SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------
        FORM 10-KSB Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                  For the Fiscal Year Ended September 30, 2006
                             ----------------------
                            BELLAVISTA CAPITAL, INC.
             (Exact Name of Registrant as Specified in its Charter)


             Maryland                                         94-3324992
 (State or other jurisdiction of                           (I.R.S. Employer
  incorporation or organization)                          Identification No.)

                          420 Florence Street Suite 200
                               Palo Alto, CA 94301
                         (Address of principal offices)

                                 (650) 328-3060
              (Registrant's telephone number, including area code)
                             ----------------------
             Securities registered under Section 12(b) of the Act:
                                      None

          Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, par value $0.01 per share
                                (Title of class)

    Indicate by check mark if the registrant is not required to file reports
             pursuant to Section 13 or Section 15(d) of the Act. Yes
                                   [ ] No [X]

     Indicate by check mark whether the registrant (1) has filed all reports
 required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
    1934 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 there is no disclosure of delinquent filers in response to Item
    405 of Regulation S-K contained in this form, and no disclosure will be
    contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
                   or any amendment to this Form 10-KSB. [ X]

      Indicate by check mark whether the registrant is a shell company (as
                  defined in Rule 12b-2 of the Exchange Act).
                                 Yes [ ] No [X]

      State issuer's revenues for its most recent fiscal year: $5,111,351.

   The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of a
                  specified date within the past 60 days: N/A.

    State the number of shares outstanding of each of the issuer's classes of
  common equity as of the latest practicable date: 14,266,108 Shares of Common
                                     Stock

          Transitional Small Business Disclosure Format: Yes [ ] No [X]

<PAGE>


This Annual Report on Form 10-KSB of BellaVista  Capital,  Inc. (the  "Company")
contains  forward-looking  statements.  All statements  other than statements of
historical  fact may be  forward-looking  statements.  These include  statements
regarding the Company's future financial results,  operating  results,  business
strategies,  projected  costs and capital  expenditures,  investment  portfolio,
competitive  positions,  and plans  and  objectives  of  management  for  future
operations.  Forward-looking  statements  may be  identified by the use of words
such as "may,"  "will,"  "should,"  "expect,"  "plan,"  anticipate,"  "believe,"
"estimate,"  "predict,"  "intend,"  "seek,"  "target"  and  "continue,"  or  the
negative  of these  terms,  and  include  the  assumptions  that  underlie  such
statements.  The Company's  actual  results could differ  materially  from those
expressed or implied in these forward-looking  statements as a result of various
risks and uncertainties,  including those set forth in the Financial  Statements
referred to under Item - 7 Financial Statements, at Footnote 1 under the caption
"Risk  Factors."  All  forward-looking  statements  in this  report are based on
information  available  to the  Company as of the date  hereof  and the  Company
assumes no obligation to update any such statements.

The  following  information  should be read in  conjunction  with the  Financial
Statements and notes thereto included in this Form 10-KSB.

                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS

Business Focus and Strategies

Organized  in 1999 as a real  estate  investment  trust or  "REIT," we invest in
residential real estate  development  projects.  We generally invest in for-sale
single-family  or  multi-family   projects,   typically  structured  as  secured
construction  loans,  secured  subordinated  loans,  mezzanine  loans, or equity
investments. We will also consider investments in commercial real estate We seek
to invest throughout California;  however, we have invested and will continue to
invest in neighboring states when presented with suitable  opportunities.  We do
not  engage  in any  foreign  operations  or derive  any  revenue  from  foreign
operations, and do not intend to do so in the future. Effective January 1, 2004,
we withdrew our REIT status and are now taxed as a C Corporation.

Most investments that we structure as loans are underwritten with maturity dates
of up to 24  months,  which  dates  may be  extended  when  deemed  to be in the
Company's best interest. Most investments are secured by recorded deeds of trust
on the property being developed,  and title insurance protecting the position of
our deeds of trust is always a  precondition  to funding a secured  loan. We may
also make unsecured loans to development  entities or take an ownership interest
in a development  entity.  In such  circumstances we typically  require a shared
appreciation  interest  or other  equity  participation.  We also may invest our
funds directly in real property,  if in the opinion of our Board of Directors it
is in our best interest.

All approved  investments are subject to detailed legal  documentation  that has
been  formulated by legal counsel for our specific  purposes.  In addition,  our
Board of Directors has implemented  specific  guidelines for the making of loans
and investments. In accordance with our loan documents, we generally advance the
monthly  interest  payments out of available  loan  proceeds,  although our loan
documents  provide  us with a right not to  advance  or to cease  such  payments
should it be determined  that  conditions  require such  actions.  Loan fees, if
charged,  are typically  advanced out of the loan proceeds with the initial loan
advance. Generally, our loans require the borrower to make a ``balloon payment''
equal to the  principal  advanced  as well as  advanced  interest  and fees upon
maturity of the loan.  The loan maturity date is the earlier of the date of sale
of the secured real estate or the date stated in the loan documents.

Company Management

Investment  Origination.   We  employ  persons  skilled  in  loan  underwriting,
disbursement and monitoring,  and the various business and legal issues that may
be  involved  with  real  estate  lending  and  investing.  Our  employees,  and
independent contractors where appropriate, provide all of the services including
but not limited to: underwriting loans and investments, overseeing all loans and
investments, and servicing loans. Our loans and investments are arranged through
our Chief Investment  Officer,  Eric Hanke.  Mr. Hanke is a licensed  California
real estate broker,  and performs in such capacity when  arranging  loans on our
behalf.

Proposed  investments are evaluated to determine  whether the investment is of a
type typically made by us, whether the developer has the experience necessary to

                                       2
<PAGE>

manage the project,  whether the collateral is sufficient to meet our investment
standards, and whether the investment meets criteria and objectives set forth by
the Board of Directors. The Board of Directors must approve any new investment.

Collateral  valuation.  We utilize the experience of our employees,  third party
appraisals or other information  deemed useful to make assessments of a proposed
project's viability and projected value in order to determine whether a proposed
investment meets our criteria. In the evaluation process,  emphasis is placed on
the ability of the underlying  collateral to protect against losses in the event
of default by the borrower.  The  evaluation  is based on the  projected  market
value of the proposed project,  using various tools,  including comparable sales
of similar properties and projections of market appeal and demand at completion.
The goal of the  underwriting  process  is to  achieve a comfort  level that the
projected  completion  value of the property will support full  repayment of the
investment plus the projected rate of return.  We typically  require third party
appraisals to support valuation.

Servicing.   Investment   servicing  involves  taking  all  steps  necessary  to
administer  the  investment,  including  monitoring  the  propriety  of  funding
requests,  monitoring  progress of a project and  accounting  for  principal and
income.  Where appropriate,  we employ an outside agent to monitor  construction
progress  and  draw  requests.  Loan  proceeds  are  disbursed  as  construction
progresses, and only after we have received satisfactory  documentation.  Before
making  disbursements  of loan  proceeds,  borrower  disbursement  requests  are
verified by invoices from the developer or its  subcontractors,  and by periodic
site inspections of progress.

Sales  of  construction  mortgage  loans.  We  plan to hold  mortgage  loans  to
maturity,  and have not embarked on selling loans in any secondary  market,  nor
are we aware that an efficient secondary market exists for the loans we hold. We
may,  however,  decide to sell assets from time to time for a number of reasons,
including,  without limitation: (1) to dispose of an asset for which credit risk
concerns have arisen;  (2) to reduce  interest rate risk; (3) or to re-structure
our balance sheet when our management deems it advisable. Our Board of Directors
has not adopted a policy that would restrict management's authority to determine
the timing of sales or the selection of mortgage loans to be sold.


ITEM 2. DESCRIPTION OF PROPERTY.

We own certain real  property  that we have acquired  through  foreclosure.  Our
policy  is to  maximize  the  value  of  these  foreclosed  properties  prior to
liquidation.  In some cases this may involve completing construction,  sometimes
through a subsidiary,  and then  marketing the property for sale. The properties
we  own  are  described  in  Note  5 to the  Consolidated  Financial  Statements
contained as Item 7 of the Form 10-KSB and begin on page FS-1.


ITEM 3. LEGAL PROCEEDINGS.

Legal proceedings are described in Note 11 to the financial  statements included
in the Form 10-KSB under Item 7, under the caption "Litigation."


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

No  matters  were  submitted  to a vote of our  shareholders  during  the fourth
quarter ending September 30, 2006


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.

There is currently no public trading market for our stock.  We are authorized to
issue up to 50,000,000 shares of Common Stock.  During the period from April 30,
1999 through  August 31, 2004 we sold  28,007,243  shares of Class A Convertible
Preferred Stock, including sales made through our dividend reinvestment program.
During this period of time we also repurchased 8,523,991 shares of our Preferred
Stock through our  redemption  programs.  We have also offered and sold Series A
and B promissory  notes of varying  amounts and  maturities.  All sales of stock
were made under exemption from the  registration  requirements of the Securities
Act of 1933  pursuant to  Regulation  D, Rule 506.  All sales of stock and notes
were to accredited investors, as defined in Regulation D, Rule 501 . Appropriate
legends were placed on each stock  certificate,  including a statement  that all
such shares are restricted  stock for purposes of the Securities Act of 1933. On
September 1, 2004 our outstanding shares of Preferred Stock totaling  19,483,252
shares,  converted to Common Stock in accordance with the terms of the Preferred
Stock.  At the time of conversion,  there were 100 shares of common stock issued
and  outstanding.  On  December  27,  2004 we  repurchased  1,179,184  shares in
connection  with a  legal  settlement.  On  March  1,  2005  we  repurchased  an

                                       3
<PAGE>

additional  3,312,843  shares of Common Stock under an issuer  tender offer at a
price of $3.62 per share. In June, 2005, October,  2005, and April 2006, a group
of entities  associated  with Mackenzie  Patterson  Fuller,  Inc.  (collectively
"MPF") made unsolicited  tender offers to purchase the Company's shares, in each
case for a price of $2.25 per share,  through which MPF acquired an aggregate of
1,233,809  shares. At September 30, 2006, there were 14,991,325 shares of Common
Stock,  issued  and  outstanding  held  by a total  of 901  holders  of  record.
Subsequent  to the  fiscal  year end,  MPF  commenced  another  tender  offer to
purchase up to 750,000  shares at a price of $1.75 per share.  In response,  the
Company commenced an issuer tender offer to repurchase up to 750,000 shares at a
price of $2.25 per share,  and purchased a total of 725,217 shares at that price
in November 2006.

The Company has not declared or paid any  dividends on its capital  stock during
the period from January 1, 2005 through the date of this report.

Securities Authorized for Issuance under Equity Compensation Plans

In May 2006, the Company  entered into  compensation  arrangements  with its two
executive  officers,  Michael Rider and Eric Hanke,  which  included  contingent
equity compensation. See Item 10 below. Set forth below is a table regarding all
shares authorized to be issued under Company equity compensation plans.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Plan category             Number of securities to be    Weighted-average exercise    Number of securities
                          issued upon exercise of       price of outstanding         remaining available for
                          outstanding options,          options, warrants and        future issuance under
                          warrants and rights           rights                       equity compensation
                                                                                     plans (excluding
                                                                                     securities reflected in
                                                                                     column (a))

                          (a)                           (b)                          (c)
--------------------------------------------------------------------------------------------------------------
  <S>                     <C>                            <C>                         <C>
Equity compensation        0                             N/A                          0
plans approved by
security holders

--------------------------------------------------------------------------------------------------------------
Equity compensation        0                             N/A                          141,176 Common Shares
plans not approved by
security holders

--------------------------------------------------------------------------------------------------------------
Total                      0                             N/A                          141,176 Common Shares

--------------------------------------------------------------------------------------------------------------
</TABLE>



ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

General

Statements  contained in this Item 6,  "Management's  Discussion and Analysis or
Plan of  Operation," ("MD&A") and elsewhere  in this Form  10-KSB, which are not
historical facts, may be forward-looking statements. Such statements are subject
to risks and uncertainties  that could cause actual results to differ materially
from those  projected.  Investors are cautioned not to attribute undue certainty
to these  forward-looking  statements,  which  speak only as of the date of this
Form 10-KSB.  We undertake no  obligation  to publicly  release any revisions to
these  forward-looking  statements to reflect events or circumstances  after the
date of this Form 10-KSB or to reflect the occurrence of  unanticipated  events,
other than as required by law.

Change in Year End

On November 7, 2005 the Company's  Board of Directors voted to change its fiscal
year end from  December 31 to September 30 and adopted  changes to the Company's
Bylaws  reflecting  this change.  In view of this change,  the MD&A compares the
consolidated  financial  statements  as of and for the year ended  September 30,
2006 with the  consolidated  financial  statements as of and for the nine months
ended  September 30, 2005 (the transition  period).  References to 2005 refer to


                                       4
<PAGE>

the  transition   period  unless   otherwise   specified.   Note  that  although
consolidated financial statements are not presented as of and for the year ended
September  30, 2005,  we have  included  summary  information  in MD&A for these
periods for comparability purposes.

Throughout the MD&A,  data for all periods  except for the year ended  September
30, 2005, are derived from our audited consolidated financial statements,  which
appear in this  report.  All data for the year ended  September  30,  2005,  are
derived from our  unaudited  consolidated  financial  statements,  which are not
presented herein.  Summary financial information for this period can be found in
Note 14 - Change in Fiscal Year End.

Overview

BellaVista  Capital was incorporated in March 1999 as Primecore  Mortgage Trust,
Inc. Since  incorporation  and through December 2000,  Primecore  engaged in the
business of providing  loans for the  development of primarily  high-end  single
family  residential  real  estate.  During  1999 and 2000  Primecore  raised the
capital to fund these  loans from the sale of shares of  Preferred  Stock.  This
capital was invested primarily in high priced San Francisco Bay Area residential
real estate at a time when prices were  increasing  at a rapid pace.  By the end
2000, Primecore had loan commitments of $436 million on 117 loans with over $216
million funded.

After 2000,  the market for high-end  real estate in the San  Francisco Bay Area
began to  deteriorate.  Primecore  significantly  scaled  back new  lending  and
concentrated  on  funding  the  existing  loans in its  portfolio.  During  2001
Primecore funded only 6 new loans and closed out 38. At the same time, Primecore
began to experience borrower defaults and sought to enforce its security rights.
During 2001, Primecore took title to 11 projects through foreclosure, which were
classified as Real Estate Owned (REO).  Of the 38 investments  closed in 2001, 2
were REO properties.

During 2002 and 2003 Primecore  continued the task of completing and closing out
the development properties in its portfolio. During 2002 and 2003 Primecore took
title to an additional 37  properties by way of  foreclosure  or deed in lieu of
foreclosure.  Two new loans  were  originated  during  that  period  and 60 were
closed,  30 of which were REO  properties.  Primecore  also  began to  recognize
significant  impairments in its portfolio.  For the two years ended December 31,
2003, Primecore charged $48,737,682 to expense for impairments in its investment
portfolio.  At that date the  portfolio  consisted of 11 loans,  7 of which were
non-performing, and 16 REO properties.

By the end of 2003 it was clear the company  needed new  direction.  On December
31,  2003 our  Board of  Directors  terminated  our  management  agreement  with
Primecore  Funding  Group  and  internalized  operations.   On  March  19,  2004
Primecore's CEO, Susan Fox,  resigned and Michael Rider, then CFO, was appointed
as the new CEO. Eric Hanke was named Vice President of Business  Development and
placed in charge of rebuilding the investment portfolio.

The impairment of the  investment  portfolio  resulted in substantial  operating
losses.  Management  realized that these net  operating  losses could be carried
forward and used to reduce future taxable  income.  In prior years,  the company
used its REIT status, and the payment of dividends, to eliminate corporate level
taxation.  However,  the REIT rules  restricted  the types of loans the  Company
could make. In  particular,  the Company was  prohibited  from making loans with
equity  participations.  With the  ability  to carry  forward  prior  years' net
operating  losses to offset  future  taxable  income,  the  Company  was free to
terminate its REIT status,  which it did effective  January 1, 2004,  and was no
longer restricted in the types of investments it could make. As of September 30,
2006 the Company's  available  Federal net  operating  loss  carryforwards  were
approximately $98.1 million. If these net operating loss carryforwards are fully
utilized to offset future  taxable  income,  at current  Federal and  California
state tax rates,  it would save the Company  approximately  $38.0 million in tax
payments.

In April  2004  Primecore  changed  its name to  BellaVista  Capital in order to
reflect its new business focus.  Messrs. Rider and Hanke worked closely with the
Board of Directors to develop a new  investment  strategy.  After  assessing the
failures  of  Primecore's  business  model,  new  management  and the  Board  of
Directors formalized a plan for future business operation.  The basic principles
of the plan are as follows:

     o    We  will  concentrate  on $1  million  to $6  million  investments  in
          residential and commercial real estate development;
     o    We will target a 15% average return on our portfolio of investments by
          blending lower yield,  more secure first trust deed  investments  with
          higher yield subordinated debt and equity investments;


                                       5
<PAGE>

     o    We will focus on  investments  covering a broad range of price points,
          but with a majority  of  investments  in housing  priced  close to the
          median sale prices for the areas in which we lend;
     o    We will diversify the portfolio into other geographic areas, primarily
          in California; and
     o    We have established a rigorous process for investment underwriting and
          approval designed to mitigate our risk.

During 2004 new management  focused on completing and  liquidating  the existing
portfolio  of assets,  internalizing  operations,  resolving  outstanding  legal
issues and developing a pipeline of new investment opportunities. In addition to
the completion and sale of our non-performing investments,  management completed
the  transition to internal  management  and  significantly  reduced  continuing
operating expenses.

In addition to liquidating the portfolio's  nonperforming assets, during 2004 we
began  making new  investments  with the  proceeds  supplied  by our  liquidated
nonperforming   investments.   Since  2004  we  have  approved  and  funded  new
investments totaling approximately $63.6 million. As of September 30, 2006 these
new, performing investments comprised  approximately 94% of our invested assets.
We seek to generate gross returns on invested assets of 15%. With these targeted
returns, we seek to generate returns to shareholders of approximately 12.5%, net
of our operating expenses.

RESULTS OF OPERATIONS

Revenue

For  financial  statement  purposes  we report  income  from our  joint  venture
investments in real estate  developments  and direct  investments in real estate
developments  only after we have  collected it from the sale or repayment of the
associated  investment.  We also have investments structured as loans receivable
secured by real estate which are accounted for as loans for financial  statement
reporting  purposes.  We  recognize  interest  income on these loans  receivable
secured  by real  estate as the  interest  accrues in  accordance  with our loan
agreements. During the year ended September 30, 2006 we reported income from all
of our  investments  in real estate of $4.9 million  compared  with $6.7 million
during the year ended  September  30, 2005.  The decrease in 2006  compared with
2005  was  primarily  due to the  repayment,  during  2005,  of a  single  large
investment which comprised nearly 25% of our invested assets.

New Investments

As of October 1, 2005 we had nine investments generated under our new investment
strategy in which we had invested $19.0 million. During the year ended September
30, 2006 we invested an  additional  $32.5  million into these  investments  and
received  repayments  totaling  $4.5 million,  exclusive of $1.4 million  income
reported, thereby increasing our total investment to approximately $47.0 million
at September 30, 2006. Each of these new  investments  provide us with the right
to receive  interest or a preferred  return of profits  which is calculated at a
rate based on the amount we have  invested.  The interest and  preferred  return
associated with these  investments  during the year ended September 30, 2006 was
approximately  $4.4  million.  This  represents  an annual  return of 13% on our
average  invested  capital  for  these new  investments  during  the year  ended
September 30, 2006.  See the discussion  about the net  realizable  value of our
investments in the Liquidity and Capital Resources section of this Item 6.

The Company  believes that the rules  governing the reporting of income from our
investments   make  it  difficult  for  readers  to   understand   our  economic
performance. Specifically, our investments typically take two years or longer to
complete and repay.  During this time the interest or preferred return we charge
to our  developers is not reported as income for financial  statement  purposes.
However,  during the same period that we are charging,  but not  reporting  this
income,  we are  incurring  expenses  necessary  to  originate  and  service our
investments and these expenses are reported during the period they are incurred.

The following table, using Non-GAAP measures, presents the results of operations
that would be reported if we reported the income we earned on our investments as
it accrues. For these purposes, proforma revenues from investment in real estate
development  include interest and preferred  returns we charge developers during
the  reporting  period  and the  prorated  amount of loan fees  charged  for the
reporting period over the contracted term of our investment. Proforma net income
(loss)  per share is  calculated  using the  weighted  average  number of shares
outstanding for both common and preferred shares.


                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                           Year Ended           Year Ended
                                                   September 30, 2006   September 30, 2005
                                                   ----------------------------------------
   <S>                                                        <C>                  <C>
Net income (loss) per GAAP, as reported                  $  3,066,438         $  2,749,727
Revenues from real estate development per GAAP             (4,887,836)          (6,690,872)
Proforma revenues from real estate development              4,565,716            1,926,128
                                                   ----------------------------------------

Proforma net income (loss) - Non GAAP                    $  2,744,318         $ (2,015,017)
                                                   ========================================

Proforma net income (loss) per share - Non GAAP          $      0. 18         $      (0.12)
                                                   ========================================
</TABLE>

Expenses

We group  our  operating  expenses  in  three  categories:  recurring  expenses;
nonrecurring  expenses and impairments.  Recurring  expenses are associated with
the ongoing operations of our new investment strategy. Nonrecurring expenses are
legal costs and carrying costs of real estate owned associated with our previous
management.  During the year ended  September 30, 2006 our  recurring  operating
expenses were  approximately  $1.3 million compared with $1.9 million during the
year ended  September 30, 2005. We  accomplished  these  reductions in recurring
operating  expenses  through staff  reductions,  reduced rent from new,  smaller
office space and reduced legal and accounting fees. As of September 30, 2006, we
have completed our cost cutting measures and optimized our staff for our current
operations.  We expect our recurring  operating  expenses during the fiscal year
ended September 30, 2007 to approximate our fiscal year 2006 results.

During the year ended  September 30, 2006 our  nonrecurring  operating  expenses
were approximately $0.8 million compared with $3.3 million during the year ended
September 30, 2005. The decrease in costs resulted from lower legal and carrying
costs of our real estate owned  portfolio  as we  continued  to liquidate  these
properties  during 2005 and 2006. In addition,  during December 2004 we incurred
approximately  $1.1  million  in  one-time  legal  costs in  order  to  settle a
shareholder lawsuit. We expect these costs to continue to decrease as the issues
and costs associated with our real estate owned has been largely resolved.

During the year ended September 30, 2006 we recorded impairment charges totaling
$0.9 million  compared  with $0.9 million  during the year ended  September  30,
2005,  reflecting  changes downward  totaling $575,000 in our estimates of value
and estimates upward of $500,000 in projected  construction costs for our direct
investments in real estate developments.  The changes in estimates,  both upward
and downward,  were based upon revised market information  available at the time
we prepared this Form 10-KSB.

Since December 31, 1999,  all interest costs have been  capitalized as a cost of
our  investments.  Interest cost  associated  with our  borrowings  was $724,367
during the year ended  September 30, 2006 compared with $387,232 during the year
ended  September 30, 2005. The increase for 2006 compared with 2005 was due to a
combination  of the  additional  debt we added as we drew down on a $22  million
construction  loan and the higher cost of interest on our  variable  rate loans.
During the six months ended  September  30, 2006 we used the proceeds from sales
of our direct  investments in real estate to retire both our  construction  loan
and our term loan,  so that,  as of  September  30, 2006 we had no secured  debt
outstanding.  See Note 7 to the Consolidated  Financial  Statements  included as
Item 7 of this Form 10-KSB.


LIQUIDITY AND CAPITAL RESOURCES

Liquidity means the need for,  access to and uses of cash. Our principal  source
of liquidity  is the  repayment of our real estate  investments.  Our  principal
demands for liquidity are funds that are required to satisfy  obligations  under
existing loan commitments,  operating expenses, interest expense associated with
our indebtedness and debt repayments.


Sources of Cash

As of September 30, 2006 our primary  source of liquidity was the  collection of
our  investments  in real  estate  and the  cash we had in the  bank.  We do not
currently t have any plan to sell our equity or debt securities.  However, we do
have the ability to borrow money from various financial  institutions  using our
real estate  investments as collateral if we determine  that we need  additional
liquidity.


                                       7
<PAGE>

We typically  receive repayment on our investments when the development has been
completed and sold to third parties.  Accordingly, our repayments are a function
of our developers'  ability,  or our ability in the case of REO  properties,  to
complete and sell the development  properties in which we have invested.  During
the year ended  September  30, 2006 we received  repayments,  including  income,
totaling  $46.8  million  compared  with  $51.0  million  during  the year ended
September 30, 2005. The following  table  summarizes our liquidity  expectations
based on current  information  regarding project completion and sales absorption
assumptions  for the 18  investments we held at September 30, 2006. The expected
proceeds in the table are higher than our net realizable value estimates because
they include our estimated costs to complete.


                                                  Expected Proceeds
                                            ------------------------
Scheduled investment completion:
   Year ended 9/30/07                                 $  45,996,254
   Year ended 9/30/08                                    28,683,663
   Year ended 9/30/09                                     2,250,000
                                            ------------------------

   Total                                              $  76,929,917
                                            ========================


It is possible  that our  repayments  may not be  sufficient  to timely meet our
commitments  and we may be forced to pledge our assets as collateral in order to
borrow the money or we may be forced to reduce prices on the properties  that we
control in order to expedite their  repayment at terms that may not be favorable
to us. In such cases,  the amount of proceeds  received  could be  substantially
less than what we would have  expected if we allowed a proper  marketing  period
for the  property.  This  would  have a  negative  impact on the  estimated  net
realizable value of our assets.


Uses of Cash

The  following  table  sets  forth  the  projected  timing  and  amount  of  our
obligations  through 2008,  without taking into account new investments that may
be made during future periods:


Obligation                              Total        Year Ended      Year Ended
                                                        9/30/07         9/30/08
---------------------------------------------- ----------------- ---------------

Investment fundings              $ 13,725,585     $  13,725,585       $      --
Office and equipment leases           132,540           110,640          21,900
                              ---------------- ----------------- ---------------

   Total                         $ 13,858,125     $  13,836,225       $  21,900
                              ================ ================= ===============

Investment  fundings  are the  largest  use of our cash.  During  the year ended
September 30, 2006 we invested $50.6 million in new and  continuing  development
projects compared with $37.2 million during the year ended September 30, 2005.

At September 30, 2006 we estimated the costs to complete our direct  investments
in real estate  developments plus the remaining funding  obligation on our joint
venture  investments in real estate  developments  was $13.7 million.  The exact
timing of the  investment  fundings is  dependent on several  factors  including
weather,  governmental regulation and developer related issues, so the timing of
investment  fundings  in the above  table is an  estimate  based on  information
available  to us at this  time.  Additionally,  we expect  the  amount of actual
investment  fundings to be higher than our obligation  existing at September 30,
2006 as we continue to make and fund new investments in future periods.

Stockholder Liquidity and Realizable Value of Investments

In the  past,  we  have  provided  liquidity  to our  stockholders  through  the
repurchase  of  outstanding  shares.  In  October  2005 the  Board of  Directors


                                       8
<PAGE>

announced the Company's  long-term  strategy to increase  shareholder  value and
transform  BellaVista  into an attractive  investment  for both new and existing
shareholders. The strategy involves a two-phased approach:

     o    In the medium term, the Company needs to demonstrate a track record of
          consistent share price increases, and
     o    In the longer term, the Company should  establish a regular program to
          provide  liquidity  through a combination of  distributions  and share
          redemption.

In order to establish a track record of consistent  share price  increases,  the
Company  determined  that it would be  necessary  to  reinvest  all  capital and
earnings for three years,  through December 2008 and, as a result,  Company does
not intend to use its funds to pay  dividends  or  distributions  or,  except in
certain extraordinary  circumstances,  to redeem shares, during this period. The
Company  believes  that  successfully  achieving  these  goals will  attract new
investors  and  create  access to other  capital  sources.  This will  allow the
Company to create a liquidity  program that provides regular  distributions  and
share redemptions. This liquidity will enhance the value for all shareholders.

In order to  track  the  Company's  progress  toward  its  goals,  the  Board of
Directors uses the net realizable value of the Company's assets.  The realizable
value of our assets represents our current estimate of the amount of proceeds we
expect to receive once our  investments  are completed  and ready for sale.  The
estimate  relies on a number of assumptions  including the expected value of the
investment once completed,  less applicable  selling costs,  the remaining costs
and the length of time  required to complete the project.  Many factors  outside
our control can cause changes in these estimates and produce different results.

The information  presented below reconciles the differences  between US GAAP and
the estimated realizable value of our investments.

<TABLE>
<CAPTION>
                                                              September 30,      September 30,
                                                                       2006               2005
                                                          ------------------ ------------------
   <S>                                                             <C>                <C>
Loans receivable secured by real estate
                                                               $ 13,846,500       $  6,575,000
Joint Venture investments in real estate developments            33,270,955         12,483,029
Direct investments in real estate developments                   11,691,620         34,041,268
                                                          ------------------ ------------------

Total investments in real estate per US GAAP                     58,809,075         53,099,297
Add:   GAAP impairments                                           1,492,052          4,817,726
       Accrued interest and points                                7,323,638         11,963,772
Less:  Capitalized interest                                        (337,266)        (1,347,238)
                                                          ------------------ ------------------
Balance owed on real estate investments                          67,287,499         68,533,557
Amount estimated uncollectible                                   (4,083,168)       (10,260,218)
                                                          ------------------ ------------------

Estimated realizable value of investments in real estate       $ 63,204,331      $  58,273,339
                                                          ================== ==================
</TABLE>


Net Realizable Value of Assets per Share

The following  calculation  determines the estimated net realizable value of our
stock at September 30, 2006 and 2005:

<TABLE>
<CAPTION>
                                                             September 30,      September 30,
                                                                      2006               2005
                                                          ----------------- ------------------
   <S>                                                             <C>                <C>
Cash                                                          $  3,006,024      $  14,436,243
Other assets                                                     1,135,881            214,435
Estimated realizable value of investments in real estate        63,204,331         58,273,339
                                                          ----------------- ------------------
Total realizable assets                                         67,346,236         72,924,017
Total liabilities                                               (1,650,694)        (9,931,709)
                                                          ----------------- ------------------

Estimated net realizable assets                                 65,695,542         62,992,308
Shares outstanding                                              14,991,325         14,991,325
                                                          ----------------- ------------------

   Estimated net realizable assets per share                    $     4.38         $     4.20
                                                          ================= ==================
</TABLE>

                                       9
<PAGE>

Our  estimated  realizable  value of  investments  in real estate  increased  at
September  30, 2006  compared  with  September  30, 2005 by  approximately  $5.0
million as we increased the net amount of our  investments  and accrued  income.
Additionally, our liabilities decreased by approximately $8.5 million as we used
the  proceeds  from the  repayment of our direct  investments  in real estate to
retire the  associated  secured debt used, in part, to finance the cost of their
improvements.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition or Plan of Operation
covers our financial  statements,  which have been  prepared in accordance  with
accounting  principles  generally accepted in the United States. The preparation
of  these  financial  statements  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and liabilities and the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. On an on-going basis,  management  evaluates its estimates and
judgments,   including  those  related  to  the  valuation  of  our  assets  and
liabilities.   Management  bases  its  estimates  and  judgments  on  historical
experience and on various other factors that are believed to be reasonable under
the  circumstances,  the  results of which  form the basis for making  judgments
about the  carrying  values  of  assets  and  liabilities  that are not  readily
apparent  from other  sources.  Actual  results may differ from these  estimates
under  different  assumptions or conditions.  Management  believes the following
critical  accounting  policies,   among  others,  affect  the  more  significant
judgments and estimates used in the  preparation of its  consolidated  financial
statements.

Valuation and Realizability of Investments.  All of our ADC loans are classified
for financial  reporting  purposes as joint venture  investments  in real estate
developments  (see Note 4 to the financial  statements).  We have  foreclosed on
some  ADC  loans  that are  classified  as  direct  investments  in real  estate
developments  (Note 5). Such investments  include  capitalized  interest and are
stated at the lower of cost or fair  value.  Management  conducts  a review  for
impairment on an  investment-by-investment  basis whenever  events or changes in
circumstances  indicate  that the carrying  amount of an  investment  may not be
recoverable.  Impairment is recognized when estimated expected future cash flows
(undiscounted  and  without  interest  charges),  typically  from  the sale of a
completed  property,  are less than the carrying amount of the investment,  plus
estimated costs to complete. The estimation of expected future net cash flows is
inherently  uncertain  and  relies  to  a  considerable  extent  on  assumptions
regarding  current and future  economics  and market  conditions.  If, in future
periods, there are changes in the estimates or assumptions incorporated into the
impairment  review  analysis,  the changes  could result in an adjustment to the
carrying amount of the investments.  To the extent that there is impairment, the
excess of the carrying  amount of the investment  over its estimated fair value,
less estimated  selling costs, will be charged to income. We believe that all of
our  investments  are  carried  at the  lower  of cost or  fair  value,  however
conditions  may change and cause our ADC loans and REO  properties to decline in
value in a future period.

Loan  Accounting.  We have  applied the guidance of AICPA  Practice  Bulletin 1,
Purpose and Scope of AcSEC Practice Bulletins and Procedures for Their Issuance,
Exhibit I in accounting  for our  investment  loans as real estate  acquisition,
development,  or  construction  (ADC)  arrangements.  In accordance with the ADC
accounting  rules,  we treat  these  loans as if they  were  real  estate  joint
ventures,  and thus we do not accrue  income for  interest and points on our ADC
loans until the sale or  refinancing  of a property.  Revenue from  interest and
points from these ADC loans is  recognized  as cash is received from the sale or
refinancing  of such  properties.  ADC loans  are  classified  as joint  venture
investments in real estate developments (see Note 4 to the financial statements)
and include amounts funded under the loan  agreements and  capitalized  interest
expense.  If our ADC loans  qualified  as loans under GAAP,  interest and points
would be  recognized  as income in periods  prior to the sale of the  underlying
property.

In addition to ADC loans, we have made direct equity  investments in real estate
joint  ventures.  These joint venture  investments are accounted for in the same
manner as our ADC loans and are classified as joint venture  investments in real
estate developments.

ITEM 7.  FINANCIAL STATEMENTS

Required  financial  statements and supplementary data are included in this Form
10-KSB commencing on page FS-1.

                                       10
<PAGE>

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

On September 1, 2005, the Company received the resignation of Grant Thornton LLP
("Grant Thornton") as its principal independent accountants.

Grant Thornton's report on the Company's financial statements for the year ended
December 31, 2004 did not contain an adverse  opinion or  disclaimer of opinion,
nor was it qualified or modified as to  uncertainty,  audit scope or  accounting
principles.  During the Company's  fiscal year ended  December 31, 2004, and the
subsequent  interim  periods  through  September  1,  2005,  the  date of  Grant
Thornton's  resignation,  there were no disagreements with Grant Thornton on any
matters of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which, if not resolved to the satisfaction of Grant
Thornton  would have caused it to make  reference  to the subject  matter of the
disagreement in connection with its report on the financial  statements for that
period,  nor have there  been any  "reportable  events"  as  defined  under Item
304(a)(1)(v) of Regulation S-K during such period,  nor do any of the conditions
described in Item 304(b)(1), (2) or (3) of Regulation S-K exist.

On November 15, 2005 the Company engaged Pohl,  McNabola,  Berg + Company as its
principal accountants.


ITEM 8A.  CONTROLS AND PROCEDURES

Management is responsible for  establishing  and maintaining  adequate  internal
control over financial  reporting and for the assessment of the effectiveness of
internal  control  over  financial  reporting.  As defined by the SEC,  internal
control  over  financial  reporting  is a  process  designed  by,  or under  the
supervision  of, the  Company's  principal  executive  and  principal  financial
officers and effected by the Company's board of directors,  management and other
personnel,   to  provide  reasonable  assurance  regarding  the  reliability  of
financial  reporting  and the  preparation  of financial  statement for external
purposes in accordance with generally accepted accounting principles.

The Company's internal control over financial  reporting is supported by written
policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable   detail,   accurately  and  fairly  reflect  the   transactions  and
dispositions  of the Company's  assets;  (2) provide  reasonable  assurance that
transactions  are  recorded as  necessary  to permit  preparation  of  financial
statements in accordance with generally accepted accounting  principles and that
receipts and  expenditures of the company are being made only in accordance with
authorizations  of the  Company's  management  and  directors;  and (3)  provide
reasonable  assurance  regarding  prevention or timely detection of unauthorized
acquisition,  use or  disposition  of the  Company's  assets  that  could have a
material effect on the financial statements.

Under the supervision of Michael Rider,  the Company's  Chief Executive  Officer
and Chief Financial  Officer,  we carried out an evaluation of the effectiveness
of the Company's  disclosure  controls and procedures (as defined in Rules 13a -
15(e) and 15d - 15(e) under the Securities Exchange Act of 1934) as of September
30, 2006. Based on that evaluation,  Mr. Rider has concluded that those controls
and procedures  were  effective in making known to them, on a timely basis,  the
material  information  needed for the preparation of this Report on Form 10-KSB.
There were no significant changes in the Company's internal controls or in other
factors that could  significantly  affect those internal controls since the date
of their evaluation.

A significant  deficiency is a control  deficiency,  or  combination  of control
deficiencies,   that  adversely  affects  the  company's  ability  to  initiate,
authorize,  record,  process,  or report  external  financial  data  reliably in
accordance with generally accepted accounting principles such that there is more
than a remote  likelihood that a misstatement of the company's annual or interim
financial  statements that is more than inconsequential will not be prevented or
detected.

Our auditors identified the following significant  deficiency in connection with
their  audit of the  2006 and 2005  Financial  Statements:  (i)  there  were not
sufficient  personnel in the  accounting  and finance  department.  Our auditors
determined  that  these  significant  deficiencies,  in  the  aggregate,  do not
constitute material weaknesses in the system of internal controls.

The  Company  believes  that  the  issue  raised  above  regarding  insufficient
personnel  resulted  from the need to downsize  staff as the Company  eliminated
underutilized  staff.  During  2007 the  Company  plans  to  engage  an  outside
consultant  to  assist  with  the  review  of  financial  transactions  and  the
preparation of financial statements.


                                       11
<PAGE>

ITEM 8B.  OTHER INFORMATION

None.


                                    PART III


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

Our Board of  Directors  consists of five  director  positions.  Our  directors,
executive  officers and senior officers and their  positions,  as of the date of
this filing, are:

   Name                               Position

 Michael Rider                        Chief Executive Officer, Chief Financial
                                         Officer and Director
 William Offenberg                    Chairman
 Robert Puette                        Director
 Jeffrey Black                        Director
 Patricia Wolf                        Director
 Eric Hanke                           Vice President, Business Development

     The business  background  and  experience  of our  directors  and executive
officers is as follows:

     Michael Rider, age 44, is a co-founder,  director,  Chief Executive Officer
and Chief  Financial  Officer of the  Company.  Mr.  Rider's term of office as a
director expires in 2008. Mr. Rider was controller, then Chief Financial Officer
for The Plymouth Group and its successor,  TPG  Development  Corporation,  a San
Francisco Bay Area real estate  development  company from 1991 until 1998.  From
1986 to 1990 Mr. Rider was senior accountant with Kenneth Leventhal & Company, a
national  public  accounting  firm  specializing  in real estate  accounting and
advisory  services.  Mr. Rider is a certified public  accountant and a member of
the Urban Land Institute. Mr. Rider received a B.A. degree in Economics/Business
from the University of California Los Angeles.

     William Offenberg,  age 53, has been a member of the Board since July 2005.
Prior to joining the Board,  Mr.  Offenberg  acted as a consultant  to the Board
since July 2004.  From 1998 to 2005, Mr.  Offenberg was an Operating  Partner at
Morgenthaler Partners, a $2 billion private equity firm, where he specialized in
recapitalizations  and leveraged buyouts.  In his capacity as Operating Partner,
Mr.  Offenberg  has  served in a variety of  executive  and board  positions  at
various Morgenthaler  portfolio companies.  Between 1993 and 1997, Mr. Offenberg
was President and Chief Executive Officer of Gatan International, a developer of
scientific instrumentation.  Prior to joining Gatan, Mr. Offenberg was President
of  Spectra-Physics  Analytical  from 1986 to 1993.  Between 1977 and 1986,  Mr.
Offenberg held various management positions at Perkin-Elmer's  Instrument Group.
Mr. Offenberg began his career as a chemist at Atlantic Richfield. Mr. Offenberg
has degree in Chemistry from Bowdoin College and did graduate work in analytical
chemistry at Indiana University.

     Robert Puette, age 64, is the President of Puette Capital Management, Inc.,
an  investment  and  consulting  company that he founded in 2005.  He has been a
member of the  BellaVista  Board  since March 1, 2002.  Prior to such time,  Mr.
Puette served as an advisory director to the Company. Between 2001 and 2004, Mr.
Puette was a partner at the WK Technology venture capital firm. Between 1997 and
2000, Mr. Puette was the President,  Chief Executive Officer,  and member of the
Board  of  Directors  of  Centigram   Communications   Corporation  (NASDAQ),  a
communications technology firm. Prior to his position at Centigram, from 1995 to
1997, Mr. Puette served as President, CEO and Chairman of the Board of Directors
at NetFRAME Systems (NASDAQ),  a high-availability  computer server company, and
from  1990 to  1993,  Mr.  Puette  served  as  President  of  Apple  USA,  Apple
Corporation  (NASDAQ).  Prior to 1990,  Mr.  Puette  served  as a Group  General
Manager of Hewlett-Packard  Corporation (NYSE). Mr. Puette is also on the Boards
of  Cupertino  Electric  Corporation  (Private),  iPolicy  Networks  Corporation
(Private),  Bentek Corporation (Private),  Fat Spaniel Corporation (Private) and
Aether Wire Corporation (Private). He is also a former director of Cisco Systems
(NASDAQ). Mr. Puette holds a BSEE degree from Northwestern University and a MSOR
degree from Stanford University.

     Jeffrey  Black,  age 52, is a Senior Vice  President in the Silicon  Valley
office of Grubb & Ellis,  a national  real estate  company,  where he has worked

                                       12
<PAGE>

since  1977.  In his 30 years as a real estate  broker,  he has  concluded  real
estate transactions in excess of $1 billion.  Notable clients that Mr. Black has
represented include eBay, Altera, Amdahl, AT&T, Exxon Corporation, Marriott, TRW
Corporation,  VLSI  Technology,  Steelcase,  Advanced  Micro Devices and Ernst &
Young.  He has been  named one of the Top 10 Brokers  Nationwide  (Grubb & Ellis
2003); No. 4 Broker in Silicon Valley (San Jose Business Journal 2003); the Hall
of Fame Award  (Association  of Silicon Valley  Brokers  1997).  Mr. Black has a
Bachelor's  of Science and  Commerce  degree in Finance from the  University  of
Santa Clara.

     Patricia  Wolf,  age 60, is  currently  Chair of the Board of Trustees  for
Ottawa  University  where she focuses on strategic  planning  issues.  From 1986
until 2002 she was  employed by  Management  Technology  America,  the  computer
software  company  she  founded  in 1986.  In 1999,  Ms.  Wolf  sold  Management
Technology  America to a company listed on the NYSE. During the period from 1999
to 2002 she continued her employment with  Management  Technology  America.  Ms.
Wolf holds a Bachelor's degree in Business  Administration and a Master's degree
in Management, both from Ottawa University.

     Eric  Hanke,  37,  is the  Vice  President  of  Business  Development.  His
activities  include  overseeing the origination of new investment  opportunities
and capital  raising  activities,  marketing  and investor  relations.  Prior to
joining  Primecore,  Mr. Hanke was an  investment-banking  associate with Arthur
Andersen's  Real  Estate  Capital  Markets  Group  based  in San  Francisco  and
Washington  D.C.  He is a member of the Urban Land  Institute  and is a licensed
real estate  broker.  Mr. Hanke earned his B.A. in economics from the University
of  California at Irvine and a MBA, with an emphasis in real estate and finance,
from the Marshall School of Business at the University of Southern California.

Terms of Directors and Officers

Our Board of  Directors  consists  of the number of persons as shall be fixed by
the Board of Directors  from time to time by resolution to be divided into three
classes,  designated  Class I, Class II and Class III,  with each class to be as
nearly  equal in number  of  directors  as  possible.  Currently  there are five
director positions.  Mr. Puette is a Class I director and his term expires as of
the annual meeting of shareholders  for the fiscal year ended in 2006. Mr. Black
and Ms. Wolf are Class II directors and their terms expire as of the meeting for
the  fiscal  year  ended in 2007.  Mr.  Rider  and Mr.  Offenberg  are Class III
directors, and their terms expire as of the meeting for the fiscal year ended in
2008. At each annual  meeting,  the  successors to the class of directors  whose
term  expires at that time are to be elected to hold  office for a term of three
years, and until their successors are elected and qualified, so that the term of
one class of directors  expires at each annual  meeting.  The full Board acts to
nominate candidates for the Board, as there is no separate nominating committee.
There  have  been no  changes  during  the year  covered  by this  report in the
procedures for nomination or by which shareholders may recommend nominees to the
Board.

For any vacancy on the Board of  Directors,  including  a vacancy  created by an
increase  in the number of  directors,  the vacancy may be filled by election of
the Board of  Directors  or the  shareholders,  with the  director so elected to
serve until the next annual meeting of shareholders,  if elected by the Board of
Directors,  or for the remainder of the term of the director being replaced,  if
elected by the  shareholders;  any  newly-created  directorships or decreases in
directorships  are to be  assigned by the Board of  Directors  so as to make all
classes as nearly equal in number as possible. Directors may be removed only for
cause  and then  only by vote of a  majority  of the  combined  voting  power of
shareholders  entitled to vote in the  election  for  directors.  Subject to the
voting  rights of the  holders of the stock,  the  charter may be amended by the
vote of a majority of the combined voting power of  shareholders,  provided that
amendments  to the article  dealing with  directors may only be amended if it is
advised by at least two-thirds of the Board of Directors and approved by vote of
at least two-thirds of the combined voting power of shareholders.  The effect of
these as well as other  provisions  of our  charter  and bylaws  may  discourage
takeover  attempts and make more difficult  attempts by  shareholders  to change
management.

Executive officers are appointed by the Board of Directors, serve at the Board's
pleasure and may be removed from office at any time without cause.  There are no
family relationships among any of our directors or executive officers.

Audit Committee

The Company has no separate audit committee.  The Board of Directors acts as the
audit committee for all purposes  relating to  communications  with the auditors
and  responsibility  for  oversight of the audit.  The Board of Directors has an
independent member financial expert,  Robert Puette, who has financial expertise
gained as an executive of and former audit  committee  member of public  company
Board of Directors.


                                       13
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

Based  solely  on a review  of  copies  of the  Forms 3, 4 and 5 and  amendments
thereto  furnished to the Company with  respect to the  transition  period ended
2005, or written  representations that no such reports were required to be filed
with the Securities and Exchange  Commission,  the Company believes that, during
2006,  all directors and officers of the Company and  beneficial  owners of more
than 10% of any class of equity securities of the Company registered pursuant to
Section  12 of the  Exchange  Act  filed  their  required  Forms  3, 4, or 5, as
required by Section 16(a) of the Securities Exchange Act of 1934, as amended.

Code of Ethics

The  Company  has  adopted a Code of Ethics  applicable  to the Chief  Executive
Officer,  the Chief Financial Officer, and the principal accounting officer. The
Company's Code of Ethics is set forth as Exhibit 14.1 to this report.


ITEM 10.     EXECUTIVE COMPENSATION.

Compensation of Officers

<TABLE>
<CAPTION>
Summary Compensation Table
------------- -------- ---------- -------- --------- ---------- -------------- ------------- ---------- ----------
Name          Year     Salary     Bonus    Stock     Option     Non-           Nonqualified  All        Total
and                    ($)        ($)      Awards    Awards     Equity         Deferred      Other      ($)
Principal                                  ($)       ($)        Incentive      Compensa-     Compen-
Position                                                        Plan           tion          sation
                                                                Compensation   Earnings      ($)
                                                                ($)            ($)
------------- -------- ---------- -------- --------- ---------- -------------- ------------- ---------- ----------
 <S>            <C>        <C>       <C>      <C>        <C>        <C>            <C>        <C>       <C>
Michael       2006     $250,000   $19,397   0         0          0              0             0         $269,397
Rider,
Chief
Executive
Officer,      -------- ---------- -------- --------- ---------- -------------- ------------- ---------- ----------
Director      2005     $235,096    0        0         0          0              0             0         $235,096




------------- -------- ---------- -------- --------- ---------- -------------- ------------- ---------- ----------
Eric          2006     $159,519   $70,000   0         0          0              0             0         $229,519
Hanke,
Vice
President,
Secretary     -------- ---------- -------- --------- ---------- -------------- ------------- ---------- ----------
              2005     $123,750    0        0         0          0              0             0         $123,750


------------- -------- ---------- -------- --------- ---------- -------------- ------------- ---------- ----------
</TABLE>


On May 22, 2006,  the Company  entered into a 2006  Compensation  Agreement with
each of Michael Rider and Eric Hanke.

Mr.  Rider's  agreement  provides  for base  salary of  $250,000  per annum.  It
provides  for an annual  bonus of up to $50,000  which is scaled and  contingent
based on performance  criteria,  including (i) scaled  increases in a measure of
the Company's net realizable  value of its assets during the calendar year 2006,
(ii) achieving goals in control of operating expenditures, and (iii) liquidating
the company's REO  portfolio;  plus an additional  bonus of up to $25,000 in the
sole discretion of the Board in the event all performance  targets are exceeded.
The agreement also provides for deferred equity compensation,  in the form of up
to 70,588  shares of the  registrant's  common  stock,  to be  granted  based on
increases in a measure of the  registrant's  net realizable  value of its assets
over the three  calendar year period ending  December 31, 2008. All or a portion
of the  shares  will  vest  on that  date in an  amount  scaled  and  determined
according  to  benchmark  values,   with  all  of  the  shares  vesting  if  the
registrant's net realizable  value of its assets,  as calculated for purposes of
its periodic  reports,  has  increased to $6.12 per share at that date.  If such


                                       14
<PAGE>

value is in excess of $6.12 per share at that date, then  additional  shares may
be granted in the  discretion  of the Board.  The  agreement  also  provides for
determination of these bonus  compensation items upon termination of Mr. Rider's
employment by the registrant with cause,  termination without cause or voluntary
termination by Mr. Rider.

Mr.  Hanke's  agreement  provides  for base  salary of  $150,000  per annum.  It
provides  for an annual  bonus of up to $50,000  which is scaled and  contingent
based on performance  criteria,  including (i) scaled  increases in a measure of
the  registrant's  net  realizable  value of its assets during the calendar year
2006, (ii) achieving goals in control of operating  expenditures,  and (iii) and
assessment of management of the registrant's loan portfolio during the year. The
agreement also provides for deferred  compensation,  in the form of up to 70,588
shares of the  registrant's  common stock to be granted  based on increases in a
measure of the  registrant's  net realizable  value of its assets over the three
calendar  year period ending  December 31, 2008.  All or a portion of the shares
will vest on that date in an amount scaled and determined according to benchmark
values,  with all of the shares vesting if the registrant's net realizable value
of its assets, as calculated for purposes of its periodic reports, has increased
to $6.12 per share at that  date.  If such value is in excess of $6.12 per share
at that date,  then  additional  shares may be granted in the  discretion of the
Board. The agreement also provides for determination of these bonus compensation
items upon  termination of Mr. Hanke's  employment by the registrant with cause,
termination without cause or voluntary termination by Mr. Hanke.

The terms of employment  contracts between the Company and each of Mr. Rider and
Mr. Hanke are set forth in Exhibits 10.1 and 10.2, respectively, to this report.

<TABLE>
<CAPTION>
Outstanding Equity Awards At Fiscal Year-End
------------ ------------- -------------- ------------- --------- ----------- ---------- ----------- ------------ ---------------
Name         Number        Number         Equity        Option    Option      Number     Market      Equity       Equity
             of            of             Incentive     Exercise  Expiration  of Shares  Value of    Incentive    Incentive
             Securities    Securities     Plan          Price     Date        or Units   Shares or   Plan         Plan
             Underlying    Underlying     Awards;       ($)                   of Stock   Units of    Awards;      Awards;
             Unexercised   Unexercised    Number                              That Have  Stock       Number       Market or
             Options       Options        of                                  Not        That Have   of           Payout
             (#)           (#)            Securities                          Vested     Not         Unearned     Value
             Exercisable   Unexercisable  Underlying                          (#)        Vested      Shares,      Of
                                          Unexercised                                    ($)         Units or     Unearned
                                          Unearned                                                   Other        Shares,
                                          Options                                                    Rights       Units or
                                          (#)                                                        That Have    Other
                                                                                                     Not          Rights
                                                                                                     Vested       That Have
                                                                                                     (#)          Not
                                                                                                                  Vested
                                                                                                                  ($)
------------ ------------- -------------- ------------- --------- ----------- ---------- ----------- ------------ ---------------
 <S>               <C>           <C>           <C>          <C>        <C>        <C>        <C>         <C>           <C>
Michael                                                                                              70,588       $431,998.56(1)
Rider

------------ ------------- -------------- ------------- --------- ----------- ---------- ----------- ------------ ---------------
Eric                                                                                                 70,588       $431,998.56(1)
Hanke

------------ ------------- -------------- ------------- --------- ----------- ---------- ----------- ------------ ---------------
<FN>
     (1) Payout Value is not calculated  based on any current  market value,  as
     payout  will be  earned  only  if a  specified  estimated  share  value  is
     achieved.  Accordingly, the Company has estimated the Payout Value based on
     the earn out criterion of $6.12 per share.
</FN>
</TABLE>






                                       15
<PAGE>


<TABLE>
<CAPTION>
Compensation of Directors
--------------- ------------ ------------- ------------ --------------- -------------- -------------- -------------
Name               Fees         Stock        Option       Non-Equity     Nonqualified     All Other       Total
                  Earned        Awards       Awards     Incentive Plan     Deferred     Compensation       ($)
                    Or           ($)           ($)       Compensation    Compensation        ($)
                  Paid in                                    ($)           Earnings
                   Cash                                                       ($)
                    ($)
--------------- ------------ ------------- ------------ --------------- -------------- -------------- -------------
 <S>               <C>          <C>           <C>            <C>             <C>             <C>           <C>
William         $21,750        0             0            0               0              0            $21,750
Offenberg

--------------- ------------ ------------- ------------ --------------- -------------- -------------- -------------
Robert           35,420         0             0            0               0              0            35,420
Puette

--------------- ------------ ------------- ------------ --------------- -------------- -------------- -------------
Patricia         35,960         0             0            0               0              0            35,960
Wolf

--------------- ------------ ------------- ------------ --------------- -------------- -------------- -------------
Jeffrey          35,960         0             0            0               0              0            35,960
Black

--------------- ------------ ------------- ------------ --------------- -------------- -------------- -------------
</TABLE>


None of the  directors  of the Company who also serve as  executive  officers or
employees  receives  any  separate  compensation  for  service  on our  Board of
Directors or on any Board  committee.  As Chairman of the Board,  Mr.  Offenberg
receives annual compensation  totaling $30,000 while Messrs.  Puette,  Black and
Ms. Wolf receive  $25,000  each for their  participation  in our standard  board
meetings.  All directors  independent of management are also compensated  $1,000
for every  special  board  meeting  they  attend.  Our charter  obligates  us to
indemnify our  directors and officers and to pay or reimburse  expenses for such
individuals  in advance of the final  disposition of a proceeding to the maximum
extent  permitted  from  time to time by  Maryland  law.  The  Maryland  General
Corporation  Law, the "Maryland  GCL'',  permits a corporation  to indemnify its
present and former  directors and officers,  among  others,  against  judgments,
penalties,  fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other  capacities,  unless it is established  that (a)
the act or omission of the director or officer was material to the matter giving
rise to the proceeding  and (1) was committed in bad faith,  or (2) was a result
of active and  deliberate  dishonesty,  (b) the  director  or  officer  actually
received an improper personal benefit in money,  property or services, or (c) in
the case of any  criminal  proceeding,  the  director or officer had  reasonable
cause to believe that the act or omission was unlawful.

















                                       16
<PAGE>

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The following table presents  information  regarding the beneficial ownership of
the only known  beneficial  owners of in excess of 5% of our outstanding  common
shares.

Security Ownership of Certain Beneficial Owners

                                                            Number      Percent
Title of Class    Name and Address of Beneficial Owner    of Shares     of Class
                                                        ------------ -----------

Common Stock      MacKenzie Patterson Fuller, LLC          1,233,809      8.23
                  1640 School Street
                  Moraga, California 94556

                                                        ------------ -----------

                    Total                                 1,233,809       8.23
                                                        ============ ===========



The following table presents  information  regarding the beneficial ownership of
our capital  stock as of September  30, 2006 of: (1) each of our  directors  and
executive  officers;  and (2) all of our directors  and executive  officers as a
group.  As of the  date of this  report,  MacKenzie,  Patterson,  Fuller,  Inc.,
holding  1,233,809  shares,  is the only person known by us to own  beneficially
five  percent  or  more  of our  outstanding  capital  stock.  Unless  otherwise
indicated in the footnotes to the table,  the  beneficial  owners named have, to
our  knowledge,  sole  voting and  investment  power with  respect to the shares
beneficially owned, subject to community property laws where applicable.


                                                            Number      Percent
Title of Class     Beneficial Owner                       of Shares     of Class
                                                        ------------ -----------

Common Stock       Robert Puette                            405,241       2.70
                   Jeffrey Black                            267,341       1.78
                   Patricia Wolf                            167,030       1.11
                   William Offenberg                        107,404       0.72
                   Michael Rider                             12,164          *
                   Eric Hanke                                 2,170          *
                                                        ------------ -----------
                    Total                                   961,350       6.41
                                                        ============ ===========

  * Less than one percent of our outstanding capital stock.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Of the five current  members of the Board,  Michael Rider,  as an officer of the
Company,  cannot be considered an independent director, and all other members of
the Board are  considered  independent,  as that term is defined  under New York
Stock Exchange Rule Section 303A, the NYSE's Corporate  Governance Rules.  Under
those  Rules,  no  director  qualifies  as  "independent"  unless  the  Board of
Directors   affirmatively   determines   that  the   director  has  no  material
relationship  with the Company (either directly or as a partner,  shareholder or
officer of an organization that has a relationship  with the Company).  Material
relationships can include commercial,  industrial,  banking, consulting,  legal,
accounting, charitable and familial relationships, among others. However, as the
concern is  independence  from  management,  the NYSE does not view ownership of
even a  significant  amount of stock,  by  itself,  as a bar to an  independence
finding. Accordingly,  while Mssrs. Offenberg, Puette and Black and Ms. Wolf own


                                       17
<PAGE>

shares of the Company's common stock,  the Board views these  directors/nominees
as independent under these standards. In addition, a director is not independent
under the NYSE Rules if: (i) the  director is, or has been within the last three
years, an employee of the Company, or an immediate family member is, or has been
within the last three years,  an  executive  officer,  of the Company;  (ii) the
director has  received,  or has an  immediate  family  member who has  received,
during any twelve-month  period within the last three years,  more than $100,000
in  direct  compensation  from the  listed  company,  other  than  director  and
committee  fees and pension or other forms of  deferred  compensation  for prior
service  (provided such  compensation  is not contingent in any way on continued
service;  (iii) (A) the  director  or an  immediate  family  member is a current
partner of a firm that is the Company's  internal or external  auditor;  (B) the
director is a current employee of such a firm; (C) the director has an immediate
family member who is a current  employee of such a firm and who  participates in
the firm's audit,  assurance or tax compliance (but not tax planning)  practice;
or (D) the  director  or an  immediate  family  member was within the last three
years  (but is no longer) a partner or  employee  of such a firm and  personally
worked  on the  Company's  audit  within  that  time;  (iv) the  director  or an
immediate family member is, or has been within the last three years, employed as
an  executive  officer of another  company  where any of the  Company's  present
executive  officers  at the  same  time  serves  or  served  on  that  company's
compensation  committee;  or (v)  the  director  is a  current  employee,  or an
immediate family member is a current  executive  officer,  of a company that has
made  payments  to, or received  payments  from,  the  Company  for  property or
services in an amount which, in any of the last three fiscal years,  exceeds the
greater  of $1  million,  or 2%  of  such  other  company's  consolidated  gross
revenues.


ITEM 13.  EXHIBITS.

a.   Financial Statements.  The following financial information is included as a
     separate section of this Annual Report on Form 10-KSB:

     1.   Report of Independent Registered Public Accounting Firms

     2.   Consolidated Balance Sheets as of September 30, 2006 and 2005

     3.   Consolidated Statements of Operations for the year ended September 30,
          2006 and the nine months ended September 30, 2005

     4.   Consolidated  Statement  of  Shareholders'  Equity  for the year ended
          September 30, 2006 and the nine months ended September 30, 2005

     5.   Consolidated Statements of Cash Flows for the year ended September 30,
          2006 and the nine months ended September 30, 2005

     6.   Notes  to  Consolidated   Financial  Statements  for  the  year  ended
          September 30, 2006 and the nine months ended September 30, 2005

b.   Exhibits

     Exhibits  submitted with this Form 10-KSB, as filed with the Securities and
     Exchange  Commission,  or those  incorporated by reference to other filings
     are:

     Exhibit No.   Description of Exhibit

     3(i)          Articles of  Incorporation of the Company is incorporated by
                   reference to Exhibit 3(i) to the Company's Form 10-12 G/A,
                   previously  filed on  April 28, 2000

     3(ii)         Bylaws,  Amended March 30, 2000 is incorporated by reference
                   to Exhibit 3(ii) to the  Company's Form 10-12 G/A, previously
                   filed on April 28, 2000

     3(iii)        Articles  Supplementary  of the Company is incorporated by
                   reference  to Exhibit 99.1 to the Company's Form 10-12 G/A,
                   previously  filed on April 28, 2000

     3(iv)         Specimen Stock  Certificate,  is incorporated by reference to
                   Exhibit 99.2 to the Company's Form 10-12 G/A, previously
                   filed on April 28, 2000

     4.1           Shareholder  Rights  Agreement  dated July 19, 2004 is
                   incorporated by reference  to Exhibit  4.4 in the Form 8-K
                   previously  filed July 20, 2004

     10.1          Compensation  Agreement dated May 22, 2006 between BellaVista
                   Capital, Inc. and Michael Rider is incorporated by reference
                   to Exhibit 10.1 to the Company's  June 30, 2006 Form 10-QSB,
                   previously  filed on August 14, 2006


                                       18
<PAGE>

     10.2          Compensation  Agreement dated May 18, 2006 between BellaVista
                   Capital, Inc.  and Eric Hanke is  incorporated  by reference
                   to Exhibit 10.2 to the Company's  June 30, 2006 Form 10-QSB,
                   previously  filed on August 14, 2006

     10.3          Legal Services Retention Agreement between BellaVista
                   Capital, Inc. and Ben Hamburg is incorporated by reference to
                   Exhibit 10.1 to the Company's 2004 Form 10-K, previously
                   filed on May 9, 2005

     14.1          Code of Ethics is  incorporated by  reference to Exhibit 14.1
                   to the Company's 2003 Form 10-K, previously filed on April
                   14, 2004

     31.1          Certification of Chief Executive Officer and Chief Financial
                   Officer

     32.1          Certification  Pursuant to 18 U.S.C. Section 1350, as Adopted
                   Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


c. Financial Statement Schedules

     None

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The Company  accrues  expenses  associated  with principal  accountant  fees and
services in the year being audited or serviced. The following table presents the
expenses accrued by the Company for such fees and services:

                                             Year          Nine months
                                            ended                ended
                               September 30, 2006   September 30, 2005
                               ----------------------------------------
Audit fees                             $  138,160            $ 248,208
Audit-related fees                             --                   --
Tax fees                                   18,925               33,269
All other fees                                 --                   --
                               ----------------------------------------

   Total                               $  157,085            $ 281,477
                               ========================================

Tax fees are  comprised  of fees  related to the  preparation  and filing of the
Company's federal and applicable state tax returns.

The Company does not have an independent audit committee,  and the full board of
directors  therefore serves as the audit committee for all purposes  relating to
communication  with the Company's  auditors and  responsibility  for the Company
audit.  All  engagements  for audit  services,  audit  related  services and tax
services  are approved in advance by the full board of directors of the Company.
The  Company's  Board of Directors has  considered  whether the provision of the
services  described  above for the year ended  September  30,  2006 and the nine
month period ended  September  30, 2005,  is  compatible  with  maintaining  the
auditor's independence.

All  audit  and  non-audit  services  that  may be  provided  by  our  principal
accountant to the Company shall require pre-approval by the Board.  Further, our
auditor shall not provide those services to the Company specifically  prohibited
by the  Securities  and  Exchange  Commission,  including  bookkeeping  or other
services related to the accounting records or financial  statements of the audit
client;  financial  information systems design and implementation;  appraisal or
valuation services, fairness opinion, or contribution-in-kind reports; actuarial
services;  internal audit  outsourcing  services;  management  functions;  human
resources;  broker-dealer,  investment  adviser, or investment banking services;
legal services and expert services unrelated to the audit; and any other service
that  the  Public  Company  Oversight  Board  determines,   by  regulation,   is
impermissible.



                                       19
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


Signature                  Capacity                           Date

                           Chief Executive Officer, Chief
/s/ Michael Rider          Financial Officer and Director     December 22, 2006
--------------------------
Michael Rider

/s/ William Offenberg      Chairman                           December 22, 2006
--------------------------
William Offenberg

/s/ Robert Puette          Director                           December 22, 2006
--------------------------
Robert Puette

/s/ Jeffrey Black          Director                           December 22, 2006
--------------------------
Jeffrey Black

/s/ Patricia Wolf          Director                           December 22, 2006
--------------------------
Patricia Wolf




















                                       20
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                         Page No
                                                                         -------
Report of independent registered public
accounting firm - Pohl, McNabola, Berg + Company LLP                       FS-1

Consolidated balance sheets as of
September 30, 2006 and 2005                                                FS-2

Consolidated  statements of operations
for the year ended  September 30, 2006 and
the nine monthsended September 30, 2005                                    FS-3

Consolidated  statements  of  shareholders'
equity for the year ended  September 30, 2006
and the nine months ended September 30, 2005                               FS-4

Consolidated  statements  of cash flows for
the year ended  September 30, 2006 and the
nine months ended September 30, 2005                                       FS-5

Notes to consolidated financial statements                                 FS-6




















<PAGE>



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of
BellaVista Capital, Inc.

We have  audited the  accompanying  consolidated  balance  sheets of  BellaVista
Capital,  Inc., as of September  30, 2006 and 2005 and the related  consolidated
statements  of  operations,  shareholders'  equity,  and cash flows for the year
ended  September 30, 2006 and the nine months ended  September  30, 2005.  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 audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting 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  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly  we express  no such  opinion.  An audit  also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  BellaVista
Capital,  Inc.  as of  September  30,  2006 and  2005,  and the  results  of its
consolidated  operations  and its  consolidated  cash  flows for the year  ended
September  30, 2006 and the nine months ended  September 30, 2005, in conformity
with accounting principles generally accepted in the United States of America.


                                             Pohl, McNabola, Berg + Company, LLP


San Francisco, California
December 6, 2006











                                      FS-1
<PAGE>


                                         BELLAVISTA CAPITAL, INC.

                                       CONSOLIDATED BALANCE SHEETS




<TABLE>
<CAPTION>
                                                                                         September 30, 2006     September 30, 2005
                                                                                      ---------------------- ----------------------
  <S>                                                                                           <C>                     <C>
ASSETS:

Cash and cash equivalents.............................................................        $   3,006,024          $  14,436,243
Loans receivable secured by real estate...............................................           13,846,500              6,575,000
Joint venture investments in real estate developments ................................           33,270,955             12,483,029
Direct investments in real estate developments........................................           11,691,620             34,041,268
Fixed assets, net of $73,919 and $42,770 accumulated depreciation at September 30,
   2006 and 2005......................................................................               44,400                 71,773
Other assets, net.....................................................................              747,672                214,435
                                                                                      ---------------------- ----------------------
        Total assets..................................................................        $  62,607,171          $  67,821,748
                                                                                      ====================== ======================


LIABILITIES AND SHAREHOLDERS' EQUITY:

Secured notes payable.................................................................                   --              8,034,447
Accounts payable and accrued expenses.................................................            1,650,694              1,897,262
                                                                                      ---------------------- ----------------------
        Total liabilities.............................................................            1,650,694              9,931,709

Commitments and contingencies (see note 11)

Common stock: par value $0.01, 50,000,000 shares authorized at September 30, 2006 and
   2005; 14,991,325 shares issued and outstanding at September 30, 2006 and 2005......          201,216,369            201,216,369
Accumulated dividends and distributions...............................................          (90,621,455)           (90,621,455)
Accumulated deficit...................................................................          (49,638,437)           (52,704,875)
                                                                                      ---------------------- ----------------------
        Total shareholders' equity....................................................           60,956,477             57,890,039
                                                                                      ---------------------- ----------------------
        Total liabilities and shareholders' equity....................................        $  62,607,171           $ 67,821,748
                                                                                      ====================== ======================
</TABLE>















                The accompanying notes are an integral part of these statements.


                                              FS-2
<PAGE>


                                               BELLAVISTA CAPITAL, INC.

                                        CONSOLIDATED STATEMENTS OF OPERATIONS




<TABLE>
<CAPTION>
                                                                                                 Year Ended      Nine Months Ended
                                                                                         September 30, 2006     September 30, 2005
                                                                                      ---------------------- ----------------------
  <S>                                                                                           <C>                     <C>
REVENUES:
Income from real estate developments.................................................          $  4,887,836          $   5,720,791
Interest income......................................................................               103,434                164,651
Other   .............................................................................               120,081                 25,815
                                                                                      ---------------------- ----------------------
   Total revenues....................................................................             5,111,351              5,911,257

EXPENSES:
Salaries expense.....................................................................               724,614                546,837
Facilities expense...................................................................                87,514                 69,143
Legal and accounting expense.........................................................               184,755                386,303
Board of directors fees and insurance................................................               250,324                208,946
Administrative expense...............................................................                98,873                 95,993
REO and non-recurring expenses.......................................................               826,679                789,238
Depreciation.........................................................................                31,149                 21,600
Provision for impairment of real estate investments..................................               928,855              1,589,863
                                                                                      ---------------------- ----------------------
   Total expenses....................................................................             3,132,763              3,707,923
                                                                                      ---------------------- ----------------------
   Net income (loss) from operations.................................................             1,978,588              2,203,334

OTHER INCOME (EXPENSE)
Income from legal settlements, net of collection costs...............................             1,090,250              1,236,750
                                                                                      ---------------------- ----------------------
   Total other income................................................................             1,090,250              1,236,750
                                                                                      ---------------------- ----------------------
   Net income before tax.............................................................             3,068,838              3,440,084
                                                                                      ---------------------- ----------------------
   Income tax expense................................................................                (2,400)                (2,400)
                                                                                      ---------------------- ----------------------
   Net income (loss) allocable to common stock.......................................          $  3,066,438           $  3,437,684
                                                                                      ====================== ======================

Basic and diluted net income (loss) per common share.................................          $       0.20           $       0.22
                                                                                      ====================== ======================

Basic and diluted weighted-average common shares outstanding.........................            14,991,325             15,719,422
                                                                                      ====================== ======================
</TABLE>



                The accompanying notes are an integral part of these statements.


                                              FS-3
<PAGE>





                                      BELLAVISTA CAPITAL, INC.

                           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                                FOR THE YEAR ENDED SEPTEMBER 30, 2006
                            AND THE NINE MONTHS ENDED SEPTEMBER 30, 2005


<TABLE>
<CAPTION>
                                                           Common Stock
                                                    -------------------------------
                                                                                         Accumulated
                                                                                       Dividends and     Accumulated
                                                           Shares            Amount    Distributions         Deficit          Total
                                                    -------------- ----------------- ---------------- --------------- --------------
  <S>                                                     <C>               <C>             <C>               <C>            <C>
Shareholders' equity at January 1, 2005 ..........     18,304,168      $213,208,861     $(90,621,455)   $(56,142,559)   $66,444,847
   Redemptions of stock...........................     (3,312,843)      (11,992,492)              --              --    (11,992,492)
   Net income.....................................             --                --               --       3,437,684      3,437,684
                                                    -------------- ----------------- ---------------- --------------- --------------
Shareholders' equity at September 30, 2005 .......     14,991,325       201,216,369      (90,621,455)    (52,704,875)    57,890,039
   Net income.....................................             --                --               --       3,066,438      3,066,438
                                                    -------------- ----------------- ---------------- --------------- --------------
Shareholders' equity at September 30, 2006........     14,991,325      $201,216,369     $(90,621,455)   $(49,638,437)   $60,956,477
                                                    ============== ================= ================ =============== ==============
</TABLE>





















                The accompanying notes are an integral part of these statements.


                                              FS-4
<PAGE>


                                                BELLAVISTA CAPITAL, INC.

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                 Year Ended   Nine months ended
                                                                                         September 30, 2006  September 30, 2005
                                                                                        -------------------- -------------------
     <S>                                                                                            <C>                 <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income........................................................................       $  3,066,438        $  3,437,684
    Adjustments to reconcile net income to net cash provided by operating activities:
         Depreciation...................................................................             31,149              21,600
         Provision for impairment.......................................................            928,855           1,589,863
         Increase in accounts payable and accrued expenses..............................            357,214              68,719
         (Increase) decrease in other assets, net.......................................           (533,237)            115,325
                                                                                        -------------------- -------------------
           Net cash provided by operating activities....................................          3,850,419           5,233,191
                                                                                        -------------------- -------------------

 CASH FLOWS FROM INVESTING ACTIVITIES:
     Proceeds from repayments of investments in real estate.............................         43,333,771          34,595,593
     Investments in real estate.........................................................        (50,576,186)        (26,141,279)
    Purchase of fixed assets............................................................             (3,776)             (5,459)
                                                                                        -------------------- -------------------
         Net cash (used in) provided by investing activities............................         (7,246,191)          8,448,855
                                                                                        -------------------- -------------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
    Redemptions of capital stock........................................................                 --         (11,992,492)
    Borrowings under secured notes payable..............................................         12,810,681           8,034,447
    Repayment of secured notes payable..................................................        (20,845,128)         (3,185,000)
                                                                                        -------------------- -------------------
         Net cash used in financing activities..........................................         (8,034,447)         (7,143,045)
                                                                                        -------------------- -------------------

           Net (decrease) increase in cash and cash equivalents.........................        (11,430,219)          6,539,001
           Beginning cash and cash equivalents..........................................         14,436,243           7,897,242
                                                                                        -------------------- -------------------

           Ending cash and cash equivalents.............................................       $  3,006,024       $  14,436,243
                                                                                        ==================== ===================
 Cash paid for interest, net of amounts capitalized of $781,116 and $351,102 for the
    year ending September 30, 2006 and the nine months ending September 30, 2005,
    respectively........................................................................       $         --       $          --
                                                                                        ==================== ===================

 Cash paid for income taxes and franchise fees..........................................       $      2,400       $       2,400
                                                                                        ==================== ===================
</TABLE>



                The accompanying notes are an integral part of these statements.


                                              FS-5

<PAGE>


                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2006 AND 2005



1.   ORGANIZATION AND BUSINESS:


Organization

BellaVista  Capital,  Inc., a Maryland  corporation (the Company,  our, we), was
formed on March 18, 1999 and commenced  operations effective May 1, 1999. We are
engaged in the  business  of  investing  in  for-sale  residential  real  estate
development projects, primarily in California. Our investments are structured as
loans secured by real estate, loans made to real estate development entities, or
as  joint  venture  investments  in real  estate  development  entities.  We are
organized  in a single  operating  segment  for  purposes  of  making  operating
decisions and assessing  performance.  BellaVista Capital, Inc. is also the 100%
shareholder  of 99  Investors,  Inc.  and  Sands  Drive  San  Jose,  Inc.,  both
California  corporations  formed  for the  purpose  of  developing  and  selling
residential real estate.

Change in Fiscal Year End

On November 7, 2005 the Company's  Board of Directors voted to change its fiscal
year end from  December 31 to September 30 and adopted  changes to the Company's
Bylaws reflecting this change.  Accordingly,  these financial statements contain
transitional period comparisons and disclosures.

Risk Factors

Realization  of  Assets.  The  Company's  liquidity  and  ability  to  meet  its
obligations  as they become due are subject to, among other things,  its ability
to obtain timely repayments of its investments.  Many of the investments rely on
the  completion  and sale of the  developed  real  estate  in  order  to  obtain
repayment.  In the event that  repayments  are not sufficient to timely meet our
commitments and credit  facilities are not extended on terms favorable to us, we
may be forced to reduce  prices on  properties  we control in order to  expedite
their  repayment.  In such  cases,  the  amount of  proceeds  received  could be
substantially  less  than what we would  have  expected  if we  allowed a proper
marketing  period for the  property.  This  would have a negative  impact on the
estimated  net  realizable  value of our assets and would  force the  Company to
adopt  an  alternative  strategy  that  may  include  actions  such  as  seeking
additional  capital  or  further  downsizing  of  the  Company.   The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

Other. In addition,  we are subject to other significant  business and financial
risks,  including  but not  limited  to  liquidity,  the  prevailing  market for
residential  real estate,  interest rates,  timely  completion of projects,  and
potential  environmental  matters  relating to  properties on which we have made
investments or received through foreclosure.

In April 2004 the Company provided certain documents requested by the Securities
and Exchange Commission in connection with a letter of inquiry. During June 2004
Mr.  Rider,  our CEO and Ms.  Fox,  our  former  CEO,  both  provided  voluntary
testimony  in  connection  with the  inquiry.  In  January  2005 the  Commission
requested additional documentation which the Company provided in April, 2005. As
of  September  30, 2006 the Company  has had no further  communication  from the
Commission.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Consolidation Policy

The  consolidated  financial  statements  include  the  accounts  of  BellaVista
Capital,  Inc. and its wholly owned subsidiaries,  99 Investors,  Inc. and Sands
Drive San Jose,  Inc.  All  intercompany  accounts  and  transactions  have been
eliminated in consolidation.




                                      FS-6
<PAGE>


                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005



Use of Estimates

These  financial  statements  have been prepared in accordance  with  accounting
principles  generally accepted in the United States of America.  The preparation
of financial  statements  in conformity  with  accounting  principles  generally
accepted in the United States of America  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period.  Valuations of investments in real estate include management's
best  estimates  of the  amounts  expected  to be  realized  on the  sale of its
investments. The estimates are based on an analysis of the properties, including
certain  inherent  assumptions and estimates that are involved in preparing such
valuations.  The  amounts the  Company  will  ultimately  realize  could  differ
materially in the near term from these estimates.


Loans Receivable Secured By Real Estate

We have  originated  loans  secured by real  estate.  These loans are  generally
secured by first trust deeds,  pay interest on a monthly basis and are typically
additionally  collateralized by repayment  guarantees from the principals of our
borrowers.  We  recognize  interest  income on these loans  during the period in
which the interest is earned and recognize income on any loan fees charged under
the effective interest method.

We establish and maintain credit reserves for loans  receivable  secured by real
estate  based on estimates  of credit  losses  inherent in these loans as of the
balance sheet date. To calculate the credit  reserve,  we assess inherent losses
by  determining  loss  factors  (defaults,  the  timing  of  defaults,  and loss
severities  upon  defaults)  that can be  specifically  applied to each loan. We
follow the guidelines of Staff Accounting  Bulletin No. 102,  Selected Loan Loss
Allowance  Methodology  and  Documentation  (SAB 102), and Financial  Accounting
Statement  No.  5,  Accounting  for  Contingencies  (FAS 5), in  setting  credit
reserves for our residential  and commercial  loans. We follow the guidelines of
Financial  Accounting  Statement No. 114, Accounting by Creditors for Impairment
of a Loan (FAS 114), in determining impairment on commercial real estate loans.

We had no impaired loans receivable as of September 30, 2006 or 2005.


Joint Venture Investments in Real Estate Developments

Our joint  venture  investments  in real estate  developments  are  comprised of
loans,  known as ADC  Loans,  which are  secured  by real  estate  and have many
characteristics  of joint venture  investments  and  investments  in real estate
joint ventures.

ADC Loans

We have  originated  secured  loans to  Acquire,  Develop  and  Construct  (ADC)
residential real estate ("ADC loans"). These loans contain many of the following
characteristics which are identified with ADC loans:

     1.   The lender has agreed to provide all or  substantially  all  necessary
          funds to acquire,  develop or construct the property. The borrower has
          title to but little or no cash equity in the project;
     2.   The lender  funds  substantially  all the interest and fees during the
          term of the loan by adding them to the loan balance;
     3.   Typically,  the  lender's  only  security is the project  itself.  The
          lender  has no  recourse  to other  assets  of the  borrower,  and the
          borrower does not guarantee the debt;
     4.   In order for the lender to recover its investment in the project,  the
          property  must be sold to  independent  third  parties or the borrower
          must obtain refinancing from another source.


                                      FS-7
<PAGE>


                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005


Because our ADC loans contain many of the characteristics of investments in real
estate,  they are classified for financial  reporting  purposes in joint venture
investments  in real  estate  developments  (Note 4).  ADC loans  with no equity
participation  interest  are  stated  at the  lower  of cost or fair  value  and
accounted for as an investment in real estate.  Revenue from interest and points
is  recognized  as  cash is  received  from  the  sale  or  refinancing  of such
properties.  ADC  loans  that  include  an  equity  participation  interest  are
accounted  for in the same  manner as real estate in joint  ventures.  ADC loans
include  amounts  funded  under the loan  agreements  and  capitalized  interest
expense,  where  applicable.  If our ADC loans qualified as borrowings  under US
GAAP,  interest and points would be recognized in income as earned instead of at
the time of sale of the underlying property.

Joint Venture Investments in Real Estate

We provide  equity  capital to real  estate  developers  necessary  to  acquire,
develop and construct real estate developments.  Such investments are structured
as participating  loans or membership  interests in the development  entity.  We
account for such investments using the equity method of accounting.

Management conducts a review for impairment on an investment-by-investment basis
whenever events or changes in circumstances indicate that the carrying amount of
an  investment  may not be  recoverable,  or at least  quarterly.  Impairment is
recognized when estimated  expected future cash flows  (undiscounted and without
interest  charges),  typically from the sale of a completed  property,  are less
than the  carrying  amount of the  investment,  which does not  include  accrued
interest  and  points.  The  estimation  of  expected  future  net cash flows is
inherently  uncertain  and  relies  to  a  considerable  extent  on  assumptions
regarding  current  and future  economic  and market  conditions.  If, in future
periods, there are changes in the estimates or assumptions incorporated into the
impairment  review  analysis,  the changes  could result in an adjustment to the
carrying  amount of the  investments.  To the extent an impairment has occurred,
the excess of the carrying  amount of the  investment  over its  estimated  fair
value, less estimated selling costs, is charged to operations.

Direct Investments in Real Estate Developments

We have  taken  title  to  property  through  foreclosure  or by deed in lieu of
foreclosure  when a borrower  defaults  on our ADC loans.  Such  properties  are
termed real estate owned (REO) and are accounted for in a manner  similar to our
joint venture investments in real estate developments.

Cash and Cash Equivalents

Cash and cash equivalents include cash held in financial  institutions and other
highly liquid short-term investments with original maturities of three months or
less.

Income from Real Estate Developments

We  recognize  income  from  our ADC  loans  and REO  properties  as  costs  are
recovered,  generally upon the sale or refinancing of the underlying real estate
to or by a third party. No interest income or points are recognized on these ADC
loans and REO properties until the financed  property is sold or refinanced.  We
compute  income  as the  difference  between  cash  received  from  the  sale or
refinancing  of the property and the carrying  value of the  investments  at the
date of  repayment.  Income  earned  from our Loans  Secured  by Real  Estate is
included as Income from Real Estate Investments. We recognize interest income on
these loans  secured by real estate  during the period in which the  interest is
earned  and  recognize  income on any loan  fees  charged  under  the  effective
interest method.



                                      FS-8
<PAGE>



                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005


Income Taxes

Our taxable  income  differs from income  measured in accordance  with generally
accepted  accounting  principles  in the United  States of America due to timing
differences in the  recognition of income from our ADC loans and REO properties.
For tax  purposes,  interest  and points are accrued as income  according to the
terms  of our  loan  contracts,  but not  recognized  under  generally  accepted
accounting  principles  in the United  States of America  until the contract has
been paid through sale or refinancing of the secured property.

The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting  for Income Taxes" ("SFAS No. 109").  This Statement  prescribes the
use of the asset and liability  method whereby  deferred tax asset and liability
account  balances are  determined  based on  differences  between the  financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws that will be in effect when the  differences  are expected to
reverse.  The Company provides a valuation  allowance,  if necessary,  to reduce
deferred tax assets to their estimated realizable value.

Net Loss Per Share of Common Stock

Per share amounts for our common stock are computed  using the weighted  average
common shares outstanding during the period. Net loss used in the calculation is
increased  by  declared  dividends  owed to  preferred  shareholders.  There are
currently no stock options or other dilutive common stock equivalents,  and as a
result, the basic and diluted weighted average common shares outstanding for the
year ended  September 30, 2006 and the nine months ended September 30, 2005, are
the same and are 14,991,325 and 15,719,422 shares, respectively.

Reclassification of Financial Statement Presentation

Certain  reclassifications  have been made to the 2005  financial  statements to
conform with the 2006 financial statement  presentation.  Such  reclassification
had no effect on net income as previously reported.

Recent Accounting Pronouncements

In September  2004, the EITF delayed the effective date for the  recognition and
measurement  guidance  previously  discussed  under EITF Issue No.  03-01,  "The
Meaning  of  Other-Than  Temporary  Impairment  and Its  Application  to Certain
Investments"  ("EITF  03-01") as included in  paragraphs  10-20 of the  proposed
statement.    The   proposed    statement    will   clarify   the   meaning   of
other-than-temporary  impairment and its  application to investments in debt and
equity securities,  in particular investments within the scope of FASB Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and
investments  accounted  for under the cost  method.  The  Company  is  currently
evaluating the effect of this proposed  statement on its financial  position and
results of operations.

In December 2004, the Financial  Accounting  Standards Board,  also known as the
FASB,  issued a revision to SFAS 123  "Share-Based  Payment," also known as SFAS
123R, that amends existing  accounting  pronouncements  for share-based  payment
transactions in which an enterprise  receives employee and certain  non-employee
services  in  exchange  for (a)  equity  instruments  of the  enterprise  or (b)
liabilities  that  are  based  on the  fair  value  of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.
SFAS 123R,  together with guidance included in Staff Accounting Bulletin No. 107
issued by the SEC on March  29,  2005,  also  known as SAB 107,  eliminates  the
ability to account for share-based  compensation  transactions  using APB 25 and
generally  requires such transactions be accounted for using a  fair-value-based
method.  SFAS 123R applies to awards that are granted,  modified,  or settled in
periods  beginning  after its applicable  effective date. In April 2005, the SEC


                                      FS-9
<PAGE>


                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005

issued a release amending the effective date of SFAS 123R for each registrant to
the start of the  registrant's  first fiscal year beginning after June 15, 2005.
SFAS 123R allows for three alternative  transition methods.  The Company intends
to adopt the prospective  application  method.  The Company currently intends to
adopt SFAS 123R and SAB 107 in the first quarter of fiscal 2006. The adoption of
SFAS 123R will cause the  Company to record a non-cash  accounting  charge as an
expense  each  quarter  in an  amount  approximating  the  fair  value  of  such
share-based compensation meeting the criteria outlined in the provisions of SFAS
123R.  Currently  the Company  does not have any such  instruments  outstanding.
Management  does not expect the  implementation  of this new  standard to have a
material impact on its financial position, results of operations and cash flows.

In May 2005,  the FASB  Emerging  Issues  Task Force,  or EITF,  issued EITF No.
00-19-1  "Application  of  EITF  Issue  No.  00-19  to  Freestanding   Financial
Instruments  Originally  Issued as Employee  Compensation".  This  pronouncement
clarifies  existing  accounting  guidance  relative  to  freestanding  financial
instruments originally issued as employee compensation. EITF No. 00-19-1 becomes
effective  concurrent with the effective date of SFAS 123R. The Company believes
the  adoption  of this  pronouncement  will not have a  material  impact  on our
results of operations or financial condition.

On October 5, 2005,  the FASB  issued  FASB  Staff  Position  (FSP)  FAS  13-1,"
Accounting for Rental Costs Incurred  during a  Construction  Period".  FAS 13-1
requires  that the rental  costs  associated  with ground or building  operating
leases that are incurred  during a  construction  period be  expensed.  The FASB
believes there is no distinction  between the right to use a leased asset during
the  construction  period and the right to use that asset after the construction
period. As prescribed,  companies would be required to apply the guidance in FAS
13-1 to the first  reporting  beginning  after  December  15,  2005,  with early
adoption  permitted for the interim periods not yet issued.  Management does not
expect the  implementation of this new standard to have a material impact on the
Company's financial position, results of operations and cash flows.

In February  2006,  FASB issued SFAS No.  155,  "Accounting  for Certain  Hybrid
Financial  Instruments".  SFAS  No.  155  amends  SFAS No 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities",  and SFAF No. 140, "Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities".  SFAS No. 155,  permits  fair value  remeasurement  for any hybrid
financial  instrument that contains an embedded  derivative that otherwise would
require  bifurcation,  clarifies which  interest-only  strips and principal-only
strips are not  subject  to the  requirements  of SFAS No.  133,  establishes  a
requirement  to evaluate  interest in securitized  financial  assets to identify
interests  that  are  freestanding  derivatives  or that  are  hybrid  financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives,  and  amends  SFAS No.  140 to  eliminate  the  prohibition  on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial  interest other than another derivative  financial
instrument.  This statement is effective for all financial  instruments acquired
or issued  after the  beginning of the  Company's  first fiscal year that begins
after September 15, 2006.

In March  2006,  the FASB  issued  SFAS No. 156,  Accounting  for  Servicing  of
Financial Assets--an amendment of FASB Statement No. 140. Companies are required
to apply Statement 156 as of the first annual reporting period that begins after
September 15, 2006.  The Company does not believe  adoption of SFAS No. 156 will
have a material effect on its audited consolidated  financial position,  results
of operations, or cash flows.

In July 2006,  the FASB  issued  FASB  Interpretation  No. 48,  "Accounting  for
Uncertainty  in Income  Taxes"  ("FIN 48").  FIN 48, an  interpretation  of FASB
Statement 109,  prescribes a  comprehensive  model for  recognizing,  measuring,
presenting,  and disclosing in the financial  statements tax positions  taken or
expected  to be taken on a tax return,  including a decision  whether to file or
not to  file  in a  particular  jurisdiction.  FIN  48  also  includes  guidance
concerning  accounting  for income tax  uncertainties  in  interim  periods  and


                                     FS-10
<PAGE>


                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005

increases  the level of  disclosures  associated  with any  recorded  income tax
uncertainties.  FIN 48 is effective for the Company  beginning  January 1, 2007.
The  differences  between the amounts  recognized in the statements of financial
position prior to the adoption of FIN 48 and the amounts reported after adoption
will  be  accounted  for  as a  cumulative-effect  adjustment  recorded  to  the
beginning  balance of retained  earnings.  As this guidance was recently issued,
the  Company  has  not yet  determined  the  impact,  if any,  of  adopting  the
provisions  of FIN 48 on its  financial  position,  results  of  operations  and
liquidity.

In September 2006, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"). The
Statement  defines fair value,  establishes a framework for measuring fair value
in generally accepted accounting principles,  and expands disclosures about fair
value  measurements.  FAS 157 is  effective  for fiscal  years  beginning  after
November 15, 2007 and interim periods within those fiscal years.  The Company is
currently in the process of evaluating  the impact that the Statement  will have
on its financial statements.

In  September  2006,  the SEC staff issued  Staff  Accounting  Bulletin No. 108,
"Considering   the  Effects  of  Prior  Year   Misstatements   when  Quantifying
Misstatements  in Current Year Financial  Statements"  ("SAB 108").  SAB 108 was
issued in order to eliminate  the diversity of practice  surrounding  how public
companies quantify financial statement misstatements.  In SAB 108, the SEC staff
established  an approach that  requires  quantification  of financial  statement
misstatements based on the effects of the misstatements on each of the company's
financial statements and the related financial statement disclosures. This model
is commonly referred to as a "dual approach" because it requires  quantification
of errors under both the iron  curtain and the  roll-over  methods.  The Company
currently uses, and has  historically  applied,  the dual method for quantifying
identified financial statement  misstatements.  The Company will initially apply
the  provisions  of SAB 108 in  connection  with the  preparation  of the annual
financial  statements  for the year ending  December  31,  2006.  The Company is
currently  evaluating  SAB 108,  but does not expect the  adoption of SAB 108 to
have a significant effect on its financial position,  results of operations,  or
cash flows.


3.  LOANS RECEIVABLE SECURED BY REAL ESTATE:

As of September 30, 2006 we had the following loans  receivable  secured by real
estate which are described below:

                  Collateral                Maturity Date            Balance
                  --------------------- ------------------ ------------------
Loan 2719         First Trust Deed               Feb 2007       $  4,425,000
Loan 2724         Trust Deeds                     Various          7,250,000
Loan 2807         First Trust Deed              July 2007          2,171,500
                                                           ------------------
                                                                $ 13,846,500
   Total
                                                           ==================

Loan 2719 - Our loan was made to a developer who is subdividing a parcel of land
in East Palo Alto,  California into 78 lots for construction of live/work units.
The loan is secured by a first deed of trust on the development parcel, requires
payments  of  interest  only  each  month  and is due in  February  2007  and is
personally guaranteed by the developer's principal partner.

Loan 2724 - Loan 2724  comprises  loans  that are  originated  and  serviced  by
Cupertino  Capital,  a California  Real Estate  broker.  The loans are typically
secured by first deeds of trust on real  property in  California,  pay  interest
monthly and most have repayment  guarantees from the principals of the borrowing
entities.  BellaVista's  investment in each loan, in most cases, is a portion of
the entire loan, with other  individuals or companies  owning the balance of the
loan receivable.






                                     FS-11

<PAGE>


                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005

Loan 2807 - Our loan was made to a developer who is subdividing a parcel of land
in Nampa, Idaho into approximately 100 single-family  residential lots. The loan
is secured by a first deed of trust on the development parcel, requires payments
of interest only each month and is due in July 2007 and has repayment guarantees
from the developer's principal partners.


4.   JOINT VENTURE INVESTMENTS IN REAL ESTATE DEVELOPMENTS:

As of September 30, 2006 we had the following joint venture  investments in real
estate developments which are described below:































                                     FS-12
<PAGE>

                                      BELLAVISTA CAPITAL, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                             (continued)

                                     SEPTEMBER 30, 2006 AND 2005

<TABLE>
<CAPTION>

                                                                                                        Remaining
                                                   Amount       Capitalized           Carrying            Funding
Description         Investment Type              Invested    Interest Costs             Amount         Obligation
------------------- ------------------- ------------------ ----------------- ------------------ ------------------
<S>                    <C>                        <C>                 <C>               <C>                 <C>
2524                Secured Loan              $   405,948        $    6,594         $  412,542           $     --
2525                Equity                      2,183,857            13,680          2,197,537            982,892
2526                Secured Loan                3,686,830            21,382          3,708,212                 --
2557                Secured Loan                2,000,000             4,292          2,004,292                 --
2630                Secured Loan                  773,786             3,306            777,092          4,767,721
2676                Equity                      2,408,550             8,858          2,417,408            741,450
2679                Secured Loan                5,412,316            19,232          5,431,548            840,871
2688                Secured Loan                3,482,638             6,984          3,489,622          2,717,362
2701                Equity                      4,100,000            10,502          4,110,502                 --
2703                Secured Loan                2,150,000             2,938          2,152,938                 --
2753                Secured Loan                1,500,000             3,609          1,503,609                 --
2789                Secured Loan                1,625,000               653          1,625,653            575,000
2828                Equity                      3,440,000                --          3,440,000                 --
                                        ------------------ ----------------- ------------------ ------------------

   Total                                     $ 33,168,925       $   102,030       $ 33,270,955       $ 10,625,296
                                        ==================================== ================== ==================
</TABLE>

Investment  2524 - This investment is structured as a $1,200,000 loan secured by
a third deed of trust on a 10.3 acre parcel in Colorado Springs,  Colorado which
will comprise 148 condominium units,  scheduled to be constructed in phases. The
loan is junior to a deed of trust in the amount of  $2,392,000  and a  revolving
construction  deed of trust totaling  $4,000,000,  both in favor of Ohio Savings
Bank. The note was issued on May 12, 2004, and accrues interest which is due and
payable at the loan's  maturity date,  November 12, 2006. The note also provides
for  additional  interest equal to a percentage of the gross sales price of each
condominium unit sold.

Investment  2525  -  This  $3,250,000  investment  is  structured  as an  equity
investment in a 1.1 acre development in East Palo Alto, California. The property
was  originally  zoned  residential  and the  developer  applied for a change in
zoning  to  residential/retail  mixed  use.  Our  agreement  with the  developer
provides  for the payment of a preferred  return on our  invested  capital and a
portion of the development's profits.

Investment  2526 - This investment is structured as a $3,353,000 loan secured by
a  second  deed of  trust  on a  6,551  square  foot  parcel  in San  Francisco,
California  which will comprise 32 condominium  units in a six story steel frame
building.  The loan is junior to a  construction  deed of trust in the amount of
$9.3  million.  The note was issued on December 7, 2004 and matured on March 15,
2006.  During April 2006, we modified the loan by extending the maturity date to
September 15, 2006 and providing additional proceeds increasing the total amount
of the loan to $4,453,000.  The note provides for additional interest equal to a
percentage  of the  gross  sales  price  of each  completed  unit.  The  note is
currently  past its  maturity  date and  we are working  with the  developer  to
secure terms  acceptable to us that would provide the developer  additional time
to sell the units thereby generating the proceeds required to pay our loan.

Investment  2557 - This investment is structured as a $2,200,000 loan secured by
a second deed of trust on approximately 10 acres in Sacramento, California which
will comprise 160 condominium  units. The loan is junior to a construction  deed
of trust in the amount of $12.0  million.  The note was issued on  November  15,
2005 and matures on May 31,  2007.  The note  provides for  additional  interest
calculated as a percentage of the gross sales price of each unit sold.


                                     FS-13
<PAGE>

                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005

Investment  2630 - This investment is structured as a $5.45 million loan secured
by a first deed of trust on a 7,500  square foot  parcel in Oakland,  California
which will  comprise 16  condominium  units in a four story wood frame  building
over a  concrete  parking  garage  at  grade.  Units  are  expected  to sell for
approximately  $400,000 per unit.  Our loan is secured by a first deed of trust,
with a repayment  guarantee  from the  developer and is due on June 30, 2007. In
addition to interest  accruing on the  outstanding  balance of the loan,  we are
entitled to receive a share of the profits from the development.

Investment  2676 - This  investment  is  structured  as a $3.15  million  equity
investment in Livermore  Village I, LLC for the purpose of acquiring,  entitling
and  developing  approximately  300  condominium  units on 5.5 acres in downtown
Livermore, California. We supplied 90% of the equity required with the developer
contributing  the remaining 10%. We will receive a preferred  return and a share
of the profits from the development.

Investment  2679 - This  investment is structured as a $6.7 million loan secured
by a first deed of trust on a 40 unit apartment building in Modesto, California.
The developer  intends to subdivide the  apartments and sell them as condominium
units.  Units are  expected to sell for  approximately  $225,000  per unit.  Our
investment is secured by a first deed of trust, with a repayment  guarantee from
the  developer.  The note was issued on August 18,  2005,  and accrues  interest
which is due and  payable  at  the  loan's  maturity  date in  August  2007.  In
addition to the interest which accrues on the  outstanding  balance of the note,
we are entitled to receive a share of the profits from the development.

Investment  2688 - This  investment is structured as a $7.0 million loan secured
by a first deed of trust on a 13 story office  building in Oakland,  California.
The developer  plans to convert the building into six office  condominiums,  six
residential condominium units and one retail unit. Our loan matures on April 20,
2007 and we are entitled to a share of the profits from the development.

Investment  2701  -  This  $4,100,000  investment  is  structured  as an  equity
investment in a 2-acre development in Goleta, California. The developer plans to
build 37 townhome  units which are expected to sell for  approximately  $765,000
per unit.  Our joint  venture  agreement  with the  developer  provides  for the
payment  of a  preferred  return on our  invested  capital  and a portion of the
development's profits.

Investment  2703 - This  investment is structured as a $3.0 million loan secured
by a second deed of trust on 66 condominiums in Bremerton,  Washington. The loan
is junior to a construction deed of trust in the amount of $19.3 million.  Units
are expected to sell for an average of $470,000. The note was issued on February
10, 2006,  matures on February 10, 2008, and accrues interest on the outstanding
balance.

Investment 2753 - This investment is structured as a $1.730 million loan secured
by a  second  deed of trust on  approximately  10  single  family  homes  and 40
residential lots in Clio, California.  The loan is junior to a construction deed
of trust in the amount of $6.545  million.  The note was issued on December  21,
2005,  matures on June 21, 2007 and,  in  addition  to interest  accruing on the
outstanding  balance,  the note provides for additional interest calculated as a
percentage of the gross sales price of each of the 10 homes sold.

Investment  2789 - This  investment is structured as a $3.1 million loan secured
by a second deed of trust on 40 condominium units in West Hollywood, California.
The loan is  junior  to a  construction  deed of trust  in the  amount  of $18.5
million. The note was issued on June 15, 2006, matures on February 15, 2008, and
accrues interest on the outstanding balance.

Investment 2828 - This $3,440,000 investment is structured as a joint venture in
a 56-acre  development  in the  unincorporated  San Diego  County  area known as
Lakeside,  California.  The  developer  is  building 31 single  family  detached


                                     FS-14
<PAGE>

                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005


residences which are expected to sell for an average of  approximately  $782,000
per unit.  Our joint  venture  agreement  with the  developer  provides  for the
payment  of a  preferred  return on our  invested  capital  and a portion of the
development's profits.


5.   DIRECT INVESTMENTS IN REAL ESTATE DEVELOPMENTS:

As of September 30, 2006,  we or our  wholly-owned  subsidiary,  Sands Drive San
Jose, Inc, held title to 2 properties which we received through foreclosure,  by
deed in lieu of foreclosure. The properties are described below:

<TABLE>
<CAPTION>

                                                                                     Carrying
                           Amount Funded       Capitalized        Recognized        Amount of          Costs to
Description             (net of payments)   Interest Costs        Impairment         Property          Complete
--------------------- ------------------- ---------------- ----------------- ---------------- -----------------
  <S>                          <C>                <C>               <C>               <C>             <C>
Property 2216               $  9,417,251       $  701,427       $ 2,145,617      $ 7,973,061       $ 2,118,847
Property 2518                  4,975,376          235,235         1,492,052        3,718,559           981,441
                      ------------------- ---------------- ----------------- ---------------- -----------------

Total                       $ 14,392,627       $  936,662       $ 3,637,669     $ 11,691,620       $ 3,100,288
                      =================== ================ ================= ================ =================
</TABLE>

Property 2216 - This is a 72-unit  townhomes and  condominiums  project totaling
approximately 123,372 square feet in San Jose,  California.  Construction of all
the units was  completed in October 2006 with 53 units having  closed  escrow by
September 30, 2006.

Property 2518 - This property will be an approximately 6,400 square foot home in
Tiburon,  California.  Construction is currently  expected to complete in Spring
2007.


6.  PROPERTY, PLANT AND EQUIPMENT:

We had the following property, plant and equipment:

                                         September 30, 2006  September 30, 2005
                                         ------------------- -------------------
Computer Equipment                               $  78,589         $   74,813
Furniture                                           39,730             39,730
                                         ------------------- -------------------

   Total furniture and equipment                   118,319            114,543
   Accumulated depreciation                        (73,919)           (42,770)
                                         ------------------- -------------------

   Furniture and Equipment, net                  $  44,400         $   71,773
                                         =================== ===================


7.  SECURED NOTES PAYABLE:

The following table describes our secured notes payable:

                         Maturity Date   September 30, 2006  September 30, 2005
                     ------------------ ------------------- -------------------
China Trust Bank              Nov 2006                 --           5,934,447
Mid-Peninsula Bank            Feb 2006                 --           2,100,000
                                        ------------------- -------------------

   Total                                       $       --        $  8,034,447
                                        =================== ===================



                                     FS-15


<PAGE>

                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005


The note to China Trust Bank is a $22 million construction loan whose purpose is
to finance the construction of our Villa Cortona  project,  Property 2216 and is
owed by Sands  Drive San Jose,  Inc.,  our  wholly  owned  subsidiary,  with the
Company as the guarantor. The loan bears interest at Prime plus 1.00% (9.25% and
8.0% at  September  30,  2006 and 2005,  respectively)  and is due in June 2006.
During the year ended  September  2006 the loan balance was repaid with proceeds
from the sale of the units securing the loan.

The note to  Mid-Peninsula  Bank was secured by our  investment  number 2423 and
bears  interest  at Prime plus 1.0%  (9.25% and 8.0% at  September  30, 2006 and
2005, respectively).  The loan was repaid upon the sale of the property securing
the loan in June 2006.


8.  SHAREHOLDERS' EQUITY:

We have authorized 50,000,000 shares of capital stock with a $0.01 par value. At
September  30,  2006 and 2005  there  were  14,991,325  shares of  common  stock
outstanding.

We had sold our Preferred Stock through private  placements since our inception,
issuing 26,161,438 shares at $10.00 per share. We used the proceeds primarily to
fund the purchase of ADC loans and also for working  capital  purposes.  We have
not sold any shares since  September  2002 and, as of September  30, 2006 we did
not have an active private placement.

There is no  public  market  for our  stock.  In the past the  Company  provided
liquidity to shareholders with a stock redemption  policy.  The policy generally
provided that the company would periodically make funds available for redemption
at a price  determined  by the  Board of  Directors.  The  repurchase  of shares
follows  guidelines  set forth by the  Securities  and Exchange  Commission  for
issuer tender offers.

On January 28, 2005 the Company  offered to purchase up to  3,314,917  shares of
common  stock at a price of $3.62 per share.  The Offer  terminated  on March 1,
2005, and a total of 6,714,420 shares were tendered and not withdrawn as of such
date. In accordance with the terms of the offer the Company agreed to purchase a
total of 3,314,929 shares at $3.62 per share for a total payment of $12,000,043.
As the  number of shares  tendered  exceeded  the  maximum  number of shares the
Company offered to purchase,  each tendering  shareholder received payment for a
prorated number of shares purchased. The proration factor was 49.37%. Subsequent
to the closing of the offer, the Company agreed to accommodate a shareholder who
requested to withdraw 2,086 shares, and reducing proceeds by $7,551, from shares
which the  Company  agreed to  purchase  under  the  terms of the  offer.  After
completion of the Offer, and the subsequent  withdrawal of 2,086 from the shares
the Company agreed to purchase,  a total of 14,991,325  shares remain issued and
outstanding

In  October,  2005 the Board of  Directors  announced  the  Company's  long-term
strategy  to  increase  shareholder  value  and  transform  BellaVista  into  an
attractive  investment  for both new and  existing  shareholders.  The  strategy
involves a two-phased approach:

     o    In the medium term, the Company needs to demonstrate a track record of
          consistent share price increases, and
     o    In the longer term, the Company should  establish a regular program to
          provide  liquidity  through a combination of  distributions  and share
          redemption.

In order to establish a track record of consistent  share price  increases,  the
Company  determined  that it would be  necessary  to  reinvest  all  capital and
earnings  over the next three years and, as a result,  Company funds will not be


                                     FS-16
<PAGE>

                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005


used to pay dividends or distributions or redeem shares during this period.  The
Company  believes  that  successfully  achieving  these  goals will  attract new
investors  and  create  access to other  capital  sources.  This will  allow the
Company to create a liquidity  program that provides regular  distributions  and
share redemptions. This liquidity will enhance the value for all shareholders.


9.   INCOME TAXES

On October 7, 2003 our Board of Directors  voted to withdraw  our REIT  election
effective  with the tax year  beginning  January 1, 2004. The withdrawal of this
election  results in the loss of our ability to deduct the payment of  dividends
from our taxable  income.  However,  as the result of losses  from prior  years'
operations,  the Company had generated a net operating  loss carry forward which
it can use to offset future taxable income.

At  September  30,  2006  and  2005,  we had U.S.  federal  net  operating  loss
carryforwards  of approximately  $98.1 million and $93.7 million,  respectively.
The net operating loss carryforwards expire in various amounts between the years
2016 and 2020.  If there is a change in ownership,  utilization  of the U.S. net
operating  losses may be subject to  substantial  annual  limitation  due to the
"change in  ownership"  provisions  of the  Internal  Revenue  Code of 1986,  as
amended and similar state  provisions.  The annual  limitation may result in the
expiration of net operating losses before utilization.

Operating Loss Carryforward

Operating loss carryforwards consisted of the following:

                                                 Federal          California
                                          Operating Loss      Operating Loss
                                            Carryforward        Carryforward
                                     -------------------- -------------------
September 30, 2006                         $   4,413,981        $  4,411,581
September 30, 2005                            12,485,650          12,485,650
December 31, 2004                             34,098,334          34,098,334
December 31, 2003                             38,176,549          22,905,929
December 31, 2002                              8,915,070           5,349,042
                                     -------------------- -------------------

   Total                                   $  98,089,584       $  79,250,536
                                     ==================== ===================


Deferred Taxes

The significant components of the Company's deferred tax assets are as follows:

                                       September 30, 2006  September 30, 2005
                                     -------------------- -------------------
Net operating loss carryforwards            $ 37,974,252      $  36,216,109
Income from real estate investments
    reported on tax returns but not
   includible in financial statement
   income                                      2,777,752          4,229,033
Impairment charges reported in financial
   statements but not deducted on tax
   return                                        594,350          1,919,112

   Valuation allowance                       (41,346,354)       (42,364,254)
                                     -------------------- -------------------

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


                                     FS-17
<PAGE>

                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005


As of September 30, 2006 and 2005, the Company and its subsidiaries had provided
valuation   allowances  of  approximately   $41.4  million  and  $42.4  million,
respectively,  in  respect  of  deferred  tax  assets  resulting  from  tax loss
carryforwards and temporary timing  differences in the reporting of revenues and
expenses  because it is more likely than not that the  carryforwards  may expire
unused  and that  future  tax  deductions  may not be  realized  through  future
operations.

The  following  table  presents the income tax  provision  for federal and state
income  taxes for the year ended  September  30, 2006 and the nine months  ended
September 30, 2005.


                                                Year         Nine months
                                               Ended               Ended
                                  September 30, 2006   September 30, 2005
                                 -------------------- --------------------

Federal                                $          --        $          --
State                                          2,400                2,400
                                 -------------------- --------------------

   Total                               $       2,400        $       2,400
                                 ==================== ====================


The  provision  for income taxes  differs from the amount that would result from
applying the federal  statutory  rate for the year ended  September 30, 2006 and
the nine months ended September 30, 2005 as follows:

                                                Year          Nine months
                                               Ended                Ended
                                  September 30, 2006   September 30, 2005
                                 -------------------- --------------------
Statutory regular federal
   income tax benefit rate                  (34.00)%             (34.00)%
State taxes                                  (5.83)%              (5.83)%
Change in valuation allowance                39.83 %              39.83 %
                                 -------------------- --------------------

   Total                                        -- %                 -- %
                                 ==================== ====================


10.  TRANSACTIONS WITH AFFILIATES:

On March 19, 2004, Susan Fox resigned as President,  Chief Executive Officer and
Director of BellaVista Capital, Inc. Ms. Fox was retained as a consultant to the
Company  for a period of 12 months in order to assist with any issues that occur
in connection  with the transition of management.  For her services she was paid
$30,000 per month beginning April 2004. We also agreed to compensate Ms. Fox for
her assistance in recovery of legal actions we have brought  against some of our
former  developers.  Our agreement with her provided that she will receive 5% of
any sums we  collect  from  certain  legal  proceedings.  During  the year ended
September 30, 2006 and the nine months ended  September 30, 2005 she received $0
and $65,000,  respectively,  in payments from BellaVista in accordance with this
provision of our agreement.

11.   COMMITMENTS AND CONTINGENCIES:

Operating leases

The  following  is a  schedule,  by years,  of future  minimum  rental  payments
required  under  operating  leases that have initial or remaining  noncancelable
lease terms in excess of one year as of September 30, 2006:


                                     FS-18
<PAGE>

                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005


Year ended September 30, 2007                  $   110,640
Year ended September 30, 2008                       21,900
                                        -------------------

   Net minimum lease payments                  $   132,540
                                        ===================

Litigation

As of September 30, 2006,  the Company was involved in the following  litigation
in which claims for damages would be material if the plaintiff prevailed:

     1.   Steven  Mayer  v  BellaVista  Capital,  Inc.  et al.  A  lawsuit  by a
          shareholder  seeking  damages for securities  violations.  The Company
          believes  it has strong and viable  defenses  and plans to  vigorously
          defend the accusations.

     2.   Robert Allen, et al v BellaVista  Capital,  Inc. et al. A lawsuit by a
          shareholder  group  seeking  damages for  securities  violations.  The
          Company  believes  it has  strong  and  viable  defenses  and plans to
          vigorously defend the accusations.


Construction Contracts

In connection  with our development of investments in real estate held for sale,
we have entered into  contracts  with  construction  companies to complete these
projects.  As of  September  30,  2006 we our  unpaid  obligations  under  these
contracts  totaled  $2,918,593.  We will make  payments  on these  contracts  as
construction  progresses  in much the same manner we do for our  investments  in
real estate under development.

Guarantees

We have issued  indemnity  agreements to insurance  companies in connection with
the  sale of  certain  of our REO  properties.  The  indemnity  agreements  were
provided  in order to induce  the  insurance  companies  to issue  surety  bonds
covering  mechanics liens recorded against properties we owned. The total amount
of the  surety  bonds  issued  with  respect to which we have  issued  indemnity
agreements is $525,000.  We believe that we have remedies  against the mechanics
lien  claims and that we will not become  liable for their  payment as such,  no
amounts have been accrued in the  financial  statements  in  connection to these
liens.

We have also provided indemnity  agreements to insurance companies in connection
with the  issuance  of surety  bonds on behalf of our wholly  owned  subsidiary,
Sands Drive San Jose, Inc. guaranteeing the completion of certain public utility
improvements in our  developments  and the  performance of certain  requirements
related to sale of real property in accordance with  regulations  established by
the California  Department of Real Estate.  The total amount of the surety bonds
issued with respect to which we have issued indemnity agreement is $392,902. The
bonds will be released and our  guarantee  obligation  will be  terminated  upon
completion and  acceptance of the  improvements  and  conditions  imposed by the
Department of Real Estate.

General Uninsured Losses

We require  that our  borrowers  carry  comprehensive  liability,  fire,  flood,
extended coverage, and rental loss insurance with policy specifications, limits,
and deductibles  customarily  carried for similar properties.  Additionally,  we
carry insurance on our direct investments in real estate development. There are,
however, certain types of extraordinary losses that may be either uninsurable or
not economically insurable. Further, all of our investments are located in areas
that are subject to  earthquake  activity,  and we  generally do not require our
borrowers to maintain earthquake insurance.  Should an investment sustain damage
as a result of an earthquake,  we may incur losses due to insurance deductibles,
co-payments on insured  losses,  or uninsured  losses.  Should an uninsured loss
occur, we could lose our investment in, and  anticipated  profits and cash flows
from an investment.



                                     FS-19
<PAGE>

                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005

12.  SUBSEQUENT EVENTS

Subsequent to September 30, 2006 the Company settled a legal matter related to a
mechanics'  lien  associated  with one of our former Direct  Investments in Real
Estate.  The settlement  provides that the Company will pay $262,500 to the lien
claimant.  Accordingly, the Company has accrued this expense as of September 30,
2006.

Subsequent to the fiscal year end, Mackenzie  Patterson Fuller, Inc. commenced a
tender offer to purchase up to 750,000 shares at a price of $1.75 per share.  In
response,  the Company  commenced  an issuer  tender offer to  repurchase  up to
750,000  shares at a price of $2.25 per share,  and purchased a total of 725,217
shares at that price in November 2006.

13.  CONCENTRATION OF CREDIT RISK

At September 30, 2006 and 2005, the Company had  approximately  $2.9 million and
$14.3  million,  respectively,  of cash deposits in excess of federally  insured
limits. The cash was placed with high credit quality institutions.

14.  CHANGE IN FISCAL YEAR END

On November 7, 2005 the Company's  Board of Directors voted to change its fiscal
year end from  December 31 to September 30 and adopted  changes to the Company's
Bylaws  reflecting this change.  The following  unaudited  summary  supplemental
information  for the year ended  September  30, 2005 is provided for  comparison
between the  twelve-month  period in these  statements  and the one-year  period
ending September 30, 2005:

                                                                       Year
                                                                      Ended
                                                         September 30, 2005
                                                         -------------------
REVENUES:
Income from real estate developments.....................      $  6,690,872
Interest income..........................................           222,484
Other....................................................            69,256
                                                         -------------------
   Total revenues........................................         6,982,612

EXPENSES:
Salaries expense.........................................           845,989
Facilities expense.......................................           138,578
Legal and accounting expense.............................           444,073
Board of directors fees and insurance....................           306,502
Administrative expense...................................           132,125
REO and non-recurring expenses...........................         3,290,325
Depreciation.............................................            30,147
Transition expenses......................................             6,766
Provision for impairment of real estate investments......           875,901
                                                         -------------------
   Total expenses........................................         6,070,406
                                                         -------------------
   Net income (loss) from operations.....................           912,206




                                     FS-20
<PAGE>

                            BELLAVISTA CAPITAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

                           SEPTEMBER 30, 2006 AND 2005



OTHER INCOME (EXPENSE)
Income from legal settlements, net of collection costs...         1,863,750
Loss on sale of fixed assets.............................           (23,829)
                                                         -------------------
   Total other income....................................         1,839,921
                                                         -------------------
   Net income before tax.................................         2,752,127
   Income tax expense....................................            (2,400)
                                                         -------------------
   Net income (loss) allocable to common stock...........      $  2,749,727
                                                         ===================


   Basic and diluted net income (loss) per common share..      $       0.17
                                                         ===================


   Basic and diluted weighted average common shares
         outstanding.....................................        16,650,506
                                                         ===================























                                     FS-21
<PAGE>

                                      BELLAVISTA CAPITAL, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                             (continued)

                                     SEPTEMBER 30, 2006 AND 2005


15.  QUARTERLY STATEMENTS OF OPERATIONS (UNAUDITED):

The following tables contain selected unaudited quarterly financial data for the
year ended September 30, 2006 and the nine months ended September 30, 2005(1):

<TABLE>
<CAPTION>
                                                    Three Months       Three Months       Three Months        Three Months
                                                           Ended              Ended              Ended               Ended
                                               December 31, 2005     March 31, 2006      June 30, 2006  September 30, 2006
                                              ------------------- ------------------ ------------------ -------------------
   <S>                                                  <C>                 <C>               <C>                <C>
 REVENUES:
 Income from completed real estate development       $   266,883      $   1,856,044      $   1,943,968         $   820,941
 Interest income..............................            63,073              7,925             32,091                 345
 Other........................................             3,259             24,157             51,796              40,869
                                              ------------------- ------------------ ------------------ -------------------
    Total  revenues...........................           333,215          1,888,126          2,027,855             862,155

 EXPENSES:
 Salaries.....................................           266,613            173,284            151,038             133,679
 Facilities expenses..........................            22,335             22,735             21,444              21,000
 Legal and accounting expense.................            21,807             19,126             48,802              95,020
 Board of directors fees and insurance........            66,151             60,044             61,742              62,387
 General administrative and other.............            32,990             20,989             21,747              23,147
 REO and non-recurring expense................           265,359            117,503            101,682             342,135
 Depreciation expense.........................             7,656              7,656              7,656               8,181
 Provision for impairment of investments in
    real estate ..............................           403,991                 --             81,211             443,653
                                              ------------------- ------------------ ------------------ -------------------
    Total expenses............................         1,086,902            421,337            495,322           1,129,202
                                              ------------------- ------------------ ------------------ -------------------
    Net (loss) income from operations                   (753,687)         1,466,789          1,532,533            (267,047)

 OTHER INCOME (EXPENSE):
 Income from legal settlements, net of
    collection costs..........................           854,500             67,000            168,750                  --
                                              ------------------- ------------------ ------------------ -------------------
    Total other income........................           854,500             67,000            168,750                  --
                                              ------------------- ------------------ ------------------ -------------------
    Net income (loss) before income tax                  100,813          1,533,789          1,701,283            (267,047)
                                                          (2,400)                --                 --                  --
                                              ------------------- ------------------ ------------------ ------------------
                                                      $   98,413       $  1,533,789       $  1,701,283            (267,047)
    Net income (loss).........................
                                              =================== ================== ================== ===================

 Basic and diluted net loss per common share..         $    0.01         $     0.10         $     0.11          $    (0.02)
                                              =================== ================== ================== ===================

 Basic and diluted weighted-average common
    shares outstanding........................        14,991,325         14,991,325         14,991,325          14,991,325
                                              =================== ================== ================== ===================
</TABLE>







                                               FS-22

<PAGE>

                                       BELLAVISTA CAPITAL, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                             (continued)

                                     SEPTEMBER 30, 2006 AND 2005


15.  QUARTERLY STATEMENTS OF OPERATIONS (UNAUDITED):
     (Continued):

<TABLE>
<CAPTION>
                                                                       Three Months       Three Months        Three Months
                                                                              Ended              Ended               Ended
                                                                     March 31, 2005      June 30, 2005  September 30, 2005
                                                                  ------------------ ------------------ -------------------
   <S>                                                                    <C>                 <C>               <C>
 REVENUES:
 Income from completed real estate development....................      $   454,560        $   797,744        $  4,468,487
 Interest income..................................................           48,521              6,392             109,738
 Other............................................................              203             17,469               8,143
                                                                  ------------------ ------------------ -------------------
    Total  revenues...............................................          503,284            821,605           4,586,368

 EXPENSES:
 Salaries.........................................................          184,647            179,756             182,433
 Facilities expenses..............................................           24,047             21,728              23,368
 Legal and accounting expense.....................................          124,992             37,019             224,292
 Board of directors fees and insurance............................           66,223             52,452              90,271
 General administrative and other.................................           32,057             29,920              36,416
 REO and non-recurring expense....................................          247,150            283,903             258,185
 Depreciation expense.............................................            7,200              7,200               7,200
 Provision for impairment of investments in real estate ..........          911,557            286,829             391,477
                                                                  ------------------ ------------------ -------------------
    Total expenses................................................        1,597,873            898,807           1,213,642
                                                                  ------------------ ------------------ -------------------
    Net (loss) income from operations                                    (1,094,589)           (77,202)          3,372,726

 OTHER INCOME (EXPENSE):
 Income from legal settlements, net of collection costs...........          510,000            345,000             381,750
                                                                  ------------------ ------------------ -------------------
    Total other income............................................          510,000            345,000             381,750
                                                                  ------------------ ------------------ -------------------
                                                                        $  (584,589)       $   267,798        $  3,754,476
    Net (loss) income.............................................
                                                                  ================== ================== ===================

 Basic and diluted net (loss) income per common share                    $    (0.03)        $     0.02          $     0.25
                                                                  ================== ================== ===================

 Basic and diluted weighted-average common shares outstanding            17,199,887         14,991,325          14,991,325
                                                                  ================== ================== ===================

<FN>
(1)  The  above  2005  Financial  data  differs  in   classification   from  the
     presentation reflected in the filed Quarterly financial data for the fiscal
     year presented.
</FN>
</TABLE>



                                               FS-23