UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2013
| ☐ | 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 | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
2600 Michelson Dr., Suite 700
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
(866) 798-4478
(Registrant's telephone number, including area code)
Copies of Communications to:
Stradling Yocca Carlson & Rauth, P.C.
4365 Executive Drive
Suite 1500
San Diego, CA 92121
858-926-3000 (Office) * 858-408-4251 (Fax)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 ☒ No ☐
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer (Do not check if a smaller reporting company) |
☐ | Smaller reporting company | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2013 (the last business day of the registrant's most recently completed second fiscal quarter) was $1,172,477.04 based on a share value of $0.08. As of June 30, 2014 the aggregate market value was $64,038,842.75 based on the share value of $4.25.
The number of shares of Common Stock, $0.001 par value, outstanding on December 31, 2014 was 93,564,648 shares, and on December 31, 2013 was 93,025,000 shares.
EXPLANATORY NOTE
Capstone Financial Group Inc. is filing this Amendment because the original filing on Form 10-K omitted certain operating expenses that were incurred subsequent to the change in control dated August 26, 2013 described elsewhere herein.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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CAPSTONE FINANCIAL GROUP, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2013
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements and involves risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows, and business prospects. These statements include, among other things, statements regarding:
| • | our ability to diversify our operations; |
| • | inability to raise additional financing for working capital; |
| • | 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; |
| • | our ability to attract key personnel; |
| • | our ability to operate profitably; |
| • | 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; |
| • | changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; |
| • | the inability of management to effectively implement our strategies and business plan; |
| • | inability to achieve future sales levels or other operating results; |
| • | the unavailability of funds for capital expenditures; |
| • | other risks and uncertainties detailed in this report; |
as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may appear throughout this report, including without limitation, the following sections: Item 1 “Business,” Item 1A “Risk Factors,” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (SEC). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
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As used herein, “Capstone,” “CAPP,” “the Company,” “we,” “our,” and similar terms include Capstone Financial Group, Inc. unless the context indicates otherwise.
PART I
| ITEM 1 | BUSINESS |
General Business Development
Capstone Financial Group, Inc. 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.
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. Upon changing our name to Capstone Financial Group, Inc., we also changed our business to a holding company. Capstone works closely and constructively with the management and boards of the portfolio companies, aiming to significantly enhance their long-term earnings power and thus increase shareholder value. While Capstone does not manage the day-to-day operations of these companies, we maintain a thorough understanding of how they operate and evaluate their performance and prospects on an ongoing basis.
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.
Recent Change in Management
On August 6, 2013, the Board of Directors (“Board”) appointed Darin Pastor to serve as a member of the Board.
On August 26, 2013, Ryan Faught submitted his letter of resignation from his position as President, CEO, Treasurer, and Director of the Company. The resignation was accepted by the Company on August 26, 2013.
On August 26, 2013, Matthew Lane submitted his letter of resignation from his position as Secretary of the Company. The resignation was accepted by the Company on August 26, 2013.
On August 26, 2013, in connection with resignations of Ryan Faught and Matthew Lane, the Board unanimously appointed Darin Pastor to serve as the Chief Executive Officer (“CEO”), Secretary, Treasurer, and Chairman of the Company.
On August 26, 2013, in connection with resignations of Ryan Faught and Matthew Lane, the Board unanimously appointed George Schneider to serve as the President, Chief Investment Officer (“CIO”), and a Director of the Company.
On September 25, 2013, the Board unanimously appointed Halford W. Johnson as Chief Financial Officer (“CFO”) of the Company.
Change of Control
On September 6, 2013, Darin Pastor acquired control of the Company pursuant to a Common Stock Purchase Agreement entered into by Mr. Ryan Faught (the “Seller”) and Mr. Darin Pastor (the “Purchaser”), providing for the purchase by Mr. Pastor from the Seller of 3,548,200 pre-split shares of Common Stock (70,964,000 post-split shares), par value $0.001 (the “Common Stock”), representing 78.7% of the issued and outstanding shares of the Company for a purchase price of $1,774.10.
Additionally, pursuant to a Common Stock Purchase Agreement, dated September 6, 2013 (the “Schneider Agreement”) entered into by Mr. Ryan Faught (the “Seller”) and Mr. George Schneider. Mr. Schneider acquired from the Seller 451,800 pre-split shares of Common Stock (9,036,000 post-split shares), par value $0.001(the “Common Stock”), representing 10% of the issued and outstanding shares of the Company for a purchase price of $225.90.
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Business of Capstone Financial Group, Inc.
Capstone Financial Group, Inc. ("Capstone or the "Company") is a holding company headquartered in Irvine, California, uses its own capital to acquire the outstanding stock of other companies. Capstone does not produce goods or services itself. Rather, its primary purpose is to own and trade shares of other companies. Capstone's principals have a long track record of implementing operational improvements through the exercise of influence at a company, often as a result of becoming one of its largest shareholders. The principals seek to improve privately-held companies through operational and strategic initiatives designed to increase their overall value.
Capstone works closely and constructively with the management and boards of the portfolio companies, as mentioned below, Twinlab Consolidated Holdings, Inc., aiming to significantly enhance their long-term earnings power and thus increase shareholder value. While Capstone does not manage the day-to-day operations of these companies, we maintain a thorough understanding of how they operate and evaluate their performance and prospects on an ongoing basis.
Prior to August 26, 2013, our name was Creative App Solutions Inc. Upon changing our name to Capstone Financial Group, Inc., we also changed our business to a holding company as described above.
Current Strategic Investments
Twinlab/Twinlab Consolidated Holdings, Inc. (“TCH”):
Twinlab has been the trusted leader for innovative, high performance health and wellness products since 1968. In addition to the extensive line of vitamins, minerals and sports nutrition formulas of its namesake brand, Twinlab also manufactures and sells other category leaders, including the Metabolife line of diet and energy products and Alvita teas. Twinlab’s plant in American Fork, UT, is a NSF® GMP registered facility from which they manufacture, package and distribute over 1,000 premium quality products. Twinlab also operates a Research & Development facility in Grand Rapids, MI and has its corporate headquarters in New York, NY. Twinlab products are currently available in over 55 countries worldwide.
Twinlab has been established to act as a consolidator in the highly fragmented nutrition segment of the health and wellness industry. Using Twinlab assets and the expertise and experience of its management team, Twinlab intends to capitalize on current market imbalances by combining multiple companies and operations into one larger, cohesive entity. The resulting synergies in distribution, manufacturing, advertising, and global marketing should increase market share and maximize profitability, establishing Twlinlab as a market leader. The Company recorded this investment in September 2014 (see “Risk Factors” for discussion of Twinlab).
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 5 full-time employees.
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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 Drive, Suite 700, Irvine, CA 92612.
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| ITEM 1A. | RISK FACTORS |
In the course of conducting our business operations, we are exposed to a variety of risks that are inherent to the business and financial services industry. The following discusses some of the key inherent risk factors that could affect our business and operations, as well as other risk factors which are particularly relevant to us. Other factors besides those discussed below or elsewhere in this report also could adversely affect our business and operations, and these risk factors should not be considered a complete list of potential risks that may affect us. As of the date of this filing our management is aware of the following material risks.
Risks Relating To Our Business and Marketplace
We are a start-up company with limited operating history.
We have conducted only very limited business and financial services and consulting activities to businesses. Accordingly, we have a limited operating history and our business strategy may not be successful. Our failure to implement a successful business strategy will materially adversely affect our business, financial condition and results of operations.
We may need additional capital in the future to finance our operations, which we may not be able to raise or it may only be available on terms unfavorable to us and or our stockholders. This may result in our inability to fund our working capital requirements and harm our operational results.
We have and expect to continue to have substantial capital expenditure and working capital needs. We believe that current cash on hand and the other sources of liquidity sufficient enough to fund our operations in the ordinary course of business through fiscal 2014. However, if we experience extraordinary expenses or other events beyond our control, we may need to raise additional funds to continue our operations.
Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited.
Twinlab Consolidated Holdings, Inc. (“TCH”) and Capstone entered into a Common Stock Put Agreement, dated as of September 30, 2014 (the “Put Agreement”). Pursuant to the Put Agreement, Capstone indicated its intent to exercise the First Warrant at a rate of no less than 1,461,988 shares of Common Stock (“the Minimum Amount”) per month over the term of the First Warrant (the “Minimum Rate”). In the event that Capstone does not exercise the First Warrant by November 15, 2014 and later amended to extend this to February 15, 2015 or any subsequent Periodic Exercise Date (as defined in the Put Agreement) such that as of the applicable Exercise Date, Capstone’s cumulative purchases of Common Stock pursuant to the First Warrant has not been at a rate that is equal to or in excess of the Minimum Rate, then TCH has the right to notify Capstone not earlier than 30 days and not later than 40 days after the applicable Exercise Date of TCH’s exercise of its put rights under the Put Agreement (the “Put Notice”). Upon receipt of the Put Notice, Capstone is required to exercise the First Warrant to (i) purchase the Minimum Amount by a date identified in the Put Notice that is no earlier than 10 days after and no later than 30 days after the date of the Put Notice (the “Put Date”), or if Capstone has previously exercised the First Warrant to purchase shares in excess of the Minimum Rate, then such lesser amount of Common Stock as would, if purchased as of the applicable Exercise Date, have made Capstone’s purchases of Common Stock pursuant to the First Warrant as of such Exercise Date equal to the Minimum Rate (the “Initial Mandatory Purchase”), and (ii) purchase by a date that is no later than each subsequent Periodic Exercise Date an amount of Common Stock such that as of each such Periodic Exercise Date, Capstone’s cumulative purchases of Common Stock pursuant to the First Warrant through that date has been at a rate that is no less than the Minimum Rate (the “Periodic Mandatory Purchases”). Following delivery of the Put Notice by TCH, Capstone’s failure to make the Initial Mandatory Purchase by the Put Date shall be an “Event of Default”. Following the delivery of the Put Notice by TCH, Capstone’s failure to make, when due, any Periodic Mandatory Purchase is a breach of the Put Agreement, and if such breach is not timely cured by Capstone, such uncured breach shall be deemed an Event of Default. Upon the occurrence of an Event of Default as described above, (i) Capstone’s right to purchase all shares of Common Stock remaining unpurchased under the First Warrant is converted into an obligation, accelerated and immediately due and (ii) the Second Warrant immediately terminates as to any shares of Common Stock remaining exercisable under the Second Warrant. In the event TCH invokes its right pursuant to the Put Notice to require Capstone to exercise the First Warrant, the purchase price per share of Common Stock thereunder is $0.775 per share. In the event that TCH converts and accelerates Capstone’s obligations to purchase the shares of Common Stock remaining unexercised under the First Warrant, Capstone has the right to surrender issued and outstanding shares of Common Stock to TCH to be credited towards Capstone’s obligations, with such surrendered shares valued at $0.76 per share of Common Stock. On December 15, 2014, the Company and Capstone entered into an Amendment No. 1 to Common Stock Put Agreement (the “Amendment”). The Amendment extends the date on which the Company’s right to deliver the Put Notice (as defined in the Put Agreement) can first arise from December 15, 2014 to February 16, 2015. As of this filing date the Company has not exercised the "minimum amount" of shares per the agreement but expects to be fully current within the 40 day range as mentioned above.
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As a business and holding company, our success depends, in part, on the results of the companies in which we invest.
Our ability to achieve our business objectives will depend on our ability to effectively manage and deploy our capital, which will depend, in turn, on our management’s ability to identify, evaluate, invest in, and monitor companies that meet our investment criteria. If a major investment has business setbacks it would adversely affect our financial results.
We may not be able to retain our key personnel or hire the personnel we need to sustain and grow our business.
We face intense competition for qualified employees from businesses in the financial services industry. Our performance is highly dependent upon our ability to attract, retain, and motivate highly skilled, talented employees. Given our relatively small size compared to some of our competitors, the performance of our business may be more adversely affected than our competitors would be if we lose well-performing employees and are unable to attract new ones.
Our financial reporting in the past was unreliable.
We have determined that as of December 31, 2013 we had material weaknesses in our internal control over financial reporting. We have had to restate past financial results. These facts may result in some ongoing lack of confidence by investors in our present and future reports of our financial results and status.
Changes in accounting standards, especially those that relate to management estimates and assumptions, are unpredictable and may materially impact how we report and record our financial condition.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. From time to time the Financial Accounting Standards Board (“FASB”) and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. In addition, accounting standard setters and those who interpret the accounting standards (such as the FASB, the SEC, banking regulators and our outside auditors) may change or even reverse their previous interpretations or positions on how these standards should be applied. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements.
We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million.”
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Even if we no longer qualify as an “emerging growth company”, we may still be subject to reduced reporting requirements so long as we are considered a “Smaller Reporting Company.”
Many of the exemptions available for emerging growth companies are also available to smaller reporting companies like us that have less than $75 million of worldwide common equity held by non-affiliates. So, although we may no longer qualify as an emerging growth company, we may still be subject to reduced reporting requirements.
Our ability to utilize NOLs or recognize tax benefits on future domestic U. S. Tax losses may be limited.
Our ability to fully utilize its existing U.S. Federal NOL could be limited or eliminated should the Company (i) under an “ownership change” as described under Section 382 of the Tax Code or (ii) be found by the IRS not to be able to avail itself of Section 382(1)(5) of the Tax Code.
The Company has not completed a formal Section 382 analysis regarding the limitation of net operating loss carryforwards. As such, the Company’s net operating loss carryforwards may be limited if an ownership change occurred. The Company does not presently plan to complete a formal Section 382 analysis, and there is a full valuation allowance against its deferred tax assets for net operating losses. The company plans to perform a formal Section 382 analysis if there is sufficient taxable income in future years to begin utilizing its net operating loss carryforwards.
We may be subject to further regulation.
We do not believe that our business activities require us to register as a broker – dealer or as an investment company. If our registration were required, we would experience compliance costs and reduced flexibility.
Risks Relating To Our Common Stock
Our common stock currently has low trading volume and any sale of a significant number of shares is likely to depress the trading price.
Our common stock is quoted on the OTCQB. Traditionally, the trading volume of the common stock has been limited. Because of this limited trading volume, holders of our securities may not be able to sell quickly any significant number of such shares, and any attempted sale of a large number of our shares will likely have a material adverse impact on the price of our common stock. Because of the limited number of shares being traded, the price per share is subject to volatility and may continue to be subject to rapid price swings in the future.
If the trading price of our common stock remains below $5.00 per share it will be deemed a low-priced “Penny” stock and an investment in our common stock should be considered high risk and subject to marketability restrictions.
If our common stock remains a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
| · | Deliver to the customer, and obtain a written receipt for, a disclosure document; |
| · | Disclose certain price information about the stock; |
| · | Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer; |
| · | Send monthly statements to customers with market and price information about the penny stock; and |
| · | In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules. |
Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
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We have the ability to issue additional shares of our common stock and shares of preferred stock without asking for stockholder approval, which could cause your investment to be diluted.
Our Articles of Incorporation authorizes the Board of Directors to issue up to 2,000,000,000 shares of common stock and 10,000,000 shares of preferred stock. The power of the Board of Directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock or preferred stock (and the power of the Board of Directors to fix the rights, preferences and privileges of one or more series of preferred stock) is generally not subject to shareholder approval. Accordingly, any additional issuance of our common stock, or preferred stock that may be convertible into common stock, may have the effect of diluting one’s investment.
FINRA sales practice requirements may also limit the liquidity of the market for our stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
If we fail to maintain our membership in FINRA, registration with the SEC, or fail to meet certain state securities regulations, we could be removed from the OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Companies trading on the OTC Bulletin Board, generally must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. More specifically, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission. Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period, then we will be ineligible for quotation on the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. As of the date of this filing, we have no late filings reported by FINRA.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
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We have a limited number of personnel that are required to perform various roles and duties. We have had issues whereby omitted liabilities and expenses were not included in the previous Form 10-K at December 31, 2013 which have been corrected here in this amended Form 10-K/A for December 31, 2013 dated February 18, 2015. These individuals developed our internal control procedures and are responsible for monitoring and ensuring compliance with those procedures. As a result, our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
Concentrated Ownership. In excess of a majority of our outstanding voting securities are held by two individuals and they can elect all directors who in turn elect all officers, without the votes of any other stockholders.
Our Chief Executive Officer and our President,collectively own 84% of our outstanding voting securities and,accordingly, have effective control of us and may have effective control of us for the near and long term future. Votes of other stockholders can have little effect when we are managed by our Board of Directors and operated through our officers, all of whom can be elected by these two individuals.
We do not expect to pay dividends in the near future.
We do not expect to declare or pay any dividends on our common stock in the foreseeable future. The declaration and payment in the future of any cash or stock dividends on the common stock will be at the discretion of our Board of Directors and will depend upon a variety of factors, including our ability to service our outstanding indebtedness, if any, and to pay dividends on securities ranking senior to the common stock, our future earnings, if any, capital requirements, financial condition and such other factors as our Board of Directors may consider to be relevant from time to time. Our earnings, if any, are expected to be retained for use in expanding our business.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2. | PROPERTIES |
We currently maintain an executive office at 2600 Michelson Dr., Suite 700, Irvine, CA 92612. As of December 31, 2013, our monthly rent is $28,736, which commenced on August 26, 2013 continuing through March 2015 on a month to month basis with no commitment from a related party. Prior to August 26, 2013, office space was provided at no cost from a former officer and director of the Company.
| ITEM 3. | LEGAL PROCEEDINGS |
We are not a party to any material legal proceedings.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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PART II
| ITEM 5 | MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock is traded in the OTC Markets QB (OTCQB), under the symbol “CAPP”. We have been eligible to participate in the OTCQB since April 8, 2013 and from that time until the third quarter of 2013, our common stock was traded on a very sporadic basis. The following table lists the available quotations for the high and low prices for each quarter within the last fiscal year ending December 31, 2013.
The following table sets forth, the average high and low prices for our common stock as reported by Yahoo Finance. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.
| Period Ending December 31, 2013 | ||||||||
| PRICES | ||||||||
| High | Low | |||||||
| 1st Quarter | $ | — | $ | — | ||||
| 2nd Quarter | $ | — | $ | — | ||||
| 3rd Quarter | $ | 1.21 | $ | 1.21 | ||||
| 4th Quarter | $ | 5.47 | $ | 5.41 | ||||
Holders Of Common Stock
As of December 31, 2014, we had approximately 70 stockholders of record of the 93,564,648 shares outstanding. The closing bid stock price on December 31, 2014 was $5.00.
Dividends
Any decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
| -13- |
Recent Sales of Unregistered Securities
Stock Issuances pursuant to Subscription Agreements
During the fourth quarter ended December 31, 2013, we sold 1,355,000 shares of common stock to a total of 20 accredited investors for a total purchase price of $1,084,000, all of which was paid in cash.
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
During the first quarter ended March 31, 2014, the Company issued 488,237 shares of Company common stock to a total of 12 accredited investors for a total purchase price of $415,001, all of which was paid in cash.
During the second quarter ended June 30, 2014, the Company issued 412,000 shares of Company common stock to a total of 11 accredited investors for a total purchase price of $350,200, all of which was paid in cash.
During the third quarter ended September 30, 2014, the Company issued 437,647 shares of Company common stock to a total of 9 accredited investors for a total purchase price of approximately $372,000, all of which was paid in cash.
During the fourth quarter ended December 31, 2014, the Company issued 201,764 shares of Company common stock to a total of 5 accredited investors for a total purchase price of $171,500, all of which was paid in cash.
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.
Issuer Purchases of Equity Securities
The Company did not repurchase any of its equity securities during the fourth quarter ended December 31, 2013.
| ITEM 6 | SELECTED FINANCIAL DATA |
This item is not applicable, as we are considered a smaller reporting company.
| -14- |
| ITEM 7 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DATA |
OVERVIEW AND OUTLOOK
Our Operations
Capstone Financial Group, Inc. provides business and financial services to help companies strengthen and grow their businesses. From time to time we hold equity positions in other operating companies.
Going Concern
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. As of December 31, 2013, the Company had an accumulated deficit of $773,474. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
RESULTS OF OPERATIONS
Revenue. During the years ended December 31, 2013 and 2012, we generated $164,593 and $0 in revenues, respectively.
General and Administrative. General and administrative expenses increased $301,467 to $302,151 for the year ended December 31, 2013 from $684 for the fiscal year ended December 31, 2012. The increase was as largely due to our transition from shell company status to active operating activity, including an increase of rent expense $92,912, travel of $49,212, and marketing expenses of $35,188.
Payroll Expenses. Payroll Expense increased 100% to $205,607 in the year ended December 31, 2013 as there were no employees for the year ended December 31, 2012. The increase in payroll expenses was the result of our transition from shell company status to active operating activity, including compensation for new management.
Professional Fees. Professional fees increased to $352,270 in the year ended December 31, 2013 from $42,976 for the year ended December 31, 2012. The increase in professional fees was the result of an increase in legal and accounting fees associated with public company filings.
Interest Expense – Related Party. Interest expense – related party increased $4,655 to $4,938 in the year ended December 31, 2013 from $283 for the year ended December 31, 2012.
Net Loss. In the year ended December 31, 2013, we generated a net loss of $729,030, an increase in net loss of $684,586 from $44,444 for the year ended December 31, 2012. The increase was largely due to our transition from shell company status to active operating activity along with increased accounting and legal fees.
Liquidity and Capital Resources
As of December 31, 2013, we had $0 in cash on hand. Clearly this amount of cash if not augmented, would be insufficient to maintain our operations. 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.
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.
| -15- |
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 periods indicated:
| For the year ended December 31, | ||||||||
| 2013 | 2012 | |||||||
| Net cash used in operating activities | $ | (1,389,140 | ) | $ | (42,860 | ) | ||
| Net cash provided by financing activities | 1,383,000 | 49,000 | ||||||
| Net increase (decrease) in Cash | (6,140 | ) | 6,140 | |||||
| Cash , beginning | 6,140 | — | ||||||
| Cash, ending | $ | — | $ | 6,140 | ||||
Net cash used in operating activities was $1,389,140 for the year ended December 31, 2013, as compared to $42,860 used in operating activities for the same period in 2012. The increase in net cash used in operating activities was primarily due to our advances of $580,043, net to Capstone Affluent Strategies, Inc. under a revolving line of credit. Capstone Affluent Strategies was owned by Darin Pastor, our current Chief Executive Officer and majority shareholder. In 2014, we acquired the business of Capstone Affluent Strategies from Mr. Pastor. In 2013 we also experienced an increase in professional fees as a result of increased legal work.
Investing activities
Net cash used in investing activities was $0 for the period ended December 31, 2013, as compared to $0 used in investing activities for the same period in 2012.
Financing activities
Net cash provided by financing activities for the year ended December 31, 2013 was $1,383,000, as compared to $49,000 for the same period of 2012. The increase of net cash provided by financing activities was mainly attributable to capital raised through the sale of common stock.
We believe that cash flow from operations will not meet our present and near-term cash needs and thus we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months. We will require additional cash resources due to changed business conditions, finalization and launch of our website, implementation of our strategy to expand our sales and marketing initiatives, increase brand and services awareness. If our own financial resources and then current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.
Off-Balance Sheet Arrangements
We do 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.
Operation Plan
At present the majority of our investment activity has been directed toward Twinlab/Twinlab Consolidated Holdings, Inc. as described in item 1 of this filing. In the future we intend to develop divisions within the Company that will provide small and lower middle market businesses with opportunities for optimal financing, growth, mergers and acquisitions and increased market share. Some of the divisions may include an Investment Banking division, a Clean Technology and Industrial Growth Group. These added divisions will enable Capstone to better advise and assist current and potential corporate clients. As of the date of this filing, these divisions have not been created.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
This item in not applicable as we are currently considered a smaller reporting company.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See Index to Financial Statements and Financial Statement Schedules within this Form 10-K.
| -16- |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Although we do not consider that any “reportable event” has occurred, we disclose that our dismissal of Seale and Beers, CPAs on August 4, 2014 and our engagement of Squar Milner Peterson Miranda & Williamson, LLP as our new auditors on September 5, 2014 necessitated the filing of this amended Form 10-K Annual Report. We have had no disagreements with our old or new independent auditors on accounting or financial disclosures.
| ITEM 9A. | CONTROLS AND PROCEDURES |
We are responsible for preparing our annual consolidated financial statements and for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making our assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework in 2013. Based on that assessment, our management has identified certain material weaknesses in our internal control over financial reporting.
Our management concluded that material weaknesses existed in the following areas as of December 31, 2013:
| (1) | we do not employ full time in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions; |
| (2) | we have inadequate segregation of duties consistent with the control objectives including but not limited to the disbursement process, transaction or account changes, account reconciliations and approval and the performance of bank reconciliations; |
| (3) | we have ineffective controls over the period end financial disclosure and reporting process caused by reliance on third-party experts and/or consultants and insufficient accounting staff; |
| (4) | we do not have a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls, approvals and procedures. |
Due to the material weaknesses that management identified, it was unable to conclude that our disclosure controls and procedures were effective as of December 31, 2013.
| -17- |
Changes in Internal Control Over Financial Reporting
Since the fourth quarter 2013, we have made changes that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting. These changes include additional external accounting services as well as timely reviews by management and coordination with these consultants.
No substantial changes in our internal control over financial reporting occurred during our most recent fiscal quarter. Since the fourth quarter 2013, we have made changes that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting. These changes include new independent registered public accountants and additional external accounting services as well as timely reviews by management and coordination with these consultants.
| ITEM 9B. | OTHER INFORMATION |
None.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The members of our board of directors serve for one year terms and are elected at the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the board of directors.
| Name | Age | Position | Term Commencing |
| Darin R. Pastor | 43 | Chief Executive Officer, Chairman & Director | August 26, 2013 |
| George L. Schneider | 60 | President, Chief Investment Officer and Director | August 26, 2013 |
| Halford W. Johnson | 51 | Chief Financial Officer | September 25, 2013 |
Darin
Pastor, Age 43, CEO and Chairman, As Chairman and Chief Executive Officer
at Capstone Financial Group, Inc. he invests Capstone's capital in the stock of companies with attractive business
models that are significantly undervalued when compared to their intrinsic value and guides Capstone's "operations-centric"
approach to optimizing the profitability of those companies.
With nearly two decades of experience in financial services
and sales, Pastor has developed a strong reputation for his exceptional leadership skills and helping clients address their financial
goals. In 2012, Prudential ranked him as the #1 Managing Director in the nation measured by year over year sales growth, and he
was ranked as the top-selling Senior Investment Manager in the nation during his tenure at JPMorgan Chase & Co.
Pastor served as Managing Director of Prudential Insurance Company of America, and Senior Vice President and Senior Investment
Manager at JPMorgan Chase & Co. At Chase, he and his team managed $6.6 billion in client assets, and he was ranked the top-selling
Senior Investment Manager in the nation. Pastor’s work history also includes extensive experience as an entrepreneur. From
1989 to 1996, he was a Division Manager and owner at Pepsi-Cola Buffalo Bottling Corp. He was the owner of American Mortgage Affiliates
(NYS EIN: 46-470427) from 1996 to 2004, opening seven retail financial center locations throughout New York before selling the
company to his partner.
Educational Background:
Pastor completed the University of Liverpool’s MBA program. He held FINRA Series 6, 7, 24, 51, 63, and 66 registrations as well as a life, health insurance, and property and casualty insurance license. He has also completed several certificate programs from the Wharton School of Business at the University of Pennsylvania. Pastor is currently a candidate to obtain his Master of Laws in International Banking and Finance. In addition, he has been accepted to the Harvard Business School’s Advanced Management Program and will receive Alumni status upon the program’s completion.
| -18- |
George Schneider, Age 60, President, Chief Investment Officer and a Director -
Professional Experience:
George Schneider brings over 30 years of highly qualified financial services experience and accomplishment to Capstone Financial Group, Inc. Utilizing his in-depth knowledge and extensive experience, combined with his vision and guidance, Schneider is recognized as an innovative and solutions-oriented leader in today’s complex and changing capital markets.
Prior to joining Capstone, Schneider held senior investment banking and financial advisory positions ranging from Managing Member of Cove Partners LLC to Head of Investment Banking and Special Advisor to the Board of Directors for the Crown Financial Group, Inc. Schneider also held senior roles in the specialty investment banking and financial advisory service firms Credit Research and Trading LLC and Houlihan, Lokey, Howard and Zukin, Inc. Schneider additionally held senior management positions with the full-service broker-dealer firms Donaldson, Lufkin & Jenrette Inc. and Paine Webber.
Schneider’s investment banking and financial advisory qualifications and experiences span the capital markets as it would concern capital raising and financial advisory services for public and private companies and certain municipal government interests, to include, debt and equity capital raises, merger, acquisition and divestiture transactions, valuation analysis, tender and exchange offers, and corporate and municipal bond restructuring.
Schneider’s sales and trading qualifications and experience include private placements and public offerings of equity, corporate debt, convertible securities, structured finance securities as well as tax-exempt, tax-advantaged and taxable municipal debt securities.
In addition to his investment banking, financial advisory and sales and trading qualifications, Schneider has senior investment management experience and qualification, serving as senior portfolio manager and Director of Bond Management for Prudential Insurance Company and a portfolio manager for General Reinsurance Corporation where his work concerned a wide range of securities, to include, corporate and municipal bonds, equity securities, and convertible securities.
Educational Background:
Schneider received his undergraduate degree, a Bachelor of Science in Economics, with honors, with four majors: Finance, Economics, Organizational Management and Entrepreneurial Management, from the University of Pennsylvania’s Wharton School of Business.
Halford W. Johnson, Age 51, Chief Financial Officer - From October 2012 to April 2014, Mr. Johnson the CFO of Capstone Affluent Strategies, Inc., an exclusive independent wealth management firm in Irvine, California. On September 25, 2013, Mr. Johnson was appointed as the CFO of Capstone Financial Group, Inc. As CFO, Mr. Johnson's responsibilities include analysis of company sales, expenses and cash flow, creating and maintaining financial reports and oversight of compliance, administrative staff and payroll. Mr. Johnson has 28 years of experience in financial services, with emphasis on the areas of investment, business and estate planning, as well as compliance supervision. Mr. Johnson worked for JPMorgan Chase-Chase Investment Services Corp from 2000-2012 as an Administrative Officer before joining Capstone Affluent Strategies, Inc./Capstone Financial Group, Inc. in 2012.
Family Relationships
There are no family relationships among any of our officers or directors.
| -19- |
Code of Ethics
A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:
| (1) | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| (2) | Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer; |
| (3) | Compliance with applicable governmental laws, rules and regulations; |
| (4) | The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and |
| (5) | Accountability for adherence to the code. |
During the year ended December 31, 2013, we have adopted a corporate code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Corporate Governance
We currently do not have standing audit, nominating and compensation committees of the board of directors, or committees performing similar functions. Until formal committees are established, our entire Board of Directors performs the same functions as an audit, nominating and compensation committee.
| ITEM 11. | EXECUTIVE COMPENSATION |
Overview of Compensation Program
We currently have not appointed members to serve on the Compensation Committee of the Board of Directors. Until a formal committee is established, our entire Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Board of Directors ensures that the total compensation paid to the executives is fair, reasonable and competitive.
Compensation Philosophy and Objectives
The Board of Directors believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company, and which aligns executives’ interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. As a result of the size of the Company and only having three executive officers, the Board evaluates both performance and compensation on an informal basis. Upon hiring additional executives, the Board intends to establish a Compensation Committee to evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly-situated executives of our peer companies. To that end, the Board believes executive compensation packages provided by the Company to its executives, including the named executive officers should include both cash and stock-based compensation that reward performance as measured against established goals.
Role of Executive Officers in Compensation Decisions
The Board of Directors makes all compensation decisions for, and approves recommendations regarding equity awards to, the executive officers and Directors of the Company. Decisions regarding the non-equity compensation of other employees of the Company are made by management.
Summary Compensation
The following table details compensation paid to the Company’s Officers and Directors for the year ended December 31, 2013.
| -20- |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth information, to the best of our knowledge, about the beneficial ownership of our common stock on April 14, 2014, relating to the beneficial ownership of our common stock by those persons known to beneficially own more than 5% of our capital stock and by our directors and executive officers. The percentage of beneficial ownership for the following table is based on 93,514,237 shares of common stock outstanding.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days after April 14, 2014 pursuant to options, warrants, conversion privileges or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.
| Amount of | ||||||||||||
| Beneficial | ||||||||||||
| Title of Class | Name and address of Beneficial Owner (1) | Ownership | Percent of Class | |||||||||
| Common | Darin R. Pastor, CEO, Sec/Treasurer and Director | 69,702,777 | 74.50 | % | ||||||||
| Common | George L. Schneider, President and Director | 9,036,000 | 9.60 | % | ||||||||
| Common | Halford W. Johnson, Chief Financial Officer | 119,497 | 0.10 | % | ||||||||
| All Directors and Officers as a Group | 78,858,274 | 84.30 | % | |||||||||
| (1) | As used in this table, "beneficial ownership" means the sole or united power to vote, or to direct the voting of, a security, or the sole or united investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). Each Parties' address is in care of the Company at 2600 Michelson Dr., Suite 700, Irvine CA 92612. |
Changes in Control
There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,AND DIRECTOR INDEPENDENCE |
Transactions with Related Persons
On July 12, 2012, we executed a promissory note with a related party for $10,000. The unsecured loan bears interest at 6% per annum with principal and interest due on July 13, 2015. During the year ended December 31, 2013, related party loaned an additional $3,500 to the Company with the same terms as the previous promissory note for $10,000. During the year ended December 31, 2013, the related party forgave the entire balance of principal of $13,500 and accrued interest of $702. As of December 31, 2013, the balance of accrued interest was $0.
| -21- |
On August 8, 2013, we entered into (as borrower) an unsecured $500,000 revolving line of credit with Capstone Affluent Strategies, Inc., which was owned and controlled by Darin Pastor. The line of credit bore interest at 2% per annum with principal and interest due on August 8, 2015.
On September 13, 2013, we entered into (as lender) an unsecured $500,000 revolving line of credit with Capstone Affluent Strategies, Inc., which was owned and controlled by Darin Pastor. In October 2013, the maximum amount available under this line of credit was increased to $2,000,000. The line of credit bore interest at 2% per annum with principal and interest due on September 13, 2015. At December 31, 2013 this balance was $892,093.
Our office space located at 2600 Michelson Dr., Suite 700, Irvine, CA 92612. As of December 31, 2013, our monthly rent is $28,736, which commenced on August 26, 2013 continuing through March 2015 on a month to month basis with no commitment. Prior to August, 2013 office space was provided at no cost from a former officer and director of the Company.
Certain Control Persons
On September 6, 2013, pursuant to a Stock Purchase Agreement, Mr. Ryan Faught sold and issued 3,548,200 pre-split shares of the Company’s common stock, $0.001 par value per share, to Mr. Darin Pastor, for an aggregate purchase price of $1,774.10.
Additionally, on September 6, 2013, pursuant to a Stock Purchase Agreement, Mr. Ryan Faught sold and issued 451,800 pre-split shares of the Company’s common stock, $0.001 par value per share, to Mr. George Schneider, for an aggregate purchase price of $225.90.
As a result of the Stock Purchase Agreements mentioned above, on September 6, 2013, Mr. Darin Pastor and Mr. George Schneider obtained control of the Company by acquiring direct beneficial control of 4,000,000 pre-split shares of common stock or 88.6%.
Director Independence
We currently do not have any independent directors, as the term “independent” is defined in Section 803A of the NYSE Amex LLC Company Guide.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
| (1) | AUDIT FEES |
| The following table sets forth the fees paid or accrued by us for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements, etc., for the year ended December 31, 2012 and December 31, 2013: |
| Fiscal Year Ended | Fiscal Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Audit Fees | ||||||||
| De Joya Griffith, LLC | $ | — | $ | 4,500 | ||||
| Seale & Beers, CPAs | 13,000 | — | ||||||
| $ | 13,000 | $ | 4,500 | |||||
| (2) | AUDIT-RELATED FEES |
| None. |
| (3) | TAX FEES |
| None. |
| (4) | ALL OTHER FEES |
| None. |
| (5) | AUDIT COMMITTEE POLICIES AND PROCEDURES |
| We do not have an audit committee. |
| -22- |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| a. | We have filed the following documents as part of this Annual Report on Form 10-K: |
i. The financial statements listed in the "Index to Financial Statements" on page 26 are filed as part of this report.
ii. Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
iii. Exhibits included or incorporated herein: See index to Exhibits.
Exhibit Index
| Incorporated by reference | ||||||||||||
| Exhibit | Filed | Period | Filing | |||||||||
| Number | Exhibit Description | herewith | Form | ending | Exhibit | date | ||||||
| 2.1 | [Common] Stock Purchase Agreement dated Sept. 6, 2013 between Ryan Faught and Darin Pastor | X | ||||||||||
| 2.2 | Common] Stock Purchase Agreement dated Sept. 6, 2013 between Ryan Faught and George L. Schneider | X | ||||||||||
| 2.3 | Agreement and Plan of Merger among the Company, Capstone Sub Co. and Capstone Affluent Strategies, Inc. dated Dec. 13, 2013 | 8-K | 2.1 | 12/13/2013 | ||||||||
| 2.3.1 | Rescission of Agreement and Plan of Merger among the Company, Capstone Sub Co. and Capstone Affluent Strategies, Inc. dated Dec. 13, 2013 | 8-K | 10.1 | 5/1/2014 | ||||||||
| 2.4 | Articles of Merger filed Jan. 15, 2014, between Capstone Sub Co. and Capstone Affluent Strategies, Inc. | 8-K | 3(i)(d) | 1/16/2014 | ||||||||
| 3.1 | Articles of Incorporation of Creative App Solutions Inc. dated Jul. 10, 2012 | S-1 | 3(i)(a) | 10/17/2012 | ||||||||
| 3.1.1 | Certificate of Amendment to Articles of Incorporation filed Aug. 26, 2013 | 8-K | 3(i)(a) | 8/29/2013 | ||||||||
| 3.1.2 | Certificate of Change filed Sept. 6, 2013 | 8-K | 3(i)(c) | 9/12/2013 | ||||||||
| 3.2 | Bylaws | S-1 | 3(ii) | 10/17/2012 | ||||||||
| 3.2.1 | Amended Bylaws, adopted August 26, 2013 | X | ||||||||||
| 10.1 | Promissory Note from Capstone Affluent Strategies, Inc. in favor of Darin Pastor, dated October 4, 2012 | X | ||||||||||
| 10.2 | Promissory Note from Capstone Affluent Strategies, Inc. in favor of Darin Pastor, dated October 22, 2012 | X | ||||||||||
| 10.3 | Promissory Note from Capstone Affluent Strategies, Inc. in favor of Darin Pastor, dated December 31, 2012 | X | ||||||||||
| 10.4 | Full and Complete Release of Liability Agreement - [Former officer forgives $14,202 of Company debt, on August 26, 2013] | X | ||||||||||
| 10.5 | Assignment, Assumption and Consent Agreement dated August 26, 2013 between the Company and Darin Pastor | X | ||||||||||
| 10.6 | Revolving Credit Grid Note dated Aug. 8, 2013 between the Company (as “Maker”) and Capstone Affluent Strategies, Inc. | 10-Q | 9/30/2013 | 10.1 | 11/19/2013 | |||||||
| 10.7 | Revolving Credit Grid Note dated September 13, 2013 between the Company and Capstone Affluent Strategies, Inc. (as “Maker”) | 10-Q | 9/30/2013 | 10.2 | 11/19/2013 | |||||||
| 10.7.1 | Amendment No. 1 to Revolving Credit Grid Note, dated Oct. 7, 2013 | 10-Q | 9/30/2013 | 10.3 | 11/19/2013 | |||||||
| 10.8 | Series A Warrant, dated as of Sept. 30, 2014, issued by Twinlab Consolidated Holdings, Inc. to the Company | 8-K | 10.1 | 10/6/2014 | ||||||||
| 10.9 | Stock Option, dated Aug. 1, 2014, from respective holders of common stock of Twinlab Consolidated Holdings, Inc. to the Company | 13d | 2 | 12/17/2014 | ||||||||
| -23- |
Exhibit Index (Continued)
| Incorporated by reference | ||||||||||||
| Exhibit | Filed | Period | Filing | |||||||||
| Number | Exhibit Description | herewith | Form | ending | Exhibit | date | ||||||
| 10.10 | Series B Warrant, dated as of Sept. 30, 2014, issued by Twinlab Consolidated Holdings, Inc. to the Company | 8-K | 10.2 | 10/6/2014 | ||||||||
| 10.11 | Common Stock Put Agreement, dated as of Sept. 30, 2014, between Twinlab Consolidated Holdings, Inc. and the Company | 8-K | 10.3 | 10/6/2014 | ||||||||
| 10.11.1 | Amendment No. 1 to Common Stock Put Agreement, dated Dec. 15, 2014 | X | ||||||||||
| 10.12 | Registration Rights Agreement, dated as of Sept. 30, 2014, between Twinlab Consolidated Holdings, Inc. and the Company | 8-K | 10.4 | 10/6/2014 | ||||||||
| 10.13 | Agreement among the Company, Darin Pastor and Capstone Affluent Strategies, Inc., dated October 28, 2014 | X | ||||||||||
| 10.14 | Agreement to Reform Promissory Notes Due to Scrivener’s Error, among the Company, Darin Pastor and Capstone Affluent Strategies, Inc., dated December 15, 2014 | X | ||||||||||
| 14.1 | Corporate Code of Ethics for Financial Officers, adopted August 8, 2013 | X | ||||||||||
| 16.1 | Letter from De Joya Griffith, LLC (November 18, 2013) | 8-K | 16.2 | 11/19/2013 | ||||||||
| 16.2 | Letter from Seale and Beers, CPAs (August 4, 2014) | 8-K | 16.1 | 8/4/2014 | ||||||||
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act – CEO | X | ||||||||||
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act – CFO | X | ||||||||||
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act – CEO | X | ||||||||||
| 32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act – CFO | X | ||||||||||
| 101 INS** | XRBL Instance Document | X | ||||||||||
| 101.SCG** | XRBL Taxonomy Extension Schema | X | ||||||||||
| 101.CAL** | XRBL Taxonomy Extension Calculation Linkbase | X | ||||||||||
| 101.DEF** | XRBL Taxonomy Extension Definition Linkbase | X | ||||||||||
| 101.LAB** | XRBL Taxonomy Extension Label Linkbase | X | ||||||||||
| 101.PRE** | XRBL Taxonomy Extension Presentation Linkbase | X | ||||||||||
| ** | XRBL (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. |
| -24- |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /S/ Darin R. Pastor
Darin R. Pastor, Chief Executive Officer
Date: February 18, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
|
/S/ Darin R. Pastor |
Chairman of the Board of Directors, |
February 18, 2015 |
| Darin R. Pastor | Chief Executive Officer (Principal Executive Officer) and Chief Executive Officer | |
|
/S/ Halford W. Johnson |
Chief Financial Officer |
February 18, 2015 |
| Halford W. Johnson | (Principal Financial Officer) | |
|
/S/ George L. Schneider |
Director |
February 18, 2015 |
| George L. Schneider |
| -25- |
CAPSTONE FINANCIAL GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
| -26- |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Capstone Financial Group, Inc:
We have audited the accompanying balance sheet of Capstone Financial Group, Inc. as of December 31, 2013, and the related statement of operations, stockholders’ equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the 2013 financial statements referred to above present fairly, in all material respects, the financial position of Capstone Financial Group, Inc. as of December 31, 2013, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP
San Diego, California
February 18, 2015
| -27- |
Office Locations Las Vegas, NV New York, NY Pune, India Beijing, China
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders Creative App Solutions Inc.
We have audited the accompanying balance sheet of Creative App Solutions Inc. (A Development Stage Company) as of December 31, 2012 and the related statement of operations, stockholder’s deficit, and cash flows from inception (July 10, 2012) to December 31, 2012. Creative App Solutions Inc’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over the financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Creative App Solutions Inc. (A Development Stage Company) as of December 31, 2012 and the result of its operations and its cash flows from inception (July 10, 2012) to December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ De Joya Griffith,LLC
Henderson, Nevada
March 21,2013
De Joya Griffith, LLC ● 2580 Anthem Village Dr. ● Henderson, NV ● 89052 Telephone (702) 563-1600 ● Facsimile (702) 920-8049 www.dejoyagriffith.com
| -28- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
| December 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | — | $ | 6,140 | ||||
| Prepaid expense | 16,895 | — | ||||||
| Deposit | 100,000 | — | ||||||
| Total current assets | 116,895 | 6,140 | ||||||
| Line of credit receivable, net - related party | 580,043 | — | ||||||
| Accrued interest receivable - related party | 6,542 | — | ||||||
| Total assets | $ | 703,480 | $ | 6,140 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 12,973 | $ | 300 | ||||
| Accrued taxes payable | 800 | — | ||||||
| Accrued payroll liabilities | 11,960 | — | ||||||
| Total current liabilities | 25,733 | 300 | ||||||
| Long term liabilities: | ||||||||
| Accrued interest payable | — | 501 | ||||||
| Accrued interest payable - related party | 4,519 | 283 | ||||||
| Line of credit payable | — | 35,000 | ||||||
| Note payable - related party | — | 10,000 | ||||||
| Total long term liabilities | 4,519 | 45,784 | ||||||
| Total liabilities | 30,252 | 46,084 | ||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, $0.001 par value, 10,000,000 shares | ||||||||
| authorized, no shares issued and outstanding | ||||||||
| as of December 31, 2013 and 2012, respectively | — | — | ||||||
| Common stock, $0.001 par value, 2,000,000,000 shares | ||||||||
| authorized, 93,025,000 and 80,200,000 shares issued and outstanding | ||||||||
| as of December 31, 2013 and 2012, respectively | 93,025 | 80,200 | ||||||
| Additional paid in capital | 1,353,677 | (75,700 | ) | |||||
| Accumulated deficit | (773,474 | ) | (44,444 | ) | ||||
| Total stockholders' equity (deficit) | 673,228 | (39,944 | ) | |||||
| Total liabilities and stockholders' equity (deficit) | $ | 703,480 | $ | 6,140 | ||||
See Accompanying Notes to Financial Statements.
| -29- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
| Inception | ||||||||
| For the | (July 11, 2012) | |||||||
| year ended | to | |||||||
| December 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Revenue | $ | 164,593 | $ | — | ||||
| Operating expenses: | ||||||||
| General and administrative | 302,150 | 684 | ||||||
| Payroll expense | 205,607 | — | ||||||
| Professional fees | 352,270 | 42,976 | ||||||
| Professional fees - related party | 31,490 | — | ||||||
| Total operating expenses | 891,517 | 43,660 | ||||||
| Loss from operations | (726,924 | ) | (43,660 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | 6,595 | — | ||||||
| Interest expense | (2,963 | ) | (501 | ) | ||||
| Interest expense - related party | (4,938 | ) | (283 | ) | ||||
| Total other expense | (1,306 | ) | (784 | ) | ||||
| Net loss before income taxes | (728,230 | ) | (44,444 | ) | ||||
| Income tax expense | 800 | — | ||||||
| Net loss | $ | (729,030 | ) | $ | (44,444 | ) | ||
| Weighted average number of common | ||||||||
| shares outstanding - basic and diluted | 83,387,110 | 79,732,571 | ||||||
| Net loss per share - basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | ||
See Accompanying Notes to Financial Statements.
| -30- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
| Additional | Total | |||||||||||||||||||
| Paid | Stockholders' | |||||||||||||||||||
| Common Shares | in | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Inception, (July 10, 2012) | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| July 11, 2012 Issuance of | ||||||||||||||||||||
| common stock for cash | 80,000,000 | 80,000 | (76,000 | ) | — | 4,000 | ||||||||||||||
| July 19, 2012 Issuance of | ||||||||||||||||||||
| common stock for cash | 200,000 | 200 | 300 | — | 500 | |||||||||||||||
| Net loss | — | — | — | (44,444 | ) | (44,444 | ) | |||||||||||||
| Balance December 31, 2012 | 80,200,000 | $ | 80,200 | $ | (75,700 | ) | $ | (44,444 | ) | $ | (39,944 | ) | ||||||||
| February 25, 2013 Issuance of | ||||||||||||||||||||
| common stock for cash | 10,000,000 | $ | 10,000 | $ | 40,000 | $ | — | $ | 50,000 | |||||||||||
| April 16, 2013 Issuance of | ||||||||||||||||||||
| common stock services | 1,000,000 | 1,000 | 4,000 | — | 5,000 | |||||||||||||||
| June 6, 2013 Cancellation of | ||||||||||||||||||||
| common stock for services | (1,000,000 | ) | (1,000 | ) | (4,000 | ) | — | (5,000 | ) | |||||||||||
| August 26, 2013 Forgiveness of | ||||||||||||||||||||
| debt with related party | — | — | 14,202 | — | 14,202 | |||||||||||||||
| September 30, 2013 Issuance of | ||||||||||||||||||||
| common stock for cash | 1,470,000 | 1,470 | 292,530 | — | 294,000 | |||||||||||||||
| December 31, 2013 Issuance of | ||||||||||||||||||||
| common stock for cash | 1,355,000 | 1,355 | 1,082,645 | — | 1,084,000 | |||||||||||||||
| Net loss | — | — | — | (729,030 | ) | (729,030 | ) | |||||||||||||
| Balance December 31, 2013 | 93,025,000 | $ | 93,025 | $ | 1,353,677 | $ | (773,474 | ) | $ | 673,228 | ||||||||||
See Accompanying Notes to Financial Statements.
| -31- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
| Inception | ||||||||||||||||
| For the | (July 10, 2012) | |||||||||||||||
| year ended | to | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2013 | 2012 | |||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
| Net loss | $ | (729,030 | ) | $ | (44,444 | |||||||||||
| Adjustments to reconcile net loss | ||||||||||||||||
| to net cash used in operating activities: | ||||||||||||||||
| Stock issued for services | — | 500 | ||||||||||||||
| Forgiveness of Debt - related party | 14,202 | — | ||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Increase in prepaid expense | (16,895 | ) | — | |||||||||||||
| Increase in accrued interest payable - related party | 4,236 | 283 | ||||||||||||||
| Increase in line of credit receivable - related party | (580,043 | ) | — | |||||||||||||
| Increase in accrued interest receivable - related party | (6,542 | ) | — | |||||||||||||
| Increase in deposit | (100,000 | ) | — | |||||||||||||
| Increase in accounts payable | 12,673 | 300 | ||||||||||||||
| Increase in accrued taxes payable | 800 | — | ||||||||||||||
| Increase (decrease) in accrued interest payable | (501 | ) | 501 | |||||||||||||
| Increase accrued payroll labilities | 11,960 | — | ||||||||||||||
| Net cash used in operating activities | (1,389,140 | ) | (42,860 | |||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
| Net cash used in investing activities | — | — | ||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
| Proceeds from line of credit payable | (35,000 | ) | 35,000 | |||||||||||||
| Proceeds from notes payable - related party | (10,000 | ) | 10,000 | |||||||||||||
| Proceeds from sale of common stock, net of offering costs | 1,428,000 | 4,000 | ||||||||||||||
| Net cash provided by financing activities | 1,383,000 | 49,000 | ||||||||||||||
| NET CHANGE IN CASH | (6,140 | ) | 6,140 | |||||||||||||
| CASH AT BEGINNING OF PERIOD | 6,140 | — | ||||||||||||||
| CASH AT END OF PERIOD | $ | — | $ | 6,140 | ||||||||||||
See Accompanying Notes to Financial Statements.
| -32- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
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 its 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 was initially intended to design and sell mobile application for the Apple and Android platforms. During the year ended December 31, 2013, the Company changed its business to a holding company. Capstone uses its own capital to acquire the outstanding stock of other companies. Capstone does not produce goods or services itself. Rather, its primary purpose is to own and trade shares of other companies. Capstone's principals have a long track record of implementing operational improvements through the exercise of influence at a company, often as a result of becoming one of its largest shareholders.
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 year ended December 31, 2013, the Company recorded $164,593 in revenue related to professional services and expenses rendered in connection with agreement dated August 26, 2013 that was assigned by an officer, director and shareholder of the Company.
Advertising costs
Advertising costs are anticipated to be expensed as incurred; however there were $44,173 and $0 advertising and marketing costs included in general and administrative expenses for the year ended December 31, 2013 and from Inception (July 10, 2012) to December 31, 2012.
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.
| -33- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
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 December 31, 2013, there were no dilutive common shares outstanding.
| -34- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Concentration of revenue
During the year ended December 31, 2013, there was $164,593 in revenue generated from two customers.
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 December 31, 2013 and 2012, 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.
Recent pronouncements
The Company has evaluated the recent accounting pronouncements through the date of this filing and believes that none of them will have a material effect on the Company’s financial statements.
Commitments
At December 31, 2013 the Company had no outstanding commitments
| -35- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
NOTES TO 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.
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, NET – RELATED PARTY
On August 8, 2013, the Company entered into (as borrower) an unsecured $500,000 revolving line of credit with Capstone Affluent Strategies, Inc., which was owned and controlled by Darin Pastor. The line of credit bore interest at 2% per annum with principal and interest due on August 8, 2015. At December 31, 2013, the balance payable on the line of credit was $892,093 as the amount increased due to unrecorded expenses and the need for this restatement.
On September 13, 2013, the Company entered into (as lender) an unsecured $500,000 revolving line of credit with Capstone Affluent Strategies, Inc., which was owned and controlled by Darin Pastor. In October 2013, the maximum amount available under this line of credit was increased to $2,000,000. The line of credit bore interest at 2% per annum with principal and interest due on September 13, 2015. At December 31, 2013, the balance receivable on the line of credit was $1,472,136.
The above receivable and payable with Capstone Affluent Strategies, Inc. has been presented as a net receivable in the accompanying balance sheet in the amount of $580,043 due to a right of offset.
NOTE 4 – NOTES PAYABLE – RELATED PARTY
On July 12, 2012, the Company executed a promissory note with a related party for $10,000. The unsecured loan bears interest at 6% per annum with principal and interest due on July 13, 2015. During the year ended December 31, 2013, related party loaned an additional $3,500 to the Company with the same terms as the previous promissory note for $10,000. During the year ended December 31, 2013, the related party forgave the entire balance of principal of $13,500 and accrued interest of $702. As of December 31, 2013, the balance of accrued interest was $0.
NOTE 5 – INCOME TAXES
The FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits as of December 31, 2013 and 2012.
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s consolidated balance sheets at December 31, 2013 or December 31, 2012, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2013 and 2012.
| -36- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 – INCOME TAXES (CONTINUED)
The FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits as of December 31, 2013 and 2012.
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s consolidated balance sheets at December 31, 2013 or December 31, 2012, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2013 and 2012.
The Company has not completed a formal Section 382 analysis regarding the limitation of net operating loss carryforwards. As such, the Company’s net operating loss carryforwards may be limited if an ownership change occurred. The Company does not presently plan to complete a formal Section 382 analysis, and there is a full valuation allowance against its deferred tax assets for net operating losses. The company plans to perform a formal Section 382 analysis if there is sufficient taxable income in future years to begin utilizing its net operating loss carryforwards.
At December 31, 2013 and 2012, the Company had a cumulative federal operating loss carryforwards of approximately $736,000 and $45,000, respectively, which begins to expire in 2032.
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31, 2013 and 2012:
| 2013 | 2012 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward | $ | 302,397 | $ | 15,380 | ||||
| Total deferred tax assets | 302,397 | 15,380 | ||||||
| Less: Valuation allowance | (302,397 | ) | (15,380 | ) | ||||
| Net deferred tax assets | $ | — | $ | — | ||||
The valuation allowance for deferred tax assets as of December 31, 2013 and 2012 was $302,397 and $15,380, respectively. The net operating losses will begin to expire in 2032. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. Management believes it is more likely than not that the deferred tax assets as of December 31, 2013 will not be realized based on the management’s assessment that the deductions ultimately recognized for tax purposes will be fully utilized. Therefore full valuation allowances were set up for these deferred tax assets as of 12/31/2013 and 12/31/2012.
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31, 2013 and 2012:
| 2013 | 2012 | |||||||
| Federal statutory rate | (35.0 | )% | (35.0 | )% | ||||
| State taxes, net of federal benefit | (0.00 | )% | (0.00 | )% | ||||
| Change in valuation allowance | 35 | % | 35 | % | ||||
| Effective tax rate | 0 | % | 0 | % | ||||
| -37- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 – INCOME TAXES (CONTINUED)
The components of income tax expense (benefit) for the years ended December 31, 2013 and 2012 are as follows:
| 2013 | 2012 | |||||||
| Current tax expense (benefit) | 800 | — | ||||||
| Deferred tax expense (benefit) | — | — | ||||||
| Total income tax expense (benefit) | 800 | — | ||||||
NOTE 6 – STOCKHOLDERS’ EQUITY (DEFICIT)
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.
On September 6, 2013, the Company effected a 20-for-1 forward stock split of its $0.001 par value common stock and increased its authorized common stock to 2,000,000,000 shares.
All shares and per share amounts have been retroactively restated to reflect the split discussed above.
NOTE 7 - DEPOSIT
At December 31, 2013 the Company had made a $100,000 deposit related to an anticipated purchase transaction. In February 2014, the transaction was cancelled and the $100,000 was repaid to the Company.
| -38- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - RESTATEMENT (UNAUDITED)
During the third and fourth quarters of 2013, the Company recorded additional expenses related to its operations subsequent to the August 26, 2013 change in control. As a result, net loss increased $214,193 and $372,262 for the quarters ending September 30 and December 31, 2013 respectively. For the year ending December 31, 2013, net loss increased by $585,455.
| 2013 (As Originally Recorded) | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||
| Cash | $ | 26,413 | $ | 2,959 | $ | 45,566 | $ | — | ||||||||
| Prepaid expense | — | — | — | 10,364 | ||||||||||||
| Accounts Receivable | — | — | — | — | ||||||||||||
| Total current assets | 26,413 | 2,959 | 45,566 | 10,364 | ||||||||||||
| Line of credit receivable - related party | — | — | 370,000 | 1,472,136 | ||||||||||||
| Accrued interest receivable - related party | — | — | 264 | 6,542 | ||||||||||||
| Deposit receivable | — | — | — | 100,000 | ||||||||||||
| Total assets | $ | 26,413 | $ | 2,959 | $ | 415,830 | $ | 1,589,042 | ||||||||
| — | ||||||||||||||||
| Accounts payable | $ | 4,503 | $ | 449 | $ | 5,474 | $ | 8,482 | ||||||||
| Accrued liabilities | — | — | — | — | ||||||||||||
| Accrued interest payable | 1,478 | 2,812 | — | — | ||||||||||||
| Accrued income tax payable | — | — | — | — | ||||||||||||
| Accrued payroll liabilities | — | — | — | — | ||||||||||||
| Accrued interest payable - related party | 431 | 580 | 358 | 1,637 | ||||||||||||
| Line of credit | 65,700 | 92,200 | — | — | ||||||||||||
| Note payable - related party | 10,000 | 10,000 | 154,443 | 320,240 | ||||||||||||
| Total liabilities | 82,112 | 106,041 | 160,275 | 330,359 | ||||||||||||
| Total stockholders' equity (deficit) | (55,699 | ) | (103,082 | ) | 255,555 | 1,258,683 | ||||||||||
| $ | 26,413 | $ | 2,959 | $ | 415,830 | $ | 1,589,042 | |||||||||
| Year ended | ||||||||||||||||||||
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | 12/31/2013 | ||||||||||||||||
| Revenue | $ | — | $ | — | $ | 121,627 | $ | 42,966 | $ | 164,593 | ||||||||||
| Operating expenses: | ||||||||||||||||||||
| General and administrative | 681 | 752 | 12,689 | 11,060 | 25,182 | |||||||||||||||
| Payroll expense | — | — | — | — | — | |||||||||||||||
| Professional fees | 63,948 | 45,148 | 52,636 | 107,077 | 268,809 | |||||||||||||||
| Professional fees - related party | — | — | 5,000 | 10,700 | 15,700 | |||||||||||||||
| Total operating expenses | 64,629 | 45,900 | 70,325 | 128,837 | 309,691 | |||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest income | — | — | 264 | 6,278 | 6,542 | |||||||||||||||
| Interest expense | (978 | ) | (1,333 | ) | (652 | ) | — | (2,963 | ) | |||||||||||
| Interest expense - related party | (148 | ) | (150 | ) | (479 | ) | (1,279 | ) | (2,056 | ) | ||||||||||
| Total other income (expense) | (1,126 | ) | (1,483 | ) | (867 | ) | 4,999 | 1,523 | ||||||||||||
| Net loss before income taxes | (65,755 | ) | (47,383 | ) | 50,435 | (80,872 | ) | (143,575 | ) | |||||||||||
| Income tax | — | — | — | — | — | |||||||||||||||
| Net loss | $ | (65,755 | ) | $ | (47,383 | ) | $ | 50,435 | $ | (80,872 | ) | $ | (143,575 | ) | ||||||
| Weighted average number of common | ||||||||||||||||||||
| shares outstanding - basic | 4,204,444 | 4,510,000 | 90,311,848 | 92,347,500 | 80,180,488 | |||||||||||||||
| Net loss per share - basic | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||
| -39- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - RESTATEMENT (UNAUDITED) - CONTINUED
| 2013 (As Restated) | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||
| Cash | $ | 26,413 | $ | 2,959 | $ | 45,566 | $ | — | ||||||||
| Prepaid expense | — | — | — | 16,895 | ||||||||||||
| Accounts Receivable | — | — | — | — | ||||||||||||
| Total current assets | 26,413 | 2,959 | 45,566 | 16,895 | ||||||||||||
| Line of credit receivable - related party | — | 1,364 | 580,043 | |||||||||||||
| Accrued interest receivable - related party | — | — | 264 | 6,542 | ||||||||||||
| Deposit receivable | — | — | — | 100,000 | ||||||||||||
| Total assets | $ | 26,413 | $ | 2,959 | $ | 47,194 | $ | 703,480 | ||||||||
| Accounts payable | $ | 4,503 | $ | 449 | $ | 5,474 | 12,973 | |||||||||
| Accrued liabilities | — | — | — | — | ||||||||||||
| Accrued interest payable | 1,478 | 2,812 | — | — | ||||||||||||
| Accrued income tax payable | — | — | — | 800 | ||||||||||||
| Accrued payroll liabilities | — | — | — | 11,960 | ||||||||||||
| Accrued interest payable - related party | 431 | 580 | 358 | 4,519 | ||||||||||||
| Line of credit | 65,700 | 92,200 | — | — | ||||||||||||
| Note payable - related party | 10,000 | 10,000 | — | — | ||||||||||||
| Total liabilities | 82,112 | 106,041 | 5,832 | 30,252 | ||||||||||||
| Total stockholders' equity (deficit) | (55,699 | ) | (103,082 | ) | 41,362 | 673,228 | ||||||||||
| $ | 26,413 | $ | 2,959 | $ | 47,194 | $ | 703,480 | |||||||||
| Year ended | ||||||||||||||||||||
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | 12/31/2013 | ||||||||||||||||
| Revenue | $ | — | $ | — | $ | 121,627 | $ | 42,966 | $ | 164,593 | ||||||||||
| Operating expenses: | ||||||||||||||||||||
| General and administrative | 681 | 752 | 107,684 | 193,033 | 302,150 | |||||||||||||||
| Payroll expense | — | — | 102,599 | 103,008 | 205,607 | |||||||||||||||
| Professional fees | 63,948 | 45,148 | 69,262 | 173,912 | 352,270 | |||||||||||||||
| Professional fees - related party | — | — | 5,000 | 26,490 | 31,490 | |||||||||||||||
| Total operating expenses | 64,629 | 45,900 | 284,545 | 496,443 | 891,517 | |||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest income | — | — | 291 | 6,304 | 6,595 | |||||||||||||||
| Interest expense | (978 | ) | (1,333 | ) | (652 | ) | — | (2,963 | ) | |||||||||||
| Interest expense - related party | (148 | ) | (150 | ) | (479 | ) | (4,161 | ) | (4,938 | ) | ||||||||||
| Total other income (expense) | (1,126 | ) | (1,483 | ) | (840 | ) | 2,143 | (1,306 | ) | |||||||||||
| Net loss before income taxes | (65,755 | ) | (47,383 | ) | (163,758 | ) | (451,334 | ) | (728,230 | ) | ||||||||||
| Income tax | — | — | — | 800 | 800 | |||||||||||||||
| Net loss | $ | (65,755 | ) | $ | (47,383 | ) | $ | (163,758 | ) | $ | (452,134 | ) | (729,030 | ) | ||||||
| Weighted average number of common | ||||||||||||||||||||
| shares outstanding - basic | 4,204,444 | 4,510,000 | 90,311,848 | 92,347,500 | 83,387,110 | |||||||||||||||
| Net loss per share - basic | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.00 | ) | (0.00 | ) | $ | (0.01 | ) | ||||||
| -40- |
CAPSTONE FINANCIAL GROUP, INC.
(FORMERLY CREATIVE APP SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through February 18, 2015, the date the financial statements were available to be issued. Except as noted below, there were no events which require adjustments to, or disclosure in, the financial statements for the year ended December 31, 2013.
In October 2014, the Company acquired directly from Darin Pastor (the sole shareholder of Affluent), certain assets of Affluent and assumed certain liabilities of Affluent (which had been dissolved on April 2014). The Company specifically undertook liability for promissory notes with an original aggregate principal amount of $3.8 million by Capstone Affluent Strategies, Inc. in favor of Darin Pastor. In connection with those transactions, the crossing revolving lines of credit between the Company and Affluent were cancelled.
In August 2014, the Company purchased 10,987,500 shares of common stock of Twinlab Consolidated Holdings, Inc. (“Twinlab”) in private transactions from 25 shareholders, for total consideration of $3,296.
Additionally, in August 2014, the Company purchased options to acquire 8,743,000 currently-outstanding shares of Twinlab’s Common Stock (collectively, the “Stock Option”) in a private transaction, for total consideration of $2,623. The Stock Option is exercisable at $0.005 per share and expires in August 2015. In November 2014 the Company exercised 436,681 of those options.
In September 2014, Twinlab issued a Series A Warrant to the Company to purchase up to 52,631,579 shares of Twinlab’s Common Stock at an exercise price of $0.76 per share (the “First Warrant”).
Twinlab also issued a Series B Warrant to the Company on September 2014 (the “Second Warrant”). Pursuant to the Second Warrant, the Company has the right to purchase up to 22,368,421 shares of Common Stock at an exercise price of $0.76 per share. The Second Warrant is exercisable from October 2014 through October 2017.
Twinlab and the Company also entered into a Common Stock Put Agreement, dated as of September 30, 2014, as amended on December 15, 2014 (the “Put Agreement”). Pursuant to the Put Agreement, if the Company does not exercise the First Warrant by February 16, 2015 at a rate of no less than 1,461,988 shares of Common Stock (“the Minimum Amount”) per month over the term of the First Warrant (the “Minimum Rate”), Twinlab has the right (subject to certain conditions) to require the Company to exercise the First Warrant monthly at the Minimum Rate for the duration of the First Warrant. The Warrant and Put agreement was amended to extend to February 15, 2015. The Company has not exercised the “Minimum Amount” of shares per the agreement but is currently in discussions with Twinlab and expects to exercise the Minimum Amount within 40 days.
During the first quarter ended March 31, 2014, the Company issued 488,237 shares of Company common stock to a total of 12 accredited investors for a total purchase price of $415,001.
During the second quarter ended June 30, 2014, the Company issued 412,000 shares of Company common stock to a total of 11 accredited investors for a total purchase price of $350,200.
During the third quarter ended September 30, 2014, the Company issued 437,647 shares of Company common stock to a total of 9 accredited investors for a total purchase price of approximately $372,000.
During the fourth quarter ended December 31, 2014, the Company issued 201,764 shares of Company common stock to a total of 5 accredited investors for a total purchase price of $171,500.
| -41- |
