BELLAVISTA CAPITAL INC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - BELLAVISTA CAPITAL INC	Financial_Report.xls
EX-31.1 - CERTIFICATION - BELLAVISTA CAPITAL INC	bell_ex311.htm
EX-11.1 - COMPUTATION OF PER SHARE EARNINGS - BELLAVISTA CAPITAL INC	bell_ex111.htm
EX-32.1 - CERTIFICATION - BELLAVISTA CAPITAL INC	bell_ex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________to________

Commission File Number: 0-30507

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.)

15700 Winchester Blvd.
Los Gatos, CA		95030
(Address of principal offices)		(zip code)

(408) 354-8424

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant has (1) 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 o Noþ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	Accelerated filer
Yeso No þ	Yes o No þ

Non-accelerated filer (Do not Check if a smaller reporting company)	Smaller reporting company
Yes o No o	Yes þ No o

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yeso No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares of the registrant’s only class of common equity, its common stock, outstanding as of July 31, 2012: 11,171,433

This Quarterly Report on Form 10-Q 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 Part II, Item 1A - 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.

Table of Contents

Part I.	Financial Information

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and September 30, 2010 (Note 1)	4

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2011 and 2010 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2011 and 2010 (unaudited)	6

	Notes to the Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

Part II.	Other Information

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	25

Item 5.	Other Information	25

Item 6.	Exhibits	26

	Signatures	27

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Attached are the following unaudited financial statements of BellaVista Capital, Inc., formerly known as Primecore Mortgage Trust, Inc. (the “Company”):

(1)

Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited), and September 30, 2010

(2)

Condensed Consolidated Statements of Operations for the Three and Nine Months ended June 30, 2011 and 2010 (unaudited)

(3)

Condensed Consolidated Statements of Cash Flows for the Nine Months ended June 30, 2011 and 2010 (unaudited)

(4)

Notes to Condensed Consolidated Financial Statements (unaudited)

The financial statements referred to above should be read in conjunction with the Company’s audited financial statements for the fiscal year ended September 30, 2010 as filed with the Securities and Exchange Commission in our Annual Report on Form 10-K, filed June 9, 2011.

BELLAVISTA CAPITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2011 AND SEPTEMBER 30, 2010

	June 30, 2011 (unaudited)			September 30, 2010 (Note 1)
ASSETS:
Cash and cash equivalents	$	126,492		$	14,112
Accounts receivable, net of allowance of $56,996 and $241,916 at June 30, 2011 and September 30, 2010, respectively		114,191			64,869
Loans receivable secured by real estate		2,649,479			3,881,339
Joint venture investments in real estate developments		5,537,231			6,910,921
Investments in real estate developments		6,506,561			6,172,645
Investment in rental property, net of accumulated depreciation of $321,406 and $264,450 at June 30, 2011 and September 30, 2010, respectively		6,729,312			6,727,162
Other assets, net		210,704			346,606
Total assets	$	21,873,970		$	24,117,654

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Liabilities:
Secured notes payable and lines of credit	$	6,370,075		$	6,425,075
Unsecured notes payable	─				85,585
Accounts payable and accrued expenses		358,012			614,422
Total liabilities		6,728,087			7,125,082

Commitments and contingencies (see Note 11)	─			─

Shareholders’ Equity:
Common stock: par value $0.01, 50,000,000 shares authorized at June 30, 2011 and September 30, 2010; 11,171,433 shares issued and outstanding at June 30, 2011 and September 30, 2010		111,714			111,714
Additional paid-in capital		102,630,358			102,630,358
Accumulated deficit		(87,787,372	)		(85,749,500	)
Total BellaVista Capital shareholders’ equity		14,954,701			16,992,572
Non controlling interest		191,181			-
Total shareholders’ equity		15,145,882			16,992,572

Total liabilities and shareholders’ equity	$	21,873,970		$	24,117,654

See accompanying notes to these condensed consolidated financial statements

BELLAVISTA CAPITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2011 AND 2010

(Unaudited)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2011			2010			2011			2010
REVENUES:
Revenues from loans receivable	$	39,698		$	71,612		$	161,767		$	182,117
Revenues from joint venture investments in real estate developments	─			─			─				240,800
Revenues from sales of investments in real estate developments	─				1,220,000		─				7,487,548
REO property rental revenues		39,758			40,508			98,124			132,835
Rental revenue		206,839			188,985			609,855			478,180
Total revenues		286,295			1,521,105			869,746			8,521,480
Cost of investments in real estate Developments	─				(1,167,793	)	─				(7,385,211	)
Rental expenses		(16,345	)		(117,378	)		(255,681	)		(307,362	)
Gross profit		269,950			235,934			614,065			828,907

EXPENSES:
Legal and accounting expense		92,512			21,087			125,237			52,537
Board of directors fees		21,250			29,226			77,987			103,639
Asset Management Fee		45,157			52,500			132,086			167,500
Officers consulting fees for routine business operations – related party		11,525			27,175			25,500			69,525
D&O insurance expense		27,968			27,843			83,906			83,531
General and administrative expense		5,186			4,478			12,319			14,120
Reserve for uncollectible interest	─			─			─				80,005
Depreciation expense	─				542		─				2,126
BellaVista total operating expenses		203,598			162,851			457,035			572,983
REO carrying costs and expenses		184,799			197,273			455,879			600,637
Loss from equity investments		58,110		─				58,110		─
Provision for impairment of real estate investments		808,325			1,010,342			1,243,092			1,507,851
Total operating expenses		1,254,832			1,370,466			2,214,116			2,681,471
Net loss from operations		(984,882	)		(1,134,532	)		(1,600,051	)		(1,852,564	)

OTHER INCOME (EXPENSE)
Interest Income	─			─			─			─
Interest expense		(138,500	)		(173,490	)		(433,058	)		(527,884	)
Total other income (expense)		(138,500	)		(173,490	)		(433,058	)		(527,884	)
Net loss before tax		(1,123,382	)		(1,308,022	)		(2,033,109	)		(2,380,448	)
Income tax expense		(4,992	)		800			(6,509	)		(28,145	)
Net loss		(1,128,374	)		(1,307,222	)		(2,039,618	)		(2,408,593	)
Net loss attributable to non controlling interest		(1,007	)	─				(1,748	)	─
Net loss attributable to BellaVista Capital	$	(1,127,367	)	$	(1,307,222	)	$	(2,037,870	)	$	(2,408,593	)

Basic and diluted net loss per common share	$	(0.10	)	$	(0.12	)	$	(0.18	)	$	(0.22	)

Basic and diluted weighted-average shares outstanding		11,171,433			11,171,433			11,171,433			11,171,433

See accompanying notes to these condensed consolidated financial statements

BELLAVISTA CAPITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended June 30, 2011 and 2010

(unaudited)

	Nine Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,039,618	)	$	(2,408,593	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		86,554			79,393
Gain on sale of fully impaired investments		-			(240,800	)
Loss recognized from equity in JV investments		58,110
Allowance for uncollectible interest		(241,916	)		80,005
Provision for impairment		1,243,092			1,507,851
Decrease (increase) in accounts receivable		192,594			(30,600	)
Decrease in other assets		135,901			31,488
Decrease in accounts payable and accrued expenses		(256,409	)		(407,639	)
Net cash used in operating activities		(821,692	)		(1,388,895	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayments and sales of loans, joint ventures and investments in real estate		2,241,491			8,192,930
Cash used to fund rental property improvements		(30,000	)		-
Investments in loans, joint ventures and real estate developments		(1,136,834	)		(1,403,457	)
Net cash provided by investing activities		1,074,657			6,789,473

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable and lines of credit		390,000			1,100,000
Repayment of notes payable and lines of credit		(530,585	)		(6,530,496	)
Net cash used in financing activities		(140,585	)		(5,430,496	)
Net increase in cash and cash equivalents		112,280			(29,918	)
Beginning cash and cash equivalents		14,112			44,422
Ending cash and cash equivalents	$	126,492		$	14,504

Supplemental disclosure of cash flow information:
Cash paid for interest	$	433,058		$	527,884
Cash paid for income taxes	$	-		$	28,145
Assets acquired through foreclosure	$	599,250		$	3,888,496
Debt acquired through foreclosure	$	-		$	2,800,000

See accompanying notes to these condensed consolidated financial statements

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ORGANIZATION AND BUSINESS:

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended June 30, 2011 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.

The condensed consolidated balance sheet at September 30, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the BellaVista Capital, Inc. Annual Report on Form 10-K for the fiscal year ended September 30, 2010.

Organization

BellaVista Capital, Inc., a Maryland corporation (the Company, BellaVista, BVC, our, we), was formed on March 18, 1999 and commenced operations effective May 1, 1999. We have been engaged in the business of investing in real estate development projects, primarily in California. Our investments are structured as loans secured by real estate, loans made to real estate development entities and 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. In addition, BellaVista Capital, Inc. is the 100% shareholder of Frank Norris Condominiums Inc., a California corporation formed for the purpose of developing and selling residential real estate. The Company holds a 100% interest in Cummings Park Associates, LLC, a California Limited Liability Company formed to develop and sell a mixed use residential and retail project in East Palo Alto California. The Company holds a 100% interest in MSB Brighton LLC, currently operated as a rental property. Finally, the Company holds a 67.8% interest in 1472 Investors, LLC, a single asset LLC used to hold a commercial property, which is currently being operated as a rental property.

The financial statements are presented on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business as the company proceeds with is previously discussed plans for a controlled liquidation and repurchase of existing shares. The Company has experienced significant losses and expects to continue to generate negative cash flows due to REO and operating expenses. The Company’s ability to continue as a going concern is, therefore, dependent upon its ability and the timing to sell its existing real estate investments and obtain additional funds from those net proceeds and further borrowings, if necessary. Failure to do so would result in a depletion of its available funds. The Company believes that it currently has sufficient cash and financial resources to meet its REO and operating requirements over the next year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Consolidation Policy

The consolidated financial statements include the accounts of BellaVista Capital, Inc. and its wholly owned subsidiaries: MSB Brighton LLC, Frank Norris Condominiums Inc., Cummings Park Associates, LLC, and 1472 Investors, LLC. All intercompany accounts and transactions have been eliminated in consolidation. We may enter into various joint venture agreements with unrelated third parties to hold or develop real estate assets. We must determine for each of these joint ventures whether to consolidate the entity or account for our investment under the equity or cost basis of accounting. Investments acquired or created are evaluated based on the accounting guidance relating to variable interest entities (“VIEs”), which requires the consolidation of VIEs in which we are considered to be the primary beneficiary. If the investment is determined not to be a VIE, then the investment is evaluated for consolidation (primarily using a voting interest model) under the remaining consolidation guidance relating to real estate. If we are the general partner in a limited partnership, or manager of a limited liability company, we also consider the consolidation guidance relating to the rights of limited partners or non-managing members, as the case may be, to assess whether any rights held by the limited partners, or non-managing members, as the case may be, overcome the presumption of control by us. We evaluate our accounting for investments on a quarterly basis or when a reconsideration event (as defined in GAAP) with respect to our investments occurs. The analysis required to identify VIEs and primary beneficiaries is complex and requires substantial judgment by management. Accordingly, we believe the decisions made to choose an appropriate accounting framework are critical.

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 secured by deeds of trust on real property, pay interest on a monthly basis and are typically additionally collateralized by personal 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 ASC 310-10-S99-4 “Accounting for Loan Losses”, and ASC 450-10-05 “Loss Contingencies”, in setting credit reserves for our residential and commercial loans. We follow the guidelines of ASC 310-10-35-16 “Assessing Whether a Loan is Impaired”, in determining impairment on commercial real estate loans.

Joint Venture Investments in Real Estate Developments

Our joint venture investments in real estate developments are comprised of loans, known as Acquire, Develop, and Construct loans (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 residential real estate. 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.

Because our ADC loans contain many of the characteristics of investments in real estate, they are classified for financial reporting purposes as 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 joint venture investments in real estate developments. 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.

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 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 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.

Investments in Real Estate Developments

Investments in Real Estate Developments represent development projects that the Company has obtained through foreclosure of its mortgage loans or controls by virtue of its operating agreements with development entities, and relate to real properties for which the Company has a controlling ownership interest. We consolidate the assets and liabilities of these Investments in Real Estate Developments in our financial statements. The Company’s basis in the projects is the carrying amount of the project at the time of loan foreclosure. Management conducts a review for impairment of these assets on an investment-by-investment basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, but not less frequently than 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 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.

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 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 uses the asset and liability methods whereby deferred tax assets 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.

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Recent Accounting Pronouncements

In January 2010, the FASB issued guidance to improve disclosures about fair value measurements. The guidance provides amendments to require new disclosures regarding transfers in and out of Levels 1 and 2 of the fair value measurement hierarchy, and activity in Level 3, and to clarify existing disclosures regarding the level of disaggregation, inputs and valuation techniques. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the new disclosures regarding purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the guidance, except for the new disclosures regarding purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, as of January 1, 2010, as required. We do not expect that the January 1, 2010 adoption of the guidance will have a material impact on our consolidated financial statements. We are currently determining the impact of the new disclosures regarding purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements on our consolidated financial statements.

In January 2010, the FASB issued guidance to address implementation issues related to the changes in ownership provisions in ASC 810, "Consolidation," ("ASC 810"). The guidance clarifies the scope of the decrease in ownership provisions in ASC 810 and expands the disclosures about the deconsolidation of a subsidiary or derecognition of a group of assets within the scope of ASC 810. The guidance is effective beginning in the first interim or annual reporting period ending on or after December 15, 2009, and should be applied retrospectively to the first period that ASC 810 was adopted by us. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The ASU clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring (“TDR”), both for purposes of recording an impairment loss and for disclosure of a TDR. In evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. The amendments to ASU Topic 310, Receivables, clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. ASU No. 2011-02 is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220)—Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011, with early adoption permitted. The future adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

3. LOANS RECEIVABLE SECURED BY REAL ESTATE:

As of June 30, 2011, loans receivable secured by real estate summarized by location consisted of the following:

Description	Amount Invested		Recognized Cumulative Impairments		Carrying Amount		In Default

SF Bay Area	$	2,010,407	$	490,000	$	1,520,407	$	─
California Central Valley		1,075,000	─			1,075,000	─
Southern California		339,627		285,556		54,071	─
Total	$	3,425,035	$	775,556	$	2,649,479	$	─

As of September 30, 2010, loans receivable secured by real estate summarized by location consisted of the following:

Description	Amount Invested		Recognized Cumulative Impairments		Carrying Amount		In Default
SF Bay Area	$	3,561,701	$	982,845	$	2,578,856	$	798,155
California Central Valley		505,500	─			505,500	─
Southern California		355,476		163,177		192,299	─
Other States		604,684	─			604,684		604,684
Total	$	5,027,361	$	1,146,022	$	3,881,339	$	1,402,839

Loans Receivable Secured by Real Estate consist of loans to real estate developers which are secured by deeds of trust on real property, accrue interest monthly and generally have repayment guarantees from the principals of the borrowing entity. Management periodically evaluates the underlying collateral of the loans which are in default as part of its impairment analysis.

As of June 30, 2011, $2,458,407 was secured by first trust deeds and $159,071 was secured by second trust deeds. As of September 30, 2010, $2,936,540 of these loans was secured by first trust deeds and $944,799 was secured by second trust deeds. As of June 30, 2011, no loans were in default and we have recognized cumulative impairments on six (6) of our loans receivable totaling $775,556. As of September 30, 2010, six (6) loans totaling $1,402,839 were in default under the terms of our loans and we have recognized cumulative impairments on seven (7) of our loans receivable totaling $1,146,022.

Provision for impairment of loans receivable secured by real estate amounted to $122,379 and $264,379 for the three and nine months ended June 30, 2011, respectively. Provision for impairment of loans receivable secured by real estate amounted to zero and $445,186 for the three and nine months ended June 30, 2010, respectively

4. JOINT VENTURE INVESTMENTS IN REAL ESTATE DEVELOPMENTS:

As of June 30, 2011, joint venture investments in real estate developments summarized by location consisted of the following:

Description	Amount Invested		Recognized Cumulative Impairments		Carrying Amount		Remaining Funding Obligation

SF Bay Area	$	9,165,469	$	3,988,673	$	5,176,796	$	─
Central Valley California		1,714,421		1,353,987		360,435	─
Southern California		7,484,906		7,484,906	─		─
Total	$	18,364,796	$	12,827,566	$	5,537,231	$	─

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As of September 30, 2010, joint venture investments in real estate developments summarized by location consisted of the following:

Description	Amount Invested		Recognized Cumulative Impairments		Carrying Amount		Remaining Funding Obligation

SF Bay Area	$	9,702,207	$	3,038,450	$	6,488,664	$	─
Central Valley California		1,770,662		1,348,405		422,257	─
Southern California		7,484,906		7,484,906	─		─
Total	$	18,782,682	$	11,871,761	$	6,910,921	$	─

Joint Venture Investments in real estate developments consist of ADC loans and joint investments with real estate developers. ADC Loans are loan arrangements that are typically secured by real property, provide for the payment of interest from an interest reserve established from loan funds and may also provide for the payment of a share of project profits. Joint Venture investments are equity investments in operating entities formed for the purpose of developing real estate. Our investment typically earns a preferred return calculated based on our investment amount at a specific rate during the term of the investment and a share of the project profits.

Provision for impairment of joint venture investments in real estate developments amounted to $32,867 and $193,054 for the three and nine months ended June 30, 2011, respectively. Provision for impairment of joint venture investments in real estate developments amounted to $747,176 and $799,499 for the three and nine months ended June 30, 2010, respectively.

5. INVESTMENTS IN REAL ESTATE DEVELOPMENTS:

Investments in Real Estate Developments (REOs) include real estate development projects we own, either directly or through a subsidiary company we own or control. As of June 30, 2011, investments in real estate developments summarized by location consisted of the following:

Description	Amount Invested (net of payments)		Recognized Cumulative Impairment		Carrying Amount		Costs to Complete
SF Bay Area	$	11,194,926	$	5,055,714	$	6,139,212	$	426,420
Other States		612,463		245,113		367,350	─
Total	$	11,807,389	$	5,300,827	$	6,506,562	$	426,420

As of September 30, 2010, investments in real estate developments summarized by location consisted of the following:

Description		Amount Invested (net of payments)				Recognized Cumulative Impairment				Carrying Amount				Costs to Complete
SF Bay Area		$	10,189,973			$	4,017,328			$	6,172,645			$	426,420

Provision for impairment of investments in real estate developments amounted to $187,700 and $245,113 for the three and nine months ended June 30, 2011, respectively. Provision for impairment of investments in real estate developments amounted to $49,366 for the three and nine months ended June 30, 2010.

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

6. INVESTMENT IN RENTAL PROPERTY:

Investment in rental property at June 30, 2011 and September 30, 2010 consisted of the following:

	June 30, 2011			September 30, 2010
Land	$	2,512,775		$	2,777,183
Buildings		4,525,010			4,201,899
Furniture, Fixtures & Equipment		42,530			12,530
Total Rental Property		7,080,316			6,991,612
Accumulated depreciation		(351,004	)		(264,450	)
Rental Property, net	$	6,729,312		$	6,727,162

Depreciation expense amounted to $29,958 and $86,554 for the three and nine months ended June 30, 2011, respectively compared with $29,937 and $77,267 for the three and nine months ended June 30, 2010.

Provision for impairment of investments in rental property amounted to $465,379 and $540,546 for the three and nine months ended June 30, 2011, respectively. Provision for impairment of investments in real estate developments amounted to $213,800 for the three and nine months ended June 30, 2010.

7. FIXED ASSETS:

Fixed assets at June 30, 2011 and September 30, 2010 were fully depreciated.

Depreciation expense was zero for the three and nine months ended June 30, 2011, compared with $542 and $2,126 for the three and nine months ended June 30, 2010, respectively

8. NOTES PAYABLE AND LINES OF CREDIT:

Notes payable and lines of credit at June 30, 2011 and September 30, 2010 consisted of the following:

	June 30, 2011		September 30, 2010
Cummings Park secured note	$	625,075	$	625,075
Alum Rock secured note		2,800,000		2,800,000
Brighton line of credit		1,430,000		1,500,000
1472 Investors line of credit		15,000	─
Pulgas line of credit		1,500,000		1,500,000
Total	$	6,370,075	$	6,425,075

The Cummings Park secured note was originated for the purpose of financing the construction of a residential and retail mixed use project in East Palo Alto, California. The original amount of the note was $14.9 million. The note is owed by Cummings Park Associates, LLC and is secured by the real property that is owned by Cummings Park Associates, a wholly-owned subsidiary of the Company. The note bears interest at Prime plus 2% with a floor of 8.0%, (8.0% at June 30, 2011 and September 30, 2010) and matured on June 30, 2011. Interest-only payments are due monthly on the outstanding balance of the note. Principal payments will be made from the proceeds when units are sold. The Company completed a refinance of this note in August 2011 (See Note 12).

The Alum Rock secured note was assumed by the Company during the year ended September 30, 2010. The note is secured by the Alum Rock rental property that is owned by the Company. The loan originally obligated the Company to pay interest in year one at a rate of 7.5%, year two at 8.5% and year three at 9.5%, and matures on March 1, 2013. In December 2010, the interest rate was modified and reduced to 6.0%, fixed rate, for the remainder of the term of the note. Interest-only payments are due monthly on the outstanding balance. The maturity date is March 1, 2013. The Company is no longer obligated to make payments on this obligation (See Note 12).

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The $1.5 million Brighton line of credit, of which $1,430,000 is outstanding as of June 30, 2011, is secured by our Brighton rental property in Modesto, California through our wholly-owned investment in MSB Brighton, LLC. The line bears interest at 11.5%. Interest payments are due monthly on the outstanding balance. The line matured on November 1, 2011. Although the line of credit has matured, the lenders continue to accept monthly interest payments. A portion of the outstanding balance at June 30, 2011 is due to certain related parties (See Note 10). Principal payments made under this line amounted to $220,000 and borrowing on this line amounted to $220,000 during the nine months ended June 30, 2011. The Company sold the rental property asset that secured this Note and the obligation was paid off in May 2012 (See Note 12).

The $1.5 million Pulgas line of credit, of which $1,430,000 is outstanding as of June 30, 2011, is secured by one of our direct investments in real estate in East Palo Alto, CA. The line bears interest at 11.5%. Interest payments are due monthly on the outstanding balance. The line matured on February 1, 2012, and the maturity date has subsequently been extended to February 1, 2013. The note is due to certain related parties (See Note 10). Principal payments made under this line amounted to $225,000 and borrowings on this line amounted to $155,000 during the nine months ended June 30, 2011. The Company paid off this Note in May 2012 (See Note 12).

The $100,000 1472 Investors, LLC line of credit, of which $15,000 is outstanding as of June 30, 2011, is secured by one of our direct investments in real estate in Oakland, CA. The line bears interest at 11.0%. Interest payments are due monthly on the outstanding balance. The line matured on May 1, 2012. Principal payments made under this line amounted to zero and borrowings on this line amounted to $15,000 during the nine months ended June 30, 2011. The Company paid off this Note in September 2011 (See Note 12).

9. SHAREHOLDERS’ EQUITY:

There is currently no public trading market for our stock. We are authorized to issue up to 50,000,000 shares of Common Stock. As of June 30, 2011 we have repurchased and cancelled 1,564,097 shares in connection with legal settlements and 6,747,822 shares under tender offers at various prices. At June 30, 2011 and September 30, 2010 we had 11,171,433 shares of Common Stock outstanding.

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.

During the three and nine months ended June 30, 2011 and 2010 and the year ended September 30, 2010, the Company made no stock repurchases or cancellations.

The Company had an investment in a promissory note which was secured by two commercial properties in Oakland, CA. In December 2010, 1472 Investors, LLC, which was formed by the investors of the promissory note, foreclosed on the properties. The Company held a 67.8% ownership interest in the promissory note and therefore holds a 67.8% ownership interest in 1472 Investors, LLC. Accordingly, the Company consolidates 1472 Investors, LLC as a majority-owned subsidiary. The remaining ownership interest of the minority owners of 32.2% is reported in the Company’s financial statements as non-controlling interest.

10. TRANSACTIONS WITH AFFILIATES:

During the fiscal year ended September 30, 2009 the Company obtained lines of credit that were partially or fully funded by some of its directors. The terms of these relationships and lines of credit have been previously disclosed in the Company’s Annual 10-K for 2010 filing and the Quarterly 10-Q filings for fiscal year 2011 filed with the Securities and Exchange Commission. They are detailed below.

It should be noted that both lines of credit were structured such that the Company could draw on them only as needed and repay principal at any time cash became available. In this way, the total interest costs paid by the Company would be minimized. Therefore, the principal balances of both these lines of credit fluctuate based on the draws and pay downs that routinely occur, typically on a monthly basis. These lines have been funded through advances by two related parties and two independent third party private lenders. The Company paid off both of the following lines of credit in May 2012 (See Note 12).

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Brighton line of credit – The $1.5 million line of credit had an outstanding balance of $1.5 million as of June 30, 2011 and September 30, 2010, respectively. The line is secured by our MSB Brighton rental property in Modesto, California through our wholly-owned investment in MSB Brighton LLC. The line bears interest at 11.5% and matured on November 1, 2011. Interest payments are due monthly on the outstanding balance. Although this line of credit has matured, the lenders continue to accept monthly interest payments. This line of credit is partially funded by two of our directors. Of the $1,430,000 million outstanding balance at June 30, 2011, $650,000 is owed to Mr. Black and $75,000 is owed to Mr. Offenberg. Since the inception of the note Mr. Offenberg sold and assigned $900,000 of his portion of the note balance to Mr. Black or other unrelated third party private lenders. Since the inception of the note Mr. Black has purchased $300,000 of the note balance from Mr. Offenberg or other unrelated third party private lenders. The following table sets forth the amounts attributed to each affiliated party:

	Nine Months Ended June 30, 2011		Since Inception: October 30, 2008 to June 30, 2011
Advances to the Company
William Offenberg	$	75,000	$	1,195,000
Jeffrey Black	$	-	$	650,000
Repayments/Transfers to/by the Lenders
William Offenberg	$	220,000	$	1,120,000
Jeffrey Black	$	-	$	-
Balance of Line
William Offenberg	$	75,000	$	75,000
Jeffrey Black	$	650,000	$	650,000
Interest paid or payable
William Offenberg	$	13,359	$	167,505
Jeffrey Black	$	55,909	$	180,850

Pulgas line of credit – The $1.5 million line of credit had an outstanding balance of $1.5 million as of June 30, 2011 and September 30, 2010, respectively. The line is secured by one of our direct investments in real estate in East Palo Alto, California. The line bears interest at 11.5% and matures on February 1, 2012. Interest-only payments are due monthly on the outstanding balance. This line of credit is principally funded by one of our directors, William Offenberg. The balance of $1,500,000 at June 30, 2011 was owed to this director. The following table sets forth the amounts attributed to each affiliated party:

	Nine Months Ended June 30, 2011		Since Inception: January 20, 2009 to June 30, 2011
Advances to the Company
William Offenberg	$	225,000	$	3,150,000
Jeffrey Black	$	-	$	300,000
Repayments to the Lenders
William Offenberg	$	225,000	$	1,650,000
Jeffrey Black	$	-	$	300,000
Balance of Line
William Offenberg	$	1,500,000	$	1,500,000
Jeffrey Black	$	-	$	-
Interest paid or payable
William Offenberg	$	130,030	$	312,762
Jeffrey Black	$	-	$	13,695

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

11. COMMITMENTS AND CONTINGENCIES

Litigation

As of March 31, 2011, the Company was involved in the following litigation in which claims for damages would be material if the plaintiff prevailed and there is at least a reasonable possibility that a loss may occur:

Richard Aster v BellaVista Capital, Inc. et al.

This action was initiated in California Civil Court on August 10, 2007. The plaintiff is Richard Aster, the party that purchased the completed home from BellaVista. The defendants are BellaVista, Ainsworth Construction, Masma (the original developer) and various subcontractors who did work for each of these two construction companies. This lawsuit alleges construction defects in the installation of windows, decking and roofing related to a single family home that was purchased by the plaintiff from the Company after the Company acquired the property through foreclosure. In this lawsuit the plaintiff is requesting compensation for all of their costs related to correcting the construction defects and pursuing this action. In addition, a lawsuit has been filed by the original developer (Masma) against the Company for indemnification and defense. This litigation was settled in June 2011 on terms acceptable to the Company. As of June 30, 2011, the settlement amount has been included in these condensed consolidated financial statements.

Eden CDM v MAC Homes, LLC

This action was initiated in the Superior Court of the State of California for the County of Alameda on July 20, 2009. The plaintiff is Eden CDM, the general contractor hired to build the MacArthur project. The defendant is MAC Homes, LLC, the developer and Bella Vista’s joint venture partner. The plaintiff is seeking the retention amounts not paid at completion and legal fees. The contract with the general contractor had penalty provisions for delayed completion, which the Company strongly believes are owed by the general contractor and are greater than the retention amounts sought. The Company has retained expert construction litigation counsel on behalf of MAC Homes. This litigation was settled in January 2011 on terms acceptable to the Company. As of June 30, 2011, the settlement amount is included in these condensed consolidated financial statements.

139 Stillman Street Homeowners Association v BellaVista Capital, Inc. et al.

This action was initiated in San Francisco County Superior Court on January 19, 2011. The plaintiff is 139 Stillman Street Homeowners Association. The plaintiff alleges that there are certain defects to the project that the Company had previously foreclosed on, completed unfinished units and sold to the various homeowners. The Company has retained legal counsel and will vigorously defend against this action. The parties to this litigation have agreed to use the services of a special master to assist in allocating the financial responsibility of the alleged defects.

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.

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

12. SUBSEQUENT EVENTS:

The following events occurred after June 30, 2011:

139 Stillman Street Homeowners Association v BellaVista Capital, Inc. et al.

Emilio Navarro v 1472 Investors, LLC. et al.

This action was initiated in Alameda County Superior Court on June 23, 2011. The plaintiff alleges that 1472 Investors, LLC, a majority-owned subsidiary of the Company, wrongfully foreclosed on the plaintiff’s real property in Oakland, CA. The Company has retained legal counsel and will vigorously defend against this action. In July 2012, the Alameda County Superior Court ruled in favor of the Company and the litigation was dismissed.

Cummings Park Associates, LLC – Completion of Refinance with Related Party

In August 2011, Cummings Park Associates, a wholly owned subsidiary, completed a refinancing of a note payable to Wells Fargo Bank (Wells Fargo). The Company obtained new financing from Mr. Jeff Black, a Director of the Company, totaling $635,000 at 8% per annum and matures in August 2012. The interest rate on the note payable to Mr. Black is the same as the interest rate charged by Wells Fargo during the preceding 12 months. The Company obtained financing from Mr. Black due to Wells Fargo not extending the maturity date.

Cummings Park Associates, LLC – Completion of Agreements with City of East Palo Alto

In June of 2012, the Company formalized an agreement to amend the Owner’s Participation Agreement, which regulates the entitlements for the development, such that the number of Below Market Rate (BMR) Units would be reduced from six to three units. The three former BMR units are under contract and we anticipate will be closed in the near future. The proceeds of such sales will pay the City of East Palo Alto an in-lieu of fee for reducing the number of BMR units and pay off the reminder of the debt on the project.

Frank Norris, Inc. – Completion of Cash Out New Note with Related Party

In October 2011, Frank Norris, Inc., a wholly owned subsidiary, signed a line of credit agreement (the line) with a maximum borrowing amount of $500,000. The line is for a period of one year, with a rate of 9% per annum, with interest only payments due monthly on the outstanding balance. In October 2011, due to cash flow needs by the Company and its subsidiaries, the Company obtained funding in the amount of $170,000 on this line from Mr. William Offenberg and Mr. Jeffrey Black, both of whom are Directors of the Company. Subsequently, in December 2011 and in March 2012, Mr. Black and Mr. Offenberg, advanced an additional $170,000 and $160,000, respectively. Total advances on the line of credit amounted to $500,000. The purpose of the advance in December 2011 and in March 2012 was to pay property taxes on all REO and other real estate owned by the Company and its subsidiaries. The Note was paid off in June 2012 with proceeds from sales of other REO properties.

BELLAVISTA CAPITAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Frank Norris, Inc. – Completion of sale of unit

In June of 2012, the Company completed a sale and closed escrow on one unit in the property. The Company provided short term seller carry financing to complete the sale.

Alum Rock Retail Project, San Jose

In March of 2012, management made the decision to fully impair the Alum Rock property. The property continued to generate sufficient cash flow to pay the senior debt service and operating expenses, but the long term probability of recovering our original investment was quite low. The Company reached an agreement with first mortgage holder to transfer ownership of the property to the first mortgage holder effective March 1, 2012, relieving BVC of the ongoing management and liability of the project.

MSB Brighton – Apartment Complex, Modesto, CA

The Company sold this property in May of 2012 for a price of $3,675,000. The sale enabled the Company to pay off the Brighton line of credit, the Pulgas Line of Credit and the Frank Norris Line of Credit – a total of $3,500,000 of debt was paid off.

Oakland Cathedral Building – 1615 Broadway, Oakland, CA

This is a JV investment for the Company. In June 2012, two units in the project were sold and closed escrow. A third unit is in escrow. The Company has recently reached agreement with developer to relinquish to the Company management of the operations of this project. In the next 45 days we anticipate that Company will assume full operational control of this project by means of an amendment to the current LLC operating agreement which will allow the Company to direct and manage the sales of the remaining units. The LLC that is in title to the project will become a consolidated entity of BVC

Notes Payable and Lines of Credit

The total debt owed by the Company on notes payable and lines of credit was $635,000 as of July 31, 2012. This compares to total debt owed of $6,425,075 as of September 30, 2010.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.

General

Our material financial transactions have been purchasing and holding a portfolio of construction mortgage loans, and the construction and sale of real estate acquired through foreclosure or deed in lieu of foreclosure. Statements contained in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations,'' and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions, which may be provided by management, are also forward-looking statements. These statements are not guaranties of future performance. Forward-looking statements are based on current expectations and projections about future events and are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those described under the heading “Risk Factors” included in Part II, Item 1A. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. 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-Q, or to reflect the occurrence of unanticipated events, other than as required by law.

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 of 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 rapidly deteriorate; Primecore began to experience borrower defaults and through 2003 took title to 48 properties by way of foreclosure or deed in lieu of foreclosure. Primecore also recognized significant impairments in its portfolio. The impairment of the investment portfolio resulted in substantial operating losses. The Company 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 participation. 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.

In April 2004 Primecore changed its name to BellaVista Capital in order to reflect its new business focus. 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 a number of our non-performing investments, management completed the transition to internal management and reduced continuing operating expenses.

In October 2007, the Board began a restructuring program that has ultimately resulted in significant operating cost savings and increased efficiencies, including: closing the Palo Alto office, terminating all direct employees, outsourcing the administration and asset management functions and enlisting a Board member to function as CFO on an as needed basis and another board member to assume the CEO responsibilities on an as-needed consulting basis.

The current real estate market in which our properties are located has experienced significant deflationary pricing and significant inventory buildup. While it is true that some recent publicly published statistics appear to demonstrate an increase in sale rate, a significant portion of this increase is at distressed or foreclosure pricing, a clear negative factor for pricing in the foreseeable future. As the credit markets appear to have begun to return to some form of normalcy, high unemployment and the insecurities fostered by layoffs have evolved as the latest major drag on the economy, consumer confidence and the real estate market. Thus, as indicated in Part 1, Item 1 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2010, the Company has discontinued originating any new investments secured by deeds of trust or subordinated debt or investments in equity partnerships.

As a result of the current difficult market conditions, the Company has taken control of certain underlying projects associated with certain nonperforming loans and equity partnership investments. Control was obtained by settlement with the borrower or by assuming the role of managing partner. These properties are now categorized as Investments in real estate developments (REOs). For each of these properties, the Company has developed individual plans in order to maximize value based on the local market conditions, potential for future appreciation, and the properties’ operating and debt structure. In a number of cases, these REO’s are being operated as either a rental or a hybrid of units used for rental and units available for sale. In a particular case of a condominium project, it was deemed appropriate to auction the individual units versus renting or offering for sale and thereby having to continue to fund the carrying costs for an extended period.

In terms of the path forward, as has been discussed in previous letters and meetings of shareholders, the Company has continued to evaluate the real estate and credit markets as well as our existing portfolio and is not planning on originating any new investments in the foreseeable future. The Company is managing the existing REO and other properties under its control with the goals of maximizing value and completing the sale of all these folio properties, which is expected to happen over the next several years (market permitting). The resulting proceeds will first be used to retire then current debt and fund then current operating and REO expenses and then be used to provide liquidity to existing shareholders through a share repurchase program. It should clearly be noted that the timing for share repurchases is highly dependent on when properties are sold, at what price and when all of the existing debt is repaid.

RESULTS OF OPERATIONS

Revenues

Revenues from Loans Receivable

We reported revenues from loans receivable of $39,698 and $161,767 for the three and nine months ended June 30, 2011, respectively, compared with $71,612 and $182,117 for the three and nine months ended June 30, 2010. The decrease is due to a decrease in the number of loans in the portfolio.

Revenues from Joint Venture Investments in Real Estate Developments

We reported no revenues from joint venture investments in real estate developments for the three and nine months ended June 30, 2011, compared with revenues of $0 and $240,800 for the three and nine months ended June 30, 2010, respectively. The 2010 revenues represented gains from the disposition and sale of fully impaired investments. There were no such gains during the nine months ended June 30, 2011.

Revenues from Sale of Investments in Real Estate Developments

We reported no revenues from the sale of investments in real estate developments for the three and nine months ended June 30, 2011, compared to $1,220,000 and $7,487,548 for the three and nine months ended June 30, 2010, respectively. The decrease is due to no sales of investments in Real Estate Developments during the current period. The revenue from sales of investments will vary each period depending upon the timing of a sale(s).

REO Property Rental Revenues

We reported REO property rental revenues totaling $39,758 and $98,124 for the three and nine months ended June 30, 2011, respectively, compared with $40,508 and $132,835 for the three and nine months ended June 30, 2010, respectively. The decrease is due to the continued sale of our REO properties that had previously been used as rental units.

Rental Revenue

We reported rental revenues totaling $206,839 and $609,855 for the three and nine months ended June 30, 2011, respectively, compared to $188,985 and $478,180 for the three and nine months ended June 30, 2010. The associated rental expenses including depreciation were $16,345 and $255,681 for the three and nine months ending June 30, 2011, respectively, compared to $117,378 and $307,362 for the three and nine months ended June 30, 2010. The increase in revenue and expenses is due to the addition of the Alum Rock Rental project acquired by foreclosure in January 2010.

Expenses

As a result of the continuing downturn in the real estate market and significant uncertainties associated with future investments, we have discontinued originating any new equity or subordinated debt investments and ceased originating new trust deed investments. In order to streamline the operations of the company and reduce operating expenses to compensate for the eroding market conditions and declining property values, the Board of Directors determined in 2007 that the best course of action to preserve shareholder’s value was to begin implementation of a restructuring program. The Board has continued to make significant progress under this program which has ultimately resulted in significant operating cost savings and increased efficiencies, including: closing the Palo Alto office, terminating all direct employees, outsourcing the administration and asset management functions. Additionally, in 2010, the size of the Board was reduced from 4 to 3 members and the CEO and CFO responsibilities were consolidated and are now fulfilled by a single Board member on as-needed consulting basis.

We group our expenses in three categories: BellaVista operating expenses, REO expenses, and impairments. BellaVista operating expenses are associated with the ongoing operations of the Company. REO expenses include all of the carrying costs for REO properties such as property taxes, insurance, maintenance, marketing, legal, debt service and general and administrative expenses. Impairments are the write down in values that management makes due to changing market conditions.

BellaVista operating expenses before REO expenses and provision for impairment (including controllable, nonrecurring and non-cash expenses) were $203,598 and $457,035 for the three and nine months ended June 30, 2011, respectively, compared to $162,851 and $572,983 for the three and nine months ended June 30, 2010. The decrease in Bella Vista operating expenses is mainly attributable to decrease in the following items: Board of Directors costs, CEO and CFO consulting fees, legal fees and administrative expenses. This significant reduction in BellaVista operating expenses is a direct result of the restructuring plan the Board of Directors began in 2007. Further, it is a clear and definitive indication of the BellaVista Board’s success and ongoing commitment to minimize controllable expenses and provide an efficient and cost effective controlled liquidation of the BellaVista portfolio and achieve the goal of a subsequent share repurchase program.

During the three and nine months ended June 30, 2011, REO expenses were $184,799 and $455,879, respectively, as compared to $197,273 and $600,637 for the three and nine months ended June 30, 2010, respectively. This decrease is due to decreased costs to carry REO properties being held for sale during the current period.

We recorded impairment charges totaling $808,325 and $1,243,092 for the three and nine months ended June 30, 2011, respectively, as compared to $1,010,342 and $1,507,851 for the three and nine months ended June 30, 2010. The impairments reported during the three and nine months ended June 30, 2011 were related to certain investments whose values had declined due to the continuing decreases in real estate prices and longer than projected marketing periods. We have impaired these investments based on our estimate of the decrease in value and the increase in carrying and operating costs associated with either holding or renting these properties for periods longer than originally projected due to the continued weakness and highly uncertain conditions in the real estate and credit markets.

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, costs of operating and holding investments in real estate development for future sales, and operating expenses.

Sources of Cash

At June 30, 2011, we had cash and cash equivalents of $126,492 and our primary sources of liquidity were proceeds from the sale of our completed investments in REO properties, payoffs of loans receivable, interest from investments in trust deeds that pay interest monthly, our lines of credit and cash on hand. During 2010 and 2011, and through the date of this filing, the Company has had adequate investment payoffs, revenue from different sources, and proceeds from borrowing to meet ongoing obligations. Historically, we have been able to obtain secured financing from our shareholders and management, however, we cannot ascertain if such funding will be available in the future or on terms acceptable to us.

We typically receive repayment on our investments when the development project has been completed and sold or refinanced to third parties. Accordingly, our repayments are a function of our developers’ ability to complete and sell the development properties in which we have invested. During the nine months ended June 30, 2011 we received repayments of approximately $2.2 million, a 73% decrease as compared to approximately $8.2 million during the nine months ended June 30, 2010. Due to the continued weakness and uncertainty in the real estate and credit markets, we believe that there is a high degree of uncertainty in estimating the timing of the sales or the amount of proceeds we might receive from the future sale of our properties.

It is possible that our repayments may not be sufficient to meet our commitments including REO and operating expenses and we may be forced to sell assets or seek financing at terms that may be unfavorable. This would have a negative impact on the estimated net realizable value of our assets.

We have two lines of credit secured by our Brighton and Pulgas investments, totaling $3.0 million of which $2.93 million was outstanding as of June 30, 2011. The Company added a third line of credit (see Note 12). Subsequently, all these lines of credit were paid off in May of 2012 (see Note 12).

The Company expects to continue to borrow against its real estate assets or sell its real estate projects in order to fund REO expenses, BellaVista operating expenses, and retire the Company’s indebtedness. The Company believes that it has adequate resources to secure necessary financing and assure its liquidity for the foreseeable future, but it cannot predict with certainty the availability or terms of any such financing.

Uses of Cash

Investment Fundings

We invested $1.1M in the completion of continuing development projects during the nine months ended June 30, 2011, as compared to $1.4M for the nine months ended June 30, 2010. At June 30, 2011, we estimated the costs to complete our Investments in Real Estate Developments plus the remaining funding obligation on our Joint Venture Investments in Real Estate developments to be approximately $426,000. All of these estimated costs relates to tenant improvements at the remaining retail space in East Palo Alto and will not be incurred until a tenant has been secured; consequently the timing is currently unknown.

Stock Repurchases and Cancellations

During the nine months ended June 30, 2011 and 2010, the Company made no stock repurchases or cancellations.

STOCKHOLDER LIQUIDITY AND REALIZABLE VALUE OF INVESTMENTS

In the past, provided that certain Company liquidity requirements were satisfied, we have provided liquidity to our stockholders through the repurchase of outstanding shares. Because our stock does not trade in any secondary market, no market value exists for our stock and another method must be used to determine the repurchase price. The Board of Directors has used the net realizable value of the Company’s assets as well as an assessment of the risk profile for each of the investments in the portfolio to guide in the determination of the repurchase price for planned repurchases as well as Company repurchases in response to unsolicited tender offers.

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 of the Company’s control can cause changes in these estimates and produce significantly different results. Furthermore, as noted above, there is no organized public market for the Company’s shares, so the Company’s calculation of the estimated realizable value of its assets per outstanding share should not be viewed as an estimate of any market value per share, and there can be no assurance as to the amount or timing of any investment returns on the shares.

Since June 2005, we have not used funds to pay dividends or distributions or, except in certain extraordinary circumstances, to redeem shares. Such extraordinary circumstances have included us making tender offers in response to unsolicited third party tender offers which the Board deemed inadequately priced and opportunistic. The Board will determine the timing and terms of any future share redemptions based on available liquidity, net realizable value, and assessment of the risk profile for each of the investments in the portfolio.

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

	June 30, 2011			September 30, 2010
Loans receivable secured by real estate	$	2,649,479		$	3,881,339
Joint venture investments in real estate developments		5,537,231			6,910,921
Investments in real estate developments		6,506,561			6,172,645
Investment in rental property, net		6,729,312			6,727,162
Less: Non controlling interest in rental property		(191,181	)		----
Total investments in real estate per US GAAP		21,231,402			23,692,067
Collectible interest and preferred return not reportable per US GAAP		1,948,755			1,948,754
Estimated realizable value of investments in real estate	$	23,180,157		$	25,640,821

Net Realizable Value of Assets per Share

The following calculation determines the estimated net realizable value per share of stock:

	June 30, 2011			September 30, 2010
Cash and cash equivalents	$	126,492		$	14,112
Other assets		324,895			411,475
Estimated realizable value of investments in real estate		23,180,157			25,640,821
Total realizable assets		23,631,544			26,066,408
Accounts and notes payable		(6,728,088	)		(7,125,082	)
Estimated net realizable assets		16,903,456			18,941,326
Shares outstanding		11,171,433			11,171,433
Estimated net realizable assets per share	$	1.51		$	1.70

Our estimated net realizable value of assets per share (NRV) was $1.51 as of June 30, 2011, representing a decrease of $.19 during the nine months ended June 30, 2011, as compared to the September 30, 2010 NRV of $1.70. The decrease was (1) primarily attributable to decreases in the estimated realizable value of our investments, and (2) secondarily attributable to the ongoing operational expenses and REO carrying costs.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results 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 of Investments

All of our Acquire, Develop, and Construct loans (ADC loans) are classified for financial reporting purposes as joint venture investments in real estate developments. We have taken ownership on some ADC loans that are classified as investments in real estate developments. Such investments 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 investments in real estate to decline in value in a future period.

Loan Accounting

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 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 and include amounts funded under the loan agreements. 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. Prior to June 30, 2011, we acquired control and became the 100% owner of three of our joint ventures investments; MSB Brighton, a multi-unit condominium conversion in Modesto, California, Cummings Park Associates, a residential and retail project in East Palo Alto, and 1472 Investors, LLC, a retail and commercial property in Oakland. Due to weak market conditions we chose to convert MSB Brighton to a rental property and thus classified it as an investment in rental property on our consolidated financial statements. Cummings Park Associates continues to be carried as REO Rental Property on our consolidated financial statements. 1472 Investors, LLC is carried as an investment in rental property on our consolidated financial statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as of June 30, 2011.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of June 30, 2011. Based on this evaluation, as a result of the significant deficiency in internal controls over financial reporting as previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2010 filed with the Securities and Exchange Commission on June 9, 2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not fully effective to ensure that all information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Refer to the discussion under the heading “Litigation” in Note 11 of the Notes to the Condensed Consolidated Financial Statements (unaudited), included in Part I, Item 1 above, for a description of certain Legal Proceedings in which the Company is involved.

ITEM 1A. RISK FACTORS.

There have been no material changes to Bella Vista Capital’s Risk Factors as previously disclosed in their Form 10-K for the year ended September 30, 2010.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)	Not Applicable.

(b)	Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS.

(a) Exhibits

Exhibits submitted with this Form 10-Q, 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 12, 2007 between BellaVista Capital, Inc. and Michael Rider is incorporated by reference to Exhibit 10.1 to the Company’s March 31, 2007 Form 10-QSB, previously filed on May 21, 2007

10.2	Compensation Agreement dated May 12, 2007 between BellaVista Capital, Inc. and Eric Hanke is incorporated by reference to Exhibit 10.2 to the Company’s March 31, 2007 Form 10-QSB, previously filed on May 21, 2007

10.3	Compensation Agreement dated September 25, 2007 between BellaVista Capital, Inc. and William Offenberg, is incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-KSB for the year ended September 30, 2007, filed on December 31, 2007

10.4	Management Agreement between BellaVista and RMRF Enterprises, Inc., dba Cupertino Capital is incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-KSB for the year ended September 30, 2008, filed on January 3, 2009

10.5	Management Agreement between BellaVista and LG Servicing, Inc., a California corporation dated as of January 1, 2011.

11.1	Statement regarding computation of per share earnings

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: October __, 2012	By:	/s/ WILLIAM OFFENBERG
		William Offenberg,
		Chief Executive Officer

Attached files

BELLAVISTA CAPITAL INC Reports

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