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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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FORM 10-KSB/A

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(Mark One)

| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
| |   |                                                                                                                                   
| |   | OR                                                                                                                                
| |   |                                                                                                                                   
| | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934                                        

Commission File Number: 1-31730

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|                                                 |  |                                    
|------------------------------------------------ |  | -----------------------------------
|CapSource Financial, Inc.                       
|(Name
  of Small Business Issuer in its charter)
|                                                 |  |                                    
|Colorado                                         |  | 84-1334453                         
|(State
  of incorporation)                       |  | (IRS
  Employer Identification No.)

2305 Canyon Boulevard, Suite 103, Boulder, CO
80302 
(Address of principal executive offices and Zip Code)

(Issuers telephone number) (303) 245-0515

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Securities registered pursuant to section 12(b) of the Exchange Act: Common Stock, par value $.01 per share

Securities registered pursuant to section 12(g) of the Act: None.

Check whether the issuer (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. x YES   o NO





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Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in
this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o YES   x NO

Issuers revenues for the fiscal year ended December 31, 2006 were $36,286,284.

The aggregate market value of the Registrants Common Stock held by non-affiliates of the Registrant as of
March 26, 2007 was approximately $883,288.

The Registrant had 20,433,321 shares of Common Stock outstanding as of March 26, 2007.

The following documents are incorporated by reference: Registrants prospectus filed pursuant to Rule
424(b)(3) on October 5, 2006, as amended by Amendment No. 1, filed January 17, 2007.

Transitional Small Business Disclosure Format (check one): o YES    x NO

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EXPLANATORY NOTE



On April 02, 2007, the Company filed Form 10-KSB
for the year ended December 31, 2006 (10-KSB). In addition, on April 20 and 25, 2007, the Company filed Amendments to
a registration statement on Form SB-2 (the Amendments to the Registration Statement). This Amendment No. 1 to the
annual report on Form 10-KSB for the year ended December 31, 2006 (Amendment No. 1) is being filed in connection with
the Companys responses to Securities and Exchange Commission comments to the Amendments to the Registration Statement to
restate its December 31, 2006 and 2005 notes to consolidated financial statements to provide additional information regarding
certain transactions.



With this amendment we are restating the accompanying December 31, 2006 and 2005 Notes to Consolidated Financial Statements Nos. 8 and 9 to provide additional disclosure involving inventory, related floor plan lines of credit and accounts payable. We also have supplemented our discussion in Item 6  Managements Discussion and Analysis. In addition, we have revised our disclosures in Item 8A  Controls and Procedures.



On July 20, 2007, Wayne Hoovestol resigned as a
director, and consequently, will not execute this Amendment No. 1, however all pertinent information regarding him as of
December 31, 2006 is contained herein. See our Current Report on Form 8-K filed July 23, 2007.



The information contained in this Amendment No. 1 does not reflect events occurring after the filing of the initial annual report. Developments with respect to our business have occurred and are described in filings we have made with the Securities and Exchange Commission after filing the initial annual report.





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|TABLE OF CONTENTS
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|           |          |  |                                                                                        |            |    | 
|---------- | -------- |  | -------------------------------------------------------------------------------------- | ---------- | -- | 
|           |          |  |                                                                                        | Page
  No.
|           |          |  |                                                                                        |           
|PART I     |          |  |                                                                                        |            |   
|           | ITEM 1.  |  | Description
  of Business                                                              |            | 1  | 
|           | ITEM 2.  |  | Description
  of Property                                                              |            | 6  | 
|           | ITEM 3.  |  | Legal
  Proceedings                                                                    |            | 7  | 
|           | ITEM 4.  |  | Submission
  of Matters to a Vote of Security Holders                                  |            | 7  | 
|           |          |  |                                                                                        |            |    | 
|PART II    |          |  |                                                                                        |            |   
|           | ITEM 5.  |  | Market for
  Common Equity and Related Stockholder Matters                             |            | 7  | 
|           | ITEM 6.  |  | Managements Discussion and Analysis                                                   |            | 9  | 
|           | ITEM 7.  |  | Financial
  Statements                                                                 |            | 17 | 
|           | ITEM 8   |  | Changes in
  and Disagreements with Accountants on Accounting and Financial Disclosure |            | 17 | 
|           | ITEM 8A. |  | Controls
  and Procedures                                                              |            | 17 | 
|           | ITEM 8B. |  | Other
  Information                                                                    |            | 18 | 
|           |          |  |                                                                                        |            |    | 
|PART III   |          |  |                                                                                        |            |   
|           | ITEM 9.  |  | Directors,
  Executive Officers Promoters and Corporate Governance                     |            | 19 | 
|           | ITEM 10. |  | Executive
  Compensation                                                               |            | 22 | 
|           | ITEM 11. |  | Security Ownership of Certain Beneficial Owners and Management                         |            | 25 | 
|           | ITEM 12. |  | Certain Relationships and Related Transactions                                         |            | 28 | 
|           | ITEM 13. |  | Exhibits                                                                               |            | 30 | 
|           | ITEM 14. |  | Principal
  Accountant Fees and Services                                               |            | 31 | 
|           |          |  |                                                                                        |            |    | 
|SIGNATURES |          |  |                                                                                        | 32         |   

iii

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PART I

|        |                        
|------- | -----------------------
|ITEM 1. | DESCRIPTION OF BUSINESS

FORWARD-LOOKING STATEMENTS

This Form 10K-SB contains statements that, to the
extent that they are not recitations of historical fact, constitute forward-looking statements. We are inelegible to
rely on the safe harbor provisions for forward-looking statements that are contained in applicable securities legislation, because
we are a penny stock issuer. Forward-looking statements may include financial and other projections, as well as statements
regarding our future plans, objectives or economic performance, or the assumptions underlying any of the foregoing. We use
words such as may, would, could, will, likely, expect,
anticipate, believe, intend, plan, forecast, project,
estimate and similar expressions to identify forward-looking statements. You can identify forward-looking
statements by the fact that they do not relate strictly to historical or current facts.

Our forward-looking statements are based on
assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are appropriate and reasonable in the circumstances. Any
statement containing forward-looking information speaks only as of the date on which it is made; and, except to fulfill our
obligations under the U.S. securities laws, we undertake no obligation to update any such statement to reflect events or
circumstances after the date on which it is made. A number of factors could cause the Companys actual results to differ
materially from those indicated in the forward looking statements in this discussion. All such factors are difficult to predict,
contain uncertainties that may materially affect actual results, and may be beyond our control. It is not possible for our
management to predict all of such factors or to assess the effect of each factor on our business. All of our forward-looking
statements should be considered in light of these factors. For more information about such factors and risks, see the other
documents incorporated by reference in this document.

Readers of this Form 10-KSB are cautioned that any
such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that the actual
results may differ materially from those in the forward-looking statements as a result of various factors. The information
contained in this Form 10-KSB, including, without limitation, the information under Managements Discussion and
Analysis of Financial Condition and Results of Operations and Description of Business identifies important
factors that could cause or contribute to such differences.

BUSINESS

General

CapSource Financial, Inc. is a U.S. corporation,
incorporated February 16, 1996, with its principal place of business in Boulder, Colorado. In addition, we have an office in St.
Paul, Minnesota. We are a holding company that sells new and used dry van trailers and refrigerated truck trailers, parts and
related equipment in the U.S. and Mexico and leases dry van trailers and related equipment in Mexico.

CapSource was founded on the belief that the passage
of NAFTA would cause a profound and sustainable increase in trade between the U.S. and Mexico and with the knowledge that the vast
majority of trade between the two countries moves by truck. Further, we believed that California and Texas and the major
transportation corridors through them would become focal points of the increase in trade.

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In Mexico, we sell dry van and refrigerated truck
trailers and parts through our wholly owned subsidiary RESALTA,1. In the United States we sell dry van and refrigerated
truck trailers and parts through our wholly owned operating subsidiary CapSource Equipment Company, Inc., d/b/a Prime Time
Trailers, located in Fontana, California. Both RESALTA and Prime Time Trailers also buy and sell used truck trailers and
associated equipment. In addition, in Mexico, we lease dry vans, flatbeds, trailer dollies and associated equipment through our
leasing subsidiary REMEX.1

In the U.S. our Prime Time Trailer subsidiary is the
authorized dealer for Hyundai Translead truck trailers and parts in California. RESALTA, our Mexican trailer sales subsidiary, is
the authorized Hyundai Translead trailer dealer for all of Mexico.

In September of 2006, we reached an agreement with
Hyundai Translead to become the authorized Hyundai dealer for truck trailers in Texas. We have leased a facility in the Dallas/Ft.
Worth area and have received the necessary state regulatory permits to operate a trailer sales facility. We are operating our
Texas sales operation under the name CapSource Equipment Company, Inc., d/b/a Prime Time Trailers. We began sales operations there
in the first quarter of 2007.

New Product Development

On November 29, 2005, we announced the introduction of
an all new, all aluminum, curtain-side beverage trailer at Expo Transporte ANPACT 2005 in Guadalajara, Mexico. The trailer was
designed by engineers at Fontaine Trailer Company and Roll-Tite Inc. with significant input from us and beverage manufacturers in
Mexico. The new trailer is unique in both design and strength and is the subject of three U.S. patents. While weighing only 10,100
pounds, the beverage trailer has a payload of over 66,000 pounds. We believe there will be a significant market for a stronger,
lighter beverage trailer in Mexico, although we anticipate that the selling price for our new beverage trailerwill be higher than
those currently used in the market.

In April 2006, two prototype beverage trailers were
delivered for testing to FEMSA, one of the largest Coca-Cola bottlers in the world. The testing period ended in September 2006.
FEMSA has been running the beverage trailers continuously since April and at maximum capacity. FEMSA has reported that the
trailers have exceeded their expectations. There has been no down time for mechanical repairs and we believe that using the
beverage trailers has resulted in a fuel savings over the traditional beverage trailers.

We anticipate that the cost of our beverage trailers
will be greater than the cost of the type of beverage trailers currently in use in Mexico. We also anticipate that the increased
cost will be offset by the larger payload and decreased operating costs. FEMSA has indicated that it will purchase the new style
beverage trailer from us if the final weight of the trailer can be reduced slightly and we can agree on pricing and other terms of
sale. However, there can be no assurance that our beverage trailers can or will be sold in significant quantities in
Mexico.

RESALTA

RESALTA was formed in 2001 to take advantage of an
agreement negotiated between CapSource and Hyundai which provides CapSource with the exclusive right to market and sell Hyundai
truck trailers and parts in Mexico. RESALTA is headquartered in Mexico City. RESALTA also has a sales facility in Monterrey and a
sub-dealer arrangement with a group in Guadalajara as well as several other independent

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|1As
  is customary in Mexico, both RESALTA and REMEX have an associated service
  company that employs all of the personnel who perform services for the
  operating companies.  The service
  company invoices RESALTA and REMEX for the total personnel costs incurred on
  a monthly basis.  This operating
  structure, which is common business practice in Mexico, is done as part of a
  financial and tax planning tool to limit certain personnel costs and related
  tax liabilities.  The service company
  for REMEX and RESALTA is Opciones Integrales de Arrendamiento, S.A. de C.V.

2

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sales
representatives throughout Mexico. In 2006, RESALTA sold approximately $30
million of Hyundai equipment.

Since
the passage of NAFTA in 1994, trade between the U.S. and Mexico has increased
dramatically. The vast majority of trade between the U.S. and Mexico moves by
truck. This has resulted in an increase in demand for truck trailers to
accommodate the increased trade. In addition, growth in both the U.S. and
Mexican economies has increased the general demand for transportation services
and equipment, including truck trailers.

RESALTA
completed its first sale in August 2001, but the overall economic downturn at
that time, exacerbated by the events of September 11, 2001, negatively impacted
our entry into the Mexican market. After suffering only sporadic sales in early
2002, our revenue began to grow by the second-half of that year. In early 2003,
as we focused our efforts on improving customer service and increasing our
visibility as the exclusive Hyundai trailer distributor in Mexico, we opened a
new trailer sales facility in Mexico City, hiring a full-time general manager
to direct the sales/distribution operations. Since that time our sales revenue
has grown dramatically. In June 2006, RESALTA was recognized by Hyundai
Translead as Top Dealer for 2005 based upon the dollar volume of trailer
sales as well as Top Dealer for 2005 for the sale of parts. The following
table shows the growth in sales from inception to present:

|              |  |   |         |  |   |           |  |   |           |  |   |           |  |   |            |  |   |            | 
|------------- |  | - | ------- |  | - | --------- |  | - | --------- |  | - | --------- |  | - | ---------- |  | - | ---------- | 
|Year          |  |   | 2001    |  |   | 2002      |  |   | 2003      |  |   | 2004      |  |   | 2005       |  |   | 2006       | 
|             
|RESALTA Sales |  | $ | 388,260 |  | $ | 3,186,458 |  | $ | 5,390,854 |  | $ | 6,531,106 |  | $ | 20,081,151 |  | $ | 30,563,206 | 

To
support our new trailer sales in Mexico we have a $1 million credit facility
with Hyundai Translead. Under the terms of the credit facility, RESALTA has 90
days from the date of delivery to pay for trailers that it purchases from
Hyundai Translead. The credit facility is secured by the pledge of 1,000,000
shares of CapSource Financial common stock by our Chairman. In addition, on
October 23, 2006, RESALTA entered into a $3.6 million (U.S.) floor plan credit
line agreement with Financieros Navistar, S.A. de C.V. of Mexico City. Under the
agreement, RESALTA may utilize the full amount of the credit facility to
purchase new trailers or up to $1 million (U.S.) of the credit facility to
finance the purchase and sale of used dry van trailers and refrigerated
trailers (and the balance for new trailers) at a rate of LIBOR + 4.17%. In
addition to other restrictive covenants, the agreement requires RESALTA to
provide Navistar with the original title of ownership for each financed trailer
until that trailer is sold and Navistar has been paid.

Our
competitors for trailer sales in Mexico include the U.S. manufacturer Utility
and its independent distributor, Utility de Mexico. Certain U.S. dealers,
including Vanguard, Lufkin, Great Dane and Wabash also sell in Mexico.
Additionally, Fruehauf de Mexico offers its products in Mexico and is the only
significant Mexican trailer manufacturer.

Prime Time Trailers

On May 1, 2006, the Company, through its wholly-owned
subsidiary CapSource Equipment Company, Inc., a Nevada corporation (CECO), entered into an Asset Purchase Agreement
with Prime Time Equipment, Inc. (Prime Time), a Fontana, California based authorized California dealer for Hyundai
Translead trailers and its shareholder, Kenneth Moore, to purchase substantially all of Prime Times assets and business for
total consideration of approximately $1,970,000, of which $1,014,290 was paid in cash at closing, and the balance consisted of the
assumption of certain liabilities that was paid in due course. The total purchase price consideration of $1,970,000 has been
allocated to the net assets acquired, including identifiable intangible assets, based on managements estimate of the respective
fair values at the date of acquisition.

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In
2005, Prime Time Equipment, Inc. had total sales of approximately $25 million,
including approximately $19 million of Hyundai equipment. In June of 2006,
Prime Time was recognized by Hyundai Translead as Top Dealer for 2005 based
upon the number of units sold in 2005. The results of Prime Times operations
have been included in our consolidated financial statements since May 1, 2006.
In 2006. Prime Time Equipment had total revenues of approximately $9.3 million,
$4.1 million prior to the acquisition on May 1, 2006, and $5.2 after the
acquisition.

To
support our new and used trailers sales operations in the U.S. we have entered
into a floor plan financing arrangement with Navistar Financial Corporation.
Under the terms of the agreement, Navistar provides Prime Time Trailers with up
to $3 million of financing to acquire new and used trailer inventory. Debt of
$862,000 that was assumed in the acquisition of Prime Time was provided under
this credit arrangement. The financing on new trailers is at a rate of prime
plus 1.00% and on used trailers the financing rate is prime plus 1.50%. Under
our agreement with Hyundai Translead it pays Navistar for the first thirty days
of financing on new trailers purchased from Hyundai. Hyundai Translead and
Navistar are not related entities. In addition, under our agreement with
Navistar, we can offer our customers financing for the purchase of trailers and
receive a referral fee from Navistar if they choose to finance the customers
purchase.

REMEX

REMEX,
the successor to Mexican-American-Canadian Trailer Rentals Mexican operations,
operates as the equipment leasing arm of our company with headquarters in
Mexico City. REMEX leases van trailers, flatbeds, trailer dollies and related
equipment to contract carriers and private fleets in Mexico. As of December 31,
2006, REMEX owned 119 units, of which 109 were under lease, resulting in a
91.6% utilization rate. All leases are operating leases.

In
the past several years, our resources have been directed towards our trailer
sales business and away from the leasing operation. At the present time we do
not have sufficient funding to both expand our trailer sales business and
acquire additional equipment to allow us to expand our leasing operations. In
order to significantly expand REMEXs business we will require an adequate and
ongoing source of capital. We are currently seeking one or more financial
partners to participate with us in the expansion of our leasing activities in
Mexico. Unless new leases are originated on a regular basis, the leasing
business tends to be self-liquidating as the average age of the lease fleet
increases and equipment comes off lease and is sold. The size of our lease
fleet and its importance to our overall operations have declined in recent
years in that we have not had the capital to add equipment to the lease fleet.

Industry Background

Mexico
is strategically situated between Atlantic Europe and the nations of the
Pacific Rim, as well as culturally and geographically located between the
worlds largest economy, the United States to the north, and the developing
economies of Central and South America.

In
terms of land area, Mexico is the 13th largest country in the world with an
area of 1,967,183 square km or 759,530 square miles, about three times the size
of Texas. Mexico has an estimated population of 107.5 million, 72% of whom live
in urban areas and more than 50% of whom are less than twenty years of age.
Mexico has three major inland industrial centers: Monterrey, Guadalajara and
Mexico City. In addition, Mexico has major ports on both the Atlantic and
Pacific coasts.

On
January 1, 1994, Mexico entered the North American Free Trade Agreement with
the U.S. and Canada, further reducing barriers to trade with Mexico for U.S.
and Canadian companies and removing many restrictions on foreign investment.
NAFTA has created a powerful economic bloc of 406 million consumers in the
U.S., Mexico and Canada. The combined gross national products of the three
NAFTA participants are over $11 trillion U.S. The U.S. Trade office states that
NAFTA has and will continue to provide numerous opportunities to business,
industry and workers throughout the trade area. NAFTA was designed to lead to a
more efficient use of North American resources - capital, land, labor and
technology - while heightening competitive market forces.

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As
a result of NAFTA, the U.S. and Mexico are very close to free trade in goods
with the average U.S. duty on Mexican goods at .01 percent in 2005 and Mexicos
duty on U.S. goods are even smaller at 0.003%.

The
vast majority of U.S.-Mexico trade moves by truck. U.S. Customs Service
statistics show that border crossings of trucks between the United States and
Mexico have increased almost 200% since the passage of NAFTA.

Mexico
is now the United States second largest trading partner with an average of
$650 million in goods crossing the border each day. Since the implementation of
NAFTA goods trade between the U.S. and Mexico has increased over three-and-one
half times; this increase is nearly double the increase in trade between the
U.S. and the rest of the world. According to President George W. Bush, NAFTA
has brought about a truly remarkable expansion of trade and investment among
our countries and Mexico, is an incredibly important part of the future of
the United States. Data provided by the U.S. Customs Service shows that since
the passage of NAFTA, truck crossings at the various U.S./Mexican border
checkpoints have increased approximately 198%.

Business and Expansion Strategy

Our
business is providing value-added services for the transportation industry. Our
primary focus has been on the substantial business opportunities resulting from
the passage of NAFTA, in particular U.S.-Mexico trade. Currently we provide new
and used trailers, parts and service and lease/rentals to the cross-border and
adjacent markets  California and Mexico. We expect to expand our presence in
Texas.

CapSources
executive management works with the operating company management teams at Prime
Time Trailers, REMEX and RESALTA to formulate and implement business plans and
strategies consistent with our overall corporate goals. Each of our
subsidiaries is party to an inter-company service agreement under which the
parent company provides management services in exchange for a fee. Operating
company management personnel direct the operating companies based on
established goals. Investment and capital allocation decisions are made by the
executive management and board of directors of CapSource.

Our
growth strategy involves both internal growth as well as growth by acquisition.
We are expanding our current services as well as adding to our package of services.
We are doing this by growing our existing and acquired businesses as well as
realizing operating synergies between these businesses.

Government Regulation

Our
truck trailer leasing and distributor businesses are subject to extensive and changing
governmental regulation governing licensure, conduct of operations, payment of
referral fees, purchase or lease of facilities and employment of personnel by
business corporations. We believe that our operations are structured to comply
with all such laws and regulations currently in effect as well as laws and
regulations enacted or adopted but not yet effective. We can offer no
assurance, however, that enforcement authorities will not take a contrary
position. We also believe that, if it is subsequently determined that our
operations do not comply with such laws or regulations, we can restructure our
operations to comply with such laws and regulations. We can offer no assurance,
however, that we would be able to so restructure our operations. In addition,
we can offer no assurance that jurisdictions in which we operate or will
operate will not enact similar or more restrictive laws and that we will be
able to operate or restructure our operations to comply with such new
legislation or regulations or interpretations of existing or new legislation
and regulations.

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Future Acquisitions

As
part of our strategy to expand our business, we intend to pursue the
acquisition of other businesses in both the U.S. and Mexico. While we have
developed criteria that we will use to evaluate such acquisition opportunities,
we can offer no assurance that we will be successful in acquiring other
businesses and, if we do acquire another business, that the acquisition will be
on terms that are favorable to us or that the acquired business will be
successfully integrated into ours. Currently we have no agreement to acquire
any business.

Risk of Liability

Although
we have no history of material legal claims, we may be subject to claims and
lawsuits from time to time arising from the operation of our business,
including claims arising from accidents. Damages resulting from and the costs
of defending any such actions could be substantial. In the opinion of
management, we are adequately insured against personal injury claims and other
business-related claims. Nevertheless, there can be no assurance we will be
able to maintain such coverage, or that it will be adequate.

Employees

At
March 15, 2007, we had 25 full-time employees and no part-time employees. None
of our employees are subject to any collective bargaining agreements and we
believe that our relations with our employees are good. In addition, we
contract with six independent sales representatives to sell our products in the
U.S. and Mexico.

Reports to Security Holders

The
Company is required as a reporting company under the Security and Exchange Act
of 1934 to file annual, quarterly and current reports electronically with the
SEC. These reports and any other information that the Company has filed with
the Securities Exchange Commission may be read or copied at the SECs Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330.
The Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission. The Internet address of the Commissions
site is (http://www.sec.gov). The Company expects to deliver an annual report
to security holders for the fiscal year ended December 31, 2006. CapSource
will prospectively furnish to stockholders:

|  |                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------
| | an annual report
  containing financial information audited by our certified public accountants;                               
|  |                                                                                                                                
| | unaudited financial
  statements for each quarter of the current fiscal year; and                                              
|  |                                                                                                                                
| | additional information
  concerning the business and operations of CapSource as deemed appropriate by
  the Board of Directors.

The Company also maintains
an Internet website at www.capsource-financial.com.

|        |                          
|------- | -------------------------
|ITEM 2. | DESCRIPTION
  OF PROPERTY

We
sublease by reimbursing our president, Fred Boethling, at approximately 86% of
the lease cost to him for 872 square feet of commercial office space at 2305
Canyon Boulevard, Suite 103, Boulder, Colorado 80302. Mr. Boethling is
reimbursed in the approximate amount of $1,500 per month for the use of this
space.

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We
also reimburse our vice president and general counsel, Steve Reichert, in the
amount of $300 per month for the use of his house as our Minnesota office. As a
result, our monthly base rental expense for these U.S. offices is approximately
$1,800.

We
lease approximately four acres and an associated office facility, consisting of
approximately 1,400 square feet located at 15609 Valley Boulevard, Fontana,
California 92335. The lease expires on May 1, 2008, and can be extended for an
additional year. The rent on these facilities is $6,000 per month and would
increase to $7,000 during the extension period. In addition, we have the right
of first refusal to purchase the facilities should the current owner decide to
offer them for sale.

On
June 28, 2006, CECO leased four acres and a modular space portable office
located at 4901 East Rosedale Street, in Ft. Worth, Texas. The term of the
lease is one year beginning July 1, 2006 although we have the right to
terminate the lease after six months. In addition, we have sublet a portion of
the property to another company. The total rent on the property is $5,100 per
month and our share is 50% of the total. The modular office on the property is
approximately 1,000 square feet.

|        |                    
|------- | -------------------
|ITEM 3. | LEGAL
  PROCEEDINGS

From
time to time, we may become involved in various claims and lawsuits incident to
the operation of our business, including claims arising from accidents or from
the delay or inability to meet our contractual obligations. We do not have any
pending or threatened actions at this time.

|        |                                                      
|------- | -----------------------------------------------------
|ITEM 4. | SUBMISSION
  OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not
Applicable

PART II

|        |                                                           
|------- | ----------------------------------------------------------
|ITEM 5. | MARKET
  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information:

The
Companys securities are currently traded on the over-the-counter bulletin
board (OTC:BB) under the trading symbol: CPSO. After concluding the initial
public stock offering in 2003, the shares of the Companys common stock began
trading on January 5, 2004.

The
ranges of high and low bid information for the Companys common equity each
quarter within the last two fiscal years are as set forth below:

|                                   |  |      |      |     |   |      | 
|---------------------------------- |  | ---- | ---- | --- | - | ---- | 
|Year Ending December 31, 2006      |  | High |      | Low |  
|                                   |  |      |      |     |  
|Quarter
  ended December 31, 2006  |  | $    | 2.10 |     | $ | 1.25 | 
|Quarter
  ended September 30, 2006 |  | $    | 2.50 |     | $ | 1.60 | 
|Quarter
  ended June 30, 2006      |  | $    | 2.00 |     | $ | 0.75 | 
|Quarter
  ended March 31, 2006     |  | $    | 0.76 |     | $ | 0.61 | 

|                                   |  |      |      |     |  
|---------------------------------- |  | ---- | ---- | --- | -
|Year Ended December 31, 2005       |  | High |      | Low |  
|                                   |  |      |      |     |  
|Quarter
  ended December 31, 2005  |  | $    | 0.61 |     | $
|Quarter
  ended September 30, 2005 |  | $    | 0.56 |     | $
|Quarter
  ended June 30, 2005      |  | $    | 0.55 |     | $
|Quarter
  ended March 31, 2005     |  | $    | 1.06 |     | $

7

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The
over the counter quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

There
can be no assurance that an active public market for the common stock will be
created, continue or be sustained. In addition, the shares of common stock are
subject to various governmental or regulatory body rules, which affect the
liquidity of the shares.

Holders:

There
were approximately 75 holders of record of the Companys common stock as of
December 31, 2006.

Dividends:

The
Company has never paid cash dividends on its common stock and does not intend
to do so in the foreseeable future. There are no external restrictions on the
Companys ability to pay dividends. The Company currently intends to retain its
earnings, if any, for the operation and expansion of its business. The
Companys continued need to retain earnings for operations and expansion is
likely to limit the Companys ability to pay dividends in the future.

Recent Sales of Unregistered Securities

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | On May 1,
  2006, CapSource issued 2,179,664 shares of common stock and
  warrants to purchase another 2,179,664 shares of common stock
  having an exercise price of $.90 per share to Randolph M. Pentel in
  connection with the conversion of notes in the amount of $871,866 made by
  Randolph M. Pentel as a
  condition to the placement of the shares and warrants with Whitebox Intermarket
  Partners L.P. and Pandora Select Partners L.P. described in items two and
  three below.                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|2. | On May 1,
  2006, CapSource sold 2,500,000 shares of its common stock to Whitebox Intermarket
  Partners L.P. at $.40 per share, together with warrants to purchase another
  2,500,000 shares of common stock having an exercise price of $.90 per share
  in connection with a private placement of its securities. The Purchase
  Agreement also granted Whitebox Intermarket Partners L.P. the right to
  purchase an additional 375,000 shares of our common stock at $.40 per share
  for $150,000 for 180 days after the effective date of the Purchase Agreements
  (the Greenshoe Shares), and if this right to purchase was exercised the
  number of shares covered by the warrants would also increase by 375,000.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|3. | On May 1,
  2006, CapSource sold 2,500,000 shares of its common stock to Pandora Select
  Partners L.P. at $.40 per share, together with warrants to purchase another
  2,500,000 shares of common stock having an exercise price of $.90 per share
  in connection with a private placement of its securities. The Purchase
  Agreement also granted Pandora Select Partners L.P. the right to purchase an
  additional 375,000 shares of our common stock at $.40 per share for $150,000
  for 180 days after the effective date of the Purchase Agreements (the
  Greenshoe Shares), and if this right to purchase was exercised the number
  of shares covered by the warrants would also increase by 375,000.            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4. | On May 1,
  2006, for its services as placement agent, Keane Securities Inc. received a
  warrant (the Placement Agent Warrant) to purchase 500,000 shares of our
  common stock at an exercise price of $.48 per share (the Placement Agent
  Warrant Shares) together with another warrant (the Sub-Warrant) to
  purchase up to another 500,000 shares of common stock at an exercise price of
  $1.08 per share (the Sub- Warrant Shares) on the basis of a warrant to
  purchase one Sub-Warrant Share for each Warrant Share purchased through the
  exercise of the Placement Agent Warrant. The Placement Agent Shares and the
  Sub-Warrant Shares have automatically been                                     

8

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | increased by
  75,000 additional shares each, because both Pandora Select Partners L.P. and
  Whitebox Intermarket Partners L.P. exercised their right to purchase the
  Greenshoe Shares.                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|5. | On July 1,
  2006, CapSource issued 75,000 shares of its common stock to Randolph Pentel
  in connection with his exercise of a stock purchase warrant at the exercise
  price of $1.10 per share.                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|6. | On July 1,
  2006 CapSource issued 50,000 shares of its common stock to Patricia and Gary
  Dolphus in connection with their exercise of a stock purchase warrant at the
  exercise price of $1.10 per share.                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|7. | On November
  1, 2006, Pandora Select Partners L.P. and Whitebox Intermarket Partners L.P.
  both exercised their right to purchase a total of an additional 750,000
  shares of our common stock at $.40 per share for $300,000 for 180 days after
  the effective date of the Purchase Agreements (the Greenshoe Shares), and
  accordingly the number of shares covered by the Warrants has correspondingly
  increased to a total of 5,750,000 Warrant Shares.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|8. | At December 31, 2006, we had outstanding warants to purchase a total of 9,276,998 shares of
common stock exercisable at prices ranging from $.48 per share to $2.45 per share and expiring at varying times
through May 1, 2011. Of such warrants, 8,539,498 were issued in connection with a number of financing
transactions, and 737,500 were issued in connection with consulting arangements and as compensation to members
of the Board of Directors.         

The
shares and warrants were offered and sold in a private placement transaction
under an exemption from registration provided by Section 4(2) of the Securities
Act of 1933 and Rule 506 under that Section. Each of the investors was an
accredited investor, as defined in Rule 501 under the Securities Act. The
certificates evidencing the securities bear (or will bear upon issuance, in the
case of convertible securities) a legend stating that the securities may not be
offered, sold or transferred other than pursuant to an effective Registration
Statement under the Securities Act, or an exemption from such registration
requirements.

|        |                                       
|------- | --------------------------------------
|ITEM 6. | MANAGEMENTS
  DISCUSSION AND ANALYSIS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our
discussion and analysis of CapSources financial condition and results of
operations are based upon consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. Our significant accounting policies
are described in Note 1 to our Consolidated Financial Statements as set forth
elsewhere in this Form 10-KSB. We have identified certain of these policies as
being of particular importance to the portrayal of our financial position and
results of operations and which require the application of significant judgment
by our management. We analyze our estimates, including those related to lease
revenue, depreciation rates, impairment of equipment, residual values,
allowance for doubtful accounts, income tax valuation allowance, the fair value
of beneficial conversion features and contingencies and litigation, and base
our estimates on historical experience and various other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ
from these estimates. We believe the following critical accounting policies
affect our most significant judgments and estimates used in the preparation of
our consolidated financial statements:

LEASE
ACCOUNTINGStatement
of Financial Accounting Standards No. 13, Accounting for Leases, as
amended, requires a lessor account for each lease by either the direct
financing or sales-type method (collectively capital leases), or the operating
lease method. Capital leases are defined as those leases that transfer
substantially all of the benefits and risks of ownership of the equipment to
the lessee. Our leases are classified as operating leases for all of our leases
and for all lease activity as the lease

9

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contracts do not satisfy the criteria to be recognized as capital leases. For all types of leases, the
determination of return on investment considers the estimated value of the equipment at lease termination, referred to as the
residual value. We establish residual values at lease inception equal to the estimated value to be received from the equipment
following termination of the initial lease (which in certain circumstances includes anticipated re-lease proceeds). In estimating
such values, we consider all relevant information and circumstances regarding the equipment and the lessee.

The cost of equipment is recorded as equipment and is
depreciated on a straight-line basis over the estimated useful life of the equipment. Leasing revenue consists principally of
monthly rentals and related charges due from lessees. Leasing revenue is recognized over the related rental term. Deposits and
advance rental payments are recorded as a liability until repaid or earned by us. Operating lease terms range from month-to-month
rentals to five years. If incurred, initial direct costs (IDC) are capitalized and amortized over the lease term in proportion to
the recognition of rental income. Depreciation expense and amortization of IDC are recorded as leasing costs in the accompanying
consolidated statements of operations. Our assets are depreciated over a period that we believe best represents the useful lives
of the assets.

IMPAIRMENT We maintain an allowance for
impairment at levels that we determine adequately provide for any other than temporary declines in asset values. In determining
impairment, economic conditions, the activity in used equipment markets, the effect of actions by equipment manufacturers, the
financial condition of lessees, the expected courses of action by lessees with regard to leased equipment at termination of the
initial lease term, and other factors which management believes are relevant, are considered. Recoverability of an asset's value,
including identifiable intangible assets, is measured by a comparison of the carring amount of the asset to future net cash flows
expected to be generated by the asset. If a loss is indicated, the loss to be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value of the asset and is recognized in depreciation/amortization and direct costs of
trailers. Asset dispositions are recorded upon the termination or remarketing of the underlying assets. We review assets annually
as of December 31.

FOREIGN EXCHANGE TRANSLATIONThe financial
statements of our Mexican subsidiaries, where the U.S. dollar is the functional currency, include transactions denominated in the
local currency, which are remeasured into the U.S. dollar. The remeasurement of the local currency into U.S. dollars creates
foreign exchange gains and losses that are included in other income (expense).

The
accounts of our Mexican subsidiaries are reported in the Mexican peso; however,
as all leases and generally all other activities are denominated in U.S.
dollars. For those operations, certain assets and liabilities are remeasured
into U.S. dollars at historical exchange rates and certain assets and
liabilities are translated into U.S. dollars at period-end exchange rates.
Income and expense accounts are translated at average monthly exchange rates. Net
exchange gains or losses resulting from translation of those assets and
liabilities, which have been translated into U.S. dollars at the period-end
exchange rates, are recognized in the results of operations in the period
incurred.

INCOME
TAXESWe account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

A valuation allowance is recorded to reduce the
carrying amount of deferred tax assets if we are unable to determine that realization of the deferred tax asset is more likely
than not. Due to our history of operating losses, we have recorded a valuation allowance to reduce net deferred tax assets to
zero.

STOCK BASED COMPENSATIONOn January 1, 2006, we began to measure the cost of
our employee stock option plans and other employee stock-based compensation arrangements in accordance with the fair value
provisions of Statement of Financial Accounting Standards No. l23R, Share Based Payment(SFAS No. l23R), using the modified
prospective method. SFAS No. l23R supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25), which we previously followed in accounting for stock-based awards. In March 2005, the SEC issued
Staff Accounting Bulletin No. 107 (SAB No. 107) to provide guidance on SFAS l23R. We have applied SAB 107 in our adoption of SFAS
l23R.

10

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LIQUIDITY

Since its inception, the Company has generated
losses from operations, and as of December 31, 2006, had an accumulated deficit of $13,158,547 and working capital of $1,679,628.

In 2006, in conjunction with a private equity
placement, we increased the Companys equity by selling 5,750,000 shares of Company common stock for $2,300,000. In addition,
our Companys Chairman and largest shareholder converted $871,866 of debt owed to him by the Company into 2,179,664 shares of
Company common stock. (See Note 9). In addition, the Companys Chairman and largest stockholder has expressed his willingness
and ability to continue to financially support the Company, at least through March 31, 2007, if needed, by way of additional debt
and/or equity contributions.

We believe that the cash to be generated by
operations, and the floor plan financing arrangements effective May 1, 2006 and October 23, 2006, plus the cash on hand at
December 31, 2006 will provide the Company with sufficient funds for the next twelve months, and will satisfy obligations as they
become due. If the Company experiences occasional cash shortfalls, we expect to cover them with funds provided by the
Companys Chairman and/or other major investors. However, until such time that we achieve profitability, we will need to seek
additional debt and/or equity funding to continue operations. Should our Chairman or other major Company investors fail to provide
additional financial support to the Company, if needed, or should we be unsuccessful in obtaining funding from third parties, the
Company could be forced to dramatically scale back its operations and activities.

GENERAL

CapSource
Financial, Inc. is a U.S. corporation engaged principally in the business of
selling and leasing truck trailers. We conduct our business through operations
of two wholly-owned subsidiaries in Mexico, and one wholly-owned subsidiary in
the United States.

RESALTA,
our Mexican trailer sales/distribution company, has the exclusive right to
distribute Hyundai truck trailers in Mexico.

REMEX,
our Mexican lease/rental subsidiary, leases truck trailer equipment under
operating lease contracts that are denominated in U.S. dollars. This reduces
our foreign exchange risk, transferring it to the lessees.

Prime Time
Trailers, our U.S. trailer sales/distribution company, has the rights to
distribute Hyundai truck trailers in Texas and the southwestern United States.
We acquired Prime Time Trailers on May 1, 2006, from the truck trailer sales
business of Prime Time Equipment, Inc., a California based authorized dealer
for Hyundai Translead trailers. We now operate the acquired business through our
wholly-owned U.S. subsidiary, CapSource Equipment Company, Inc., d/b/a Prime
Time Trailers.

Private
Equity Placement

On
May 1, 2006, we increased Company equity through a private equity placement,
selling 5,000,000 shares of common stock at $0.40 per share for $2,000,000,
together with warrants to purchase another 5,000,000 shares of Company common
stock at an exercise price of $0.90 per share (warrant shares). In addition,
the private placement agreements granted the investors the right to purchase a
total of an additional 750,000 shares of common stock at $0.40 per share for a
period of up to 180 days after the placement date. Subsequently, the investors
exercised this right to purchase the additional shares at a total price of $300,000,
resulting in a total of 5,750,000 shares being issued to the investors in
conjunction with the private equity placement. In addition, since the investors
exercised this right to purchase additional shares, the number of shares
covered by the warrants correspondingly increased to a total of 5,750,000
warrant shares.

In
conjunction with the private equity placement on May 1, 2006, our Company
Chairman and largest shareholder converted $871,866 of debt owed to him by the
Company into 2,179,664 shares of common stock at $0.40 per share, and received
warrants to purchase another 2,179,664 shares of common stock at an
exercise price of $.90 per share. Since the shareholders debt was converted at
a price discount of $0.36 per share less than the last public trade prior to
May 1, 2006 of $0.76 per share, the Company recognized a loss on the
extinguishment of the shareholder debt of the total discount of $784,678. This
non-cash loss is recorded in selling, general and administrative expenses in
the Companys consolidated statement of operations for the year ended December
31, 2006.

11

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The
placement agent that coordinated the private equity placement received a
warrant to purchase 500,000 shares of Company common stock at $0.48 per share,
together with another warrant (Sub-Warrant) to purchase up to another 500,000
shares of common stock at $1.08 per share. The placement agent warrant and
Sub-Warrant shares were automatically increased by 75,000 additional shares
each, when the investors exercised their right to purchase the additional
750,000 shares within 180 days of the placement date. As a result, as of
December 31, 2006, the placement agent holds warrants to purchase a total of
575,000 shares, and Sub-Warrant to purchase up to 575,000 shares.

Proceeds
from the private equity placement totaled $2,300,000, offset by cash offering
costs of $303,292 paid in 2006, $81,284 incurred in prior years, and $138,000
pending to be paid as of December 31, 2006, as well as the non-cash offering
cost of $446,142 related to the fair value of the placement warrants. The
resulting net increase to stockholder equity was $1,777,424. In addition, the
conversion of the Companys debt of $871,866 with the Chairman and largest
stockholder, and the related discount of $784,678, resulted in a net increase
to stockholder equity of $1,656,544. The combined impact of the concurrent
equity transactions was a net increase to stockholders equity of $3,433,968.

In
conjunction with the private equity placement that took place on May 1, 2006,
the Company is required to prepare and file with the Securities and Exchange
Commission, a registration statement covering all the shares that were or could
be issued as a result of the transaction. The Company complied with this
requirement by filing such registration statement Form SB-2 (Registration
Statement) on October 5, 2006. However, the Company also is obliged to have
caused such Registration Statement to become effective within 180 days of May
1, 2006. Any delays in meeting the obligation to have the Registration
Statement declared effective within 180 days of May 1, 2006 will result in the
Company being liable to the investors in an amount equal to one percent per
month (or part thereof) of the purchase price paid for the shares, and, if
exercised, the warrant shares, for the duration of any such delay.

As
of March 28, 2007, the Registration Statement has not been declared effective.
The Company will be required to pay the investors the penalty fee of $23,000
for each month (or part thereof) that the effective date of the Registration
Statement is delayed, unless the investors waive such fee. The registration
rights agreement does not limit the amount of fees that would have to be paid
if the effective date of the registration statement is delayed indefinitely.
Thus, the annual fee obligation for such a delay would be approximately
$276,000. However, Company management anticipates that the registration
statement will become effective by April 30, 2007, resulting in a penalty fee
of $138,000. This estimated fee is included in offering costs as reported in
the Companys Consolidated Statement of Stockholders Equity as of December 31,
2006. The corresponding liability is included in Accounts payable and accrued
expenses as reported in the Companys Consolidated Balance Sheet as of December
31, 2006. Any adjustment to the estimated penalty fee liability resulting from
the Registration Statement becoming effective either before or after April 30,
2007, will be reflected in the Companys Consolidated Statement of Operations
for the period in which the adjustment is made.

Acquisition

On
May 1, 2006, through our wholly-owned subsidiary CapSource Equipment Company,
Inc., a Nevada corporation, we entered into an Asset Purchase Agreement with
Prime Time Equipment, Inc. (a Fontana, California based authorized California
dealer for Hyundai Translead trailers), and its shareholder, Kenneth Moore, to
purchase substantially all of Prime Times assets and business for total
consideration of approximately $1,970,000, of which $1,014,290 was paid in cash
at closing, and the balance consisted of the assumption of certain liabilities
that were paid in due course. We allocated the total purchase price consideration
of $1,970,000 to the assets acquired, including identifiable intangible assets,
based on our estimate of the respective fair values at the date of acquisition.
Such estimates resulted in a valuation of $498,390 for intangible assets,
comprised of a non-compete agreement, and the value of acquired customer lists.
The fair values of the intangible assets are subject to periodic reviews, at
least yearly, for possible impairment of their carrying values.

The
Company acquired Prime Time in order to expand its operations into the
California market as part of its strategic plan to provide equipment and
services along the major transportation corridors to and from Mexico. In
addition, the acquisition allows the Company to diversify its concentration in
Mexico.

12

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Table of Contents

The results of
Prime Times operations have been included in the Companys consolidated
financial statements since May 1, 2006.

RESULTS OF OPERATIONS

The Companys consolidated financial statements
include the results of U.S. based Prime Time Trailers, as of the date of acquisition on May 1,
2006.

|                                                                            |  |                        |           |                  |  |          |   |        |           |                  |  |           |   |  |     |  |  |           |  
|--------------------------------------------------------------------------- |  | ---------------------- | --------- | ---------------- |  | -------- | - | ------ | --------- | ---------------- |  | --------- | - |  | --- |  |  | --------- | -
|Summary of Net Sales and Gross
  Profit 
  By Country 
  (U.S. $ Thousands)
|                                                                            |  |                        |          
|                                                                            |  | Year Ended December 31 |          
|                                                                            |  |                        |          
|                                                                            |  |                        |           | 2006             |  |          |   |        |           | 2005             |  |           |  
|                                                                            |  |                        |           |                  |  |          |   |        |           |                  |  |           |  
|                                                                            |  | Mexico                 |           | United 
  States |  | Total    |   | Mexico |           | United 
  States |  | Total     |  
|                                                                            |  |                        |           |                  |  |          |   |        |           |                  |  |           |  
|Net sales and rental income                                                 |  | $                      | 31,123.2  |                  |  | 5,163.1  |   |        | 36,286.3  |                  |  | 20,608.5  |   |  | N/A |  |  | 20,608.5  |  
|Cost of sales and operating
  leases                                        |  |                        | (29,115.2 | )                |  | (4,819.2 | ) |        | (33,934.4 | )                |  | (19,272.7 | ) |  | N/A |  |  | (19,272.7 | )
|                                                                            |  |                        |           |                  |  |          |   |        |           |                  |  |           |   |  |     |  |  |           |  
|Gross profit                                                                |  | $                      | 2,008.0   |                  |  | 343.9    |   |        | 2,351.9   |                  |  | 1,335.8   |   |  | N/A |  |  | 1,335.8   |  
|                                                                            |  |                        |           |                  |  |          |   |        |           |                  |  |           |   |  |     |  |  |           |  
|Margin%                                                                     |  |                        | 6.5       | %                |  | 6.7      | % |        | 6.5       | %                |  | 6.5       | % |  |     |  |  | 6.5       | %

PERFORMANCE IN 2006 COMPARED WITH 2005

For the year ended December 31, 2006, our consolidated
net sales increased by 76.1% to $36,286,284 compared to $20,608,509 for the same period of 2005. Net sales is made up of two
components: trailer and parts sales, which improved in 2006 by $15,645,101, an increase of 77.9% over the same period of 2005; and
lease/rental income, which improved by $32,674 in 2006, an increase of 6.2% over the same period last year. The trailer/parts
sales growth resulted from a 74.1% increase in sales volume in 2006, or $15,268,659, of which $10,105,648 was due to volume growth
in our Mexican operations as well as sales of $5,163,046 contributed by our newly acquired U.S. trailer sales operation. In
addition, price increases of approximately 1.3% in our Mexican operations added $410,334 to the total growth in consolidated net
sales. The sales growth in our Mexican operations was driven by our continuing emphasis on expanding trailer sales volume in
Mexico. We have continued to concentrate our working capital in trailer sales inventory and facilities.

For the year ended December 31, 2006, selling, general
and administrative expense was $3,739,314, including a one-time, non-cash charge of $784,678 related to the discount on the
conversion of shareholder debt. Excluding the one-time charge, the selling, general and administrative expense for the year ended
December 31, 2006 increased 28.4% to $2,954,636 compared to $2,300,847 for the same period of 2005. This increase of $653,789 was
due primarily to expenses incurred in our acquired U.S. operation subsequent to its acquisition on May 1, 2006, including $66,452
of expenses related to the amortization of the acquired intangible assets.

Operating loss consists of net sales less cost of
sales and operating leases and selling, general and administrative expenses. For the year ended December 31, 2006, we recognized
an operating loss of $1,387,451, including the one-time charge of $784,678. Excluding the one-time charge, the operating loss

13

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for the year ended December 31, 2006 was $602,773 compared to $965,075 for the same period last year. This
operating loss improvement of $363,302 resulted from the growth in trailer sales and gross profit, partially offset by the
increase in selling, general and administrative expense.

Net interest expense for the year ended December 31,
2006 was $365,103, compared to $702,648 for the same period of 2005. Net interest expense for the year ended December 31, 2005
included a one-time non-cash charge of $353,100, which represents the accretion of the beneficial conversion feature discount,
related to $1,100,000 of Company debt that was converted into equity by the Companys majority stockholder on February 18,
2005. Excluding the one-time charge in 2005, net interest expense of $365,103 in the year ended December 31, 2006 was an increase
of $15,555 compared to $349,548 in the year ended December 31, 2005. The increase in 2006 was associated with higher debt levels
related to growth in our trailer inventory during the fourth quarter of 2006.

Foreign exchange loss, net, was $27,947 in the year
ended December 31, 2006, compared to a loss of $75,151 in the same period of 2005. Foreign exchange loss incurred during the year
ended December 31, 2006 was less than last year, principally because the exchange rate fluctuations in 2006 were more beneficial
to our monetary position than in 2005, resulting in the reduction in foreign exchange losses this year.

Income taxes of $48,701 and $51,592 were accrued for
the years ended December 31, 2006 and 2005, respectively. This tax, primarily represents an alternative tax on assets of $46,644
and $51,592 in 2006 and 2005, respectively, incurred by our Mexican subsidiaries, is applicable to most Mexican corporations that
have no taxable income. The 2006 income tax expense includes approximately $800 of income tax related to the Companys U.S.
operations and $1,300 of income tax related to the Companys Mexican operations.

Our net loss for the year ended December 31, 2006 was
$1,829,202, or $0.11 per diluted share, compared to a net loss of $1,794,466, or $0.16 per diluted share for the same period of
2005. The increase of $34,736 in net loss for 2006 resulted from the increase in the selling, general and administrative expense,
including the one-time non-cash charge of $784,678 as described above, partially offset by the growth in net sales and gross
profit.

LIQUIDITY AND CAPITAL RESOURCES

EXPLANATORY NOTE

In response to comments received from the staff (the Staff) of the Securities and Exchange
Commission (the SEC) in connection with the Staffs review of our filing of our registration statement on Form
SB-2 and subsequent amendments, we are restating our accompanying December 31, 2006 and 2005 notes to consolidated financial
statements, to provide additional information regarding transactions involving inventory and related floor plan lines of credit
and accounts payable. The additional information does not change any of the accompanying consolidated financial statements. Please
refer to Notes 8 and 9 to the accompanying notes to consolidated financial statements for additional
information.

Our principal sources of liquidity primarily have been
from debt and equity funding provided by our majority stockholder, as well as through our initial public offering that concluded
in July 2003. In 2006, we increased the Companys liquidity by selling 5,750,000 shares of common stock for $2,300,000, which
was partially offset by cash offering costs of $303,292 paid in 2006, $81,284 incurred in prior years, and $138,000 pending to be
paid as of December 31, 2006, as well as the non-cash offering cost of $446,142 related to the fair value of the placement
warrants. The resulting net increase to stockholder equity was $1,777,424. In addition, on May 1, 2006 the Companys Chairman
and largest stockholder converted $871,866 of debt owed to him by the Company into 2,179,664 shares of Company common stock at the
conversion price of $0.40 per share, resulting in a discount on conversion of $784,678. The combined impact of the concurrent
equity transactions was a net increase to stockholders equity of $3,433,968 at December 31, 2006.

Our principal uses of capital have been to fund our
operating losses and to expand our operations pursuant to our strategic business plan, and increasing sales by adding to equipment
inventory. On May 1, 2006, we acquired and began operating the trailer sales business of Prime Time Equipment, Inc., for a total
purchase price of approximately $1,970,000, of which approximately $955,000 was funded by the assumption of certain liabilities,
and the remainder of $1,014,290 paid in cash. The purchase price included $498,390 for identifiable intangible assets.

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In conjunction with the acquisition on May 1, 2006, we
obtained a floor plan inventory credit line of approximately $3,000,000 from Navistar Financial Corporation to finance the
purchase of new and used truck trailer inventory for our U.S. operations. This credit line was initially utilized in the
assumption of $862,000 of acquisition debt. The floor plan notes, which bear interest at Prime rate plus 1.25% (currently 9.5%),
are secured by specific trailer inventory and are paid as each financed trailer is sold by the Company.

On August 31, 2006, our majority stockholder loaned
the Company $1.6 million. The funds were used to retire, in full, our outstanding bank debt to Marshall Bank, NA. The loan
agreement provides a maturity date of August 31, 2007, and an interest rate of LIBOR plus 2.0% (currently 9.5%). The loan
agreement also require us to make monthly principal payments of $13,333 plus accrued interest and a final payment at maturity of
all outstanding principal plus interest.

On October 23, 2006, we obtained a floor plan
inventory credit line of $3,600,000 from Navistar Financial Corporation to finance the purchase and sale of new and used truck
trailers for our Mexico operations. The floor plan notes, which bear interest at LIBOR plus 4.17% (currently 9.5%), are secured by
specific trailer inventory and are paid as each financed trailer is sold by the Company.

Net cash used in operating activities was $3,479,378
for the year ended December 31, 2006, compared to $1,307,556 for the same period of 2005. Net operating cash used in the year
ended December 31, 2006 increased compared to the same period of 2005, primarily due to the growth in inventory of
$12,407,630 during 2006, and partially offset by the increase in accounts payable of $9,305,247. As our 2006 trailer sales volume
increased 74% compared to 2005, we significantly increased our available trailer inventory in order to adequately supply our
customers. The associated accounts payable, which have increased relative to the inventory growth, will be paid as the related
inventory is sold, or as the balances are financed by the floor plan credit lines.

During the year ended December 31, 2006, we acquired
the net operating assets of Prime Time Equipment, Inc. for a net cash disbursement of $1,014,290. In addition, during 2006 we
acquired property and equipment of $169,097, which was primarily equipment for the lease/rental pool, offset by proceeds of
$43,289 from disposals. This compares to $189,868 and $159,037, respectively, for the year ended December 31, 2005. As a result,
net cash used in investing activities was $1,140,098 for the year ended December 31, 2006, compared to $30,831 for the year ended
December 31, 2005.

During the years ended December 31, 2006 and 2005, we
received proceeds from the issuance of shareholder debt of $1,630,200 and $1,744,035, respectively. In addition, in the same
periods we received proceeds from notes payable and credit line of $6,408,281 and $1,580,067, respectively. The proceeds of
$6,408,281 received during the 2006 included $5,793,375 in conjunction with the floor plan lines of credit from Navistar Financial
Corporation. During the year ended December 31, 2006, we repaid debt of $5,510,178, including $3,517,555 against the floor plan
lines of credit. During the same period of 2005, we repaid debt of $1,584,821. During the year ended December 31, 2006, we
received proceeds of $137,500 from the exercise of common stock warrants, and $2,300,000 from the private placement sale of common
stock, partially offset by offering costs of $303,292. As a result, net cash provided by financing activities for the year ended
December 31, 2006 and 2005 was $4,662,511 and $1,739,281, respectively.

On February 18, 2005, the Companys Chairman and
largest stockholder converted $1,100,000 of Company notes payable into 1,375,000 shares of Company common stock at the conversion
price of $0.80 per share. In addition, on December 28, 2005, he converted $800,000 of Company notes payable into 1,142,857 shares
of Company common stock at the conversion price of $0.70 per share.

On February 15, 2005, the Company entered into a new
agreement with Hyundai Translead to extend its contract to sell and Hyundai trailers in Mexico. The previous agreement expired by
its terms in November 2004. Under the terms of the new contract, Hyundai Translead provides a credit facility of $1,000,000 to
facilitate the Companys inventory of Hyundai trailers in Mexico.

As of December 31, 2006, we had committed to purchase
additional trailers from Hyundai Translead, at a total purchase price of approximately $10,330,800, towards which we had made down
payments of approximately $698,500. Under the terms of the commitment, we must pay Hyundai the remaining balance due of
approximately $9,632,300 upon taking delivery of the trailers. We also have placed additional unconfirmed orders for delivery in
2007 to ensure an uninterrupted supply sufficient to meet our anticipated customer demand in 2007.

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On a long-term basis, liquidity is dependent on an
adequate supply of inventory available for sale, continuation and expansion of operations, the sale of equipment, the renewal of
leases and the receipt of revenue, as well as additional infusions of equity and debt capital. Our Companys Chairman and
largest stockholder has expressed in writing, his willingness and ability to continue to financially support the Company, at least
through March 31, 2007 if needed, by way of additional debt and/or equity contributions. Subsequent to December 31, 2006, and as
of March 25, 2007, the Companys Chairman has advanced the Company $60,000 under a working capital credit line of $100,000.

Since its inception, the Company has generated losses
from operations, and as of December 31, 2006, had an accumulated deficit of $13,158,547 and working capital of $1,679,628. We
believe that the cash on hand as of December 31, 2006, together with the floor plan financing arrangements effective May 1, 2006
and October 23, 2006, and cash expected to be generated by operations, will provide us with sufficient operational funds for the
next twelve months, and will satisfy obligations as they become due. If we experience occasional cash short-falls, we expect to
cover them with funds provided by the Companys Chairman and/or other major Company investors. However, until such time that
we achieve profitability, we will need to seek additional debt and/or equity funding to continue operations. Should our Chairman
or other major Company investors fail to provide additional financial support to the Company, if needed, or should we be
unsuccessful in obtaining funding from third parties, the Company could be forced to dramatically scale back its operations and
activities.

CAPSOURCE FINANCIAL STRATEGYFunding and
financial strategy are significant factors in our business plan. The cost, reliability and flexibility of the actual and potential
funding sources will dictate, to a large extent, our ability to acquire additional businesses pursuant to our strategic plan. In
addition, each operating subsidiarys ability to grow and improve its competitive position within its respective business
sector is similarly dependent upon its ability to secure adequate funding, either directly or through the parent
company.

Our trailer sales/distribution operations require two
forms of financing - equity and a short-term credit facility commonly referred to as floor plan financing. Floor plan
financing is used to finance the purchase of inventory on an ongoing basis. The floor plan facility is repaid through the sale of
equipment. As we increase our sales volume and inventory needs, we will seek to increase our current floor plan credit
lines.

To date, our lease equipment portfolio has been
financed largely with Company equity. In order to achieve growth in our leasing operations, we believe that our financial
structure needs to include various forms of borrowings, including equity, and both a short-term credit facility, commonly termed a
warehouse credit facility, and long-term debt. We will continue to seek funding to expand our leasing operations.

There is no assurance that we will be able to obtain
additional financing, either for growing our trailer sales operations, or for expanding our leasing operations.

Our strategy is to continue to expand operations by
achieving profitability, and through acquisitions. Future financing may result in dilution to holders of common stock. We
anticipate that funds required for future acquisitions and the integration of acquired businesses will be provided from the
proceeds of future debt offerings and additional stock offerings. However, there can be no assurance that we will be able to
identify suitable acquisition candidates in the future, or that suitable financing for any such acquisitions will be obtained, or
that any such acquisitions will occur. Our growth strategy will require expanded support, increased personnel throughout our
business, expanded operational and financial systems the implementation of new control procedures. These factors will affect
future results and liquidity.

In order to conserve capital resources, our policy is
to lease our physical facilities. As of December 31, 2006, we had no material commitments to purchase capital assets.

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INFLATION

Inflation in Mexico has abated in the last few years.
Nevertheless, increased operating costs that are subject to inflation, such as labor and supply costs, without a compensating
increase in lease rates or equipment sales revenue, could adversely impact results of operations in the future.

INSURANCE

We maintain liability coverage in the amount of
$1,000,000 per occurrence and $3,000,000 in the aggregate, as well as $2,000,000 of general premises liability insurance for each
of our facilities and our executive offices. While we believe our insurance policies to be sufficient in amount and coverage for
current operations, there can be no assurance that coverage will continue to be available in adequate amounts or at a reasonable
cost, and there can be no assurance that the insurance proceeds, if any, will cover the full extent of loss resulting from any
claims.

QUANTITATIVE AND QUALITATIVE MARKET RISKS

Our operations are conducted in Mexico and in the
United States. All trailer sales transactions and leases in our Mexican operations are denominated in United States dollars, but
administrative activities are generally denominated in the Mexican pesos. We do not enter into foreign currency exchange contracts
either to hedge our exposure to currency fluctuations or for trading purposes.

Most of our indebtedness is at variable interest rates
that are based on either LIBOR or the Prime lending rate. A portion of our debt is at fixed rates. We do not enter into interest
rate swaps or any other type of derivative instruments.

OFF-BALACE SHEET ARRANGEMENTS

None.

|        |                     
|------- | --------------------
|ITEM 7. | FINANCIAL STATEMENTS

The Companys Financial Statements, and the
report of BDO-Hernández Marrón y Cía., S.C., independent registered public accountants, with respect thereto,
referred to in the Index to Financial Statements, appear elsewhere in this Form 10-KSB.

|        |                                                                                     
|------- | ------------------------------------------------------------------------------------
|ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no disagreements with BDO
Hernández Marrón y Cía., S.C., the Companys independent registered public accountants.

|         |                        
|-------- | -----------------------
|ITEM 8A. | CONTROLS AND PROCEDURES

As of the end of the period covered by this report,
the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and
principal financial officer, of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, the principal executive
officer and principal financial officer concluded that the Companys disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i)
accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely
decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.

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There was no change in the Companys internal
control over financial reporting during the Companys most recently completed fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Companys internal control over financial reporting.

All internal control systems no matter how well
designed have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect
misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However,
our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our
principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective at
the level of reasonable assurance.

Compliance with Section 404 of Sarbanes-Oxley Act

Pursuant to Section 404 of the Sarbanes-Oxley Act of
2002 (the SOX Act), we will be required to furnish a report by our management on our internal control over financial reporting.
This report will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting
as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is
effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting
identified by management. If we identify one or more material weaknesses in our internal control over financial reporting, we will
be unable to assert that our internal control over financial reporting is effective. The SEC has thus far extended the dates for
small public companies to comply with Section 404 of the SOX Act. Currently, we will not need to provide this management report on
internal control over financial reporting until we file our annual report for a fiscal year ending after December 15, 2007. If the
SEC has not issued additional guidance for management on how to complete our assessment of internal control over financial
reporting in time to be of assistance in connection with our annual report for our fiscal year ending December 31, 2007, this
deadline could be further postponed.

Our report is also expected to contain a statement of
that our independent auditors have issued an attestation report on our managements assessment of our internal controls over
financial reporting, however such auditors attestation report will not be required until we file our annual report for a fiscal
year ending on or after December 15, 2008. If the revisions to Auditing Standard No. 2 have not been finalized in time to be of
assistance in connection with our annual report for the fiscal year ending on December 31, 2008, this deadline for the
auditors attestation report could be further postponed.

Management acknowledges its responsibility for
internal controls over financial reporting and seeks to continually improve those controls. In order to achieve compliance with
Section 404 of the Act within the prescribed period, we will shortly commence performing the system and process documentation and
evaluation needed to comply with Section 404, which is both costly and challenging.

|         |                  
|-------- | -----------------
|ITEM 8B. | OTHER INFORMATION

The Company has no information required to be
disclosed in a report on Form 8-K during the fourth quarter of the fiscal year ending December 31, 2006 that was not
reported.

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PART III

|        |                                                                                                                                        
|------- | ---------------------------------------------------------------------------------------------------------------------------------------
|ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
  CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND
EXECUTIVE OFFICERS

We
have listed below the names, ages and positions of our directors and executive
officers. The Companys directors are elected at the annual meeting of
stockholders and hold office until their successors are elected and qualified.
The Companys officers are appointed by the Board of Directors and serve at the
pleasure of the Board and subject to employment agreements, if any, approved
and ratified by the Board. We do not maintain key person life insurance on any
of our key personnel:

| |                     |    |                                                  
| | ------------------- | -- | -------------------------------------------------
| | Randolph M. Pentel  | 48 | Chairman of
  the Board, Director                
| | Fred C.
  Boethling | 61 | President,
  Chief Executive Officer and Director
| | Steven
  Reichert   | 59 | Vice
  President, General Counsel and Director   
| | Steven J.
  Kutcher | 54 | Vice
  President, Chief Financial Officer        
| | Lynch
  Grattan     | 56 | Director                                         
| | Wayne Hoovestol     | 49 | Director                                         
| | Bruce Nordin        | 52 | Director                                         
| | Scot Malloy         | 42 | Director                                         
| |                     |    |                                                  

Randolph
M. Pentel.
Chairman of the Board, Director - CapSource Financial, Inc.; Director - Rentas
y Remolques, S.A. de C. V.; Director - Remolques y Sistemas Aliados de
Transportes, S.A. de C. V.

Mr.
Pentel is also the Managing Member and principal owner of RTL Group, LLC. In
addition, since 1987, he has been the Executive Vice President and principal
owner of Notification Systems, Inc., the largest provider of large-dollar check
return notifications in the U.S. The electronic network, developed by Mr.
Pentel, known as EARNS, supplies banks with advanced data notification of
checks in the process of failing to clear, thereby allowing financial
institutions nationwide the ability to reduce operating losses. Since 1987,
Notification Systems, Inc. has grown steadily from 4,500 notifications per day,
to over 25,000 today. All of the top financial institutions in the country use
Notification Systems services. Mr. Pentel is also involved in various
international charitable organizations.

Mr.
Pentel is also the owner and Managing Member of RTL Group, LLC, founded in
1998, which manufactures aircraft parts and components for companies such as
Airbus Industries and Raytheon Corporation. RTL Group provides services such as
machining, casting, plating & coatings, painting, as well as assembly of
subcomponents.

Fred
C. Boethling. President, Chief Executive Officer and
Director - CapSource Financial, Inc.; Director - Rentas y Remolques de Mexico,
S.A. de C. V; Director - Remolques y Sistemas Aliados de Transportes, S.A. de
C. V.

Mr.
Boethling began his employment with CapSource in 1998. He is responsible for
the overall direction and management of CapSource and its subsidiaries. From
1994 to 1998, he was Co-Managing Partner of Capstone Partners, a firm
specializing in planning and finance. From 1989 to 1993, Mr. Boethling was
President, CEO and Chairman of the Board of Directors of KLH Engineering Group,
Inc, a NASDAQ-listed engineering services holding company. During this period,
Mr. Boethling developed the in-house acquisition management systems and
procedures, developed and managed the deal flow, evaluated over 400 acquisition
candidates and completed seventeen acquisitions and took the firm public. From
1983 to 1988, Mr. Boethling was Chairman of Sandstone Capital Corporation, a
private management consulting

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and investment
firm specializing in start-ups. From 1979 to 1982, he was a co-founder,
President and Director of Hart Exploration & Production Co., a
NASDAQ-listed independent oil and gas firm. Prior to that, for a period of
eleven years, Mr. Boethling was employed by Cities Service Oil Company, a
Tulsa, Oklahoma-based, NYSE-listed major oil company, first as an Engineer in
Midland, Texas and then as Exploration Manager for Canada-Cities Service, Ltd.,
the Canadian subsidiary of Cities Service. Mr. Boethling graduated from
the University of Minnesota with a Bachelors degree in engineering in 1968.

Steven
E. Reichert. Vice President, General Counsel,
Secretary and Director - CapSource Financial, Inc.; Director - Rentas y
Remolques de Mexico, S.A. de C. V.; Director - Remolques y Sistemas Aliados de
Transportes, S.A. de C. V.

Mr.
Reichert began his employment with CapSource in 1998. He serves as general
counsel for CapSource and is responsible for the negotiation of various
agreements and general legal matters and is involved in developing and
implementing overall financial strategy for CapSource. From 1994 to 1998, he
was Co-Managing Partner of Capstone Partners. From 1991 to 1994, Mr. Reichert
was associated with the international law firm of Popham, Haik, Schnobrich
& Kaufman, Ltd. where he practiced in the area of securities and complex
commercial litigation. Prior to that, Mr. Reichert was a founder and Senior
Vice President and Director responsible for strategic planning, acquisitions
and capital development for Sequel Corporation, a NASDAQ-listed,
telecommunications company. From 1979 to 1982, Mr. Reichert was a co-founder,
Senior Vice President and Director of Hart Exploration & Production Co., a
NASDAQ-listed independent oil and gas firm. From 1966 to 1979, Mr. Reichert was
Vice President in charge of the Underwriting Department at Dain Bosworth, Inc.,
a regional investment banking firm. He is a past member of the Board of
Arbitrators for the National Association of Securities Dealers. Mr. Reichert
received his Juris Doctor degree (Cum Laude) from Hamline University School of
Law in 1991 and his undergraduate degree in economics from the University of
Minnesota in 1988.

Steven
J. Kutcher. Vice President and Chief Financial Officer
- CapSource Financial, Inc.

Mr. Kutcher is responsible for treasury management, accounting and financial
reporting for CapSource. Mr. Kutcher has substantial experience in managing
foreign operations. Prior to joining CapSource, from 1982 to 2000, he was
employed by International Multifoods Corporation, initially as Manager of
International Accounting & Analysis (Minneapolis, Minnesota) (1982 to
1985), followed by Assistant Controller Venezuelan Operations (Caracas) (1985
to 1987), Controller Mexican Operations (Mexico City) (1987 to 1990), Group
Controller International Operations (Minneapolis) (1990 to 1993), Director of
Planning and Procurement Venezuelan Operations (Caracas) (1993 to 1995), Vice
President of Finance Venezuelan Operations (Caracas) (1995 to 1999) and Chief
Financial Officer and Vice President of Finance Multifoods Distribution
(Denver, Colorado) (1999 to 2000). Before joining International Multifoods, he
acquired public accounting experience, first as a Staff Auditor with Mazanec,
Carlson & Company, CPA in St. Paul, Minnesota from 1977 to 1978 and later as
a Senior Auditor at Boyum & Barenscheer, CPA in Minneapolis from 1978 to
1981. From 1975 to 1977 he was Finance and Accounting Manager with Minnesota
Public Radio. From 1974 to 1975 he was an internal bank auditor with Bremer
Bank Group, a bank holding company located in St. Paul, Minnesota. Mr. Kutcher
received a BA in Accounting & Business Administration from St. Johns
University in Collegeville, Minnesota in 1974 and a Certificate of Advanced
Studies in International Management from Thunderbird-The American Graduate
School of International Management in Phoenix, Arizona in 1981. Mr. Kutcher
holds various professional certifications and is a member of a number of
professional organizations.

Lynch
Grattan. Director - CapSource Financial, Inc.;
Director General and Director - Rentas y Remolques de Mexico, S.A. de C. V.;
Director General and Director - Remolques y Sistemas Aliados de Transportes,
S.A. de C. V.

Mr.
Grattan is responsible for the overall management of REMEX and RESALTA. He has
substantial experience with Mexican development banks and other financial
institutions. In addition, he has been involved with various privatization
efforts in Mexico. While he was born in the U.S., Mr. Grattan has

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spent much of
his life in Mexico. He has been a resident of Mexico City for the past 22
years. He brings to us a thorough understanding of the Mexican business
culture, a broad base of contacts among Mexican and multi-national business
leaders domiciled in Mexico and a familiarity with Mexican government
departments and agencies. Prior to joining REMEX, from 1995 to 1997, Mr.
Grattan was a Partner with Palmer Associates, S.C., a risk management and
consulting firm based in Mexico City. Beginning in 1992, Mr. Grattan provided
agribusiness consulting services to a wide range of clients. Also, in 1992, Mr.
Grattan organized the agribusiness division of FINBEST, S.C., a small Mexican
merchant banking firm. While he is no longer active in the firm, he remains a
Partner. While he is employed full time at REMEX and RESALTA, he is widely
respected in the agribusiness sector and is called upon from time to time for
public speaking engagements. REMEX encourages this practice as it helps build
relationships which are essential to doing business in Mexico. From 1987 to
1992, he represented ConAgra International, Inc. in Mexico. He opened and
served as Director of the Con-Agra Offices in Mexico City, where his primary
responsibility was the formation of export/import joint ventures. From 1982 to
1987, Mr. Grattan was Marketing and Sales Manager for the Protein Technologies
division of Ralston Purina Company. He organized, staffed, trained and directed
the national sales force for Isolated Soy Protein Products in Mexico. From 1975
to 1981, Mr. Grattan was employed by Purina S.A. de C.V., the Mexican
subsidiary of Ralston Purina Company, first as District Manager and later as
National Products Manager. Mr. Grattan is a member of numerous Mexican civic
and business organizations. He is active in the American Chamber of Commerce in
Mexico City, the largest Chamber of Commerce outside the U.S. He has won
several awards from the Chamber and is currently Vice President and Treasurer
of the Chamber. He holds a Bachelors Degree in Agriculture from Texas Tech University.

Wayne
Hoovestol. Director - CapSource Financial, Inc.

Mr.
Hoovestol is President and Chief Executive Officer of Hoovestol, Inc. a
long-haul trucking company headquartered in Eagan, Minnesota that specializes
in providing trucking services to the U.S. Postal Department. Mr. Hoovestol
founded Hoovestol Inc. in 1978 with eight trucks and trailers. Today, Hoovestol
Inc. employs 400 people. Mr. Hoovestol is also served as President and Chief
Executive Officer of Major Transport, a long-haul truck load carrier which he
founded in 2000 and sold in 2006. In March of 2007, Mr. Hoovestol was appointed
CEO of Green Plains Renewable Energy, Inc. (NASDAQ: GPRE) (AMEX: GPRE). Mr.
Hoovestol will continue to act as a director of the Green Plains and as its
Chief Operating Officer. Mr. Hoovestol has recently completed 10 years of
service as a National Board Member of the National Star Route Mail Contractors
Association.

Bruce
NordinDirector -
CapSource Financial, Inc.

Bruce
Nordin joined Whitebox in 2004 after a career as a serial CEO, leader of
turnarounds at several troubled or start-up firms and working in the commercial
real estate industry. From 2003 to 2004, he was a Principal for Primera
Investments, a firm specializing in business consulting and real estate
activities. Mr. Nordin was CEO and founder (2001 to 2003) for CDMdata, an
automation data collection hardware/software company. Prior to that, he was the
Acting CEO (1999 to 2001) for Bio-key International, a biometric fingerprint
software company. From 1995 to 1999, Mr. Nordin was President and CEO for
Communications Holdings, Inc. which owned three entities in the system
integration business and telecommunications businesses. From 1985 to 1995, he
was a commercial real estate broker for Primera Investments and CBRE. Prior to
that, Mr. Nordin resided in Australia, working for a large leveraged buyout
firm, Elders IXL Limited and Graco, Inc. a manufacturer of fluid handling
equipment. Mr. Nordin graduated from the University of Minnesota with a B.S.B.
degree in 1976.

Scot
MalloyDirector -
CapSource Financial, Inc.

Scot
Malloy joined Whitebox in 2001 after spending 10 years in investment banking at
firms including Robertson Stephens, where he was Managing Director and Global
Head of the telecom equipment group; Wessels, Arnold and Henderson; and Dain
Rauscher Wessels. His experience includes over 80 public equity offerings,
private placements, and mergers and acquisitions. Scot is a graduate of the

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United States Naval Academy. After serving eight years as an active duty naval officer he received his MS in
Industrial Administration from Carnegie Mellon.

There are no family relationships among our directors
and officers.

Audit Committee

Our entire Board of Directors has acted as our audit
committee. Because our securities are not listed on one of the national exchanges or an inter-dealer quotation system, we were not
required to appoint a separate audit committee comprised of three independent directors. In addition, until May 1, 2006, we did
not have three independent directors serving on our Board of Directors. For both these reasons we declined to appoint a separate
audit committee, and our board did not determine that we had a financial expert serving on our board. However, now that we do
have three independent directors serving on our Board and in the hope that we will qualify to be listed on one of the national
exchanges in the future, we plan to establish a formal separate audit committee in 2007, and our board will make a determination
regarding the audit committee financial expert at that time.

Code of Ethics

We have adopted a formal code of ethics and an
employee code of conduct.. Both are posted on our website at www.capsource-financial.com.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE

Section
16(a) of the Securities Exchange Act of 1934 requires the Companys officers
and directors, and persons who own more than 10% of a registered class of the
Companys equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. To the knowledge
of the Company, no officer, director or stockholder of the Company has failed
to timely file a report under Section 16(a) during 2006, except as follows: one
Form 4 for Randolph M. Pentel, Fred C. Boethling, Steven E Reichert, Steven J.
Kutcher and Lynch Grattan; one Form 3 for Wayne Hoovestol; one Form 4 for
Pandora Select Partners, L.P. and one Form 4 for Whitebox Intermarket Select
Partners, L.P.

|         |                       
|-------- | ----------------------
|ITEM 10. | EXECUTIVE COMPENSATION

Executive Compensation

The following table provides certain information
regarding compensation earned by or paid to our Chief Executive Officer, Vice President/General Counsel and Vice President/Chief
Financial officer during each of the past three years. No other executive officers received compensation in excess of $100,000
during the most recent fiscal year.

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Table of Contents

CapSource Financial, Inc.

Summary Compensation Table As of 12/31/06

|                          |  |             |      |        |   |         |  |              |  |                |  |                        |  |       |   |  |   |         | 
|------------------------- |  | ----------- | ---- | ------ | - | ------- |  | ------------ |  | -------------- |  | ---------------------- |  | ----- | - |  | - | ------- | 
|Name & Principal Position |  | Fiscal Year |      | Salary |   | Bonus   |  | Stock Awards |  | Warrant Awards |  | All other Compensation |  | Total |  
|                          |  |             |      |        |   |         |  |              |  |                |  |                        |  |       |  
|Fred C. Boethling,        |  |             | 2006 |        | $ | 180,000 |  |             |  |               |  |                        |  |       |  |  | $ | 180,000 | 
|CEO and President         |  |             |      |        |   |         |  |              |  |                |  |                        |  |       |   |  |   |         | 
|                          |  |             |      |        |   |         |  |              |  |                |  |                        |  |       |   |  |   |         | 
|Steven E. Reichert,       |  |             | 2006 |        | $ | 150,333 |  |             |  |               |  |                        |  |       |  |  | $ | 150,333 | 
|VP & GC                   |  |             |      |        |   |         |  |              |  |                |  |                        |  |       |   |  |   |         | 
|                          |  |             |      |        |   |         |  |              |  |                |  |                        |  |       |   |  |   |         | 
|Steven J. Kutcher,        |  |             | 2006 |        | $ | 158,667 |  |             |  |               |  |                       |  |       |  |  | $ | 158,667 | 
|Consultant, CFO & VP      |  |             |      |        |   |         |  |              |  |                |  |                        |  |       |   |  |   |         | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|Executive Compensation Program: Our Board of
Directors determines executive compensation. Our compensation for executive officers is intended to attract, retain and motivate
individuals with the skills necessary to achieve our business plan and to reward them fairly over time. Our current compensation
program for our executives has been the result of negotiations between those executives and our Board. We have taken into account
that our executive team has been with the Company from its inception. Historically, our compensation policies and arrangements
have, to a great extent, been dictated by the limited cash resources available for cash compensation to our named executives. The
compensation program consists of the following components: salary, potential discretionary incentive bonus, the option to take up
to 25% of their pay in stock in lieu of cash and the potential to receive stock options or warrants at the discretion of the
Board. The Board has adopted no formal or informal policies or guidelines for allocating compensation between long term and short
term compensation. The Company offers no retirement plan, no health or medical benefits and no perquisites. The essential features
of the compensation for each of our named executives can be found in their respective employment agreements.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|Employment Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|On December 10, 2000, we entered into employment
agreements with Mr. Boethling, Mr. Reichert and Mr. Grattan. Those agreements provide that we will employ Mr. Boethling, Mr.
Reichert and Mr. Grattan for a period ending two years after we give written notice of our intention to terminate Mr. Boethling,
Mr. Reichert or Mr. Grattan or until they turn 65 years of age, whichever is earlier. The contracts provide for an annual minimum
base salary of $96,000 subject to adjustments at the discretion of the Board of Directors, participation in any other insurance,
pension, savings and health and welfare plans offered by the Company, and the executives option to receive up to 25% of his
base salary in common                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

23

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Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|stock on the
  basis of one (1) share of common stock for each $1.00 of base salary so
  designated. The employment may be terminated for cause or breach of the
  contract after opportunity to cure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|On April 21,
  2006, we modified the employment contacts of Mr. Boethling and Mr. Reichert.
  The amendments provide that the Company will employ them for a period ending
  two years after we give written notice of our intention to terminate Mr.
  Boethling, or Mr. Reichert or until they turn 70 years of age, whichever is
  earlier. Further, the payments during the two-year period after notice of
  termination are limited to $300,000 in Mr. Boethlings case and $250,000 in
  Mr. Reicherts instead of an amount equal to two years of salary at their
  then current rate. In addition, the amendments added a six-month non-compete
  and non-disclosure provisions to the employment agreements.                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|On January
  9, 2006, the Company entered into an employment agreement with Steven J.
  Kutcher as its vice president and chief financial officer effective as of
  that date. The contract provided for an annual minimum base salary of
  $132,000 subject to adjustments at the discretion of the Board of Directors,
  participation in any other insurance, pension, savings and health and welfare
  plans offered by the Company and three months severance, and a grant of
  $33,000 worth of restricted stock valued at $.70 per share vesting one-third
  on the first, second and third anniversary dates of the agreement. On May 1,
  2006, the salary was increased to $172,000 and the severance was changed to
  five months. The employment agreement is for a term of three years. During
  the past five years Mr. Kutcher has served as our chief financial officer and
  has acted as a financial consultant to us. Mr. Kutcher has no family
  relationships with any of our other officers or directors.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|Stock Options, Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|No options
  were granted to the named executive officers, and no options were exercised
  by the named executive officers during 2006. No warrants were granted to any
  of the named executive officers and no warrants were exercised by the named
  executive officers during 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|The
  following table summarizes the outstanding equity awards to which the named
  executive was entitled at December 31, 2006 by the executive officers named
  in the Summary Compensation Table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Outstanding Equity Awards at
12-31-2006

|                          |  |                                                                         |           |                                                                       |   |                              |  |                           |      |  |  |  |            | 
|------------------------- |  | ----------------------------------------------------------------------- | --------- | --------------------------------------------------------------------- | - | ---------------------------- |  | ------------------------- | ---- |  |  |  | ---------- | 
|Name                      |  | Number of Securities
  Underlying Unexercised
  Warrants Exercisable(1) |           | Number of Securities
  Underlying Unexercised
  Warrants Unxercisable |   | Warrant Exercise
  Price ($) |  | Warrant Expiration
  Date |     
|                          |  |                                                                         |           |                                                                       |   |                              |  |                           |      |  |  |  |            | 
|Fred C.
  Boethling,      |  |                                                                         | 25,000(1) |                                                                       |  |                              |  | $                         | 1.30 |  |  |  | 04/12/2007 | 
|Chief
  Executive Officer |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | 1.75 |  |  |  | 12/31/2007 | 
|and
  President           |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | 1.75 |  |  |  | 12/31/2008 | 
|                          |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | .80  |  |  |  | 12/31/2009 | 
|                          |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | .70  |  |  |  | 01/03/2011 | 
|                          |  |                                                                         |           |                                                                       |   |                              |  |                           |      |  |  |  |            | 
|Steven E.
  Reichert      |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | 1.30 |  |  |  | 04/12/2007 | 
|Vice
  President &        |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | 1.75 |  |  |  | 12/31/2007 | 
|General
  Counsel         |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | 1.75 |  |  |  | 12/31/2008 | 
|                          |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | .80  |  |  |  | 12/31/2009 | 
|                          |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | .70  |  |  |  | 01/03/2011 | 
|                          |  |                                                                         |           |                                                                       |   |                              |  |                           |      |  |  |  |            | 
|Steven J. Kutcher         |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | 1.75 |  |  |  | 12/31/2007 | 
|Vice
  President &        |  |                                                                         | 25,000(1) |                                                                       |  |                              |  |                           | 1.75 |  |  |  | 12/31/2008 | 
|Chief
  Financial Officer |  |                                                                         | 12,500(1) |                                                                       |  |                              |  |                           | 80   |  |  |  | 12/31/2009 | 

|                                                                                                                                                           
|-----------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                           
|(1) These
  warrants vested 100% at the time of grant and were granted to the executive
  in his capacity as a director. Each warrant has a five year term.

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Table of Contents

Director Compensation

Except for
2006, beginning in 1999, each year we granted employee members of the Board of
Directors for their services on the Board, warrants to purchase 25,000 shares
of common stock at prices determined to be fair market value at the time of
grant. We also granted non-employee members of the Board of Directors for their
services on the Board, warrants to purchase 50,000 shares of common stock at
prices determined to be fair value at the time of grant, and a right to receive
$500 fee per meeting attended. However, Board members have always waived
receiving this fee, and it has never been paid. All warrants are vested
immediately and expire five years from the date of grant.

|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

|    |                                                                 
|--- | ----------------------------------------------------------------
|(a) | Security
ownership of certain beneficial owners (5% or greater).

The
following table presents information provided to us about the beneficial
ownership of our Common Stock as of December 31, 2006, by persons known to us
to hold 5% or more of our stock.

|                                               |  |                                       |            |                     |  |      |  
|---------------------------------------------- |  | ------------------------------------- | ---------- | ------------------- |  | ---- | -
|Name and
  Address of Beneficial Owner         |  | Number of Shares
  Beneficially Owned |            | Percent of
  Shares | 
|                                               |  |                                       |            |                     | 
|                                               |  |                                       |            |                     |  |      |  
|Randolph
  Pentel(1) (2)                       |  |                                       | 15,890,885 |                     |  | 52.5 | %
|Pandora
  Select Partners L.P. (3)(4) (5)      |  |                                       | 5,750,000  |                     |  | 19.0 | %
|Whitebox
  Intermarket Partners L.P. (3)(4)(5) |  |                                       | 5,750,000  |                     |  | 19.0 | %

---

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(1) The
  address of the named individual is c/o CapSource Financial, Inc., 2305 Canyon
  Boulevard, Suite 103, Boulder, Colorado 80302.                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
|(2) Includes
  2,429,664 shares of common stock issuable upon the exercise of warrants that
  are currently exercisable as follows: 50,000 have an exercise price of $1.30
  and expire on 4/12/2007; 50,000 have an exercise price of $1.75 and expire on
  12/31/2007; 50,000 have an exercise price of $1.75 and expire on 12/31/2008; 50,000
  have an exercise price of $.80 and expire on 12/31/2009; 50,000 have an
  exercise price of $.70 and expire on 1/3/20011; and 2,179,664 have an
  exercise price of $.90 and expire on 5/1/2011.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
|(3) The address of the named entity is 3033 Excelsior Boulevard, Suite 300, Minneapolis, Minnesota
55416. Andrew Redleal holds sole voting and investment control over these common shares and warrants as the managing member of
Whitebox Advisors, LLC, which is the managing member of both Pandora Select Advisors, LLC and Whitebox Intermarket Advisors, LLC,
the general partners of Pandora Select Partners, L.P., and Whitebox Intermarket Partners, L.P., respectively.                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
|(4) Includes
  2,875,000 shares of common stock issuable upon the exercise of warrants that
  are currently exercisable at $.90 with an expiration date of April 30, 2011.                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
|(5) Includes
  750,000 shares of common stock issued upon the exercise of the right to
  purchase such shares within 180 days of May 1, 2006 at $.40 per share.                                                                                                                                                                                                                                                                                                                                                                                    

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(b)     Security ownership of management.

The following table presents information provided to
us as to the beneficial ownership of our common stock as of December 31, 2006, by all current directors, executive officers and
all directors and executive officers as a group. All shares represent sole voting and investment power, unless indicated to the
contrary.

|                                                            |  |                                     |  |            |                   |  |  |      |   | 
|----------------------------------------------------------- |  | ----------------------------------- |  | ---------- | ----------------- |  |  | ---- | - | 
|Name and Address of Beneficial Owner (1)                    |  | Number of Shares Beneficially Owned |  |            | Percent of Shares |  | 
|                                                            |  |                                     |  |            |                  
|Fred C. Boethling
  (2)                                     |  |                                     |  | 457,730    |                   |  |  | 1.5  | % | 
|Steven Reichert (2)                                         |  |                                     |  | 436,730    |                   |  |  | 1.4  | % | 
|Randolph Pentel (3)                                         |  |                                     |  | 15,890,885 |                   |  |  | 52.5 | % | 
|Lynch Grattan (2)                                           |  |                                     |  | 125,000    |                   |  |  | 0.4  | % | 
|Wayne Hoovestal (4)                                         |  |                                     |  | 50,000     |                   |  |  | 0.2  | % | 
|Steven Kutcher (5)                                          |  |                                     |  | 72,355     |                   |  |  | 0.2  | % | 
|                                                            |  |                                     |  |            |                   |  |  |      |   | 
|All directors and officers and as a group (6
  persons) (6) |  |                                     |  | 17,032,700 |                   |  |  | 56.2 | % | 
|                                                            |  |                                     |  |            |                   | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) The address of the named individual is c/o
  CapSource Financial, Inc., 2305 Canyon Boulevard, Suite 103, Boulder,
  Colorado 80302.                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(2) Includes 125,000 shares of common stock issuable
  upon the exercise of warrants that are currently exercisable as follows:
  25,000 have an exercise price of $1.30 and expire on 4/12/2007; 25,000 have
  an exercise price of $1.75 and expire on 12/31/2007; 25,000 have an exercise
  price of $1.75 and expire on 12/31/2008; 25,000 have an exercise price of
  $.80 and expire on 12/31/2009; and 25,000 have an exercise price of $.70 and
  expire on 1/3/2011.                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(3) Includes 2,429,664 shares of common stock
  issuable upon the exercise of warrants that are currently exercisable as
  follows: 50,000 have an exercise price of $1.30 and expire on 4/12/2007;
  50,000 have an exercise price of $1.75 and expire on 12/31/2007; 50,000 have
  an exercise price of $1.75 and expire on 12/31/2008; 50,000 have an exercise
  price of $.80 and expire on 12/31/2009; 50,000 have an exercise price of $.70
  and expire on 1/3/2011; and 2,179,664 have an exercise price of $.90 and
  expire on 5/1/2011.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(4) Includes 50,000 shares of common stock issuable
  upon the exercise of warrants that are currently exercisable at $.70 and
  expire on January 3, 2011.                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(5) Includes 62,500 shares of common stock issuable
  upon the exercise of warrants that are currently exercisable as follows:
  25,000 have an exercise price of $1.75 and expire on 12/31/2007; 25,000 have
  an exercise price of $1.75 and expire on 12/31/2008; and 12,500 have an
  exercise price of $.80 and expire on 12/31/2009.                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(6) Includes 2,917,164 shares of common stock
  issuable upon the exercise of warrants that are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                            

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Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

|                                                                                     |  |                                                                                             |         |                                                                             |  |                                                                      |      |  |  |         | 
|------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------- | ------- | --------------------------------------------------------------------------- |  | -------------------------------------------------------------------- | ---- |  |  | ------- | 
|Plan category                                                                        |  | Number of securities to be issued upon exercise of outstanding options, warrants and
rights |         | Weighted average exercise price of outstanding options, warrants and
rights |  | Number of
  securities
  remaining
  available for
  future issuance |     
|                                                                                     |  |                                                                                             |         |                                                                             |  |                                                                      |     
|                                                                                     |  |                                                                                             |         |                                                                             |  |                                                                      |      |  |  |         | 
|                                                                                     |  |                                                                                             | (a)     |                                                                             |  |                                                                      | (b)  |  |  | (c)     | 
|                                                                                     |  |                                                                                             |         |                                                                             |  |                                                                      |      |  |  |         | 
|Equity compensation plans approved by security holders, 2001 Stock
Option Plan       |  |                                                                                             | 0       |                                                                             |  |                                                                      | N/A  |  |  | 550,000 | 
|                                                                                     |  |                                                                                             |         |                                                                             |  |                                                                      |      |  |  |         | 
|Equity
  compensation plans not approved by security holders, Discretionary Warrants |  |                                                                                             | 737,500 |                                                                             |  | $                                                                    | 1.30 |  |  |        | 
|                                                                                     |  |                                                                                             |         |                                                                             |  |                                                                      |      |  |  |         | 
|Total                                                                                |  |                                                                                             | 737,500 |                                                                             |  | $                                                                    | 1.30 |  |  | 550,000 | 

Warrants

At
December 31, 2006, we had outstanding warrants to purchase a total of 9,276,998
shares of common stock exercisable at prices ranging from $.48 per share to
$2.45 per share and expiring at varying times through May 1, 2011. Of such
warrants, 8,539,498 were issued in connection with a number of financing
transactions, and 737,500 were issued in connection with consulting
arrangements and as compensation to members of the Board of Directors. See
Director Compensation. The warrant holders, as such, are not entitled to
vote, receive dividends, or exercise any of the rights of holders for shares of
common stock for any purpose until such warrants have been duly exercised and
payment of the purchase price has been made. No warrants have been issued or
will be issued with an exercise price of less than eighty-five percent (85%) of
the fair market value on the date of grant. No warrants have been issued or
will be issued with a term of longer than five years.

Options
and 2001 Stock Option Plan

Effective
February 16, 2001, our Board of Directors and Stockholders adopted the 2001
Omnibus Stock Option and Incentive Plan. This plan provides for the grant of
options to purchase shares of common stock to our key employees and advisors.
The aggregate number of shares of common stock that can be awarded under the
plan was 550,000. The plan permits the Board to grant qualified options with an
exercise price of not less than the fair market value on the date of grant, and
non-qualified options at an exercise price of not less than eighty-five percent
(85%) of the fair market value of CapSources underlying shares of common stock
on the date of the grant. The plan permits the Board to grant options with a
term of up to ten years for certain qualified options and not more than five
years for options granted to a granted to a person holding 10% or more of our
stock. However, no options will be issued with a term longer than five years.
Options will be used by us to attract and retain certain key individuals and to
give such individuals a direct financial interest in our future success and
profitability. There are currently no options to purchase shares outstanding
under the 2001 Stock Option Plan.

Note
Financing

From time to time we have offered both convertible and
non-convertible notes to investors. The following table summarizes outstanding
notes issued by us and the principal amounts due as of December 31, 2006:

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|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|------------------------------------------ |  | ------------------ | --------- | ---- |  | -------- |  | -------- | ------------ | - |  | --------- | 
|                                           |  | Principal
  Amount |           | Date |  | Rate     |  | Maturity |             
|                                           |  |                    |           |      |  |          |  |          |             
|Patricia and Gary Dolphus                  |  | $                  | 70,000    |      |  | 12/31/03 |  |          | 10%          |   |  | 01/05/07  | 
|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|Steven J. Kutcher,                         |  |                    |           |      |  |          |  |          |              |   |  |           | 
|(Custodian for Anthony J. Kutcher, $ UTMA) |  | $                  | 40,000    |      |  | 12/31/03 |  |          | 10%          |   |  | 01/05/08  | 
|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|Steven J. Kutcher,                         |  |                    |           |      |  |          |  |          |              |   |  |           | 
|(Custodian for Nicole E. Kutcher,  UTMA)   |  | $                  | 40,000    |      |  | 12/31/03 |  |          | 10%          |   |  | 01/05/08  | 
|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|Irwin Pentel                               |  | $                  | 192,000   |      |  | 12/31/04 |  |          | 9%           |   |  | 01/05/09  | 
|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|Church of the Risen Messiah                |  | $                  | 250,000   |      |  | 02/28/06 |  |          | Prime + 1.00 | % |  | 02/28/08  | 
|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|Joyce L. Birch                             |  | $                  | 504,000   |      |  | 12/31/03 |  |          | 9%           |   |  | 01/05/09  | 
|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|Randolph Pentel                            |  | $                  | 1,546,668 |      |  | 08/31/06 |  |          | LIBOR + 2.00 | % |  | 08/31/07  | 
|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|Navistar Finance -Floor PlanCredit Line    |  | $                  | 2,084,014 |      |  | 05/01/06 |  |          | Prime + 1.00 | % |  | Revolving | 
|                                           |  |                    |           |      |  |          |  |          |              |   |  |           | 
|Financiero Navistar -Floor PlanCredit Line |  | $                  | 1,053,888 |      |  | 10/23/06 |  |          | LIBOR + 4.17 | % |  | Revolving | 

Terms of the Notes. The notes bear interest at
various rates ranging from LIBOR plus 2% to 10%. Interest on the notes is paid monthly. The principal amount of each note is
payable at maturity. The notes mature at various times until January 5, 2009. No commissions were paid in connection with the sale
of the notes. The proceeds from the sale of the notes were used to acquire inventory for RESALTA, increase the size of
REMEXs lease/rental fleet and for general corporate purposes. The notes were not issued pursuant to an indenture and no
trustee was retained to enforce any of the obligations represented by the notes. Recent Sales of Unregistered
Securities.

Maturities of the Companys aggregate debt by year are as follows:

| |                         |  |   |           | 
| | ----------------------- |  | - | --------- | 
| | Year ended December 31: |  |   |           | 
| |                         |  |   |           | 
| | 2007                    |  | $ | 4,793,433 | 
| | 2008                    |  |   | 330,000   | 
| | 2009                    |  |   | 696,000   | 

|         |                                               
|-------- | ----------------------------------------------
|ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Affiliated Transactions

We currently sublease our Colorado office by
reimbursing our president, Fred Boethling, at approximately 86% of the lease cost to him for 872 square feet of commercial office
space at 2305 Canyon Boulevard, Suite 103, Boulder, Colorado 80302. Mr. Boethling is reimbursed in the approximate amount of $
1,500 per month for the use of this space.

We also currently reimburse our vice president and general
counsel, Steve Reichert, in the amount of $300 per month for the use of his house as our Minnesota office. As a result, our monthly
base rental expense for these U.S. offices is approximately $1,800.

A company in which Randolph M. Pentel, our Chairman
and largest shareholder, has a substantial interests has on occasion provided the use of an aircraft for travel for certain
executive officers. We have paid no more and no less than the price of a first class ticket charged by commercial airlines flying
to the same destination on those dates. While there is no arrangement or assurance that the use of this aircraft will be made
available in the future, if the occasion arises it is expected that the same payment terms will be followed.

Randolph Pentel has provided the majority of financing
to us at interest rates more favorable than those available from unaffiliated third parties. We lacked disinterested directors
that could ratify these transactions at the time these transactions were initiated. There is no assurance that such favorable
financing will be available to us in the future.

At the beginning of 2005, we had debt owed to Randolph
Pentel under two separate debt instruments:

28

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | $1,100,000 on a non-interest bearing convertible
  note payable or convertible on demand. That note was converted on February
  28, 2005 to 1,375,000 shares of common stock at $.80 per share.                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | $753,021 on a note bearing interest at prime
  +1.00% with a maturity date of October 15, 2006. We increased our borrowings
  under that note by another $1,648,500, plus accrued interest of $95,535. On
  December 28, 2005, Mr Pentel converted $800,000 of the debt to 560,000 shares
  of common stock at $.70 per share, and we repaid $864,351 of principal and
  interest in cash, leaving a balance at the end of 2005 of $832,705.

As
a condition to the placement of the shares with Pandora Select Partners L.P.
and Whitebox Intermarket Partners L.P., Randolph Pentel converted $871,865.89
of debt with all accrued interest owed to him by the Company into 2,179,664
shares of common stock (the Pentel Shares) and warrants to
purchase another 2,179,664 shares of common stock (the Pentel Warrant
Shares) having an exercise price of $.90 per share. At the time, this
constituted substantially all of the debt owed to Mr. Pentel by the Company.

On
August 31, 2006, Mr. Pentel lent us $1.6 million. The funds were used to
retire, in full, our outstanding bank debt to Marshall Bank, NA. The loan
agreement with Mr. Pentel provides a maturity date of August 31, 2007, and an
interest rate of LIBOR plus 2.0%. The loan agreement also requires us to make
monthly principal payments of $13,333 plus accrued interest and a final payment
at maturity of all outstanding principal plus interest.

Appointment
of Independent Directors and Amendment of Bylaws

We
have successfully appointed three independent directors, Wayne Hoovestol, Scot
Malloy and Bruce Nordin. While our securities are not listed on a national
securities exchange or in an inter-dealer quotation system which has
requirements that a majority of our board of directors be independent, we have
adopted the definition of independence utilized by the NASDAQ National Market.
According to NASDAQ an independent director is: (1) a person other than an
executive officer or employee of the company or any other individual having a
relationship which, in the opinion of the issuers board of directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director; (2) a person who is not currently, nor at any
time during the past three years was, employed by the company or by any parent
or subsidiary of the company; and (3) a person other than a director who
accepted or who has a Family Member who accepted any compensation from the
company in excess of $60,000 during any period of twelve consecutive months
within the three years preceding the determination of independence, other than
compensation for board or board committee service; (4) a person other than
director who is a Family Member of an individual who is, or at any time during
the past three years was, employed by the company as an executive officer; (5)
a person other than a director who is, or has a Family Member who is, a partner
in, or a controlling shareholder or an executive officer of, any organization
to which the company made, or from which the company received, payments for
property or services in the current or any of the past three fiscal years that
exceed 5% of the recipients consolidated gross revenues for that year, or
$200,000, whichever is more, other than payments arising solely from
investments in the companys securities or payments under non-discretionary
charitable contribution matching programs; (6) a person other than a director
of the issuer who is, or has a Family Member who is, employed as an executive
officer of another entity where at any time during the past three years any of
the executive officers of the issuer serve on the compensation committee of
such other entity;or (7) a person other than director who is, or has a Family
Member who is, a current partner of the companys outside auditor, or was a
partner or employee of the companys outside auditor who worked on the
companys audit at any time during any of the past three years. Our definition
of independence can be found at our website www.capsource-financial.com We have
amended our Bylaws to require the appointment of at least two independent
directors and the approval by independent directors of any future material
transactions, loans or forgiveness of loans. As a result of the appointment of
three independent directors, we intend to establish a formal audit committee
during 2007.

29

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|         |                                                        
|-------- | -------------------------------------------------------
|ITEM 13. | EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K

|            |  |                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                     
|            |  |                                                                                                                                                                 
|*3.1        |  | Articles of
  Incorporation                                                                                                                                     
|*3.1.1      |  | Articles of
  Amendment to the Articles of Incorporation (Name Change)                                                                                          
|*3.1.2      |  | Articles of
  Amendment to the Articles of Incorporation (Authorized Capital)                                                                                   
|*3.2        |  | By-laws                                                                                                                                                         
|****3.2.1   |  | Amended
  By-laws                                                                                                                                               
|*4.1        |  | Specimen of
  Common Stock Certificate                                                                                                                          
|***4.2      |  | Registration
  Rights Agreement between the Company, Randolph M. Pentel, Pandora Select
  Partners L.P. and Whitebox Intermarket Partners L.P. dated May 1, 2006
|***4.3      |  | Voting
  Agreement and Irrevocable Proxy between the Company, Randolph M. Pentel and
  Whitebox Intermarket Partners L.P. dated May 1, 2006                     
|***4.4      |  | Warrant
  granted to Whitebox Intermarket Partners L.P. dated May 1, 2006                                                                                       
|***4.5      |  | Warrant
  granted to Pandora Select Partners L.P. dated May 1, 2006                                                                                             
|***4.6      |  | Voting
  Agreement and Irrevocable Proxy between the Company, Randolph M. Penntel and
  Pandora Select Partners L.P. dated May 1, 2006                          
|***4.7      |  | Placement
  Agent Warrant dated May 1, 2006                                                                                                                     
|******4.8   |  | Warrant
  granted to Randolph M. Pentel dated May 1, 2006                                                                                                       
|++4.9       |  | Warrant
  granted to Public Securities, Inc. as Underwriter, dated August 29, 2003                                                                              
|++5.1       |  | Opinion of
  Rider Bennett Egan and Arundel LLP                                                                                                                 
|*10.1       |  | Employment
  Agreement dated December 10, 2000 Between Company and Fred C. Boethling                                                                            
|++10.1.1    |  | Amendment
  No. 1 to Employment Agreement between the Company and Fred C. Boethling dated
  April 21, 2006                                                      
|*10.2       |  | Employment
  Agreement dated December 10, 2000 Between Company and Steven E. Reichert                                                                           
|++10.2.1    |  | Amendment
  No. 1 to Employment Agreement between the Company and Steven E. Reichert
  dated April 21, 2006                                                     
|*10.3       |  | Employment
  Agreement dated December 10, 2000 Between Company and Lynch Grattan                                                                                
|*10.4       |  | CapSource
  Financial, Inc. 2001 Omnibus Stock Option and Incentive Plan                                                                                        
|*10.5       |  | Form of
  Warrant Agreement                                                                                                                                     
|*10.6       |  | Form of
  Certificate for Common Stock Purchase Warrants                                                                                                        
|*****10.7   |  | Hyundai
  Dealer Agreement                                                                                                                                      
|*10.10      |  | 12%
  Convertible Promissory Note dated November 6, 2001 in Favor of Steven J.
  Kutcher as custodian for Anthony J. Kutcher, UTMA                              
|*10.11      |  | 12%
  Convertible Promissory Note dated November 6, 2001 in Favor of Steven J.
  Kutcher as custodian for Nicole E. Kutcher, UTMA                               
|**10.12     |  | Employment
  Agreement dated January 9, 2006 Between Company and Steven J. Kutcher                                                                              
|++10.12.1   |  | Amendment
  No. 1 to Employment Agreement between the Company and Steven J. Kucher April
  21, 2006                                                             
|***10.13    |  | Securities
  Purchase Agreement between the Company and Whitebox Intermarket Partners L.P.
  dated May 1, 2006                                                  
|***10.14    |  | Securities
  Purchase Agreement between the Company and Pandora Select Partners L.P. dated
  May 1, 2006                                                        
|***10.15    |  | Navistar
  Wholesale Floor Planning Financing Agreement between CapSource Equipment
  Company, Inc. and Navistar Financial Corporation, effective May 1, 2006   
|***10.16    |  | Prime Time
  Asset Purchase Agreement between the Company and Prime Time Equipment, Inc.
  dated May 1, 2006                                                    
|+11.1       |  | Statement
  Regarding Computation of Per Share Earnings                                                                                                         
|++21.1      |  | List of
  Subsidiaries                                                                                                                                          
|++23.1      |  | Consent of
  Gordon, Hughes and Banks, LLP                                                                                                                      
|+23.2       |  | Consent of BDO Hernández Marrón y Cía, S.C.                                                                                                                     
|+31.1       |  | Certification
  of C.E.O. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                             

30

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|       |  |                                                                                                                                                                                                   
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|+31.2  |  | Certification
  of C.F.O. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                               
|+32.1  |  | Certification
  of C.E.O. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                               
|+32.2  |  | Certification
  of C.F.O. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                               
|+      |  | Filed herewith                                                                                                                                                                                    
|++     |  | Incorporated
  by reference to the Companys Registration Statement on Form SB-2 filed
  October 5, 2006, as amended by the Companys Amendment No. 1 to Form SB-2
  filed January 17, 2007.      
|*      |  | Incorporated
  by reference to the Companys Registration Statement on Form SB-2 filed
  October 7, 2002, as amended by the Companys Amendment No. 1 to Form SB-2
  filed December 9, 2002.      
|**     |  | Incorporated
  by reference to the Companys Form 8-K filed January 11, 2006                                                                                                                      
|***    |  | Incorporated
  by reference to the Companys Form 8-K filed May 5, 2006                                                                                                                           
|****   |  | Incorporated
  by reference to the Companys Form 8-K filed May 26, 2006                                                                                                                          
|*****  |  | Incorporated
  by reference to the Companys Form 8-K filed September 8, 2006                                                                                                                     
|****** |  | Incorporated
  by reference to the Companys Form 8-K filed originally on May 5, 2006, as
  amended by Amendment No. 1 filed July 14, 2006, as amended by
  Amendment No. 2 filed January 17, 2007

The
financial statements filed as part of this report are listed separately in the
Index to Financial Statements immediately following the signature page.

|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following fees have been, or will be, billed by
Gordon, Hughes & Banks, LLP and BDO Hernández Marrón y Cía., S.C., the Companys independent auditors for
the fiscal years ending December 31, 2006 and December 31, 2005, respectively.

Audit Fees

The aggregate fees billed or to be billed by Gordon,
Hughes & Banks, LLP and BDO Hernández Marrón y Cía., S.C. for services for the fiscal years ended December 31,
2006 and December 31, 2005, which related to the annual financial statement audit, reviews of quarterly financial statement,
statutory audits and review of documents filed with the Securities and Exchange Commission, approximated $52,983 and $8,000 for
Gordon Hughes & Banks and $176,000 and $125,000 for BDO, respectively.

Audit-Related Fees

The Company did not incur any audit-related fees for
the fiscal years ended December 31, 2006 or December 31, 2005.

Tax Fees

The Company did not incur any fees with Gordon, Hughes
& Banks, LLP or BDO Hernández Marrón y Cía., S.C. for tax compliance, tax advice and tax planning for the
fiscal years ended December 31, 2006 or December 31, 2005.

All Other Fees

The Company did not incur any other fees with Gordon,
Hughes & Banks, LLP or BDO Hernández Marrón y Cía., S.C. for the fiscal years ended December 31, 2006 or
December 31, 2005.

Pre-Approval Policies

The Board of Directors of the Company acts as the
audit committee for the Company. The Board of Directors does not have any specific pre-approval policies and procedures with
respect to the engagement of auditors. All of the Audit-Related Fees, Tax Fees and All Other Fees discussed above, if any, were
approved by the Board of Directors.

31

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SIGNATURES

In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: July 25, 2007

| |                           |                                     
| | ------------------------- | ------------------------------------
| | CAPSOURCE FINANCIAL, INC.
| |                          
| | By:                       | /s/ Fred C. Boethling               
| |                           |                                     
| |                           | Fred C. Boethling,                  
| |                           | President, Chief Executive
  Officer
| |                           | and Director                        

In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.

Dated: July 25, 2007

|                         |  |                                                                           
|------------------------ |  | --------------------------------------------------------------------------
|Signature                |  | Title                                                                     
|                         |  |                                                                           
|                         |  |                                                                           
|/s/
  Randolph M. Pentel |  |                                                                           
|                         |  |                                                                           
|Randolph
  M. Pentel     |  | Chairman of the Board of
  Directors                                      
|                         |  |                                                                           
|/s/
  Fred C. Boethling  |  |                                                                           
|                         |  |                                                                           
|Fred
  C. Boethling      |  | President, Chief Executive
  Officer and Director                         
|                         |  |                                                                           
|/s/
  Steven E. Reichert |  |                                                                           
|                         |  |                                                                           
|Steven
  E. Reichert     |  | Vice President, General
  Counsel and Director                            
|                         |  |                                                                           
|/s/
  Steven J. Kutcher  |  |                                                                           
|                         |  |                                                                           
|Steven
  J. Kutcher      |  | Vice President, Chief
  Financial Officer and Principal Accounting Officer
|                         |  |                                                                           
|/s/
  Lynch Grattan      |  |                                                                           
|                         |  |                                                                           
|Lynch Grattan            |  | Director                                                                  
|                         |  |                                                                           
|/s/ Bruce Nordin         |  |                                                                           
|                         |  |                                                                           
|Bruce
  Nordin           |  | Director                                                                  
|                         |  |                                                                           
|/s/ Scot Malloy          |  |                                                                           
|                         |  |                                                                           
|Scot
  Malloy            |  | Director                                                                  

32

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Supplemental Information Furnished with Form 10KSB

No annual report or proxy
material has been sent to security holders as of the date of the filing of this
Form 10-KSB. The Company does expect that proxy materials will be furnished to
security holders subsequent to the filing of this Form 10-KSB. The Company
shall furnish copies of any such proxy materials to the Commission prior to the
time it is sent to security holders.

33

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Table of Contents

CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

(With Report of Independent Registered Public
Accounting Firm Thereon)

C O N T E N T S

|                                                                                                 |  |        
|------------------------------------------------------------------------------------------------ |  | -------
|                                                                                                 |  | Page   
|                                                                                                 |  |        
|                                                                                                 |  |        
|REPORT of
  BDO HERNÁNDEZ MARRÓN Y CÍA, S.C.,
  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    |  | F
  - 2
|                                                                                                 |  |        
|REPORT of
  GORDON, HUGHES & BANKS, LLP,
  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM         |  | F
  - 3
|                                                                                                 |  |        
|CONSOLIDATED FINANCIAL STATEMENTS                                                                |  |        
|                                                                                                 |  |        
|Consolidated balance sheets at
December 31, 2006 and
  2005                                      |  | F
  - 4
|                                                                                                 |  |        
|Consolidated statements of
operations for the years
  ended December 31, 2006 and 2005           |  | F
  - 5
|                                                                                                 |  |        
|Consolidated statements of
stockholders equity for
  the years ended December 31, 2006 and 2005 |  | F
  - 6
|                                                                                                 |  |        
|Consolidated statements of cash
flows for the years
  ended December 31, 2006 and 2005           |  | F
  - 7
|                                                                                                 |  |        
|Notes to consolidated financial
statements                                                       |  | F
  - 8

F-1

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Table of Contents

Report of Independent Registered Public
Accounting Firm

To the Board of Directors and Stockholders of
CapSource Financial, Inc.:

We have audited the accompanying consolidated balance sheets of
CapSource Financial, Inc. and subsidiaries as of December 31, 2006 and 2005,
and the related consolidated statements of operations, stockholders equity,
and cash flows for each of the years then ended. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
the CapSource Equipment, Inc., a wholly owned subsidiary, which statements
reflect total assets constituting 21% of the consolidated total assets as of
December 31, 2006, and 14% of the consolidated revenues for the year ended
December 31, 2006. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included in the CapSource Equipment Inc., is based solely on the report of the
other auditors.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CapSource Financial, Inc. and
subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the years then ended, in conformity
with accounting principles generally accepted in the United States of America.

As discussed in Note 1q, effective January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123(R), Share Based Payment.

/s/ BDO
Hernández Marrón y Cía., S.C.

México City, Mexico
March 23, 2007

F-2

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Table of Contents

Report of Independent Registered Public
Accounting Firm

To the Board of Directors and Stockholders of
CapSource Financial, Inc.:

We have audited the accompanying balance sheet of CapSource Equipment
Company, Inc. as of December 31, 2006, and the related statement of operations,
changes in stockholders equity and cash flows for the period from May 1, 2006
to December 31, 2006. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
has determined that it is not required to have, nor were we engaged to perform
an audit of its internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CapSource Equipment
Company, Inc. as of December 31, 2006, and the results of its operations and
its cash flows for the eight month period then ended in conformity with
accounting principles generally accepted in the United States of America.

/s/ GORDON
HUGHES & BANKS, LLP

Greenwood
Village,
ColoradoFebruary 28, 2007

F-3

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Table of Contents

CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIESConsolidated Balance
Sheets

|                                                                                                                                                        |  |              |             |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | ---- | - | ----------- | -
|                                                                                                                                                        |  | December 31, |            
|                                                                                                                                                        |  |              |            
|                                                                                                                                                        |  | 2006         |             | 2005 |  
|                                                                                                                                                        |  |              |             |      |  
|Assets                                                                                                                                                  |  |              |             |      |   |             |  
|Current assets:                                                                                                                                         |  |              |             |      |   |             |  
|Cash and cash equivalents                                                                                                                               |  | $            | 655,825     |      | $ | 612,790     |  
|Rents and accounts receivable, net of
  allowance for doubtful accounts of $60,392 in 2006 and $12,565 in 2005                                          |  |              | 1,454,464   |      |   | 795,812     |  
|Mexican value-added taxes receivable                                                                                                                    |  |              | 1,174,527   |      |   | 10,237      |  
|Inventory                                                                                                                                               |  |              | 13,601,331  |      |   | 1,193,701   |  
|Advances to vendors                                                                                                                                     |  |              | 730,963     |      |   | 891,256     |  
|Prepaid insurance and other current
assets                                                                                                              |  |              | 77,981      |      |   | 123,278     |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Total current assets                                                                                                                                    |  |              | 17,695,091  |      |   | 3,627,074   |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Property and equipment, net (Note 3)                                                                                                                    |  |              | 1,135,051   |      |   | 1,269,752   |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Other assets                                                                                                                                            |  |              | 38,494      |      |   | 155,584     |  
|Intangible assets, net (Note 2)                                                                                                                         |  |              | 431,938     |      |   |            |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Total assets                                                                                                                                            |  | $            | 19,300,574  |      | $ | 5,052,410   |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Liabilities and Stockholders Equity                                                                                                                    |  |              |             |      |   |             |  
|Current liabilities:                                                                                                                                    |  |              |             |      |   |             |  
|Accounts payable and accrued expenses                                                                                                                   |  | $            | 9,837,829   |      | $ | 532,582     |  
|Deposits and advance payments                                                                                                                           |  |              | 1,384,201   |      |   | 702,069     |  
|Notes payable (Note 6)                                                                                                                                  |  |              | 3,246,765   |      |   | 2,126,209   |  
|Payable to stockholder (Note 7)                                                                                                                         |  |              | 1,546,668   |      |   | 832,705     |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Total current liabilities                                                                                                                               |  |              | 16,015,463  |      |   | 4,193,565   |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Long-term liabilities:                                                                                                                                  |  |              |             |      |   |             |  
|Notes payable (Note 6)                                                                                                                                  |  |              | 1,026,000   |      |   | 342,000     |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Total long-term liabilities                                                                                                                             |  |              | 1,026,000   |      |   | 342,000     |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Total liabilities                                                                                                                                       |  |              | 17,041,463  |      |   | 4,535,565   |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Commitments and contingencies (Note 10)                                                                                                                 |  |              |             |      |   |             |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Stockholders equity (Note 9):                                                                                                                          |  |              |             |      |   |             |  
|Common stock, $.01 par value. Authorized
  100,000,000 shares; issued and outstanding 20,433,321 and 12,378,657 shares
  in 2006 and 2005, respectively |  |              | 204,333     |      |   | 123,787     |  
|Additional paid-in capital                                                                                                                              |  |              | 15,213,325  |      |   | 11,722,403  |  
|Accumulated deficit                                                                                                                                     |  |              | (13,158,547 | )    |   | (11,329,345 | )
|                                                                                                                                                        |  |              |             |      |   |             |  
|Total stockholders equity                                                                                                                              |  |              | 2,259,111   |      |   | 516,845     |  
|                                                                                                                                                        |  |              |             |      |   |             |  
|Total liabilities and stockholders
equity                                                                                                              |  | $            | 19,300,574  |      | $ | 5,052,410   |  
|                                                                                                                                                        |  |              |             |      |   |             |  

See accompanying notes to consolidated
financial statements.

F-4

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Table of Contents

CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

|                                                                   |  |                          |            |      |   |            |  
|------------------------------------------------------------------ |  | ------------------------ | ---------- | ---- | - | ---------- | -
|                                                                   |  | Years Ended December 31, |           
|                                                                   |  |                          |           
|                                                                   |  | 2006                     |            | 2005 |  
|                                                                   |  |                          |            |      |  
|Sales                                                              |  | $                        | 35,726,252 |      | $ | 20,081,151 |  
|Rental income from operating leases                                |  |                          | 502,272    |      |   | 471,909    |  
|Other                                                              |  |                          | 57,760     |      |   | 55,449     |  
|                                                                   |  |                          |            |      |   |            |  
|Total revenue                                                      |  |                          | 36,286,284 |      |   | 20,608,509 |  
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Costs and expenses:                                                |  |                          |            |      |   |            |  
|Direct costs of sales                                              |  |                          | 33,580,175 |      |   | 18,933,352 |  
|Depreciation and direct costs of trailers
  under operating leases |  |                          | 354,246    |      |   | 339,385    |  
|Selling, general and administrative
  expenses                     |  |                          | 3,739,314  |      |   | 2,300,847  |  
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Total operating expenses                                           |  |                          | 37,673,735 |      |   | 21,573,584 |  
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Operating loss                                                     |  |                          | (1,387,451 | )    |   | (965,075   | )
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Other expense:                                                     |  |                          |            |      |   |            |  
|Interest expense                                                   |  |                          | (365,103   | )    |   | (702,648   | )
|Foreign exchange losses, net                                       |  |                          | (27,947    | )    |   | (75,151    | )
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Total other expense, net                                           |  |                          | (393,050   | )    |   | (777,799   | )
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Loss before provision for income taxes                             |  |                          | (1,780,501 | )    |   | (1,742,874 | )
|                                                                   |  |                          |            |      |   |            |  
|Provision for income taxes                                         |  |                          | (48,701    | )    |   | (51,592    | )
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Net loss                                                           |  | $                        | (1,829,202 | )    | $ | (1,794,466 | )
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Net loss per basic and diluted share                               |  | $                        | (0.11      | )    | $ | (0.16      | )
|                                                                   |  |                          |            |      |   |            |  
|                                                                   |  |                          |            |      |   |            |  
|Weighted-average number of shares
  outstanding, basic and diluted |  |                          | 17,367,597 |      |   | 11,060,604 |  
|                                                                   |  |                          |            |      |   |            |  

See accompanying notes to consolidated
financial statements.

F-5

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Table of Contents

CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders
Equity

Years Ended December 31, 2006 and 2005

|                                                             |  |              |            |                          |                    |         |  |   |                          |   |   |             |   |   |            |  
|------------------------------------------------------------ |  | ------------ | ---------- | ------------------------ | ------------------ | ------- |  | - | ------------------------ | - | - | ----------- | - | - | ---------- | -
|                                                             |  | Common stock |            | Additionalpaid-incapital |                    |         |  |   | Totalstockholdersequity |  
|                                                             |  |              |            |                          | Accumulateddeficit |         | 
|                                                             |  | Shares       |            | Amount                   |                    |         |  |  
|                                                             |  |              |            |                          |                    |         |  |   |                          |   |  
|                                                            
|Balance at January 1, 2005                                   |  |              | 9,860,800  |                          | $                  | 98,608  |  | $ | 9,830,915                |   | $ | (9,534,879  | ) | $ | 394,644    |  
|                                                            
|Conversion of payable to stockholder into
  common stock     |  |              | 2,517,857  |                          |                    | 25,179  |  |   | 1,874,821                |   |   |            |   |   | 1,900,000  |  
|Discount on convertible notes payable                        |  |              |           |                          |                    |        |  |   | 16,667                   |   |   |            |   |   | 16,667     |  
|Net loss                                                     |  |              |           |                          |                    |        |  |   |                         |   |   | (1,794,466  | ) |   | (1,794,466 | )
|                                                             |  |              |            |                          |                    |         |  |   |                          |   |   |             |   |   |            |  
|                                                             |  |              |            |                          |                    |         |  |   |                          |   |   |             |   |   |            |  
|Balance at December 31, 2005                                 |  |              | 12,378,657 |                          |                    | 123,787 |  |   | 11,722,403               |   |   | (11,329,345 | ) |   | 516,845    |  
|                                                             |  |              |            |                          |                    |         |  |   |                          |   |   |             |   |   |            |  
|Common stock issued for cash                                 |  |              | 5,750,000  |                          |                    | 57,500  |  |   | 2,242,500                |   |   |            |   |   | 2,300,000  |  
|Offering costs                                               |  |              |           |                          |                    |        |  |   | (968,718                 | ) |   |            |   |   | (968,718   | )
|Common stock warrants issued for equity
  placement services |  |              |           |                          |                    |        |  |   | 446,142                  |   |   |            |   |   | 446,142    |  
|Conversion of payable to stockholder into
  common stock     |  |              | 2,179,664  |                          |                    | 21,796  |  |   | 850,070                  |   |   |            |   |   | 871,866    |  
|Discount on payable to shareholder                           |  |              |           |                          |                    |        |  |   | 784,678                  |   |   |            |   |   | 784,678    |  
|Exercise of common stock warrants                            |  |              | 125,000    |                          |                    | 1,250   |  |   | 136,250                  |   |   |            |   |   | 137,500    |  
|Net loss                                                     |  |              |           |                          |                    |        |  |   |                         |   |   | (1,829,202  | ) |   | (1,829,202 | )
|                                                             |  |              |            |                          |                    |         |  |   |                          |   |   |             |   |   |            |  
|                                                             |  |              |            |                          |                    |         |  |   |                          |   |   |             |   |   |            |  
|Balance at December 31, 2006                                 |  |              | 20,433,321 |                          | $                  | 204,333 |  | $ | 15,213,325               |   | $ | (13,158,547 | ) | $ | 2,259,111  |  
|                                                             |  |              |            |                          |                    |         |  |   |                          |   |   |             |   |   |            |  

See accompanying notes to consolidated
financial statements.

F-6

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Table of Contents

CAPSOURCE FINANCIAL, INC. AND
SUBSIDIARIESConsolidated Statements Cash Flows

|                                                                                        |  |                          |             |      |   |            |  
|--------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | ---- | - | ---------- | -
|                                                                                        |  | Years ended December 31, |            
|                                                                                        |  |                          |            
|                                                                                        |  | 2006                     |             | 2005 |  
|                                                                                        |  |                          |             |      |  
|Cash flows from operating activities:                                                   |  |                          |             |      |  
|Net loss                                                                                |  | $                        | (1,829,202  | )    | $ | (1,794,466 | )
|Adjustments to reconcile net loss to net
  cash used in operating activities:           |  |                          |             |      |   |            |  
|Provision for doubtful accounts                                                         |  |                          | 47,827      |      |   | 9,669      |  
|Depreciation and amortization                                                           |  |                          | 311,789     |      |   | 252,054    |  
|Accretion of discount on convertible notes
  payable and payable to stockholder         |  |                          |            |      |   | 19,998     |  
|Accretion of discount on payable to
  stockholder converted to equity prior to maturity |  |                          |            |      |   | 353,100    |  
|Discount on conversion of stockholder
debt                                              |  |                          | 784,678     |      |   |           |  
|Gain (loss) on disposal of assets                                                       |  |                          | 887         |      |   | (1,577     | )
|Changes in operating assets and
  liabilities, net of business acquired:                |  |                          |             |      |   |            |  
|Rents and other receivables                                                             |  |                          | (1,458,698  | )    |   | 505,337    |  
|Inventory                                                                               |  |                          | (11,372,281 | )    |   | (653,871   | )
|Advances to vendors and other current assets                                            |  |                          | 162,453     |      |   | (69,938    | )
|Accounts payable and accrued expenses                                                   |  |                          | 9,073,947   |      |   | (476,552   | )
|Deposits and advance payments                                                           |  |                          | 682,132     |      |   | 610,214    |  
|Other assets                                                                            |  |                          | 117,090     |      |   | (61,524    | )
|                                                                                        |  |                          |             |      |   |            |  
|Net cash used in operating activities                                                   |  |                          | (3,479,378  | )    |   | (1,307,556 | )
|                                                                                        |  |                          |             |      |   |            |  
|Cash flows from investing activities:                                                   |  |                          |             |      |   |            |  
|Purchase of acquired business, net of
cash                                              |  |                          | (1,014,290  | )    |   |           |  
|Purchase of property and equipment                                                      |  |                          | (169,097    | )    |   | (189,868   | )
|Proceeds from disposition of property and
  equipment                                   |  |                          | 43,289      |      |   | 159,037    |  
|                                                                                        |  |                          |             |      |   |            |  
|Net cash used in investing activities                                                   |  |                          | (1,140,098  | )    |   | (30,831    | )
|                                                                                        |  |                          |             |      |   |            |  
|Cash flows from financing activities:                                                   |  |                          |             |      |   |            |  
|Proceeds from payable to stockholder                                                    |  |                          | 1,630,200   |      |   | 1,744,035  |  
|Proceeds from notes payable, credit line
  and convertible notes payable                |  |                          | 6,408,281   |      |   | 1,580,067  |  
|Repayment of notes payable, credit line and
  payable to stockholder                    |  |                          | (5,510,178  | )    |   | (1,584,821 | )
|Proceeds from exercise of commom stock
  warrants                                       |  |                          | 137,500     |      |   |           |  
|Proceeds from sale of common stock                                                      |  |                          | 2,300,000   |      |   |           |  
|Payment of offering costs                                                               |  |                          | (303,292    | )    |   |           |  
|                                                                                        |  |                          |             |      |   |            |  
|Net cash provided by financing
activities                                               |  |                          | 4,662,511   |      |   | 1,739,281  |  
|                                                                                        |  |                          |             |      |   |            |  
|                                                                                        |  |                          |             |      |   |            |  
|Net increase in cash and cash
equivalents                                               |  |                          | 43,035      |      |   | 400,894    |  
|                                                                                        |  |                          |             |      |   |            |  
|Cash and cash equivalents, beginning of
  the year                                      |  |                          | 612,790     |      |   | 211,896    |  
|                                                                                        |  |                          |             |      |   |            |  
|Cash and cash equivalents, end of the year                                              |  | $                        | 655,825     |      | $ | 612,790    |  
|                                                                                        |  |                          |             |      |   |            |  
|Supplemental cash flow information:                                                     |  |                          |             |      |   |            |  
|Cash paid for interest                                                                  |  | $                        | 353,512     |      | $ | 224,106    |  
|                                                                                        |  |                          |             |      |   |            |  
|Cash paid for income taxes                                                              |  | $                        | 58,183      |      | $ | 38,155     |  
|                                                                                        |  |                          |             |      |   |            |  
|Stockholder and other debt converted to
  common stock                                  |  | $                        | 871,766     |      | $ | 1,900,000  |  
|                                                                                        |  |                          |             |      |   |            |  

See accompanying
notes to consolidated financial statements.

F-7

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Table of Contents

CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2006 and 2005

Notes To Consolidated Financial Statements



Restatement of Notes to Consolidated Financial Statements



The Notes to Consolidated Financial Statements for the years ended December 31, 2006 and 2005 have been restated to include additional information regarding inventory, accounts payable and floor plan lines of credit. The additional information, which is included in the following Notes 8 and 9, does not change any of the accompanying consolidated financial statements.



|    |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Summary
  of Significant Accounting Policies
|    |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | (a)                                          | Nature of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                              | CapSource Financial, Inc.
  (CapSource or the Company) is a U.S. corporation with its principal place of
  business in Boulder, Colorado. CapSource is a holding company that sells and leases
  dry van and refrigerated truck trailers through its wholly owned Mexican
  operating subsidiaries (Remolques y Sistemas Aliados de Transportación, S.A.
  de C.V, or RESALTA, and Rentas y Remolques de Mexico, S.A. de C.V., or
  REMEX). In addition, on May 1, 2006, the Company acquired, and began
  operating, the truck trailer sales business of Prime Time Equipment, Inc., a
  California based authorized dealer for Hyundai Translead trailers. The
  Company now operates the acquired business through its wholly owned U.S.
  subsidiary, CapSource Equipment Company, Inc., d/b/a Prime Time Trailers. The
  Company operates in one business segment, the sale and lease of trailers, and
  conducts business in two countries, the United States and Mexico.
|    |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                              | Prior to May 1, 2006, all
  of the Companys sales were generated in Mexico. For the years ended December
  31, 2006 and 2005, respectively, the geographic distribution of the Companys
  total revenue and total assets was:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                 |  |                                         |          |                                         |  |                |   |              |          |                 |  |              |   |                |          |              |  |       |   |   |         |  |  |       |  
| | --------------- |  | --------------------------------------- | -------- | --------------------------------------- |  | -------------- | - | ------------ | -------- | --------------- |  | ------------ | - | -------------- | -------- | ------------ |  | ----- | - | - | ------- |  |  | ----- | -
| |                 |  | Year Ended
  December 31, 2006
  $ 000s |          | Year Ended
  December 31, 2005
  $ 000s | 
| |                 |  |                                         |          |                                         | 
| | Country         |  | Total
  Revenue                         |          | % of
  Total                            |  | Total
  Assets |   | % of
  Total |          | Total
  Revenue |  | % of
  Total |   | Total
  Assets |          | % of
  Total | 
| |                 |  |                                         |          |                                         |  |                |   |              |          |                 | 
| | Mexico          |  | $                                       | 31,123.2 |                                         |  | 85.8           | % | $            | 15,036.6 |                 |  | 77.9         | % | $              | 20,608.5 |              |  | 100.0 | % | $ | 5,052.4 |  |  | 100.0 | %
| | United
  States |  |                                         | 5,163.1  |                                         |  | 14.2           | % |              | 4,277.1  |                 |  | 22.1         | % |                |         |              |  |      |   |   |        |  |  |      |  
| |                 |  |                                         |          |                                         |  |                |   |              |          |                 |  |              |   |                |          |              |  |       |   |   |         |  |  |       |  
| | Total           |  | $                                       | 36,286.3 |                                         |  | 100.0          | % | $            | 19,313.7 |                 |  | 100.0        | % | $              | 20,608.5 |              |  | 100.0 | % | $ | 5,052.4 |  |  | 100.0 | %
| |                 |  |                                         |          |                                         |  |                |   |              |          |                 |  |              |   |                |          |              |  |       |   |   |         |  |  |       |  

| |     |                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Liquidity                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                      
| |     | Since its inception, the
  Company has generated losses from operations, and as of December 31, 2006,
  had an accumulated deficit of $13,158,547 and working capital of $1,679,628.                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                      
| |     | On May 1, 2006, in
  conjunction with a private equity placement, the Company increased its equity
  by selling 5,000,000 shares of common stock for $2,000,000. In addition, the
  Companys Chairman and largest shareholder converted $871,866 of debt owed to
  him by the Company, into 2,179,664 shares of Company common stock (see Note
  7).
| |     |                                                                                                                                                                                                                                                                                                                                                      
| |     | Subsequently, on October
  30, 2006, the Company sold an additional 750,000 common shares to the
  investors for $300,000, as they exercised the right to purchase such
  additional shares pursuant to the private placement agreement.                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                      
| |     | On May 1, 2006, in
  conjunction with the acquisition of the Prime Time Trailer business, the
  Company obtained a revolving floor plan inventory line of credit of
  approximately $3,000,000, to finance the purchase of new and used truck
  trailer inventory in the United                                                                      

F-8

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Table of Contents

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | States. The floor plan
  notes, which bear interest at Prime Rate plus 1.25% (currently 9.50%) for new
  equipment and Prime Rate plus 1.75% (currently 9.75%) for used equipment, are
  secured by specific trailer inventory and are paid as each financed trailer
  is sold by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | On July 1, 2006, the
  Companys majority stockholder exercised warrants to purchase 125,000 shares
  of Company common stock at the exercise price of $1.10 per share, pursuant to
  the terms of the warrants, resulting in a net increase to stockholders
  equity of $137,500.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | On October 23, 2006, the
  Company and its Mexican operating subsidiary, RESALTA, obtained a floor plan
  inventory line of credit of $3,600,000, to finance the purchase and sale of
  new and used truck trailers in Mexico. The floor plan notes, which bear
  interest at LIBOR plus 4.17% (currently 9.50%), are secured by specific
  trailer inventory and are paid as each financed trailer is sold by the
  Company.                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | In addition to new debt
  and equity financing obtained by the Company, the Companys Chairman and
  largest stockholder has expressed his willingness and ability to continue to
  financially support the Company, at least through March 31, 2007 if needed,
  by way of additional debt and/or equity contributions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Management believes that the cash on hand at December 31, 2006, and cash expected to be generated by operations,
will provide sufficient operational funds for the next twelve months, and to satisfy obligations as they become due. If the
Company experiences occasional cash short-falls, management expects to cover them with funds provided by the Companys
Chairman and/or other major Company investors. However, until such time that we achieve profitability, we will need to seek additional debt and/or
equity funding to continue operations. Should our Chairman or other major Company investors fail to provide
additional financial support to the Company, if needed, or should we be unsuccessful in obtaining funding from third
parties, the Company could be forced to dramatically scale back its operations and activities.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (c) | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The preparation of
  consolidated 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 reported amounts of assets and
  liabilities and disclosure of contingent assets and liabilities at the date
  of the financial statements, as well as the reported amounts of revenue and
  expenses during the reporting period. Significant estimates include
  depreciation rates, allowance for impairment of equipment, residual values of
  operating leases and leased equipment, allowance for doubtful accounts,
  income tax valuation allowance and the fair value of beneficial conversion
  features. Actual results could differ significantly from those estimates.                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (d) | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The accompanying
  consolidated financial statements include the accounts of CapSource
  Financial, Inc. and its wholly owned subsidiaries. All significant
  intercompany balances and transactions have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (e) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Cash and cash equivalents
  include demand deposits and highly liquid investments with original
  maturities of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (f) | Allowance for Doubtful Accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | An allowance for doubtful
  accounts is maintained at levels determined by management to be adequate
  based upon specific identification of certain past-due accounts, which are in
  the legal collection process, and deemed to be improbable as to their
  collection. In addition, a general percentage allowance is provided for all
  other past-due accounts, based on account                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | aging. Past-due accounts
  are charged-off against the allowance when management considers that all
  practical efforts to collect the accounts have been exhausted. Accounts
  receivable are reviewed quarterly to determine the adequacy of the allowance
  for doubtful accounts. For the years ended December 31, 2006 and 2005, the
  allowance was increased by $47,827 and $9,669, respectively. There were no
  accounts charged-off against the allowance during the year ended December 31,
  2006. Accounts of $6,815 were charged-off against the allowance during the
  year ended December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (g) | Mexican Value-Added Tax Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Mexican value-added tax
  receivable is the excess of the value-added tax paid versus the value added
  tax collected, which the Company is in the process of collecting as a normal
  value-added tax refund from the Mexican government.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (h) | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Inventory represents
  trailers purchased for resale and is recorded at the lower of cost or market
  on a first-in first-out basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (i) | Recognition of Revenue From Equipment Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Revenue generated by the
  sale of trailer and semi-trailer equipment is recorded at the time the
  equipment is delivered to the buyer, provided the Company has evidence of an
  arrangement, the sale price is fixed or determinable and collectibility is
  reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (j) | Equipment Leasing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The Companys leases are classified
  as operating leases for all of the Companys leases and for all lease
  activity, as the lease contracts do not transfer substantially all of the
  benefits and risks of ownership of the equipment to the lessee and,
  accordingly, do not satisfy the criteria to be recognized as capital leases.
  In determining whether or not a lease qualifies as a capital lease, the
  Company must consider the estimated value of the equipment at lease
  termination or residual value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Leasing revenue consists
  principally of monthly rentals and related charges due from lessees. Leasing
  revenue is recognized ratably over the lease term. Deposits and advance
  rental payments are recorded as a liability until repaid or earned by the
  Company. Operating lease terms range from month-to-month rentals to five
  years. Initial direct costs (IDC) are capitalized and amortized over the
  lease term in proportion to the recognition of rental income. At December 31,
  2006 and 2005, the Company had no capitalized IDC. Depreciation expense and
  amortization of IDC are recorded as direct costs of trailers under operating
  leases in the accompanying consolidated statements of operations on a
  straight-line basis over the estimated useful life of the equipment. Residual
  values are estimated at lease inception equal to the estimated value to be
  received from the equipment following termination of the initial lease (which
  in certain circumstances includes anticipated re-lease proceeds) as
  determined by the Company. In estimating such values, the Company considers
  all relevant information and circumstances regarding the equipment and the
  lessee. Actual results could differ significantly from initial estimates,
  which could in turn result in impairment or other changes in future periods.
  At December 31, 2006, the Company had not recognized any impairment of
  equipment.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (k) | Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Equipment is recorded at
  cost. Trailer and semi-trailer equipment is depreciated on a straight-line
  basis over the estimated useful life of ten years. Vehicles are depreciated
  on a straight-line basis over the estimated useful life of three years.
  Furniture and computer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | equipment are depreciated on a straight-line basis
  over estimated useful lives ranging from three to ten years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (l) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The Company accounts for income taxes using the
  asset and liability method. Deferred tax assets and liabilities are
  recognized for the future tax consequences attributable to differences
  between the financial statement carrying amounts of existing assets and
  liabilities and their respective tax bases and operating loss and tax credit
  carryforwards. Deferred tax assets and liabilities are measured using enacted
  tax rates expected to apply to taxable income in the years in which those
  temporary differences are expected to be recovered or settled. The effect on
  deferred tax assets and liabilities of a change in tax rates is recognized in
  income in the period that includes the enactment date. A valuation allowance
  is recorded to the extent that management cannot conclude that realization of
  deferred tax assets is more likely than not.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (m) | Earnings Per
  Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The following summarizes the weighted-average common
  shares issued and outstanding for the three months and years ended December
  31, 2006 and 2005:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                                                       |  |              |            |      |  |           
|---------------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | ----------
|                                                                       |  | YEAR ENDED   |           
|                                                                       |  |              |           
|                                                                       |  | December 31, |           
|                                                                       |  | 2006         |            | 2005 | 
|                                                                       |  |              |            |      | 
|Common and common equivalent shares outstanding at beginning of period |  |              | 12,378,657 |      |  | 9,860,800 
|Common shares issued for cash                                          |  |              | 5,750,000  |      |  |          
|Common shares issued for conversion of debt                            |  |              | 2,179,664  |      |  | 2,517,857 
|Common shares issued for exercise of warrants                          |  |              | 125,000    |      |  |          
|                                                                       |  |              |            |      |  |           
|Common and common equivalent shares outstanding at end of
period       |  |              | 20,433,321 |      |  | 12,378,657
|                                                                       |  |              |            |      |  |           
|                                                                       |  |              |            |      |  |           
|Historical common equivalent shares outstanding at beginning of
period |  |              | 12,378,657 |      |  | 9,860,800 
|Weighted average common shares issued during period                    |  |              | 4,988,940  |      |  | 1,199,804 
|                                                                       |  |              |            |      |  |           
|Weighted average common shares                                         |  |              | 17,367,597 |      |  | 11,060,604
|                                                                       |  |              |            |      |  |           

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Basic loss per share is computed by dividing net
  loss by the weighted average number of common shares outstanding. Diluted
  loss per share is computed by dividing net loss by the weighted average
  number of common shares outstanding increased for potentially dilutive common
  shares outstanding during the period. The dilutive effect of equity instruments
  is calculated using the treasury stock method.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Warrants to purchase 9,276,998 and 937,334 common
  shares as of December 31, 2006 and 2005, respectively, were excluded from the
  treasury stock calculation because they were anti-dilutive due to the
  Companys net losses.                                                                                                                                                                                        

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Table of Contents

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (n) | Comprehensive
  Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Comprehensive income (loss) includes all changes in
  stockholders equity (net assets) from non-owner sources during the reporting
  period. Since inception, the Companys comprehensive loss has been the same
  as its net loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (o) | Allowance for Impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | An allowance for impairment is maintained at levels determined by management to adequately provide for any other
than temporary declines in asset values. In determining impairment, economic conditions, the activity in used equipment markets,
the effect of actions by equipment manufacturers, the financial condition of lessees, the expected courses of action by lessees
with regard to leased equipment at termination of the initial lease term, and other factors which management believes are
relevant, are considered. Recoverability of an assets value, including identifiable intangible assets, is measured by a
comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset. If a loss is
indicated, the loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of
the asset and is recognized in depreciation/amortization and direct costs of trailers. Asset dispositions are recorded upon the
termination or remarketing of the underlying assets. Assets are reviewed annually at December 31 to determine the adequacy of
the allowance for losses. As of December 31, 2006, Company management determined that there was no impairment to the carrying
value of inventory and other assets. As of December 31, 2005, Company management determined that there was impairment of
approximately $19,000 in the carrying value of inventory. This amount was recognized as cost of trailer sales in the
Companys Statement of Operations for the year ended December 31, 2005.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | As stated below in Note 2 of these Notes to
  Consolidated Financial Statements, on May 1, 2006, in the acquisition of a
  new subsidiary, the Company acquired certain assets and liabilities,
  including intangible assets. The Company allocated the acquisition purchase
  price of the acquired assets and liabilities based on managements estimate
  of fair values. The estimated fair value of the intangible assets will be
  tested for impairment annually, or more frequently when there is an
  indication that the assets may be impaired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (p) | Foreign Exchange
  Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The financial statements of the Companys Mexican
  subsidiaries, where the U.S. dollar is the functional currency, include
  transactions denominated in the local currency, which are remeasured into the
  U.S. dollar. The remeasurement of the local currency into U.S. dollars
  creates foreign exchange gains and losses that are included in other expense
  in the Companys Statement of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The accounts of the Companys Mexican subsidiaries
  are reported in the Mexican peso; however, all leases and generally all other
  activities are denominated in U.S. dollars. For those operations, certain
  assets and liabilities are remeasured into U.S. dollars at historical
  exchange rates and certain assets and liabilities are translated into U.S.
  dollars at period-end exchange rates. Income and expense accounts are
  translated at average monthly exchange rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (q) | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | On January 1, 2006, the Company began to measure the
  cost of its employee stock option plans and other employee stock-based
  compensation arrangements in accordance with the fair value provisions of
  Statement of Financial Accounting Standards No. 123R, Share Based Payment (SFAS No. 123R), using the modified prospective
method.
  SFAS No. 123R supersedes Accounting Principles Board Opinion No. 25,
  Accounting for Stock Issued to Employees (APB No. 25), which the Company previously followed in accounting for stock-based awards. In March
2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB No. 107) to provide guidance on SFAS 123R. The Company has applied SAB
107 in its adoption of SFAS 123R.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-12

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Table of Contents

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Prior to January 1, 2006,
  in accordance with APB No. 25, the Company did not recognize compensation
  expense in association with options or warrants granted at or above the
  market price of the Companys common stock at the date of grant. Upon
  adoption of the new accounting method, the Company uses the prospective
  transition method, under which financial statements for periods prior to the
  date of adoption were not adjusted for the change in accounting.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | For the year ended December 31, 2006, the Company
  did not issue any compensation related options or warrants. Therefore, as a
  result of adopting the new accounting standard, there was no effect on the
  Companys net loss for the year then ended.                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | The following table presents a reconciliation of
  reported net loss and per share information to pro forma net loss and per
  share information that would have been reported if the fair value method had
  been used to account for stock-based employee compensation in 2005.                                                                                                                                                                                                  

|                                                     |  |                                 |            |  
|---------------------------------------------------- |  | ------------------------------- | ---------- | -
|                                                     |  | Year Ended
  December 31
  2005 |           
|                                                     |  |                                 |           
|Net loss, as reported                                |  | $                               | (1,794,466 | )
|Deduct: SFAS No. 123R pro forma compensation expense |  |                                 | (80,000    | )
|                                                     |  |                                 |            |  
|                                                     |  |                                 |            |  
|Net loss, pro forma                                  |  | $                               | (1,874,466 | )
|                                                     |  |                                 |            |  
|                                                     |  |                                 |            |  
|Loss per share, pro forma                            |  | $                               | (0.17      | )
|                                                     |  |                                 |            |  
|Loss per share, as reported                          |  | $                               | (0.16      | )
|                                                     |  |                                 |            |  

| |  |                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The fair value per share of the compensation related
  warrants granted in 2005 was $0.46. This fair value was estimated on the date
  of grant using the Black-Scholes option-pricing model and the following
  assumptions:

|                        |  |                                 |   | 
|----------------------- |  | ------------------------------- | - | 
|                        |  | Year Ended
  December 31
  2005 |  
|                        |  |                                 |  
|Risk-free interest rate |  | 4.38                            | % | 
|Expected life           |  | 5 years                         |  
|Expected volatility     |  | 100.0                           | % | 
|Expected dividend yield |  | 0.0                             | % | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (r) | Effects of Recent
  Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |     | In February 2006, the Financial Accounting Standards
  Board issued Statement of Financial Accounting Standards No. 155, Accounting
  for Certain Hybrid Financial Instruments, (SFAS No. 155). SFAS No. 155
  amends SFAS No 133, Accounting for Derivative Instruments and Hedging
  Activities, and SFAS No. 140, Accounting for Transfers and Servicing of
  Financial Assets and Extinguishments of Liabilities. SFAS No. 155, permits
  fair value remeasurement for any hybrid financial instrument that contains an
  embedded derivative that otherwise would require bifurcation, clarifies which
  interest-only strips and

F-13

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | principal-only strips are not subject to the
  requirements of SFAS No. 133, establishes a requirement to evaluate interest
  in securitized financial assets to identify interests that are freestanding
  derivatives or that are hybrid financial instruments that contain an embedded
  derivative requiring bifurcation, clarifies that concentrations of credit
  risk in the form of subordination are not embedded derivatives, and amends
  SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose
  entity from holding a derivative financial instrument that pertains to a
  beneficial interest other than another derivative financial instrument. This
  Statement will be effective for the Companys year ending December 31, 2007. Company
  management does not expect this Statement to have a significant impact on the
  Companys financial statements.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | In March 2006, FASB issued SFAS 156 Accounting for
  Servicing of Financial Assets, (SFAS No. 156). This Statement amends SFAS
  No. 140, Accounting for Transfers and Servicing of Financial Assets and
  Extinguishments of Liabilities, with respect to the accounting for
  separately recognized servicing assets and servicing liabilities. This
  statement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |  |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |  | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | Requires an entity to recognize a servicing asset or
  servicing liability each time it undertakes an obligation to service a
  financial asset by entering into a servicing contract.                                                                                                                                                                                                                                                                                                                                                       
| |  |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |  |  | Requires all separately recognized servicing assets
  and servicing liabilities to be initially measured at fair value, if
  practicable.                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |  |  | Permits an entity to choose Amortization method or
  Fair value measurement method for each class of separately recognized
  servicing assets and servicing liabilities:                                                                                                                                                                                                                                                                                                                                                                 
| |  |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |  |  | At its initial adoption, permits a one-time
  reclassification of available-for-sale securities to trading securities by
  entities with recognized servicing rights, without calling into question the
  treatment of other available-for-sale securities under Statement 115, provided
  that the available-for-sale securities are identified in some manner as
  offsetting the entitys exposure to changes in fair value of servicing assets
  or servicing liabilities that a servicer elects to subsequently measure at
  fair value.
| |  |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |  |  | Requires separate presentation of servicing assets
  and servicing liabilities subsequently measured at fair value in the
  statement of financial position and additional disclosures for all separately
  recognized servicing assets and servicing liabilities.                                                                                                                                                                                                                                                                           

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | This Statement will be effective for the Companys
  year ending December 31, 2007. The Company is currently evaluating the
  effects this Statement will have on its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | In June 2006, the Financial Accounting Standards
  Board issued FASB Interpretation No. 48, Accounting for Uncertainty in
  Income Taxes. The Interpretation clarifies the accounting for uncertainty in
  income taxes recognized in an enterprises financial statements in accordance
  with Statement of Financial Accounting Standards No. 109, Accounting
  for Income Taxes, and will be effective for the Companys year ending
  December 31, 2007, although earlier application is permitted. The
  Interpretation prescribes a recognition threshold and measurement attribute
  for the financial statement recognition and measurement of a tax position
  taken or expected to be taken in a tax return. The Interpretation also
  provides guidance on the derecognition, classification, interest and
  penalties, accounting in

F-14

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Table of Contents

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | interim periods, disclosure, and transition. The
  Company is currently evaluating the effects this Interpretation will have on
  its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | In September 2006, the Securities and Exchange
  Commission issued Staff Accounting Bulletin No. 108, Considering the Effects
  of Prior Year Misstatements when Quantifying Misstatements in Current Year
  Financial Statements, (SAB 108). SAB 108 was issued to provide interpretive
  guidance on how the effects of the carryover or reversal of prior year
  misstatements should be considered in quantifying a current year
  misstatement. The provisions of SAB 108 were effective for the Company for
  its year ending December 31, 2006. The adoption of SAB 108 had no impact on
  the Companys 2006 financial statements.                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | In September 2006, the Financial Accounting
  Standards Board issued Statement of Financial Accounting Standards No. 157,
  Fair Value Measurements, (SFAS No. 157). SFAS No. 157 defines fair value,
  establishes a framework for measuring fair value in generally accepted
  accounting principles, and expands disclosures about fair value measurements.
  The provisions of this standard apply to other accounting pronouncements that
  require or permit fair value measurements. This Statement will be effective
  for the Companys year ending December 31, 2008. Upon adoption, the
  provisions of SFAS No. 157 are to be applied prospectively with limited
  exceptions. Company management does not expect this Statement to have a
  significant impact on the Companys financial statements.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(2) | Acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On May 1, 2006, the Company, through its wholly-owned subsidiary CapSource Equipment Company, Inc., a Nevada
corporation (CECO), entered into an Asset Purchase Agreement with Prime Time Equipment, Inc. (Prime Time),
a Fontana, California based authorized California dealer for Hyundai Translead trailers and its shareholder, Kenneth Moore, to
purchase substantially all of Prime Times assets and business for total consideration of approximately $1,970,000, of which
$1,014,290 was paid in cash at closing, and the balance consisted of the assumption of certain liabilities that will be paid in
due course. The total purchase price consideration of $1,970,000 has been allocated to the net assets acquired, including
identifiable intangible assets, based on Company managements estimate of the respective fair values at the date of
acquisition. Such estimate resulted in a valuation of $498,390 for intangible assets, comprised of a non-competition agreement,
and the value of acquired customer lists. As indicated in Note 1(o), above, the fair values of the intangible assets are subject
to periodic reviews, at least yearly, for possible impairment to their carrying values.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company acquired Prime Time in order to expand
  its operations into the California market as part of its strategic plan to
  provide equipment and services along the major transportation corridors to
  and from Mexico. In addition, the acquisition allows the Company to diversify
  its concentration in Mexico. The results of Prime Times operations have been
  included in the Companys consolidated financial statements since May 1,
  2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The purchase price allocation is as follows (in
  thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-15

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Table of Contents

| |                                          |  |   |         |  
| | ---------------------------------------- |  | - | ------- | -
| | Intangibles:                             |  |   |         |  
| | Non-compete agreement and customer lists |  | $ | 498.3   |  
|
| | Tangible assets acquired:                |  |   |         |  
| | Accounts receivable                      |  |   | 412.0   |  
| | Inventory                                |  |   | 1,035.3 |  
| | Other assets                             |  |   | 24.0    |  
| |                                          |  |   |         |  
|
| | Total assets                             |  |   | 1,969.6 |  
|
| | Liabilities assumed:                     |  |   |         |  
| | Accrued payable                          |  |   | (93.3   | )
| | Short-term debt                          |  |   | (862.0  | )
| |                                          |  |   |         |  
|
| | Net assets acquired                      |  | $ | 1,014.3 |  
| |                                          |  |   |         |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Considering the terms of the non-compete agreement
  and the composition of the customer lists, these intangible assets are
  amortized over a 5 year period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Unaudited
  pro forma results of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The unaudited pro forma
  condensed consolidated results of operations have been derived from the
  historical financial statements of CapSource Financial, Inc. and Subsidiaries
  (CapSource) and Prime Time Equipment, Inc. (Prime Time) and gives effect
  to the acquisition of the operating assets of Prime Time by CapSource using
  the purchase method of accounting for business combinations. In addition, the
  pro forma information includes the effect of the private equity placement
  made by CapSource to provide funding to allow the acquisition of the
  operating assets of Prime Time. The Prime Time assets acquired and the
  liabilities assumed are recorded at fair values. The unaudited pro forma
  condensed consolidated statements of operations for the years ended December
  31, 2006 and 2005 assume the private equity placement and the acquisition
  took place on January 1, 2005. The unaudited pro forma condensed consolidated
  statements of operations may not necessarily be indicative of the actual
  operating results that would have occurred had the transactions been
  consummated at the beginning of the periods presented for which such
  transactions have been given effect, nor are they necessarily indicative of
  the consolidated results of future periods.

F-16

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Table of Contents

CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIESUnadited Pro Forma Condensed
Consolidated Statement Of Operations
For The Years Ended December 31 2006 And 2005

| |                                               |  |      |            |      |   |            |  
| | --------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
| |                                               |  | 2006 |            | 2005 |  
| | Net sales and rental
  income                 |  | $    | 40,384,150 |      | $ | 46,964,955 |  
| | Net loss                                      |  | $    | (1,689,528 | )    | $ | (1,452,737 | )
| | Net loss per basic and
  diluted common share |  | $    | (0.08      | )    | $ | (0.08      | )

|    |                                                                      
|--- | ---------------------------------------------------------------------
|(3) | Property and Equipment                                               
|    |                                                                      
|    | At December 31, 2006 and 2005, equipment consists of
  the following:

| |                                    |  |      |            |      |   |           |  
| | ---------------------------------- |  | ---- | ---------- | ---- | - | --------- | -
| |                                    |  | 2006 |            | 2005 |  
| |                                    |  |      |            |      |  
| |                                    |  |      |            |      |   |           |  
| | Trailer and semi-trailer equipment |  | $    | 2,036,366  |      | $ | 2,057,285 |  
| | Vehicles                           |  |      | 108,729    |      |   | 68,230    |  
| | Furniture and computer equipment   |  |      | 156,996    |      |   | 140,557   |  
| |                                    |  |      |            |      |   |           |  
| |                                    |  |      | 2,302,091  |      |   | 2,266,072 |  
| | Accumulated depreciation           |  |      | (1,167,040 | )    |   | (996,320  | )
| |                                    |  |      |            |      |   |           |  
|
| | Total property and equipment, net  |  | $    | 1,135,051  |      | $ | 1,269,752 |  
| |                                    |  |      |            |      |   |           |  

|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(4) | Future Minimum Rental Income                                                                                                         
|    |                                                                                                                                      
|    | Future minimum lease payments receivable from
  noncancelable operating leases on equipment as of December 31, 2006 are as
  follows:

|                         |  |   |         | 
|------------------------ |  | - | ------- | 
|Year ending December
31: |  |   |         | 
|2007                     |  | $ | 384,447 | 
|2008                     |  |   | 210,327 | 
|2009                     |  |   | 71,415  | 
|2010                     |  |   | 25,021  | 
|2011                     |  |   | 7,667   | 
|                         |  |   |         | 
|                         |  |   |         | 
|                         |  | $ | 698,877 | 
|                         |  |   |         | 

F-17

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Table of Contents

|    |                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Significant Customers and Suppliers                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                  
|    | Significant Customers:                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                  
|    | The Companys customers are located in the United
  States and in Mexico. Revenue from sales and leases are denominated in U.S.
  dollars. During the years 2006 and 2005, revenue from customers who represent
  10% or greater of total revenue are as follows:

| |            |  |      |            |      |   |            | 
| | ---------- |  | ---- | ---------- | ---- | - | ---------- | 
| | Customer   |  | 2006 |            | 2005 |  
| |            |  |      |            |      |  
| |            |  |      |            |      |   |            | 
| | Customer A |  | $    | 13,299,055 |      | $ | 11,292,195 | 
| | Customer B |  | $    | 7,556,201  |      |   |           | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Significant Suppliers:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The Company relies primarily on one major supplier, Hyundai Translead and its Mexican subsidiary, to provide the
majority of its new trailer inventory for sale or lease. The Company recently reached agreement with Hyundai Translead to begin
selling Hyundai trailers in Texas, in addition to its distribution agreements to sell Hyundai trailers in Mexico and in the
western United States. Company management believes that its relationship with Hyundai is excellent, and that its distribution
agreements with Hyundai will continue to be renewed on a periodic basis. However, if that relationship were to be terminated, it
would have a material adverse effect on the Companys business. In such a case, if the Company were not able to immediately
obtain new trailer inventory from another source, the Company could experience a significant reduction in sales, and related
declines in gross profit and operating earnings.

|    |                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(6) | Notes Payable                                                                                                                 
|    |                                                                                                                               
|    | At December 31, 2006 and 2005, notes payable consist of unpaid principal and accrued interest, payable at the
following rates:

| |                                                                         |  |      |            |      |   |            |  
| | ----------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
| |                                                                         |  | 2006 |            | 2005 |  
| |                                                                         |  |      |            |      |  
|
| | 9.0% notes, due January 5,
  2009                                       |  | $    | 508,280    |      | $ | 504,000    |  
| | 10.0% notes, due January 5,
  2008                                      |  |      | 80,680     |      |   | 80,000     |  
| | 10.0% notes, due January 5,
  2007                                      |  |      | 70,594     |      |   | 70,000     |  
| | 9.0% notes, due January 5,
  2009                                       |  |      | 193,631    |      |   | 192,000    |  
| | Prime rate(8.25% at 12-31-06)
  plus 1.0% notes, due Feb 28, 2008       |  |      | 251,964    |      |   |           |  
| | Prime rate(8.25% at
  12-31-06) plus 1.0% revolving floor plan notes    |  |      | 2,106,669  |      |   |           |  
| | LIBOR rate(5.33% at
  12-31-06) plus 4.17% revolving floor plan notes   |  |      | 1,060,947  |      |   |           |  
| | Prime rate (7.0 at
  12-31-05) plus 2.0% bank notes, due August 6, 2006 |  |      |           |      |   | 1,622,209  |  
| |                                                                         |  |      |            |      |   |            |  
| | Total notes payable                                                     |  |      | 4,272,765  |      |   | 2,468,209  |  
| |                                                                         |  |      |            |      |   |            |  
| | Less: current portion                                                   |  |      | (3,246,765 | )    |   | (2,126,209 | )
| |                                                                         |  |      |            |      |   |            |  
| |                                                                         |  |      |            |      |   |            |  
| | Long-term notes payable, less current
portion                           |  | $    | 1,026,000  |      | $ | 342,000    |  
| |                                                                         |  |      |            |      |   |            |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On May 1, 2006, in conjunction with the acquisition of the Prime Time Trailer business, the Company obtained a
revolving floor plan inventory line of credit of approximately $3,000,000 from Navistar Financial Corporation, to finance the
purchase of new and used truck trailer inventory in the United States. The floor plan notes, which bear interest at Prime Rate
plus 1.00% (currently 9.25%) for new equipment and Prime Rate plus 1.50% (currently 9.75%) for used equipment, are secured by
specific trailer inventory and are paid as each financed trailer is sold by the Company. The line of credit has no stated maturity
date.

F-18

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition, on October 23, 2006, the Company and its Mexican operating subsidiary, RESALTA, obtained a revolving
floor plan inventory line of credit of $3,600,000 from Financieros Navistar S.A. de C.V. (Mexican subsidiary of Navistar Financial
Corporation), to finance the purchase and sale of new and used truck trailers in Mexico. The floor plan notes, which bear interest
at LIBOR plus 4.17% (currently 9.50%), are secured by specific trailer inventory and are paid as each financed trailer is sold by
the Company. The line of credit has no stated maturity date.                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The floor plan credit lines in both Mexico and in the United States are revolving credit lines with no specific
maturity dates. Both the Company and the lenders may cancel the credit lines at any time, by written notice to the other party.
The Company may not pledge the financed trailer inventory as security under any other financing agreements, and must notify the
lender of any material adverse change in the Companys business or financial condition. In addition, the Company must
maintain the trailer inventory in good condition, and must carry sufficient insurance covering the inventory against such risks
usually carried by owners of similar businesses.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Neither Navistar Financial Corporation nor Financieros Navistar S.A. de C.V. is related to the Companys
suppliers of truck trailer inventory. As such, the cash flow associated with the floor plan inventory lines of credit is
classified in the Consolidated Statements of Cash Flows as cash flows resulting from financing activities.                                                                                                                                                                                                                                                                                                                                          

|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(7) | Payable to Stockholder                                                            
|    |                                                                                   
|    | At December 31, 2006 and
  2005, payable to stockholder consists of the following:

| |                                                                              |  |      |            |      |   |          |  
| | ---------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | -------- | -
| |                                                                              |  | 2006 |            | 2005 |  
| |                                                                              |  |      |            |      |  
| | LIBOR rate(5.33% at
  12-31-06) plus 2.0% notes, due Aug 31, 2007, unsecured |  | $    | 1,546,668  |      | $ |         |  
| | Prime rate (7.0 at
  12-31-05) plus 1.0% notes, October 15, 2006, unsecured  |  |      |           |      |   | 832,705  |  
| |                                                                              |  |      |            |      |   |          |  
| |                                                                              |  |      |            |      |   |          |  
| | Total payable to stockholder                                                 |  |      | 1,546,668  |      |   | 832,705  |  
| |                                                                              |  |      |            |      |   |          |  
| | Less: current portion                                                        |  |      | (1,546,668 | )    |   | (832,705 | )
| |                                                                              |  |      |            |      |   |          |  
| |                                                                              |  |      |            |      |   |          |  
| | Long-term notes payable,
  less current portion                              |  | $    |           |      | $ |         |  
| |                                                                              |  |      |            |      |   |          |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In conjunction with the private equity placement on
  May 1, 2006, the Companys Chairman and largest shareholder converted
  $871,866 of debt owed to him by the Company into 2,179,664 shares of common
  stock at $0.40 per share. Since the shareholders debt was converted at a
  price discount of $0.36 per share less than the last public trade prior to
  May 1, 2006 of $0.76 per share, the Company recognized a loss on the
  extinguishment of the shareholder debt of the total discount of $784,678.
  This non-cash loss is recorded in selling, general and administrative
  expenses in the Companys consolidated statement of operations for the nine
  months ended September 30, 2006.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In August 31, 2006, the Companys Chairman and
  largest shareholder loaned $1,600,000 to the Company. The proceeds were used
  to repay the bank note that was due on August 6, 2006, and extended to August
  31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Non-cash interest expense recognized for the year
  ended December 31, 2005 totaled $353,100, related to the amortization of a
  beneficial conversion feature discount on convertible notes payable to
  stockholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Maturities of the Companys aggregate debt by year
  are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                           |  |   |           | 
| | ------------------------- |  | - | --------- | 
| | Year ended
  December 31: |  |   |           | 
| |                           |  |   |           | 
| | 2007                      |  | $ | 4,793,433 | 
| | 2008                      |  |   | 330,000   | 
| | 2009                      |  |   | 696,000   | 

F-19

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Table of Contents

(8)
        Inventory, Notes Payable and Credit Line




The Company funds the purchase of some of its inventory under floor plan credit lines that are secured by specific trailer inventory. As of December 31, 2006 and 2005, the Company had the following inventory balances, floor plan financing debt and other unsecured short term debt:



December 31,2006
        
        December 31,2005InventoryInventory, securitizing floor plan line of credit
        
        $
        3,169,902
        
        $
        Inventory, other
        
        
        10,431,429
        
        
        1,193,701Total Inventory
        
        $
        13,601,331
        
        $
        1,193,701Notes payable and line of creditFloor plan line of credit, secured by inventory
        
        $
        3,167,615
        
        $
        Other unsecured notes payable
        
        
        79,150
        
        
        2,126,209Total short-term notes payable and line of credit
        
        $
        3,246,765
        
        $
        2,126,209




As reported in the Consolidated Statements of Cash Flows, during the years ended December 31, 2006 and 2005, the Company received proceeds from notes payable, credit line and convertible notes payable of $6,408,281 and $1,580,067, respectively. The proceeds of $6,408,281 received during 2006 included $5,793,375 in conjunction with the floor plan lines of credit. During the years ended December 31, 2006 and 2005, the Company repaid debt of $5,510,178 and $1,584,821, respectively. The debt repayment of $5,510,178 in 2006 included $3,517,555 against the floor plan lines of credit.

(9)
        Accounts Payable and Accrued Expenses


The Company purchases the majority of its new trailer inventory from Hyundai Translead, under non-interest bearing credit terms allowing payment of the corresponding accounts payable over extended periods. Following is a summary of the Companys accounts payable and accrued expenses as of December 31, 2006 and 2005:

December 31,2006
        
        December 31,2005Accounts payable and accrued expensesAccounts payable to Hyundai Translead
        
        $
        8,745,911
        
        $
        Other accounts payable and accrued expenses
        
        
        1,091,918
        
        
        532,582Total accounts payable and accrued expenses
        
        $
        9,837,829
        
        $
        532,582


F-20

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Table of Contents

|     |                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Income Taxes                                                                                                                                                                                 
|     |                                                                                                                                                                                              
|     | Income tax benefit (expense) for the years ended
  December 31, 2006 and 2005 differ from the amount computed by applying
  the U.S. federal income tax rate of 34% because of the following:

| |                                                                                                                                                  |  |      |          |      |   |          |  
| | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -------- | ---- | - | -------- | -
| |                                                                                                                                                  |  | 2006 |          | 2005 |  
| |                                                                                                                                                  |  |      |          |      |  
| | Computed expected tax benefit                                                                                                                    |  | $    | 605,370  |      | $ | 592,577  |  
| | Reduction (increase) in income taxes resulting from:                                                                                             |  |      |          |      |   |          |  
| | State and local
  taxes, net of federal benefit and other                                                                                        |  |      | 51,715   |      |   | 26,143   |  
| | Alternative
  foreign tax                                                                                                                        |  |      | (46,644  | )    |   | (51,592  | )
| | Adjustment for
  changes in enacted tax laws and rates, and the effects of indexation of
  utilized and expired net operating loss carryforwards |  |      | (27,588  | )    |   | (30,686  | )
| | Increase in
  valuation allowance                                                                                                                |  |      | (631,554 | )    |   | (588,034 | )
| |                                                                                                                                                  |  |      |          |      |   |          |  
| |                                                                                                                                                  |  |      |          |      |   |          |  
| | Income tax expense                                                                                                                               |  | $    | (48,701  | )    | $ | (51,592  | )
| |                                                                                                                                                  |  |      |          |      |   |          |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Losses before income taxes from U.S. operations were
  approximately $2,080,300 in 2006 and $1,227,000 in 2005. Income before income
  taxes from Mexican operations was $299,800 in 2006 and a loss before income
  taxes of $515,500 in 2005.                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The net income tax expense of $48,701 in 2006 and $51,592 in 2005 primarily represents an alternative tax on
assets of $46,644 and $51,592 in 2006 and 2005, respectively, incurred by the Companys Mexican operations. This alternative
tax is applicable to some Mexican corporations that have no taxable earnings. The 2006 income tax expense includes approximately
$800 of income tax related to the Companys U.S. operations and $1,300 of income tax related to the Companys Mexican
operations.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The adjustment for changes to enacted laws and rates
  resulted from the benefit to the Companys Mexican operations of indexing the
  net operating loss carryforwards, partially offset by the reduction to 28% of
  the Mexican income tax rate being applied to the net operating loss carryforwards,
  as well as the reduction due to the application and expiration of prior year
  net operating loss carryforwards.                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The tax effect of temporary differences that give
  rise to significant portions of deferred tax assets at December 31, 2006 and
  2005 are presented below:                                                                                                                                                                                                                                                                                                                                                

|                                         |  |      |            |      |   |            |  
|---------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                         |  | 2006 |            | 2005 |  
|                                         |  |      |            |      |   |            |  
|Deferred tax assets:                     |  |      |            |      |   |            |  
|Allowance for
  doubtful accounts        |  | $    | 16,910     |      | $ | 3,644      |  
|Accrued expenses
  and customer advances |  |      | 650,409    |      |   | 314,496    |  
|Net operating
  loss carryforwards       |  |      | 3,168,097  |      |   | 2,881,855  |  
|                                         |  |      |            |      |   |            |  
|                                         |  |      |            |      |   |            |  
|Total gross
  deferred tax assets        |  |      | 3,835,416  |      |   | 3,199,995  |  
|                                         |  |      |            |      |   |            |  
|Deferred tax liabilities:                |  |      |            |      |   |            |  
|Prepaid expenses                         |  |      | 12,233     |      |   | 8,366      |  
|                                         |  |      |            |      |   |            |  
|Total gross
  deferred tax liabilities   |  |      | 12,233     |      |   | 8,366      |  
|                                         |  |      |            |      |   |            |  
|Less valuation allowance                 |  |      | (3,823,183 | )    |   | (3,191,629 | )
|                                         |  |      |            |      |   |            |  
|Net deferred tax
  assets                |  | $    |           |      | $ |           |  
|                                         |  |      |            |      |   |            |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of December 31, 2006, the Company had U.S.
  federal and state net operating loss carryforwards of approximately $4.8
  million, which are available to offset future federal taxable income and
  expire at various dates from 2017 through 2026. The Companys Mexican
  operations had net operating loss carryforwards of approximately $4.4 million
  that will expire at various dates from 2007 through 2015.                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In assessing the realizability of deferred tax
  assets, management considers whether it is more likely than not that some
  portion or all of the deferred tax assets will not be realized. The ultimate
  realization of deferred tax assets is dependent upon the generation of future
  taxable income during periods in which those temporary differences are
  deductible. Due to historical losses, realization of tax assets is not
  assured and, accordingly, management has recognized a valuation allowance for
  all deferred income tax assets for all periods presented.

F-21

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Table of Contents

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(11) | Common and Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | The Company has authority to issue different classes
  of common stock and preferred stock up to a total of 100,000,000 shares. At
  December 31, 2006 and 2005, no shares of preferred stock or other classes of
  common stock have been issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | On May 1, 2006, the Company increased its equity through a private equity placement, selling 5,000,000 shares of
common stock at $0.40 per share for $2,000,000, together with warrants to purchase another 5,000,000 shares of Company common
stock at an exercise price of $0.90 per share (warrant shares). In addition, the private placement agreements granted
the investors the right to purchase a total of an additional 750,000 shares of common stock at $0.40 per share for $300,000, for a
period of up to 180 days after the private placement date. The investors exercised this right to purchase the additional shares on
October 30, 2006, resulting in a total of 5,750,000 shares being issued to the investors in conjunction with the private equity
placement. In addition, since the investors exercised this right to purchase additional shares, the number of shares covered by
the warrants correspondingly increased to a total of 5,750,000 warrant shares.                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | In
  conjunction with the private equity placement on May 1, 2006, the Companys
  Chairman and largest shareholder converted $871,866 of debt owed to him by
  the Company into 2,179,664 shares of common stock at $0.40 per share, and
  received warrants to purchase another 2,179,664 shares of common
  stock at an exercise price of $.90 per share. Since the shareholders debt
  was converted at a price discount of $0.36 per share less than the last
  public trade prior to May 1, 2006 of $0.76 per share, the Company recognized
  a loss on the extinguishment of the shareholder debt of the total discount of
  $784,678. This non-cash loss is recorded in selling, general and
  administrative expenses in the Companys consolidated statement of operations
  for the year ended September 30, 2006.                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | As partial
  compensation for services, the placement agent that coordinated the private
  equity placement initially received a warrant to purchase 500,000 shares of
  Company common stock at $0.48 per share, together with another warrant
  (Sub-Warrant) to purchase up to another 500,000 shares of common stock at
  $1.08 per share. The placement agent warrant and Sub-Warrant shares were
  automatically increased by 75,000 additional shares each, when the investors
  exercised their right to purchase the additional 750,000 shares on October
  30, 2006. The placement agent warrants to purchase 575,000 shares are
  immediately exercisable, and have a five-year life. The Company estimated the
  value of these warrants to be approximately $446,142, using the Black-Scholes
  option pricing model, under the following assumptions; volatility of 100%, risk
  free interest rate of 4.99% and expected dividend yield of 0%. The Company
  recognized the warrants as a component of additional paid-in capital with a
  corresponding reduction in additional paid-in capital to reflect this as a
  non-cash cost of the public offering.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | Proceeds
  from the private equity placement totaled $2,300,000, and are offset by cash
  offering costs of $303,292 incurred in 2006, $81,284 incurred in prior years,
  and $138,000 pending to be paid as of December 31, 2006, as well as the non-cash
  offering cost of $446,142 related to the fair value of the placement
  warrants. The resulting net increase to stockholder equity was $1,777,424. In
  addition, the conversion of the Companys debt of $871,866 with the Chairman
  and largest stockholder, and the related discount of $784,678, resulted in a
  net increase to stockholder equity of $1,656,544. The combined impact of the
  concurrent equity transactions was a net increase to stockholders equity of
  $3,433,968.                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | On July 1,
  2006, the Companys majority stockholder exercised warrants to purchase
  125,000 shares of Company common stock at the exercise price of $1.10 per
  share, pursuant to the terms of the warrants, resulting in a net increase to
  stockholders equity of $137,500.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | On February
  18, 2005, the Companys Chairman and largest stockholder converted $1,100,000
  of Company notes payable into 1,375,000 shares of Company common stock at a
  price of $0.80 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | On December
  28, 2005, the Companys Chairman and largest stockholder converted $800,000
  of Company notes payable and accrued interest into 1,142,857 shares of
  Company common stock at a price of $0.70 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-22

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In December 2005, the Company issued warrants to directors to purchase 175,000 shares of common stock at $0.70 per
share. These warrants are immediately exercisable and have a five-year life. Prior to January 1, 2006, the Company applied the
intrinsic value based method in accounting for stock options, warrants and awards to employees, and qualified awards to
non-employee directors. Accordingly, no compensation expense was recorded related to the grant in 2005 as the exercise price of
the warrants was equal to the estimated fair value at the issue date.                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In addition, in August 2003, the Company issued warrants to a third party to purchase 34,834 shares of common
stock at $2.45, as partial compensation for performing underwriting services related to the public stock offering of the Company
during 2003. These warrants have a four-year life. The Company estimated the value of these warrants to be approximately $42,000,
using the Black-Scholes option pricing model, under the following assumptions; volatility of 110%, risk free interest rate of
2.49% and expected dividend yield of 0%. The Company recognized the warrants as a component of additional paid in capital with a
corresponding reduction in additional paid-in capital to reflect this as a cost of the public offering.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In April
  2001, in conjunction with a private placement offering to sell its common stock,
  the Company issued 20,000 A Warrants and 20,000 B Warrants. Each A Warrant
  was exercisable immediately and for a period of two years from the date of
  issue into one share of common stock at an exercise price per share of $2.50.
  As of December 31, 2006, the 20,000 A Warrants have expired. Each B Warrant
  is exercisable immediately and for a period of five years from the date of
  issue into one share of common stock at an exercise price per share of $5.00.
  The Warrants are callable by the Company at $0.05 each.                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | On February
  16, 2001, the Company adopted the 2001 Omnibus Stock Option and Incentive
  Plan (the Plan). The Plan provides that options to purchase shares of the
  Companys common stock may be granted to key employees, directors,
  consultants and others who are expected to provide significant services to
  the Company. The exercise price of the options ranges between 85% to 110% of
  the fair value of the Companys common stock at the date of grant depending
  on the type of option and optionee. The aggregate number of shares that can
  be issued under the Plan is 550,000. As of December 31, 2006, no options have
  been issued under the Plan.                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The
  following summarizes information about outstanding warrants at December 31,
  2006:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                   |  |                                    |           |                                                              |  |                                    |  |   |           | 
| | --------------------------------- |  | ---------------------------------- | --------- | ------------------------------------------------------------ |  | ---------------------------------- |  | - | --------- | 
| | Exercise prices                   |  | Number of
  Warrants
  Outstanding |           | Weighted-average
  Remaining
  contractual life
  (in years) |  | Number of
  Warrants
  Exercisable | 
| |                                   |  |                                    |           |                                                              |  |                                    | 
| | $0.48                             |  |                                    | 575,000   |                                                              |  | 4.3                                |  |   | 575,000   | 
| | $0.70                             |  |                                    | 175,000   |                                                              |  | 4.0                                |  |   | 175,000   | 
| | $0.80                             |  |                                    | 137,500   |                                                              |  | 3.0                                |  |   | 137,500   | 
| | $0.90                             |  |                                    | 7,929,664 |                                                              |  | 4.3                                |  |   | 7,929,664 | 
| | $1.30                             |  |                                    | 125,000   |                                                              |  | 0.3                                |  |   | 125,000   | 
| | $1.75                             |  |                                    | 300,000   |                                                              |  | 1.5                                |  |   | 300,000   | 
| | $2.45                             |  |                                    | 34,834    |                                                              |  | 0.7                                |  |   | 34,834    | 
| |                                   |  |                                    |           |                                                              |  |                                    |  |   |           | 
| |                                   |  |                                    | 9,276,998 |                                                              |  | 4.2                                |  |   | 9,276,998 | 
| |                                   |  |                                    |           |                                                              |  |                                    |  |   |           | 
| |                                   |  |                                    |           |                                                              |  |                                    |  |   |           | 
| | Weighted-average exercise
  price |  | $                                  | 0.91      |                                                              |  |                                    |  | $ | 0.91      | 
| |                                   |  |                                    |           |                                                              |  |                                    |  |   |           | 

F-23

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Table of Contents

|     |                                                                                                                                                                                                                                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | Commitments and Contingencies                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                            
|     | Lease/Rental
  Obligations:                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                            
|     | The Company
  leases office space and trailer sale facilities under noncancelable operating
  leases. The leases contain renewal options and provide for annual escalation
  for utilities, taxes and service costs. Rent expense was $270,114 and
  $153,708 for the years ended December 31, 2006 and 2005, respectively.

| |                                                                             
| | ----------------------------------------------------------------------------
| | Minimum
  future rental payments required under these leases are as follows:

|                           |  |   |         | 
|-------------------------- |  | - | ------- | 
|Year
  ending December 31: |  |   |         | 
|2007                       |  | $ | 203,541 | 
|2008                       |  |   | 24,000  | 
|                           |  |   |         | 
|                           |  | $ | 227,541 | 
|                           |  |   |         | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Distribution
  Contract:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | On February
  11, 2005, the Company extended its contract with Hyundai Translead to sell
  and distribute Hyundai trailers in Mexico. The previous agreement expired by
  its terms in November, 2004. Under the terms of the contact, Hyundai grants
  the Companys Mexican subsidiary, RESALTA, the exclusive right to sell
  Hyundai trailers and parts in Mexico. In addition, Hyundai Translead provides
  a credit facility of $1,000,000 to facilitate the Companys inventory of
  Hyundai trailers in Mexico. The credit facility is guaranteed by a pledge of
  1,000,000 shares of Company stock owned by its Chairman Randolph Pentel. The
  agreement does not require the Company to meet any minimum purchase
  requirements. The contract expires in November of 2007.                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Purchase
  Commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | As of
  December 31, 2006, the Company had committed to purchase additional trailers
  from Hyundai Translead, at a total purchase price of approximately
  $10,330,800, towards which the Company had made down payments of
  approximately $698,500. Under the terms of the commitment, the Company must
  pay Hyundai the remaining balance due of approximately $9,632,300 upon taking
  delivery of the trailers. In addition, the Company has placed further,
  unconfirmed orders for delivery during 2007 to ensure an uninterrupted supply
  sufficient to meet anticipated customer demand in 2007.                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Registration
  Rights Obligation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In
  conjunction with the private equity placement that took place on May 1, 2006,
  the Company is required to prepare and file with the Securities and Exchange
  Commission, a registration statement covering all the shares that were or
  could be issued as a result of the transaction. The Company complied with
  this requirement by filing such registration statement Form SB-2
  (Registration Statement) on October 5, 2006. However, the Company also is
  obligated to have caused such Registration Statement to become effective
  within 180 days of May 1, 2006. Any delays in meeting the obligation to have
  the Registration Statement declared effective within 180 days of May 1, 2006
  will result in the Company being liable to the investors in an amount equal
  to one percent per month (or any part thereof) of the purchase price paid for
  the shares, and, if exercised, the warrant shares, for the duration of any
  such delay.

F-24

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of March
  23, 2007, the Registration Statement has not been declared effective. The
  Company will be required to pay the investors the penalty fee of $23,000 for
  each month (or part thereof) that the effective date of the Registration
  Statement is delayed, unless the investors waive such fee. The registration
  rights agreement does not limit the amount of fees that would have to be paid
  if the effective date of the registration statement is delayed indefinitely.
  Thus, the annual fee obligation for such a delay would be approximately
  $276,000. However, Company management anticipates that the registration
  statement will become effective by April 30, 2007, resulting in a penalty fee
  of $138,000. This estimated fee is included in Offering costs as reported in
  the Companys Consolidated Statement of Stockholders Equity as of December
  31, 2006. The corresponding liability is included in Accounts payable and
  accrued expenses as reported in the Companys Consolidated Balance Sheet as
  of December 31, 2006. Any adjustment to the estimated penalty fee liability
  resulting from the Registration Statement becoming effective either before or
  after April 30, 2007, will be reflected in the Companys Consolidated
  Statement of Operations for the period in which the adjustment is made.

|     |                                                                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13) | Fair Value of Financial Instruments                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                 
|     | The carrying
  amounts of cash, rents receivable, other receivables, accounts payable,
  accrued expenses, deposits and advance payments approximate their fair value
  because of the short maturity of these instruments.                                                     
|     |                                                                                                                                                                                                                                                                                 
|     | The carrying
  amounts of the payable to stockholder and convertible notes payable
  approximate fair value (before discount) because the interest rates are based
  on currently offered rates by lending institutions for similar debt
  instruments of comparable maturities.

F-25

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