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CAPSTONE FINANCIAL GROUP, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 20, 2014

FORWARD-LOOKING STATEMENTS

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

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

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

our current lack of working capital;

inability to raise additional financing;

the fact that our accounting policies and methods are fundamental to how we

report our financial condition and results of operations, and they may require

our management to make estimates about matters that are inherently uncertain;

deterioration in general or regional economic conditions;

adverse state or federal legislation or regulation that increases the costs of

compliance, or adverse findings by a regulator with respect to existing

operations;

inability to efficiently manage our operations;

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

the unavailability of funds for capital expenditures.

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

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

AVAILABLE INFORMATION



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

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OVERVIEW AND OUTLOOK General Business Development



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

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

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

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

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

On January 15, 2014, we completed the reverse triangular merger, pursuant to the Acquisition Agreement and Plan of Merger ("Merger"), by and among Capstone Sub Co. ("Sub Co"), a Nevada corporation and wholly owned subsidiary of the Company, and Capstone Affluent Strategies, Inc. ("Affluent"), a California corporation, whereby Affluent became a wholly owned subsidiary of the Company. Pursuant to the conditions to closing of the Merger, the Company issued 1,000 shares of its restricted common stock in exchange for 100% of Affluent's issued and outstanding common stock.

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

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Business of Capstone Financial Group, Inc.

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

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

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

Competition

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

Personnel

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

RESULTS OF OPERATIONS

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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Three months ended March 31, 2014 2013



Net cash used in operating activities $ (70,338 )$ (60,427 ) Net cash used in investing activities (388,469 )

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Net cash provided by financing activities 485,111 80,700 Net increase/(decrease) in Cash

26,304 20,273 Cash, beginning - 6,140 Cash, ending $ 26,304$ 26,413 Operating activities



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

Investing activities

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

Financing activities

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

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

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

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Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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


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