Based Payment,"
     which is a revision of FASB Statement No. 123 ("FAS 123"), "Accounting for
     Stock-Based Compensation." FAS 123(R) supersedes APB Opinion No. 25,
     "Accounting for Stock Issued to Employees," and amends FASB Statement No.
     95, "Statement of Cash Flows." Generally, the approach in FAS 123(R) is
     similar to the approach described in FAS 123. However, FAS 123(R) requires
     all share-based payments to employees, including grants of employee stock
     options, to be recognized in the income statement based on their fair
     values. Pro forma disclosure is no longer an alternative to financial
     statement recognition. The Company will be required to adopt FAS 123(R)
     beginning on January 1, 2006. The adoption of FAS 123(R) is not expected to
     have a material effect on the Company's financial position and results of
     operations.

3.   Restricted cash and mortgage note holdbacks
     -------------------------------------------

     Pursuant to mortgage loan agreements between the Trust and its borrowers, a
     portion of the proceeds are held by the Trust in segregated accounts to be
     disbursed to borrowers upon completion of improvements on the secured
     property.

4.   Marketable securities
     ---------------------

     Marketable securities consist of equity securities and are accounted for as
     available-for-sale securities. Unrealized gains and losses are excluded
     from earnings and reported in accumulated other comprehensive income.

                                       9
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

5.   Accounts receivable
     -------------------

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and other amounts due from borrowers.

6.   Warehousing facilities to related parties
     -----------------------------------------

     The Trust entered into a loan purchase agreement on December 12, 1997 with
     CAFC. Under the terms of the agreement, the Trust advances funds to CAFC to
     acquire mortgage loans secured by real estate. The Trust then acquires all
     of CAFC's right, title and interest in such loans. CAFC is obligated to
     reacquire the loans from the Trust at a preset price. As of March 31, 2005
     and December 31, 2004, the Trust advanced to CAFC $1,012,641 and
     $1,415,487, respectively. The interest rate on this line of credit varies
     with market conditions and is payable monthly. As of March 31, 2005 and
     2004, the applicable interest rate was 8.75% and 7.00% respectively. During
     the three months ended March 31, 2005 and 2004, the Trust earned interest
     in the amount of $25,836 and $41,622, respectively.

     The Trust entered into a loan purchase agreement on January 1, 1998 with
     Calliance Mortgage Trust, which subsequently merged into the Mortgage
     Division of Calliance Realty Fund, LLC ("CRF") on May 30, 2000. Under the
     terms of the agreement, the Trust advances funds to CRF to acquire mortgage
     loans secured by real estate. The Trust then acquires all of CRF's right,
     title and interest in such loans. CRF is obligated to reacquire the loans
     from the Trust at a preset price. As of March 31, 2005 and December 31,
     2004, CRF owed the Trust $0. Annual interest on this line of credit is
     between 7.0% and 12.0% and is payable monthly. The Trust earned interest in
     the amount of $0 during the three months ended March 31, 2005 and 2004,
     respectively. The Trust also borrows on an unsecured basis from CRF with
     interest payable monthly at an annual rate of between 5.0% and 12.0%. As of
     March 31, 2005 and December 31, 2004, the Trust had no borrowings from CRF.

7.   Mortgage notes receivable
     -------------------------

     Mortgage notes receivable represent home equity loans primarily secured by
     deeds of trust on one-to-four unit residential real estate. At the time of
     origination, all loans have a combined loan-to-value equal to or less than
     75% of the underlying collateral. The Trust is subject to the risks
     inherent in finance lending including the risk of borrower default and
     bankruptcy.

     Mortgage notes receivable are stated at the principal outstanding. Interest
     on the mortgages is due monthly and principal is usually due as a balloon
     payment at loan maturity.

     A reconciliation of the Trust's mortgage notes receivable follows:

<TABLE>
<CAPTION>
                                            Three months ended    Twelve months ended
                                              March 31, 2005       December 31, 2004
                                              --------------       -----------------
<S>                                             <C>                  <C>
     Balance, beginning of period               $ 19,053,474         $ 20,556,488
     Additions during period:
         New mortgage loans                        3,810,000           13,973,068
     Deductions during period:
         Collections of principal                 (2,976,515)         (15,214,076)
         Foreclosures, net of reserve                    ---             (168,078)
         Write off of uncollectible loans                ---              (93,928)
                                                ------------         ------------
     Balance, end of period                     $ 19,886,959         $ 19,053,474
                                                ============         ============
</TABLE>

                                       10
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

8.   Allowance for loan losses
     -------------------------

     The Trust measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $185,000 and $175,000 allowance for loan
     losses are adequate to protect against potential losses inherent in all
     receivables as of March 31, 2005 and December 31, 2004, respectively. The
     Trust's actual losses may differ from the estimate.

     A reconciliation of the Trust's allowance for losses follows:

<TABLE>
<CAPTION>
                                               Three months ended    Twelve months ended
                                                 March 31, 2005       December 31, 2004
                                                 --------------       -----------------
<S>                                               <C>                   <C>
     Balance, beginning of period                 $ 175,000             $  206,000
     Provision for loan loss                         10,000                 84,000
     Write off of uncollectible loans                   ---                (93,928)
     Disposal costs of uncollectible loans
                                                        ---                (21,072)
                                                  ---------             ----------
     Balance, end of period                       $ 185,000             $  175,000
                                                  =========             ==========
</TABLE>

9.   Real estate owned
     -----------------

     As of December 31, 2004, the Trust owned one property. During the three
     months ended March 31, 2005, the Trust neither sold nor foreclosed on
     property. As of March 31, 2005, the Trust owned one property.

     A reconciliation of the real estate owned account shows its cash and
     non-cash activities follows:

<TABLE>
<CAPTION>
                                                              Three months ended     Twelve months ended
                                                                March 31, 2005        December 31, 2004
                                                                --------------        -----------------
<S>                                                              <C>                    <C>
     Balance, beginning of period                                $  680,000             $  415,000
     Foreclosed mortgage notes, net of reserve (non-cash)               ---                168,078
     Assumption of senior debt                                          ---                551,922
     Accrued interest capitalized (non-cash)                            ---               (102,800)
     Gain (loss) on sale or writedown (non-cash)                    (20,000)                (2,604)
                                                                 ----------              ---------
                                                                    660,000              1,029,596
     Less: Proceeds from sale of real estate owned (net of
     closing costs of $0 and $30,418 in 2005 and 2004,                  ---               (349,596)
     respectively)                                               ----------             ----------

    Balance, end of period                                       $  660,000             $  680,000
                                                                 ==========             ==========
</TABLE>

10.  Asset held for sale
     -------------------

     Capital Alliance Funding Corporation
     ------------------------------------

     On April 11, 1997, the Trust formed a non-qualified REIT subsidiary, CAFC,
     to conduct a mortgage banking business. The Trust owns all of the
     outstanding Series "A" Preferred Stock (2,000 shares of non-voting stock),
     which constitutes a 99% economic interest in CAFC. The Trust's Manager owns
     all of the Common Shares (1,000 shares) of CAFC, which constitutes a 1%
     economic interest, and has 100% voting control. The Trust's Manager also
     manages CAFC and provides mortgage origination and sale services for CAFC.
     During the three months ended March 31, 2004, the Trust accounted for its
     investment in CAFC under the equity method of accounting.

     On November 11, 2004, the Manager notified the Trust of its intention to
     retire 100% of CAFC's preferred stock owned by the Trust and concurrently
     issue a new class of CAFC preferred stock. The new preferred shares will
     not be issued or available to the Trust for purchase. This transaction is
     expected to close within 12 months without a loss on sale to the Trust.
     Therefore, the FIN 46 consolidation of CAFC into the Trust and the Trust's
     economic interest in CAFC are presented pursuant to FAS 144 as an asset
     held for sale.

                                       11
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                                 BALANCE SHEETS
                   As of March 31, 2005 and December 31, 2004

<TABLE>
<CAPTION>
                                                                    March 31,     December 31,
                                                                      2005           2004
                                                                      ----           ----
<S>                                                               <C>            <C>
ASSETS
        Cash and cash equivalents                                 $   256,048    $   156,592
        Accounts receivable                                            87,072        134,971
        Notes receivable:
             Mortgage notes receivable                              4,326,370      4,674,462
             Allowance for loan losses                                (47,891)       (40,000)
                                                                  -----------    -----------
             Net notes receivable                                   4,278,479      4,634,462
        Due from affiliate                                             20,625         30,908
        Investment in affiliate                                         5,000          5,000
        Other assets                                                   15,763         19,370
                                                                  -----------    -----------
        Total assets                                              $ 4,662,987    $ 4,981,303
                                                                  ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

        Liabilities
             Warehousing facilities                               $ 2,549,199    $ 2,418,858
             Warehousing facilities from related parties            1,012,641      1,415,487
             Due to affiliates                                             --         30,176
             Accrued interest                                           5,977          6,644
             Other liabilities                                         94,999         65,974
                                                                  -----------    -----------
        Total liabilities                                           3,662,816      3,937,139

        Stockholders' equity
             Preferred shares, no par value, 2,000 shares                  --             --
                authorized, 2,000 shares issued and outstanding
             Common shares, no par value, 1,000 shares                     --             --
                authorized, 1,000 shares issued and outstanding
             Additional paid in capital                             1,990,056      1,990,056
             Accumulated deficit                                     (989,885)      (945,892)
                                                                  -----------    -----------
        Total stockholders' equity                                  1,000,171      1,044,164
                                                                  -----------    -----------

        Total liabilities and stockholders' equity                $ 4,662,987    $ 4,981,303
                                                                  ===========    ===========
</TABLE>

                                       12
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                        March 31,
                                                                    2005         2004
                                                                    ----         ----
<S>                                                              <C>          <C>
REVENUES
          Interest income                                        $  99,508    $ 197,757
          Loan origination income                                  180,661      161,132
          Service release premium                                   40,551       25,695
          Other income                                              15,492           --
                                                                 ---------    ---------
               Total revenues                                      336,212      384,584

EXPENSES

          Management fees to related party                          26,773       18,642
          Interest expense on warehousing facilities                49,658      120,698
          Interest expense on related party warehouse facility      25,836       41,904
          Loan origination costs                                    39,139       63,244
          Provision for loan losses                                  7,891        1,500
          Wages and salaries                                       143,042      136,678
          Taxes                                                      2,123        8,261
          General and administrative                                85,738       64,799
                                                                 ---------    ---------
               Total expenses                                      380,200      455,726
                                                                 ---------    ---------

INCOME BEFORE GAIN (LOSS) ON REAL ESTATE OWNED                   $ (43,988)   $ (71,142)
          Operating expenses of real estate owned                       --          (94)
          Gain (loss) on sale of real estate owned                      --      162,304
                                                                 ---------    ---------

NET INCOME (LOSS)                                                $ (43,988)   $  91,068
                                                                 =========    =========
</TABLE>


                                       13
<PAGE>
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

10.  Investment in affiliates (continued)
     ------------------------------------

     The following are selected footnote disclosures from CAFC's financial
     statements:

     Basis of presentation
     ---------------------

     The accounting and financial reporting policies of CAFC conform to
     accounting principles generally accepted in the United States of America
     and with the policies adopted by the Trust. CAFC's selected financial
     information has been prepared on the accrual basis of accounting and
     consistent with the periods reported by the Trust.

     Accounts receivable
     -------------------

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and amounts due from borrowers for items such as property
     taxes, insurance, and interest on a first deed mortgage that were paid by
     CAFC on behalf of the property securing the mortgage notes.

     Mortgage notes receivable
     -------------------------

     Mortgage notes receivable are stated at the principal outstanding. Interest
     on the loans is due monthly. The loans are secured by first and junior
     deeds of trust on commercial and residential properties. CAFC is subject to
     the risks inherent in finance lending including the risk of borrower
     default and bankruptcy.

     A reconciliation of the mortgage notes receivable follows:


                                      Three months ended     Twelve months ended
                                       March 31, 2005         December 31, 2004
                                       --------------         -----------------

     Balance, beginning of period         $ 4,674,462            $ 7,383,040
     Additions during period:
         Originations                      14,311,350             52,426,211
           Transferred from Trust                                  2,014,649
     Deductions during period:
         Repayments                          (747,714)            (3,801,481)
         Sales                            (13,911,728)           (53,324,127)
         Foreclosures                             ---                    ---
         Write offs                               ---                (23,830)
                                          -----------            -----------
     Balance, end of period               $ 4,326,370            $ 4,674,462
                                          ===========            ===========

     Some of the mortgage loans originated and purchased by CAFC are held for
     sale to the Trust. The remaining originations and purchases are designated
     for sale to independent third parties. The Trust's purchase price is the
     mortgage loans outstanding balance (par value) plus any accrued interest.
     Loans designated for sale to a third party are pre-approved for purchase by
     the third party, before the loan is acquired by CAFC. Sales to third
     parties are usually greater than CAFC's total acquisition cost.

     Loan loss reserve
     -----------------

     CAFC measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $47,891 and $40,000 allowance for losses
     is adequate to protect against potential losses inherent in all receivables
     as of March 31, 2005 and December 31, 2004, respectively. CAFC's actual
     losses may differ from the estimate.

                                       14
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

10.  Investment in affiliates (continued)
     ------------------------------------

     Allowance for loan losses (continued)
     -------------------------------------

     A reconciliation of the allowance for losses follows:

                                         Three months ended  Twelve months ended
                                           March 31, 2005     December 31, 2004
                                           --------------     -----------------

     Balance, beginning of period            $ 40,000             $ 100,000
     Provision for loan loss                    7,891               (36,170)
     Write off of uncollectible balances          ---               (23,830)
                                             --------             ---------
     Balance, end of period                  $ 47,891             $  40,000
                                             ========             =========

     Real estate owned
     -----------------

     As of January 1, 2004, CAFC held two properties with a book value of
     $971,617. During 2004, CAFC sold two properties for a gain of $171,206. No
     new properties were acquired by purchase or foreclosure. Net proceeds from
     the sale were $1,142,823. As of December 31, 2004, CAFC held zero
     properties as real estate owned. During the three months ending March 31,
     2005, no properties were acquired.

     A reconciliation of real estate owned follows:

                                       Three months ended    Twelve months ended
                                         March 31, 2005       December 31, 2004
                                         --------------       -----------------

     Balance, beginning of period        $    ---                $  971,617
     Properties purchased                     ---                       ---
     Foreclosures                             ---                       ---
     Assumptions of senior debt               ---                       ---
     Additions                                ---                    43,644
     Real estate sold                         ---                (1,015,261)
     Property written down
                                              ---                       ---
                                         --------                ----------
     Balance, end of period              $    ---                $      ---
                                         ========                ==========

     Warehousing facilities
     ----------------------

     As of March 31, 2005 and December 31, 2004, CAFC had borrowed $1,315,895
     and $976,400 respectively under a $6,000,000 funding agreement. The
     agreement provides a 100% advance rate on the notes outstanding balance at
     an interest rate of Prime plus 1.50% with a floor of 6.00%. As of March 31,
     2005 and December 31, 2004, the Prime rate was 5.75% and 5.25%,
     respectively. Interest is payable monthly with $3,913 and $2,358 accrued
     and payable as of March 31, 2005 and December 31, 2004, respectively. The
     facility is cancelable by either party upon 30 days written notice.

     As of March 31, 2005 and December 31, 2004, CAFC had borrowed $0 and $0,
     respectively, under a $5,000,000 funding agreement. The agreement provides
     a 100% advance rate on the notes outstanding balance at an interest rate of
     Prime with a floor of 5.25%. As of March 31, 2005 and December 31, 2004,
     the Prime rate was 5.75% and 5.25%, respectively. Interest is payable
     monthly. As March 31, 2005 and December 31, 2004, the there was no
     outstanding balance or accrued interest. The facility is cancelable by
     either party upon 30 days written notice.

                                       15
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

10.  Asset held for sale (continued)
     --------------------------------

     As of March 31, 2005 and December 31, 2004, CAFC had borrowed $1,233,304
     and $1,442,458 under a funding agreement. The agreement provides a 95%
     advance rate on the notes outstanding balance at a 9.5% interest rate.
     Interest is payable monthly with $2,064 and $4,286 accrued and payable as
     of March 31, 2005 and December 31, 2004, respectively. The facility is
     cancelable by either party upon 30 days written notice.

     On June 30, 2004, CAFC entered into a $25,000,000 warehouse facility. Per
     the Tri-Party Financing and Indemnification Agreement dated August 26, 2004
     between CAFC, the Trust, and Calliance Realty Fund, LLC, the warehouse
     facility is shared by the Trust and Calliance Realty Fund, LLC, both
     related entities (collectively "Related Entities") to CAFC. The facility is
     in CAFC's name, however, CAFC is not held liable for the borrowings of the
     Related Entities. As of March 31, 2005, the facility had a balance of
     $13,050,841, and CAFC was liable for $0.

     The above warehouse facilities revolve monthly and are paid off as the
     mortgage loans held are sold or repaid by the loan's borrower.

     Related party transactions
     --------------------------

     The Manager earns an administration fee up to 25 basis points on home loans
     funded for the benefit of CAFC and reimbursed for specific direct expenses
     as defined in the First Amended Residential Mortgage Loan Services
     Agreement. As of March 31, 2005 and 2004, CAFC has expensed $26,773 and
     $18,642, respectively.

     CAFC received an advance of $1,012,641 and $1,415,487 under a warehouse
     line of credit from the Trust, as of March 31, 2005 and December 31, 2004,
     respectively. The Trust charges a variable interest rate on this warehouse
     line of credit determined by current market rates. The rate charged to CAFC
     on the line of credit as of March 31, 2005 and December 31, 2004 was the
     Prime Rate plus 3.00%. CAFC expensed interest of $25,836 and $41,622 as of
     March 31, 2005 and 2004, respectively. The facility is cancelable by either
     party upon 30 days written notice.

     On occasion, CAFC and its affiliates had related party receivables and
     payables arising from ordinary business transactions. As of March 31, 2005,
     CAFC had a receivable of $18,956 from the Manager and a receivable of
     $1,669 from CRF. As of December 31, 2004, CAFC had a receivable of $30,908
     from the Manager and a payable of $30,176 to the Trust. These accounts are
     shown on the balance sheet as part of Due to affiliates and Due from
     affiliates, respectively. No interest is charged on these accounts.

     During the first three months of 2005 and 2004, CAFC sold $3,810,000 and
     $659,000, respectively, in loans to the Trust, at par value.

11.  Loans payable
     -------------

     As of June 30, 2004, CAFC obtained a three-year $25,000,000 funding
     agreement. The agreement provides an advance rate of up to 80% on the notes
     outstanding balance at an interest rate floor of 5.00% and a ceiling of the
     Prime Rate plus 4.0%. Through a tri-party agreement among CAFC, CRF, and
     the Trust, both CRF and the Trust are able to utilize this funding
     agreement for a fee of 3 basis points per month of the end of the month's
     financed mortgage notes receivable principal balance. All benefits and
     costs of ownerships and financing of the financed loans including the risk
     of principal loss inure to either CRF or the Trust. As of March 31, 2005,
     the outstanding balance assigned to the Trust was $9,276,541.

     The Trust has financed a portion of its treasury stock repurchases in 2004
     by borrowing on margin from an investment bank. The amount borrowed on
     margin accrues fees at a rate that has historically approximated the broker
     call rate (4.0% as of December 31, 2004) plus 1.50%. Margin debt is
     callable at the discretion of the investment bank and subject to their
     assessment of the value of the collateral. As of March 31, 2005 and
     December 31, 2004, the Trust owed $0 in margin debt.

     The above lines of credit revolve monthly and are paid off as the mortgage
     notes receivable held are sold.

                                       16
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

12.  Mortgage payable
     ----------------

     The Trust foreclosed on a property in 2004 and assumed a mortgage note
     payable in the amount of $551,922 with an annual interest rate of 10% with
     a monthly principal and interest payment of $5,520. The principal balance
     as of March 31, 2005 and December 31, 2004 was $551,922.

13.  Related party transactions
     --------------------------

     The Manager, which is owned by several of the directors and their
     affiliates, contracted with the Trust to provide management and advisory
     services and receives fees for these services from the Trust. The Manager
     is also entitled to reimbursement by the Company for direct expenses and
     administrative services at cost and for clerical and administrative
     services based on relative utilization of facilities and personnel.

     The Manager receives a management fee equal to one-twelfth (1/12) of 1%
     annually of the book value of mortgages, mortgage-related investments and
     real property ("Gross Mortgage Assets") of the Trust plus one-twelfth
     (1/12) of one-half percent (1/2%) of the book value of the non-mortgage
     assets of the Trust computed at the end of each month. The management fee
     also includes reimbursement for the direct costs of overseeing the
     administration and disposition of real estate owned by the Trust and the
     Company. The management fee paid by the Trust to the Manager was $58,180
     and $57,747, for the three-month period ended March 31, 2005 and 2004,
     respectively. Within the financial statements, the management fees are
     included in the Management fees to related parties.

     The Manager also earns a REO management fee for managing and servicing the
     properties that the Company has obtained through foreclosure of mortgage
     notes held. The fee for these services is $500 per month for each property.
     The Trust paid the Manager $1,500 and $4,000 in REO management fees for the
     three-month period ended March 31, 2005 and 2004, respectively. Within the
     financial statements, REO management fees are included in the Management
     fees to related parties.

     The Manager's incentive compensation for each fiscal quarter, equals 25% of
     the net income of the Trust in excess of an annualized return on common
     equity for such quarter equal to the ten year U.S. Treasury Rate plus
     2.00%, provided that the payment of such incentive compensation does not
     reduce the Trust's annualized return on common equity for such quarter to
     less than the ten year U.S. Treasury Rate after the preferred dividend has
     been paid. The incentive compensation for the three-month period ended
     March 31, 2005 and 2004 was $0 and $14,484, respectively. Within the
     financial statements, incentive compensation awards are included in the
     Management fees to related parties.

     The Manager receives a loan origination and servicing fee equal to
     one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the Trust
     computed at the end of each month. During 2004, the Trust capitalized 32.5%
     of this fee as loan origination costs and amortized them over the average
     life of the portfolio. The remaining 67.5% of the fee is expensed as the
     portion attributed for servicing. As of March 31, 2005, the Trust
     capitalized 32.5% of this fee as origination costs and amortized them over
     the average life of the portfolio. The remaining 67.5% of the fee was
     expensed as the portion attributed for servicing. For the three-month
     period ended March 31, 2005 and 2004, the Trust expensed loan origination
     and servicing fees of $121,983 and $112,623, respectively.

     On occasion, the Trust and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of March 31, 2005,
     the Trust had a net payable of $24,275 to the Manager and $0 was due to
     CAFC and CRF. As of December 31, 2004, the Trust had a receivable of
     $23,170 from the Manager and $0 was due to CAFC and CRF. No interest is
     charged on these inter-company accounts.

     As described in Note 6, as of March 31, 2005 and December 31, 2004, the
     Trust advanced to the CAFC $1,012,641 and $1,415,487, respectively. During
     the three months ended March 31, 2005 and 2004, the Trust earned interest
     in the amount of $25,836 and $41,622, respectively, of which $0 was
     outstanding as of March 31, 2005 and December 31, 2004.

                                       17
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

14.  Preferred, common and treasury stock
     ------------------------------------

     The Preferred Shareholders are entitled to a dividend preference in an
     amount equal to an annualized return on the adjusted net capital
     contribution of Preferred Shares at each dividend record date during such
     year (or, if the Directors do not set a record date, as of the first day of
     the month). The annualized return is the lesser of: (a) 10.25%, (b) 1.50 %
     over the Prime Rate (determined on a not less than quarterly basis) or (c)
     the rate set by the Board of Directors. The preferred dividend preference
     is non-cumulative.

     After declaring dividends for a given year to the Preferred Shareholders in
     the amount of the dividend preference, no further dividends may be declared
     on the Preferred Shares for the subject year, until the dividends declared
     on each Common Share for that year equals the dividend preference for each
     Preferred Share for such year. Any additional dividends generally will be
     allocated such that the amounts of dividends per share to the Preferred
     Shareholders and Common Shareholders for the subject year are equal. The
     Preferred Shareholder's additional dividends, if any, are non-cumulative.

     Preferred Shareholders are entitled to receive all liquidating
     distributions until they have received an amount equal to their aggregate
     adjusted net capital contribution. Thereafter, Common Shareholders are
     entitled to all liquidation distributions until the aggregate adjusted net
     capital contributions of all Common Shares has been reduced to zero. Any
     subsequent liquidating distributions will be allocated among Common
     Shareholders and Preferred Shareholders pro rata.

     The Preferred Shares are redeemable by a shareholder, subject to the
     consent of the Board of Directors, annually on June 30 for redemption
     requests received by May 15 of such year. The Board of Directors may in its
     sole discretion deny, delay, postpone or consent to any or all requests for
     redemption. The redemption amount to be paid for redemption of such
     Preferred Shares is the adjusted net capital contribution plus unpaid
     accrued dividends, divided by the aggregate net capital contributions plus
     accrued but unpaid dividends attributable to all Preferred Shares
     outstanding, multiplied by the net asset value of the Trust attributable to
     the Preferred Shares which shall be that percentage of the Trust's net
     asset value that the aggregate adjusted net capital contributions of all
     Preferred Shares bears to the adjusted net capital contributions of all
     Shares outstanding.

     The Trust has the power to redeem or prohibit the transfer of a sufficient
     number of Common and/or Preferred Shares or the exercise of warrants and/or
     options and to prohibit the transfer of shares to persons that would result
     in a violation of the Trust's shareholding requirements. The Bylaws provide
     that only with the explicit approval of the Trust's Board of Directors may
     a shareholder own more than 9.8% of the total outstanding shares.

15.  Common stock options
     --------------------

     The 1998 Incentive Stock Option Plan ("Plan") adopted by the Board of
     Directors and approved by stockholders, provided non-qualified Common Stock
     options for the purchase of 247,500 Common Shares of the Trust. Officers
     and employees of the Manager, and Directors of the board are the eligible
     recipients of the options. The options have a term of 10 years with a first
     exercise date generally two (2) to six (6) months after the date of the
     grant. Under the terms of the Plan, the exercise price of each option will
     not be less than 100% of the Common Shares closing stock price on the date
     of grant.

                                       18
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

15.  Common stock options (continued)
     --------------------------------

     The activity in the Plan for the three months ended March 31, 2005 and the
     twelve months ended December 31, 2004 follows:
                                                                Weighted average
                                                Options          exercise price
                                                -------          --------------
      Outstanding at January 1, 2004            183,700              $10.60
                     Granted                        ---                 ---
                     Exercised                  (10,105)               9.40
                     Forfeited                      ---                 ---
                                                -------              ------
      Outstanding at December 31, 2004          173,595              $10.67
                                                -------              ------
                     Granted                        ---                 ---
                     Exercised                      ---                 ---
                     Forfeited                      ---                 ---
                                                -------              ------
      Outstanding at March 31, 2005             173,595              $10.67
                                                =======              ======
      Outstanding options exercisable as of
                    January 1, 2004             183,700             $ 10.60
                     December 31, 2004          173,595               10.67
                     March 31, 2005             173,595               10.67

     All the Plan's stock options have been granted and the unexercised stock
options are 100% vested.

     The following table summarizes information with respect to stock options
outstanding at March 31, 2005:

<TABLE>
<CAPTION>
                                                  Options outstanding
                                  -------------------------------------------------------
     Range of exercise prices                     Weighted-average
                                  Number of     remaining contractual   Weighted- average
                                   shares           life (years)          exercise price
                                  -------------------------------------------------------
      <S>                          <C>                 <C>                  <C>
        $9.00 - $9.06              109,845             5.35                 $  9.03
        $13.50                      63,750             4.00                   13.50
                                   -------             ----                 -------
                                   173,595             4.85                 $ 10.67
                                   =======             ====                 =======
</TABLE>

16.  Earnings per share
     ------------------

     The following table represents a reconciliation of the numerators and
     denominators of the basic and diluted earnings per common share for the
     three-month period ended March 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                2005            2004
                                                                ----            ----
<S>                                                          <C>             <C>
     Numerator:
     Net income                                              $  17,355       $ 277,768
     Preferred dividends attributable to income                (93,077)        (76,788)
                                                             ---------       ---------
     Numerator for basic and diluted Earnings per share
         income available to common stockholders             $ (75,722)      $ 200,980
                                                             =========       =========
     Denominator:
         Basic weighted average shares                         438,343         435,469
         Dilutive effect of options                                  0          82,757
                                                             ---------       ---------
         Diluted weighted average shares                       438,343         518,226
                                                             =========       =========
     Basic earnings per common share                         $   (0.17)      $    0.46
                                                             =========       =========
     Diluted earnings per common share                       $   (0.17)      $    0.39
                                                             =========       =========
</TABLE>

                                       19
<PAGE>
                                     PART I
                                     ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                                PLAN OF OPERATION

The financial statements of Capital Alliance Income Trust Ltd., A Real Estate
Investment Trust (the Trust") dated herein were prepared from the unaudited
books and ledgers of the Trust.

Certain statements contained herein are not based on historical information and
certain statements contained in future filings by the Trust with the SEC, in the
Trust's press releases or in the Trust's public and stockholder communications
may not be based on historical facts and are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by reference to a future period or
periods, or by the use of forward-looking terms such as "may", "will", "expect",
"anticipate", or similar terms. Actual results could materially differ from
those in the forward-looking statements due to a variety of factors.

Management's discussion and analysis of the results of operations for the three
months ended March 31, 2005 and 2004 follows:

OVERVIEW

In May of 1997, the Trust registered its common shares with the Securities and
Exchange Commission under the Securities Act of 1933. On September 30, 1998, the
initial public offering of Common Shares was completed. Since October 1, 1998,
the common shares have been listed on the American Stock Exchange with the
exchange symbol of "CAA".

From 1997 through 2003, the Trust's financial statement reported CAFC by the
equity method of accounting. The equity method of accounting records an equity
investment at cost and adjusts it by the investment's share of earnings or
losses and decreases it by dividends received.

For year end 2004, the Trust implemented reporting CAFC pursuant to the
requirement of Financial Accounting Standards Board Interpretation No.46 ("FIN
46"). The interpretation requires the consolidation of variable interest
entities such as CAFC and the Trust's Mortgage Investment and Warehouse Lending
Businesses to report the Company's results.

Prior to year end 2004, Management identified CAFC as an asset held for sale
within the meaning of Financial Accounting Standard No.144 ("FAS 144"). On
November 11, 2004, CAFC's common shareholder notified the Trust of its intention
to retire 100% of CAFC's preferred stock. The Trust's investment in CAFC is
entirely comprised of preferred stock. The Trust's preferred shares are
available for immediate delivery and the transaction is expected to be completed
within one year of CAFC's common shareholder's notification. Management expects
the sale of the Trust's CAFC preferred stock to approximate its fair value.

Since the pending transfer of the Trust's interest in CAFC satisfies the
disposal criteria of FAS 144, the Trust's interest in CAFC's net income is
presented as a non-revenue line item in the Trust's March 31, 2005 consolidated
statement of operations and CAFC's assets are reported in the Trust's December
31, 2004 and March 31, 2005 consolidated balance sheet as an asset held for
sale.

Management believes the retirement of the Trust's preferred share investment in
CAFC will provide numerous benefits. These benefits include: restoring the Trust
to its original intent as an investor in non-conforming mortgages; reducing a
source of volatility in the Trust's reported net income; reducing the cost of
annual audits and quarterly reviews; reducing the costs of Sarbanes Oxley
compliance; reducing the number of related party transactions; simplifying the
process of cost allocation; and accelerating the compilation and reporting of
operating results. The costs of disposing of the Trust's investment in CAFC
include: the loss of CAFC's potential profitability; less control over the
mortgage investment supply chain; and restrictions of the Trust's access to
CAFC's funding agreement. During 2004, 2003, 2002, 2001, and 2000, CAFC has
generated annual net income or (net loss) of $134,745, ($162,763), ($25,901),
$385,006, ($494,452), respectively, or a cumulative (net loss) of ($163,365)
during the last five years. CAFC has never paid a dividend.

                                       20
<PAGE>
CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in the United States of America. The
Company's significant accounting policies are described in the notes to the
consolidated financial statements. Certain accounting policies require
management to make significant estimates and assumptions, which have a material
impact on the carrying value of certain assets and liabilities, and the Company
considers these to be critical accounting policies. The estimates and
assumptions used are based on historical experience and other factors, which
management believes to be reasonable under the circumstances. Actual results
could differ significantly from these estimates and assumptions, which could
have a material impact on the carrying value of assets and liabilities at the
balance sheet dates and results of operations for the reporting periods.

The following are critical accounting policies that require the most significant
estimates and assumptions that are particularly susceptible to a significant
change in the preparation of the financial statements and are not presented in
their relative order of importance.

Revenue recognition. Interest income accrues as it is earned. Loans may be
placed on a nonaccrual status when any portion of the principal or interest is
three scheduled payments past due or earlier when concern exists as to the
ultimate collectibility of principal or interest. Nonaccrual status loans are
returned to an accrual status when principal and interest become current and are
anticipated to be fully collectible.

Allowance for loan losses. A provision for loan losses in based on management's
evaluation of an amount that is adequate to absorb losses inherent in the
existing loan portfolio. The evaluation, which includes a review of all loans on
which full collection may not be reasonably assumed, considers among other
matters, general economic conditions, the fair market value or the estimated net
realizable value of the underlying collateral, past loan loss experience, trends
in loan delinquency and other factors that warrant recognition in providing for
an adequate loan loss allowance to absorb inherent losses.

Real estate owned. Real estate owned represents property acquired in foreclosure
of mortgage notes receivable. The real estate is carried at the lower of the
value of the mortgage note receivable less selling costs on the real estate or
fair market value. Certain estimates and assumptions are required in determining
the cost to sell or in estimating the fair market value of the real estate.

Stock option. The Trust has issued stock options to certain employees of the
Manager and to its Directors. The stock options issued are accounted for using
the intrinsic-value method. Because the options were issued with exercise prices
no less than the market price of the Trust's common stock on the dates of grant
and because other key terms are fixed, use of the intrinsic-value method results
in the Trust not recognizing compensation expense for these options. If the
terms of these options were changed, variable accounting might need to be used,
and the Trust might then need to begin recognizing compensation expense for the
options.

Assets held for sale. CAFC is identified as an asset held for sale and disposal
of this asset is expected within the twelve month period permitted by FAS 144.
On November 11, 2004, the Manager notified the Trust of its intention to retire
100% of the CAFC preferred stock owned by the Trust and concurrently issue a new
class of CAFC preferred to CAFC's sole common shareholder. The Trust does not
expect to recognize any loss on the transaction.

Management has discussed the Company's critical accounting policies and the
development, selection and disclosure of the estimates and alternatives with the
Audit Committee of the Board of Directors.

 Operating Strategy.
 -------------------

The Trust invests as a portfolio lender primarily in non-conforming mortgage
loans on one-to-four unit residential properties primarily secured by first and
second deeds of trust. Management believes that this segment of the mortgage
market is inadequately served and that there is a large demand for
non-conforming mortgage loans with a complete spectrum of credit grades.

CAFC's operating strategy is to originate, through mortgage loan brokers and a
correspondent network, conforming and non-conforming home equity loans to be
sold to the Trust and to be sold in the secondary mortgage market for cash.

                                       21
<PAGE>
Although the loans currently made are concentrated in California, CAFC plans to
originate and/or purchase loans on both an individual and bulk basis throughout
the western United States. Loans will then be sold into the secondary market for
a premium or to the Trust at fair market value, when they meet the Trust's
underwriting standards (which include a combined loan-to-value ratio that does
not exceed 75% of the underlying collateral).

Loan Origination and Loan Servicing. Mortgage loan origination consists of
establishing a relationship with a borrower or his broker, obtaining and
reviewing documentation concerning the credit rating and net worth of borrowers,
inspecting and appraising properties that are proposed as the collateral for a
home equity loan, processing such information and underwriting and funding the
mortgage loan. Mortgage loan servicing consists of collecting payments from
borrowers, making required advances, accounting for principal and interest
payments, holding borrowed proceeds in escrow until fulfillment of mortgage loan
requirements, contacting delinquent borrowers, supervising foreclosures and
property dispositions in the event of unremedied defaults and performing other
administrative duties. All or a portion of the aforementioned servicing
responsibilities may be subcontracted by the Manager.

Commitments and Contingencies. As of March 31, 2005, the Trust's loan portfolio
included 60 loans totaling $19,886,959 of which seven loans totaling $2,088,354
representing 10% of the loan portfolio were delinquent over two payments. After
adjusting the March 31, 2005 delinquent balances for payments, the delinquencies
in excess of two payments are still seven loans totaling $2,088,354 or 10% of
the loan portfolio. In assessing the collectibility of these delinquent mortgage
loans, management has established a loan loss reserve of $185,000, if it is
necessary to foreclose upon the mortgage loans.

As of March 31, 2004, the Trust's loan portfolio included 73 loans totaling
$16,944,096 of which 18 loans totaling $4,062,365 representing 24% of the loan
portfolio were delinquent over two payments. Three of these delinquent loans
totaling $696,657 were paid down and one delinquent loans totaling $150,786 was
brought current by May 1, 2004. After adjusting the March 31, 2004 delinquent
balances for these payments, the delinquencies in excess of two payments are
fourteen loans totaling $3,214,922 or 19% of the loan portfolio. In assessing
the collectibility of these delinquent mortgage loans, management has
established a loan loss reserve of $230,000, if it is necessary to foreclose
upon the mortgage loans.

The Trust generally issues loan commitments only on a conditional basis and
generally funds such loans promptly upon removal of any conditions. Accordingly,
the Trust did not have any commitments to fund loans as of March 31, 2005 and
March 31, 2004.

<TABLE>
<CAPTION>
        Maximum Other                                       Amount of Commitment Expiration Per Period
         Commercial                Total         ---------------------------------------------------------------
       Commitments (a)            Amounts          Less than         1 - 3             4 - 5           After 5
    as of March 31, 2005          Committed         1 year           years             years            years
---------------------------------------------------------------------------------------------------------------
<S>                              <C>                  <C>          <C>                   <C>              <C>
Lines of Credit (b)              $9,276,541           0            $9,276,541            0                0

Standby Repurchase                  (c)               0                0                 0                0
Obligations

Total Commercial Commitments     $9,276,541           0            $9,276,541            0                0
</TABLE>

(a)  Commercial commitments are funding commitments that could potentially
     require registrant performance in the event of demands by third parties or
     contingent events, such as under lines of credit extended or under
     guarantees of debt.

(b)  The Mortgage Investment Business outstanding obligations as of March 31,
     2005 due in 1-3 years were $9,276,541.

(c)  The Mortgage Conduit Business has an unquantified ongoing liability with
     respect to normal warranties and representations which includes fraud in
     the origination process or early default on loans sold into the secondary
     mortgage market.

                                       22
<PAGE>
RESULTS OF OPERATIONS

The historical information presented herein is not necessarily indicative of
future operations.

Three months ended March 31, 2005 and 2004. Revenues for the first quarter
decreased to $510,627 as compared to $711,620 for the same period in the prior
year. The decrease in revenue, during the first three months of 2005 was due to
a reduction of $41,622 in interest income from affiliate and a reduction in
equity in gain of affiliate of $90,157, as CAFC is being reported as an asset
held for sale. CAIT's lower yielding portfolio provided less interest revenue of
$70,903.

Expenses for the first quarter 2005 increased to $443,775 as compared to
$410,817 for the same period in the prior year. The increased expenses during
the first three months of 2005 were primarily due to increased interest expenses
of $77,432 and partially offset by reduced general and administrative costs of
$26,655.

LIQUIDITY AND CAPITAL RESOURCES

During 2004, CAFC obtained a three year $25,000,000 funding facility. Pursuant
to a tri-party agreement among CAFC, CRF, and the Trust, the Trust can use this
funding facility. All benefits and costs of ownership and financing of the
Trust's loans will inure to the Trust.

Management believes that the cash flow from the payment of mortgage notes
receivable, existing bank loan facilities, and additional lines of credit
anticipated to be acquired during 2005 will be sufficient to meet the liquidity
needs of the Trust's businesses for the next twelve months.

Three months ended March 31, 2005 and 2004. As of January 1, 2005 and 2004, the
Trust had $155,462 and $1,038,010 of cash and cash equivalents, respectively.
During each three month period, cash and cash equivalents increased by $168,954
and $288,774, respectively. After taking into effect the various transactions
discussed below, cash and cash equivalents at March 31, 2004 and 2003 were
$324,416 and $1,326,784.

The following summarizes the changes in net cash provided by operating
activities, net cash used for investing activities, and net cash provided by
financing activities.

Net cash used in and provided by operating activities during the three months
ended March 31, 2005 and 2004 was $101,491 and $86,193, respectively. During the
first three months of 2005, net income provided $17,355, an increase in due from
affiliates provided $47,445, an increase in other liabilities provided $151,221,
and an increase in accounts receivable used $340,097. During the first three
months of 2004, net income provided $277,768, equity in gain of affiliate used
$90,157 and an increase in accounts receivable used $125,153.

Net cash used in and provided by investing activities for the three months ended
March 31, 2005 and 2004 was $424,600 and $3,736,885, respectively. During the
first three months of 2005, a net increase in mortgage notes receivable used
$833,485 and a decrease in related party warehousing facilities provided
$402,846. During the first three months of 2004, a net decrease in mortgage
notes receivable provided $3,612,392 and a decrease in warehousing facilities to
related parties provided $124,222.

Net cash provided by and used in financing activities during the three months
ended March 31, 2005 and 2004 was $695,045 and $3,534,304, respectively. During
2005, borrowings provided cash of $1,029,000, while dividends and treasury stock
purchases reduced cash by $136,851 and $197,104, respectively. During the first
three months of 2004, payments of bank loans used cash of $3,274,494 and
dividends reduced cash by $272,845.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk. Market risk is the exposure to loss resulting from changes in
interest rates, credit spreads, foreign exchange rates, commodity prices, and
equity prices. The primary market risks to which the Trust is exposed are
interest rate risk and credit risk.

Interest risk. Interest rate risk is highly sensitive to many factors, including
governmental, monetary and tax policies, domestic and international economic and
political considerations and other factors beyond the control of the Trust.

                                       23
<PAGE>
Changes in the general level of the U.S. Treasury yield curve can have
significant effects on the market value of the Trust's portfolio. The majority
of the Trust's assets are fixed-rate loans with a spread to U.S. Treasuries. The
Trust's loans are valued on the March 31, 2005 balance sheet of the lower of
cost or market.

As U.S. Treasury securities are priced to a lower yield and/or the spread to
U.S. Treasuries used to price the Trust's assets are decreased, the market value
of the Trust's portfolio may increase. Conversely, as U.S. Treasury securities
are priced to a higher yield and/or the spread to U.S. Treasuries used to price
the Trust's assets is increased, the market value of the Trust's portfolio may
decline. Changes in the level of the U.S. Treasury yield curve can also affect,
among other things, the prepayment assumptions used to value certain of the
Trust's loans. In addition, changes in the general level of the United States
Prime Rate can affect the Trust's net interest income. The majority of the
Trust's liabilities are floating rate based on a spread over the daily Prime
Rate. As the Prime Rate increases or decreases, the Company's interest expense
will move in the same direction.

On account of the relatively short adjusted weighted average maturity of the
Trust's portfolio (40 months), a variety of financial instruments available to
limit the effects of interest rate fluctuations on its operations have not been
utilized. The use of these types of derivatives (such as interest rate swaps,
caps, floors and other interest rate exchange contracts) to hedge
interest-earnings assets and/or interest-bearing liabilities carry risks,
including the risk that the net losses on a hedge position may exceed the amount
invested in such instruments. As the level of variable rate mortgage financing
of the portfolio increases or the weighted average maturity of the portfolio
increases, the Trust may utilize a variety of financial instruments to limit the
effects of interest rate fluctuations.

Credit risk. Credit risk is the exposure to loss from loan defaults and
foreclosures. Default and foreclosure rates are subject to a wide variety of
factors, including, but not limited to, property values, supply/demand factors,
construction trends, consumer behavior, regional economics, interest rates, the
strength of the American economy and other factors beyond the control of the
Trust.

All loans are subject to a certain probability of default and foreclosure. An
increase in default rates will reduce the book value of the Trust's assets and
the Trust's earnings and cash flow available to fund operations and pay
dividends.

The Trust manages credit risk through the underwriting process, limiting loans
at the time of funding to 75% of the collateral's appraised value, establishing
loss assumptions and carefully monitoring loan performance. Nevertheless, the
Trust assumes that a certain portion of its loans will default and adjusts the
allowance for loan losses based on that assumption. For purposes of
illustration, a doubling of the allowance for losses in the Trust's portfolio
would reduce first quarter 2005 GAAP income available to common shareholders by
$185,000.

Asset and liability management. Asset and liability management is concerned with
the timing and magnitude of the maturity of assets and liabilities. In general,
management's strategy is to approximately match the term of the Trust's
liabilities to the portfolio's adjusted weighted average maturity (40 months).
CAFC's assets and liabilities are significantly shorter. The majority of CAFC's
assets is presold at origination for delivery within 60 days and is financed
with a repurchase facility that provides up to 60 days of financing.

The majority of the Trust's assets pay a fixed coupon and the income from such
assets are relatively unaffected by interest rate changes. The Trust's
borrowings are currently under a variable rate line of credit that resets
monthly. Given this relationship between assets and liabilities, the Trust's
interest rate sensitivity gap is highly negative. This implies that a period of
falling short term interest rates will tend to increase the Trust's net interest
income, while a period of rising short term rates will tend to reduce the
Trust's net interest income.

CAFC's assets are a fluctuating mix of fixed and variable rate mortgages. At
origination, the disposition of these loans is identified and their secondary
market sales pricing is usually predetermined. Given this relationship, CAFC's
interest rate sensitivity is neutral if secondary market purchase commitments
are honored.

                                       24
<PAGE>
                                     PART I
                                     ITEM 3.

                             CONTROLS AND PROCEDURES

(A) Evaluation of Disclosure Controls and Procedures. The Chief Executive
Officer, the President and Chief Operating Officer, and the Executive
Vice-President and Chief Financial Officer of the Trust have, based on their
evaluation of the Trust's disclosure controls and procedures within 90 days of
the filing date of this annual report, evaluated the effectiveness of such
controls and procedures. Based on such evaluations, they have concluded that the
Trust's disclosure controls and procedures have effectively operated to ensure
that all material information relating to the Trust and its operations and
financial condition has been made known to them by other officers and employees
within the Trust and its Manager on a timely basis.

(B) Changes in Internal Controls. There have been no significant changes in the
Trust's internal controls or in other factors that could significantly affect
those controls subsequent to the date of their evaluation. Accordingly, no
corrective actions with regard to such controls or procedures have been
required.

                                     PART II

                                OTHER INFORMATION

ITEM 1    LEGAL PROCEEDINGS

     The Trust and CAFC were joined as defendants in a case filed in the
     Superior Court of the State of California on August 11, 2004. The plaintiff
     alleged that the Trust and CAFC had failed to provide required disclosures
     and alleged other violations, and sought a refund of $235,000 for payments
     made on the mortgage in question as well as $665,000 of principal paid
     thereon, together with punitive damages and attorney's fees. After
     mediation, the action was settled on March 3, 2005 and dismissed without
     contribution of any monetary payment to the plaintiff by either the Trust
     or CAFC.

ITEM 2    CHANGES IN SECURITIES

     14,293 common shares were purchased for treasury stock during the three
     month period ended March 31, 2005.

ITEM 3    DEFAULTS UPON SENIOR SECURITIES

      None.

ITEM 4    SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the
     quarterly period ended March 31, 2005.

ITEM 5    OTHER INFORMATION

     Press release, Exhibit "A" attached hereto and incorporated herein, dated
     January 31, 2005 announcing the 1st Quarter 2005 Common Share Dividend.


                                       25
<PAGE>
ITEM 6     EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits
         --------

         Exhibit No.
         3.1     Charter Certificate of Incorporation and Amendment No. 1(1)
         3.2     Bylaws of the Registrant(1)
         3.3     Certificate of Amendment of Certificate of Incorporation(6)
         4.1     Form of Stock Certificate of Common Shares of the Registrant(2)
         10.1    Form of Management Agreement between the Registrant and Capital
                 Alliance Advisors, Inc.(1)
         10.2    Form of Indemnity Agreement between the Registrant and its
                 Directors and Officers(1)
         10.3    Form of Loan Origination and Loan Servicing Agreement between
                 the Registrant and Capital Alliance Advisors, Inc.(1)
         23.4    Consent of Landels Ripley & Diamond, LLP(5)
         23.5    Consent of Novogradac & Company LLP(5)
         24.1    Power of Attorney of Thomas B. Swartz(1)
         24.2    Power of Attorney of Dennis R. Konczal(1)
         24.4    Power of Attorney of Stanley C. Brooks(1)
         24.5    Power of Attorney of Harvey Blomberg(1)
         24.7    Power of Attorney of Richard J. Wrensen(7)
         24.8    Power of Attorney of Donald R. Looper(8)

(1)      These exhibits were previously contained in Registrant's Registration
         Statement filed on Form S-11 with the Commission on September 9, 1996,
         and are incorporated by reference herein.

(2)      These exhibits were previously contained in Amendment No. 1 to the
         Registrant's Registration Statement filed on Form S-11 with the
         Commission on January 15, 1997, and are incorporated by reference
         herein.

(3)      This exhibit was previously contained in Amendment No. 2 to the
         Registrant's Registration Statement filed on Form S-11 with the
         Commission on February 6, 1997 and is incorporated by reference herein.

(5)      These exhibits were previously contained in Post-Effective Amendment
         No. 3 to the Registrant's Registration Statement filed on Form S-11
         with the Commission on December 10, 1997, and are incorporated by
         reference herein.

(6)      These exhibits were previously contained in Form 10-Q for the period
         ending June 30, 1997 filed with the Commission on August 14, 1997, and
         are incorporated by reference herein.

(7)      This exhibit was previously contained in Form 10-K for the period
         ending December 31, 1998 filed with the Commission on April 10, 1999,
         and is incorporated by reference herein.

(8)      This exhibit was previously contained in From 10-KSB for the period
         ending December 31, 2002 filed with the Commission on April 15, 2003,
         and is incorporated by reference herein.

(b)      Reports on Form 8-K.
         -------------------

         Form 8-K was filed on April 5, 2005 due to the press release
         of March 31, 2005 regarding the operating results for the three and
         twelve months ended December 31, 2004;

                                       26
<PAGE>
                                   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 hereunto duly authorized.


                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A Real Estate Investment Trust


Dated: May 13, 2005

                            /s/Thomas B. Swartz
                            -------------------
                            Thomas B. Swartz
                            Chairman and Chief Executive Officer

                            /s/Richard J. Wrensen
                            ---------------------
                            Richard J. Wrensen
                            Chief Financial Officer and Executive Vice President




                                       27
<PAGE>
                                  CERTIFICATION


     CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
     SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Capital Alliance Income Trust
     Ltd. (the "Company") on Form 10-QSB for the period ending March 31, 2005 as
     filed with the Securities and Exchange Commission on the date hereof (the
     "Report"), I, Thomas B. Swartz, Chief Executive Officer of the Company,
     Richard J. Wrensen, Chief Financial Officer of the Company, and I, Dennis
     R, Konczal, President and Chief Operating Officer of the Company, certify,
     pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
     Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully compiles with the requirements of section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
          material respects, the financial condition and result of operations of
          the Company.



Date: May 13, 2005

                           /s/Thomas B. Swartz
                           -------------------
                           Thomas B. Swartz
                           Chairman and Chief Executive Officer

                           /s/Richard J. Wrensen
                           ---------------------
                           Richard J. Wrensen
                           Chief Financial Officer and Executive Vice President

                           /s/Dennis R. Konczal
                           --------------------
                           Dennis R. Konczal
                           President and Chief Operating Officer


                                       28
<PAGE>
                                  CERTIFICATION
               OF FORM 10Q OF CAPITAL ALLIANCE INCOME TRUST LTD.,
                     A REAL ESTATE INVESTMENT TRUST FOR THE
                          PERIOD ENDING MARCH 31, 2005

Under Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934

The undersigned each individually certifies that:

1.   I have reviewed this Form 10QSB, dated May 13, 2005 of Capital Alliance
     Income Trust, Ltd., A Real Estate Investment Trust:

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flow of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers are responsible for establishing
     and maintaining disclosure controls and procedures (as defined in Exchange
     Act Rules 13a-14 and 15d-14) for the registrant and we have:

     o    designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, is made known to us
          by others within those entities, particularly during the period in
          which this report in being prepared;
     o    evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date); and
     o    presented in this report our conclusions about the effectiveness of
          the disclosure controls and procedures based on our evaluation as of
          the Evaluation Date;

5.   The registrant's other certifying officers have disclosed, based on our
     most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors:

     o    all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and
     o    any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers have indicated in this quarterly
     report, whether there were significant changes in internal controls or in
     other factors that could significantly affect internal controls subsequent
     to the date of our most recent evaluation, including any corrective actions
     with regard to significant deficiencies and material weaknesses.

Date: May 13, 2005
                          /s/Thomas B. Swartz
                          -------------------
                          Thomas B. Swartz
                          Chairman and Chief Executive Officer

                          /s/Richard J. Wrensen
                          ---------------------
                          Richard J. Wrensen
                          Chief Financial Officer and Executive Vice President

                          /s/Dennis R. Konczal
                          --------------------
                          Dennis R. Konczal
                          President and Chief Operating Officer

                                       29
<PAGE>
                                EXHIBIT "A"
Press Release
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                        ANNOUNCES FIRST QUARTER DIVIDEND


SAN FRANCISCO - (BUSINESS WIRE) - January 31, 2005 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA-news) announced that its Board has declared
CAIT's first quarter Common Share dividend at the rate of $0.10 per Common
share. The dividend is payable on February 17, 2005 to shareholders of record on
February 10, 2005.

The monthly preferred dividend has been declared for shareholders of record as
of February 1 and March 1, 2005 payable February 15 and March 15, 2005 at the
rate of approximately $0.1491 per share.

CAIT is a specialty residential lender which originates and invests in
conforming and high-yielding, non-conforming residential mortgage loans on
one-to-four-unit-residential properties located primarily in California and
other western states. It also originates loans for sale to investors, on a
whole-loan basis for cash through its mortgage banking subsidiary, Capital
Alliance Funding Corporation. All loans with a combined loan-to-value ratio of
greater than 75% of the collateral's appraised value at the time of funding are
pre-sold into the secondary market. Only residential loans with a combined
loan-to-value of 75% or less are retained in CAIT's portfolio of mortgage
investments.

This document contains "forward-looking statements" (within the meaning of the
Private Securities Litigation Reform Act of 1995) that inherently involve risks
and uncertainties. CAIT's actual results and liquidity can differ materially
from those anticipated in these forward-looking statements because of changes in
the level and composition of CAIT's investments and unforeseen factors. As
discussed in CAIT's filings with the Securities and Exchange Commission, these
factors may include, but are not limited to, changes in general economic
conditions, the availability of suitable investments, fluctuations in and market
expectations for fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness of
risk management strategies, the impact of leverage, the liquidity of secondary
markets and credit markets, increases in costs and other general competitive
factors.

Contact:     Capital Alliance Income Trust Ltd., San Francisco
             Richard J. Wrensen, Executive Vice President and CFO, 415/288-9575
             rwrensen@calliance.com
             www.calliance.com