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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-50764
 CapTerra Financial Group, Inc.
  Colorado
    
    20-0003432(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1440 Blake Street, Suite 310 Denver, CO
    
    80202(Address of principal executive offices)
    
    (Zip Code)
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ
  23,602,614 shares
    
    As of November 9, 2009Common Stock, $0.01 par value




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##### 



FORM 10-Q
 CapTerra Financial Group, Inc.  TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements for the period ended September 30, 2009Consolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis and Plan of Operation
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II OTHER INFORMATION
    
    
    16Item 1. Legal Proceedings
    
    
    16Item 2. Changes in Securities
    
    
    20Item 3. Defaults Upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits and Reports on Form 8-K
    
    
    20Signatures
    
    
    21Exhibit 4.5Exhibit 21Exhibit 31.1Exhibit 32.1
   2




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September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)AssetsCash and equivalents
    
    $
    1,076,285
    
    
    $
    2,383,740Accounts receivable
    
    
    217,513
    
    
    
    218,357Notes receivable
    
    
    3,245,542
    
    
    
    2,343,732Property and equipment, net of accumulated depreciation
    
    
    12,350
    
    
    
    39,432Real estate held for sale
    
    
    16,146,238
    
    
    
    17,333,027Deposits and prepaids
    
    
    34,755
    
    
    
    52,436Total assets
    
    $
    20,732,683
    
    
    $
    22,370,724Liabilities and Shareholders DeficitLiabilitiesAccounts payable
    
    $
    
    
    
    $
    38,414Accrued liabilities
    
    
    87,401
    
    
    
    128,944Senior subordinated revolving notes, related parties
    
    
    22,281,511
    
    
    
    20,802,247Notes payable
    
    
    6,026,885
    
    
    
    7,330,652Total liabilities
    
    
    28,395,797
    
    
    
    28,300,257Shareholders deficitCommon stock, $.001 par value; 50,000,000 shares authorized, 23,602,614 shares
issued and outstanding
    
    
    23,603
    
    
    
    23,603Additional paid-in-capital
    
    
    16,265,527
    
    
    
    16,024,577Accumulated deficit
    
    
    (23,952,244
    )
    
    
    (21,977,713
    )Total shareholders deficit
    
    
    (7,663,114
    )
    
    
    (5,929,533
    )Total liabilities and shareholders deficit
    
    $
    20,732,683
    
    
    $
    22,370,724
   3




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For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:Sales
    
    $
    
    
    
    $
    3,171,409
    
    
    $
    2,242,151
    
    
    $
    4,381,723Interest income  note receivable
    
    
    191,709
    
    
    
    45,691
    
    
    
    493,174
    
    
    
    38,090Rental income
    
    
    130,729
    
    
    
    116,570
    
    
    
    321,373
    
    
    
    224,048Total revenue
    
    
    322,438
    
    
    
    3,333,670
    
    
    
    3,056,698
    
    
    
    4,643,861Operating expenses:Cost of sales
    
    
    
    
    
    
    2,954,748
    
    
    
    2,223,776
    
    
    
    4,118,748Impairment loss on real estate
    
    
    
    
    
    
    4,156,444
    
    
    
    115,500
    
    
    
    4,752,312Conversion expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,518,750Selling, general and administrative
    
    
    470,752
    
    
    
    579,167
    
    
    
    1,506,055
    
    
    
    1,943,805Total operating expenses
    
    
    470,752
    
    
    
    7,690,359
    
    
    
    3,845,331
    
    
    
    13,333,615Loss from operations
    
    
    (148,314
    )
    
    
    (4,356,689
    )
    
    
    (788,633
    )
    
    
    (8,689,754
    )Non-operating expense:Interest expense
    
    
    (413,771
    )
    
    
    (278,133
    )
    
    
    (1,182,194
    )
    
    
    (912,987
    )Other (expense)/income
    
    
    1,439
    
    
    
    931
    
    
    
    (3,703
    )
    
    
    9,394Loss before income taxes
    
    
    (560,646
    )
    
    
    (4,633,891
    )
    
    
    (1,974,530
    )
    
    
    (9,593,347
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (560,646
    )
    
    $
    (4,633,891
    )
    
    $
    (1,974,530
    )
    
    $
    (9,593,347
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154,675
    )Net loss available to common shareholders
    
    $
    (560,646
    )
    
    $
    (4,633,891
    )
    
    $
    (1,974,530
    )
    
    $
    (9,748,022
    )Basic and diluted loss per common share
    
    $
    (0.02
    )
    
    $
    (0.20
    )
    
    $
    (0.08
    )
    
    $
    (0.73
    )Basic and diluted weighted average common shares outstanding
    
    
    23,602,614
    
    
    
    23,602,614
    
    
    
    23,602,614
    
    
    
    13,328,519
   4




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For the nine months endedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (1,974,530
    )
    
    $
    (9,593,347
    )Adjustments to reconcile net income to net cash used by operating activities:Depreciation and write-off of assets
    
    
    27,082
    
    
    
    25,854Impairment of assets
    
    
    115,500
    
    
    
    4,752,312Conversion expense
    
    
    
    
    
    
    2,518,750Stock option compensation expense
    
    
    224,793
    
    
    
    43,570Warrant expense
    
    
    16,156
    
    
    
    Minority interest
    
    
    
    
    
    
    (4,594
    )Changes in operating assets and operating liabilities:Construction in progress
    
    
    
    
    
    
    107,504Real estate held for sale
    
    
    1,071,289
    
    
    
    (229,361
    )Land held for development
    
    
    
    
    
    
    (2,024,830
    )Accounts receivable
    
    
    844
    
    
    
    2,078,574Deposits and prepaids
    
    
    17,681
    
    
    
    12,840Accounts payable and accrued liabilities
    
    
    (79,957
    )
    
    
    (546,775
    )Unearned revenue
    
    
    
    
    
    
    (522,841
    )Net cash (used in) operating activities
    
    
    (581,142
    )
    
    
    (3,382,344
    )Cash flows from investing activities:Cash collections on notes receivable
    
    
    
    
    
    
    365,025Issuance of notes receivable
    
    
    (901,810
    )
    
    
    (131,437
    )Cash paid for property and equipment
    
    
    
    
    
    
    (11,397
    )Net cash
(used in)/provided by investing activities
    
    
    (901,810
    )
    
    
    222,191Cash flows from financing activities:Preferred stock dividends paid
    
    
    
    
    
    
    (78,187
    )Proceeds from issuance of related party loans
    
    
    3,100,106
    
    
    
    12,638,861Repayment of related party loans
    
    
    (1,620,842
    )
    
    
    (11,247,313
    )Proceeds from issuance of notes payable
    
    
    53,254
    
    
    
    3,016,292Repayment of notes payable
    
    
    (1,357,021
    )
    
    
    (2,424,072
    )Net cash provided by financing activities
    
    
    175,497
    
    
    
    1,905,581Net change in cash
    
    $
    (1,307,455
    )
    
    $
    (1,254,572
    )Cash and cash equivalents, beginning of the period
    
    $
    2,383,740
    
    
    $
    2,035,620Cash and cash equivalents, end of the period
    
    $
    1,076,285
    
    
    $
    781,048Supplemental disclosure of cash flow information:Cash paid during the year for:Income taxes
    
    $
    
    
    
    $
    Interest
    
    $
    
    
    
    $
    Supplemental disclosure of non-cash investing and financing activitiesConversion of related notes payable to common stock
    
    $
    
    
    
    $
    6,817,912
   5




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(1) Nature of Organization and Summary of Significant Accounting Policies
 Organization and Basis of Presentation
  Principles of Consolidation
  Name of Subsidiary Ownership
 Name of Subsidiary
    
    OwnershipSouth Glen Eagles Drive, LLC
    
    
    51
    %Hwy 46 and Bluffton Pkwy, LLC
    
    
    51
    %AARD LECA LSS Lonestar, LLC
    
    
    51
    %AARD LECA VL1, LLC
    
    
    51
    %AARD-Charmar Greeley, LLC
    
    
    51
    %AARD-Charmar Greeley Firestone, LLC
    
    
    51
    %AARD-Econo Lube Stonegate, LLC
    
    
    51
    %Buckeye AZ, LLC
    
    
    51
    %AARD-Cypress Sound, LLC
    
    
    51
    %AARD Esterra Mesa 1, LLC
    
    
    100
    %CapTerra Fund I, LLC
    
    
    100
    %
  Revenue Recognition
    6




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Use of Estimates
   Fair Value of Financial Instruments
  Recent Accounting Pronouncements
     (2) Going Concern
    7




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(3) Real Estate Held for Sale
   (4) Related Party Transactions
  GDBA
    
    
    BOCO
    
    
    TOTALSubordinated notes
    
    $
    7,821,005
    
    
    $
    13,800,670
    
    
    $
    21,621,675Accrued interest
    
    
    226,833
    
    
    
    433,003
    
    
    
    659,836.00Total senior subordinated revolving notes
    
    $
    8,047,838
    
    
    $
    14,233,673
    
    
    $
    22,281,511
 GDBA Investments, LLLP
     BOCO Investments, LLC
     8




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(5) Shareholders Equity
 Preferred Stock
  Common Stock
  Warrants
  Stock Options
  (6) Notes Receivable
   9




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(7) Income Taxes
  Deferred tax assets:Impairment of asset
    
    
    3,792,000Net operating loss and carry-forwards
    
    
    3,948,000Allowance for Doubtful Accounts
    
    
    305,000Partnership income
    
    
    130,000Origination Fee Income
    
    
    (84,000
    )Fixed Assets
    
    
    (4,000
    )Other temporary differences
    
    
    21,0008,108,000Valuation Allowance
    
    
    (8,108,000
    )Total net deferred tax assets
    
    
    
   (8) Notes Payable
 United Western Bank Senior Credit Facility
     10




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(9) Impairment of Assets
   (10) Subsequent Events
    11




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
  Forward-Looking Statements
  Overview and History
        12




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Results of Operations
          13




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Liquidity and Capital Resources
          Recently Issued Accounting Pronouncements
   14




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Seasonality
  Critical Accounting Policies
    
   
      15




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
    
    our ability to find suitable real estate projects; and
    
    our ability to generate sufficient revenues from those projects.
       16




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
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness if we do not maintain specified financial
ratios, thereby reducing the availability of our cash flow for other purposes;
or
    
    limit our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate, thereby placing us at a competitive
disadvantage compare to our competitors that may have less indebtedness.
     
    
    incur additional indebtedness;
    
    make capital expenditures and other investments above a certain level;
    
    merge, consolidate or dispose of our assets or the capital stock or assets of any subsidiary;
    
    pay dividends, make distributions or redeem capital stock in certain circumstances;
    
    enter into transactions with our affiliates;
    
    grant liens on our assets or the assets of our subsidiaries; and
    
    make or repay intercompany loans.
   17




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18




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
    
    actual or anticipated fluctuations in our operating results;
    
    change in financial estimates by securities analysts or our failure to perform in line with such estimates;
    
    changes in market valuations of other real estate oriented companies, particularly those that market
services such as ours;
    
    announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships,
joint ventures or capital commitments;
    
    introduction of technologies or product enhancements that reduce the need for our services;
    
    the loss of one or more key customers; and
    
    departures of key personnel.
      19




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Exhibits4.5
    
    
    Warrant dated September 23, 2009 for BOCO INVESTMENTS, LLC.21
    
    
    List of Subsidiaries31.1
    
    
    Certification of Chief Executive/Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a)32.1
    
    
    Certification of Chief Executive/Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 Reports on Form 8-K
   20




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CAPTERRA FINANCIAL GROUP, INC.Dated: November 13, 2009
    By:
    /s/ James W Creamer IIIJames W Creamer IIIPresident & CEOCAPTERRA FINANCIAL GROUP, INC.Dated: November 13, 2009
    By:
    /s/ Joni K TroskaJoni K TroskaChief Financial Officer,  21




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EXHIBIT INDEX
 Exhibit No.
    
    Description4.5
    
    
    Warrant dated September 23, 2009 for BOCO INVESTMENTS, LLC.21
    
    
    List of Subsidiaries31.1
    
    
    Certification of Chief Executive/Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a)32.1
    
    
    Certification of Chief Executive/Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  22