UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB
(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, 2004

                                       OR

( )         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number: 1-31730

                            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
                                               --------------

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 ( ) NO

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 (X)

Issuer's revenues for the fiscal year ended December 31, 2004 were $7,217,275.

The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of April 8, 2005 was approximately $300,000.

The Registrant had 11,235,800 shares of Common Stock outstanding as of April 8,
2005.

The following documents are incorporated by reference: Registrant's prospectus
filed pursuant to Rule 424(b)(3) on April 7, 2003.

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


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                                TABLE OF CONTENTS
                                                                        Page No.
                                                                        --------

PART I.........................................................................3
   ITEM 1.     DESCRIPTION OF BUSINESS.........................................3
   ITEM 2.     DESCRIPTION OF PROPERTY.........................................9
   ITEM 3.     LEGAL PROCEEDINGS...............................................9
   ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............9
PART II.......................................................................10
   ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......10
   ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS...........................14
   ITEM 7.     FINANCIAL STATEMENTS...........................................18
   ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE....................................18
   ITEM 8A.    CONTROLS AND PROCEDURES........................................19
   ITEM 8B.    OTHER INFORMATION..............................................19
PART III......................................................................20
   ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS;
                    COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT........ 20
   ITEM 10.    EXECUTIVE COMPENSATION.........................................22
   ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.23
   ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................25
   ITEM 13     EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K........25
   ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................26
SIGNATURES....................................................................28























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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

                          FORWARDING LOOKING STATEMENTS

         This Form 10-KSB contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"). These statements appear in a number of places in
this Form 10-KSB and include statements regarding the intent, belief or current
expectations of CapSource Financial, Inc., the "Company" with respect to (i) the
Company's financing plans, (ii) trends affecting the Company's financial
condition or results of operations, (iii) the impact of competition, and (iv)
the expansion of certain operations. Investors 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.

                          GENERAL BUSINESS DEVELOPMENT

         Trailers Modernos International, Inc. ("TMI") was established June 19,
1992, as a United States company incorporated in the State of Virginia. TMI
formed a wholly owned Mexican operating subsidiary, named Trailers Modernos S.A.
de C.V. ("TMSA"), located in Mexico City. TMI and TMSA spent several years
attempting to establish a truck trailer manufacturing, truck stops and truck
trailer leasing business in Mexico.

         As part of its efforts to obtain private financing, TMI, on February
16, 1996, formed a wholly owned subsidiary, named Mexican-American-Canadian
Trailers Leasing, Inc. ("MAC"), a United States corporation incorporated in
Colorado. MAC also formed a wholly owned Mexican subsidiary, named Trailers
Modernos Arrendamiento S.A. de C.V. ("TMA"). Upon incorporation, MAC exchanged
1,000,000 of its shares of common stock with TMI for title to equipment (19
truck van trailers).

         In response to efforts to obtain private financing, Randolph Pentel
invested approximately $400,000 for 399,950 shares of MAC common stock. TMI then
requested Mr. Pentel to loan MAC $500,000 as a bridge loan to be used to
purchase additional equipment and for working capital. The bridge loan was
secured by a pledge of 500,000 of the 1,000,000 shares of MAC common stock owned
by TMI and all rights to any lease payments generated by the equipment purchased
with the proceeds from the bridge loan in the event of a default. MAC defaulted
on the bridge loan in August of 1997, and Mr. Pentel foreclosed on the 500,000
shares of MAC common stock that served as collateral for the bridge loan. In
1998, we determined that the North American Free Trade Agreement and the
resulting substantial increase in trade among the signatory countries presented
a significant business opportunity. To capitalize on this opportunity, at a
meeting of MAC and TMI stockholders on January 8, 1998, the current management
group took control of MAC by electing new directors of MAC and resolving all
issues regarding title to certain MAC rolling stock and management agreements
between MAC and its subsidiary and TMI and its subsidiary, thereby gaining
control of Mexican-American-Canadian Trailer Rentals, Inc., the predecessor to
CapSource.

         A holding company structure was adopted and the business's name was
changed to CapSource Financial, Inc. to reflect our business strategy more
accurately. Since that time, CapSource has operated independently from TMI and
its subsidiary and a member of the current management group has invested
approximately $7.56 million of additional equity capital in the Company.

                                    BUSINESS
GENERAL

         CapSource Financial, Inc. 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 two wholly
owned Mexican operating subsidiaries. As is customary in Mexico, the operating
companies have an associated service company that employs all of the personnel
who perform services for the operating companies. The service company invoices
the operating companies 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.

         RESALTA, CapSource's wholly owned subsidiary, sells new Hyundai truck
trailers and related equipment in Mexico, as well as used trailer equipment and
trailer repair services. RESALTA was formed in 2001 to take advantage of an
agreement


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negotiated between CapSource and Hyundai which provides CapSource with the
exclusive right to market and sell Hyundai truck trailers and parts. Hyundai
markets its products directly and through a network of dealers in the U.S.

         REMEX, CapSource's wholly owned subsidiary, the successor to
Mexican-American-Canadian Trailer Rentals' Mexican operations, operates
primarily as the equipment leasing arm of CapSource, with headquarters in Mexico
City. REMEX currently leases truck trailers and related equipment to contract
carriers and private fleets in Mexico. As of December 31, 2004, REMEX had 146
units in its lease/rental pool with an approximate aggregate cost of $2,400,000,
of which 110 were on lease. All leases are operating leases, whereby we retain
title to and ownership of the equipment.


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. (Source: 2001 CIA World Factbook). Mexico has an estimated
population of 98.5 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. (Source: WHAT IS NAFTA, Wall Street Journal, September 15, 1993, p.
A18, providing a summary of the contents of the five volume North American Free
Trade Agreement). 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. (Source: Fact Sheet
on NAFTA, The White House, President George W. Bush, April 22, 2001). 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. (Source: Joint Statement of United States Trade Representative Robert B.
Zoellick, Canadian Minister for International Trade Pierre S. Pettigrew, and
Mexican Secretary of Economy Luis Ernesto Derbez, following the July 31, 2001
meeting of the NAFTA Free Trade Commission). Mexico exported $139 billion to its
NAFTA partners in 2001, 225 percent more than in 1993, the year prior to the
start of NAFTA implementation. U.S.-Mexico bilateral trade surpassed U.S.-Japan
bilateral trade, which placed Mexico as the United States' second largest
trading partner. (Source: U.S. Mexico Chamber of Commerce; U.S. Bureau of the
Census). Trucks carry 90% of the trade between Mexico and the United States.
(Source: Closing the Border under NAFTA: The Strength of the Teamsters or
Weakness of Leadership?, James Giermanski, Capital Research Center, February
2000). 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%.

         On November 27, 2002, President George W. Bush announced his decision
to open U.S. highways to Mexican trucks beyond the 20-mile commercial border
zones, which is the current limitation for Mexican trucks entering the United
States. Motor carriers domiciled in Mexico operating in the United States will
be subject to the same Federal and State laws, regulations and procedures,
including safety regulations that apply to carriers domiciled in the United
States. President Bush's decision complies with a provision of NAFTA. Mexican
rigs currently transfer their cargo to U.S. trucks that carry the loads to
points within the United States. In December 2002, a coalition of environmental,
labor and trucking industry groups requested the 9th U.S. Circuit Court of
Appeals to issue an emergency stay of President Bush's decision to open U.S.
highways to Mexican trucks. On January 16, 2003, the 9th Circuit Court of
Appeals ruled that the Bush administration violated federal environmental law by
opening the border to Mexican-domiciled trucks without first reviewing possible
environmental impacts. The Court held that the government must first complete an
environmental impact statement under the National Environmental Policy Act and a
conformity statement under the Clean Air Act before it can enact rules allowing
Mexican trucks into the U.S. Accordingly, it is not known when, if ever, Mexican
trucks will be allowed into the U.S., beyond the 20 mile commercial border zone.


BUSINESS AND EXPANSION STRATEGY

         CapSource's executive management works with the operating company
management team at REMEX and RESALTA to formulate and implement business plans
and strategies consistent with our overall corporate goals. Our subsidiaries are
party to inter-company service agreements whereby 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.



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         We intend to expand our business operations through the acquisition of
existing businesses and the integration of acquired businesses with existing
operations.

         In evaluating potential acquisitions, we consider the following
factors:

o        The geographic location of the candidate. Our first priority is to
         acquire candidates located in areas where we believe the market for
         services is strong and growing and the candidate represents a strong
         contributor in that market. We also consider the ease with which such
         businesses can be integrated into our existing operations. Once we have
         entered a region, we may seek to increase our presence in the region
         through expansion of our existing operations, additional acquisitions
         and/or new business opportunities;

o        The candidate's profitability. We seek to acquire businesses that are
         profitable at the time of acquisition. We also review other financial
         factors such as historic levels of revenue and earnings and the
         opportunity to increase profitability through operational improvements;

o        The candidate's existing and potential customer base. We seek to
         acquire businesses with a strong customer base and a reputation for
         high quality service. We attempt to retain key personnel through the
         use of employment agreements containing noncompetitive provisions and
         incentive programs. In addition, we assess the probability of being
         able to expand the existing lease base; and

o        Each candidate is evaluated for potential synergy with our existing
         businesses.

         We are engaged in discussions with prospective acquisition candidates
and are in the process of exchanging information with certain of these
candidates. Although we would like to make one or more acquisitions in the next
twelve months, as of the date of this annual report we have not agreed to make
any acquisitions and no assurance can be given as to whether, when, or on what
terms any such possible acquisitions may be completed. We expect that any
acquisition would require seller financing, debt or equity financing or a
combination of some or all these financing techniques that will be decided on a
case-by-case basis.


REMOLQUES Y SISTEMAS ALIADOS DE TRANSPORTACION, S.A. DE C.V. (D/B/A  RESALTA)

         On November 17, 2000, CapSource executed an agreement with Hyundai
Translead, giving CapSource and/or its subsidiary RESALTA, exclusive
distribution rights for Hyundai truck trailers and related equipment in Mexico.
The original agreement has been subsequently renewed, providing CapSource with
continuing exclusivity until at least 2007.

         HYUNDAI AGREEMENT. On February 11, 2005, the Company entered into a new
agreement with Hyundai Translead to extend its contract to sell and distribute
Hyundai trailers in Mexico. The previous agreement expired by its terms in
November, 2004. Under the terms of the new contact, Hyundai grants RESALTA, the
exclusive right to sell Hyundai trailers and parts in Mexico. In addition,
Hyundai Translead will provide a credit facility of $1,000,000 to facilitate the
Company's inventory of Hyundai trailers in Mexico. In contrast with the prior
contract, the new agreement does not require the Company to meet any minimum
purchase requirements. The contract expires in November of 2007.

         HYUNDAI. Hyundai is a global conglomerate engaged in insurance,
shipbuilding, engineering and construction, electronics and automotive as well
as other businesses.

         Hyundai owns and operates a maquiladora plant in Tijuana, Mexico. The
facility produces van trailers, refrigerated trailers known as reefers,
container chassis and domestic and refrigerated containers for the U.S. market.
For the past two decades, Hyundai has been the largest manufacturer of sea going
containers in the world. Hyundai is one of the largest container chassis
suppliers in the U.S. market.

         Hyundai's manufacturing process and quality assurance system have been
internationally recognized by achieving ISO 9002 certification. Hyundai is the
first North American trailer and container manufacturer to receive ISO 9002
designation. Made with American components, Hyundai trailers feature many
standard features that are optional on competitive trailers. Hyundai markets its
products both directly and through dealers in the U.S. Hyundai's agreement with
RESALTA represents its initial entry into the Mexican market.

         RESALTA BUSINESS STRATEGY. The Mexican economy saw significant growth
in 2000 when gross domestic product increased approximately 6.9% (Source:
Banamex). The recent global economic slowdown has also affected the Mexican
economy where the GDP growth in 2001 was a negative 0.3% (Source: Banamex). In
2002, Mexico's GDP grew by 0.9%. Nevertheless, we believe the transportation
sector of the Mexican economy is investing to replace and grow infrastructure
based upon increased

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traffic due to NAFTA. We believe that Hyundai is the lowest cost producer of van
trailers in North America. We believe this gives us a competitive advantage.

         Management expects the majority of sales will be dry vans and
refrigerated trailers sold pursuant to the Hyundai Agreement. However, RESALTA
intends to supplement its dry van business by adding other types of trailers as
follows:

         o        flat beds;
         o        bulk hoppers;
         o        livestock trailers;
         o        trailer dollies; and
         o        after-market equipment, etc.

         RESALTA COMPETITION. Since the passage of NAFTA, the Mexican van
trailer market has been dominated by one U.S. manufacturer, Utility, and its
independent distributor, Utility de Mexico, and four Mexican manufacturers,
Fruehauf de Mexico, Ramirez, Caytrasa and Altamirano. While no reliable market
statistics are available, we believe that Utility de Mexico has been gaining
market share and is now the dominant distributor in the market. A number of U.S.
manufacturers have sold trailers in Mexico but have not developed a significant
presence in the market.

         We believe that companies with the most efficient manufacturing
operations, the lowest cost of manufacturing, the lowest transportation costs
and the most efficient distributions systems will dominate the market. We
believe that RESALTA and Hyundai are well positioned in this regard.

         RESALTA OPERATIONS. During the initial months of operations in 2001, we
focused on establishing brand recognition of the Hyundai name, specifically
emphasizing the quality and reliability of Hyundai trailers. We established
sales offices in Mexico City and Monterrey and developed a network of
independent sales personnel, in order to cover the major transportation centers
in Mexico. We introduced Hyundai products at a major Mexican transportation
trade show, ExpoTransporte in Guadalajara. In addition, RESALTA is working
jointly with REMEX, the equipment-leasing subsidiary of CapSource, whereby
RESALTA supplies equipment to REMEX, which REMEX then leases directly to its
customers.

         RESALTA completed its first sale in August 2001. The overall economic
downturn, exacerbated by the tragic events of September 11, 2001, negatively
impacted our entry into the Mexican market. After suffering sporadic sales in
early 2002, our sales, revenue and earnings began to grow by the second half of
that year. In the first quarter of 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.
Consequently, in 2003, we achieved a 70% trailer sales volume growth versus
2002. Subsequently, in 2004, our volume continued to climb, increasing an
additional 20% over 2003. Our 2004 volume growth was slowed by a lack of
trailers available for sale in 2004.

INVENTORY SUPPLY

         The effective management of trailer inventory is critical to
CapSource's success. The Company's primary supplier is Hyundai Translead, which
produces all of its trailers for distribution in North America, at its one large
production facility in Tijuana, Mexico. In January 2004, the demand for
additional trucking equipment in North America increased significantly. Hyundai,
as well as most of the other North American trailer manufacturers, experienced a
backlog of orders for trailer production. Accordingly, we experienced some
delivery delays and shortages from Hyundai, causing some customers to seek
alternate suppliers. This backlog continued through November of 2004. As of
December 31, 2004, we had an adequate supply of inventory, as the order backlog
seems to have abated. In addition, we had committed inventory production orders
with Hyundai for 2005. We anticipate that Hyundai will provide us with
sufficient trailer volume during 2005, to allow us to continue our growth
without hindrance. However, there is no assurance that Hyundai will not
experience additional delivery delays or shortages during 2005.

RENTAS Y REMOLQUES DE MEXICO, S.A. DE C. V. (D/B/A REMEX)

         REMEX is engaged in equipment leasing with headquarters in Mexico City.
REMEX currently focuses on leasing truck trailer equipment to customers of
RESALTA, which prefer to lease rather than buy. REMEX's primary customers are
contract carriers and private fleets. REMEX will consider leasing other types of
capital equipment where market conditions are favorable.

         REMEX BUSINESS STRATEGY. Mexico has replaced Japan as the U.S.'s second
largest trading partner. The net effect has been an explosion in cross-border
shipments. (Source: U.S. Customs Service, Inspection and Control Division and
Texas A&M International University). The growth in shipping has resulted in a
substantial increase in demand for truck trailers. Moreover, there



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is a need to generally upgrade Mexican transportation infrastructure. Further,
CapSource anticipates that Mexican companies, like their U.S. counterparts, will
attempt to out-source their transportation fleets and fleet management in order
to utilize a variable cost approach to operating their businesses. We believe
REMEX is well positioned to capitalize on these economic and regulatory changes.

         Mexico suffers from a chronic shortage of investment capital and a
relatively high cost of borrowing. These factors argue against the direct
ownership of capital equipment. REMEX's leasing services offer an alternative to
direct equipment ownership. REMEX offers triple-net operating leases. REMEX
arranges for the license, insurance and taxes relating to the leased equipment.
REMEX leases are typically mid-term - from one to five years. The customer pays
all costs and returns the equipment to REMEX at the end of the lease term. REMEX
does not offer financial or full payout leases.

         Mid-term operating lease rates are usually higher than finance lease
rates but lower than short-term rental rates. REMEX leases generally result in
the recovery of the full cost of the leased equipment during the initial term of
the lease. However, to realize an acceptable return on our investment, we must
re-lease or sell the equipment. Accordingly, at the beginning of each lease,
REMEX estimates the value of the used equipment or residual value at the end of
the term of the lease. To the extent that the sale or release of the equipment
results in more or less proceeds to REMEX than the residual value that is
carried on REMEX's book, the actual profit and rate of return on the invested
capital will vary. REMEX focuses on mid-term operating leases because it
believes that such leases provide the optimal balance between risk and return -
a high rate of return on invested capital and an acceptable level of risk.

         REMEX occasionally offers short-term leases at rates that are higher
than mid-term leases in order to keep overall fleet utilization at maximum
levels and maximize cash flow.

         REMEX TARGET MARKETS. REMEX has targeted small to mid-size companies
that are financially stable, adequately capitalized, well managed with strong
growth potential and good credit. Management is focused on opportunities to
lease equipment which is non-specialized including dry vans, flat beds and
trailer dollies. However, REMEX occasionally leases more specialized equipment
if the term of the lease and the rate of return justify the added risks of these
leases. Of particular interest are business sectors which have recently been or
are in the process of being privatized, such as railroads, port facilities and
grain collection, warehousing and distribution, where REMEX can become the
predominant lessor.

         REMEX COMPETITION. Competition for REMEX comes from three main areas:

o        other firms offering operating leases;
o        financial leases; and
o        other financing arrangements.

         In Mexico, as compared to the United States, the leasing business is in
its infancy and, accordingly, competition for the leasing of truck trailers is
somewhat limited.

         With respect to operating leases, REMEX has two primary competitors,
XTRA Mexicana, S.A. de C.V. and TIP de Mexico, S.A. de C.V. They are the Mexican
subsidiaries of the two largest U.S. firms offering operating leases to the
transportation industry, XTRA Corporation located in Boston, MA and the TIP
division of GE Capital Services, a unit of General Electric Company located in
Fairfield, CT. Nevertheless, they too are relatively new to the Mexican market,
both since the passage of NAFTA in 1994.

         Financial leases are an alternative to operating leases. Captive truck
leasing firms, including PACCAR Leasing, Volvo Credit and Mercedes Benz Leasing,
occasionally offer to put trailers on lease along with their trucks to enhance
truck sales. In addition, there are a number of firms, major financial
institutions including banks and asset based lenders, which offer financial
leases and/or other financing arrangements.

         REMEX OPERATIONS. Doing business in Mexico is relationship oriented.
The Director General of REMEX is responsible for new business generation which
is accomplished by developing relationships with and soliciting business
directly from potential lessees or through relationships with manufacturers of
transportation equipment and/or their distributors. In order to achieve its
growth objectives, management anticipates it will expand its sales and marketing
activities through the addition of one or more employees whose time would be
devoted to such activities. By assisting these manufacturers and/or their
distributors in providing timely, convenient and competitive financing for their
equipment sales and offering a variety of value-added services, REMEX
simultaneously promotes their equipment sales and the utilization of REMEX as
the equipment finance provider. Leases are originated as a result of REMEX's
sales and marketing activities. REMEX employs underwriting policies and
procedures that are intended to minimize the risk of delinquencies and credit
losses.

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<PAGE>

         REMEX's servicing responsibilities generally include billing,
processing payments, paying taxes and insurance and performing collection and
liquidation functions. Currently, REMEX performs all of the servicing functions
for its leases. REMEX primarily acquires trailers and related equipment from
Hyundai Translead, through RESALTA. Equipment purchasing is generally driven by
the lessee's requirements. The lessee usually specifies the type of equipment to
be leased. Specifications typically include:

o        the trailer type,
o        structural elements,
o        length,
o        suspension - mechanical or air ride, and
o        tires, brakes and other features.

         These specifications are usually driven by a combination of the
lessee's customer's need, current fleet composition and operating experience,
equipment cost and availability, the lessee's requirements and other factors.
Generally REMEX does not acquire equipment without a commitment to lease.

         We have one customer who represents more than ten percent of REMEX's
rental income. The loss of this significant customer could have a material
adverse effect on our business. We can offer no assurance that this significant
customer will continue to choose REMEX for its trailer rental needs.

         REMEX ASSET POOL. As of December 31, 2004, REMEX had 146 units in its
lease/rental asset pool with an original cost of $2.40 million. Our utilization
rate was 75%, as several units that came off lease during the fourth quarter of
2004, were not released until early in 2005. As of March 21, 2005, our
utilization rate is 85%. Utilization is a key measure of a leasing company's
operating performance. Based on in-house research, leasing company utilization
in the U.S. generally falls in the range of 65-85%. REMEX's utilization
historically has exceeded 85%.

         REMEX AND RESALTA SERVICE SUBSIDIARY. As is the custom in Mexico, REMEX
and RESALTA have an associated service company. The assets reside in the primary
operating subsidiaries, while the service company employs the employees. The
sole purpose for the service company is to hire and retain the employees who
provide the services. The service company has a service contract with the
operating companies and invoices them for the total personnel costs incurred on
a monthly basis. This operating structure, which is the 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. REMEX, RESALTA and
their service company are located in Mexico City and are wholly owned by
CapSource. However, because Mexican law requires that all Mexican companies have
a Mexican shareholder, Lynch Grattan, our director of Mexican operations, holds
one share each of REMEX, RESALTA and their service company to comply with
Mexican law.

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.

EMPLOYEES

         At December 31, 2004, we had 17 full-time and no part-time employees,
and one consultant supplying financial management services. None of our
employees are subject to any collective bargaining agreements and we believe
that our relations with our employees are good. In addition to our employees, we
have exclusive contracts with several independent sales representatives to sell
trailers and parts throughout Mexico.

                                       8
<PAGE>

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. The Company was delinquent in filing Form 10-KSB
for the fiscal year ended December 31, 2003. However, the delinquent Form 10-KSB
was filed May 4, 2004. This report 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 20529. 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, 2004.
CapSource will prospectively furnish to stockholders:

o        an annual report containing financial information audited by our
         independent registered public accounting firm;
o        unaudited financial statements for each quarter of the current fiscal
         year; and
o        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 1250 square feet of commercial
office space at 2305 Canyon Boulevard, Suite 103, Boulder, Colorado 80302, under
a renewable lease that will expire on May 31, 2006. Mr. Boethling is reimbursed
in the approximate amount of $1,500 per month for the use of this space. 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.
RESALTA and REMEX together lease a 32,000 square feet trailer sales / storage
yard, along with approximately 3,400 square feet of commercial office space in
Mexico City, from an unrelated third party, under a renewable lease expiring
December 31, 2005, at a rental rate of approximately $7,600 per month. RESALTA
also leases approximately 18,000 square feet of trailer sales / storage yard,
along with approximately 500 square feet of commercial office space in
Monterrey, Mexico from an unrelated third party under a renewable lease that
will expire March 31, 2007, at a rental rate of approximately $2,430 per month.
We believe that our facilities are adequate for our foreseeable needs.

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

         The Company incorporates by reference the information contained in
Schedule 14C Information Statement filed on June 23, 2004.









                                       9
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information:

         The Company currently is listed on the NASDAQ over-the-counter bulletin
board (OTC:BB) under the trading symbol: CPSO. After concluding the initial
public stock offering in 2003, the shares of Company 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 ENDED DECEMBER 31, 2004              High                 Low
----------------------------              ----                ----
Quarter ended December 31, 2004           $1.30               $0.55
Quarter ended September 30, 2004          $1.30               $1.30
Quarter ended June 30, 2004               $1.50               $1.30
Quarter ended March 31, 2004              $1.40               $1.25

YEAR ENDED DECEMBER 31, 2003
----------------------------
The Company concluded its initial public stock offering in July 2003, having
sold 348,339 shares of Company common stock at $1.75 per share. Subsequent to
the conclusion of the initial public stock offering, there were no bids to
purchase Company common stock during the remainder of the year ended December
31, 2003.

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 65 holders of record of the Company's common
stock as of December 31, 2004.

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.














                                       10
<PAGE>

Securities Authorized for Issuance Under Equity Compensation Plans
------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             Equity Compensation Plan Information
                                                             ------------------------------------

                     Plan category               Number of securities to be    Weighted average exercise     Number of securities
                                                  issued upon exercise of         price of outstanding     remaining available for
                                                    outstanding options,         options, warrants and         future issuance
                                                    warrants and rights                  rights

                                                            (a)                           (b)                        (c)

<S>                                                            <C>                       <C>                      <C>
         Equity compensation plans approved by                 0                          N/A                     550,000
         security holders,  2001 Stock Option Plan

         Equity compensation plans not approved by       887,334                        $1.44                          --
         security holders,  Discretionary Warrants

         Total                                           887,334                        $1.44                     550,000
</TABLE>


WARRANTS

         At December 31, 2004, we had outstanding warrants to purchase a total
of 887,334 shares of common stock exercisable at prices ranging from $0.80 per
share to $5.00 per share and expiring at varying times through December 31,
2009. Such warrants were issued in a number of financing transactions, in
connection with consulting arrangements, underwriting agreements 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 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,
directors and advisors. The aggregate number of shares of common stock that can
be awarded under the plan is 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 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 person holding 10% or more of
our stock. However, we do not intend to issue any options 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 outstanding options to
purchase shares 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, 2004:

<TABLE>
<CAPTION>
                                  Principal
                                    Amount        Date           Rate        Convertible        Conversion Rate         Maturity
                                  -----------    --------     ------------   -----------   --------------------         --------
<S>                               <C>            <C>               <C>            <C>      <C>                          <C>
Patricia and Gary Dolphus         $    70,000    12/31/03          10%            No       Not Applicable               01/05/06

Frederick J. and Jean D. Huppert  $    50,000    04/16/02          11%           Yes       25% discount to market       04/16/05

Steven J. Kutcher,
(Custodian for
Anthony J. Kutcher, UTMA)         $    40,000    12/31/03          10%            No       Not Applicable               01/05/06

Steven J. Kutcher,
(Custodian for Nicole E.
Kutcher, UTMA)                    $    40,000    12/31/03          10%            No       Not Applicable               01/05/06
</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                  Principal
                                    Amount        Date           Rate        Convertible        Conversion Rate         Maturity
                                  -----------    --------     ------------   -----------   --------------------         --------
<S>                               <C>            <C>               <C>            <C>      <C>                          <C>

Irwin Pentel                      $   192,000    12/31/04          10%            No       Not Applicable               01/05/07
Irwin Pentel                      $    50,000    06/17/01          11%           Yes       25% discount to market       06/17/05

Randy Pentel                      $   753,021    12/31/04     Prime + 1.0%        No       Not Applicable               04/15/06
Randy Pentel                      $ 1,100,000    12/31/04         None            No       $0.80 per share            Conversion

Marshall Bank                     $   401,733    12/24/04     Prime + 2.0%        No       Not Applicable               01/24/06

Church of the Risen Messiah
(Credit line up to $250,000 -
interest accrued)                 $   250,000    12/31/03          10%            No       Not Applicable               01/05/05

Joyce L. Birch                    $   504,000    12/31/03          10%            No       Not Applicable               04/01/06
</TABLE>

TERMS OF THE NOTES. The notes bear interest at various rates ranging from 6.5%
to 11%. Interest on the notes is payable monthly. The principal amount of each
note is payable at maturity. The notes mature at various times between January
5, 2005 and January 5, 2007. 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 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.

Conversion of Notes. Randy Pentel, the Company's Chairman and majority
stockholder agreed to renegotiate the terms of certain notes payable to
stockholder in the amount of $1,100,000 as of December 31, 2004 in contemplation
of converting the debt to equity. Subsequently, on February 18, 2005, the
stockholder converted the related debt to common stock of the Company at a
conversion price of $0.80 per common share.

RECENT SALES OF UNREGISTERED SECURITIES

During the past four years, we have sold the following securities pursuant to
exemptions from registration under the Securities Act of 1933, as amended (the
"Securities Act"):

         1.       In January 2001, CapSource issued 168,280 shares of common
                  stock to Randolph M. Pentel in exchange for cash of $168,280.

         2.       In April 2001, CapSource issued 20,000 shares of common stock,
                  together with warrants to purchase 20,000 shares of common
                  stock at $2.50 per share that expired 5/1/03, and warrants to
                  purchase 20,000 shares of common stock at $5.00 per share that
                  expire 5/1/06 to Gary and Patricia Dolphus in exchange for
                  cash of $50,000.

         3.       In May 2001, CapSource issued a 12%, $192,280 convertible
                  promissory note to Irwin Pentel in exchange for cash of
                  $192,280. The note subsequently matured and was renewed as a
                  non-convertible note, and matures January 5, 2007.

         4.       In June 2001, CapSource issued a 12%, $554,880 (interest
                  accrued) promissory note to Randolph M. Pentel in exchange for
                  cash of $544,880. The note was to mature on December 31, 2003,
                  but was converted to common stock of the Company prior to that
                  date.

         5.       In June 2001, CapSource issued an 11%, $50,000 convertible
                  promissory note to Irwin Pentel in exchange for $50,000. The
                  note is convertible to common stock at a 25% discount to
                  market price and matures June 2005.

         6.       In August 2001, CapSource issued a 12%, $53,000 convertible
                  promissory note to Patricia and Gary Dolphus, in exchange for
                  cash of $53,000. The note was convertible to common stock at a
                  25% discount to market price and matured August 2003. That
                  note matured and was cancelled by the Company without
                  conversion.

         7.       In October 2001, CapSource issued a 14%, $87,000 convertible
                  promissory note to Patricia and Gary Dolphus, in exchange for
                  cash of $87,000. The note was convertible to common stock at a
                  25% discount to market price and matured October 2003. Upon
                  maturity, the Company cancelled $17,000 of the note without
                  conversion. The remaining balance of $70,000 was renewed as a
                  non-convertible note, 10% interest, and matures January 5,
                  2006.

         8.       In November 2001, CapSource issued a 12%, $40,000 convertible
                  promissory note to Steven J. Kutcher, Custodian for Anthony J.
                  Kutcher, UTMA, in exchange for cash of $40,000. The note was
                  convertible to common stock at a 25% discount to market price
                  and matured November 2003. It was subsequently renewed as a
                  non-convertible note, 10% interest, and matures January 5,
                  2006.

                                       12
<PAGE>

         9.       In November 2001, CapSource issued a 12%, $40,000 convertible
                  promissory note to Steven J. Kutcher, Custodian for Nicole J.
                  Kutcher, UTMA, in exchange for cash of $40,000. The note was
                  convertible to common stock at a 25% discount to market price
                  and matured November 2003. It was subsequently renewed as a
                  non-convertible note, 10% interest, and matures January 5,
                  2006.

         10.      In December 2001, CapSource issued a 9.25%, $269,000 (interest
                  accrued) convertible promissory note to Randolph M. Pentel, in
                  exchange for cash of $269,000. The note was convertible to
                  common stock at $1.00 per share and was to mature December
                  2004. It was converted to common shares of the Company prior
                  to that date.

         11.      In February 2002, CapSource issued a 12%, $50,000 convertible
                  promissory note to Patricia and Gary Dolphus, in exchange for
                  cash of $50,000. The note was convertible to common stock at a
                  25% discount to market price and matured February 2004. The
                  note was not paid by the Company upon maturity, and as such,
                  was converted to a note payable on demand. It was subsequently
                  paid on June 29, 2004 and cancelled by the Company.

         12.      In April 2002, CapSource issued an 11%, $50,000 convertible
                  promissory note to Fredrick J. and Jean D. Huppert in exchange
                  for cash of $50,000. The note is convertible to common stock
                  at a 25% discount to market price and matures February 2005.

         13.      In July 2002, CapSource issued a 12%, $250,000 promissory note
                  to the Church of the Risen Messiah in exchange for cash of
                  $250,000. The note matured December 2002. The note was note
                  paid by the Company upon maturity, an as such, was converted
                  to a note payable on demand.

         14.      In August 2002, CapSource issued 29,143 shares of common stock
                  to Randolph M. Pentel in exchange for cash of $51,000.

         15.      In October 2003, CapSource issued 1,461,680 shares of common
                  stock to Randolph M. Pentel in connection with the conversion
                  of notes in the amount of $2,064,133 made by Randolph M.
                  Pentel.

         16.      In October 2003, CapSource issued 42,971 shares of common
                  stock to Steven E. Reichert in exchange for accrued
                  compensation valued at $75,200.

         17.      In October 2003, CapSource issued 60,971 shares of common
                  stock to Fred C. Boethling in exchange for accrued
                  compensation valued at $106,700.

         18.      In March 2004, CapSource issued 35,000 shares of common stock
                  to CEOcast, Inc. in exchange for services valued at $61,250.

         19.      On June 29, 2004, CapSource issued 45,455 shares of common
                  stock for the exercise of warrants to buy the stock at $1.10
                  per share. The shares were valued at $50,000.

         20.      We have issued warrants to officers, directors and others from
                  time to time, aggregating 1,017,334 shares, at exercise prices
                  between $0.80 and $5.00. Some of the warrants were issued for
                  board participation, some as compensation for services, and
                  some as companion to convertible note offerings. As of
                  December 31, 2004, there are 887,334 warrants outstanding.

         The above transactions were made in reliance upon the exemptions from
registration provided under Section 4(2) and 4(6) of the Securities Act, and
Rules 504, 505 and 506 of Regulation D. The purchasers of such securities
acquired the securities for their own account and not with a view to any
distribution thereof to the public. 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.



                                       13
<PAGE>

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 ACCOUNTING. Statement of Financial Accounting Standards No. 13,
Accounting for Leases, requires that 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 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.
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 evaluate our long lived assets for impairment whenever
events or circumstances indicate that an asset's carrying value may not be
recoverable. In determining possible impairment, we consider 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 we believe are relevant.
Recoverability of an asset's value is measured by a comparison of the carrying
amount of the asset, to the future net cash flows that we expect 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. Asset dispositions are recorded upon the sale of the underlying
assets.

         BENEFICIAL CONVERSION OPTION. In connection with the issuance of
certain debt instruments, we grant the holders the option to convert the debt
into our common stock at a beneficial conversion rate. The fair value of the
beneficial conversions is based on the average trading price of the Company
common stock as of the most recent trading day prior to the conversion date.

         FOREIGN EXCHANGE. The 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) in the
Company's statement of operations.

         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, the functional currency is the U.S. dollar. For those
operations, certain assets and liabilities are remeasured into U.S. dollars at
historical exchange rates and certain assets and liabilities are remeasured into
U.S. dollars at


                                       14
<PAGE>

period-end exchange rates. Income and expense accounts are remeasured 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 TAXES. We 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.

         LIQUIDITY. Since its inception, the Company has generated losses from
operations, and as of December 31, 2004, had an accumulated deficit of
$9,534,879, with working capital of $1,502,425. Subsequent to December 31, 2004,
on February 18, 2005, the Company's Chairman and largest stockholder converted
$1,100,000 of Company notes payable into Company common stock. In addition, he
loaned $179,500 to the Company through a long-term note maturing April 15, 2006.

         If the debt of $1,100,000 had been converted to equity as of December
31, 2004, the Company's total stockholders' equity and working capital would
have been $1,141,544 and $1,502,425, respectively, as of December 31, 2004.

         We currently are negotiating with third party investors to supply
additional debt or equity funding, although no financing agreements have been
completed. 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, 2006 if needed, by way of additional debt
and/or equity contributions.

         We believe that the cash to be generated by operations, plus the cash
to be received from a private debt and/or equity placement will provided the
Company with sufficient funds for the next twelve months, and to 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.

GENERAL

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

         REMEX, our 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.

         RESALTA, our trailer sales/distribution company, has the exclusive
right to distribute Hyundai truck trailers in Mexico. RESALTA began operations
in 2001.

RESULTS OF OPERATIONS

PERFORMANCE IN 2004 COMPARED WITH 2003

         Consolidated total revenue for the fourth quarter ended December 31,
2004, increased 7.3% to $2,523,414 compared with $2,352,510 for the same period
last year. Total revenue is made up of two components: trailer sales/service
revenues, which grew in the fourth quarter of 2004 by $196,948, an increase of
9.1% over the same period of 2003; and lease/rental income, which declined by
$26,044 in 2004, a reduction of 12.1% compared to the same period last year. The
growth in trailer sales was driven by our continuing emphasis on expanding
trailer sales volume in Mexico. We have continued to concentrate our working
capital investments in trailer sales inventory and facilities, since January
2003, when we opened a new trailer sale and storage facility in a strategic area
of Mexico City, increasing our visibility in the Mexican trailer market and
improving our ability to respond more rapidly to our customers. However, as
explained above in the Inventory Supply section of Item #1, during most of 2004
we suffered a shortage of trailer inventory available for sale, as most trailer
manufacturers experienced a strong unexpected growth in demand. Due to the
resulting shortages and delays, we had to forego certain sales opportunities
during the fourth quarter and the year, which limited our sales volume growth.
As we continue to direct our working capital towards increased sales, we have
reduced our equipment lease portfolio, with the resulting decline in
lease/rental income.

                                       15
<PAGE>

         For the year ended December 31, 2004, consolidated total revenue
increased by 16.3% to $7,217,275, compared with $6,206,151 for the same period
last year. The increase was a result of increased trailer sales, partially
offset by reduced lease/rental income.

         Gross profit consists of total revenue less cost of sales and operating
leases. For the fourth quarter ended December 31, 2004, gross profit increased
30.2% to $191,275 compared with $146,872 for the same period last year. This
increase in gross profit was due, in part, to the increase in sales volume,
partially offset by decline in lease/rental income.

         For the year ended December 31, 2004, gross profit increased 16.0% to
$725,813 compared with $625,925 for the same period last year. This improvement
resulted primarily from the increase in consolidated trailer sales, partially
offset by the decline in lease/rental income.

         Selling, general and administrative expenses for the fourth quarter
ended December 31, 2004 were essentially unchanged at $599,228 compared to
$598,846 for the same period last year, resulting, in part, from our efforts at
reducing corporate administration expenses, including a voluntary salary
reduction program for Company executives in the U.S. corporate offices, which
was implemented on January 1, 2004.

         For the year ended December 31, 2004, selling, general and
administrative expense increased slightly by $4247, or 0.2%, to $1,981,629
compared to $1,977,382 for the same period last year. This limited increase was
a result of our expense reduction efforts, offset by additional costs incurred
in 2004 to operate our Mexico City sales/storage facility.

         Operating loss consists of net sales and rental income less costs of
sales and operating leases and selling, general and administrative expenses. We
recognized an operating loss of $407,953 in the fourth quarter ended December
31, 2004, compared with $451,974 for the same period last year. This operating
loss decline of $44,021 resulted principally from the increase in trailer sales
and the resulting gross margin improvement.

         The operating loss for the year ended December 31, 2004 was reduced by
$95,641 to $1,255,816, compared with $1,351,457 for the same period last year.
This decrease resulted from the improvement in trailer sales volume and gross
profit, partially offset by the decline in lease/rental income.

         Net interest expense for the three months and year ended December 31,
2004 was $85,213 and $269,220, respectively, compared with $376,421 and
$795,795, respectively, for the same periods of 2003. Net interest expense in
the fourth quarter and year ended December 31, 2003 include a one-time charge of
$291,593, which represents the unaccreted discount on the convertible
stockholder note that was converted to common stock on October 21, 2003, prior
to its maturity. Excluding the one-time charge, net interest expense in the
fourth quarter and year ended December 31, 2003 was $84,828 and $504,202,
respectively. The reduction in 2004 is associated with lower debt levels in
2004, resulting from the conversion of the stockholder note.

         Foreign exchange gains (losses) were a loss of $12,674 in the fourth
quarter ended December 31, 2004, compared with a loss of $12,111 in the same
period last year. The foreign exchange losses incurred during the fourth quarter
this year were not significantly different than those incurred during the same
period last year, because the exchange rate fluctuations of the Mexican peso in
relation to the U.S. dollar were similar during the same periods of both years.

         For the years ended December 31, 2004 and 2003, foreign exchange losses
were $18,525 and $88,307, respectively. The improvement in 2004 was because the
exchange rate fluctuations in 2004 were more beneficial to our monetary position
than in 2003, resulting in less foreign exchange losses.

         Income taxes of $8,081 and $32,602 were accrued for the fourth quarter
and year ended December 31, 2004, respectively, compared with $17,270 and
$31,979, respectively, for the same periods last year. This tax, which is an
alternative tax incurred by our Mexican subsidiaries, is applicable to most
Mexican corporations that have no taxable income.

         We recognized a net loss of $513,911, or $0.05 per diluted share, for
the fourth quarter ended December 31, 2004, compared with a net loss of
$857,776, or $0.09 per diluted share, for the same period last year. For the
year ended December 31, 2004, net loss was $1,576,163, or $0.16 per diluted
share, compared with $2,267,538, or $0.27 per diluted share, for the same period
last year. The reduction in the net loss was due to the increase in total
revenue and gross profit, coupled with the decrease of interest expense and
foreign exchange losses.

                                       16
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Our principal sources of liquidity are from borrowings, principally
from our majority stockholder. In addition, through our initial public offering
that concluded in July 2003, we added approximately $219,000. Our principal uses
of capital have been to fund our operating losses and to expand our operations
pursuant to our strategic business plan, increasing sales by adding to equipment
inventory.

         Net cash used in operating activities was $1,648,577 for the year ended
December 31, 2004, compared with $1,869,792 for the prior year. Net operating
cash used in 2004 decreased compared to last year, primarily due to decrease in
the net loss and the reduction of inventory, partially offset by the increase in
rents and other receivables and advances to vendors. As we sold trailers during
2004, we reduced inventory levels. However, the majority of sales made in
December 2004 were with credit terms to be collected in January 2005, resulting
in a large increase in accounts receivable. In addition, advances to vendors
increased significantly during the fourth quarter of 2004, as we made deposits
to Hyundai Translead to confirm our inventory production orders for 2005.

         During the year ended December 31, 2004, we acquired property and
equipment of $82,074 offset by proceeds of $126,914 from disposals, which were
primarily equipment from the lease/rental pool that were removed from lease as
their lease terms expired. This compares to $93,458 and $373,732, respectively,
during the year ended December 31, 2003. In addition, during 2003 we made a
leasehold deposit of $15,254 to lease the new sales/distribution facility in
Mexico City. As a result, net cash provided by investing activities was $44,840
for the year ended December 31, 2004, compared to $265,020 for the year ended
December 31, 2003.

         During the year ended December 31, 2004, we received proceeds from the
issuance of debt totaling $2,659,708, which was partially offset by debt
repayment of $995,000. During the year ended December 31, 2003, we received
proceeds from the issuance of debt totaling $1,800,324, which was partially
offset by debt repayment of $590,756. In addition, we received proceeds of
$609,693 from the sale of common stock and issuance of warrants to the
underwriter, which were partially offset by offering costs of $182,016 incurred
in 2003. As a result, net cash flow provided by financing activities for the
years ended December 31, 2004 and 2003 was $1,664,708 and $1,637,245,
respectively.

         On February 18, 2005, the Company's Chairman and largest stockholder
converted $1,100,000 of Company notes payable and accrued interest, into Company
common stock. If the debt had been converted to equity as of December 31, 2004,
our total stockholders' equity would have been $1,151,602 as of December 31,
2004.

         On February 11, 2005, the Company entered into a new agreement with
Hyundai Translead to extend its contract to sell and distribute Hyundai trailers
in Mexico. The previous agreement expired by its terms in November, 2004. Under
the terms of the new contact, Hyundai Translead will provide a credit facility
of $1,000,000 to facilitate the Company's inventory of Hyundai trailers in
Mexico.

         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. We are currently negotiating
with third party investors to provide us with additional debt and/or equity
funding, although no financing agreements have been finalized. In addition, the
Company's Chairman and largest stockholder has expressed his willingness and
ability to continue to financially support the Company, at least for the next
twelve months if needed, by way of additional debt and/or equity funding.

         CAPSOURCE FINANCIAL STRATEGY. Funding 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.
Additionally, 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.

         To date, our REMEX lease equipment portfolio has been financed largely
with equity from CapSource. In order to achieve our growth objectives in our
leasing operations, we believe that our financial structure needs to include
various forms of borrowings, including both a short-term credit facility,
commonly termed a warehouse credit facility, and long-term debt. We believe that
the optimum debt-to-equity ratio for our leasing business is approximately 80%
debt and 20% equity. RESALTA, the trailer sales/distribution subsidiary,
requires two forms of financing - equity and a short-term credit facility
commonly referred to as "floor plan" financing. Floor plan financing is similar
to the warehouse credit facility being sought by REMEX, in that it is used to
finance the purchase of inventory on an ongoing basis. However, in the case of
floor plan financing, the facility is repaid through the sale of equipment
rather than being replaced with long-term debt. The parent company has already
provided for the initial


                                       17
<PAGE>

equity funding. We currently are seeking floor plan financing.

         We expect that the proceeds to be received from the private placement
of additional debt, in addition to cash expected to be generated from
operations, will be adequate to provide for our cash requirements for the next
twelve months. However, there is no assurance that any additional financing can
be obtained for the Company or its subsidiaries.

         Our strategy is to continue to expand operations through acquisitions
and to achieve profitability. Future financing may result in dilution to holders
of common stock. It is anticipated that funds required for future acquisitions
and the integration of acquired businesses with us, will be provided from the
proceeds of future debt offerings and additional stock offerings. However, there
can be no assurance that suitable acquisition candidates will be identified by
us in the future, that suitable financing for any such acquisitions can be
obtained by us or that any such acquisitions will occur. Following the
completion of our public offering in 2003, we are now incurring additional
expenses due to being a public company. Our growth strategy will require
expanded support, increased personnel throughout our business, expanded
operational and financial systems and 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, 2004, we had no material commitments to
purchase capital assets. However, we have a commitment to purchase an additional
350 trailers from Hyundai Translead during 2005.

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. All leases are denominated in
United States dollars, but administrative activities are generally denominated
in the Mexican peso. 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 fixed interest rates, although a portion
of our debt is at variable rates that are based on the prime lending rate. 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-Hernandez
Marron y Cia, S.C., independent registered public accounting firm, 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

         On March 4, 2005, the Company's Board of Directors dismissed KPMG LLP
as the Company's independent registered public accounting firm and appointed BDO
Hernandez Marron y Cia, S.C. as the Company's independent registered public
accounting firm. During the years ended December 31, 2003 and 2004, and the
subsequent interim period through the date of dismissal, there were no
disagreements between the Company and KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreement(s), if not resolved to the satisfaction of the
former accountant, would have caused it to make reference to the subject matter
of the disagreement(s) in connection with its reports.

                                       18
<PAGE>

         There have been no disagreements with BDO Hernandez Marron y Cia, S.C.
since the date of their appointment.

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 recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.

         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.

Compliance with Section 404 of Sarbanes-Oxley Act

         Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the Act),
beginning with our Annual Report on Form 10-KSB for the fiscal year ending
December 31, 2006, 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. This report will also contain a statement that our
independent registered public accountants have issued an attestation report on
management's assessment of such internal controls and a conclusion on the
operating effectiveness of those controls.

         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, 2004
that was not reported.














                                       19
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS; 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 or
our key personnel:

        NAME             AGE              POSITION WITH CAPSOURCE
        ----             ---              -----------------------

Fred C. Boethling         60    President, Chief Executive Officer and Director
Steven Reichert           56    Vice President, General Counsel and Director
Steven J. Kutcher         52    Consultant, Acting as Chief Financial Officer
Lynch Grattan             53    Director
Randolph M. Pentel        44    Director


         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 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 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 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 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 1990.

         STEVEN J. KUTCHER. Consultant, Acting as 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


                                       20
<PAGE>

(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
spent much of his life in Mexico. He has been a resident of Mexico City for the
past 18 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 that 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 Chairman of the Agribusiness Committee. He
holds a Bachelors Degree in Agricultural Engineering from Texas Tech University.

         RANDOLPH M. PENTEL. 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, he is 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 30,000 in 2000.
Currently 99 of the largest 100 U.S. banks are customers of EARNS, as are
approximately 80% of the top 300 banks in the U.S. Mr. Pentel is involved in
various international charitable organizations.

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
2004.



                                       21
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

         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 $500 fee per
meeting attended. All warrants vested immediately and expire five years from the
date of grant.

EXECUTIVE COMPENSATION

         Our Board of Directors determines 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.

<TABLE>
<CAPTION>
                                                      CapSource Financial, Inc.
                                                     Summary Compensation Table
                                                     --------------------------
                                                           As of 12/31/04

                                                                                   Long Term Compensation
                                     Annual Compensation                           ----------------------
Name and              Fiscal Year  ----------------------------   Consulting       Securities Underlying
Principal Position   Compensation    Salary           Bonus          Fees                 Warrants             All Other (13)
------------------   ------------  -----------   --------------   -----------      -----------------------     --------------
<S>                      <C>        <C>            <C>            <C>                 <C>                          <C>
Fred C. Boethling        2004       $101,400       $50,000(12)                        25,000 (9)
CEO &                    2003       $133,800 (2)   $50,000(11)                        25,000 (9)                   $2,569
President                2002       $123,000 (1)                                      25,000 (9)                   $2,318

Steven E. Reichert       2004       $ 65,000       $37,000(12)                        25,000 (9)
Vice President &         2002       $112,800 (4)   $50,000(11)                        25,000 (9)                   $2,569
General Counsel          2003       $108,000 (3)                                      25,000 (9)                   $2,318

Steven J. Kutcher        2004       $ 43,000 (7)                  $41,093 (8)         12,500 (10)
Consultant, CFO &        2003       $123,000                                          25,000 (9)                   $2,569
Vice President           2002       $ 64,000 (5)                  $50,269 (6)         25,000 (9)                   $2,318
</TABLE>

(1)      Includes $24,300 of compensation earned but not paid in 2002, paid by
         CapSource common stock issued in October 2003.
(2)      Includes $32,400 of compensation earned in 2003, paid by CapSource
         common stock issued in October 2003.
(3)      Includes $10,800 of compensation earned but not paid in 2002, paid by
         CapSource common stock issued in October 2003.
(4)      Includes $14,400 of compensation earned in 2003, paid by CapSource
         common stock issued in October 2003.
(5)      Represents six months of salary. Employment commenced July 1, 2002.
(6)      Executive provided independent consulting services to the Company prior
         to being employed as CFO effective July 1, 2002.
(7)      Represents six months of employment. Employment terminated June 30,
         2004.
(8)      Executive provided independent consulting services effective July 1,
         2004.
(9)      Warrants granted to the executive in his capacity as a director.
(10)     Warrants granted to the executive in his capacity as a director for six
         months.
(11)     Incentive for completion of initial public stock offering, granted
         under 2000 employment agreement; paid by CapSource common stock issued
         in October 2003.
(12)     Performance incentive.
(13)     Represents executive's individual share of executive compensation pool,
         which consists of 1.5% of REMEX's lease revenue for the fiscal year.

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 stock on the basis of one (1) share of common stock
for each $1.00 of base salary so designated. Salary accrued in 2002 and 2003 for
Mr. Boethling and Mr. Reichert in the amounts $56,700 and $25,200, respectively,
was paid by CapSource common stock issued in October 2003, in lieu of cash
payment. The employment may be terminated for cause or breach of the contract
after opportunity to cure.

                                       22
<PAGE>

STOCK OPTIONS, WARRANTS

         No options were granted to the named executive officers during 2004.
Except for warrants for participating on the Board in 2004, no warrants were
granted to the named executive officers, and no warrants were exercised by the
named executive officers during 2004.

         The following table summarizes the aggregate value of the warrants to
which the named executive was entitled at December 31, 2004 by the executive
officers named in the Summary Compensation Table.

<TABLE>
<CAPTION>
                                                            Year-End Values

                            Number of Securities Underlying                          Value of Unexercised
                                Unexercised Warrants at                            In-the-Money Warrants at
                                       Year-End                                          Year-End (2)
Name                        Exercisable        Unexercisable                   Exercisable         Unexercisable
----                        -----------        -------------                   -----------         -------------
<S>                           <C>                    <C>                             <C>                <C>
Fred C. Boethling             125,000(1)             --                              --                 --
Steven Reichert               125,000(1)             --                              --                 --
Steven Kutcher                 82,500(1)             --                              --                 --
</TABLE>

----------------------------
(1)      These warrants vested 100% at the time of grant and were granted to the
         executive in his capacity as a director.
(2)      Based on an estimated market price of $0.80 per share


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 common stock as of December 31, 2004, by persons known to us to
hold 5% or more of our stock.

<TABLE>
<CAPTION>
                                                                        Number of Shares          Percent of
Name and Address of Beneficial Owner(1)                               Beneficially Owned              Shares
------------------------------------                                  ------------------          ----------
<S>                                                                            <C>                     <C>
Randolph Pentel(2)..............................................               9,089,200               84.6%
</TABLE>

----------------------------
         (1)      The address of the named individual is c/o CapSource
                  Financial, Inc., 2305 Canyon Boulevard, Suite 103, Boulder,
                  Colorado 80302.
         (2)      Includes 375,000 shares of common stock issuable upon the
                  exercise of warrants that are currently exercisable.

(b)      Security ownership of management.
---      ---------------------------------

The following table presents information provided to us as to the beneficial
ownership of Common Stock as of December 31, 2004, 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.

<TABLE>
<CAPTION>
                                                                        Number of Shares          Percent of
Name and Address of Beneficial Owner (1)                              Beneficially Owned              Shares
----------------------------------------                              ------------------          ----------
<S>                                                                              <C>                    <C>
Fred C. Boethling (2)...........................................                 457,730                4.2%
Steven Reichert (3).............................................                 436,730                4.1%
Randolph Pentel (4).............................................               9,089,200               84.6%
Lynch Grattan (5)...............................................                 125,000                1.2%
Steven Kutcher (6)..............................................                  88,500                 .8%
                                                                              ----------               ----
All directors and officers and as a group (5 persons) (7).......              10,197,160               94.9%
                                                                              ==========               ====
</TABLE>

         (1)      The addresses of all the named individuals are 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.
         (3)      Includes 125,000 shares of common stock issuable upon the
                  exercise of warrants that are currently exercisable.
         (4)      Includes 375,000 shares of common stock issuable upon the
                  exercise of warrants that are currently exercisable.
         (5)      Includes 125,000 shares of common stock issuable upon the
                  exercise of warrants that are currently exercisable.
         (6)      Includes 82,500 shares of common stock issuable upon the
                  exercise of warrants that are currently exercisable.
         (7)      Includes 832,500 shares of common stock issuable upon the
                  exercise of warrants that are currently exercisable.

                                       23
<PAGE>

The following table presents information about all share and warrant
acquisitions by current directors and officers.

<TABLE>
<CAPTION>
                                       Purchase
Name                  # of Shares         Price   # of Warrants    Exercise Price     Type of Consideration            Issue Date
----                  -----------    ----------   -------------    --------------     ---------------------            ----------
<S>                         <C>      <C>                 <C>                <C>       <C>                              <C>
Fred C. Boethling           1,250    $    6,250                                       Consulting services              08/19/1996
                          132,366    $    6,169                                       Consulting services              12/01/1998
                          134,643    $    6,169                                       Consulting services              06/11/1999
                            3,500    $    6,125                                       Cash                             07/03/2003
                           60,971    $  106,700                                       Compensation                     10/21/2003
                                                         25,000             $1.10     1999 board participation         06/21/1999
                                                         25,000             $1.10     2000 board participation         12/31/2000
                                                         25,000             $1.30     2001 board participation         04/01/2002
                                                         25,000             $1.75     2002 board participation         12/31/2002
                                                         25,000             $1.75     2003 board participation         12/31/2003
                                                         25,000             $0.80     2004 board participation         12/31/2004

Steven E. Reichert          1,250    $    6,250                                       Consulting services              08/19/1996
                          132,366    $    6,169                                       Consulting services              12/01/1998
                          134,643    $    6,169                                       Consulting services              06/11/1999
                              500    $      875                                       Cash                             07/03/2003
                           42,971    $   75,200                                       Compensation                     10/21/2003
                                                         25,000             $1.10     1999 board participation         06/21/1999
                                                         25,000             $1.10     2000 board participation         12/31/2000
                                                         25,000             $1.30     2001 board participation         04/01/2002
                                                         25,000             $1.75     2002 board participation         12/31/2002
                                                         25,000             $1.75     2003 board participation         12/31/2003
                                                         25,000             $0.80     2004 board participation         12/31/2004


Randolph M. Pentel         89,995    $  449,975                                       Initial cash investment          08/19/1996
                        4,266,684    $2,133,341                                       Conversion of debt               06/11/1999
                           22,000    $   22,000                                       Cash contribution                11/03/1999
                           65,150    $   65,150                                       Cash contribution                01/27/2000
                           40,978    $   20,489                                       Travel services                  01/27/2000
                        1,409,637    $1,409,637                                       Conversion of debt               12/31/2000
                          300,000    $  300,000                                       Cash contribution                12/31/2000
                          168,280    $  168,280                                       Cash contribution                01/09/2001
                          867,653    $  867,653                                       Conversion of debt               06/03/2002
                           29,143    $   51,000                                       Cash contribution                08/02/2002
                            3,000    $    5,250                                       Cash                             07/03/2003
                        1,461,680    $2,064,133                                       Conversion of debt               10/21/2003
                                                         50,000             $1.10     1999 board participation         06/21/1999
                                                         50,000             $1.10     2000 board participation         12/31/2000
                                                        125,000             $1.10     Compensation for services        07/01/2001
                                                         50,000             $1.30     2001 board participation         04/01/2002
                                                         50,000             $1.75     2002 board participation         12/31/2002
                                                         50,000             $1.75     2003 board participation         12/31/2003
                                                         50,000             $0.80     2004 board participation         12/31/2004

Lynch Grattan                                            25,000             $1.10     1999 board participation         06/21/1999
                                                         25,000             $1.10     2000 board participation         12/31/2000
                                                         25,000             $1.30     2001 board participation         04/01/2002
                                                         25,000             $1.75     2002 board participation         12/31/2002
                                                         25,000             $1.75     2003 board participation         12/31/2003
                                                         25,000             $0.80     2004 board participation         12/31/2004

Steven Kutcher              6,000    $   10,500                                       Cash                             07/03/2003
                                                         20,000             $1.10     Compensation for services        06/01/2001
                                                         25,000             $1.75     2002 board participation         12/31/2002
                                                         25,000             $1.75     2003 board participation         12/31/2003
                                                         12,500             $0.80     2004 board participation         12/31/2004
</TABLE>


                                 24
<PAGE>

(c)      Changes in control.
---      -------------------

         As of December 31, 2004 there are no arrangements, which may result in
a change in control of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PURCHASES OF OUR COMMON STOCK

         On October 31, 2003, Randolph Pentel, a director, converted $2,064,133
notes payable and convertible notes payable to him, into 1,461,680 shares of our
common stock: $1,405,724 of non-convertible notes were converted into 803,271
shares at a conversion price of $1.75 per share. $658,409 of convertible notes
were converted into 658,409 shares at a conversion price of $1.00 per share.

         Subsequent to December 31, 2004, on February 18, 2005, Randolph Pentel,
a director, converted $1,100,000 of notes payable to him, into 1,375,000 shares
of our common stock at a conversion price of $0.80 per share.

         A company in which Randolph Pentel has a substantial interest has on
occasion provided the use of an aircraft for travel for certain executive
officers. We have paid no more 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.

PAST AFFILIATED TRANSACTIONS

         Randolph Pentel has provided the majority of financing to us at
interest rates comparable to those available to 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 financing
will be available to us in the future.

APPOINTMENT OF INDEPENDENT DIRECTORS AND AMENDMENT OF BYLAWS

         Within a reasonable time, we undertake to appoint two independent
directors. An independent director shall be a member of our board of directors
who: (1) is not an officer or employee of us or our subsidiaries and has not
been an officer or employee within the last two years; (2) is not a promoter who
organized or founded us or holds five percent or more of any class of our equity
securities; and (3) does not have a material business or professional
relationship with us. Within a reasonable time after SEC effectiveness, if
effectiveness is obtained, we undertake to amend our Bylaws to require the
appointment of at least two independent directors and the approval by those
independent directors of any future material transactions, loans or forgiveness
of loans.

FUTURE MATERIAL TRANSACTIONS AND LOANS

         All future material transactions and loans will be made or entered into
on terms that are not less favorable to us than those that can be obtained from
unaffiliated third parties. All future material transactions and loans, and any
forgiveness of loans, must be approved by majority of our independent directors
who do not have an interest in the transactions and who had access, at our
expense, to us or to independent legal counsel. We do not have any independent
directors now. We will use our best efforts to recruit at least two independent
directors within the next 12 months.

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
               *4.1  Specimen of Common Stock Certificate
               *5.1  Opinion of Rider, Bennett, Egan & Arundel LLP
              *10.1  Employment Agreement dated December 10, 2000 Between
                     Company and Fred C. Boethling
              *10.2  Employment Agreement dated December 10, 2000 Between
                     Company and Steven E. Reichert
              *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 Distribution Agreement
              *10.8  12% Promissory Note dated June 4, 2001 in Favor of
                     Randolph M. Pentel
              *10.9  9.25% Convertible Promissory Note dated December 31, 2001
                     in Favor of Randolph M. Pentel



                                       25
<PAGE>

             *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  Conzuelo Shareholder Agreement with Amendment
            ***11.1  Statement Regarding Computation of Per Share Earnings
            ***14.1  Code of Ethics
              *21.1  List of Subsidiaries
            ***31.1  Certification of C.E.O. pursuant to Section 302 of the
                     Sarbanes-Oxley Act of 2002
            ***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
                  +  Portions omitted pursuant to a Confidential Treatment
                     Request ("CRT"), which CRT was granted pursuant to a
                     Commission Order as of the effective date of this
                     Registration Statement. The omitted portions have been
                     filed separately with the Commission.
                  *  Incorporated by reference to the Company's Registration
                     Statement on Form SB-2 filed October 7, 2002.
                 **  Incorporated by reference to the Company's Registration
                     Statement on Form SB-2 filed October 7, 2002 by the
                     Company's Amendment No. 1 to Form SB-2 filed December 9,
                     2002.
                ***  Filed herewith.

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

REPORTS ON FORM 8-K

         We filed a report on Form 8-K on May 27, 2004 regarding our press
release announcing the resignation of our Chief Financial Officer.

         We filed a report on Form 8-K on March 7, 2005 regarding the change of
our independent registered public accounting firm.

         We filed a report on Form 8-K/A on March 18, 2005 regarding the change
of our independent registered public accounting firm, and the letter of
agreement from the former accounting firm.

INDEMNIFICATION OF OFFICERS AND DIRECTORS.

         Insofar as the indemnification of liabilities arising under the 1933
Act, as amended, may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions of its Articles of Incorporation,
Bylaws and the provisions of the Colorado Business Corporation Act, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act, as amended, and is, therefore, unenforceable.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The following fees have been, or will be, billed by BDO Hernandez
Marron y Cia S.C. and KPMG LLP, the Company's independent auditors for the
fiscal years ending December 31, 2004 and December 31, 2003, respectively.

AUDIT FEES

         The aggregate fees billed or to be billed by KPMG LLP for services for
the fiscal years ended December 31, 2004 and December 31, 2003, 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 $48,000 and $122,000, respectively.

         The aggregate fees billed or to be billed by BDO Hernandez Marron y Cia
S.C. for services for the fiscal years ended December 31, 2004 and December 31,
2003, 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 $100,000 and $0,
respectively.

                                       26
<PAGE>

AUDIT-RELATED FEES

         The Company did not incur any audit-related fees for the fiscal years
ended December 31, 2004 or December 31, 2003.

TAX FEES

         The aggregate fees billed by KPMG LLP for services rendered to the
Company, for tax compliance, tax advice and tax planning for the fiscal years
ended December 31, 2004 and December 31, 2003 approximated $6,000 and $6,600,
respectively. The Company did not incur any fees with BDO Hernandez Marron y Cia
S.C. for tax compliance, tax advice and tax planning for the fiscal years ended
December 31, 2004 or December 31, 2003.

ALL OTHER FEES

         The Company did not incur any other fees with KPMG LLP or BDO Hernandez
Marron y Cia S.C. for the fiscal years ended December 31, 2004 or December 31,
2003.

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.























                                       27
<PAGE>

                                   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: April 8, 2005


                                       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: April 8, 2005


        Signature                Title
        ---------                -----


  /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            Person Performing the Function of Chief
                                 Financial Officer


 /s/ Randolph M. Pentel
 ----------------------
   Randolph M. Pentel            Director


    /s/ Lynch Grattan
    -----------------
      Lynch Grattan              Director







                                       28
<PAGE>


               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 during 2005. The Company shall furnish copies of any such proxy
materials to the Commission prior to the time it is sent to security holders.



<PAGE>

                   CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2004 AND 2003

    (With Reports of Independent Registered Public Accounting Firms Thereon)




                                 C O N T E N T S


                                                                           Page
                                                                           ----

REPORT of HERNANDEZ MARRON Y CIA, S.C., INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM                                                           F - 1

REPORT of KPMG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM         F - 2

CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated balance sheets                                           F - 3

    Consolidated statements of operations                                 F - 4

    Consolidated statements of stockholders' equity (deficiency)          F - 5

    Consolidated statements of cash flows                                 F - 6

    Notes to consolidated financial statements                            F - 7




<PAGE>



             Report of Independent Registered Public Accounting Firm



The Board of Directors and Stockholders
CapSource Financial, Inc.:

We have audited the accompanying consolidated balance sheet of CapSource
Financial, Inc. and subsidiaries as of December 31, 2004, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year 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 conducted our audit in accordance with the standards of the Public 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 audit provides a
reasonable basis for our opinion.

In our opinion, 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, 2004, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.


                                        /s/ HERNANDEZ MARRON Y CIA, S.C.

                                        Bernardo Soto Penafiel, CPA
                                        Partner

Mexico City, Mexico
April 8, 2005

















                                      F-1
<PAGE>

            Report of Independent Registered Public Accounting Firm



The Board of Directors and Stockholders
CapSource Financial, Inc.:

We have audited the accompanying consolidated balance sheet of CapSource
Financial, Inc. and subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year 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 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. 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 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, 2003, and the results of their
operations and their cash flows for the year then ended in conformity with U.S.
generally accepted accounting principles.


                                        /S/ KPMG LLP


Denver, Colorado
April 27, 2004









                                      F-2
<PAGE>

                   CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                               --------------------------
                                                                                  2004           2003
                                                                               -----------    -----------
<S>                                                                            <C>            <C>
                   ASSETS
Current assets:
   Cash and cash equivalents                                                   $   211,896    $   150,925
   Rents and accounts receivable, net of allowance for doubtful
      accounts of $9,700 and $124,000 in 2004 and 2003, respectively             1,286,252        369,701
   Mexican value added taxes receivable                                             34,803        255,299
   Inventory                                                                       539,830      1,032,390
   Advances to vendors                                                             788,255        287,540
   Prepaid insurance and other current assets                                       99,926         69,071
                                                                               -----------    -----------
           Total current assets                                                  2,960,962      2,164,926

Property and equipment, net                                                      1,545,813      1,903,175

Other assets                                                                        94,060         99,549
                                                                               -----------    -----------
           Total assets                                                        $ 4,600,835    $ 4,167,650
                                                                               ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                                       $ 1,009,134    $   773,909
   Deposits and advance payments                                                    91,855         95,030
   Notes payable                                                                   259,945        400,926
   Convertible notes payable, net of discount                                       97,603         49,162
   Payable to stockholder                                                               --         51,406
                                                                               -----------    -----------
           Total current liabilities                                             1,458,537      1,370,433
                                                                               -----------    -----------

Long-term liabilities:
   Notes payable                                                                 1,247,733      1,096,000
   Convertible notes payable, net of discount and current portion                       --         84,106
   Payable to stockholder, net of discount                                       1,499,921        100,000
                                                                               -----------    -----------
           Total long-term liabilities                                           2,747,654      1,280,106
                                                                               -----------    -----------

           Total liabilities                                                     4,206,191      2,650,539
                                                                               -----------    -----------

Stockholders' equity:
   Common stock, $.01 par value. Authorized 100,000,000 shares;
      issued and outstanding 9,860,800 and 9,790,999 shares in
      2004 and 2003, respectively                                                   98,608         97,910
   Additional paid-in capital                                                    9,830,915      9,377,917
   Accumulated deficit                                                          (9,534,879)    (7,958,716)
                                                                               -----------    -----------
           Total stockholders' equity                                              394,644      1,517,111
                                                                               -----------    -----------
           Total liabilities and stockholders' equity                          $ 4,600,835    $ 4,167,650
                                                                               ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.



                                      F-3
<PAGE>

                   CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations


                                                   YEARS ENDED DECEMBER 31,
                                                  --------------------------
                                                     2004           2003
                                                  -----------    -----------

Sales                                             $ 6,403,004    $ 5,341,901
Rental income from operating leases                   608,705        685,227
Other                                                 205,566        179,023
                                                  -----------    -----------
             Total revenue                          7,217,275      6,206,151
                                                  -----------    -----------

Costs and expenses:
   Direct costs of sales                            6,056,705      5,090,050
   Depreciation and direct costs of trailers
              under operating leases                  434,757        490,176
   Selling, general and administrative expenses     1,981,629      1,977,382
                                                  -----------    -----------

             Total operating expenses               8,473,091      7,557,608
                                                  -----------    -----------

             Operating loss                        (1,255,816)    (1,351,457)
                                                  -----------    -----------

Other expense:
   Interest expense                                  (269,220)      (795,795)
   Foreign exchange losses, net                       (18,525)       (88,307)
                                                  -----------    -----------

             Total other expense, net                (287,745)      (884,102)
                                                  -----------    -----------

             Loss before income taxes              (1,543,561)    (2,235,559)

Income taxes                                          (32,602)       (31,979)
                                                  -----------    -----------

             Net loss                             $(1,576,163)   $(2,267,538)
                                                  ===========    ===========

Net loss per basic and diluted share              $     (0.16)   $     (0.27)
                                                  ===========    ===========

Weighted-average number of shares
              outstanding, basic and diluted        9,841,803      8,337,143
                                                  ===========    ===========

See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>

                   CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                     Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                          COMMON STOCK           ADDITIONAL                       TOTAL
                                   --------------------------     PAID-IN       ACCUMULATED    STOCKHOLDERS'
                                      SHARES        AMOUNT        CAPITAL         DEFICIT        EQUITY
                                   -----------    -----------    -----------    -----------    -------------
<S>                                  <C>          <C>            <C>            <C>            <C>
Balance at December 31, 2002         7,877,038    $    78,770    $ 6,931,942    $(5,691,178)   $ 1,319,534

Common stock issued for cash           348,339          3,484        606,109             --        609,593
Offering costs                              --             --       (433,005)            --       (433,005)
Conversion of payable to
    stockholder into common stock    1,461,680         14,617      2,049,516             --      2,064,133
Stock-based compensation               103,942          1,039        180,861             --        181,900
Common stock warrants
    issued for services                     --             --         42,494             --         42,494
Net loss                                    --             --             --     (2,267,538)    (2,267,538)
                                   -----------    -----------    -----------    -----------    -----------

Balance at December 31, 2003         9,790,999         97,910      9,377,917     (7,958,716)     1,517,111

Exercise of common stock warrants       45,455            454         49,546             --         50,000
Common stock issued for services        35,000            350         60,900             --         61,250
Discount on payable to sharehoder           --             --        353,100             --        353,100
Repurchase of common stock             (10,654)          (106)       (10,548)            --        (10,654)
Net loss                                    --             --             --     (1,576,163)    (1,576,163)
                                   -----------    -----------    -----------    -----------    -----------

Balance at December 31, 2004         9,860,800    $    98,608    $ 9,830,915    $(9,534,879)   $   394,644
                                   ===========    ===========    ===========    ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.











                                      F-5
<PAGE>

                   CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES
                       Consolidated Statements Cash Flows

<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                                  --------------------------
                                                                     2004           2003
                                                                  -----------    -----------
<S>                                                               <C>            <C>
Cash flows from operating activities:
   Net loss                                                       $(1,576,163)   $(2,267,538)
   Adjustments to reconcile net loss to net cash used in
      operating activities:
         Provision for doubtful accounts                               59,961         32,358
         Depreciation and amortization                                271,682        325,099
         Accretion of discount on convertible notes payable
            and payable to stockholder                                 61,995        203,523
         Accretion of discount on payable to stockholder
            converted to equity prior to maturity                          --        291,593
         Stock-based compensation                                          --        181,900
         Common stock issued for services                              61,250             --
         Changes in operating assets and liabilities:
            Rents and other receivables                              (766,671)      (105,511)
            Inventory                                                 492,560       (769,084)
            Advances to vendors and other current assets             (490,730)       (15,113)
            Accounts payable and accrued expenses                     235,225        323,482
            Deposits and advance payments                              (3,175)       (31,899)
            Other assets                                                5,489        (38,602)
                                                                  -----------    -----------
                     Net cash used in operating activities         (1,648,577)    (1,869,792)
                                                                  -----------    -----------

Cash flows from investing activities:
   Purchase of property and equipment                                 (82,074)       (93,458)
   Proceeds from disposition of property and equipment                126,914        373,732
   Deposits and other assets                                               --        (15,254)
                                                                  -----------    -----------
                     Net cash provided by investing activities         44,840        265,020
                                                                  -----------    -----------

Cash flows from financing activities:
   Proceeds from payable to stockholder                             2,396,000      1,279,631
   Proceeds from notes payable                                        263,708        520,693
   Reduction in payable to stockhoder                                (760,000)      (318,570)
   Reduction in notes payable and convertible notes payable          (235,000)      (272,186)
   Proceeds from sales of common stock                                     --        609,593
   Proceeds from warrants issued to underwriter                            --            100
   Offering costs                                                          --       (182,016)
                                                                  -----------    -----------
                     Net cash provided by financing activities      1,664,708      1,637,245
                                                                  -----------    -----------

                     Net increase in cash and cash equivalents         60,971         32,473

Cash and cash equivalents, beginning of the year                      150,925        118,452
                                                                  -----------    -----------

Cash and cash equivalents, end of the year                        $   211,896    $   150,925
                                                                  ===========    ===========

Supplemental cash flow information:
      Cash paid for interest                                      $   198,526    $   180,538
                                                                  ===========    ===========

      Cash paid for income taxes                                  $    42,474    $    24,388
                                                                  ===========    ===========
      Exercise of common stock warrants in cancellation of debt   $    50,000    $        --
                                                                  ===========    ===========
      Stockholder debt converted to common stock                  $        --    $ 2,064,133
                                                                  ===========    ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>


                   CAPSOURCE FINANCIAL, INC. AND SUBSIDIARIES

                        Consolidated Financial Statements

                           December 31, 2004 and 2003

                   Notes To 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 subsidiaries. The Company operates in one
                  segment, the leasing and selling of trailers, and all
                  operations are in Mexico.

         (B)      LIQUIDITY
                  Since its inception, the Company has generated losses from
                  operations, and as of December 31, 2004, had an accumulated
                  deficit of $9,534,879, with working capital of $1,502,425. On
                  February 18, 2005, the Company's Chairman and largest
                  stockholder converted $1,100,000 of Company notes payable and
                  accrued interest, into Company common stock. In addition, he
                  loaned $179,500 to the Company through a long-term note
                  maturing April 15, 2006.

                  The Company currently is negotiating with third party
                  investors to supply additional debt or equity funding,
                  although no financing agreements have been completed. 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,
                  2006 if needed, by way of additional debt and/or equity
                  contributions.

                  Company management believes that the cash on hand at December
                  31, 2004, together with cash expected to be received from a
                  private placement of debt in 2005 and cash expected to be
                  generated from operations, will provide sufficient operational
                  funds for the next twelve months, and 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.

         (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 / 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.


                                      F-7
<PAGE>

         (D)      PRINCIPLES OF CONSOLIDATION
                  The accompanying consolidated financial statements include the
                  accounts of CapSource Financial, Inc. (CapSource or the
                  Company) 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
                  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, 2004 and 2003, the allowance was increased by $59,961 and
                  $32,000, respectively. Accounts of $174,250 were charged-off
                  against the allowance during the year ended December 31, 2004.
                  No accounts were charged-off during the year ended December
                  31, 2003.

         (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 are
                  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 title to the equipment
                  legally transfers to the buyer, provided the Company has
                  evidence of an arrangement, the sale price is fixed or
                  determinable and collectibility is probable.

         (J)      EQUIPMENT LEASING
                  LEASE ACCOUNTING - 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


                                      F-8
<PAGE>

                  income. At December 31, 2004 and 2003, 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.

         (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 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 years ended December 31, 2004
                  and 2003:










                                      F-9
<PAGE>

<TABLE>
<CAPTION>
                                                                        2004          2003
                                                                      ----------    ----------
                  <S>                                                  <C>           <C>
                  Common and common equivalent shares
                                 outstanding at beginning of year      9,790,999     7,877,038
                  Common shares issued for cash                               --       348,339
                  Common shares issued for services                       35,000            --
                  Common shares issued for warrants exercised             45,455            --
                  Common shares issued for stock-based compensation           --       103,942
                  Common shares issued for conversion of debt                 --     1,461,680
                  Repurchase of common shares                            (10,654)           --
                                                                      ----------    ----------

                  Common and common equivalent shares
                                 outstanding at end of year            9,860,800     9,790,999
                                                                      ==========    ==========

                  Historical common equivalent shares
                                 outstanding at beginning of year      9,790,999     7,877,038
                  Weighted average common shares issued
                                 during year                              50,804       460,105
                                                                      ----------    ----------
                  Weighted average common shares
                                 outstanding - basic and diluted       9,841,803     8,337,143
                                                                      ==========    ==========
</TABLE>

                  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 887,334 and 879,834 common shares as of
                  December 31, 2004 and 2003, respectively, were excluded from
                  the treasury stock calculation because they were anti-dilutive
                  due to the Company's net losses.

         (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 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 and direct costs of trailers. Asset
                  dispositions are recorded upon the termination or remarketing
                  of the underlying assets. Assets are reviewed annually to
                  determine the adequacy of the allowance for losses.
                  Management's analysis has determined that no impairment exists
                  as of December 31, 2004.

                                      F-10
<PAGE>

         (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
                  income (expense) in the Company's Statementof 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 remeasured into U.S.
                  dollars at period-end exchange rates. Income and expense
                  accounts are remeasured at average monthly exchange rates.

         (Q)      BENEFICIAL CONVERSION OPTION
                  In connection with the issuance of certain debt instruments,
                  the Company granted the holders the option to convert the debt
                  into equity of the Company at amounts less than the current
                  fair value of its common stock at the date of the transaction.
                  The fair value of the beneficial conversion is based on the
                  average trading price of the Company common stock as of the
                  most recent trading day prior to the conversion date.

         (R)      STOCK-BASED COMPENSATION
                  The Company accounts for its employee stock option plans and
                  other employee stock-based compensation arrangements in
                  accordance with the provisions of Accounting Principles Board
                  Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB
                  No. 25), and related interpretations. The Company applies the
                  disclosure-only provisions of SFAS No. 123, ACCOUNTING FOR
                  STOCK-BASED COMPENSATION (SFAS No. 123), and SFAS No. 148,
                  Accounting for Stock-Based Compensation-Transition and
                  Disclosure, which allows entities to continue to apply the
                  provisions of APB Opinion No. 25 for transactions with
                  employees and provide pro forma disclosures for employee stock
                  grants as if the fair value based method of accounting in SFAS
                  No. 123 had been applied to these transactions. The Company
                  accounts for equity instruments issued to non-employees in
                  accordance with the provisions of SFAS No. 123 and related
                  interpretations.

                  The following table summarizes relevant information as to
                  reported results under our intrinsic value method of
                  accounting for stock awards (APB 25), with supplemental
                  information as if the fair value recognition provisions of
                  SFAS 123, ACCOUNTING FOR STOCK BASED COMPENSATION had been
                  applied for each of the two years in the period ended December
                  31, 2004:


                                      F-11
<PAGE>

                                                      Year ended December 31,
                                                    ---------------------------
                                                       2004             2003
                                                    -----------     -----------
                  Net loss, as reported             $(1,576,163)    $(2,267,538)
                  Deduct: SFAS No. 123 pro forma
                  compensation expense                 (84,000)        (209,000)
                                                    -----------     -----------

                  Net loss, pro forma               $(1,660,163)    $(2,476,538)
                                                    ===========     ===========

                  Loss per share, pro forma         $     (0.17)    $     (0.30)
                                                    ===========     ===========
                  Loss per share, as reported       $     (0.16)    $     (0.27)
                                                    ===========     ===========

                  For the years ended December 31, 2004 and 2003, the Company
                  had no stock-based compensation determined under APB 25
                  included in reported net loss.

                  The fair value per share of the warrants granted in 2004 and
                  2003 were $0.37 and $1.39, respectively. These fair values
                  were estimated on the date of grant using the Black-Scholes
                  option-pricing model and the following assumptions:

                                                     Year ended December 31,
                                                   ---------------------------
                                                      2004             2003
                                                   ----------        ---------
                  Risk-free interest rate              3.63%             2.49%
                  Expected life                      5 years           5 years
                  Expected volatility                 100.0%            110.0%
                  Expected dividend yield               0.0%              0.0%

         (S)      EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
                  In November 2004, the FASB issued SFAS 151, "Inventory Costs".
                  SFAS 151 amends the accounting for abnormal amounts of idle
                  facility expense, freight, handling costs, and wasted material
                  (spoilage) under the guidance in ARB 43, Chapter 4, "Inventory
                  Pricing". Paragraph 5 of ARB 43, Chapter 4, previously stated
                  that "...under some circumstances, items such as idle facility
                  expense, excessive spoilage, double freight, and rehandling
                  costs may be so abnormal as to require treatment as current
                  period charges....". This Statement requires that those items
                  be recognized as current-period charges regardless of whether
                  they meet the criterion of "so abnormal." In addition, this
                  Statement requires that allocation of fixed production
                  overheads to the costs of conversion be based on the normal
                  capacity of the production facilities. This statement is
                  effective for inventory costs incurred during fiscal years
                  beginning after June 15, 2005. Management does not expect
                  adoption of SFAS 151 to have a material impact on the
                  Company's financial statements.

                  In December 2004, the FASB issued SFAS 153, "Exchanges of
                  Nonmonetary Assets," an amendment to Opinion No. 29,
                  "Accounting for Nonmonetary Transactions." Statement 153
                  eliminates certain differences in the guidance in Opinion No.
                  29 as compared to the guidance contained in standards issued
                  by the International Accounting Standards Board. The amendment
                  to Opinion No. 29 eliminates the fair value exception for
                  nonmonetary exchanges of similar productive assets and
                  replaces it with a general exception for exchanges of
                  nonmonetary assets that do not have commercial substance. Such
                  an exchange has commercial substance if the future cash flows
                  of the entity are expected to change significantly as a result
                  of the exchange. SFAS 153 is effective for nonmonetary asset
                  exchanges occurring in periods beginning after June 15, 2005.
                  Earlier application is permitted for nonmonetary asset
                  exchanges occurring in periods beginning after December 16,
                  2004. Management does not expect adoption of SFAS 153 to have
                  a material impact on the Company's financial statements.

                  In December 2004, the FASB issued SFAS 123(R), "Share-Based
                  Payment". SFAS 123(R) amends SFAS 123, "Accounting for
                  Stock-Based Compensation", and APB Opinion 25,


                                      F-12
<PAGE>

                  "Accounting for Stock Issued to Employees". SFAS 123(R)
                  requires that the cost of share-based payment transactions
                  (including those with employees and non-employees) be
                  recognized in the financial statements. SFAS 123(R) applies to
                  all share-based payment transactions in which an entity
                  acquires goods or services by issuing (or offering to issue)
                  its shares, share options, or other equity instruments (except
                  for those held by an ESOP) or by incurring liabilities (1) in
                  amounts based (even in part) on the price of the entity's
                  shares or other equity instruments, or (2) that require (or
                  may require) settlement by the issuance of an entity's shares
                  or other equity instruments. This statement is effective (1)
                  for public companies qualifying as SEC small business issuers,
                  as of the first fiscal year beginning after December 15, 2005,
                  or (2) for all other public companies, as of the first fiscal
                  year beginning after June 15, 2005, or (3) for all nonpublic
                  entities, as of the first fiscal year beginning after December
                  15, 2005. Management is currently assessing the effect of SFAS
                  No. 123(R) on the Company's financial statements.

(2)      PUBLIC OFFERING

         The Company concluded its public stock offering on July 3, 2003,
         selling 348,339 shares of common stock at $1.75 per share. Proceeds
         from the offering totaled $609,593, which was offset by offering costs
         of $433,005, resulting in the net increase to common stock and
         additional paid-in capital of $176,588.






















                                      F-13
<PAGE>

(3)      PROPERTY AND EQUIPMENT

         At December 31, 2004 and 2003, equipment consists of the following:

                                                    2004            2003
                                                ------------     ------------

         Trailer and semi-trailer equipment     $  2,381,817     $  2,698,130
         Vehicles                                     67,127           43,756
         Furniture and computer equipment            130,024          126,525
                                                ------------     ------------

                                                   2,578,968        2,868,412
         Less accumulated depreciation            (1,033,155)        (965,236)
                                                ------------     ------------

                                                $  1,545,813     $  1,903,175
                                                ============     ============

(4)      FUTURE MINIMUM RENTAL INCOME

         Future minimum lease payments receivable from noncancelable operating
         leases on equipment as of December 31, 2004 are as follows:

                Year ending December 31:
                        2005                                      $  383,882
                        2006                                         329,080
                        2007                                         245,268
                        2008                                         133,478
                                                                 -----------

                                                                 $ 1,091,708
                                                                 ===========

(5)      SIGNIFICANT CUSTOMERS AND SUPPLIERS

         All of the Company's customers are located in Mexico. Revenue from
         sales and leases are denominated in U.S. dollars. During the years 2004
         and 2003, revenue from customers who represent 10% or greater of total
         revenue are as follows:

                   CUSTOMER                           2004             2003
         -----------------------------             ----------        ----------

         Customer A                                $2,166,600        $1,757,305

         Customer B                                $  736,549        $

         The Company relies primarily on one major supplier, Hyundai Translead,
         to provide the majority of its inventory for sale or lease.


                                      F-14
<PAGE>

(6)      NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

         Notes payable consist of unpaid principal and accrued interest, payable
         at the following rates as of December 31, 2004 and 2003:

                                                        2004           2003
                                                     -----------    -----------
         10.0% notes, due April 1, 2006              $   508,281    $   504,000
         10.0% notes, due January 5, 2005                252,173        250,000
         10.0% notes, due January 5, 2006                151,274        150,000
         10.0% notes, due January 5, 2007                193,631        192,000
         Prime plus 2.0% notes, due January 24, 2006     402,319        400,926
                                                     -----------    -----------
                                                       1,507,678      1,496,926
         Less: current portion                          (259,945)      (400,926)
                                                     -----------    -----------

                                                     $ 1,247,733    $ 1,096,000
                                                     ===========    ===========

         Convertible notes payable consist of unpaid principal and accrued
         interest, payable on the following due dates at the following rates as
         of December 31, 2004 and 2003:

                                                        2004           2003
                                                     -----------    -----------
         12% notes, due February 20, 2004            $        --    $    50,000
         11% notes, due August 1, 2005                    50,467         50,000
         11% notes, due June 17, 2005                     50,467         50,000
                                                     -----------    -----------
                                                         100,934        150,000
         Discount on convertible notes payable            (3,331)       (16,732)
                                                     -----------    -----------
                                                          97,603        133,268
         Less: current portion                           (97,603)       (49,162)
                                                     -----------    -----------

                                                     $        --    $    84,106
                                                     ===========    ===========

         The convertible notes payable are unsecured and are immediately
         convertible into common stock at 75% of the market price (as defined in
         the agreement) of common stock on the date of conversion. This
         beneficial conversion feature has been valued in accordance with EITF
         98-5, ACCOUNTING FOR CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION
         FEATURES OR CONTINGENTLY ADJUSTABLE CONVERSION RATIOS (EITF 98-5) and
         EITF 00-27, APPLICATION OF ISSUE NO. 98-5 TO CERTAIN CONVERTIBLE
         INSTRUMENTS (EITF 00-27) at the intrinsic value at the commitment date.
         The beneficial conversion feature is recorded as an increase to
         additional paid-in capital and a discount on the related debt, which is
         accreted to interest expense from the commitment date to the stated
         maturity date of the debt using the effective interest method.

         During the years ended December 31, 2004 and 2003, the Company
         recognized non-cash interest expense totaling $13,401 and $66,955,
         respectively, related to the amortization of the beneficial conversion
         feature discount.



                                      F-15
<PAGE>

(7)      PAYABLE TO STOCKHOLDER

         Payable to stockholder at December 31, 2004 and 2003 consists of the
         following:

                                                           2004          2003
                                                        ----------   ----------
         Prime plus 1.0%, unsecured notes payable
            to stockholder with accrued
            interest, due April 15, 2006                $  753,021   $       --
         Non-interest bearing, unsecured convertible
            note payable to Stockholder                  1,100,000           --
         10.0% convertible notes payable to
            stockholder with accrued interest, due
            December 13, 2004                                   --      100,000
         10.0% unsecured notes payable to
            stockholder with accrued interest, due
            January 5, 2005                                     --      100,000
                                                        ----------   ----------
                                                         1,853,021      200,000
         Discount on convertible notes payable                  --      (48,594)
                                                        ----------   ----------
                                                         1,853,021      151,406
         Less: current portion                                  --      (51,406)
                                                        ----------   ----------
                                                        $1,853,021   $  100,000
                                                        ==========   ==========

         The convertible notes payable on December 13, 2004 were convertible to
         common stock of the Company at a conversion price of $1.00 per common
         share. On December 31, 2004, the Company issued a non-interest bearing
         convertible note payable of $1,100,000 to the Company's majority
         stockholder, replacing the $100,000 note due January 5, 2005, the
         $100,000 convertible note due December 13, 2004 and $900,000 of other
         notes due April 15, 2006. The convertible note payable had a conversion
         price of $0.80 per share, and specified that the Stockholder would
         convert the debt to Company common stock as soon as practicable. The
         Company recorded a discount of $353,100 in the year ended December 31,
         2004, in connection with the beneficial conversion feature on the
         issuance of the note to the stockholder. Subsequently, on February 18,
         2005, the stockholder converted the note to Company equity. In 2003,
         payable to stockholder and accrued interest of $2,064,133 was converted
         into common stock of the Company. The December 31, 2003 consolidated
         statement of operations includes a charge of $291,593 to interest
         expense, which represents the unaccreted discount on the convertible
         stockholder note that was converted to common stock prior to its
         maturity. Non-cash interest expense recognized for the years ended
         December 31, 2004 and 2003 totaled $48,594 and $136,568, respectively,
         related to the amortization of the beneficial conversion feature
         discount.

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

          Year ended December 31:
                     2005                                       $   357,547
                     2006                                         1,808,754
                     2007                                           192,000



                                      F-16
<PAGE>

(8)      INCOME TAXES

         Income tax benefit (expense) for the years ended December 31, 2004 and
         2003 differ from the amount computed by applying the U.S. federal
         income tax rate of 34% because of the following:

                                                            2004        2003
                                                          ---------   ---------

         Computed expected tax benefit                    $ 524,811   $ 760,090
         Reduction (increase) in income taxes resulting
             from:
                 State and local taxes, net of federal
                     benefit and other                       23,003      33,533
                 Alternative foreign tax                    (32,602)    (31,979)
                 Adjustment for changes in enacted tax
                     laws and rates                         178,380     (94,357)
                 True-up of prior year amounts                   --    (193,100)
                 Non-deductible expenses                   (214,373)   (222,285)
                 Increase in valuation allowance           (511,821)   (283,881)
                                                          ---------   ---------

         Income tax expense                               $ (32,602)  $ (31,979)
                                                          =========   =========

         The 2003 reconciliation presented above reflects the true up of prior
         year amounts, related to the reduction in the Mexico income tax rate,
         and its impact on temporary differences in prior years.

         Losses before income taxes from U.S. operations were $730,000 in 2004
         and $1,150,000 in 2003. Losses before income taxes from Mexican
         operations were $815,000 in 2004 and $1,085,000 in 2003.

         The net income tax expense of $32,602 and $31,979 in 2004 and 2003,
         respectively, is an alternative tax on assets incurred by the Company's
         Mexican operations. This tax is applicable to some corporations that
         have no taxable earnings.

         The tax effect of temporary differences that give rise to significant
         portions of deferred tax assets at December 31, 2004 and 2003 are
         presented below:

                                                     2004            2003
                                                   -----------    -----------

         Deferred tax assets:
             Allowance for doubtful accounts       $     2,913    $    39,680
             Accrued expenses and customer
                       Advances                        102,644         73,087
             Net operating loss carryforwards        2,245,501      2,324,471
                                                   -----------    -----------

                 Total gross deferred tax assets     2,751,058      2,437,238
                                                   -----------    -----------

          Deferred tax liabilities:
              Prepaid expenses                          11,684         15,099
              Inventories                              135,779        330,365
                                                   -----------    -----------
                 Total gross deferred tax
                           Liabilities                 147,463        345,464
                                                   -----------    -----------

          Less valuation allowance                  (2,603,595)    (2,091,774)
                                                   -----------    -----------

                 Net deferred tax assets           $        --    $        --
                                                   ===========    ===========



                                      F-17
<PAGE>

         As of December 31, 2004, the Company had U.S. federal net operating
         loss carryforwards of approximately $2.8 million, which are available
         to offset future federal taxable income and expire at various dates
         from 2017 through 2024. The Company's Mexican operations had net
         operating loss carryforwards of approximately $5.2 million that will
         expire at various dates from 2005 through 2024.

         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.


(9)      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, 2004 and 2003, no shares of preferred stock or other classes of
         common stock have been issued.

         On March 15, 2004, the Company issued 35,000 shares of common stock to
         a third party, valued at $1.75 per share, for a total of $61,250, as
         partial compensation for performing public relations services for the
         Company.

         On June 29, 2004, warrants to purchase 45,455 shares of Company common
         stock at $1.10 per share were exercised. The shares, valued at a total
         of $50,000, were issued in cancellation of a demand note payable of the
         same amount.

         On December 31, 2004, the Company repurchased 10,654 shares of Company
         common stock at $1.00 per share, from a customer of the Company,
         accepting the shares as payment of the customer's account receivable
         balance of $10,654.

         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.

         In December 2004 and 2003, the Company issued warrants to directors to
         purchase 137,500 and 150,000 shares of common stock, respectively, at
         $0.80 and $1.75, respectively. These warrants are immediately
         exercisable and have a five-year life. The Company applies 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 has been recorded
         related to the grants in 2004 and 2003 as the exercise price of the
         warrants is 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.

                                      F-18
<PAGE>

         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 Warrants were 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, 2003, 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, 2004, no options have been issued
         under the Plan.

         The following summarizes information about outstanding warrants at
         December 31, 2004:

                                               Weighted-average
                                  Number of        Remaining        Number of
                                   warrants    contractual life     warrants
             Exercise prices     outstanding       (in years)      exercisable
         ---------------------   -----------   ----------------   -------------
                  $0.80              137,500          5.0              137,500
                  $1.10              270,000          1.3              270,000
                  $1.30              125,000          2.3              125,000
                  $1.75              300,000          3.5              300,000
                  $2.45               34,834          2.7               34,834
                  $5.00               20,000          2.3               20,000
                                 -----------                      ------------
                                     887,334          2.8              887,334

         Weighted-average
                exercise price         $1.44                             $1.44
                                 ===========                      ============


(10)     COMMITMENTS AND CONTINGENCIES

         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 $146,844 and $125,841 for the years ended December 31,
         2004 and 2003, respectively.

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

          Year ending December 31:
                     2005                                    $      120,036
                     2006                                            29,160
                     2007                                             7,290
                                                             --------------

                                                             $      156,810
                                                             ==============

         On February 11, 2005, the Company entered into a new agreement with
         Hyundai Translead to extend its contract to sell and distribute Hyundai
         trailers in Mexico. The previous agreement


                                      F-19
<PAGE>

         expired by its terms in November, 2004. Under the terms of the new
         contact, Hyundai grants the Company's Mexican subsidiary, RESALTA, the
         exclusive right to sell Hyundai trailers and parts in Mexico. In
         addition, Hyundai Translead will provide 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 680,000 shares
         of Company stock owned by its Chairman Randolph Pentel. In contrast
         with the prior contract, the new agreement does not require the Company
         to meet any minimum purchase requirements. The contract expires in
         November of 2007.

         As of December 31, 2004, the Company had committed to purchase an
         additional 350 trailers from Hyundai Translead for sale or lease. The
         total purchase price was approximately $7,200,000, towards which the
         Company had made a down payment to Hyundai of approximately $765,000 as
         of December 31, 2004.

         During the year ended December 31, 2004, the Company's Mexican leasing
         subsidiary, REMEX, received a favorable legal judgment awarding it the
         recovery of disputed lease/rental accounts receivable of $191,517. In
         addition, the judgment tentatively awards an amount in excess of
         $100,000 to the Company, to recover associated legal expenses and
         accumulated interest. Due to unsure aspects involved in collecting
         these expense reimbursements, the Company has not recognized their
         recovery in the Company's Statement of Operations for the year ended
         December 31, 2004, nor will it do so until the amounts are actually
         collected.

(11)     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-20