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, 2003

                                       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.
( ) YES  (X) 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, 2003 were $6,206,151.

The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of March 31, 2004 was approximately
$746,000.

The Registrant had 9,790,999 shares of Common Stock outstanding as of March 31,
2004.

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


<S>                                                                                                                  <C>
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 of Financial Condition and Results of Operations.................13
   Item 7.     Financial Statements..................................................................................18
   Item 8.     Changes in and Disagreements with Accountants.........................................................18
PART III.............................................................................................................18
   Item 9.     Directors, Executive Officers, Promoters, Control Persons; Compliance With
               Section 16(a) of the Exchange Act.....................................................................19
   Item 10.    Executive Compensation................................................................................21
   Item 11.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters........22
   Item 12.    Certain Relationships and Related Transactions........................................................23
   Item 13.    Exhibits and Reports on Form 8-K......................................................................24
   Item 14.    Controls and Procedures...............................................................................25

SIGNATURES...........................................................................................................26

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

                           FORWARD-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 Randolph Pentel has invested approximately $7.32 million of
additional equity capital in the Company.

                                    BUSINESS
GENERAL

         CapSource is a holding company with two Mexican subsidiaries through
which we engage in two principal lines of business: (1) through our subsidiary,
REMEX, we own and manage a lease/rental fleet of over-the-road truck trailers
and related equipment; and (2) through our subsidiary, RESALTA, we have an
agreement with Hyundai Translead granting RESALTA the exclusive right to sell
Hyundai truck trailers in Mexico. As is customary in Mexico, each operating
company has an associated service company that employs all of the personnel who
perform services for the primary operating company. 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.



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         REMEX, CapSource's wholly owned subsidiary, the successor to
Mexican-American-Canadian Trailer Rentals' Mexican operations, operates as an
equipment leasing company 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, 2003, REMEX had 158 units in its
lease/rental pool with an approximate aggregate cost of $2,700,000, of which 144
were on lease for a fleet utilization of 91%. All leases are operating leases,
whereby we retain title to and ownership of the equipment.

         CapSource formed RESALTA in April 2001 as a majority owned subsidiary
to take advantage of an agreement negotiated between CapSource and Hyundai which
provides CapSource with the exclusive right to market and sell Hyundai truck
trailers and related equipment in Mexico. Hyundai markets its products directly
and through a network of dealers in the U.S. The signed agreement with CapSource
represents Hyundai's initial entry into the Mexican market. CapSource and
Hyundai are presently negotiating the extension of this agreement, which expires
in November 2004.


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 management works with the operating company executives at
REMEX and RESALTA to formulate business plans and strategies consistent with our
overall corporate goals. Our subsidiaries are party to inter-company service
agreements




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whereby the parent company provides management services in exchange for a fee.
Operating company executives manage the operating companies based on established
goals. Investment and capital allocation decisions are made by the executive
management and board of directors of CapSource.

         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.


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 transportation equipment, primarily truck
transportation equipment, to 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 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



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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. Management has been aggressively pursuing this business
strategy.

         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. CapSource in conjunction with REMEX management has established and
regularly reviews overall corporate credit guidelines. Since 1998, when current
management took control and instituted new lease contracts and credit
guidelines, we have not suffered any credit losses.

         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 acquires trailers and related equipment from a wide range
of suppliers, both in the U.S. and Mexico. Equipment purchasing is generally
driven by the lessee's requirements. The lessee usually specifies the equipment,
including, in many cases, the manufacturer. 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.



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         We have one customer who represents more than ten percent of REMEX's
rental income. The loss of this significant customer would 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, 2003, REMEX had 158 units in its
lease/rental asset pool with an original cost of $2.70 million. Our utilization
rate was 91%. 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 90%.


         REMOLQUES y SISTEMAS ALIADOS de TRANSPORTATION, S.A. de C.V.
         (d/b/a  RESALTA)

         Organized in April 2001, RESALTA became a wholly owned subsidiary of
CapSource as of April 1, 2002. Prior to that date RESALTA was an 80% owned
subsidiary of CapSource. The remaining 20% was owned by Marlo Conzuelo
Bettancourt. Mr. Conzuelo is Director General and principal owner of TractoBaja
Volvo, S.A. de C.V., a Volvo truck dealership located in Tijuana, and Soluciones
Logisticas y de Transportes, S.A. de C.V., a customer of CapSource's leasing
subsidiary, REMEX. On April 1, 2002, CapSource purchased Mr. Conzuelo's interest
in RESALTA by issuing him 15,000 shares of CapSource common stock.

         On November 17, 2000, CapSource executed an agreement with Hyundai,
which provides CapSource and/or its subsidiary RESALTA with exclusive
distribution rights for Hyundai truck trailers and related equipment in Mexico.

         HYUNDAI AGREEMENT. The Hyundai Agreement is for a period of four years,
expiring November 2004, and is renewable. CapSource and Hyundai are currently
negotiating an extension to the Agreement. The initial Agreement required
RESALTA to fulfill certain minimum annual purchase requirements as well as
develop certain facilities to sell and service Hyundai products covered by the
Agreement. To date, we have not met the purchase requirements and Hyundai has
chosen not to enforce them. As part of the Agreement, Hyundai agrees that it
will not designate any other dealers to compete with RESALTA in Mexico as well
as pay RESALTA a per trailer fee should Hyundai sell directly in Mexico, except
for a certain limited number of house accounts serviced directly by Hyundai.

         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 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.


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         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, all sales increased by 70% versus 2002.

   REMEX AND RESALTA SERVICE SUBSIDIARY. As is the custom in Mexico, REMEX and
RESALTA share 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.

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, began to experience a backlog of
orders for trailer production. As of April 4, 2004, we have experienced some
delivery delays from Hyundai, causing some potential customers to seek
alternative suppliers. This backlog could continue for the short-term, possibly
slowing our growth in trailer sales during the second and third quarters of
2004. As of December 31, 2003, we had a good supply of inventory, as well as
committed inventory from Hyundai, which we anticipate will reduce the impact of
the production backlog on our sales volume in 2004. However, there is no
assurance that this backlog will not continue over a longer period, possibly
having a greater negative impact on our ability to increase trailer sales in
Mexico.


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



                                       8
<PAGE>

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, 2003, we had 12 full-time and no part-time employees. None of
our employees are subject to any collective bargaining agreements and we believe
that our relations with our employees are good. In addition to our employees, we
have exclusive contracts with several independent sales representatives to sell
trailers and parts throughout Mexico.

REPORTS TO SECURITY HOLDERS:

   Prior to the filing of Form SB-2 in 2002, the Company had not filed any other
reports with the Securities and Exchange Commission. The Company's Form 10-KSB
for the fiscal year ended December 31, 2002 was required to be filed on or
before March 31, 2003. The Company was delinquent in filing its Form 10-KSB for
the fiscal year ended December 31, 2002 and is delinquent in filing this Form
10-KSB for the fiscal year ended December 31, 2003. The Company's Form 10-QSB
for the three months ended March 31, 2003 and for the three months ended June
30, 2003 were required to be filed on or before May 15, 2003 and August 15,
2003, respectively. The Company was delinquent in filing both Form 10-QSBs.
However, the delinquent Form 10-QSBs were filed on October 17, 2003 and October
16, 2003, respectively. The Company's Form 10-QSB for the three month period
ended September 30, 2003 was timely filed on November 14, 2003. These reports
and any other information that the Company has filed with the Securities
Exchange Commission may be read or copied at the SEC's Public Reference Room at
450 Fifth Street, NW, Washington, DC 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, 2003. CapSource will
prospectively furnish to stockholders:

o an annual report containing financial information audited by our certified
  public accountants;
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 872 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, 2004. Mr. Boethling is reimbursed in the
approximate amount of $1,250 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 $1,550.
RESALTA leases 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, 2004, at
a rental rate of approximately $7,100 per month. RESALTA also leases 689 square
feet of commercial office space in Monterrey, Mexico from an unrelated third
party under a renewable lease that will expire May 15, 2004, at a rental rate of
approximately $650 per month. REMEX leases 1,432 square feet of commercial
office space in Mexico City from an unrelated third party under a lease that
expired February 28, 2004 at a rental rate of approximately $1,650 per month.
This lease has been converted to a month-to-month rental agreement. During the
second quarter of 2004, we intend to consolidate our Mexico City personnel into
one location, moving the REMEX lease administration staff to the RESALTA sales
facility. We believe that our facilities are adequate for our foreseeable needs
in the United States. In Mexico, RESALTA needs additional sales facilities in
selected locations throughout Mexico, in particular, a sales / service and
trailer storage yard in Monterrey.

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 did not submit any matters to a vote of security holders during the
fiscal year.



                                       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.

         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 64 holders of record of the Company's common
stock as of December 31, 2003.

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.

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

<TABLE>
<CAPTION>
                                            Equity Compensation Plan Information
                                            ------------------------------------
                     Plan category                 Number of securities        Weighted average        Number of securities
                                                     to be issued upon        exercise price of      remaining available for
                                                        exercise of          outstanding options,        future issuance
                                                   outstanding options,      warrants and rights
                                                    warrants and 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            879,834                   $1.45                      --
        by security holders,  Discretionary
        Warrants

        Total                                             879,834                   $1.45                    550,000

</TABLE>

WARRANTS

         At December 31, 2003, we had outstanding warrants to purchase a total
of 879,834 shares of common stock exercisable at prices ranging from $1.10 per
share to $5.00 per share and expiring at varying times through December 31,
2008. 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 market value on the
date of grant. No warrants have been issued or will be issued with a term of
longer than five years.

OPTIONS AND 2001 STOCK OPTION PLAN

         Effective February 16, 2001, our Board of Directors and Stockholders
adopted the 2001 Omnibus Stock Option and Incentive Plan. This plan provides for
the grant of options to purchase shares of common stock to our key employees,
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




                                       10
<PAGE>

options at an exercise price of not less than eighty-five percent (85%) of the
fair market value of CapSource's underlying shares of common stock on the date
of the grant. The plan permits the Board to grant options with a term of up to
ten years for certain qualified options and not more than five years for options
granted to a 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, 2003:

<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

Patricia and Gary Dolphus                $  50,000        02/20/02         12%          Yes      25% discount to market     02/20/04

Frederick J. and Jean D. Huppert         $  50,000        04/16/02         11%          Yes      25% discount to market     02/01/05

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

Irwin Pentel                             $ 192,000        12/31/03         10%           No      Not Applicable             01/05/06
Irwin Pentel                             $  50,000        06/17/01         11%          Yes      25% discount to market     06/17/05

Randy Pentel                             $ 100,000        12/31/03         10%           No      Not Applicable             01/05/05
Randy Pentel                             $ 100,000        12/31/01         10%          Yes      $1.00 per share            12/31/04

Marshall Bank                            $ 400,000        12/18/03        6.5%           No      Not Applicable             12/18/04

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             01/05/05

</TABLE>

TERMS OF THE NOTES. The notes bear interest at various rates ranging from 6.5%
to 12%. Interest on the notes is payable monthly. The principal amount of each
note is payable at maturity. The notes mature at various times between February
20, 2004 and January 5, 2006. 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.

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 November 1999, CapSource issued 22,000 shares of common
                  stock to Randolph M. Pentel in exchange for cash of $22,000.

         2.       In January 2000, CapSource issued 65,150 shares of common
                  stock to Randolph M. Pentel in exchange for cash of $65,150.

         3.       In January 2000, CapSource issued 40,978 shares of common
                  stock to Randolph M. Pentel in exchange for travel services
                  valued at $20,489.

         4.       In December 2000, CapSource issued 1,409,637 shares of common
                  stock to Randolph M. Pentel in connection with the conversion
                  notes in the amount of $1,409,637 made by RTL, LLC, a company
                  controlled by Randolph M. Pentel.

         5.       In December 2000, CapSource issued 300,000 shares of common
                  stock to Randolph M. Pentel in exchange for cash of $300,000.

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



                                       11
<PAGE>

         7.       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.

         8.       In May 2001, CapSource issued a 12%, $192,280 convertible
                  promissory note to Irwin Pentel in exchange for cash of
                  $192,280. The note is convertible to common stock at a 25%
                  discount to market price, and matures May 2003.

         9.       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 matures December 31, 2003.

         10.      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.

         11.      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 is convertible to common stock at a
                  25% discount to market price and matures August 2003.

         12.      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 is convertible to common stock at a
                  25% discount to market price and matures October 2003.

         13.      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 is
                  convertible to common stock at a 25% discount to market price
                  and matures November 2003.

         14.      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 is
                  convertible to common stock at a 25% discount to market price
                  and matures November 2003.

         15.      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 is convertible to
                  common stock at $1.00 per share and matures December 2004.

         16.      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 is convertible to common stock at a
                  25% discount to market price and matures February 2004.

         17.      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.

         18.      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 matures December 2002.

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

         20.      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.

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

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

         23.      We have issued warrants to officers, directors and others from
                  time to time, aggregating 879,834 shares, at exercise prices
                  between $1.10 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.

         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 his or her own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear (or



                                       12
<PAGE>

will bear upon issuance, in the case of convertible securities) a legend stating
that the securities may not be offered, sold or transferred other than pursuant
to an effective Registration Statement under the Securities Act, or an exemption
from such registration requirements.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

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 CapSource's
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 debt
instruments, we granted the holders the option to convert the debt into our
common stock at a beneficial conversion rate. In calculating the fair value of
these beneficial conversions, we estimated the fair value of our stock based on
current results, budgeted performance, and recent transactions involving our
common stock.



                                       13
<PAGE>

       FOREIGN EXCHANGE TRANSLATION. 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).

         The accounts of the 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
translated into U.S. dollars at period-end exchange rates. Income and expense
accounts are translated at average monthly exchange rates. Net exchange gains or
losses resulting from translation of those assets and liabilities, which have
been translated into U.S. dollars at the period-end exchange rates, are
recognized in the results of operations in the period incurred.

       INCOME 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. 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 $390,611,
resulting in the net increase in common stock and additional paid-in capital of
$218,982. Since its inception, the Company has generated losses from operations,
and as of December 31, 2003 had an accumulated deficit of $7,958,716, with
working capital of $794,493.

         Subsequent to December 31, 2003, the Company's Chairman and largest
stockholder loaned $290,000 to the Company through a short-term note, of which
$260,000 has been repaid as of April 27, 2004.

         We are currently negotiating with third party investors to supply
additional debt 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 through March 31, 2005 if needed, by way of additional debt
and / or equity contributions.

         We believe that the cash to be generated by operations, plus the cash
expected to be received from a private debt placement, will provide us with
sufficient operational funds for the next twelve months, and to satisfy
obligations as they become due. If we experience occasional cash short-falls, we
expect to cover them with funds provided by the Company's Chairman.

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 2003 COMPARED WITH 2002

         Consolidated net sales and rental income for the forth quarter ended
December 31, 2003, increased 283% to $2,352,510 compared with $614,300 for the
same period last year. This increase was driven by increased trailer sales, as
we concentrated our working capital investments in trailer inventory and
facilities to expand the RESALTA sales operations. In January 2003, we opened a
new trailer sale and storage facility in Mexico City, increasing our visibility
in the Mexican trailer market and improving our ability to respond more rapidly
to our customers. The lease/rental income generated by the lease/rental
subsidiary, REMEX, remained even with last year.



                                       14
<PAGE>

         For the year ended December 31, 2003, consolidated net sales and rental
income increased 55% to $6,206,151, compared with $4,008,517 for the same period
last year. As we began to establish our position in the trailer market in 2003,
we increased our sales volume quarter-to-quarter, as well as compared to the
same quarters of 2002. Our lease/rental income remained level with that of 2002,
as we focused on increasing our trailer sales activities.

         Operating loss consists of net sales and rental income less costs of
sales and operating expenses. We recognized an operating loss of $451,974 in the
fourth quarter ended December 31, 2003, compared with $299,732 for the same
period last year. This operating loss increase was partially the result of
higher selling, general and administrative expenses incurred by RESALTA, related
to the hiring in January 2003 of a full-time general manager to direct our
sales/distribution operations. In addition, we incurred costs to lease the new
trailer sales/storage facility beginning in January 2003, as we began to expand
the RESALTA sales/distribution operations, increasing our visibility as the
exclusive Hyundai trailer distributor in Mexico, and focusing more attention on
customer service. Also, in the fourth quarter ended December 31, 2003, we
incurred some additional legal and administrative expenses, in connection with
complying with legal and regulatory requirements of being a public company.

         For the year ended December 31, 2003, we recognized an operating loss
of $1,351,457, compared with $853,275 for the same period last year. This
increase in the operating loss resulted primarily from our focus on expanding
our trailer sales operations; hiring the RESALTA full-time general manager and
opening the new trailer sales/storage facility in Mexico City. In addition we
incurred additional legal and administrative expenses in connection with
complying with legal and regulatory requirements of being a public company.

         Net interest expense in the fourth quarter ended December 31, 2003 was
$376,421, including a 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 charge, the net
interest expense in the fourth quarter ended December 31, 2003 was $84,828,
compared with $111,822 for the same period last year. This decrease is
associated with the lower debt levels in the fourth quarter of 2003, resulting
from the conversion of the stockholder notes during the quarter.

         For the year ended December 31, 2003, net interest expense was
$795,795, including the one-time charge of $291,593 for 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, the net
interest expense for the year ended December 31, 2003 was $504,202, compared
with $301,401 for the same period last year. This increase is associated with
the higher debt levels in 2003 that were incurred to finance the additional
RESALTA trailer inventory, and to fund the prepaid public offering costs.

         Other expense was $12,111 for the fourth quarter ended December 31,
2003, compared with $5,766 in the same period last year. The foreign exchange
losses incurred during the fourth quarter this year were not significantly
different from those incurred the same period last year, because the Mexican
peso weakened in relation to the U.S. dollar at a comparable rate during the
same period of both years.

         For the year ended December 31, 2003, other expense was $88,307,
compared with $86,256 for the same period last year. The foreign exchange losses
incurred during the year ended December 31, 2003 increased slightly compared to
those incurred last year, because the Mexican peso fluctuated more in 2003 in
relation to the U.S. dollar, than it did in 2002. This fluctuation, both
strengthening and weakening, caused us to incur more foreign exchange loss in
2003, than in the same period last year. However, other expense incurred last
year also included costs resulting from the purchase of the remaining shares of
stock from the minority stockholder of RESALTA, giving CapSource 100% ownership
interest in RESALTA. Consequently, other expense incurred in the year ended
December 31, 2003 was similar to the amounts incurred last year.

         Income taxes of $17,270 were recognized in the fourth quarter ended
December 31, 2003, compared to $19,288 in the same period 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. Prior to the fourth
quarter ended December 31, 2002, we were exempt from this tax. For the year
ended December 31, 2003, income taxes were $31,979, compared with $19,288 in the
same period last year.

         We recognized a net loss of $857,776, or $0.09 per diluted share, for
the fourth quarter ended December 31, 2003, compared with a net loss of
$436,608, or $0.06 per diluted share, for the same period last year. For the
year ended December 31, 2003, net loss was $2,267,538, $0.27 per diluted share,
compared with $1,260,220, or $0.16 per diluted share, in the same period last
year. The increases in the net losses were due to the higher operating expenses
incurred in 2003 as we expanded our sales operations in Mexico, additional legal
and administrative expenses related to the compliance with legal and regulatory
requirements of being a public company, and the increase in interest expense.


                                       15
<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 to
equity. Our principal uses of capital have been to fund our operating losses and
to expand our operations pursuant to our strategic business plan, principally
increasing sales by adding to equipment inventory on display, and increasing our
lease/rental fleet.

         Net cash used in operating activities was $1,869,792 for the year ended
December 31, 2003, compared with $1,150,082 for the prior year. Net operating
cash used in 2003 increased compared to last year due to increases in the net
loss, rents and other receivables, inventory and other assets, which were offset
partially by non-cash operating expenses and increases in accounts payable and
accrued expenses.

         For the year ended December 31, 2003, we acquired property and
equipment of $93,458, and made a leasehold deposit of $15,254 to lease the new
sales/distribution facility in Mexico City. The property acquisitions were
offset by disposals of $373,732, substantially all of which were equipment from
the lease/rental pool that were removed from lease as their lease terms expired.
This compares to $864,394, $0 and $280,246, respectively, for the year ended
December 31, 2003. As a result, net cash provided by investing activities was
$265,020 for the year ended December 31, 2003, compared to net cash used in
investing activities of $584,148 for the year ended December 31, 2002.

         During the year ended December 31, 2003, we received proceeds from the
issuance of debt totaling $1,800,324. These proceeds were partially offset by
repayments of debt totaling $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 offset by offering costs of $182,016 incurred in 2003.
As a result, net cash flow from financing activities for the year ended December
31, 2003 was $1,637,245.

         During the year ended December 31, 2002, we received proceeds from the
issuance of debt totaling $1,695,066. In addition, we received proceeds of
$51,000 from the sale of common stock. As a result, the net cash flow from
financing activities for the year ended December 31, 2002 was $1,746,066.

         On October 21, 2003, our chairman and majority stockholder converted
$2,064,133 of outstanding debt and accrued interest into CapSource common stock.
The debt converted comprised approximately 56% of our total outstanding debt as
of the conversion date.

         On a long-term basis, liquidity is dependent on continuation and
expansion of operations, the re-leasing and sale of equipment and the receipt of
revenue as well as additional infusions of equity and debt capital. We believe
that additional equity, including the recently completed public offering of our
common stock, the anticipated conversion of stockholder debt to equity, as well
as an increase in debt financing in the short term will allow us to implement
the Hyundai-RESALTA business opportunity, increase our lease/rental fleet and
pursue other business opportunities pursuant to our strategic plan. We believe
this will result in substantially increased revenue and liquidity, allowing us
to continue and to expand our operations over the next twelve months and in the
long term. However, there can be no assurance that we will be able to obtain the
additional equity or debt financing in the future.

         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 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



                                       16
<PAGE>

no assurance that any additional financing can be obtained for CapSource 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, 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, 2003, we had no material commitments to
purchase capital assets. However, we have a commitment to purchase an additional
138 trailers from Hyundai, during 2004. Under the terms of our agreement with
Hyundai, we are obligated to meet certain requirements to purchase a minimum
number of Hyundai trailer products for each of the first three years. As a
consequence of the economic slowdown and the tragic events of September 11, to
date we have not met these requirements. Hyundai has chosen not to enforce the
requirements thus far. We believe that Hyundai is satisfied with our performance
under the circumstances, and that it would not be in Hyundai's best interest to
alter the current arrangements. However, we can give no assurance that Hyundai
will continue its current position of not enforcing the minimum purchase
requirements of our agreement. If Hyundai chooses to enforce the minimum
purchase requirements of its existing agreement with us, we could be required to
purchase Hyundai trailers for which we have no immediate need or face the
possible termination of the exclusivity of the Hyundai Agreement.




                                       17
<PAGE>


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.

         All of our indebtedness is at fixed interest rates and we do not enter
into interest rate swaps or any other type of derivative instruments.

ITEM 7. FINANCIAL STATEMENTS

      The Company's Financial Statements, and the report of KPMG LLP,
independent auditors, 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

         There have not been any changes in or disagreements with accountants
during the fiscal year ended December 31, 2003.


                                       18
<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      58   President, Chief Executive Officer and Director
Steven Reichert        55   Vice President, General Counsel and Director
Steven J. Kutcher      51   Vice President, Chief Financial Officer and Director
Lynch Grattan          53   Director
Randolph M. Pentel     45   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. Vice President, Chief Financial Officer and Director
- CapSource Financial, Inc.

         Mr. Kutcher is responsible for treasury management, accounting and
financial reporting for CapSource. Mr. Kutcher has substantial experience in
managing foreign operations. Prior to joining CapSource, from 1982 to 2000, he
was employed by International Multifoods Corporation, initially as Manager of
International Accounting & Analysis (Minneapolis, Minnesota) (1982 to 1985),
followed by Assistant Controller Venezuelan Operations (Caracas) (1985 to 1987),
Controller Mexican Operations (Mexico City) (1987 to 1990), Group Controller
International Operations (Minneapolis) (1990 to 1993), Director of Planning and
Procurement Venezuelan Operations (Caracas) (1993 to 1995), Vice President of
Finance Venezuelan Operations (Caracas) (1995 to 1999) and Chief Financial
Officer and Vice President of Finance Multifoods Distribution (Denver, Colorado)
(1999 to 2000). Before joining International Multifoods, he acquired public
accounting experience, first as a Staff Auditor with Mazanec, Carlson



                                       19
<PAGE>

& 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.

         In November 2002, RESALTA contracted with Mr. Carlos Legaspi for the
position of General Manager of RESALTA. Mr. Legaspi assumed that position on
January 1, 2003. Mr. Legaspi is responsible for the overall management of
RESALTA, including coordinating sales efforts and establishing and managing the
parts and service operations. Mr. Legaspi has substantial experience in all
aspects of transportation and logistics management. Prior to joining RESALTA,
Mr. Legaspi was Manager of Operations for APIVER, a Mexican provider of seaport
management services. Mr. Legaspi has also served as Director of Operations for
Grupo TMM S.A., a major shipping, railroad and trucking company whose shares are
listed on the NYSE (TMM).

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
2003.


                                       20
<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 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 12/31/03

                                        Annual Compensation                         Long Term Compensation
Name and              Fiscal Year    --------------------------     Consulting      Securities Underlying
Principal Position   Compensation       Salary         Bonus           Fees                Warrants           All Other (10)
------------------   ------------    ------------   -----------     ------------    -----------------------   --------------
<S>                      <C>           <C>           <C>             <C>                    <C>                    <C>
Fred C. Boethling        2001           $96,000                                             25,000 (7)             $2,874
CEO &                    2002          $123,000 (1)                                         25,000 (7)             $2,318
President                2003          $133,800 (2)  $50,000(8)                             25,000 (7)             $2,569

Steven E. Reichert       2001           $96,000                                             25,000 (7)             $2,874
Vice President &         2002          $108,000 (3)                                         25,000 (7)             $2,318
General Counsel          2003          $112,800 (4)  $50,000(8)                             25,000 (7)             $2,569

Steven J. Kutcher        2001                                        $94,048 (6)            20,000 (8)
CFO &                    2002           $64,000 (5)                  $50,269 (6)            25,000 (7)             $2,318
Vice President           2003          $128,000                                             25,000 (7)             $2,569

</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) Warrants granted to the executive in his capacity as a director.
 (8) Warrants granted to the executive in lieu of consulting fees.
 (9) Incentive for completion of initial public stock offering, granted under
     2000 employment agreement; paid by CapSource common stock issued in
     October 2003.
(10) 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 either 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.

STOCK OPTIONS, WARRANTS

         No options were granted to the named executive officers during 2003.
Except for warrants for participating on the Board in 2003, no warrants were
granted to the named executive officers, and no warrants were exercised by the
named executive officers during 2003.

                                       21
<PAGE>


         The following table summarizes the aggregate value of the warrants to
which the named executive was entitled at December 31, 2003 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)          --                     $43,750              --
Steven Reichert                          125,000(1)          --                     $43,750              --
Steven Kutcher                            70,000(1)          --                     $13,000              --

</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 $1.75 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, 2003, 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                           85.2%

</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, 2003, 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                            4.3%
Steven Reichert (3)...............................................                 436,730                            4.1%
Randolph Pentel (4)...............................................               9,089,200                           85.2%
Lynch Grattan (5).................................................                 125,000                            1.2%
Steven Kutcher (6)................................................                  76,000                             .7%
                                                                                ----------                          -----
All directors and officers and as a group (5 persons) (7)............           10,184,660                           95.4%
                                                                                ==========                          =====
</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 70,000 shares of common stock issuable upon the exercise of
    warrants that are currently exercisable.
(7) Includes 820,000 shares of common stock issuable upon the exercise of
    warrants that are currently exercisable.




                                       22
<PAGE>

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

<TABLE>
<CAPTION>

Name                    # of Shares  Purchase 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

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


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

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

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
</TABLE>



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

         As of December 31, 2003 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 July 3, 2003, Randolph Pentel purchased 3,000 shares of our
common stock at $1.75 per share.

         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.

                                       23
<PAGE>

         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.

APPOINTMENT OF INDEPENDENT DIRECTORS AND AMENDMENT OF BYLAWS

         We continue to use our best efforts 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. We expect to amend our Bylaws with respect to 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 continue to use our best efforts to recruit at least two
independent directors.

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

<TABLE>
<CAPTION>
          EXHIBIT NO.                      DESCRIPTION
          -----------                      -----------
          <S>              <C>
             *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
           *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
            *21.1          List of Subsidiaries
          ***24.1          Opinion of KPMG LLP
          ***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



                                       24
<PAGE>

                +          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.
</TABLE>

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

           The Company did file on October 23, 2003 a report on Form 8-K
regarding conversion of debt and compensation to common stock.

INDEMNIFICATION OF DIRECTORS AND OFFICERS.

         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.  CONTROLS AND PROCEDURES.

         (a) Evaluation of disclosure controls and procedures

         Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Company's periodic SEC filings.

         (b) Changes in internal controls

         There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regards to
significant deficiencies and material weaknesses.

         (c) Asset-Backed issuers

         Not applicable.




                                       25
<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: May 4, 2004.


                                 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: May 4, 2004.


          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            Vice President, Chief Financial Officer
                                    and Director


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


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







                                       26
<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 approximately during the third week of May. 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, 2003 AND 2002

                   (With Independent Auditors' Report Thereon)




                                                      C O N T E N T S


                                                                           Page
                                                                           ----

INDEPENDENT AUDITORS' REPORT                                               F - 1

CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated balance sheets                                            F - 2

    Consolidated statements of operations                                  F - 3

    Consolidated statements of stockholders' equity                        F - 4

    Consolidated statements of cash flows                                  F - 5

    Notes to consolidated financial statements                             F - 6




<PAGE>



                          Independent Auditors' Report
                          ----------------------------

The Board of Directors
CapSource Financial, Inc.:

We have audited the accompanying consolidated balance sheets of CapSource
Financial, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide 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 2002, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

                                                   /s/ KPMG LLP


Denver, Colorado
April 27, 2004





                                      F-1
<PAGE>

                                       CAPSOURCE FINANCIAL, INC.
                                            AND SUBSIDIARIES
                                      Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                            --------------------------
                                                                               2003           2002
                                                                            -----------    -----------
<S>                                                                         <C>                <C>
                     ASSETS
     Current assets:
        Cash and cash equivalents                                           $   150,925        118,452
        Rents and accounts receivable, net of allowance for doubtful
           accounts of $124,000 and $92,000 in 2003 and 2002, respectively      369,701        346,761
        Mexican value added taxes receivable                                    255,299        205,086
        Inventory                                                             1,032,390        263,306
        Advances to vendors                                                     287,540        325,930
        Prepaid public offering costs                                              --          208,595
        Prepaid insurance and other current assets                               69,071         15,568
                                                                            -----------    -----------
                Total current assets                                          2,164,926      1,483,698

     Property and equipment, net                                              1,903,175      2,508,548

     Other assets                                                                99,549         45,693
                                                                            -----------    -----------
                Total assets                                                $ 4,167,650      4,037,939
                                                                            ===========    ===========

                                     LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
        Accounts payable and accrued expenses                               $   773,909        450,427
        Deposits and advance payments                                            95,030        126,929
        Notes payable                                                           400,926        758,586
        Convertible notes payable, net of discount                               49,162        369,624
        Payable to stockholder                                                   51,406        660,070
                                                                            -----------    -----------
                Total current liabilities                                     1,370,433      2,365,636
                                                                            -----------    -----------

     Long-term liabilities:
        Notes payable                                                         1,096,000           --
        Convertible notes payable, net of discount and current portion           84,106        114,762
        Payable to stockholder, net of discount                                 100,000        238,007
                                                                            -----------    -----------
                Total long-term liabilities                                   1,280,106        352,769
                                                                            -----------    -----------

     Stockholders' equity:
        Common stock, $.01 par value. Authorized 100,000,000 shares;
           issued and outstanding 9,790,999 and 7,877,038 shares in
           2003 and 2002, respectively                                           97,910         78,770
        Additional paid-in capital                                            9,377,917      6,931,942
        Accumulated deficit                                                  (7,958,716)    (5,691,178)
                                                                            -----------    -----------
                Total stockholders' equity                                    1,517,111      1,319,534
                                                                            -----------    -----------
                Total liabilities and stockholders' equity                  $ 4,167,650      4,037,939
                                                                            ===========    ===========
</TABLE>

     See accompanying notes to consolidated financial statements




                                      F-2
<PAGE>



                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                                       --------------------------
                                                          2003           2002
                                                       -----------    -----------
<S>                                                    <C>              <C>
     Sales                                             $ 5,341,901      3,123,387
     Rental income from operating leases                   685,227        716,639
     Other                                                 179,023        168,491
                                                       -----------    -----------
                  Total revenue                          6,206,151      4,008,517
                                                       -----------    -----------

     Costs and expenses:
        Direct costs of sales                            5,090,050      3,040,560
        Depreciation and direct costs of trailers
                   under operating leases                  490,176        424,401
        Selling, general and administrative expenses     1,977,382      1,396,831
                                                       -----------    -----------

                  Total operating expenses               7,557,608      4,861,792
                                                       -----------    -----------

                  Operating loss                        (1,351,457)      (853,275)
                                                       -----------    -----------

     Other income (expense):
        Interest expense                                  (795,795)      (301,401)
        Foreign exchange gains (losses), net               (88,307)       (55,554)
        Other, net                                            --          (30,702)
                                                       -----------    -----------

                  Total other income (expense), net       (884,102)      (387,657)
                                                       -----------    -----------

                  Loss before income taxes              (2,235,559)    (1,240,932)

     Income taxes                                          (31,979)       (19,288)
                                                       -----------    -----------

                  Net loss                             $(2,267,538)    (1,260,220)
                                                       ===========    ===========

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

     Weighted-average number of shares
                   outstanding, basic and diluted        8,337,143      7,853,253
                                                       ===========    ===========
</TABLE>


     See accompanying notes to consolidated financial statements.




                                      F-3
<PAGE>


                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                     Years Ended December 31, 2003 and 2002

<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, 2001             7,832,895   $    78,329   $ 6,285,008    $(4,430,958)   $ 1,932,379

     Discount on convertible notes
       payable and payable to
       stockholder from beneficial
       conversion option                           --            --         570,125           --          570,125
     Common stock issued for cash                29,143           291        50,709           --           51,000
     Common stock issued for
       acquisition of remaining 20%
       minority interest in RESALTA              15,000           150        26,100           --           26,250
     Net loss                                      --            --            --       (1,260,220)    (1,260,220)
                                            -----------   -----------   -----------    -----------    -----------

     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
     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
                                            ===========   ===========   ===========    ===========    ===========
</TABLE>

     See accompanying notes to consolidated financial statements



                                      F-4
<PAGE>


                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                       Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                               --------------------------
                                                                                  2003           2002
                                                                               -----------    -----------
<S>                                                                            <C>             <C>
     Cash flows from operating activities:
        Net loss                                                               $(2,267,538)    (1,260,220)
        Adjustments to reconcile net loss to net cash used in
           operating activities:
              Provision for doubtful accounts                                       32,358         12,547
              Depreciation                                                         325,099        286,508
              Accretion of discount on convertible notes payable
                 and payable to stockholder                                        203,523        119,477
              Accretion of discount on payable to stockholder
                 converted to equity prior to maturity                             291,593           --
              Stock-based compensation                                             181,900           --
              Issuance of common stock to acquire minority interest                   --           26,250
              Changes in operating assets and liabilities:
                 Rents and other receivables                                      (105,511)         7,090
                 Inventory                                                        (769,084)        91,632
                 Other current assets                                              (15,113)      (511,857)
                 Accounts payable and accrued expenses                             323,482         52,399
                 Deposits and advance payments                                     (31,899)        58,836
                 Other assets                                                      (38,602)       (32,744)
                                                                               -----------    -----------
                          Net cash used in operating activities                 (1,869,792)    (1,150,082)
                                                                               -----------    -----------

     Cash flows from investing activities:
        Purchase of property and equipment                                         (93,458)      (864,394)
        Proceeds from disposition of property and equipment                        373,732        280,246
        Deposits and other assets                                                  (15,254)          --
                                                                               -----------    -----------
                          Net cash provided by (used in) investing activities      265,020       (584,148)
                                                                               -----------    -----------

     Cash flows from financing activities:
        Proceeds from payable to stockholder                                     1,279,631        784,092
        Proceeds from notes payable                                                520,693        758,586
        Proceeds from convertible notes payable                                       --          152,388
        Reduction in payable to stockhoder                                        (318,570)          --
        Reduction in notes payable and convertible notes payable                  (272,186)          --
        Proceeds from sales of common stock                                        609,593         51,000
        Proceeds from warrants issued to underwriter                                   100           --
        Offering costs                                                            (182,016)          --
                                                                               -----------    -----------
                          Net cash provided by financing activities              1,637,245      1,746,066
                                                                               -----------    -----------


                          Net increase in cash and cash equivalents                 32,473         11,836

     Cash and cash equivalents, beginning of the year                              118,452        106,616
                                                                               -----------    -----------

     Cash and cash equivalents, end of the year                                $   150,925        118,452
                                                                               ===========    ===========

     Supplemental cash flow information:
           Cash paid for interest                                              $   180,538         86,708
                                                                               ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.





                                      F-5
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)      NATURE OF OPERATIONS

                  CapSource Financial, Inc. (CapSource or the Company) is a
                  Colorado corporation with its principal place of business in
                  Boulder, Colorado. CapSource is a holding company that leases
                  and rents a fleet of dry van and flatbed truck trailers
                  through operating leases in Mexico through its wholly owned
                  Mexican subsidiaries, Rentas y Remolques de Mexico, S.A. de
                  C.V. and Opciones Integrales de Arrendamiento S.A. de C.V.,
                  collectively, REMEX. In addition, CapSource sells and
                  distributes dry van and refrigerated trailers through its
                  wholly owned subsidiary Remolques y Sistemas Aliados de
                  Transportacion, S.A. de C.V., RESALTA. The Company operates
                  in one segment, the leasing and selling of trailers, and all
                  operations are in Mexico.

         (b)      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.

         (c)      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.

         (d)      CASH AND CASH EQUIVALENTS

                  Cash and cash equivalents include demand deposits and highly
                  liquid investments with original maturities of three months or
                  less.

         (e)      ALLOWANCE FOR DOUBTFUL ACCOUNTS

                  An allowance for doubtful accounts is maintained at levels
                  determined by management to be adequate based upon specific
                  identification of past-due accounts deemed to be improbable as
                  to their collection. In addition, a general 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, 2003 and 2002, the allowance was increased by
                  $32,000 and $12,500, respectively. No accounts were
                  charged-off against the allowance during either year.


                                      F-6
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         (f)      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.

         (g)      INVENTORY

                  Inventory represents trailers purchased for resale and are
                  recorded at the lower of cost or market on a first-in
                  first-out basis.

         (h)      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.

         (i)      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 income. 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.

         (j)      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 the estimated useful lives
                  ranging from three to ten years.

         (k)      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.


                                      F-7
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


         (l)      EARNINGS (LOSS) PER SHARE

                  The following summarizes the weighted-average common shares
                  issued and outstanding for the years ended December 31, 2003
                  and 2002:

<TABLE>
<CAPTION>
                                                                           2003          2002
                                                                         ---------     ---------
<S>                                                                      <C>           <C>
                    Common and common equivalent shares outstanding:

                         Historical common equivalent                    7,877,038     7,832,895

                         Weighted average common shares
                            issued during the year                         460,105        20,358
                                                                         ---------     ---------

                         Weighted average common shares
                            outstanding - basic and diluted              8,337,143     7,853,253
                                                                         =========     =========
</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 879,834 and 715,000 common shares as of
                  December 31, 2003 and 2002, respectively, were excluded from
                  the treasury stock calculation because they were anti-dilutive
                  due to the Company's net losses.

         (m)      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.

         (n)      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.

         (o)      FOREIGN EXCHANGE TRANSLATION

                  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).

                                      F-8
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


                  The accounts of the Company's 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 translated into U.S. dollars at period-end
                  exchange rates. Income and expense accounts are translated at
                  average monthly exchange rates. Net exchange gains or losses
                  resulting from translation of those assets and liabilities,
                  which have been translated into U.S. dollars at the period-end
                  exchange rates, are recognized in the results of operations in
                  the period incurred.

         (p)      BENEFICIAL CONVERSION OPTION

                  In connection with the issuance of 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.
                  In calculating the fair value of these beneficial conversions,
                  the Company estimated the fair value of the Company's stock
                  based on current results, budgeted performance, and actual or
                  proposed transactions involving the Company's stock.

         (q)      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
                  Opinion No. 25), and related interpretations. The Company
                  applies the disclosure-only provisions of SFAS No. 123,
                  ACCOUNTING FOR STOCK-BASED COMPENSATION, 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 information as to reported
                  results under the intrinsic value method of accounting for
                  stock awards, with supplemental information as if the fair
                  value recognition provisions of SFAS No. 123 had been applied
                  for each of the two years in the period ended December 31,
                  2003:

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                                       --------------------------
                                                                          2003           2002
                                                                       -----------    -----------

<S>                                                                    <C>             <C>
                  Net loss, as reported                                $(2,267,538)    (1,260,220)
                  Deduct: SFAS No. 123 pro forma compensation expense     (209,000)       (33,000)
                                                                       -----------    -----------

                  Net loss, pro forma                                  $(2,476,538)    (1,293,220)
                                                                       ===========    ===========

                  Loss per share, pro forma                            $     (0.30)         (0.16)
                  Loss per share, as reported                                (0.27)         (0.16)
                                                                       ===========    ===========
</TABLE>


                                      F-9
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


                  The fair value per share of the warrants granted in 2003 and
                  2002 were $1.39 and $0.22, 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,
                                                      -----------------------
                                                       2003            2002
                                                      -------        --------

                  Risk-free interest rate               2.49%          2.74%
                  Expected life                       5 years        5 years
                  Expected volatility                  110.0%         0.001%
                  Expected dividend yield                0.0%           0.0%

(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.

(3)    LIQUIDITY

       Since its inception, the Company has generated losses from operations,
       and as of December 31, 2003, had an accumulated deficit of $7,958,716,
       with working capital of $794,493. Subsequent to December 31, 2003, the
       Company's Chairman and largest stockholder loaned $290,000 to the
       Company through a short-term note, of which $260,000 was repaid as of
       April 27, 2004.

       The Company currently is negotiating with third party investors to supply
       additional debt 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 through March 31, 2005 if
       needed, by way of additional debt and / or equity contributions.

       Company management believes that the cash on hand at December 31, 2003,
       together with cash expected to be received from a private placement of
       debt in 2004 and cash expected to be generated from operations, will
       provide sufficient operational funds for the next twelve months, and to
       satisfy obligations as they become due. If the Company experiences
       occasional cash short-falls, management expects to cover them with funds
       provided by the Company's Chairman.

(4)    PROPERTY AND EQUIPMENT

       At December 31, 2003 and 2002, equipment consists of the following:

                                                2003           2002
                                            -----------    -----------

       Trailer and semi-trailer equipment   $ 2,698,130      3,349,319
       Vehicles                                  43,756         38,635
       Furniture and computer equipment         126,525         87,214
                                            -----------    -----------

                                              2,868,411      3,475,168
       Less accumulated depreciation           (965,236)      (966,620)
                                            -----------    -----------

                                            $ 1,903,175      2,508,548
                                            ===========    ===========



                                      F-10
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


(5)    FUTURE MINIMUM RENTAL INCOME

       Future minimum lease payments receivable from noncancelable operating
       leases on equipment as of December 31, 2003 are as follows:

       Year ending December 31:

               2004                            $   553,368
               2005                                526,878
               2006                                438,754
               2007                                260,943
               2008                                 50,825
                                               -----------
                                               $ 1,830,768
                                               ===========

(6)    SIGNIFICANT CUSTOMERS

       All of the Company's customers are located in Mexico. Revenue from sales
       and leases are denominated in U.S. dollars. During the years 2003 and
       2002, revenue from customers who represent 10% or greater of revenue are
       as follows:

                CUSTOMER                          2003               2002
       ----------------------------------    ---------------     --------------

       Customer A                                $1,757,305            --
       Customer B                                    37,100         457,650
       Customer C                                   119,340         454,600



(7)    NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

       Notes payable consist of unpaid principal and accrued interest payable
       as follows as of December 31, 2003 and 2002:

                                               2003           2002
                                           -----------    -----------
       10.0% notes, due January 5, 2005    $   504,000        508,586
       10.0% notes, due January 5, 2005        250,000        250,000
       10.0% notes, due January 5, 2006        342,000           --
       6.5% notes, due December 18, 2004       400,926           --
                                           -----------    -----------
                                             1,496,926        758,586
       Less: current portion                  (400,926)      (758,586)
                                           -----------    -----------
                                           $ 1,096,000           --
                                           ===========    ===========

       Notes with a balance of $758,586 as of December 31, 2002, matured
       during 2003, but were renegotiated and extended to January 5, 2005.


                                      F-11
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


       Convertible notes payable consist of unpaid principal and accrued
       interest payable on the following due dates at the following rates as of
       December 31, 2003 and 2002:

                                                  2003         2002
                                               ---------    ---------
       12% notes, due May 7, 2003              $    --        194,240
       12% notes, due August 14, 2003               --         53,540
       14% notes, due October 3, 2003               --         88,034
       12% notes, due November 6, 2003              --         40,408
       12% notes, due November 6, 2003              --         40,408
       12% notes, due February 20, 2004           50,000       50,510
       11% notes, due February 1, 2005            50,000       50,467
       11% notes, due June 17, 2005               50,000       50,467
                                               ---------    ---------
                                                 150,000      568,074
       Discount on convertible notes payable     (16,732)     (83,688)
                                               ---------    ---------
                                                 133,268      484,386
       Less: current portion                     (49,162)    (369,624)
                                               ---------    ---------
                                               $  84,106      114,762
                                               =========    =========

       The $50,000 note due February 20, 2004 was converted to a demand note on
       its due date. As of April 27, 2004, the Company is renegotiating the
       terms of the note with the holder.

       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 was 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 was 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 year ended December 31, 2002, the Company recorded discounts
       of $50,000 in connection with the beneficial conversion features on the
       convertible notes payable. Non-cash interest expense recognized for the
       years ended December 31, 2003 and 2002 totaled $66,955 and $76,107,
       respectively, related to amortization of the discount.

(8)    PAYABLE TO STOCKHOLDER

       Payable to stockholder at December 31, 2003 and 2002 consists of the
       following:

                                                      2003           2002
                                                  -----------    -----------
       12.0% unsecured notes payable to           $      --          660,070
             stockholder with accrued interest,
             due December 31, 2003
       9.25% convertible notes payable to
             stockholder with accrued interest,
             due December 31, 2004                       --          614,189
       10.0% convertible notes payable to
             stockholder with accrued interest,
             due December 31, 2004                    100,000        100,573
       10.0% unsecured notes payable to
             stockholder with accrued interest,
             due January 5, 2005                      100,000           --
                                                  -----------    -----------
                                                      200,000      1,374,832



                                      F-12
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


       Discount on convertible notes payable          (48,594)      (476,755)
                                                  -----------    -----------
                                                      151,406        898,077
       Less: current portion                          (51,406)      (660,070)
                                                  -----------    -----------

                                                  $   100,000        238,007
                                                  ===========    ===========

       The convertible notes payable are convertible to common stock of the
       Company at a conversion price of $1.00 per common share. During the year
       ended December 31, 2002, the Company recorded discounts of $520,125 in
       connection with the beneficial conversion features on convertible notes
       payable to stockholder. In 2003, $2,064,133 of debt and accrued interest
       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, 2003 and 2002 totaled $136,568 and $43,370, respectively,
       related to amortization of the discount.

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

         Year ended December 31:
                  2004                                 $ 550,000
                  2005                                   954,000
                  2006                                   342,000

(9)    INCOME TAXES

       Income tax benefit (expense) for the years ended December 31, 2003 and
       2002 differ from the amount computed by applying the U.S. federal income
       tax rate of 34% because of the following items:

                                                     2003            2002
                                                ------------    ------------

       Computed expected tax benefit            $    760,090         421,917
       Reduction (increase) in income taxes
          resulting from:
              State and local taxes, net of
                 federal benefit and other            33,533          18,614
                Alternative foreign tax              (31,979)        (19,288)
                Adjustment for changes in
                 enacted tax laws and rates          (94,357)        (50,532)
                True-up of prior year amounts       (193,100)       (212,967)
                Non-deductible expenses             (222,285)       (130,386)
              Increase in valuation allowance       (283,881)        (46,646)
                                                ------------    ------------

       Income tax benefit (expense)             $    (31,979)        (19,288)
                                                ============    ============

       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.

       In 2002, the United States Internal Revenue Service audited the Company's
       1997, 1998 and 1999 U.S. tax returns, and determined that certain
       expenses previously deducted from taxable income (loss) should be
       excluded from the Company's net operating loss carryforward. The Company
       also anticipates amending its 2000 income tax return for the impact of
       similar non-deductible expenses. The impact of such non-deductible
       expenses for the years 1997 through 2001 is reflected as the true up of
       prior year amounts in the 2002 reconciliation presented above.

       Losses before income taxes from U.S. operations were $1,150,000 in 2003
       and $375,000 in 2002. Losses before income taxes from Mexican operations
       were $1,085,000 in 2003 and $865,000 in 2002.

       The net income tax expense of $31,979 and $19,288 in 2003 and 2002,
       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. Prior to 2002, the Company was exempt from this tax.

                                      F-13
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


       The tax effect of temporary differences that give rise to significant
       portions of deferred tax assets at December 31, 2003 and 2002 are
       presented below:

                                                    2003           2002
                                                -----------    -----------

       Deferred tax assets:
          Allowance for doubtful accounts       $    39,680         31,465
          Accrued expenses and customer
                     advances                        73,087        114,145
          Net operating loss carryforwards        2,324,471      1,734,279
                                                -----------    -----------

              Total gross deferred tax assets     2,437,238      1,879,889

        Deferred tax liabilities:
          Prepaid expenses                           15,099           --
          Inventories                               330,365         71,996
                                                -----------    -----------
              Total gross deferred tax
                    liabilities                     345,464         71,996

        Less valuation allowance                 (2,091,774)    (1,807,893)
                                                -----------    -----------

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

       As of December 31, 2003, the Company had U.S. federal net operating loss
       carryforwards of approximately $2.3 million, which are available to
       offset future federal taxable income and expire at various dates between
       2017 and 2023. The Company's Mexican operations had net operating loss
       carryforwards of approximately $4.7 million that will expire at various
       dates from 2004 through 2013.

       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 established a valuation
       allowance for all deferred income tax assets for all periods presented.


(10)   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, 2003
       and 2002, no shares of preferred stock or other classes of common stock
       have been issued.

       In December 2003 and 2002, the Company issued warrants to directors to
       purchase 150,000 and 150,000 shares of common stock, respectively, at
       $1.75 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 and awards to employees, and
       qualified awards to non-employee directors. Accordingly, no compensation
       expense has been recorded related to the grant in 2003 and 2002 as the
       exercise price of the warrants was equal to the estimated fair value at
       the issue date.

       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 are not exercisable until August
       29, 2004 and have a four-year life. The Company estimated the fair value
       of these warrants to be approximately $42,000, using the Black-Scholes
       option pricing model, using 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-14
<PAGE>

                            CAPSOURCE FINANCIAL, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2003 and 2002


       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, 2003, no options have been issued under the
       Plan.

       The following summarizes information about outstanding warrants at
       December 31, 2003:

                                              Weighted-average
                                Number of        remaining         Number of
                                warrants      contractual life     warrants
       Exercise prices         outstanding       (in years)       exercisable
       ---------------         -----------    ----------------    -----------
           $1.10                 395,000               1.7          395,000
           $1.30                 125,000               3.3          125,000
           $1.75                 300,000               4.5          300,000
           $2.45                  34,834               3.7                0
           $5.00                  25,000               1.9           25,000
                                --------                           --------
                                 879,834               3.0          845,000

       Weighted-average
         exercise price            $1.51                              $1.48
                                ========                           ========


(11)   COMMITMENTS AND CONTINGENCIES

       The Company leases office space and trailer sale facilities under
       noncancelable operating leases. The leases, which all expire in 2004,
       contain renewal options and provide for annual escalation for utilities,
       taxes and service costs. Rent expense was $125,841 and $56,542 for the
       years ended December 31, 2003 and 2002, respectively.

       Effective July 1, 2000 the Company adopted an Employee Compensation Plan.
       Under this plan, up to 1.5% of lease revenue is paid to those employees
       responsible for lease origination and lease financing.

       The RESALTA subsidiary was formed to sell tractor-trailers and related
       equipment, initially under an agreement negotiated between CapSource and
       Hyundai Precision America, Inc. Under the terms of the Hyundai Agreement,
       the Company is obliged to meet certain requirements to purchase a minimum
       number of Hyundai trailer products during each of the first three years.
       To date the Company has not met these requirements. Hyundai has chosen
       not to enforce the requirements thus far. There is no assurance that
       Hyundai will continue its current position of not enforcing the minimum
       purchase requirements of the agreement. If Hyundai chooses to enforce the
       minimum purchase requirements of the agreement, the Company could be
       required to purchase Hyundai trailers for which it has no immediate need
       or face the possible termination of the exclusivity of the Hyundai
       Agreement.

       As of December 31, 2003, the Company had committed to purchase an
       additional 138 trailers from Hyundai for sale or lease, at a total
       purchase price of approximately $2,300,000, towards which the Company
       had made a down payment to Hyundai of approximately $288,000 as of
       December 31, 2003.

(12)   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-15