CAPSTONE FINANCIAL GROUP, INC. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - CAPSTONE FINANCIAL GROUP, INC.	Financial_Report.xls
EX-32.1 - EX. 32.1 - CAPSTONE FINANCIAL GROUP, INC.	ex32-1.htm
EX-31.1 - EX. 31.1 - CAPSTONE FINANCIAL GROUP, INC.	ex31-1.htm
EX-32.2 - EX. 31.2 - CAPSTONE FINANCIAL GROUP, INC.	ex31-2.htm
EX-32.2 - EX. 32.2 - CAPSTONE FINANCIAL GROUP, INC.	ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2014

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

Commission file number 000-54905

CAPSTONE FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada		46-0684479
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2600 Michelson Dr., Suite 700, Irvine CA		92612
(Address of principal executive offices)		(Zip Code)

(866) 798-4478

(Registrant’s telephone number, including area code)

Copies of Communications to:

Stoecklein Law Group, LLP

401 West A Street

Suite 1150

San Diego, CA 92101

(619) 704-1310

Fax (619) 704-1325

Indicate by check mark whether the issuer (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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

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

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company 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

The number of shares of Common Stock, $0.001 par value, outstanding on May 19, 2014 was 93,926,237 shares.

CAPSTONE FINANCIAL GROUP, INC.

QUARTERLY PERIOD ENDED MARCH 31, 2014

Index to Report on Form 10-Q

		Page No.
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4T.	Controls and Procedures	16

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	17

Item1A.	Risk Factors	17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	18

Item 4.	Mine Safety Disclosures	18

Item 5.	Other Information	18

Item 6.	Exhibits	18

	Signatures	19

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
BALANCE SHEETS
(unaudited)


	March 31,			December 31,
	2014			2013
ASSETS

Current assets:
Cash	$	26,304		$	-
Accounts receivable		44,067			10,364
Prepaid expenses		850			-
Total current assets		71,221			10,364

Marketable securities		2,935
Line of credit receivable - related party		1,902,670			1,472,136
Accrued interest receivable - related party		15,437			6,542
Deposits		55,000			100,000

Total assets	$	2,047,263		$	1,589,042


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	8,291		$	8,482
Total current liabilities		8,291			8,482

Long term liabilities:
Accrued interest payable - related party		3,248			1,637
Line of credit payable - related party		339,001			320,240
Total long term liabilities		342,249			321,877

Total liabilities		350,540			330,359

Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no and no shares issued and outstanding
as of March 31, 2014 and December 31, 2013, respectively		-			-
Common stock, $0.001 par value, 2,000,000,000 shares
authorized, 93,514,237 and 93,025,000 shares issued and outstanding
as of March 31, 2014 and December 31, 2013, respectively		93,514			93,025
Additional paid in capital		1,769,038			1,353,677
Stock subscription payable		50,500
Retained earnings		(216,329	)		(188,019	)
Total stockholders' equity		1,696,723			1,258,683

Total liabilities and stockholders' equity	$	2,047,263		$	1,589,042



See Accompanying Notes to Financial Statements.

CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
STATEMENTS OF OPERATIONS
(unaudited)




	For the three months ended
	March 31,
	2014			2013

Revenue	$	33,703		$	-

Operating expenses:
General and administrative		114			681
Professional fees		69,184			63,948
Professional fee - related party		-			-
Total operating expenses		69,298			64,629

Other income (expense):
Interest income - related party		8,895			-
Interest expense		-			(978	)
Interest expense - related party		(1,610	)		(148	)
Total other expense		7,285			(1,126	)

Net loss	$	(28,310	)	$	(65,755	)


Weighted average number of common
shares outstanding - basic		93,091,947			84,088,889

Net loss per share - basic	$	(0.00	)	$	(0.00	)



See Accompanying Notes to Financial Statements.

CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
STATEMENTS OF CASH FLOWS
(unaudited)




	For the three months ended
	March 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(28,310	)	$	(65,755	)
Changes in operating assets and liabilities:
(Increase) in accounts receivable		(33,703	)		-
(Increase) in prepaid expense		(850	)		-
(Increase) in accrued interest receivable - related party		(8,895	)		-
Increase in accounts payable		(191	)		4,203
(Decrease) in accrued interest payable		-			977
Increase in accrued interest payable - related party		1,611			148

Net cash used in operating activities		(70,338	)		(60,427	)

CASH FLOWS FROM INVESTING ACTIVITIES
Payments for line of credit receivable - related party		(430,534	)		-
Purchase of marketable securities		(2,935	)		-
Deposits		45,000			-

Net cash used in investing activities		(388,469	)		-

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit payable		18,761			35,000
Repayments on line of credit payable		-			(4,300	)
Proceeds from sale of common stock, net of offering costs		415,850			50,000
Proceeds for stock subscription payable		50,500			-

Net cash provided by financing activities		485,111			80,700

NET CHANGE IN CASH		26,304			20,273

CASH AT BEGINNING OF PERIOD		-			6,140

CASH AT END OF PERIOD	$	26,304		$	26,413

SUPPLEMENTAL INFORMATION:
Interest paid	$	-		$	-
Income taxes paid	$	-		$	-




See Accompanying Notes to Financial Statements.

CAPSTONE FINANCIAL GROUP, INC.

(FORMERLY CREATIVE APP SOLUTIONS, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The Company was incorporated on July 10, 2012 (Date of Inception) under the laws of the State of Nevada, as Creative App Solutions, Inc. On August 23, 2013, the Company amended its articles of incorporation and changed their name to Capstone Financial Group, Inc.

During the period of inception (July 10, 2012) through December 31, 2012, the Company had not commenced significant operations and, in accordance with ASC Topic 915, the Company was considered a development stage company. During the year ended December 31, 2013, the Company exited the development stage.

Nature of operations

The Company will design and sell mobile application for the Apple and Android platforms. During the year ended December 31, 2013 the Company changed its business plan and plans to offer financial services and consulting to businesses and they rely heavily on an officer, director and shareholder who hold the proper licenses in order to conduct business.

Cash and cash equivalents

For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.

Revenue recognition

We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the product or service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is probable.

The Company will record revenue when it is realizable and earned and the services have been rendered to the customers. During the three months ended March 31, 2014, the Company recorded $33,703 in revenue related to financial services consulting and commissions that were assigned by an officer, director and shareholder of the Company. The assignment was necessary since the officer, director and shareholder holds the proper licenses in order to conduct business.

Advertising costs

Advertising costs are anticipated to be expensed as incurred; however there were $0 and $0 advertising and marketing costs included in general and administrative expenses for the three monthsended March 31, 2014 and 2013, respectively.

Fair value of financial instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

Level 1: The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets.

CAPSTONE FINANCIAL GROUP, INC.

(FORMERLY CREATIVE APP SOLUTIONS, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair value of financial instruments

Level 2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.

Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.

Stock-based compensation

The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

Earnings per share

The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. As of March 31, 2014, there were no dilutive common shares outstanding.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.

CAPSTONE FINANCIAL GROUP, INC.

(FORMERLY CREATIVE APP SOLUTIONS, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Concentration of revenue

During the three months ended March 31, 2014, there was $33,703 in revenue generated from one customer.

Income taxes

The Company follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities. As of March 31, 2014 and 2013, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material effect on the Company.

The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12 months.

The Company classifies tax-related penalties and net interest as income tax expense. As of March31, 2014 and 2013, no income tax expense has been incurred.

Recent pronouncements

The Company has evaluated the recent accounting pronouncements through May 2014 and believes that none of them will have a material effect on the company’s financial statements.

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As noted above, the Company is in the development stage and, accordingly, has not yet generated revenues from operations. Since its inception, the Company has been engaged substantially in financing activities and developing its business plan and incurring startup costs and expenses. As a result, the Company incurred accumulated net losses from Inception (July 10, 2012) through the period ended March 31, 2014 of ($216,329). In addition, the Company’s development activities since inception have been financially sustained through debt and equity financing.

CAPSTONE FINANCIAL GROUP, INC.

(FORMERLY CREATIVE APP SOLUTIONS, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 – GOING CONCERN (CONTINUED)

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

NOTE 3 – LINE OF CREDIT RECEIVABLE – RELATED PARTY

On September 13, 2013, the Company executed a revolving credit line receivable with an entity owned and controlled by an officer, director and shareholder for up to $500,000. In October 2013, the amount was increased for up to $2,000,000. The unsecured line of credit bears interest at 2% per annum with principal and interest due on September 13, 2015. As of March 31, 2014, an amount of $1,902,670 was loaned to the related party with a remaining balance of $97,330 available. As of March 31, 2014, the balance of accrued interest was $15,437.

Interest expense for line of credit receivable – related party for the three months ended March 31, 2014 was $8,895.

NOTE 4 – LINE OF CREDIT PAYABLE – RELATED PARTY

On August 8, 2013, the Company executed a revolving credit line with an entity owned and controlled by an officer, director and shareholder for up to $500,000. The unsecured line of credit bears interest at 2% per annum with principal and interest due on August 8, 2015. As of March 31, 2014, an amount of $339,001 has been used for general corporate purposes with a remaining balance of $160,999 available. As of March 31, 2014, the balance of accrued interest was $3,248.

Interest expense for the line of credit payable for the three months ended March 31, 2014 was $1,610.

NOTE 5 – STOCKHOLDERS’ EQUITY

The Company is authorized to issue 2,000,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of its $0.001 par value preferred stock.

Common stock

During January 2014, the Company issued 1,000 shares of its restricted common stock in exchange for 100% of Capstone Affluent Strategies, Inc. (“Affluent”).

During February 2014, the Company issued 488,237 shares of common stock for cash of $415,000.

During March 2014, the Company recorded a stock payable totaling $50,500. As of May 8, 2014, a total of 59,412 shares were issued in relation to the stock payable.

NOTE 6 – WARRANTS AND OPTIONS

As of March 31, 2014, there were no warrants or options outstanding to acquire any additional shares of common stock.

CAPSTONE FINANCIAL GROUP, INC.

(FORMERLY CREATIVE APP SOLUTIONS, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – SUBSEQUENT EVENTS

During May 2014, the Company issued 352,588 shares of common stock for cash of $299,700.

On January 15, 2014, the Company completed the reverse triangular merger, pursuant to the Acquisition Agreement and Plan of Merger (“Merger”), by and among Capstone Sub Co. (“Sub Co”), a Nevada corporation and wholly owned subsidiary of the Company, and Capstone Affluent Strategies, Inc. (“Affluent”), a California corporation, whereby Affluent became a wholly owned subsidiary of the Company. On May 14, 2014, the parties decided to rescind the Merger. The Board of Directors has authorized the Company to execute a Rescission of Acquisition Agreement and Plan of Merger. The Board of Directors has also authorized the cancellation of 1,000 shares issued in exchange for 100% of Affluent’s issued and outstanding common stock. As of the date of this report, the shares have not been cancelled.

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

FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

·	our current lack of working capital;

·	inability to raise additional financing;

·	the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;

·	deterioration in general or regional economic conditions;

·	adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

·	inability to efficiently manage our operations;

·	inability to achieve future sales levels or other operating results; and

·	the unavailability of funds for capital expenditures.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Item 1A. Risk Factors” in this document.

Throughout this Quarterly Report references to “we”, “our”, “us”, “Capstone”, “the Company”, and similar terms refer to Capstone Financial Group, Inc.

AVAILABLE INFORMATION

We file annual, quarterly and other reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC's website at www.sec.gov or on our website at www.capstonefinancialgroupinc.com. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to of a written request to us at Capstone Financial Group, Inc., 2600 Michelson Dr., Suite 700, Irvine, CA 92612.

OVERVIEW AND OUTLOOK

General Business Development

Capstone Financial Group, Inc. is a development stage company which was incorporated in the State of Nevada in July of 2012 as Creative App Solutions, Inc. We were formed to design and sell mobile apps for smart phones and other mobile platforms such as tablets.

During the quarter ended September 30, 2013, we changed our business plan to offer financial services and consulting to businesses and we rely heavily on an officer and director of the Company who holds the proper licensing to conduct our business.

On August 26, 2013, we changed our name from Creative App Solutions, Inc. to Capstone Financial Group, Inc. The amendment occurred as a result of our stockholders approving the amendment at the 2013 Annual Meeting of Stockholders and a subsequent vote by the Board of Directors.

On August 26, 2013, we entered into an Assignment, Assumption and Consent Agreement with Darin Pastor, our chief executive officer, wherein Mr. Pastor assigned the rights and obligations of the Engagement Agreement dated July 29, 2013 with Instant BioScan, LLC, an Arizona limited liability company (“IBS”), in exchange for the Company assuming the obligations of performance under the terms and conditions of the Engagement Agreement. The term of the Engagement Agreement shall be for a period of 270 days from the date of July 29, 2013. Pursuant to the Engagement Agreement we will act in the capacity of an independent contractor, where appropriate, in connection with: 1) assisting IBS as it would concern: (a) the refinement of its business plan, (b) the selection, sizing and structure of certain capital market financing alternatives and the securities associated with such financing alternatives, (c) the pre-money estimated valuations of IBS associated with certain capital market financing, (d) the marketing strategy, accounting firm selection, legal counsel selection and investor communications associated with its contemplated project and/or corporate level capital funding, and: 2) the placement by IBS of certain short-term loans, short-term lines or letters of credit and/or other types of short-term credit facilities in the amount of up to approximately $1,350,000.

On September 6, 2013, we effectuated a 20 to 1 forward split of the Company’s issued and unissued common stock as of September 23, 2013, the record date. Immediately after the forward split, the number of shares issued and outstanding increased to 90,200,000. The number of authorized shares increased from 100,000,000 to 2,000,000,000 common shares.

On January 15, 2014, we completed the reverse triangular merger, pursuant to the Acquisition Agreement and Plan of Merger (“Merger”), by and among Capstone Sub Co. (“Sub Co”), a Nevada corporation and wholly owned subsidiary of the Company, and Capstone Affluent Strategies, Inc. (“Affluent”), a California corporation, whereby Affluent became a wholly owned subsidiary of the Company.

Pursuant to the conditions to closing of the Merger, the Company issued 1,000 shares of its restricted common stock in exchange for 100% of Affluent’s issued and outstanding common stock.

On May 14, 2014, we executed a Rescission of Acquisition Agreement and Plan of Merger (the “Rescission Agreement”) effectively unwinding the Affluent transaction. The motivation being Affluent’s inability to produce audited financial statements as required per the Merger Agreement. The Board of Directors has also authorized the cancellation of 1,000 shares issued in exchange for 100% of Affluent’s issued and outstanding common stock. As of the date of this report, the shares have not been cancelled.

Business of Capstone Financial Group, Inc.

Capstone Financial Group, Inc. (“Capstone” or the “Company”) provides a full range of business and financial services to a diverse group of clients and customers, including corporations, governments, financial institutions and individuals. Capstone’s executive management team consists of leaders who have more than 100 collective years of experience in wealth management and investment banking, with a superior level of understanding of clean technology and industrial growth, capital raising services concerning municipal government interests, and private placements and public offerings of corporate debt and corporate equity.

We provide business and financial services in connection with assisting companies refine their business plan, the selection, sizing and structure of certain capital market financing alternatives and the securities associated with such financing alternatives, the marketing strategy, broker-dealer selection, accounting firm selection, legal counsel selection and investor communications associated with the contemplated project, and the placement of certain short-term loans, short-term lines or letters of credit and/or other types of short-term credit facilities.

We provide business and financial services to help companies strengthen and grow their businesses. Clients can contract for comprehensive service or select any combination of services to meet their needs and the growth stage of their enterprise.

Competition

Our primary competitors will be local and regional companies that provide similar comprehensive business and financial services. These companies may already have an established market in our industry. Most of these companies have significantly greater financial and other resources than us and have been developing their products and services longer than we have been developing ours.

Personnel

As of the date of this filing, we have 3 full-time employees.

RESULTS OF OPERATIONS

Revenue. Total revenue for the three months ended March 31, 2014 was $33,703, as compared to $0 for the three months ended March 31, 2013. The $33,703 increase in revenue for the three months ended March 31, 2014 was primarily due to a change in the Company’s business plan which increased revenues through financial services.

General and Administrative. General and administrative expenses decreased $567 to $114 for the period ended March 31, 2014 from $681 for the period ended March 31, 2013. The decrease was as largely due to the change in operations from the change in the Company’s business plan.

Professional Fees. Professional fees increased $5,236, or 8%, to $69,184 in the period ended March 31, 2014 from $63,948 for the period ended March 31, 2013. The increase in professional fees was the result of an increase in legal and accounting fees associated with public company filings.

Interest Income – Related Party. Interest income – related party increased $8,895, or 100% to $8,895 in the period ended March 31, 2014 from $0 for the period ended March 31, 2013. The increase was the result of an increase in notes receivable with a related party of $430,534.

Interest Expense. Interest expense decreased $978, or 100% to $0 in the period ended March 31, 2014 from $978 for the period ended March 31, 2013. The decrease was the result of a decrease in interest accruals from note payables.

Interest Expense – Related Party. Interest expense – related party increased $1,462, or 987% to $1,610 in the period ended March 31, 2014 from $148 for the period ended March 31, 2013. The increase was the result of an increase in related party notes payables with interest accruals.

Net Loss. In the period ended March 31, 2014, we generated a net loss of $28,310, a decrease of $37,445, or 57%, from $65,755 for the period ended March 31, 2013. The decrease was attributable to decreased due to the change in operations from the change in the Company’s business plan.

Liquidity and Capital Resources

As of March 31, 2014, we had $26,304 in cash, $44,067 in accounts receivables and $850 in prepaid expenses. Since inception, we have financed our cash flow requirements through issuance of common stock. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations.

On August 8, 2013, we executed a revolving credit line with an entity owned and controlled by an officer, director and shareholder for up to $500,000. The unsecured line of credit bears interest at 2% per annum with principal and interest due on August 8, 2015. As of March 31, 2014, an amount of $339,001 has been used for general corporate purposes with a remaining balance of $160,999 available. As of March 31, 2014, the balance of accrued interest was $3,248.

On September 13, 2013, we executed a revolving credit line receivable with an entity owned and controlled by an officer, director and shareholder for up to $500,000. In October 2013, the amount was increased for up to $2,000,000. The unsecured line of credit bears interest at 2% per annum with principal and interest due on September 13, 2015. As of March 31, 2014, an amount of $1,902,670 was loaned to the related party with a remaining balance of $97,330 available. As of March 31, 2014, the balance of accrued interest was $15,437.

Even though we have begun to generate revenues, we can make no assurances and therefore we may incur operating losses in the next twelve months. Our limited operating history makes predictions of future operating results difficult to ascertain. In the future we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital.

The following table provides detailed information about our net cash flow for all financial statement periods presented in this Annual Report. To date, we have financed a majority of our operations through the issuance of stock and borrowings.

The following table sets forth a summary of our cash flows for the three months ended March 31, 2014 compared to March 31, 2013.

	Three months ended March 31,
	2014			2013
Net cash used in operating activities	$	(70,338	)	$	(60,427	)
Net cash used in investing activities		(388,469	)		-
Net cash provided by financing activities		485,111			80,700
Net increase/(decrease) in Cash		26,304			20,273
Cash, beginning		-			6,140
Cash, ending	$	26,304		$	26,413

Operating activities

Net cash used in operating activities was $70,338 for the period ended March 31, 2014, as compared to $60,427 used in operating activities for the same period in 2013. The increase in net cash used in operating activities was primarily due to an increase in professional fees, as a result of increased legal work.

Investing activities

Net cash used in investing activities was $388,469 for the period ended March 31, 2014 as compared to $0 used in investing activities for the same period in 2013. The increase is related to the revolving line of credit receivable with a related party.

Financing activities

Net cash provided by financing activities for the period ended March 31, 2014 was $485,111, as compared to $80,700 for the same period in 2013. The increase of net cash provided by financing activities was mainly attributable to capital raised through the sale of common stock and capital provided through our revolving credit grid notes.

Since inception, we have financed our cash flow requirements through issuance of common stock and debt financing. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending receipt of operating revenues. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient operating revenues in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.

We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continually develop our line of products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. See Note 1 – Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

This item is not applicable as we are currently considered a smaller reporting company.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer, Darin Pastor, and our Chief Financial Officer, Halford W. Johnson, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the period covered by this Report. Based on that evaluation and assessment, Mr. Darin Pastor and Mr. Halford W. Johnson concluded that our disclosure controls and procedures are designed to operate at a reasonable assurance level which is effective in providing reasonable assurance that information we are required to disclose 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, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any material legal proceedings.

Item 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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

Stock Issuances pursuant to Merger Agreement

During January 2014, the Company issued 1,000 shares of its restricted common stock in exchange for 100% of Affluent’s issued and outstanding common stock pursuant to the conditions to closing of the Merger. However, pursuant to the Rescission Agreement signed on May 14, 2014, the Company is in the process of cancelling the 1,000 shares.

Stock Issuances pursuant to Subscription Agreements

During the first quarter ended March 31, 2014, we sold 547,649 shares of common stock to a total of 12 accredited investors for a total purchase price of $465,500, all of which was paid in cash.

During March 2014, the Company recorded a stock payable totaling $50,500. As of May 8, 2014, a total of 59,412 shares were issued in relation to the stock payable.

We believe that the issuance and sale of the above securities were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2), Regulation D and/or Regulation S. The securities were issued directly by us and did not involve a public offering or general solicitation. The recipients of the securities were afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the recipients, immediately prior to issuing the securities, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the shares.

Subsequent Stock Issuances pursuant to Subscription Agreements

Subsequent to the period ended March 31, 2014, we sold 352,588 shares of common stock to a total of 11 accredited investors for a total purchase price of $299,700, all of which was paid in cash.

Issuer Purchases of Equity Securities.

We did not repurchase any of our equity securities from the time of our inception through the period ended March 31, 2014.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit No.		Description

31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase

101.DEF*		XBRL Taxonomy Extension Definition Linkbase

101.LAB*		XBRL Taxonomy Extension Label Linkbase

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase

*XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURE

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.

	CAPSTONE FINANCIAL GROUP, INC.


Date: May 20, 2014	By:	/S/ Darin Pastor
		Darin Pastor
		CEO
		(Principal Executive Officer and duly authorized signatory)

CAPSTONE FINANCIAL GROUP, INC. - FORM 10-Q - May 20, 2014

Attached files

CAPSTONE FINANCIAL GROUP, INC. Reports