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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
 March 31, 2010
 Commission
File No. 000-50764
 CapTerra Financial Group, Inc.
  Colorado
    
    20-0003432(State or other jurisdiction
    
    (IRS Employer File Number)of incorporation)1440 Blake Street, Suite 310Denver, Colorado
    
    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(Do not check if a smaller reporting company)
 o þ
  o þ




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FORM 10-Q
CapTerra Financial Group, Inc.  TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATION
    
    
    3Item 1. Unaudited Financial Statements for the period ended March 31, 2010
    
    
    3Consolidated 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
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16PART II OTHER INFORMATION
    
    
    17Item 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 2. Changes in Securities
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6.
Exhibits and Reports on Form 8-K
    
    
    21Signatures
    
    
    22Exhibit 21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)AssetsCash and equivalents
    
    $
    220,769
    
    
    $
    496,943Accounts receivable, net
    
    
    1,013
    
    
    
    16,992Notes receivable
    
    
    3,600,000
    
    
    
    3,604,646Property and equipment, net of accumulated depreciation
    
    
    6,153
    
    
    
    9,048Real estate held for sale
    
    
    14,096,592
    
    
    
    14,096,592Deposits and prepaids
    
    
    35,012
    
    
    
    53,253Total assets
    
    $
    17,959,539
    
    
    $
    18,277,474Liabilities and Shareholders DeficitLiabilities:Accounts payable
    
    $
    59,664
    
    
    $
    77,860Accrued liabilities
    
    
    60,146
    
    
    
    94,035Senior subordinated revolving notes, related parties
    
    
    22,949,399
    
    
    
    22,614,259Notes payable
    
    
    5,984,309
    
    
    
    6,014,895Total liabilities
    
    
    29,053,518
    
    
    
    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
    
    
    16,308,668
    
    
    
    16,290,950Accumulated deficit
    
    
    (27,426,250
    )
    
    
    (26,838,128
    )Total shareholders deficit
    
    
    (11,093,979
    )
    
    
    (10,523,575
    )Total liabilities and shareholders deficit
    
    $
    17,959,539
    
    
    $
    18,277,474
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For the quarters ended,March 31,2010
    
    
    2009Revenue:Sales
    
    $
    
    
    
    $
    1,992,151Interest income  note receivable
    
    
    
    
    
    
    127,981Rental income
    
    
    82,918
    
    
    
    98,023Total revenue
    
    
    82,918
    
    
    
    2,218,155Operating expenses:Cost of sales
    
    
    
    
    
    
    1,967,022Impairment loss on real estate
    
    
    
    
    
    
    115,500Selling, general and administrative
    
    
    256,399
    
    
    
    572,559Total operating expenses
    
    
    256,399
    
    
    
    2,655,081Loss from operations
    
    
    (173,481
    )
    
    
    (436,926
    )Non-operating income/(expense):Interest income
    
    
    
    
    
    
    2,056Interest expense
    
    
    (431,224
    )
    
    
    (378,655
    )Other income(expense)
    
    
    16,583
    
    
    
    (25,783
    )Loss before income taxes
    
    
    (588,122
    )
    
    
    (839,308
    )Income tax provision
    
    
    
    
    
    
    Net loss available to common shareholders
    
    $
    (588,122
    )
    
    $
    (839,308
    )Basic and diluted loss per common share
    
    $
    (0.02
    )
    
    $
    (0.04
    )Basic and diluted weighted average common shares outstanding
    
    
    23,602,614
    
    
    
    23,602,614
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For
the quarters endedMarch 31,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (588,122
    )
    
    $
    (839,308
    )Adjustments to reconcile net loss to net cash used by operating activities:Depreciation and write-off of assets
    
    
    2,895
    
    
    
    20,330Impairment of real estate held for sale
    
    
    
    
    
    
    115,500Accrued interest
    
    
    335,140
    
    
    
    Stock option compensation expense
    
    
    17,718
    
    
    
    Warrant expense
    
    
    
    
    
    
    16,156Changes in operating assets and operating liabilities:Real estate held for sale
    
    
    
    
    
    
    841,507Accounts receivable
    
    
    15,979
    
    
    
    (208,124
    )Notes receivable
    
    
    4,646
    
    
    
    Deposits and prepaids
    
    
    18,241
    
    
    
    (2,418
    )Accounts payable and accrued liabilities
    
    
    (52,085
    )
    
    
    (52,890
    )Net cash (used in) operating activities
    
    
    (245,588
    )
    
    
    (109,247
    )Cash flows from financing activities:Repayment of related party revolving notes
    
    
    
    
    
    
    (1,251,636
    )Proceeds from issuance of notes payable
    
    
    
    
    
    
    1,311,794Repayment of notes payable
    
    
    (30,586
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (30,586
    )
    
    
    60,158Net change in cash
    
    $
    (276,174
    )
    
    $
    (49,089
    )Cash and cash equivalents, beginning of the period
    
    $
    496,943
    
    
    $
    2,383,740Cash and cash equivalents, end of the period
    
    $
    220,769
    
    
    $
    2,334,651Supplemental disclosure of cash flow information:Cash paid during the quarter for:Income taxes
    
    $
    
    
    
    $
    Interest
    
    $
    96,071
    
    
    $
    
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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
   Use of Estimates
   Fair Value of Financial Instruments
  Recent Accounting Pronouncements
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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
    
    
    238,476
    
    
    
    432,957
    
    
    
    671,433Total senior subordinated revolving notes
    
    $
    8,284,542
    
    
    $
    14,664,857
    
    
    $
    22,949,399
 GDBA Investments, LLC
     9




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BOCO Investments, LLC
        (5) Shareholders Equity
 Preferred Stock
  Common Stock
  Warrants
     10




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Stock Options
  (6) Notes Receivable
    11




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(7) Income Taxes
  Deferred Tax AssetsImpairment of asset
    
    $
    4,582,000Net operating loss and carry-forwards
    
    
    5,036,000Allowance for Doubtful Accounts
    
    
    42,000Partnership income
    
    
    (119,000
    )Stock Compensation Expense
    
    
    111,000Origination Fee Income
    
    
    (85,000
    )Fixed Assets
    
    
    (24,000
    )Other temporary differences
    
    
    (67,000
    )9,476,000Valuation Allowance
    
    
    (9,476,000
    )Total net deferred tax assets
    
    $
    
   (8) Notes Payable
 United Western Bank Senior Credit Facility
    (9) Impairment of Assets
    12




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Forward-Looking Statements
  Overview and History
         13




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Results of Operations
         14




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Liquidity and Capital Resources
       Recently Issued Accounting Pronouncements
   Critical Accounting Policies
    15




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.
       
   
      16




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
    
    our ability to find suitable real estate projects; and
    
    our ability to generate sufficient revenues from those projects.
       17




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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.
  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.
    20




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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: May 13, 2010
    By:
    /s/ James W Creamer IIIJames W Creamer IIIPresident & CEOCAPTERRA FINANCIAL GROUP, INC.Dated: May 13, 2010
    By:
    /s/ Joni K TroskaJoni K TroskaChief Financial Officer  22




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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
  23