SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   For the fiscal year ended December 31, 2004

                         Commission File Number 0-28375

                            SILVERADO FINANCIAL, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Nevada                                       86-0824125
--------------------------------------------------------------------------------
 (State or other jurisdiction of                         (IRS Employer
  incorporation or organization)                    Identification Number)

         5976 W. Las Positas Boulevard. Suite 116, Pleasanton, CA 94588
--------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                        Telephone Number: (925) 227-1500

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

                                            Name of each exchange
           Title of Each Class               on which registered
    ---------------------------------    ---------------------------
                  None                              None

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

                                  Common Stock
                              --------------------
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not 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. |_|

The Registrant's revenues for the year ended December 31, 2004 were $919,930

The  approximate   aggregate  market  value  of  Common  Stock  shares  held  by
non-affiliates  of the  Registrant  on December 31, 2004 was based on 17,493,963
total  outstanding  shares  less  shares  held  by  affiliates  for a  total  of
non-affiliated  shares and a closing  price of $0.25 per share on  December  31,
2004.

On December 31, 2004, the Registrant had outstanding 18,216,697 shares of Common
Stock, $0.001 par value.

<PAGE>

silveradofinancial
5976 West Las Positas Boulevard, Suite 116
Pleasanton, California 94588-8506
PH: 925.227.1500 FX: 925-227-1501




To the Shareholders of Silverado Financial, Inc,


It has been a busy year for all of us here at Silverado  Financial and Silverado
Mortgage.

We doubled the size of our  Campbell,  California  office when we relocated  our
Corporate  offices to Pleasanton,  California and are already out of space.  The
new Phoenix,  Arizona  office is open with ten Advisors and eight  telemarketers
and Duane Sherry is hiring new salespeople as quickly as he can.

Silverado is currently lending in California, brokering loans in Colorado and is
working to complete licensing in the Western United States.

The first loans have been submitted and closed on the warehouse line. Management
has  cleaned  up the  balance  sheet  and  added to the book  value of the firm.
Revenue for 2004 was  significantly  higher  than 2003 and 2005 looks  extremely
strong.

The warehouse line  represents a significant  achievement  for the management of
Silverado and completes the foundation for future growth.  Silverado, as lender,
anticipates  generating even greater revenue stability and increased EPS through
the additional fees attributable to each transaction.

Silverado's licensing doesn't sound exciting but it really is! Every new license
Silverado is approved for is a new market with which it can begin  marketing its
products.  To  prepare  the  Company  for the  rapid  growth  projected  in 2005
Management  has been  preparing  mortgage  banking  licensing  applications  for
Arizona,  Colorado,  Nevada, Utah, Washington and Oregon. It is anticipated that
these applications will be approved by the end of the first quarter of 2005.

The board of  directors  has approved  the  2005-operating  plan and the Company
anticipates growth on a level with 2004.

All in all it's been a good year for the Company and we look forward to 2005.

My sincere hope is that you will remain  shareholders  and spread the word about
Silverado.


Cordially,


John E. Hartman
Chief Executive Officer
Silverado Financial, Inc.


                                       2
<PAGE>

                             TABLE OF CONTENTS PAGE

<TABLE>
<CAPTION>
PART I
<S>      <C>                                                                          <C>
ITEM 1.  DESCRIPTION OF BUSINESS ......................................................4

ITEM 2.  PROPERTIES ..................................................................18

ITEM 3.  LEGAL PROCEEDINGS ...........................................................18

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .........................19


PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ...19

ITEM 6.  MANAGEMENT'S PLAN OF OPERATION ..............................................21

ITEM 7.  FINANCIAL STATEMENTS ........................................................23

ITEM 8.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE ......................................40

ITEM 8A. CONTROLS AND PROCEDURES .....................................................40


PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT...................40

ITEM 10. EXECUTIVE COMPENSATION ......................................................42

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............43

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ........................43

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ............................................43

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ......................................44

ITEM 15. SIGNATURES ..................................................................45
</TABLE>


                                       3
<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Background of the Company

Silverado Financial, Inc. (the "Company",  "We", "Us" and "Our") is incorporated
under the laws of the State of Nevada and based in Pleasanton, California in the
East San  Francisco Bay Area.  The Company  provides  first and second  mortgage
products  to  borrowers  in  California  and  Colorado   through  its  operating
subsidiary, Silverado Mortgage Corporation (SMC).

The  corporation  was  initially  formed on February 26, 1987 as Toledo  Medical
Corporation. The name was changed to Almaz Space Corporation on February 9, 1991
and to Ready When You Are Funwear,  Inc. on April 14, 1992. On December 30, 1994
a group of individuals  acquired  control of the Company.  On February 17, 1995,
they changed the name to Rhombic  Corporation.  On March 19,  2003,  the company
changed its name to Silverado Financial, Inc.

In November 2002, the Company  acquired  Financial  Software,  Inc. as the first
part of its strategy to enter the lucrative  consumer finance sector.  In May of
2003 the  Company  acquired  Realty  Capital  Corporation,  a  California  based
mortgage brokerage,  and renamed the wholly owned subsidiary  Silverado Mortgage
Corporation in August of 2004.

During 2004 the company had two wholly owned subsidiaries.

      *     Financial Software, Inc. ("FSI");
      *     Silverado Mortgage Corporation ("SMC");

Silverado acquired Financial Software,  Inc. on November 19, 2002 in a share for
share exchange basis for 4,400,000 shares of common stock.  Financial  Software,
Inc. (FSI), a New Jersey corporation  engaged in the development of Internet and
Intranet  financial software in addition to operating several financial industry
publishing  websites.  Silverado acquired FSI in order to gain access to certain
proprietary  software  products owned by FSI which we intend to further  develop
and extend into a  comprehensive  back office  platform  necessary to accomplish
managements business objectives.

On May 9, 2003,  Silverado  acquired Realty Capital  Corporation in exchange for
729,452  shares of restricted  common stock from John E. Hartman,  the President
and Chief  Executive  Officer of the  Company  and a  director.  The Company was
renamed  Silverado  Mortgage  Corporation  in August of 2004.  SMC operates as a
mortgage  brokerage  and mortgage  banking  company  licensed by the  California
Department of Real Estate and by the California  Department of Corporations as a
Consumer Finance Lender. SMC generated all of the Company's 2004 revenue through
its offices in Campbell and Pleasanton, California and Phoenix Arizona.

In addition to continuing, and expanding, the operation of SMC, other activities
have consisted of developing  the business  plan,  obtaining a warehouse line of
credit,  raising  capital,  business  plan  implementation  and  recruiting  and
training  sales people.  For the year ending  December 31, 2004, the Company had
revenues  of  $919,930,  and has  expensed  operating  costs  in the  amount  of
$1,590,650.  Historically,  the Company has had nominal cash  resources  and has
been largely  dependent on the direct financial support from a few shareholders,
directors and officers along with limited revenue to pay for cash  expenditures.
In addition,  the Company has been  dependent  on its  officers,  directors  and
certain key vendors accepting restricted common stock for their services.

BUSINESS OF THE ISSUER

General

Silverado  Financial  Incorporated  is a  mortgage  banking  company  focused on
providing  non-prime  borrowers,  individuals  who  generally do not satisfy the
credit,  documentation or other  underwriting  standards set by more traditional
sources  of  mortgage  credit,  with  access to  capital  for the  purchase  and
refinancing of one to four-family residential properties. The Company originates
mortgage loans, which include fixed and adjustable-rate loans, for purposes such
as debt consolidation,  refinancing, education, home improvement and real estate
purchase.

As the primary aspect of the Company's business and finance strategy,  Silverado
sells  its  loans to  third-party  investors  (correspondent  investors)  in the
secondary  mortgage market.  Presently the Company sells its loans through whole
loan sales to correspondent  investors, but as the Company grows it will dispose
of  its  loan  production   through  a  combination  of  whole  loan  sales  and
securitization.


                                       4
<PAGE>

The Company's mortgage business has two principal components.  First,  Silverado
makes  mortgage loans to individual  borrowers.  Each loan is a cash and expense
outlay for the Company,  because its total cost  incurred in  originating a loan
exceeds the fees it collects at the time it originates  the loan. At the time of
origination,  Silverado  either finances the loan by borrowing under a warehouse
line of credit,  or acts as an agent and  brokers  the loan to another  mortgage
lender.  Second, the Company sells the loans on a whole-loan basis, and uses the
net proceeds from these  transactions to repay its warehouse lines of credit and
for working capital.

Silverado currently operates 2 offices in California, corporate headquarters and
retail  sales  office in  Pleasanton,  California,  a sales  office in Campbell,
California and a sales office in Phoenix, Arizona.

Additionally,  management  is in  negotiations  with  several  groups of Lending
Advisors  in  Los  Angeles,  California,  Denver,  Colorado  and  Boise,  Idaho.
Silverado  is  currently  applying  for  licensure  as a mortgage  banker in the
following states: Arizona, Colorado, Utah, Nevada, Washington, Oregon and Idaho.

Because of  Silverado's  focus on the  Non-Prime  borrower,  and the  subsequent
growth of that market  segment,  the Company is largely  insulated from interest
rate increases  unlike many of its competitors in the highly sensitive Prime "A"
paper market segment.

Warehouse Facility

On August 11, 2004 the Company's  wholly owned  subsidiary,  Silverado  Mortgage
Corporation  (formerly  Realty  Capital  Corporation)  received  approval  for a
$2,000,000  Mortgage  Warehouse and Security  Facility.  A signed  agreement was
executed on September 3, 2004 and SMC began utilizing the warehouse and security
facility on November 22, 2004.

Along with the Warehouse  Facility  comes a Demand Note. The Demand Note, in the
event  of a  default,  stipulates  that any  outstanding  balance  of  warehouse
facility can be called at any time  inclusive of interest.  Per the terms in the
Warehouse  agreement  the  Note  is  subject  to  mandatory  prepayments  and is
collateralized by the mortgage loans and other predetermined assets.

The $2 million warehouse line provides Silverado with the ability to potentially
fund more than $10 million per month in loans and in excess of $120  million per
year. The number of times that Silverado is able to "roll" its warehouse line is
a critical metric with which to measure efficiency of the underlying  operation.
By  having  a more  efficient  loan  process,  through  the use of a  technology
backbone,   Silverado  is  able  to  streamline   the   packaging,   submission,
underwriting  and funding and thereby  decrease  the "dwell time" of the loan on
the warehouse line. The "dwell time" is the number of days that a loan is on the
line and not sold to a third party investor.  The lower the dwell time the lower
the interest expense for using the warehouse line capital,  this translates into
a higher profit on a per-loan-basis.

Recent Operating Highlights


Management  achieved several  significant  operational  milestones  during 2004,
including the following:

o     Grew revenue to approximately $1mm approximately 10 x 2003 revenue
o     Established Silverado as a Mortgage Bank with a $2mm Warehouse Line
o     Tripled the size of the Campbell office
o     Expanded into Pleasanton, California
o     Created a Spanish/Latino hub operation
o     Expanded into Phoenix, Arizona
o     Established 12 new Correspondent Relationships
o     Continual Quarter-Over-Quarter growth in excess of 1.5x
o     Acquired Software Platform Upgraded and Operational
o     Developed and Implemented proprietary training program
o     Hired and trained 50+ new Lending Associates
o     Year-End 2004 Originations of approximately $75mm


                                       5
<PAGE>

Strengths and Competitive Advantages

We believe that we have several strengths and competitive  advantages that allow
us to compete effectively in our business, including:

      o     Low Interest Rate Sensitivity: Due to Silverado's focus on the
            non-prime borrower, and the subsequent growth of that market,
            Silverado is largely insulated from increases in interest rates.

      o     Performance-Based Compensation Structure. Our compensation structure
            helps keep fixed costs at a minimum and allows us to weather
            industry down-turns.

      o     Proprietary Training Program. We have developed and implemented a
            proprietary training program, which broadens the hiring pool and
            helps to accelerate internal growth.

      o     Position as a Direct Lender. As the industry consolidates
            Silverado's position as a direct lender helps it to attract
            employees and insulates it against the proposed regulatory changes


Competition

We face  competition  in the  business of  originating,  purchasing  and selling
mortgage  loans.  Our  competitors  include other  consumer  finance  companies,
mortgage   banking   companies,   commercial   banks,   credit  unions,   thrift
institutions,  credit  card  issuers  and  insurance  finance  companies.  Other
financial institutions have gradually expanded their lending capabilities.  Many
of these  companies have greater access to capital at a cost lower than our cost
of capital under our warehouse,  aggregation,  and asset backed commercial paper
facilities.  Federally chartered banks and thrifts can preempt some of the state
and  local  lending  laws  to  which  we  are  subject,  thereby  giving  them a
competitive advantage.  In addition, many of these competitors have considerably
greater technical and marketing resources than we have.

Competition  among  industry   participants  can  take  many  forms,   including
convenience in obtaining a loan,  customer  service,  marketing and distribution
channels, amount and term of the loan, loan origination fees and interest rates.
Additional  competition  may lower the rates we can  charge  borrowers,  thereby
potentially lowering gain on future loan sales and securitizations. In 2004, the
most  significant  form of  competition  was  pricing  pressure  among  mortgage
originators.  Some of our  competitors  lowered  rates and fees to  preserve  or
expand their market share.

Our results of operations,  financial  condition and business prospects could be
materially  adversely  affected  if  competition  intensifies  or if  any of our
competitors significantly expands its activities in our markets. Fluctuations in
interest rates and general  economic  conditions may also affect our competitive
position.  During periods of rising rates,  competitors  that have locked in low
borrowing  costs may have a competitive  advantage.  During periods of declining
rates, competitors may solicit our customers to refinance their loans.

Regulation

Our business is regulated by federal,  state, and local  government  authorities
and  is  subject  to  extensive  federal,   state  and  local  laws,  rules  and
regulations.  We are also subject to judicial and administrative  decisions that
impose requirements, and restrictions on our business.

 At the federal level, these laws and regulations include the:

      o     Equal Credit Opportunity Act;

      o     Federal Truth and Lending Act and Regulation Z;

      o     Home Ownership and Equity Protection Act;

      o     Real Estate Settlement Procedures Act;

      o     Fair Credit Reporting Act;


                                       6
<PAGE>

      o     Fair Debt Collection Practices Act;

      o     Home Mortgage Disclosure Act;

      o     Fair Housing Act;

      o     Telephone Consumer Protection Act;

      o     Gramm-Leach-Bliley Act;

      o     Fair and Accurate Credit Transactions Act;

      o     CAN-SPAM Act;

      o     Sarbanes-Oxley Act; and

      o     USA PATRIOT Act.

These laws, rules and regulations, among other things:

      o     impose licensing obligations and financial requirements on us;

      o     limit the interest rates, finance charges, and other fees that we
            may charge;

      o     prohibit discrimination;

      o     impose underwriting requirements;

      o     mandate disclosures and notices to consumers;

      o     mandate the collection and reporting of statistical data regarding
            our customers;

      o     regulate our marketing techniques and practices;

      o     require us to safeguard non-public information about our customers;

      o     regulate our collection practices;

      o     require us to prevent money-laundering or doing business with
            suspected terrorists; and

      o     impose corporate governance, internal control and financial
            reporting obligations and standards.

Our failure to comply with these laws can lead to:

      o     civil and criminal liability;

      o     loss of approved status;

      o     demands for indemnification or loan repurchases from buyers of our
            loans;

      o     class action lawsuits; and

      o     administrative enforcement actions.


                                       7
<PAGE>

Compliance, Quality Control and Quality Assurance

We regularly  monitor the laws, rules and regulations that apply to our business
and analyze any  changes to them.  We also  maintain  policies  and  procedures,
summaries and  checklists to help our  origination  personnel  comply with these
laws.

Licensing

As of December 31, 2004,  we were licensed in  California  under the  California
Department  of  Real  Estate  (DRE)  and  under  the  California  Department  of
Corporations  (DOC) as a Consumer  Finance  Lender  (CFL).  This approval by the
Department of Corporations has enabled Silverado to hire W-2 employees to act as
Lending Advisors  instead of licensed real estate agents.  This will allow us to
pay lower commissions and hire from the  significantly  larger pool of available
sales professionals who are not licensed by the DRE.

We are currently in the process of gaining  licensure in Arizona and  anticipate
completing licensing in the Western United States by the end of fiscal 2005.

Regulatory Developments

During 2004,  federal and state legislators and regulators  adopted a variety of
new or expanded  regulations,  particularly in the areas of privacy and consumer
protection.

Privacy

The federal  Gramm-Leach-Bliley  financial reform legislation imposes additional
obligations  on us to safeguard the  information  we maintain on our  borrowers.
Regulations  have  been  proposed  by  several  agencies  that  may  affect  our
obligations to safeguard information. In addition, regulations that could affect
the content of our notices are being considered by several federal agencies.

Also,  several states are considering even more stringent  privacy  legislation.
California has passed legislation known as the California Financial  Information
Privacy Act and the California  On-Line  Privacy  Protection Act. Both pieces of
legislation are effective July 1, 2004, and will impose additional  notification
obligations  on us that are not  pre-empted  by existing  federal  law. If other
states choose to follow  California  and adopt a variety of  inconsistent  state
privacy legislation, our compliance costs could substantially increase.

Fair Credit Reporting Act

The Fair Credit Reporting Act provides  federal  preemption for lenders to share
information   with   affiliates   and  certain  third  parties  and  to  provide
pre-approved offers of credit to consumers.  Congress acted in late 2003 to make
this  preemption  permanent,  otherwise  it would have expired at the end of the
year and states could have imposed more stringent and  inconsistent  regulations
regarding  the use of  pre-approved  offers  of  credit  and  other  information
sharing.  Congress  also amended the Fair Credit  Reporting Act to place further
restrictions on the use of information shared between affiliates, to provide new
disclosures to consumers when risk based pricing is used in the credit decision,
and to help protect  consumers from identity theft.  All of these new provisions
impose additional regulatory compliance costs on us and reduce the effectiveness
of our marketing programs.

Home Mortgage Disclosure Act

In 2002, the Federal  Reserve Board adopted  changes to Regulation C promulgated
under the Home Mortgage  Disclosure  Act ("HMDA").  Among other things,  the new
regulations  require  lenders  to  report  pricing  data on  loans  with  annual
percentage  rates  that  exceed  the yield on  treasury  bills  with  comparable
maturities by 3%. The expanded  reporting takes effect in 2004 for reports filed
in 2005.  We  anticipate  that a majority  of our loans  would be subject to the
expanded reporting requirements.

The expanded  reporting does not provide for additional loan information such as
credit risk, debt-to-income ratio,  loan-to-value ratio,  documentation level or
other salient loan features. As a result, lenders like us are concerned that the
reported  information may lead to increased  litigation as the information could
be misinterpreted by third parties.


                                       8
<PAGE>

Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003

The  CAN-SPAM  Act of 2003  applies  to  businesses,  such  as  ours,  that  use
electronic  mail  for  advertising  and   solicitation.   This  law,   generally
administered  by the  Federal  Trade  Commission,  preempts  state  laws  to the
contrary, and establishes,  among other things, a national uniform standard that
gives consumers the right to stop unwanted emails.  New requirements are imposed
for the  header  caption  in  emails,  as well as return  email  addresses,  and
consumers are granted the right to `opt out' from receiving  further emails from
the sender.  These new provisions  impose  additional  regulatory and compliance
costs on us and reduce the effectiveness of our marketing programs.

The Alternative Mortgage Transaction Parity Act

This law was  enacted  to enable  state  chartered  housing  creditors  to make,
purchase and enforce alternative mortgage transactions (i.e., loans that are not
fixed rate, fully amortized) without regard to any state law on the subject,  so
long as  these  creditors  complied  with  the  same  regulatory  guidelines  as
federally  chartered housing lenders.  The Office of Thrift  Supervision,  under
whose guidelines we operate, amended its regulations, effective July 1, 2003, to
eliminate from the preemptive effect of the Act the regulation of prepayment and
late charges on alternative  mortgage loans.  States can now regulate prepayment
penalty and late charge provisions on alternative mortgage loans, and so on July
1, 2003,  in less than a dozen  states,  we became  subject to more  restrictive
state laws as to these issues.

Telephone Consumer Protection Act and Telemarketing Consumer Fraud and Abuse
Prevention Act

These laws,  enacted in 1991 and 1994,  respectively,  are  designed to restrict
unsolicited  advertising using the telephone and facsimile  machine.  Since they
were enacted, however, telemarketing practices have changed significantly due to
new technologies that make it easier to target potential  customers while at the
same time making it more cost  effective  to do so. The  Federal  Communications
Commission and the Federal Trade Commission have  responsibility  for regulating
various   aspects  of  these  laws;  such  as  regulating   unwanted   telephone
solicitations and the use of automated telephone dialing systems, prerecorded or
artificial  voice  messages,  and telephone  facsimile  machines.  In 2003, both
agencies adopted `do-not-call'  registry  requirements,  which, in part, mandate
that companies  such as us maintain and regularly  update lists of consumers who
have chosen not to be called.  These  requirements  also  mandate that we do not
call consumers who have chosen to be on the list. During this same time, over 25
states have also adopted similar laws, with which we also comply.  As with other
regulatory  requirements,  these  provisions  impose  additional  regulatory and
compliance costs on us and reduce the effectiveness of our marketing programs.

Predatory Lending Legislation

The Home  Ownership and Equity  Protection  Act of 1994  ("HOEPA")  identifies a
category of mortgage loans and subjects them to more stringent  restrictions and
disclosure requirements. In addition, liability for violations of applicable law
for loans covered by HOEPA extends not only to the  originator,  but also to the
purchaser  of the loans.  HOEPA  generally  covers  loans with  either (i) total
points and fees upon  origination  in excess of the greater of eight  percent of
the loan amount or $499 (an annually adjusted dollar amount),  or (ii) an annual
percentage  rate (APR) of more than eight  percentage  points higher than United
States Treasury  securities of comparable  maturity on first mortgage loans, and
ten  percentage  points  above  Treasuries  of  comparable  maturity  for junior
mortgage loans.

We do not originate  loans covered by HOEPA because of the higher legal risks as
well  as the  potential  negative  perception  of  originating  loans  that  are
considered to be "high cost" under federal law.

Several federal, state and local laws and regulations have been adopted or are
under consideration that are intended to eliminate so-called "predatory" lending
practices. Many of these laws and regulations go beyond targeting abusive
practices by imposing broad restrictions on certain commonly accepted lending
practices, including some of our practices. In addition, some of these laws
impose liability on assignees of mortgage loans such as loan buyers, lenders and
securitization trusts. Such provisions deter loan buyers from purchasing loans
covered by the applicable law. For example, after the October 1, 2002 effective
date of the Georgia Fair Lending Act, many lenders and secondary market buyers
refused to finance or purchase Georgia loans. As a result, many companies were
forced to cease providing mortgages in Georgia until the law's amendment a few
months later. Similar laws have gone into effect in New Jersey, as of November
27, 2003 ("New Jersey Home Ownership Act of 2002"), and in New Mexico, as of
January 1, 2004 ("New Mexico Home Loan Protection Act"), that have impacted
origination of loans in those states.


                                       9
<PAGE>

However,   there  can  be  no  assurance  that  other  similar  laws,  rules  or
regulations,  won't  be  adopted  in the  future.  Adoption  of  these  laws and
regulations   could  have  a  material   adverse   impact  on  our  business  by
substantially  increasing the costs of compliance with a variety of inconsistent
federal,  state and local rules,  or by restricting  our ability to charge rates
and fees adequate to compensate us for the risk  associated  with certain loans.
Adoption  of these laws could  also have a material  adverse  effect on our loan
origination volume,  especially if our lenders and secondary market buyers elect
not to finance or purchase loans covered by the new laws.

Efforts to Avoid Abusive Lending Practices

In an effort to prevent the  origination  of loans  containing  unfair  terms or
involving  predatory  practices,  we have adopted many policies and  procedures,
including the following:

Product Policies

      O     We do not originate "high cost loans" as defined by HOEPA.

      o     We do not originate loans containing single premium credit life,
            disability or accident insurance.

      o     We do not originate loans containing balloon payments, negative
            amortization, mandatory arbitration clauses or interest rate
            increases triggered by borrower default.

      o     We offer loans with and without prepayment penalties. When a
            borrower opts for a loan with a prepayment charge, the borrower
            benefits from a lower interest rate or pays lower upfront fees.

      o     Prepayment penalties do not extend beyond three years from the
            origination date. On fixed rate loans, the maximum prepayment
            penalty term is three years. Prepayment penalties on adjustable rate
            loans do not extend beyond the first adjustment date.

      o     We do not originate loans that pay off zero interest rate mortgages
            provided by charitable organizations or the government without
            borrower third-party counseling.

Loan Processing Policies

      o     We only originate loans from applications that evidence a borrower's
            ability to repay the loan.

      o     We consider whether the loan terms are in the borrower's best
            interests.

      o     We do not solicit our loan portfolio within twelve months of loan
            origination.

      o     We do not ask appraisers to report a predetermined value or withhold
            disclosure of adverse features. Appraisers are paid by the borrower
            either at closing or from the borrowers own funds regardless of
            whether or not the loans are closed.

We plan to continue to review,  revise and improve our  practices to enhance our
fair  lending  efforts  and support the goal of  eliminating  predatory  lending
practices.


                                       10
<PAGE>

Environmental

In the course of our business, we may acquire properties securing loans that are
in default. There is a risk that hazardous or toxic waste could be found on such
properties.  If this occurs,  we could be held responsible  under applicable law
for the cost of cleaning up or removing  the  hazardous  waste.  This cost could
exceed the value of the underlying properties.

Employees

At December 31, 2004,  Silverado Financial and its subsidiary companies employed
approximately 100 individuals and contract employees. As is standard practice in
the industry,  we also have Lending Advisors working outside the company offices
as independent  contractors.  We have no collective  bargaining  agreements.  We
believe that our relations with our employees are satisfactory.

Available Information

We make  available,  free of charge,  on the Investor  Relations  Section of our
Website   (http:/www.silveradofinancial.com/investors.htm)   a   link   to   the
Securities and Exchange  Commission Web Site where all of the Company's  filings
may be found.

RISK FACTORS

Stockholders  and  prospective  purchasers of our common stock should  carefully
consider the risks  described  below before  making a decision to buy our common
stock.  If any of the following  risks  actually  occurs,  our business could be
harmed.  In that case, the trading price of our common stock could decline,  and
you may lose all or part of your investment. When determining whether to buy our
common stock,  stockholders and prospective  purchasers should also refer to the
other information in this Form 10-K,  including our financial statements and the
related notes.

A prolonged  economic  slowdown or a lengthy or severe  recession could hurt our
operations, particularly if it results in a decline in the real estate market.

The risks associated with our business are more acute during periods of economic
slowdown or recession  because  these  periods may be  accompanied  by decreased
demand for consumer  credit and declining  real estate  values.  Declining  real
estate  values  reduce the  ability of  borrowers  to use home equity to support
borrowings  because  they  negatively  affect  loan-to-value  ratios of the home
equity collateral. In addition, because we make a substantial number of loans to
credit-impaired  borrowers, the actual rates of delinquencies,  foreclosures and
losses on these loans could be higher during economic  slowdowns.  Any sustained
period of increased delinquencies, foreclosures or losses could adversely affect
our ability to sell loans, the prices we receive for our loans, the value of our
mortgage loans held for investment or our residual interests in securitizations,
which  could  have a  material  adverse  effect on our  results  of  operations,
financial condition and business prospects.

Silverado's  earnings may decrease because of increases or decreases in interest
rates.

Our  profitability  may be directly  affected by changes in interest rates.  The
following  are some of the risks we face  related  to an  increase  in  interest
rates:

      o     An interest rate increase may affect our earnings by reducing the
            spread between the interest we receive on our loans and our funding
            costs.

      o     A substantial and sustained increase in interest rates could
            adversely affect our loan origination volume because refinancing an
            existing loan would be less attractive and qualifying for a purchase
            loan may be more difficult.

      o     During periods of rising interest rates, the value and profitability
            of our loans may be negatively affected between the date of
            origination or purchase and the date we sell or securitize the loan.

      o     When and if we securitize loans, the value of residual interests we
            retain and the income we receive from the securitizations structured
            as financings are based primarily on the London Inter-Bank Offered
            Rate ("LIBOR"). This is because the interest on the underlying
            mortgage loans is based on fixed rates payable on the loans for the
            first o two or three years while the bondholders are generally paid
            based on an adjustable LIBOR-based yield. An increase in LIBOR
            reduces the net income we would receive from, and the value of,
            these mortgage loans and residual interests.


                                       11
<PAGE>

      o     Our adjustable-rate mortgage loans have periodic and lifetime
            interest rate caps above which the interest rate on the loans may
            not rise. In the event of general interest rate increases, the rate
            of interest on these mortgage loans could be limited, while the rate
            payable on the senior certificates representing interests in a
            securitization trust into which these loans are sold may be
            uncapped. This would reduce the amount of cash we receive over the
            life of the loans in securitizations structured as financings and
            our residual interests, and could require us to reduce the carrying
            value of our residual interests.

We are also subject to risks from  decreasing  interest  rates.  For example,  a
significant  decrease in interest  rates could  increase the rate at which loans
are prepaid,  which also could  require us to reduce the  carrying  value of any
residual interests. If prepayments were greater than expected, the cash we would
receive   over  the  life  of  our   residual   interests   would  be   reduced.
Higher-than-expected  prepayments could also have a negative effect on the value
of any servicing portfolio.

Any such changes in interest  rates could have a material  adverse effect on our
results of operations, financial condition and business prospects.

An interruption or reduction in the  securitization and whole loan markets could
hurt our financial position.

As we implement our plan to become a full service mortgage  banking company,  we
will become increasingly  dependent on the securitization market for the sale of
our loans because we intend to securitize  loans directly in the future and many
of the  whole  loan  buyers  who  purchase  loans  do so with the  intention  to
securitize  them.  The  securitization  market  is  dependent  upon a number  of
factors,  including  general economic  conditions,  conditions in the securities
market   generally  and  conditions  in  the  asset-backed   securities   market
specifically.  In addition,  poor  performance of previously  securitized  loans
could harm our access to the securitization  market.  Accordingly,  a decline in
the  securitization  market or a change in the  market's  demand for loans could
have a material adverse effect on our results of operations, financial condition
and business prospects.

If we are unable to maintain adequate  financing  sources,  our earnings and our
financial   position  will  suffer  and   jeopardize  our  ability  to  continue
operations.

We require  substantial  cash to support  our  operating  activities  and growth
plans.  Our primary  sources of cash are profits  generated by sales of mortgage
products  and the sale of our  capital  stock;  however,  we intend to  generate
income from warehouse and aggregation credit facilities, asset-backed commercial
paper and the  proceeds  from the sales and  securitizations  of loans.  We also
intend to finance residual  interests in securitization  transactions  using Net
Interest  Margin,  or  NIM,  structures.  As of  December  31,  2003,  we had no
short-term   warehouse  and  aggregation   credit   facilities  or  asset-backed
commercial  paper  providing  us with any  committed  or  uncommitted  borrowing
capacity to fund loan originations and purchases pending the pooling and sale of
such loans.

On August 11, 2004 our wholly owned subsidiary,  Silverado Mortgage  Corporation
(formerly  Realty  Capital  Corporation)  received  approval  for  a  $2,000,000
Mortgage  Warehouse and Security  Facility.  A signed  agreement was executed on
September 3, 2004 and we started  utilizing the warehouse and security  facility
on November 22, 2004.

During volatile times in the capital and secondary markets, access to warehouse,
aggregation and residual  financing as well as access to the  securitization and
secondary markets for the sale of loans has been severely constricted. If we are
unable to  maintain  adequate  financing  or other  sources of  capital  are not
available, we would be forced to suspend or curtail our operations,  which could
have a material adverse effect on our results of operations, financial condition
and business prospects.

New legislation could restrict our ability to make mortgage loans, which could
adversely impact our earnings.

Several states and cities are  considering  or have passed laws,  regulations or
ordinances aimed at curbing predatory lending practices.  The federal government
is also  considering  legislative  and regulatory  proposals in this regard.  In
general, these proposals involve lowering the existing federal Homeownership and
Equity   Protection  Act  thresholds  for  defining  a  "high-cost"   loan,  and
establishing  enhanced  protections  and remedies for borrowers who receive such
loans.  However,  many of these laws and rules extend beyond  curbing  predatory
lending practices to restrict commonly  accepted lending  activities,  including
some of our  planned  activities.  For  example,  some of these  laws and  rules
prohibit any form of prepayment charge or severely restrict a borrower's ability
to finance the points and fees charged in  connection  with his or her loan.  In
addition,  some of these laws and  regulations  provide for  extensive  assignee
liability for warehouse lenders,  whole loan buyers and  securitization  trusts.
Because of enhanced risk and for  reputational  reasons,  many whole loan buyers
elect not to  purchase  any loan  labeled as a "high cost" loan under any local,
state or federal  law or  regulation.  Accordingly,  these laws and rules  could
severely  constrict the secondary  market for a significant  portion of our loan
production.  This would  effectively  preclude us from  continuing  to originate


                                       12
<PAGE>

loans that fit within  the newly  defined  thresholds.  For  example,  after the
October 1, 2002 effective date of the Georgia Fair Lending Act, many lenders and
secondary  market  buyers  refused to finance or purchase  Georgia  loans.  As a
result, many companies were forced to cease providing mortgages in Georgia until
the law's  amendment a few months  later.  Similar laws have gone into effect in
New Jersey,  as of November 27, 2003 ("New Jersey Home  Ownership Act of 2002"),
and in New  Mexico,  as of  January 1, 2004 ("New  Mexico  Home Loan  Protection
Act"),  that have impacted  origination of loans in those states.  The potential
long-term  reduction  in loans in New Jersey  and in New  Mexico  could be quite
severe.  Moreover,  some of our  competitors who are national banks or federally
chartered  thrifts may not be subject to these laws and may as a consequence  be
able to capture market share from us and other lenders.  For example, the Office
of the Comptroller of the Currency recently issued regulations effective January
7, 2004 that preempt state and local laws that seek to regulate mortgage-lending
practices.  Passage of such laws could  increase  compliance  costs,  reduce fee
income and reduce origination volume, all of which would have a material adverse
effect on our results of operations, financial condition and business prospects.

We are no longer able to rely on the Alternative  Mortgage  Transactions  Parity
Act to preempt  certain state law  restrictions on prepayment  penalties,  which
could adversely impact our earnings.

The value of a mortgage loan depends,  in part, upon the expected period of time
that the mortgage  loan will be  outstanding.  If a borrower pays off a mortgage
loan in advance of this  expected  period,  the holder of the mortgage loan does
not realize the full value  expected to be received  from the loan. A prepayment
penalty  payable by a borrower  who repays a loan earlier  than  expected  helps
offset the reduction in value resulting from the early payoff. Consequently, the
value  of a  mortgage  loan is  enhanced  to the  extent  the  loan  includes  a
prepayment penalty, and a mortgage lender can offer a lower interest rate and/or
lower loan fees on a loan which has a prepayment penalty.  Prepayment  penalties
are an important feature used to obtain value on loans.

Certain state laws restrict or prohibit prepayment  penalties on mortgage loans,
and until July 2003,  lenders  could rely on the  federal  Alternative  Mortgage
Transactions  Parity Act (the "Parity Act") and related rules issued in the past
by the Office of Thrift  Supervision (the "OTS") to preempt state limitations on
prepayment  penalties.  The  Parity  Act was  enacted  to  extend  to  financial
institutions,  other  than  federally  chartered  depository  institutions,  the
federal  preemption  that federally  chartered  depository  institutions  enjoy.
However,  on September  25,  2002,  the OTS released a new rule that reduced the
scope of the Parity Act preemption and, as a result;  we are not able to rely on
the  Parity Act to preempt  state  restrictions  on  prepayment  penalties.  The
effective date of the new rule,  originally  January 1, 2003,  was  subsequently
extended by the OTS until July 1, 2003 in response to concerns  from  interested
parties about the burdens  associated with  compliance.  The elimination of this
federal  preemption  requires us to comply with state restrictions on prepayment
penalties.  These restrictions  prohibit us from charging any prepayment penalty
in eight  states  and limit  the  amount or other  terms and  conditions  of our
prepayment penalties in several other states. This may place us at a competitive
disadvantage  relative to financial  institutions that continue to enjoy federal
preemption  of such state  restrictions.  Such  institutions  are able to charge
prepayment  penalties without regard to state restrictions and, as a result, may
be able to offer loans with interest rate and loan fee structures  that are more
attractive  than the interest rate and loan fee  structures  that we are able to
offer.

The scope of our lending operations exposes us to risks of noncompliance with an
increasing and inconsistent body of complex laws and regulations at the federal,
state and local levels.

Currently,  we are  licensed to  originate  mortgage  loans only in  California,
however we are in the process of  applying  for  licenses  to generate  loans in
Arizona,  Nevada, Utah, Idaho, Oregon and Washington,  and when licensed we will
be forced to  comply  with the laws and  regulations,  as well as  judicial  and
administrative  decisions,  for  all  of  these  jurisdictions,  as  well  as an
extensive  body of federal  law and  regulations.  The volume of new or modified
laws and regulations has increased in recent years,  and,  individual cities and
counties  have  begun to enact laws that  restrict  non-prime  loan  origination
activities in those cities and  counties.  The laws and  regulations  of each of
these  jurisdictions  are  different,  complex  and,  in some  cases,  in direct
conflict  with each other.  As our  operations  continue to grow, it may be more
difficult to comprehensively  identify,  to accurately interpret and to properly
program our technology  systems and effectively train our personnel with respect
to all of  these  laws  and  regulations,  thereby  potentially  increasing  our
exposure to the risks of noncompliance with these laws and regulations.

Our failure to comply with these laws can lead to:

      o     civil and criminal liability;

      o     loss of approved status;

      o     demands for indemnification or loan repurchases from purchasers of
            our loans;


                                       13
<PAGE>

      o     class action lawsuits; or

      o     administrative enforcement actions.

Any of these  results  could have a material  adverse  effect on our  results of
operations, financial condition and business prospects.

If warehouse lenders and securitization underwriters face exposure stemming from
legal  violations  committed by the companies to whom they provide  financing or
underwriting  services,  this could increase our borrowing  costs and negatively
affect the market for whole loans and mortgage-backed securities.

In June 2003,  a  California  jury found a warehouse  lender and  securitization
underwriter liable in part for fraud on consumers  committed by a lender to whom
it  provided  financing  and  underwriting  services.  The jury  found  that the
investment bank was aware of the fraud and substantially  assisted the lender in
perpetrating  the fraud by providing  financing and  underwriting  services that
allowed the lender to  continue to operate,  and held the bank liable for 10% of
the  plaintiff's  damages.  This  is the  first  case we  know  of in  which  an
investment  bank was held partly  responsible  for  violations  committed by the
bank's  mortgage  lender  customer.  If other  courts or  regulators  adopt this
theory,  investment  banks may face  increased  litigation  as they are named as
defendants in lawsuits and  regulatory  actions  against the mortgage  companies
with which they do business. Some investment banks may exit the business, charge
more for  warehouse  lending or reduce the  prices  they pay for whole  loans in
order to build in the costs of this potential  litigation.  This could, in turn,
have a negative  effect on our results of  operations,  financial  condition and
business prospects.

High delinquencies or losses on mortgage loans in  securitizations  may decrease
cash flows or impair our ability to sell or securitize loans in the future.

Loans made to lower credit grade borrowers, including credit-impaired borrowers,
entail a higher  risk of  delinquency  and  higher  losses  than  loans  made to
borrowers with better credit. We plan to make a substantial portion of our loans
to borrowers who do not qualify for loans from conventional mortgage lenders. No
assurance  can be given that our  underwriting  criteria or methods  will afford
adequate protection against the higher risks associated with loans made to lower
credit grade  borrowers.  We will be subject to risks of default and foreclosure
following  the sale of loans through  securitization.  To the extent such losses
are greater than expected;  the cash flows received through  residual  interests
and from  securitizations  structured as financings would be reduced.  Increased
delinquencies  or losses may also  reduce or  eliminate  our  ability to sell or
securitize  loans in the future and could have a substantial,  material  adverse
effect on our operations, financial condition and business prospects.

Our inability to realize cash proceeds  from loan sales and  securitizations  in
excess  of the loan  acquisition  cost  could  adversely  affect  our  financial
position.

The net cash proceeds  received from loan sales consist of the premiums received
on sales of loans in excess of the outstanding  principal balance, plus the cash
proceeds  received from  securitizations,  minus the discounts on any loans that
are sold for less than the outstanding  principal  balance.  If we are unable to
originate loans at a cost lower than the cash proceeds realized from loan sales,
our results of operations,  financial  condition and business prospects could be
materially adversely affected.

Warehouse  and  aggregation  financing  is subject to margin  calls based on the
lender's opinion of the value of loan collateral.  An unanticipated large margin
call could adversely affect our liquidity.

The   amount   of   financing   we  may   receive   under  any   warehouse   and
aggregation-financing agreements depends in large part on the lender's valuation
of the mortgage loans that secure the financings.  Asset-backed commercial paper
facilities have similar  provisions.  Each such facility provides the lender the
right,  under certain  circumstances,  to reevaluate  the loan  collateral  that
secures  outstanding  borrowings at any time. In the event the lender determines
that  the  value of the  loan  collateral  has  decreased,  it has the  right to
initiate a margin  call.  A margin  call would  require us to provide the lender
with additional collateral or to repay a portion of the outstanding  borrowings.
Any such  margin  call could have a material  adverse  effect on our  results of
operations, financial condition and business prospects.

We face  competition  that  could  adversely  affect  our  market  share and our
revenues.

We face intense competition from finance and mortgage banking companies and from
Internet-based  lending  companies.  In addition,  certain  government-sponsored
entities,  such  as  Fannie  Mae and  Freddie  Mac,  are  also  expanding  their
participation in the non-prime  mortgage  industry.  These  government-sponsored


                                       14
<PAGE>

entities have a size and  cost-of-funds  advantage  that allows them to purchase
loans  with  lower  rates  or fees  than we are  willing  to  offer.  While  the
government-sponsored  entities  presently  do not have the  legal  authority  to
originate mortgage loans,  including non-prime loans, they do have the authority
to buy  loans.  A  material  expansion  of their  involvement  in the  market to
purchase  non-prime loans could change the dynamics of the industry by virtue of
their sheer size,  pricing  power and the  inherent  advantages  of a government
charter.  In  addition,  if as a result  of there  purchasing  practices,  these
government-sponsored  entities  experience  significantly   higher-than-expected
losses,  such experience could adversely affect the overall investor  perception
of the non-prime mortgage industry.

Competitors with lower costs of capital have a competitive advantage over us. In
addition,  establishing  a lending  operation such as ours requires a relatively
small  commitment  of capital  and human  resources.  This low  barrier to entry
permits new  competitors to enter our markets  quickly and compete with us. This
could have a material  adverse  effect on our results of  operations,  financial
condition and business prospects.

Some Thrifts, national banks and their operating subsidiaries are also expanding
their lending  activities.  By virtue of their charters,  these institutions are
exempt  from  complying  with many of the state and local  laws that  affect our
operations.  For example,  they can offer loans with prepayment  charges in many
jurisdictions where we cannot. If more of these federally chartered institutions
are able to use their preemptive ability to provide more competitive pricing and
terms than we can offer, it could have a material  adverse effect on our results
of operations, financial condition and business prospects.

The  intense  competition  in the  mortgage  industry  has  also  led  to  rapid
technological developments, evolving industry standards and frequent releases of
new  products  and  enhancements.  As mortgage  products are offered more widely
through  alternative  distribution  channels,  such as the  Internet,  we may be
required  to make  significant  changes  to our  information  systems to compete
effectively. Our inability to continue enhancing our current capabilities, or to
adapt to other  technological  changes  in the  industry,  could have a material
adverse  effect on our results of operations,  financial  condition and business
prospects.

Our hedging  strategies may not be successful in mitigating our risks associated
with changes in interest rates.

We may intend to use various derivative financial instruments to provide a level
of protection  against  changes in interest rates,  but no hedging  strategy can
protect us  completely.  When rates change we expect to record a gain or loss on
derivatives, which would be offset by an inverse change in the value of loans or
residual interests.  We cannot assure you, however,  that our use of derivatives
will offset the risks  related to changes in interest  rates.  It is likely that
there will be periods in the future,  during  which we will incur  losses  after
accounting for our derivative  financial  instruments.  The derivative financial
instruments  we select may not have the effect of  reducing  our  interest  rate
risk. In addition,  the nature and timing of hedging  transactions may influence
the effectiveness of these strategies.  Poorly designed strategies or improperly
executed  transactions could actually increase our risk and losses. In addition,
hedging  strategies  involve  transaction  and other costs. We cannot assure you
that our hedging  strategy and the  derivatives  that we may use will adequately
offset the risk of interest  rate  volatility  or that our hedging  transactions
will not result in losses.

The  complex  federal,   state  and  municipal  laws  governing   loan-servicing
activities could increase our exposure to the risk of noncompliance.

We intend to service the loans we originate on a nationwide basis. Therefore, we
must  comply  with  the  laws  and   regulations,   as  well  as  judicial   and
administrative  decisions,  of all  relevant  jurisdictions  pertaining  to loan
servicing,  as well as an extensive  body of federal laws and  regulations.  The
volume of new or modified  laws and  regulations  has increased in recent years,
and, in addition,  some individual  municipalities have begun to enact laws that
restrict  loan-servicing  activities.  The laws and regulations of each of these
jurisdictions are different, complex and, in some cases, in direct conflict with
each  other.  As our  servicing  operations  continue  to  grow,  it may be more
difficult to comprehensively  identify,  to accurately interpret and to properly
program our technology  systems and effectively train our personnel with respect
to all of  these  laws  and  regulations,  thereby  potentially  increasing  our
exposure to the risks of noncompliance with the laws and regulations  pertaining
to loan  servicing.  Our failure to comply with these laws could lead to,  among
other things:  (i) civil and criminal  liability,  including  potential monetary
penalties; (ii) legal defenses causing delaying or otherwise adversely affecting
the  servicer's  ability to enforce  loans,  or giving the borrower the right to
rescind or cancel the loan  transaction;  (iii) class action lawsuits;  and (iv)
administrative  enforcement  actions.  This could  result in a material  adverse
effect on our results of operations, financial condition and business prospects.

Any non-prime  loans we originate  will generally  have higher  delinquency  and
default  rates,  which could  result in losses on loans that we are  required to
repurchase.

Non-prime  mortgage loans  generally have higher  delinquency  and default rates
than prime mortgage loans. Delinquency interrupts the flow of projected interest


                                       15
<PAGE>

income from a mortgage loan,  and default can  ultimately  lead to a loss if the
net  realizable  value  of the  real  property  securing  the  mortgage  loan is
insufficient to cover the principal and interest due on the loan. Also, our cost
of financing and servicing a delinquent  or defaulted  loan is generally  higher
than for a performing loan. We bear the risk of delinquency and default on loans
beginning  when we originate  them. In whole loan sales our risk of  delinquency
typically only extends to the first payment,  but when we securitize we continue
to bear some exposure to delinquencies and losses through our residual interests
and the loans underlying our on-balance sheet  securitization  transactions.  We
are required to establish  reserves based on our anticipated  delinquencies  and
losses.  We also  re-acquire the risks of delinquency and default for loans that
we are obligated to repurchase. We attempt to manage these risks with risk-based
loan pricing and appropriate  underwriting policies and loan collection methods.
However,   if  such  policies  and  methods  are  insufficient  to  control  our
delinquency and default risks and do not result in appropriate  loan pricing and
appropriate  loss reserves,  our business,  financial  condition,  liquidity and
results of operations could be materially harmed.

We are subject to losses due to  fraudulent  and  negligent  acts on the part of
loan applicants, mortgage brokers, other vendors and our employees.

When we originate  mortgage loans, we rely heavily upon information  supplied by
third  parties  including  the  information  contained in the loan  application,
property appraisal,  title information and employment and income  documentation.
If any of this information is intentionally  or negligently  misrepresented  and
such  misrepresentation  is not detected prior to loan funding, the value of the
loan may be significantly lower than expected.  Whether a  misrepresentation  is
made by the loan applicant,  the mortgage broker, another third party, or one of
our  employees,  we  generally  bear  the  risk  of  loss  associated  with  the
misrepresentation.  A loan subject to a material  misrepresentation is typically
unsaleable  or subject to  repurchase  if it is sold prior to  detection  of the
misrepresentation,  and the persons and entities involved are often difficult to
locate and it is often  difficult  to collect any  monetary  losses that we have
suffered from them.

There are controls  and  processes  designed to help us identify  misrepresented
information in our loan origination  operations.  We cannot assure you, however,
that we have detected or will detect all misrepresented  information in our loan
originations.

We may be subject  to fines or other  penalties  based  upon the  conduct of our
independent brokers.

The mortgage  brokers from whom we obtain loans have parallel and separate legal
obligations to which they are subject.  While these laws may not explicitly hold
the  originating  lenders  responsible  for the  legal  violations  of  mortgage
brokers,  increasingly  federal  and state  agencies  have sought to impose such
assignee  liability.  Recently,  for example,  the United  States  Federal Trade
Commission  ("FTC")  entered into a settlement  agreement with a mortgage lender
where the FTC  characterized a broker that had placed all of its loan production
with a single lender as the "agent" of the lender. The FTC imposed a fine on the
lender in part because,  as "principal," the lender was legally  responsible for
the mortgage broker's unfair and deceptive acts and practices. The United States
Justice  Department in the past has sought to hold a non-prime  mortgage  lender
responsible for the pricing practices of its mortgage brokers, alleging that the
mortgage lender was directly  responsible for the total fees and charges paid by
the borrower under the Fair Housing Act even if the lender neither dictated what
the  mortgage  broker  could  charge  nor kept the  money  for its own  account.
Accordingly,  we may be  subject  to  fines or other  penalties  based  upon the
conduct of our independent mortgage brokers.

Our business is  dependent  upon  conditions  in  California  where we conduct a
significant amount of our business.

In 2003,  100% of the mortgage  loans we originated  were secured by property in
California.  An overall  decline in the economy or the  residential  real estate
market,  or the occurrence of a natural  disaster,  such as an earthquake,  or a
major terrorist  attack in California  could  adversely  affect the value of the
mortgaged  properties  in  California  and  increase  the  risk of  delinquency,
foreclosure,  bankruptcy, or loss on mortgage loans in our portfolio. This would
negatively  affect our ability to purchase,  originate and  securitize  mortgage
loans,  which could have a material  adverse  effect on our business,  financial
condition and results of operations.

If many of our borrowers  become  subject to the  Soldiers'  and Sailors'  Civil
Relief Act of 1940, as amended our cash flows from our residual  securities  and
our securitizations structured as financings may be adversely affected.

Under the Soldiers' and Sailors' Civil Relief Act of 1940, a borrower who enters
military service after the origination of his or her mortgage loan generally may
not be  charged  interest  above an annual  rate of 6% during  the period of the
borrower's  active duty  status.  The Act also  applies to a borrower who was on
reserve  status and is called to active duty after  origination  of the mortgage
loan.  A  prolonged,  significant  military  mobilization  as part of the war on
terrorism or the war in Iraq could  increase the number of the  borrowers in our
securitized  pools who are subject to this Act and thereby  reduce the  interest


                                       16
<PAGE>

payments  collected from those borrowers.  To the extent the number of borrowers
who are subject to this Act is significant, the cash flows we receive from loans
underlying our on-balance sheet  securitizations and from our residual interests
would be  reduced,  which  could  cause us to reduce the  carrying  value of our
residual interests and would decrease our earnings.  In addition,  the Soldiers'
and Sailors' Civil Relief Act of 1940, imposes limitations that would impair the
ability of the  servicer to foreclose  on an affected  mortgage  loan during the
borrower's period of active duty status, and under certain circumstances, during
an  additional  three month period  thereafter.  Any such  reduction in our cash
flows or impairment in our performance  could have a material  adverse effect on
our results of operations, financial condition and business prospects.

The inability to attract and retain qualified employees could significantly harm
our business.

We are dependent on our account  executives  and retail loan officers to attract
borrowers  by,  among other  things,  developing  relationships  with  financial
institutions,   other  mortgage  companies  and  brokers,  real  estate  agents,
borrowers  and others.  We believe that these  relationships  lead to repeat and
referral  business.  The market for skilled account executives and loan officers
is highly  competitive and historically has experienced a high rate of turnover.
In addition,  if a manager leaves  Silverado,  there is an increased  likelihood
that other  members of his or her team will follow.  Competition  for  qualified
account  executives and loan officers may lead to increased hiring and retention
costs.  If we are  unable to attract  or retain a  sufficient  number of skilled
account  executives  at  manageable  costs,  we will be  unable to  continue  to
originate  quality  mortgage loans that we are able to sell for a profit,  which
would have a material  adverse  effect on our results of  operations,  financial
condition and business prospects.

An  interruption  in or breach of our  information  systems  may  result in lost
business.

We rely  heavily  upon  communications  and  information  systems to conduct our
business.  Any failure or  interruption or breach in security of our information
systems or the  third-party  information  systems  on which we rely could  cause
underwriting or other delays and could result in fewer loan  applications  being
received,  slower  processing  of  applications  and reduced  efficiency in loan
servicing.  We are  required  to  comply  with  significant  federal  and  state
regulations with respect to the handling of customer information, and a failure,
interruption  or breach of our  information  systems  could result in regulatory
action and  litigation  against us. We cannot  assure you that such  failures or
interruptions  will not occur or, if they do occur,  that the third  parties  on
which we rely will  adequately  address them.  The occurrence of any failures or
interruptions could have a material adverse effect on our results of operations,
financial condition and business prospects.

The success and growth of our business  will depend upon our ability to adapt to
and implement technological changes.

Our mortgage loan origination  business is currently  dependent upon our ability
to effectively interface with our brokers, borrowers and other third parties and
to efficiently  process loan applications and closings.  The origination process
is becoming more dependent upon technological  advancement,  such as the ability
to process applications over the Internet, accept electronic signatures, provide
process status updates instantly and other  customer-expected  conveniences that
are  cost-efficient  to our  process.  In  addition,  we are in the  process  of
implementing a new loan origination system. Implementing and becoming proficient
with the new loan  origination  system  and other new  technology  will  require
significant  financial and personnel  resources.  There is no guarantee that the
implementation  of our new loan origination  system or other new technology will
be successful. To the extent that we become reliant on any particular technology
or technological  solution, we may be adversely affected to the extent that such
technology or  technological  solution (i) becomes  non-compliant  with existing
industry  standards,  (ii)  fails  to meet or  exceed  the  capabilities  of our
competitors'  equivalent  technologies  or  technological  solutions,  or  (iii)
becomes  increasing  expensive  to service,  retain and  update.  Any failure to
acquire  technology  or  technology  solutions  when  necessary  could limit our
ability to remain  competitive  in our industry and could also limit our ability
to increase the  cost-efficiencies  of our operating  model,  which would have a
material  adverse effect on our results of operations,  financial  condition and
business prospects.

We may be required to  repurchase  mortgage  loans or indemnify  investors if we
breach  representations  and  warranties,   which  could  adversely  impact  our
earnings.

When we sell  loans,  we are  required  to make  customary  representations  and
warranties  about  such  loans  to the  loan  purchaser.  Our  whole  loan  sale
agreements require us to repurchase or substitute loans in the event we breach a
representation   or   warranty   given   to  the  loan   purchaser   or  make  a
misrepresentation  during the mortgage loan origination process. In addition, we
may be required  to  repurchase  loans as a result of  borrower  fraud or in the
event of early payment default on a mortgage loan. Likewise,  we are required to
repurchase  or  substitute  loans if we breach a  representation  or warranty in
connection with our  securitizations.  The remedies  available to a purchaser of
mortgage  loans are  generally  broader  than those  available to us against the
originating  broker or  correspondent.  Further,  if a  purchaser  enforces  its
remedies  against us, we may not be able to enforce the remedies we have against
the sellers.  The  repurchased  loans  typically can only be financed at a steep
discount to their repurchase price, if at all. They are also typically sold at a
significant  discount to the unpaid principal  balance.  Significant  repurchase
activity could negatively affect our cash flow and results of operations.


                                       17
<PAGE>

We are exposed to risk of  environmental  liabilities with respect to properties
to which we take title.

In the course of our business,  we may  foreclose and take title to  residential
properties,  and could be subject to  environmental  liabilities with respect to
these  properties.  We may be held liable to a  governmental  entity or to third
parties for property damage, personal injury, investigation,  and clean-up costs
incurred by these parties in connection with environmental contamination, or may
be  required  to  investigate  or clean up  hazardous  or toxic  substances,  or
chemical  releases at a property.  The costs  associated with  investigation  or
remediation activities could be substantial. In addition, as the owner or former
owner of a  contaminated  site,  we may be subject to common law claims by third
parties based on damages and costs  resulting from  environmental  contamination
emanating  from  the  property.   If  we  ever  become  subject  to  significant
environmental  liabilities,  our  business,  financial  condition and results of
operations could be materially and adversely affected.

Our charter and bylaws and Nevada law contain provisions that could discourage a
takeover.

Our  amended  and  restated  certificate  of  incorporation  and our amended and
restated bylaws include various  provisions that could delay, defer or prevent a
takeover  attempt that may be in the best  interest of our  stockholders.  These
provisions include the existence of a classified board of directors, the ability
of our board of  directors to issue shares of our  preferred  stock  without any
further  stockholder  approval and requirements  that (i) our stockholders  give
advance notice with respect to certain  proposals they may wish to present for a
stockholder  vote, (ii) our  stockholders act only at annual or special meetings
and  (iii)  two-thirds  of all  directors  approve  a change  in the  number  of
directors  on our board of  directors.  Issuance  of our  preferred  stock could
discourage bids for the common stock at a premium as well as create a depressive
effect on the market price of our common stock.

We are also subject to Nevada General  Corporation  Law, which could  discourage
potential  acquisition  proposals,  delay or  prevent  a change of  control  and
prevent changes in our management.

If we do not manage our growth effectively,  our financial  performance could be
harmed.

Rapid  growth  places,  and will  continue to place,  certain  pressures  on our
management,  administrative,  operational  and financial  infrastructure.  As of
December 31, 2003, we had no employees as all of our personnel were  independent
contractors;   however,  we  have  recently  applied  for  licensure  under  the
California  Department of  Corporations  as a Consumer  Finance  Lender and will
begin  hiring loan  executives  as  employees.  Many of these  employees  have a
limited  understanding of our systems and controls.  The increase in the size of
our  operations  may make it more  difficult  for us to ensure that we originate
quality loans and that we service them effectively.  We will need to attract and
hire  additional  sales and  management  personnel in an  intensely  competitive
hiring  environment  in order to preserve and increase our market share.  At the
same  time,  we will need to  continue  to upgrade  and  expand  our  financial,
operational and managerial systems and controls.

Various  factors  may  cause  the  market  price of our  common  stock to become
volatile, which could adversely affect our ability to access the capital markets
in the future.

The  market  price of our  common  stock may  experience  fluctuations  that are
unrelated to our operating performance.  In particular,  the price of our common
stock may be affected by general market price  movements as well as developments
specifically related to the consumer finance industry and the financial services
sector.  These could  include,  among other  things,  interest  rate  movements,
quarterly  variations or changes in financial estimates by securities  analysts,
or a significant  reduction in the price of the stock of another  participant in
the consumer finance  industry.  This volatility may make it difficult for us to
access the capital markets through additional  secondary offerings of our common
stock, regardless of our financial performance.

ITEM 2. PROPERTIES

None.

ITEM 3. LEGAL PROCEEDINGS

On January  27,  2004 DL Pacific  Center LP ("DL  Pacific")  filed a lawsuit for
$40,444 plus costs and attorney's  fees against us in San Diego County  Superior
Court.  The suit alleges that,  after we purchased San Francisco  Funding,  Inc.
("SFF") in November 2003, we assumed SFF's obligations  pursuant to DL Pacific's
lease with SFF by accepting the benefits of such lease and by  negotiating  with
DL  Pacific  for  amendments  to the lease.  Silverado  has agreed to settle the
lawsuit.


                                       18
<PAGE>

On March 9, 2004 Robert E. Vener ("Vener") filed an amendment to his lawsuit for
$7,500 per month from November 2003 to March 2006 plus costs and attorney's fees
against us in Marin  County  Superior  Court.  The suit alleges  that,  after we
purchased San Francisco Funding, Inc. ("SFF") in November 2003, we assumed SFF's
obligations  pursuant to Vener's lease with SFF by stating and  representing  to
Vener that we would be responsible  for any amounts due from SFF pursuant to the
lease, and that Vener relied on our representations by allowing SFF to remain on
the premises  following  SFF's  default in the payment of rent on the lease.  We
have agreed to settle the suit.

We have filed a cross-complaint against SFF and its major stockholder(s) Mr. and
Mrs.  Daniel Selis,  for indemnity for the cost of defending the Veneer lawsuit,
and  punitive   damages   resulting  from  breach  of  contract,   fraud  and/or
interference with our advantageous business  relationships because of: (1) SFF's
material  breaches  of the SFF  stock  purchase  agreement  and  SFF's  material
misrepresentations to us of SFF's liabilities and obligations, (2) SFF's written
false statements to its creditors that we had assumed their debts, and (3) SFF's
forwarding of its phone calls tour offices and directing their creditors to call
our offices concerning payment of their liabilities and obligations.

On May 12, 2004 The Subway.  Com filed for Arbitration for $60,000 plus interest
against us in the state of Florida. The suit claims breach of contract for stock
promotion services.  The Company believes it has meritorious defense and that no
contract was ever consummated.

On July 16,  2004,  the  company  was served  with a  complaint  by the State of
California,  Department of Industrial Relations on behalf of a former contractor
for back wages of  $10,937.50  and  penalties  of $288.46  for an  indeterminate
number. It is management's opinion, that we have meritorious defenses based upon
the facts, among others,  that claimant was acting as an independent  contractor
who was paid for services performed and her claims are baseless.

On November 24, 2004, SRD  Technologies  signed a debt  cancellation and release
agreement  which  included  the release of any and all  liabilities  owed to SRD
Technologies,  the relinquishing of 574,953 shares of Silverado Financial,  Inc.
(SLVO) stock, and a payment to be made by SRD Technologies for auditing expenses
in the amount of $7,500.  On the date of the agreement  the 574,953  shares were
worth $.05 a share or  $28,748.  The affect on our books would be the release of
debt in the form of a note  payable  in the  amount  of  $275,000  plus  accrued
interest of $41,047. the $7,500 payment would reduce our payable to our auditors
and there would be a reduction in shares issued and outstanding.

On November 24, 2004, John Shebanow signed a general  release  agreement,  which
included the  relinquishing of any and all shares of Silverado  Financial,  Inc.
held by himself (575,870 shares), friends and family and releases any and all of

Silverado  Financials liability to Mr. Shebanow on the date of the agreement the
575,870  shares  were worth  $0.05 a share or  $28,794.  The affect on our books
would  be a  reduction  in  accounts  payable  of  approximately  $20,660  and a
reduction in the number of shares issued and outstanding.

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

None.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

General

The Company has an  authorized  capitalization  of  20,000,000  shares of common
stock and  1,000,000  shares of preferred  stock,  $0.001 par value per share of
which 18,216,697 were issued and outstanding at December 31, 2004.

Market Information

The Company's common stock is traded in the  over-the-counter  market on the OTC
Bulletin Board under the symbol "SLVO". The following table sets forth the range
of high and low bid quotes of the  Company's  Common Stock per calendar  quarter
which  reflect   inter-dealer  prices  without  retail  mark-up,   mark-down  or
commission and may not necessarily represent actual transactions.


                                       19
<PAGE>

                  2004
                                             Low               High
-------------------------------------------------------------------------------
                  Fourth Quarter (1)         $ 0.040           $ 0.380
                  Third Quarter  (1)         $ 0.070           $ 0.330
                  Second Quarter (1)         $ 0.100           $ 0.240
                  First Quarter  (1)         $ 0.140           $ 0.280


                  2003
                                             Low               High
-------------------------------------------------------------------------------
                  Fourth Quarter (1)         $ 0.150           $ 0.420
                  Third Quarter  (1)         $ 0.100           $ 0.220
                  Second Quarter (1)         $ 0.150           $ 0.210
                  First Quarter  (1)         $ 0.200           $ 0.350

                  2002
                                             Low               High
-------------------------------------------------------------------------------
                  Fourth Quarter (1)         $ 0.100           $ 0.900
                  Third Quarter  (1)         $ 0.110           $ 0.600
                  Second Quarter (1)         $ 0.110           $ 0.275
                  First Quarter  (1)         $ 0.080           $ 0.300


      (1)   As adjusted by the April 29, 2003 five for one rollback.

On March 10, 2000 the  Company's  common  shares began trading on the Berlin and
Frankfurt Stock Exchanges in Germany under the symbol "919335".

Holders

The Company estimates that there are  approximately  2200 shareholders of record
of the Company's  Common Stock and  approximately  300  additional  shareholders
holding Common Stock in street name.

Recent Sales of Unregistered Securities

At December  31, 2004 we had $19,608 in cash and  $821,577 in total  assets.  We
also had $467,071 in total  liabilities  down from $657,889 in 2003. On November
24, 2004, SRD Technologies  signed a debt cancellation for the $275,000 note and
management  anticipates  executing  on its  right to  convert  some  $36,000  in
convertible  notes  currently  outstanding.  Through  the  cancellation  of  the
$275,000 debt and the  conversion of the  aforementioned  $36,000 in convertible
notes   Silverado's  has  all  but  eliminated  its  long  and  short-term  debt
obligations. In addition, Silverado anticipates settlement of $939.00 in debt to
affiliates and elimination of accrued officer  salaries of $138,480  through the
conversion of the $138,480 into an equal amount of restricted common shares.

On February 1, 2004, Silverado opened a $200,000 private placement to accredited
investors.  Subscribers receive shares at a 50% discount to the closing price of
SLVO common stock on the day preceding receipt of their  subscription  agreement
and  investment.  This  offering  is open only to  accredited  investors.  As of
December 31, 2004, we had received $173,350 under this private placement.

We believe that we have sufficient  capital and resources to support  operations
through the remainder of 2005.  However,  we do not believe that we will be able
to  successfully  implement  our long  term  plans  without  raising  additional
capital.  We  anticipate  that the capital  requirements  for the balance of the
period ending December 31, 2005 will require that additional cash be raised from
external  sources.  We believe that this  requirement will be met by cash equity
investments.


                                       20
<PAGE>

Dividends

The Company has never  declared or paid cash  dividends  on its common stock and
anticipates  that future  earnings,  if any, will be retained for development of
its business.  Payment of cash dividends in the future will be wholly  dependent
upon the Company's earnings, financial condition, capital requirements and other
factors  deemed  relevant by them. It is not likely that cash  dividends will be
paid in the near future.

ITEM 6. MANAGEMENT'S PLAN OF OPERATION

THIS REPORT (AND ESPECIALLY THIS SECTION)  CONTAINS  FORWARD-LOOKING  STATEMENTS
WITHIN THE  MEANING  OF  SECTION  21E OF THE  SECURITIES  EXCHANGE  ACT OF 1934,
INCLUDING, WITHOUT LIMITATION,  STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS,
BELIEFS,  INTENTIONS, PLANS OR FUTURE STRATEGIES THAT ARE SIGNIFIED BY THE WORDS
"EXPECTS",  "PLANS" "ANTICIPATES",  "INTENDS",  "BELIEVES", OR SIMILAR LANGUAGE.
SUCH FORWARD-LOOKING  STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE SEEKING OF
REVENUE  PRODUCING  ACQUISITIONS,  THE DEVELOPMENT PLANS FOR THE TECHNOLOGIES OF
THE COMPANY,  TRENDS IN THE RESULTS OF THE  COMPANY"S  DEVELOPMENT,  ANTICIPATED
DEVELOPMENT  PLANS,  OPERATING  EXPENSES AND THE COMPANY'S  ANTICIPATED  CAPITAL
REQUIREMENTS AND CAPITAL  RESOURCES.  THESE  FORWARD-LOOKING  STATEMENTS INVOLVE
RISKS,  UNCERTAINTIES AND OTHER FACTORS. ALL FORWARD-LOOKING STATEMENTS INCLUDED
IN THIS DOCUMENT ARE BASED ON  INFORMATION  AVAILABLE TO THE COMPANY ON THE DATE
HEREOF AND SPEAK ONLY AS OF THE DATE HEREOF.  THE RISK FACTORS DISCUSSED IN THIS
ANNUAL  REPORT  ON FORM  10-KSB  ARE  AMONG  THOSE  FACTORS  THAT IN SOME  CASES
MAYAFFECT  THE  COMPANY'S  RESULTS AND COULD CAUSE THE ACTUAL  RESULTS TO DIFFER
MATERIALLY AND ADVERSELY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.
SUBJECT  TO THE  ABOVE  QUALIFICATIONS  AND SUCH  RISK  FACTORS,  THE  FOLLOWING
DISCUSSION  IS  INTENDED  TO  PROVIDE  AN  ANALYSIS  OF  MANAGEMENT'S   PLAN  OF
OPERATIONAND  SHOULD  BE  READ  IN  CONJUNCTION  WITH  THE  COMPANY'S  FINANCIAL
STATEMENTS AND THE NOTES THERETO.

Silverado Financial, Inc., operates as a mortgage bank, and as the marketing and
service  organization  to coordinate the activities of the Company's  retail hub
offices, spoke offices,  subsidiary companies and strategic partners.  Silverado
will oversee the  compliance,  accounting,  human  resources,  technology,  help
facilitate cross selling and branding, and control and monitor the experience of
its retail and on-line  clients.  Silverado  generates and controls the leads it
provides  its  Advisors and  Associates  and has focused its growth  strategy on
creating unique proprietary lead flow.

By the  December 31, 2006  Silverado  will expand to operate five (5) retail hub
offices across the United States located in Campbell and Pleasanton, California,
Phoenix, Arizona, Denver, Colorado and Boise, Idaho.

Each hub shall  contain  approximately  100 employees  including  telemarketing,
Advisors,  Associates,  Loan  Processors,  a Sales  Manager,  Branch Manager and
Telemarketing  Manager.  The  Company  currently  operates  hubs  in  San  Jose,
California  and  Phoenix,  Arizona.  By second  quarter of 2005 it will open the
Denver, Colorado Hub.

Each Hub will  manage  as many  spoke  office  as are  reasonable  without  over
saturating  the market.  The San Jose,  California  Hub currently has a spoke in
Pleasanton, California and plans to open one in Martinez California in the first
quarter of 2005. Each spoke contains 10 to 20 Lending Advisors, a Loan Processor
and a Branch Manager.

Management has begun to create the operational and technological  infrastructure
to connect each hub and spoke office  ensuring a controlled flow of information,
technology,  and products  through the mortgage bank for delivery to the desk of
the  Lending  Advisor or  Associate.  Consistent  net income will be achieved by
making the  Lending  Advisor a conduit for the  products  and  offerings  of the
Company so that delivery is consistent  and a high level of service is achieved.
Silverado  anticipates  that  approximately  75% of its  brokerage  and  banking
revenue will come from internal loan products where Silverado acts as lender and
that the remaining 25% will come from externally brokered loan products.

The departmental structure for Silverado Financial, Inc. will include:

      o     Corporate
      o     Marketing o Finance
      o     Compliance


                                       21
<PAGE>

      o     Human Resources
      o     Technology
      o     Banking
      o     Education and Training (Silverado University)

Necessary steps to be taken in 2005 include:

      1.    Fully staff the Phoenix, Arizona hub by April 1, 2005

      2.    Open and begin staffing the Denver, Colorado hub by September 1,
            2005.

      3.    Open and begin staffing the Boise, Idaho hub by December 1, 2005.

      4.    Focus hub expansion on the Western United States due to the rapid
            growth within these western states.

      5.    Create additional venues for lead generation.

      6.    Presently our Pleasanton, California office has a mixed focus on the
            Spanish speaking market. We see great opportunity in the Spanish
            speaking market and anticipate expanding Pleasanton's Spanish
            speaking workforce into a complete department or freestanding office
            of approximately 40-60 Spanish speaking Loan Advisors and 15-25
            Spanish-speaking Telemarketing Associates. Opening a solely
            Latino/Hispanic hub office would probably be in the Central valley
            area of California, have Spanish speaking Telemarketers, Lending
            Advisors and Loan Processors, have all forms and documents printed
            in Spanish and actively pursue the Hispanic and Latino communities
            in the Western United States.

      7.    Formalize the Silverado training program and make it available to
            teach in all hub offices.

      8.    Obtain or renew mortgage-banking licenses in California, Arizona,
            Nevada, Oregon Washington, Utah, Colorado, Idaho and New Mexico.

      9.    Develop and implement incentive program for Managers, Advisors and
            Associates to promote internal loan sales and minimize brokered
            product.

      10.   Develop correspondent relationships to fill gaps in our current
            product offering mix

      11.   Complete website and software development-phase II


Hub Offices

Each hub  office  should be a  stand-alone  profit  center.  Hub  Manager's  are
responsible  for the  profit,  morale,  expansion,  etc. of their hub as well as
achieving a minimum  internal  growth  rate of 20%.  Hub  Manager's  will report
directly to  Corporate  Management  at Silverado  Financial,  Inc. and layers of
management will be kept thin, and communication should be open and easy. The Hub
Managers  will also be  responsible  for the  creation and  management  of spoke
offices in their area of operation.

Corporate management has allowed each Hub to operate autonomously, keeps a close
eye  on  goals  and  growth,  and  helps  to  facilitate  communication  between
corporate-to-hub, as well as hub-to-spoke operations.

Recruiting
            Recruiting  and training are the  backbone of  Silverado's  internal
            growth  strategy  and as such the Company  intends to  continue  the
            following strategies in its recruiting program.

      1.    Hire untrained personnel and train in the Silverado way.
      2.    Promote managers developed within the Company.
      3.    Ensure that all new hires start as Telemarketing Associates and
            control the entire training process.


                                       22
<PAGE>

Training

      Continue to expand and implement Silverado University, our proprietary
      training program Implement the new classroom training program and mandate
      that all managers and corporate officers participate as teachers.

      Expand the number of Senior Advisors/Mentors the Company has to facilitate
      projected growth.

Horizontal Integration

      Silverado's target customer is the non-prime borrower, as such Silverado
      intends pursue opportunities for expansion by providing additional
      services to this market segment.

            i.    Non-prime auto loans
            ii.   Non-prime banking
            iii.  Secured Short-Term Consumer Finance Loans
            iv.   Hard Money Real Estate Loans


ITEM 7. FINANCIAL STATEMENTS

                            Silverado Financial, Inc.

                    Audited Consolidated Financial Statements

              For the Years Ended December 31, 2004, 2003 and 2002


                                Table of Contents

Report

Report of Independent Accountants .............   1

Audited Financial Statements

Consolidated Balance Sheets ...................   2
Consolidated Statements of Income .............   4
Consolidated Statements of Stockholders' Equity   5
Consolidated Statements of Cash Flows .........   7
Consolidated Notes to Financial Statements ....   9

                                       23
<PAGE>

[LETTERHEAD OF SALLMANN,                                 PERCY S. YANG, CPA, ABV
 YANG & ALAMEDA]                                        KATHLEEN M. ALAMEDA, CPA
                                                             DEBRA K. DOBLE, CPA
                                                        LOUISE SALLMANN (RETIRED
                                                            ____________________
                                                            J. LORI BATEMAN, CPA
                                                              CYNTHIA BROWN, CPA
                                                   JENNIFER D. CASTELLUCCIO, CPA
                                                         KAYLEEN J. CLEMENS, CPA
                                                            MARION E. LEACH, CPA
                                                           MICHAEL R. RAMIL, CPA
                                                              ARTHUR ROMERO, CPA
                                                             JOHN ROSEHTNAL, CPA
                                               GEORGEAN M. VONHEEDER-LEOPOLD, EA
                                                            DANIEL J. PAYNE, CPA


                        Report of Independent Accountants


To The Board of Directors and Stockholders of
Silverado Financial, Inc.
Pleasanton, California


We have  audited  the  accompanying  consolidated  balance  sheets of  Silverado
Financial,  Inc. (a Nevada Corporation) as of December 31, 2004 and 2003 and the
related consolidated  statements of income,  stockholders' equity and cash flows
for each of the three years ended December 31, 2004. These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

We  conducted  our audit in  accordance  with  auditing  standards of the Public
Company  Accountancy  Oversight Board (United States).  Those standards  require
that we plan and perform the audit to obtain reasonable  assurance about whether
the financial statements are free of material  misstatements.  An audit includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion,  the consolidated  financial  statements  present fairly, in all
material  respects,  the financial position of Silverado  Financial,  Inc. as of
December 31, 2004 and 2003, and the results of its operations and its cash flows
for the three years ended  December  31, 2004,  in  conformity  with  accounting
principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial   statements,   the  Company's   significant  operating  losses  raise
substantial  doubt  about  its  ability  to  continue  as a going  concern.  The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

/s/ Sallmann, Yang & Alameda
---------------------------------
    SALLMANN, YANG & ALAMEDA
    An Accountancy Corporation


Pleasanton, California
April 6, 2005


                                       1
<PAGE>

                            Silverado Financial, Inc.

                           Consolidated Balance Sheets


                                                   December 31,
                                                2004           2003
                                            --------------------------
Assets
Current assets
  Cash ..................................   $    19,608    $     1,230
  Accounts receivable ...................        16,886         11,405
  Stock receivable ......................         7,857             --
  Investments ...........................            --         17,775
Prepaid expenses ........................        10,924             --
                                            --------------------------
Total current assets ....................        55,275         30,410

Furniture and equipment
  Furniture and equipment ...............       149,971        134,271
  Intellectual property .................       699,010             --
  Accumulated depreciation and
    amortization ........................     (104,576)       (17,901)
                                            --------------------------
Total furniture and equipment ...........       744,405        116,370

Other assets
  Deposits ..............................        21,897          6,900
  Other intangibles .....................            --      1,398,020
                                            --------------------------
Total other assets ......................        21,897      1,404,920
                                            --------------------------
Total assets ............................   $   821,577    $ 1,551,700
                                            ==========================


See accompanying notes and accountants' report


                                       2
<PAGE>

                            Silverado Financial, Inc.

                           Consolidated Balance Sheets


                                                    December 31,
                                                 2004            2003
                                             ----------------------------
Liabilities and stockholders' equity
Current liabilities
  Accounts payable .......................   $     55,870    $    244,821
  Notes payable - other ..................         25,000              --
  Notes payable - shareholders ...........         43,767              --
  Due to affiliates ......................             --          74,000
  Payroll taxes payable ..................         86,297              --
  Income taxes payable ...................          2,400              --
  Accrued wages ..........................        206,432              --
  Accrued liabilities ....................         11,305          28,068
  Convertible notes ......................         36,000          36,000
                                             ----------------------------
Total current liabilities ................        467,071         382,889

Long-term debt
  Notes payable ..........................             --         275,000
                                             ----------------------------
Total long-term debt .....................             --         275,000
                                             ----------------------------
Total liabilities ........................        467,071         657,889

Stockholders' equity
  Preferred stock, $.001 par value,
   1,000,000 shares authorized,
   no shares issued and oustanding .......             --              --
  Common stock, $.001 par value,
   20,000,000 shares authorized,
   18,216,697 shares issued and oustanding         18,217          14,839
  Deferred compensation ..................             --         (16,000)
  Additional paid in capital .............     10,889,713      10,455,513
  Accumulated deficit ....................    (10,553,424)     (9,560,541)
                                             ----------------------------
Total stockholders' equity ...............        354,506         893,811
                                             ----------------------------
Total liabilities and stockholders' equity   $    821,577    $  1,551,700
                                             ============================


See accompanying notes and accountants' report


                                       3
<PAGE>

                            Silverado Financial, Inc.

                        Consolidated Statements of Income


<TABLE>
<CAPTION>
                                                    For the Years Ended December 31,
                                                   2004           2003           2002
                                               -----------------------------------------
<S>                                            <C>            <C>            <C>
Income
  Net sales ................................   $   903,067    $   115,823    $     7,500
  Cost of sales ............................       320,563         91,016             --
                                               -----------------------------------------
Gross profit ...............................       582,504         24,807          7,500

Operating expenses
  Research and development .................            --             --         (9,184)
  Intellectual property impairment .........       389,753             --        276,250
  Selling, general and administrative
   expenses ................................    1,114,222        910,565        136,587
  Depreciation and amortization ............        86,675         18,537             --
                                               -----------------------------------------
Total operating expenses ...................     1,590,650        929,102        403,653
                                               -----------------------------------------
Operating loss .............................    (1,008,146)      (904,295)      (396,153)

Other income (expense)
  Interest income ..........................            --              9             --
  Other income .............................        33,378             --             --
  Loss on sale of investments ..............            --         (6,201)            --
  Loss on sale of equipment ................            --         (1,269)            --
  Interest expense .........................       (16,515)       (26,304)        (6,820)
                                               -----------------------------------------
Total other income (expense) ...............        16,863        (33,765)        (6,820)
                                               -----------------------------------------

Loss before income taxes ...................      (991,283)      (938,060)      (402,973)
Income tax expense .........................         1,600             --             --
                                               -----------------------------------------
Net loss ...................................   $  (992,883)   $  (938,060)   $  (402,973)
                                               =========================================

Loss per share (basic) .....................   $     (0.05)   $     (0.07)   $     (0.06)
                                               =========================================

Loss per share (dilutive) ..................   $     (0.05)   $     (0.07)   $     (0.06)
                                               =========================================
</TABLE>


See accompanying notes and accountants' report


                                       4
<PAGE>

                            Silverado Financial, Inc.

                 Consolidated Statements of Stockholders' Equity
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>

                                                                                 Additional
                                                        Common Stock              Paid-in        Deferred       Accumulated
                                                   Shares          Amount         Capital      Compensation       Deficit
                                               --------------------------------------------------------------------------------
<S>                                               <C>          <C>             <C>             <C>             <C>
Balance at December 31, 2002                      5,739,408    $      5,739    $  8,475,587    $         --    $ (8,219,508)

Shares issued for services                          260,592             261          54,937
Shares issued for Financial Software, Inc.        4,400,000           4,400       1,085,503
Net unrealized holding gain on available for
  sale securities
Net loss                                                                                                           (402,973)
                                               --------------------------------------------------------------------------------

Balance, December 31, 2002                       10,400,000    $     10,400    $  9,616,027    $         --    $ (8,622,481)

Net unrealized holding (loss) on
securities available held for sale
Shares issued for cash                              186,666             186          13,814
Shares issued for payables                          566,367             566         170,109
Shares issued for services                        2,770,635           2,771         493,408    $    (16,000)
Shares issued for Realty Capital Corporation        729,452             730         126,924
Shares issued for debt                              248,372             248          51,853
Cancellation of shares                              (62,000)            (62)        (16,622)
Net loss                                                                                                           (938,060)
                                               --------------------------------------------------------------------------------

Balance, December 31, 2003                       14,839,492          14,839      10,455,513         (16,000)     (9,560,541)
</TABLE>

<TABLE>
<CAPTION>
                                               Net Unrealized
                                               Holding Loss on     Total
                                                Available for  Stockholders'
                                               Sale Securities     Equity
                                               ------------------------------
<S>                                            <C>             <C>
Balance at December 31, 2002                   $     (7,476)   $    254,342

Shares issued for services                                           55,198
Shares issued for Financial Software, Inc.                        1,089,903
Net unrealized holding gain on available for
sale securities                                      14,875          14,875
Net loss                                                           (402,973)
                                               ----------------------------

Balance, December 31, 2002                     $      7,399    $  1,011,345

Net unrealized holding (loss) on
securities available held for sale                   (7,399)         (7,399)
Shares issued for cash                                               14,000
Shares issued for payables                                          170,675
Shares issued for services                                          480,179
Shares issued for Realty Capital Corporation                        127,654
Shares issued for debt                                               52,101
Cancellation of shares                                              (16,684)
Net loss                                                           (938,060)
                                               ----------------------------

Balance, December 31, 2003                               --         893,811
</TABLE>


All shares reflect reverse stocksplit 5:1 effective April 29, 2003.

See accompanying notes and accountants' report


                                       5
<PAGE>

                            Silverado Financial, Inc.

           Consolidated Statements of Stockholders' Equity (continued)
                 For the Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>

                                                                                   Additional
                                                           Common Stock             Paid-in         Deferred      Accumulated
                                                      Shares         Amount         Capital       Compensation      Deficit
                                                  ------------------------------------------------------------------------------
<S>                                                 <C>           <C>             <C>             <C>             <C>
Balance, December 31, 2003 (from previous page)     14,839,492    $     14,839    $ 10,455,513    $    (16,000)   $ (9,560,541)

Shares issued for cash                               1,642,700           1,643         115,857
Shares issued for payables                             944,890             945         158,256
Shares issued for services                           1,980,889           1,981         225,754          16,000
Shares loaned to Company                              (729,452)           (729)        (43,038)
Cancellation of shares                                (461,822)           (462)        (22,629)
Net loss                                                                                                              (992,883)
                                                  ------------------------------------------------------------------------------

Balance, December 31, 2004                          18,216,697    $     18,217    $ 10,889,713    $         --    $(10,553,424)
                                                  ==============================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                   Net Unrealized
                                                   Holding Loss on      Total
                                                    Available for    Stockholders'
                                                   Sale Securities     Equity
                                                  -------------------------------
<S>                                                 <C>            <C>
Balance, December 31, 2003 (from previous page)     $         --   $    893,811

Shares issued for cash                                                  117,500
Shares issued for payables                                              159,201
Shares issued for services                                              243,735
Shares loaned to Company                                                (43,767)
Cancellation of shares                                                  (23,091)
Net loss                                                               (992,883)
                                                  -------------------------------

Balance, December 31, 2004                          $         --   $    354,506
                                                  ===============================
</TABLE>

All shares reflect reverse stocksplit 5:1 effective April 29, 2003

See accompanying notes and accountants' report


                                       6
<PAGE>

                                     Silverado Financial, Inc.

                               Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                          For the Years Ended December 31,
                                                           2004            2003            2002
                                                      --------------------------------------------
<S>                                                   <C>             <C>             <C>
Operating activities
  Net loss                                            $   (992,883)   $   (938,060)   $   (402,973)
  Adjustments to reconcile net loss to
   cash flows from operating activities:
  Depreciation and amortization                             86,675          18,537              --
  (Gain) loss on sale of marketable securities              (9,813)          6,201              --
  Loss on sale of equipment                                     --           1,268              --
  Intellectual property impairment                         389,753              --         276,250
  Stock for services and payables                          385,594         650,854          55,198
  Other non-cash adjustments                                10,801              --              --
  (Increase) decrease in:
   Accounts receivable                                      (5,481)         33,648         (12,627)
   Prepaid expenses                                        (10,924)             --             300
   Deposits                                                (14,997)            292          (6,899)
  Increase (decrease) in:
   Accounts payable                                       (188,951)        148,433          (1,880)
   Due to affiliates                                       (74,000)         19,000          55,000
   Payroll taxes payable                                    86,297              --              --
   Income taxes payable                                      2,400              --              --
   Accrued wages                                           206,432              --              --
   Accrued liabilities                                     (16,763)         24,976           3,092
                                                      --------------------------------------------
Net cash used in operating activities                     (145,860)        (34,851)        (34,539)

Investing activities
  Proceeds from the sale of investments                     27,588          10,275              --
  Accounts payable converted to notes payable - other       25,000              --              --
  Cash received in acquisition of Silverato Mortgage
  Corporation (formerly Reality Capital Corporation)            --           1,245              --
  Purchases of equipment                                   (15,700)             --              --
                                                      --------------------------------------------
Net cash provided by investing activities                   36,888          11,520              --

Financing activities
  Proceeds private placements - stock                      111,350          14,000              --
  Deferred compensation                                     16,000              --              --
  Proceeds from convertible notes                               --          10,000          26,000
                                                      --------------------------------------------
Net cash provided by financing activities                  127,350          24,000          26,000

Net increase (decrease) in cash                             18,378             669          (8,539)
Cash at beginning of year                                    1,230             561           9,100
                                                      --------------------------------------------
Cash at end of year                                   $     19,608    $      1,230    $        561
                                                      ============================================
</TABLE>


See accompanying notes and accountants' report


                                       7
<PAGE>

                            Silverado Financial, Inc.

                Consolidated Statements of Cash Flows (continued)


<TABLE>
<CAPTION>
                                                      For the Years Ended December 31,
                                                        2004           2003       2002
                                                    -------------------------------------
<S>                                                 <C>            <C>          <C>
Supplemental disclosure of cash flow information:
Interest expense                                    $        --    $    26,304  $    6,820

Stock receivable for decrease in valuation
  of software purchased with Financial
  Software, Inc.                                          7,857


Supplemental disclosure of non-cash
  investing and financing activities:
Issuance of 4,400,000 common shares to
  purchase Financial Software, Inc.                                              1,089,903

Issuance of 729,452 common shares to
  John E. Hartman to purchase Silverado Mortgage
  Corporation, formerly Realty Capital Corporation                      127,654

Issuance of 248,372 common shares in exchange
   for cancellation of debt                                              52,101

Receipt and cancellation of 62,000 shares from
  a director for the sale of all scientific
  intellectual property                                                 (16,684)

Receipt of 729,452 common shares from
  John E. Hartman in exchange for a  note payable
  to be satisfied with the re-issuance of shares        (43,767)

Receipt of 461,822 common shares for
  decrease in valuation of software purchased
  with Financial Software, Inc.                         (23,091)

Relinquishment of notes payable for decrease
   in valuation of software purchased with
   Financial Software, Inc.                            (275,000)
</TABLE>


See accompanying notes and accountants' report


                                       8
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)



1.    Organization and Basis of Presentation

Nature of Operations

Silverado  Financial,  Inc. (the Company) is incorporated  under the laws of the
State of Nevada and based in  Pleasanton,  California  in the San  Francisco Bay
Area. This Company  provides first and second mortgage  products to borrowers in
California through its subsidiary  Silverado  Mortgage,  formerly Realty Capital
Corporation.

The  corporation  was  initially  formed on February 26, 1987 as Toledo  Medical
Corporation. The name was changed to Almaz Space Corporation on February 9, 1991
and to Ready When You Are Funwear,  Inc. on April 14, 1992. On February 17, 1995
the name was  changed  to Rhombic  Corporation.  On March 19,  2003 the  company
changed its name to Silverado Financial, Inc.

The Company's efforts,  since inception,  until October 2002, had been primarily
focused on the  acquisition  of the rights to  intellectual  property that could
lead to the development of innovative scientific technologies.  During the years
1999 and 2000 it began to focus on the research and development of its portfolio
of acquired  intellectual  property.  During  2001,  the main  objective  was to
identify and develop specific  applications  from the  intellectual  property in
order to make them  commercially  marketable.  In  November  2002,  the  Company
acquired Financial Software, Inc. as the first part of its strategy to enter the
financial services sector.

During 2004, the Company had two wholly owned subsidiaries as follows:

      o     Financial Software, Inc. (FSI)
      o     Silverado Mortgage Corporation (SMC), formerly Realty Capital
            Corporation (RCC)

On November 19,  2002,  the Company  acquired all of the issued and  outstanding
shares of Financial Software, Inc. (FSI) a New Jersey corporation engaged in the
development of Internet and Intranet financial software in addition to operating
several financial industry publishing  websites.  This acquisition was completed
on a share for share exchange basis for 4,400,000 shares of the Company's common
stock. FSI was acquired in order to gain access to certain proprietary  software
products owned by FSI, which the Company  intends to further  develop and extend
into comprehensive mortgage platforms called MortgageCenter and FinanCenter. FSI
transferred its state of incorporation to California in February 2003.

On May 9, 2003,  in a non-arms  length  transaction  with John E.  Hartman,  the
Company's  President,  the Company issued  729,452  shares of restricted  common
stock at a purchase price of $0.175 per share, which was based on the prior five
days average  trading price,  in exchange for all of the  outstanding  shares of
Realty Capital Corporation (RCC). The purchase price of RCC was $127,654 and was
the net  asset  value of RCC,  as  determined  by an  independent,  third  party
valuation. The shares were issued under Section 4(2) of the 1933 Securities Act.

Additionally Rockford,  Nanophase, ADEPT and RDT were held as subsidiaries until
sold in 2003.  Rockford,  Nanophase,  ADEPT and RDT were never active,  held any
assets or had any liabilities or operations. These subsidiaries were created for
the purpose of developing  specific  applications  from scientific  intellectual
property.  The Company  never  implemented  its plans to develop the  scientific
intellectual property. All of its scientific intellectual  properties,  together
with  certain  marketable  securities  held  for  sale,  were  sold in 2003 to a
director,  in exchange for the return of 62,000 shares of the  Company's  common
stock and the cancellation of $1,100 in debt.

Going Concern and Plan of Operations

The  accompanying  consolidated  financial  statements have been prepared on the
basis of accounting principles applicable to a going concern, which contemplates
the realization of assets and extinguishment of liabilities in the normal course
of business.


                                       9
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

As shown in the accompanying financial statements, the Company had a net loss of
$992,883,  $938,060 and $402,973 for the years ended December 31, 2004, 2003 and
2002,  respectively.  It has incurred an accumulated  deficit of $10,553,424 and
has a deficit in working  capital of  $411,796  as of  December  31,  2004.  The
ability of the Company to continue as a going  concern is dependent on obtaining
additional  capital and  financing  and  operating  at a profitable  level.  The
Company  intends  to seek  additional  capital  either  through  debt or  equity
offerings,  or a  combination  thereof,  and to  seek  acquisitions  which  will
generate   sales   volume  with   operating   margins   sufficient   to  achieve
profitability.  The  financial  statements do not include any  adjustments  that
might be necessary if the Company is unable to continue as a going concern.

Basis of Presentation

The  Company has  prepared  the  financial  statements  on the accrual  basis of
accounting in accordance with generally accepted accounting  principles.  In the
opinion  of  management,   all  adjustments  considered  necessary  for  a  fair
presentation have been included.

2.    Summary of Significant Accounting Policies

Principles of Consolidation

The  accompanying  consolidated  financial  statements  include the  operations,
account   balances   and  cash  flows  of  the  Company  and  its  wholly  owned
subsidiaries,  Financial  Services,  Inc. and  Silverado  Mortgage  Corporation,
formerly  Realty  Capital  Corporation.  Intercompany  transactions  and account
balances have been eliminated in consolidation.  The operations are consolidated
from  their  respective  acquisition  dates  of  November  19,  2002  (Financial
Services, Inc.) and May 9, 2003 (Silverado Mortgage Corporation).

Concentration of Credit Risk

The  Company  maintains  its cash  balances  in several  financial  institutions
located in  California.  The  balances  held are insured by the Federal  Deposit
Insurance  Corporation  up to  $100,000.  At  December  31,  2004  and  2003 the
Company's account balances did not exceed these limits.

The Company's revenues are concentrated in the mortgage industry which is highly
competitive  and subject to fluctuations  in economic  condition.  The Company's
results of  operations,  financial  condition  and business  prospects  could be
materially  adversely  affected if  competition  intensifies  or if  competitors
significantly expand their activities in the Company's markets.  Fluctuations in
interest  rates and general  economic  conditions  may also affect the Company's
competitive position.

Cash and Cash Equivalents

For the purpose of the  statements  of cash flows,  the  Company  considers  all
highly  liquid debt  instruments  purchased  with  original  maturities of three
months or less to be cash equivalents.

Financial Instruments

Financial  instruments  consist  primarily of cash,  investments  in  marketable
securities and  obligations  under accounts  payable and accrued  expenses.  The
carrying amounts of cash, accounts receivable,  accounts payable,  notes payable
and accrued  expenses  approximate fair value because of the short term maturity
of those instruments.

Investments

Statements of Financial  Accounting  Standards No. 115,  Accounting  for Certain
Investments  in  Debt  and  Equity  Securities,  requires  that  all  applicable
investments be classified as trading  securities,  available for sale securities
or held to  maturity  securities.  The  Company  did not  have  any  investments
classified as trading


See accompanying notes and accountants' report


                                       10
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)



2.    Summary of Significant Accounting Policies (continued)

Investments (continued)

securities or held-to-maturity  securities.  The statement further requires that
available for sale securities be reported at fair value,  with unrealized  gains
and losses  excluded  from  earnings  but  reported in a separate  component  of
stockholders' equity (net of the effect of income taxes) until they are sold. At
the time of sale, any gains or losses are recognized as a component of operating
results.

At December 2004 and 2003, the Company's  investments  held for sale were $0 and
$17,775, respectively.

Furniture and Equipment

Furniture  and  equipment  are  carried at cost less  accumulated  depreciation.
Depreciation is provided on the straight-line method over estimated useful lives
generally ranging from three to seven years. Intellectual property is carried at
cost less valuation  impairment expense and is amortized using the straight-line
method over its estimated useful life of three years. Leasehold improvements are
carried at cost and are  amortized  over the shorter of their  estimated  useful
lives or the related lease term (including options),  generally ranging from one
to six years.  Expenditures  for major  renewals  that  extend  useful  lives of
furniture,   equipment  and  improvements  are  capitalized.   Expenditures  for
maintenance  and  repairs  are  charged to expense as  incurred.  For income tax
purposes, depreciation is computed using the modified cost recovery system.

Depreciation  expense for the years ended  December 31, 2004,  2003 and 2002 was
$28,424, $18,537 and $0, respectively.  Amortization expense for the years ended
December 31, 2004, 2003 and 2002 was $58,251, $0 and $0, respectively.

Intellectual Property

The  Company's  intellectual  property  is  comprised  of  a  software  platform
purchased  with  Financial  Services,  Inc. in 2002.  The  Company  periodically
evaluates the  recoverability of intangible assets and takes into account events
or circumstances that warrant revised estimates of useful lives or that indicate
that an  impairment  exists.  The Company put the software into  productive  use
October 2004 and began amortizing the asset as of that date.

Impairment of Long-Lived Assets

On January 1,2002, the Company adopted SFAS No. 144,  Accounting for Stock-Based
Compensation  which  requires that  long-lived  assets,  to be held and used, be
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying amount of an asset may not be recoverable.

In the event that facts and  circumstances  indicate that the cost of long-lived
assets,  primarily  intellectual  property  and patents,  may be  impaired,  the
Company performs a  recoverability  evaluation.  Recoverability  of assets to be
held and used is measured by a comparison of the carrying  amount of an asset to
future  undiscounted cash flows expected to be generated by the asset. If assets
are  considered to be impaired,  the  impairment to be recognized is measured by
the amount by which the carrying  amounts  exceed the fair values of the assets.
Assets to be  disposed of are  reported at the lower of carrying  values or fair
values, less costs of disposal.

The Company  recognized an impairment  expense for the years ended  December 31,
2004, 2003 and 2002 of $389,753, $0 and $276,250, respectively.


See accompanying notes and accountants' report


                                       11
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

Compensating Balances

Employees  of the company  are  entitled  to paid  vacation,  paid sick days and
personal days off, depending on job classification,  length of service and other
factors.  It is  impracticable to estimate the amount of compensation for future
absences,  and, accordingly,  no liability has been recorded in the accompanying
financial  statements.  The  company's  policy  is to  recognize  the  costs  of
compensated absences when actually paid to employees.

Stock-Based Compensation

Statement of  Financial  Accounting  Standards  (SFAS) No. 123,  Accounting  for
Stock-Based Compensation,  as amended by SFAS No. 148 Accounting for Stock-Based
Compensation - Transition and Disclosure,  established accounting and disclosure
requirements  using a fair-value  based  method of  accounting  for  stock-based
employee  compensation.  The Company  periodically issues options to consultants
and members of the Board of Directors.  The estimated  value of these options is
determined in accordance  with SFAS No. 123 and expensed as the granted  options
vest to the grantees.

The price of any options granted pursuant to these grants is not to be less than
100  percent of the fair  market  value of the shares on the date of grant.  The
options expire one year from date of grant and are immediately vested. There was
no charge to  expense  for the value of the  options  during the  periods  ended
December 31, 2004, 2003 and 2002 as no options were issued.

Restatement of Share Amounts

Effective  April 29,  2003,  the Company  changed  its trading  name and trading
symbol to SLVO on the OTCBB and decreased  the number of issued and  outstanding
shares of common stock by issuing one new share for each five shares held.

Revenue Recognition

Sales are generally  recognized  at the time of loan  funding,  provided that no
significant vendor obligations exist and collections of accounts  receivable are
probable.

Advertising

Advertising  costs are  expensed as incurred.  For the years ended  December 31,
2004, 2003 and 2002, the Company incurred  advertising costs of $723, $0 and $0,
respectively.

Research and Development

Expenditures  for  research  activities  relating  to software  development  and
improvement are charged to operations as incurred.

Income Taxes

The Company  accounts for income taxes under the asset and  liability  method as
prescribed by Statement of Financial  Accounting  Standards No. 109,  Accounting
for Income  Taxes.  As such,  deferred  income tax  assets and  liabilities  are
recognized  for the future  tax  consequences  of the  differences  between  the
financial statement carrying amount of existing assets and liabilities and their
respective tax bases.  Deferred  income 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.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  in the United States of America  requires  management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Accordingly, actual results could differ from
those estimates.


See accompanying notes and accountants' report

                                       12
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

Technical Pronouncements

Statement of Financial  Accounting  Standards  No. 150,  Accounting  for Certain
Financial  Instruments with Characteristics of both Liabilities and Equity. This
Statement is effective for financial  instruments entered into or modified after
May 31, 2003,  and  otherwise is effective at the beginning of the first interim
period  beginning  after  June  15,  2003,  except  for  mandatorily  redeemable
financial instruments of nonpublic entities.

This Statement  establishes  standards for how an issuer classifies and measures
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.  It  requires  that an issuer  classify a financial  instrument  that is
within its scope as a  liability  (or an asset in some  circumstances).  Many of
those instruments were previously classified as equity. The Company has and will
continue to report convertible notes as liabilities.

3.    Intellectual Property

Since its inception, the Company entered into numerous agreements as a result of
having  acquired  certain  rights to  various  complex  intellectual  scientific
properties.  The Company  periodically  analyzes its investments in intellectual
property for impairment.

During the quarter ended June 30, 2003, in a non-arms  length  transaction  with
Robert George Krushinsky, a director of the Company, the Company received 62,000
shares of its own common stock together with cancellation of an outstanding debt
in the  amount of  $1,100 in  exchange  for all of the  scientific  intellectual
property  assets  acquired  prior to the  acquisition of FSI in November 2002 as
well as all shares of Rockford Technology held for sale by the Company.

On November 19, 2002, in connection with the acquisition of Financial  Software,
Inc., the Company acquired certain software, web sites and intellectual property
which can aggregate financial information from a large number of data sources on
an individual basis,  amalgamate the host of disparate objectives as they relate
to a  persons  financial  goals,  be  they  investment  or debt  related  or any
combination. This software suite, together with mortgage generation capabilities
can create a variety of new and  different  mortgage,  investment  or  insurance
products.  The Company  recorded the software on its books at the seller's basis
of $1,398,020.  The Company engaged an experienced  software  developer based in
Palo Alto,  California to perform an  independent,  third party valuation of the
software during 2003.

During the fourth quarter of 2004, Silverado Financial,  Inc. began implementing
its FinanceCenter  Software system,  but in doing so found that the software was
in need of  upgrades  in both  programming  and  technology.  With that in mind,
management  felt that it was  necessary  to impair  the  original  valuation  of
$1,398,020 down 50% to $699,010. Additionally, on November 24, 2004 the purchase
price of the intellectual property was renegotiated as follows: SRD Technologies
(former  owner of Financial  Services,  Inc.),  signed a debt  cancellation  and
release  agreement which included the release of any and all liabilities owed to
SRD Technologies,  the relinquishment of 574,953 shares of Silverado  Financial,
Inc.  stock,  and a payment for  auditing  expenses in the amount of $7,500.  An
additional   44,000   shares   were   relinquished   from  Mike  Shultz  in  the
re-negotiation. On the date of the agreement 618,953 shares were valued at $0.05
a share or $30,948.

At December 31, 2004 there remains 157,131 shares or $7,857  receivable from SRD
Technologies.  The note payable of $275,000  corresponding  accrued  interest of
$41,047 and $7,500 in accounts  payable  have been  reversed in these  financial
statements. The resulting impairment expense was $389,753.

The Company placed the software into service  October 2004 and is amortizing the
software  over  a  three  year  period  commencing  upon  the  in-service  date.
Amortization  expense  for  the  year  ended  December  31,  2004  was  $58,251.
Amortization  expense is estimated to be as follows for the years ended December
31,


See accompanying notes and accountants' report


                                       13
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

         Year                   Amount
       -------                ----------
         2005                 $ 233,003
         2006                   233,003
         2007                   174,761
                              ----------
                              $ 640,767
                              ==========

4.     Acquisitions

On November 19,  2002,  the Company  acquired all of the issued and  outstanding
shares of Financial Software, Inc. (FSI) a New Jersey corporation engaged in the
development of Internet and Intranet financial software in addition to operating
several financial industry publishing  websites.  This acquisition was completed
on a share for share exchange basis for 4,400,000 shares of the Company's Common
Stock. FSI was acquired in order to gain access to certain proprietary  software
products owned by FSI, which the Company  intends to further  develop and extend
into comprehensive mortgage platforms called MortgageCenter and FinanCenter.

Through  the  acquisition  of FSI,  the  Company  acquired  assets of $26,775 in
marketable securities,  $1,398,020 in Intellectual property  (MortgageCenter and
FinanCenter  software),  and $1,904 in  computer  equipment.  The  Company  also
acquired  liabilities  of $61,796 in accounts  payable and $275,000  through the
assumption of a note payable.

On May 9, 2003 the Board of Directors approved the acquisition of Realty Capital
Corporation  (renamed  Silverado  Mortgage  Corporation  in  2004),  a  mortgage
brokerage  company,  from John Hartman for 729,452 restricted common shares. Mr.
Hartman  (President of Silverado  Financial,  Inc.) abstained from the vote. The
acquisition  was made at a  trading  value of  $127,654  which was the net asset
value of Realty  Capital  Corporation  and the average  closing bid price of the
Company on they prior five trading  days.  Mr.  Hartman's  holdings of Silverado
Financial,  Inc.  common  stock  were  103,511  shares  (0.87%  of total  shares
outstanding)  prior to  acquisition  and 832,963  shares  (6.59% of total shares
outstanding) after the acquisition of Realty Capital Corporation, respectively.

Through the  acquisition of Realty  Capital  Corporation,  the Company  acquired
total  assets of  $168,233,  consisting  of $33,963 in accounts  receivable  and
prepaid expenses,  $49,284 in computers and equipment, and $84,986 in furniture.
The Company also acquired  liabilities of $7,871 in accounts payable and $32,708
through the assumption of notes payable.


5.     Accounts Payable

As of  December  31,  2004 and 2003,  the  Company  owes its  vendors a total of
$55,870 and $244,421,  respectively,  of which approximately $21,188 and $86,518
were outstanding over ninety days.


6.     Long-Term Debt

Notes Payable


See accompanying notes and accountants' report

                                       14
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

<TABLE>
<CAPTION>
                                                   2004                  2003
                                               ----------------------------------
<S>                                            <C>                  <C>
Through the  acquisition  of  Financial
Software,   Inc.  (FSI),   the  Company
became   obligated   for  the  acquired
accounts   payable  in  the  amount  of
$30,000.  In  June  2003,  the  Company
issued  33,000  shares  of  stock  at a
value of $5,000 and a note  payable for
$25,000  in  satisfaction  of  accounts
payable to one of the FSI vendors.  The
note carries interest at 5.0%                  $   25,000           $          --

On  October  11,  2004 John E.  Hartman
returned  729,452  shares,   valued  at
$43,767, of Silverado  Financial,  Inc.
stock  to   allow   the   Company   the
capability  to issue  more  shares  for
financing  transactions  and  services.
Silverado Financial,  Inc. will satisfy
the note obligation with re-issuance of
shares and a 5% bonus of 36,472
shares, valued at $2,188.                          43,767                      --
                                               ----------------------------------
                                                   68,767                      --
Current portion                                    68,767                      --
                                               ----------------------------------
Long term-debt                                 $       --           $          --
                                               ==================================
</TABLE>

Convertible Notes Payable

The Company has three  convertible  notes  payable  totaling  $36,000 at 10% per
annum,  maturing  in  2005  as a  result  of  the  Company's  extensions  of two
convertible  notes that were  originated  during 2002.  At December 31, 2004 and
2003 there was $7,144 and $3,537 of accrued unpaid interest, respectively.

A  schedule  of the  maturity  dates of the  convertible  debentures  with their
attached warrants are as follows:

<TABLE>
<CAPTION>
                     Original        Extended
       Amount      Maturity Date   Maturity Date          Warrants Outstanding
--------------------------------------------------------------------------------------
      <S>          <C>             <C>               <C>
      $ 16,000      10/11/2003      10/11/2005       40,000 shares at $.40 per share
      $ 10,000      11/16/2003      11/16/2005       25,000 shares at $.40 per share
      $ 10,000       7/23/2004       7/23/2005       25,000 shares at $.40 per share
</TABLE>

These notes can be converted  into common stock for the same amount of shares as
their right to purchase  shares  through  their  warrants.  Management  plans to
convert these to equity in 2005;  however if the Company has the ability to make
all note payments  under their terms and does not convert or further  extend the
convertible notes payable, the minimum annual payment is as follows:


           Year              Amount
           ----              ------

           2005           $   36,000

See accompanying notes and accountants' report

                                       15
<PAGE>


                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

Warehouse Facility

On September 3, 2004, the Company's wholly owned subsidiary,  Silverado Mortgage
Corporation signed an agreement for a $2,000,000 mortgage warehouse and security
facility.  The Company began  utilizing  the warehouse and security  facility on
November 22, 2004.

The warehouse  facility requires a demand note. The demand note, in the event of
a default,  stipulates that any outstanding balance of warehouse facility can be
called  at any time  inclusive  of  interest.  Per the  terms  in the  warehouse
agreement the note is subject to mandatory  prepayments and is collateralized by
the mortgage loans and other predetermined assets.


7.     Operating Lease Commitments

During April 2004, the Company became  responsible  for a lease for 2,512 square
feet in an office building in Pleasanton,  California. The lease is for a period
of three years ending on May 31, 2007 with an option to renew for an  additional
three  years.  The base rental  under the lease is $52,752 per annum  (4,396 per
month)  during the first  twelve-month  period,  $54,259  per annum  ($4,522 per
month) for the second  twelve-month  period and  $55,766  per annum  ($4,647 per
month) during the third twelve-month  period. The lease provides for the Company
to pay its proportionate share of the landlord's common costs.

During  September  2004,  the Company became  responsible  for a lease for 6,000
square feet in an office  building in Campbell,  California.  The lease is for a
period of three years  ending on October  31,  2007.  The base rental  under the
lease is $108,000  per annum  ($9,000 per month)  during the first  twelve-month
period and  $120,000 per annum  ($10,000 per month) for the second  twelve-month
period and $126,000 per annum ($10,500 per month) during the third  twelve-month
period. The lease provides for the Company to pay its proportionate share of the
landlord's common costs.

During  November  2004,  the Company  became  responsible  for a lease for 6,000
square feet in an office building in Phoenix, Arizona. The lease is for a period
of three years  ending on January 31,  2008.  The base rental under the lease is
$99,000 per annum  ($8,250 per month) during the first  thirty-six  month period
except the Company  shall pay $2,750 for the first ninety (90) days,  $4,125 for
the second  ninety  (90) days and $6,875 for the third  ninety  (90) days of the
lease. The lease provides for the Company to pay its proportionate  share of the
landlord's common costs.

Lease expense for the years ended December 31, 2004,  2003 and 2002 was $93,604,
$53,808 and $15,773, respectively.

Minimum  future  commitments  under all operating  leases are as follows for the
years ended December 31,

         Year                         Amount
-----------------------       ----------------------
         2005                             $ 193,881
         2006                               275,138
         2007                               227,236
         2008                                 8,250
                              ----------------------
                                          $ 704,505
                              ======================

See accompanying notes and accountants' report


                                       16
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

8.    Income Taxes

The  components of the provision for income tax consist of the following for the
years ended December 31,

                                   2004         2003         2002
                                -----------------------------------
Current tax expense - state     $   1,600    $      --    $      --
Deferred tax benefit:
  Federal                         141,933      296,228      165,219
  California                       45,058       52,276           --
  Change in valuation allowance  (186,991)    (348,504)    (165,219)
                                -----------------------------------
Total deferred tax expense             --           --           --
                                -----------------------------------
Provision for income taxes      $   1,600    $      --    $      --
                                ===================================

The Company's effective income tax rate is higher than what would be expected if
the  federal  statutory  rate were  applied  to loss from  operations  primarily
because of net operating losses deductible for financial reporting purposes that
are not deductible for tax purposes. A full valuation of net deferred tax assets
was  recorded  at  December  31,  2004,  2003  and  2002  due to  the  Company's
uncertainty  as to future  realization  of income  tax loss  carryforwards.  The
valuation allowance increased by approximately  $186,991,  $348,504 and $165,219
for the years ended December 31, 2004, 2003 and 2002, respectively.

A  reconciliation  of the  Company's  income tax  expense  rate to U.S.  federal
statutory rate for the years ended December 31, is as follows:

<TABLE>
<CAPTION>
                                                    2004           2003           2002
                                                  ----------------------------------------
<S>                                                    <C>            <C>            <C>
Federal statutory rates                                (15%)          (34%)          (34%)
State statutory rates                                   (9%)           (6%)            0%
Change in valuation allowance                           19%            34%            34%
Expiration of net operating loss carryforward            5%             6%             0%
                                                  ----------------------------------------
                                                         0%             0%             0%
                                                  ========================================
</TABLE>

At December 31, 2004 the Company had realized  federal net  operating  losses of
approximately  $8,825,215.  Future realization of the net deferred tax assets is
dependent on generating sufficient taxable income prior to their expiration. The
realized net operating losses expire, as follows:


See accompanying notes and accountants' report



                                       17
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

<TABLE>
<CAPTION>
                                                          Silverado Mortgage
                                  Consolidated               Corporation          Financial Services, Inc.
        Expiration                  Federal                     State                      State
------------------------------------------------------------------------------------------------------------
<S>                               <C>                     <C>                     <C>
                       2009               $    44,994
                       2010                   379,485                $ 2,109,954
                       2011                   461,101                    318,228
                       2012                   236,028                     76,034
                       2013                                              522,756
                       2014                                              119,873                  $ 389,827
                       2018                   861,526
                       2019                   603,950
                       2020                 3,670,269
                       2021                   578,596
                       2022                   126,723
                       2023                   871,260
                       2024                   991,283
                                 ---------------------------------------------------------------------------
                                          $ 8,825,215                $ 3,146,845                  $ 389,827
                                 ===========================================================================
</TABLE>


9. Loss Per Share

At December 31, 2004,  there were convertible  notes with  exercisable  warrants
outstanding.   Outstanding  options,  warrants  and  convertible  securities  to
purchase  common  stock  were not  considered  in the  calculation  for  diluted
earnings per share for the years ended December 31, 2004, 2003 and 2002, because
the effect of their inclusion would be  anti-dilutive.  A reconciliation  of the
numerator and  denominator of the basic and diluted per share  calculations  for
the loss from continuing operations is as follows:

                                     Basic Loss           Diluted Loss
               Net (Loss)             Per Share             Per Share
            ----------------------------------------------------------------
2004
 Loss         $ (992,083)          $  (992,083)
 Shares                             18,216,697
 Per share                         $     (0.05)              $ (0.05)

See accompanying notes and accountants' report


                                       18
<PAGE>

9. Loss Per Share (continued)

                                      Basic Loss           Diluted Loss
                Net (Loss)             Per Share             Per Share
            -----------------------------------------------------------------
2003
 Loss            $ (938,060)          $  (938,060)
 Shares                                14,839,492
 Per share                            $     (0.07)              $ (0.07)

2002
 Loss            $ (402,973)           $ (402,973)
 Shares                                 6,389,045
 Per share                             $    (0.06)               $ 0.06

Convertible notes and warrants to purchase 90,000, 90,000 and 65,000 shares, and
options  to  purchase  90,000,  90,000 and  65,000  shares of common  stock were
outstanding at December 31, 2004, 2003 and 2002, respectively.  All shares which
could be exercised  from  convertible  notes,  warrants  and stock  options were
excluded  from the  computation  of diluted loss per share because the effect of
their inclusion would be anti-dilutive.


10.    Related Party Transactions

On May 9, 2003 the Board of Directors approved the acquisition of Realty Capital
Corporation  (renamed  Silverado  Mortgage  Corporation  in  2004),  a  mortgage
brokerage company,  from John Hartman (President of Silverado  Financial,  Inc.)
for 729,452  restricted common shares.  Mr. Hartman abstained from the vote. The
acquisition  was made at a  trading  value of  $127,654  which was the net asset
value of Realty  Capital  Corporation  and the average  closing bid price of the
Company on the prior five  trading  days.  Mr.  Hartman's  holdings of Silverado
Financial,  Inc.  common  stock  were  103,511  shares  (0.87%  of total  shares
outstanding)  prior to  acquisition  and 832,963  shares  (6.59% of total shares
outstanding) after the acquisition of Realty Capital Corporation, respectively.

As of December 31, 2003, Sherry Hartman, the broker of record for Realty Capital
Corporation and the spouse of the President of Silverado Financial,  Inc. had an
outstanding debt to the Company in the amount of $11,405.

On October 11, 2004 John E. Hartman returned 729,452 shares,  valued at $43,767,
of Silverado Financial,  Inc. stock to allow the Company the capability to issue
more shares for financing transactions and services.  Silverado Financial,  Inc.
will satisfy the note  obligation  with  reissuance  of shares and a 5% bonus of
36,472 shares, valued at $2,188.

11.    Contingencies

On  January  27,  2004 DL Pacific  Center LP (DL  Pacific)  filed a lawsuit  for
$40,444 plus costs and  attorney's  fees against the Company in San Diego County
Superior  Court.  The suit alleges  that,  after the  purchase of San  Francisco
Funding,  Inc.  (SFF) in November 2003,  the Company  assumed SFF's  obligations
pursuant to DL Pacific's  lease with SFF by accepting the benefits of such lease
and by negotiating  with DL Pacific for  amendments to the lease.  Silverado has
agreed to settle the lawsuit for the nuisance value of $2,500.

On March 9, 2004 Robert E. Vener  (Vener)  filed an amendment to his lawsuit for
$7,500 per month from November 2003 to March 2006 plus costs and attorney's fees
against the Company in Marin County Superior Court. The suit alleges that, after
the purchase San Francisco  Funding,  Inc.  (SFF) in November  2003, the Company
assumed  SFF's  obligations  pursuant  to Vener's  lease with SFF by stating and
representing  to Vener that it would be responsible for any amounts due from SFF
pursuant to the lease, and that Vener relied on the Company's representations by
allowing SFF to remain on the premises following SFF's default in the payment of
rent on the lease.  Silverado Financial,  Inc. has agreed to settle the suit for
the nuisance value of $3,000.

Silverado Financial,  Inc. has filed a cross-complaint against SFF and its major
stockholder Mr. and Mrs.  Daniel Selis,  for indemnity for the cost of defending
the Vener lawsuit, and punitive damages resulting from breach of contract, fraud
and/or interference with the Company advantageous business relationships.

On May 12, 2004 The Subway.Com  filed for  arbitration for $60,000 plus interest
against the Company in the state of Florida.  The suit claims breach of contract
for stock promotion  services.  The Company believes it has meritorious  defense
and that no contract was ever consummated.

On July 16,  2004,  the  Company  was served  with a  complaint  by the State of
California,  Department of Industrial Relations on behalf of a former contractor
for back wages of $10,938 and penalties of $288 for an  indeterminate  number of
days.  Outside  counsel for the  company  has advised  that at this stage in the
proceedings he cannot offer an opinion as to the probable  outcome.  The company
believes the suit is without merit and is vigorously defending its position.


                                       19
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

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

None.

ITEM 8A: CONTROLS AND PROCEDURES


a) Evaluation of disclosure controls and procedures. Our chief executive officer
and principal  financial officer,  after evaluating the effectiveness of the our
"disclosure  controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules  13a-15(e) and  15d-15(e)) as of the end of the period  covered by
this  annual  report  (the  "Evaluation  Date"),  has  concluded  that as of the
Evaluation  Date,  our  disclosure  controls and  procedures  were  adequate and
designed to ensure  that  material  information  relating to the Company and our
consolidated  subsidiaries  would be made  known to him by others  within  those
entities.


(b)  Changes  in  internal  control  over  financial  reporting.  There  were no
significant  changes in the our internal control over financial reporting during
the fourth fiscal quarter that materially affected,  or are reasonably likely to
materially affect, the our internal control over financial reporting.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.

The following  table sets forth the names and ages of the current  directors and
executive officers of the Company,  the principal offices and positions with the
Company  held by each  person  and the date such  person  became a  director  or
executive officer of the Company.

Each serves until the next annual meeting of the stockholders.

<TABLE>
<CAPTION>
     Name of Executive
     Officers & Directors           Age        Title                                      Since
     --------------------------    -----  -----------------------------                  --------
     <S>                           <C>    <C>                                            <C>
         R.G. Krushnisky            42       Director                                    1/1/1995
         Albert Golusin             49       C.F.O & Director                            2/5/1999 (resigned 11/04)
         John Hartman               38       President, CEO & Chairman of the Board      9/26/2002
         Sean Radetich              36       COO & Director                              1/10/2003
</TABLE>

John E.  Hartman- President, CEO, and Chairman of the Board

As Chief Executive and Chairman of the Board Mr. Hartman is actively involved in
leading and building  Silverado  Financial  with  particular  focus on non-prime
mortgage banking,  policy initiatives and strategic investments that are driving
the  consolidation  of the mortgage  industry.  Prior to being  appointed  Chief
Executive Officer of Silverado Financial,  Inc., Mr. Hartman was Chief Executive
Officer of NEXT Advisors,  Incorporated where he was responsible for raising its
venture  funding and for  completing  three  acquisitions  including  an on-line
securities  brokerage,  ATradeUSA.com,  an insurance brokerage and a traditional
securities  brokerage.  Before joining Next  Advisors,  Mr. Hartman was Managing
Partner of  Hartman-Kauffman,  LLC, and a high-touch  investment  advisory firm,
which  was  acquired  by Next  Advisors.  As the  Managing  Partner  of H-K,  he
increased  the gross sales of the San Jose office 400% and more than tripled the
sales force.  From 1995 to January  1999,  Mr.  Hartman was with Morgan  Stanley
where  he  managed  assets  for  both  individuals  and  institutions.  Prior to
beginning  his  career at Morgan  Stanley,  he was a Partner  at Realty  Capital
Partners  where he  syndicated  equity  funding and managed the  development  of
several multimillion-dollar  commercial and residential real estate developments
in coastal California.  Prior to Realty Capital Partners,  he held the positions
of research  analyst and Investment  Property  Specialist  with Grubb & Ellis, a
commercial  real estate firm  headquartered  in San Francisco,  California.  Mr.
Hartman  received his Masters in Business  Administration  (MBA) from California
Coast University in Santa Ana,  California and his Bachelor of Science Degree in
Business Administration from San Jose State University in San Jose, California.


                                       20
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

Sean Radetich - Executive VP - Chief Operations Officer - Member of the Board

As Chief  Operating  Officer Mr.  Radetich  is  responsible  for the  day-to-day
operations of the Company.  Mr. Radetich operates  Silverado's  mortgage banking
operations,  oversees  the  mortgage  brokerage  operations,  pursues  State and
Federal licensure for brokerage and banking,  investigates potential acquisition
targets and ensures the  strategic  goals of the entire  Company are met through
the  implementation of policy and procedure via the line managers.  Mr. Radetich
has  over 12 years of his  professional  career  identifying  and  working  with
emerging growth  companies.  Mr.  Radetich has extensive  management and capital
markets  experience,  which includes direct  investment into and raising capital
for  emerging  micro-capitalization  companies.  Mr.  Radetich  served  as Chief
Financial Officer for WebCash Corporation, a B2B internet infrastructure company
backed by Berg McAfee and Silicon  Valley Angel Fund,  and for over 10 years Mr.
Radetich  has  represented  a  select  group  of   institutional   investors  by
structuring   and   negotiating   their   private   investments   into  emerging
micro-capitalization  companies.  Some of the  companies  that Mr.  Radetich has
invested into, managed PIPE transactions  and/or performed business  development
for are:  Silverado  Financial  (SLVO-OTCBB),  Next Advisors,  Interchange Corp.
(INCX-NASDAQ),  Peabodys Coffee (PBDY-OTCBB),  Clearworks Technologies (formerly
CLWK-OTCBB) and Cekatel.  Mr. Radetich  previously  worked for LBI Group and SBC
Warburg in the Structured Product/Private Placement Divisions,  Webcash as Chief
Financial  Officer  and  Hamilton &  Associates  as a real estate  analyst.  Mr.
Radetich  received his B.S. in  International  Economics  from the University of
Oldenburg, Germany, and an A.S. in California Real Estate from Napa College.

RG "Jako" Krushnisky - Director

Mr.  Krushnisky  has been an officer  and  director  for both public and private
company's in the U.S. and Canada. As an independent director for Silverado he is
currently President and CEO of Rockford Energy  Corporation.  Rockford Energy is
in the business of developing  environmentally  friendly  energy sources such as
hydroelectric  and wind power.  Mr.  Krushnisky is one of the original  founding
members of Rhombic  Corporation who oversaw the development of various  material
science  projects  including its joint venture with Daimler Benz Aerospace while
serving as its President  and CEO.  Additionally,  Mr.  Krushnisky is a founding
shareholder and member of the board of directors for Silverado  Financial,  Inc.
Mr.  Krushnisky is a skilled  entrepreneur and corporate officer who in addition
to his work with  Rockford  and  Silverado is the owner of  International  Laser
Games in British  Columbia,  Canada.  Mr.  Krushnisky  received  his Bachelor of
Science in Business and International  Commerce from United States International
University in San Diego, California from 1979-1982 and conducted further studies
in economics in London, England from 1982-1983.

SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the securities  Exchange Act of 1934, as amended,  requires the
Company's  directors,  executive officers and persons who own more than 10% of a
class of the Company's equity securities which are registered under the Exchange
Act to file with the  Securities  and  Exchange  Commission  initial  reports of
ownership and reports of changes of ownership of such registered securities.

Such executive  officers,  directors and greater than 10% beneficial  owners are
required by  Commission  regulation  to furnish  the Company  with copies of all
Section 16(a) forms filed by such reporting persons.

To the  Company's  knowledge,  based  solely on a review  of the  copies of such
reports  furnished to the Company and on  representations  that no other reports
were  required,  no person  required to file such a report failed to file during
fiscal 2004.  Based on stockholder  filings with the SEC,  Silverado  Financial,
Inc. is subject to Section 16(a) filing requirements.

Code of Ethics

The Company has adopted a Code of Ethics as of the date of this report.

ITEM 10. EXECUTIVE COMPENSATION


                                       21
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

The following table sets forth certain  information  concerning the compensation
paid by the Company for services  rendered in all  capacities to the Company for
the three fiscal years ended  December  31,  2004,  2003,  2002 and 2001 for all
officers, individually, and, as a group, for all officers and directors.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                 Annual Compensation                 Long Term Compensation Awards

                                                                   Securities
                                            Other      Annual   Restricted Stock  Underlying       All Other
Name and Principle Position           Year Salary ($) Bonus ($) Compensation ($)  Award(s) ($)  Options/SARs (#)  Compensation ($)
------------------------------------- ---- ---------- --------- ---------------- ------------- ------------------ ----------------
<S>                                   <C>  <C>        <C>       <C>              <C>           <C>                <C>
John E. Hartman, CEO (4)              2004         --        --               --     $ 120,000   None               --
                                      2003         --        --               --     $ 105,000   None               --
                                      2002         --        --               --            --   None               --

Albert Golusin CFO (3)                2004         --        --               --     $  82,500   None               --
                                      2003         --        --               --     $  60,000   None               --
                                      2002         --        --               --            --   None               --

Sean Radetich, COO (7)                2004         --        --               --     $  90,000   None               --
                                      2003         --        --               --     $  33,000   None               --
                                      2002         --        --               --            --   None               --

All Officers & Directors as a group
(two persons) (3)(4)(5)(6)(7)(8)      2004         --        --               --     $ 292,500   None               --
                                      2003         --        --               --     $ 203,000   None               --
                                      2002         --        --               --     $  85,675   None               --
</TABLE>

(3) Albert Golusin, during 2002 he served as the Chief Financial Officer and the
Chief Executive  Officer from January 1, 2002 to September 25, 2002. During 2002
he received  1,189,156  restricted  common shares at a trading value of $48,153.
During 2003, he received 280,228  restricted common shares at a trading value of
$60,000

(4) John  Hartman  became the Chief  Executive  Officer on  September  26, 2002.
During 2002 he received 238,610  restricted  common shares at a trading value of
$15,000.  During 2003, he received 503,913 restricted common shares at a trading
value of $105,000 for 2004 he is an owed  956,091  restricted  commons  share as
deferred compensation.

(5) R.G.  Krushnisky,  Vice President and Director of the Company,  provides his
consulting  services on a part-time basis.  During 2001, Mr. Krushnisky received
$15,000 for services as a Vice  President.  He also earned  $18,000 for director
fees during 2001. During 2002 he received 304,532  restricted common shares at a
trading value of $15,261.  During 2003,  he received  25,014  restricted  common
shares at a trading value of $5,000 he is owed 36,439 in directors fees.

(7)  Sean  Radetich,  Executive  Vice-President,  Chief  Operating  Officer  and
Director of the Company,  during 2003,  he received  137,014  restricted  common
shares at a trading value of $33,000.  During 2004 he is owed 699,147 restricted
common shares as deferred compensation.

There  are no  current  plans to pay cash or stock  dividends  on the  Company's
stock.

VALUE OF OPTIONS AT DECEMBER 31, 2004

The Company had no options  outstanding  from which it could  obtain cash during
the entire year 2004.


                                       22
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

OPTION GRANTS IN THE LAST FISCAL YEAR

The Company granted no options during 2004.

COMPENSATION OF DIRECTORS

The  company  compensates  all  independent  directors  $500  for  each  meeting
attended.  The amount is paid in Common shares, the price of which is determined
by the average  closing  price of the Common stock during the month in which the
meeting is held. No compensation is paid to any employee director for attendance
at any meeting or any other services provided as a director.

STOCK OPTION PLAN

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table contains information, as of December 31, 2003, regarding the
shareholdings of (1) The Company's current directors and executive officers, (2)
those persons or entities who  beneficially own more than 5% of its common stock
and (3) all of the directors and executive officers as a group (giving effect to
the  exercise  of the  warrants  held by each  such  person or  entity).  Unless
otherwise indicated,  the person or entity listed in the table is the beneficial
owner of the shares and has sole voting and investment power with respect to the
share indicated:


<TABLE>
<CAPTION>
                                                   Number of shares of Common      Percent of Common Stock
         Name                                       Stock Beneficially Owned        Beneficially Owned (1)
------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                            <C>
John Hartman
Chief Executive Officer, Chairman of the Board
5976 W. Las Positas Blvd., Suite 116
Pleasanton, CA. 94588                                        274,027                                   1.50%

Albert Golusin
Chief Financial Officer, Director
10641 North 44th Street
Phoenix, Arizona 85028                                       582,060                                   3.20%

R.G. Krushnisky
Director
93 English Bluff Road
Tsawwassen, British Columbia
Canada V4M 2M4                                               170,022                                   0.93%

Sean Radetich
Executive Vice-President, COO & Director
5976 W. Las Positas Blvd. Suite 116
Pleasanton, CA. 94588                                        758,275                                   4.15%

Total shares owned by Directors and
Officers of the Company (4 persons)                        2,631,444                                   9.78%
</TABLE>

(1)   Based upon 18,216,697  outstanding  shares of common stock on December 31,
      2004.There were no options outstanding at December 31, 2004.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS


                                       23
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

None

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS.
The  following   exhibits  required  by  Item  601  to  be  filed  herewith  are
incorporated by reference to previously filed documents:




Exhibit No.    Description and Method of Filing
-----------    -----------------------------------------------------------------

  3.2          The  corporate  by-laws  filed on December 3, 1999 in the Form
               10-QSB  10.1 Stock  Option Plan filed in the 10-QSB on May 17,
               2000.
 10.           Letter on change of accountant,  incorporated  by reference to
               Form 8/K filed on March 19, 2004 and on Form 8-K/A on April 7,
               2004
 21.1          Subsidiaries of Issuer as of December 31, 2003
 31.1          Certification of Chief Executive   Officer pursuant to Rule
               13a-14(a)/15d-14(a)
 32.1          Certification of Chief Executive Officer pursuant to Section 1350


(b) REPORTS ON FORM 8-K

1. Form 8-K dated December 2, 2003 relating to the  acquisition of San Francisco
Funding,  Inc. 2. Form 8-K dated December 24, 2003 relating to the rescission of
the acquisition of San Francisco Funding, Inc.

(a) Exhibits


31.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C.  Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(b) Reports on Form 8-K


A Form 8-K/A was filed on April 7, 2004,  reported in Items 4 pertaining  to the
Change in the Registrant's Certifying Accountants.


A Form 8-K was filed on May 20, 2004,  reported in Items 2 and 7  pertaining  to
the acquisition of Lendingtech.com, Inc. The agreement was amended to extend the
closing date until an audit of  Lendingtech,  com's  historical  financials were
provided.


A Form 8-K was filed on November 15, 2004,  reported in Section 5, Item 5.02 for
Departure  of  Directors  or   Principles   Officers;   Election  of  Directors;
Appointment of Principle Officers pertaining to the resignation of Al Golusin as
Chief Financial Officer, Chairman and Director of the Registrant.


A Form 8-K was filed on December 1, 2004, reported Section 1 Item 1.01 for Entry
into a Material Definitive Agreement. This pertains to the Debt Cancellation and
General Release Agreement signed by SRD Technologies.  Details can be referenced
in the Subsequent Events section.


                                       24
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Sallman, Yang & Alameda was the Company's independent auditor for the year ended
December 31, 2004 and reviewed the quarterly financial  statements for the first
three quarters during 2004 prepared by Epstein,  Webber.  Sallman Yang & Alameda
performed the services listed below and was paid the fees listed below.

AUDIT FEES

Silverado's   previous  auditors  Epstein,   Webber  billed  aggregate  fees  of
approximately  $9,300 for the review of the financial statements included in the
Company's  Quarterly Reports on Form 10-QSB for each of the three quarters ended
September 30, 2004.

Sallman,  Yang & Alameda billed the Company and  approximately  $17,000 for year
ended December 31, 2004 for professional  services rendered for the audit of the
Company's  annual  financial  statements and review of the financial  statements
included in the Company's Quarterly Reports on Form 10-QSB.

TAX FEES

Sallman,  Yang &  Alameda  anticipates  charging  the  Company  $4,000  for  the
preparation of the 2004 State and Federal corporate tax returns.

ALL OTHER FEES

Sallman,  Yang & Alameda  did not  provide  or bill for any  other  professional
services during the two years ended December 31, 2004.

SIGNATURES

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




                                                  SILVERADO FINANCIAL, INC.


Date: April 11, 2004           By /s/ John E. Hartman
                                  -------------------------------------------
                                     John E. Hartman, Chief Executive Officer


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




Date: April 11, 2004                  By /s/ John E. Hartman
                                         -----------------------------
                                             John E. Hartman, Chairman


                                       25
<PAGE>

                            Silverado Financial, Inc.

             Notes to Consolidated Financial Statements (continued)


Date: April 11, 2004                  By /s/ Sean Radetich
                                         -----------------------------
                                             Sean Radetich, Director


Date: April 11, 2004                  By /s/ R.G. Krushnisky
                                         -----------------------------
                                             R.G. Krushnisky, Director


                 SUBSIDIARIES OF ISSUER AS OF DECCMBER 31, 2004


The company has two operating subsidiaries. They are as follows:

Financial Software, Inc.:

Financial  Software,  Inc.  is  incorporated  under  the  laws of the  State  of
California.


Silverado Mortgage Corporation:

Silverado  Mortgage  Corporation is incorporated  under the laws of the State of
California.



                                       26