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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly period ended
 June 30, 2010
 Commission File No. 000-50764
 CapTerra Financial Group, Inc.
  Colorado
    
    20-0003432(State or other jurisdiction 
of incorporation)
    
    (IRS Employer File Number)1440 Blake Street, Suite 310
Denver, Colorado
    
    80202(Address of principal executive offices)
    
    (zip code)
   þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
  o þ




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FORM 10-Q
CapTerra Financial Group, Inc.  TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Unaudited Financial Statements for the period ended June 30, 2010Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis and Plan of Operation
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II OTHER INFORMATION
    
    
    18Item 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Changes in Securities
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits and Reports on Form 8-K
    
    
    22Signatures
    
    
    23Exhibit 21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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ITEM 1.
    
    FINANCIAL STATEMENTS
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June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)AssetsCash and equivalents
    
    $
    204,320
    
    
    $
    496,943Accounts receivable, net
    
    
    2,762
    
    
    
    16,992Notes receivable
    
    
    3,600,000
    
    
    
    3,604,646Property and equipment, net of accumulated depreciation
    
    
    4,302
    
    
    
    9,048Real estate held for sale
    
    
    7,191,821
    
    
    
    14,096,592Deposits and prepaids
    
    
    31,909
    
    
    
    53,253Total assets
    
    $
    11,035,114
    
    
    $
    18,277,474Liabilities and Shareholders DeficitLiabilities:Accounts payable
    
    $
    
    
    
    $
    77,860Accrued liabilities
    
    
    60,980
    
    
    
    94,035Senior subordinated revolving notes, related parties
    
    
    23,288,263
    
    
    
    22,614,259Notes payable
    
    
    3,966,716
    
    
    
    6,014,895Total liabilities
    
    
    27,315,959
    
    
    
    28,801,049Shareholders deficit:Common stock, $.001 par value; 50,000,000 shares authorized,
23,602,614 issued and outstanding
    
    
    23,603
    
    
    
    23,603Additional paid-in-capital
    
    
    16,326,386
    
    
    
    16,290,950Accumulated deficit
    
    
    (32,630,834
    )
    
    
    (26,838,128
    )Total shareholders deficit
    
    
    (16,280,845
    )
    
    
    (10,523,575
    )Total liabilities and shareholders deficit
    
    $
    11,035,114
    
    
    $
    18,277,474
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##### Table of Contents



For the quarters ended,
    
    
    For the six months ended,June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue:Sales
    
    $
    2,675,000
    
    
    $
    250,000
    
    
    $
    2,675,000
    
    
    $
    2,242,151Interest income  note receivable
    
    
    
    
    
    
    173,484
    
    
    
    
    
    
    
    301,465Rental income
    
    
    136,462
    
    
    
    92,621
    
    
    
    219,380
    
    
    
    190,644Total revenue
    
    
    2,811,462
    
    
    
    516,105
    
    
    
    2,894,380
    
    
    
    2,734,260Operating expenses:Cost of sales
    
    
    2,663,562
    
    
    
    256,754
    
    
    
    2,663,562
    
    
    
    2,223,776Impairment loss on real estate
    
    
    4,390,273
    
    
    
    
    
    
    
    4,390,273
    
    
    
    115,500Selling, general and administrative
    
    
    259,835
    
    
    
    446,586
    
    
    
    516,237
    
    
    
    1,019,145Total operating expenses
    
    
    7,313,670
    
    
    
    703,340
    
    
    
    7,570,072
    
    
    
    3,358,421Loss from operations
    
    
    (4,502,208
    )
    
    
    (187,235
    )
    
    
    (4,675,692
    )
    
    
    (624,161
    )Non-operating income/(expense):Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,675Interest expense
    
    
    (402,149
    )
    
    
    (387,344
    )
    
    
    (833,372
    )
    
    
    (768,424
    )Other income (expense)
    
    
    (227
    )
    
    
    
    
    
    
    16,358
    
    
    
    (9,627
    )Net loss
    
    $
    (4,904,584
    )
    
    $
    (574,579
    )
    
    $
    (5,492,706
    )
    
    $
    (1,413,887
    )Basic and diluted loss per common share
    
    $
    (0.21
    )
    
    $
    (0.02
    )
    
    $
    (0.23
    )
    
    $
    (0.06
    )Basic and diluted weighted average common shares outstanding
    
    
    23,602,614
    
    
    
    23,602,614
    
    
    
    23,602,614
    
    
    
    23,602,614
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For the six months endedJune 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (5,492,706
    )
    
    $
    (1,413,887
    )Adjustments to reconcile net loss to net cash used by operating activities:Depreciation and write-off of assets
    
    
    4,746
    
    
    
    23,706Impairment of real estate held for sale
    
    
    4,390,273
    
    
    
    115,500Accrued interest
    
    
    674,004
    
    
    
    Stock option compensation expense
    
    
    35,436
    
    
    
    Warrant expense
    
    
    
    
    
    
    16,156Changes in operating assets and operating liabilities:Real estate held for sale
    
    
    2,514,498
    
    
    
    1,071,290Accounts receivable
    
    
    14,230
    
    
    
    1,552Notes receivable
    
    
    4,646
    
    
    
    (380,540
    )Deposits and prepaids
    
    
    21,344
    
    
    
    16,769Accounts payable and accrued liabilities
    
    
    (110,915
    )
    
    
    (52,990
    )Net cash
provided by (used in) operating activities
    
    
    2,055,556
    
    
    
    (602,444
    )Cash flows from investing activities:Consolidation of an entity
    
    
    
    
    
    
    Net cash provided by investing activities
    
    
    
    
    
    
    Cash flows from financing activities:Proceeds from issuance of related party revolving notes
    
    
    
    
    
    
    1,665,181Repayment of notes payable
    
    
    (2,348,179
    )
    
    
    (1,270,514
    )Net cash (used in) provided by financing activities
    
    
    (2,348,179
    )
    
    
    394,667Net change in cash
    
    $
    (292,623
    )
    
    $
    (207,777
    )Cash and cash equivalents, beginning of the period
    
    $
    496,943
    
    
    $
    2,383,740Cash and cash equivalents, end of the period
    
    $
    204,320
    
    
    $
    2,175,963Supplemental disclosure of cash flow information:Cash paid during the quarter for:Income taxes
    
    $
    
    
    
    $
    Interest
    
    $
    96,071
    
    
    $
    Debt due to consolidation of a variable interest entityNotes payable
    
    $
    300,000
    
    
    $
    Accumulated deficit
    
    $
    300,000
    
    
    $
    
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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
    
    OwnershipAARD LECA LSS Lonestar, LLC
    
    
    100
    %AARD LECA VL1, LLC
    
    
    100
    %AARD-Charmar Greeley Firestone, LLC
    
    
    100
    %AARD-Econo Lube Stonegate, LLC
    
    
    100
    %AARD Esterra Mesa 1, LLC
    
    
    100
    %AARD-Cypress Sound, LLC
    
    
    100
    %CapTerra Fund I, LLC
    
    
    100
    %South Glen Eagles Drive, LLC
    
    
    51
    %Hwy 46 and Bluffton Pkwy, LLC
    
    
    51
    %Buckeye AZ, LLC
    
    
    51
    %Cypress Sound, LLC
    
    
    51
    %
  Revenue Recognition
   Use of Estimates
   7




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Fair Value of Financial Instruments
  Recent Accounting Pronouncements
   Critical Accounting Policies
     .
  8




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(2) Going Concern
    (3) Real Estate Held for Sale
  (4) Related Party Transactions
  GDBA
    
    
    BOCO
    
    
    TOTALSubordinated notes
    
    $
    8,046,066
    
    
    $
    14,231,900
    
    
    $
    22,277,966Accrued interest
    
    
    358,836
    
    
    
    651,460
    
    
    
    1,010,297Total senior subordinated
revolving notes
    
    $
    8,404,902
    
    
    $
    14,883,360
    
    
    $
    23,288,263
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GDBA Investments, LLC
     BOCO Investments, LLC
        (5) Shareholders Equity
 Preferred Stock
  Common Stock
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Stock Options
  (6) Notes Receivable
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(7) Income Taxes
  Deferred Tax AssetsImpairment of asset
    
    $
    6,000,000Net operating loss and carry-forwards
    
    
    5,662,000Allowance for Doubtful Accounts
    
    
    42,000Partnership income
    
    
    (119,000
    )Stock Compensation Expense
    
    
    104,000Origination Fee Income
    
    
    (85,000
    )Fixed Assets
    
    
    (24,000
    )Other temporary differences
    
    
    (67,000
    )11,513,000Valuation Allowance
    
    
    (11,513,000
    )Total net deferred tax assets
    
    $
    
   (8) Notes Payable
 United Western Bank Senior Credit Facility
    Cypress Sound
 st
  12




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(9) Impairment of Assets
    13




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
  Forward-Looking Statements
  Overview and History
         14




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Results of Operations
        15




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Liquidity and Capital Resources
       Recently Issued Accounting Pronouncements
    16




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Critical Accounting Policies
       .
        17




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
   Form 10-K
 
  
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
      
    
    our ability to find suitable real estate projects; and
    
    our ability to generate sufficient revenues from those projects.
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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.
      19




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
    
    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.
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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;
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
    
    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.
       
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS AND REPORTS ON FORM 8-K
 21
    
    
    List of Subsidiaries31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
 Reports on Form 8-K
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CAPTERRA FINANCIAL GROUP, INC.Dated: AUGUST 23, 2010
    
    By:
    
    /s/ James W Creamer III

James W Creamer IIIPresident & CEOCAPTERRA FINANCIAL GROUP, INC.Dated: AUGUST 23, 2010
    
    By:
    
    /s/ Joni K Troska

Joni K TroskaChief Financial Officer,
  23




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EXHIBIT INDEX
 21.
    
    
    List of Subsidiaries31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    
    Certification of Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 200232.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
  24