Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended September 30, 2015

☐

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.)

8600 Transit Road, East Amherst, NY		14051
(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

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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 Exchange Act). Yes ☐ No ☒

The number of shares of Common Stock, $0.001 par value, outstanding as of November 3, 2015 was 94,364,148 shares.

CAPSTONE FINANCIAL GROUP, INC.

QUARTERLY REPORT FOR THE QUARTER ENDED

SEPTEMBER 30, 2015

Index to Report on Form 10-Q


PART I	Financial Information	Page

Item 1.	Financial Statements (Unaudited)	3

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II	Other Information

Item 1.	Legal Proceedings	32

Item1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

-2-

PART I Financial Information

Item 1. Financial Statements

CAPSTONE FINANCIAL GROUP, INC.

INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

			PAGES

Unaudited Condensed Statements of Financial Condition as of September 30, 2015 and December 31, 2014			4

Unaudited Condensed Statements of Operations for the three months and nine months ended September 30, 2015 and 2014			5

Unaudited Condensed Statement of Stockholders’ Equity for the nine months ended September 30, 2015			6

Unaudited Condensed Statements of Cash Flows for the nine months ended September 30, 2015 and 2014			7

Notes to Unaudited Condensed Financial Statements			8

-3-

CAPSTONE FINANCIAL GROUP, INC.

UNAUDITED CONDENSED STATEMENTS OF FINANCIAL CONDITION

	September 30, 2015		December 31, 2014
ASSETS
Investments, at fair value	$	11,861,551	$	28,838,301
Cash		425,270		12,685
Note receivable		—		603,952
Prepaid expense		675		86,209
Furniture and equipment, net		7,039		6,500
Deposits		85,000		65,000
Total assets		12,379,535		29,612,647

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Accrued expenses	$	127,058	$	48,547
Accrued interest payable - related party		190		4,431
Short term advances payable - related party		180,151		94,306
Note payable - related party		68,416		1,203,552
Deferred revenue		—		116,662
Put and call option liability		387,947		9,973,684
Income taxes payable		800		—
Deferred tax liability		4,222,599		6,742,723
Total liabilities		4,987,161		18,183,905

STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 2,000,000,000 shares authorized;
94,364,148 and 94,564,648 issued and outstanding as of September 30, 2015 and December 31, 2014, respectively		94,365		94,565
Additional paid in capital		957,407		1,176,633
Retained earnings		6,340,602		10,157,544
Total stockholders' equity		7,392,374		11,428,742
Total liabilities and stockholders' equity	$	12,379,535	$	29,612,647

See Accompanying Notes to Unaudited Condensed Financial Statements.

-4-

CAPSTONE FINANCIAL GROUP, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

	For the three months ended September 30,					For the nine months ended September 30,
	2015			2014		2015			2014
Revenues
Services income	$	16,660		$	33,335	$	116,662		$	33,335
Other income		1,800			—		1,800			—
Interest – related party		—			11,140		14,460			29,835
		18,460			44,475		132,922			63,170
Expenses
Payroll		137,048			57,926		228,593			180,081
Professional fees		318,808			39,745		920,402			225,267
General and administrative		451,862			120,870		760,187			486,806
Interest expense – related party		2,200			4,276		10,724			16,107
		909,918			222,817		1,919,906			908,261

Realized and Unrealized Gain (Loss) on Financial Instruments
Realized gain (loss) on financial instruments,
net		346,368			5,874		(480,088	)		19,458
Unrealized (loss) gain on financial
instruments, net		(2,213,158	)		19,190,577		(4,069,194	)		19,187,658
(Loss) gain on financial instruments, net		(1,866,790	)		19,196,451		(4,549,282	)		19,207,116

Net (loss) income before income taxes		(2,758,248	)		19,018,109		(6,336,266	)		18,362,025
Income tax (benefit)		(1,076,278	)		7,283,827		(2,519,324	)		7,283,827
Net (loss) income	$	(1,681,970	)	$	11,734,282	$	(3,816,942	)	$	11,078,198
Net (loss) income per share – basic and diluted	$	(0.02	)	$	0.12	$	(0.04	)	$	0.12
Weighted average shares outstanding – basic
and diluted		94,364,181			94,089,281		94,494,161			93,353,609

See Accompanying Notes to Unaudited Condensed Financial Statements.

-5-

CAPSTONE FINANCIAL GROUP, INC.

UNAUDITED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY

	Common Shares						Additional Paid in			Retained			Total Stockholders’
	Shares			Amount			Capital			Earnings			Equity
Balance, January 1, 2015	$	94,564,648		$	94,565		$	1,176,633		$	10,157,544		$	11,428,742
Net loss		—			—			—			(3,816,942	)		(3,816,942	)
Treasury stock, at cost		(200,500	)		(200	)		(219,226	)		—			(219,426	)
Balance, September 30, 2015	$	94,364,148		$	94,365		$	957,407		$	6,340,602		$	7,392,374

See Accompanying Notes to Unaudited Condensed Financial Statements.

-6-

CAPSTONE FINANCIAL GROUP, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

	For the nine months ended
	September 30,
	2015			2014
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income	$	(3,816,942	)	$	11,078,198
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Sale (purchase) of financial instruments, net		2,841,731			(8,838	)
Net change in unrealized gain on financial instruments		4,069,194			(19,187,658	)
Net change in realized gain on financial instruments		480,088			—
Depreciation		1,500			—
(Increase) decrease in assets:
Note receivable		400,000			—
Accrued interest receivable – related party		(14,459	)		(28,806	)
Prepaid expense		85,534			16,895
Deposits		(20,000	)		35,000
Increase (decrease) in liabilities:
Accounts payable		—			(12,973	)
Accrued expenses		78,511			(8,569	)
Accrued interest payable – related party		(4,241	)		15,079
Deferred revenue		(116,662	)		166,665
Net repayments on notes payable – related party		(1,135,136	)		(519,429	)
Net proceeds from short term advances – related party		85,845			—
Income taxes payable		800			—
Deferred tax liability		(2,520,124	)		7,283,827
Net cash provided by (used in) operating activities		415,639			(1,170,609	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment		(2,039	)		—
Net cash used in investing activities		(2,039	)		—

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net of offering costs		—			1,308,700
Purchase of treasury stock		(1,015	)		—
Net cash (used in) provided by financing activities		(1,015	)		1,308,700
Increase in cash		412,585			138,091
Cash at beginning of period		12,685			—
Cash at end of period	$	425,270		$	138,091

Supplemental Disclosure of Cash Flow Information:

Noncash purchase of treasury stock

218,411

—

See Accompanying Notes to Unaudited Condensed Financial Statements.

-7-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization

The business focus of Capstone Financial Group, Inc. (the "Company") is to invest in equity securities of other companies. The Company seeks to discover, unlock and grow value in privately-held or illiquid companies, including through the exercise of friendly influence at a company in support of operational improvements and strategic initiatives. In some cases, the Company might be one of the largest shareholders of the other company.

The Company seeks to work closely and constructively with the management and boards of the other companies. While the Company does not manage the day-to-day operations of these companies, the Company seeks to maintain a thorough understanding of how they operate and evaluate their performance and prospects on an ongoing basis.

The Company may also seek to actively trade in its strategic investment positions and/or enter into private securities transactions with regard to those positions, to capitalize on price fluctuations and realize profits or minimize losses.

The Company was incorporated on July 10, 2012 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.

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. Effective in 2014, the Company transitioned its business plan to its current business focus.

At September 30, 2015 the Company’s investments are primarily focused in one entity, Twinlab Consolidated Holdings, Inc. (“Twinlab”). Management believes that it will be able to liquidate a sufficient portion of its investment and/or raise additional capital to avoid and/or satisfy its call obligations as and when they become due and/or are exercised. However, no assurance can be given that market conditions in the future will continue to allow the Company to sell its investments in sufficient quantities to enable full warrant exercises or to raise additional capital to do so (see Note 4).

-8-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 2 – BASIS OF PRESENTATION

The accompanying financial statements have been prepared using the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the accounting and financial reporting conventions of the investment company industry and in accordance with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014, included in the Company’s Annual Report on Form 10-K filed with the SEC on April 30, 2015. The unaudited condensed financial statements contain all normal recurring accruals and adjustments that in the opinion of management, are necessary to present fairly the financial position of the Company at September 30, 2015, the results of the Company’s operations for the three months and nine months periods ended September 30, 2015 and the Company’s cash flows for the nine months ended September 30, 2015. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three months and nine months periods ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year or any future interim periods.

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

The Company has evaluated the recent accounting pronouncements through the date of this filing, and management does not expect adoption of such pronouncements to have a material impact on the Company’s financial position or results of operations.

-9-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 4 – FAIR VALUE MEASUREMENTS

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

•

Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

•

Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.

•

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The Company’s financial instruments are valued by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The valuation methodology for each investment type and discussion of key unobservable inputs is described below.

The Company often invests in common stocks that are thinly traded where the closing trading price is not considered to be a fair indication of the value for which the Company can sell or buy the common stock. In such cases, as in the case of private-company limited liability company membership interests held by the Company, the common stock must be analyzed to determine what exit price the Company would receive when liquidating the position. These positions are classified as Level 3 securities.

The significant unobservable inputs used in the fair value measurement of the Company’s Level 3 common stocks are recent open market and non open-market transactions with unrelated parties. Increases or decreases in any of those inputs in isolation would result in a lower or higher fair value measurement, respectively.

-10-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

The Company has warrants and call options to purchase common stock in illiquid public companies. Generally, there is no established market for these investments. The Company values these warrants and call options by using a model that takes into consideration the exercise or call price of the warrant or call option, the price of the underlying common stock and the expiration date of the warrant or call option.

The significant unobservable inputs used in the fair value measurement of the Company’s warrants and call options includes the price of the underlying thinly traded common stock, duration and discount rate and volatility. Increases or decreases in the premium-to-parity would result in a higher or lower fair value measurement, respectively.

Common Stocks

Generally, when the Company invests in common stocks that are traded on the NASDAQ Markets or over-the-counter markets (such as the OTCBB, OTCQB or OTC Pink marketplaces), such common stocks are valued at the last traded price. If there is no trade on a measurement date, the Company will typically value the common stock at the closing bid price. However, in certain circumstances, the closing trading price is not considered to be a fair indication of the value for which the Company can sell the common stock. In such cases, the common stock must be analyzed to determine what exit price the Company would receive when liquidating the position. Investments in non-marketable common stocks at September 30, 2015 and December 31, 2014 were valued based, in part, on subsequent transactions with unrelated third parties. These positions are classified as Level 3 securities by the Company.

Limited Liability Company Interests

From time to time, the Company has investments in private limited liability companies. Generally, there is no established market for these investments. The Company values these interests by means of both quantitative and qualitative measures, generally including the financial stability of the company, the economic rights of the interests and the economic prospects of the company.

The significant unobservable input used in the fair value measurement of the Company’s limited liability company investments is the expected recovery of contributed capital. Increases or decreases in the expected recovery would result in a higher or lower fair value measurement, respectively.

Derivative Financial Instruments

Derivative financial instruments include call options and warrants at September 30, 2015 and December 31, 2014. Derivatives are accounted for at fair value with changes in fair value reported in operations. The significant unobservable inputs used in the fair value measurement of the Company’s derivative financial instruments include the underlying common stock, duration, volatility and discount rate, which are used in the option pricing model. Changes to any of those inputs in isolation would result in fluctuations in the fair value measurement.

-11-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

	Quantitative Information about Level 3
	Fair Value Measurements at September 30, 2015
		Fair Value	Valuation Technique	Unobservable Inputs	Range
Assets

Common Stock	$	8,897,917	Recent sales		January 2015 – October 2015

Real Estate Company Investments		277,500	Recent sales		July 2015

2014 Call Options		974,025	Option pricing model	Duration Risk rate Volatility	0.2 – 1.2 years 0.19 – 0.80% 43 – 45%

Series B Warrants		1,712,109	Option pricing model	Duration Risk rate Volatility	0.2 – 1.2 years 0.19 – 0.80% 43 – 45%
Total assets held at fair value	$	11,861,551

Liabilities
Third-Party Call Options	$	(387,947)	Option pricing model	Duration Risk rate Volatility	2.5 – 2.7 years 0.91 – 0.98% 43%

Total liabilities held at fair value	$	(387,947)

-12-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Financial instruments, net are comprised of the following at September 30, 2015.

	Cost		Estimated Fair Value
ASSETS
Common Stock	$	1,005,182	$	8,897,917
Real Estate Company Investments		277,500		277,500
2014 Call Options		450		974,025
Series B Warrants		—		1,712,109
		1,283,132		11,861,551

LIABILITIES
Third-Party Call Options	$	—	$	(387,947	)
	$	—	$	(387,947	)

Financial instruments, net are comprised of the following at December 31, 2014.

	Cost		Estimated Fair Value
ASSETS
Common Stocks	$	6,212	$	8,018,621
2014 Call Options		2,492		6,644,680
Series A Warrants		—		9,947,368
Series B Warrants		—		4,227,632
	$	8,704	$	28,838,301

LIABILITIES
Warrant Put Option	$	—	$	(9,973,684	)

-13-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

During the first quarter of 2014, the Company purchased shares in a company (other than Twinlab) traded on the OTC Markets for a total of $2,919. The Company currently categorizes these holdings as Level 3 assets. As of September 30, 2015, this investment is carried at $0 value under management’s valuation guidelines.

In August 2014, the Company purchased 10,987,500 split-adjusted shares of common stock of Twinlab in private transactions from 25 shareholders for total consideration of $3,296.

In August 2014, the Company purchased options to acquire 8,743,000 outstanding shares of Twinlab’s Common Stock (collectively, the “2014 Call Options”) in a private transaction from 14 stockholders, for total consideration of $2,623. The 2014 Call Options exercise price was $0.0001 per share and the term of the 2014 Call Options expired in August 2015. Such options were immediately exercisable and in February 2015, the Company exercised 7,244,500 of those options.

In September 2014, Twinlab issued to the Company a Series A Warrant to purchase up to 52,631,579 shares of Twinlab’s Common Stock at an exercise price of $0.76 per share (the “Series A Warrant”) and a Series B Warrant to purchase up to 22,368,421 shares of Twinlab’s Common Stock at an exercise price of $0.76 per share (the “Series B Warrant”). Both the Series A Warrant and the Series B Warrant were 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 did not exercise the Series A Warrant by February 16, 2015 and thereafter at a rate of no less than 1,461,988 shares of Common Stock (the “Minimum Amount”) per month (the “Minimum Rate”) over the term of the Series A Warrant, Twinlab had the right (subject to certain conditions) to require the Company to exercise the Series A Warrant at the Minimum Rate for the duration of the Series A Warrant.

During the nine months ended September 30, 2015, the Company sold an aggregate of 3,976,647 units of Twinlab securities to various unrelated third party accredited investors. Each unit consisted of one share of (unrestricted) Twinlab common stock and a detachable call option to purchase from the Company, for $1.00 per share, one (restricted) share of Twinlab common stock. The term of each such call option was three years from the respective unit sale date.

In addition, during the nine months ended September 30, 2015, the Company sold an aggregate of 1,445,360 shares of (unrestricted) Twinlab common stock (without any associated detachable call options) to various unrelated third party accredited investors, for $0.76 per share.

-14-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Twinlab and the Company also entered into a Compromise Agreement and Release and an Amendment No. 1 to Series B Warrant, each dated as of May 28, 2015, pursuant to which, among other things: (a) the Company surrendered the entire remaining-unexercised portion of the Series A Warrant (51,973,684 warrants) and 4,368,421 of the warrants under the Series B Warrant; (b) the Put Agreement was terminated; (c) the remaining 18,000,000 warrants under the Series B Warrant were deemed divided into four tranches, each with an associated date beyond which it would no longer be exercisable: one tranche for 2,000,000 warrant shares (no longer exercisable after November 30, 2015), one for 4,000,000 warrant shares (no longer exercisable after March 31, 2016), one for 6,000,000 warrant shares (no longer exercisable after July 31, 2016) and another for 6,000,000 warrant shares (no longer exercisable after November 30, 2016); and (d) the Company granted Twinlab three contingent call options, at $0.01 per share, to acquire Twinlab shares from the Company to the extent that upon effective expiration of the second, third and fourth tranches the Company had not exercised the warrants within such tranches (the “Contingent Call Options”). The three Contingent Call Options would be for a number of Twinlab shares equal to 25% of such unexercised warrants (i.e., a maximum of 1,000,000 shares if the Company exercised no warrants from the second tranche, a maximum of 1,500,000 shares if the Company exercised no warrants from the third tranche and a maximum of 1,500,000 shares if the Company exercised no warrants from the fourth tranche). In addition, Twinlab cannot exercise a Contingent Call Option unless it has satisfied such option’s “Liquidity Condition,” namely that for each of the three or four months before the tranche’s effective expiration date Twinlab must have a financial position sufficient to show a 1.15x fixed charge coverage ratio for a certain trailing period, all as defined by Twinlab’s Credit and Security Agreement dated January 22, 2015. Twinlab also agreed in the Compromise Agreement and Release that, given that the Company has identified, and may in the future identify, to Twinlab on a confidential basis persons to whom the Company might sell the Company’s Twinlab shares, Twinlab shall not, without the Company’s prior written consent, privately place Twinlab equity securities to any persons theretofore or thereafter first introduced to Twinlab by the Company; provided that Twinlab may, without the Company’s consent, privately place Twinlab equity securities to such a person at any time after the earlier of (a) the date the entire Series B Warrant has expired and/or been exercised, or (b) the first anniversary of such particular introduction.

On October 1, 2015, Twinlab and the Company entered into Amendment No. 1 to Agreement for Limited Waiver of Non-Circumvention Provision and to Compromise Agreement and Release, pursuant to which a prior agreement calling for contingent payments of cash and equity to the Company was amended to remove the Company’s right to any such contingent payments of cash and equity compensation, and in return the three Contingent Call Options were immediately eliminated. The Contingent Call Options were valued at $0 at September 30, 2015.

In July 2015, in exchange for $277,500, the Company acquired a 20% interest in privately-held Western New York real estate companies LC Strategic Realty, LLC and LC Strategic Holdings, LLC, as well as in all other business conducted or to be conducted by the firms’ majority holders to the extent such other business has a primary focus on (a) real estate (subject to the exclusion of certain specified projects), (b) media/entertainment/show business, or (c) endorsements/advertisements/personal appearances/use of likeness/monetization of celebrity.

Fair Value of Financial Instruments

The Company's financial instruments recorded at fair value have been categorized based upon a fair value hierarchy. The following fair value hierarchy table presents information about the Company's financial instruments measured at fair value.

-15-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

	Assets and Liabilities Measured at
	Fair Value on a Recurring Basis
	September 30, 2015
	Level 1		Level 2		Level 3		Total
Assets
Financial instruments, at fair value:
Common Stocks	$	—	$	—	$	8,897,917	$	8,897,917
Real Estate Company Investments		—		—		277,500		277,500
2014 Call Options		—		—		974,025		974,025
Series B Warrants		—		—		1,712,109		1,712,109
Total financial instruments, at fair value		—		—		11,861,551		11,861,551
Total assets held at fair value	$	—	$	—	$	11,861,551	$	11,861,551

Liabilities
Financial instruments, at fair value:
Third-Party Call Options	$	—	$	—	$	387,947	$	387,947
Total liabilities held at fair value	$	—	$	—	$	387,947	$	387,947

	Assets and Liabilities Measured at
	Fair Value on a Recurring Basis
	December 31, 2014
		Level 1		Level 2		Level 3		Total
Assets
Financial instruments, at fair value:
Common Stocks	$	—	$	—	$	8,018,621	$	8,018,621
2014 Call Options		—		—		6,644,680		6,644,680
Series A Warrants		—		—		9,947,368		9,947,368
Series B Warrants		—		—		4,227,632		4,227,632
Total Financial instruments, at fair value		—		—		28,838,301		28,838,301
Total assets held at fair value	$	—	$	—	$	28,838,301	$	28,838,301

Liabilities
Financial instruments, at fair value:
Warrant Put Option		—		—		9,973,684		9,973,684
Total liabilities held at fair value	$	—	$	—	$	9,973,684	$	9,973,684

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs used in valuing certain financial assets and liabilities were unavailable. In situations where there is little, if any, market activity for an asset or liability at the measurement date, the fair value measurement objective remains to measure the financial asset at the price that would be received by the holder of the financial asset (or liability) in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date.

-16-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

The following table includes a roll forward of the amounts for the nine months ended September 30, 2015 for financial instruments classified within Level 3. The classification of a financial instrument within Level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement..

Level 3 Recurring Fair Value Measurements

For the Three Months Ended September 30, 2015

	Common Stock			Real Estate Company Investments		2014 Call Options			Series A Warrants			Series B Warrants			Put Option Liability			Third-Party Call Options Liability			Contingent Call Options Liability			Total
Fair value, net, July 1, 2015	$	10,649,197		$	—	$	1,138,860		$	—		$	2,366,784		$	—		$	(621,977	)	$	(225,599	)	$	13,307,265
Realized / unrealized gains (losses) included in earnings		(1,506,909	)		—		(164,835	)		—			(654,675	)		—			234,030			225,599			(1,866,790	)
Purchases ¹		500,000			277,500		—			—			—			—			—			—			777,500
Sales		(744,371	)		—		—			—			—			—			—			—			(744,371	)
Settlements / exercises		—			—		—			—			—			—			—			—			—
Transfers in and /or out of Level 3		—			—		—			—			—			—			—			—			—
Fair value , net, September 30, 2015	$	8,897,917		$	277,500	$	974,025			—		$	1,712,109		$	—		$	(387,947	)	$	—		$	11,473,604

Unrealized gains (losses) still held	$	7,892,735		$	—	$	973,575		$	—		$	1,712,109		$	—		$	(387,947	)	$	—		$	10,190,472

¹ Purchases of Twinlab common stock were made at various dates at $0.76 per share. Level 3 Recurring Fair Value Measurements For the Nine Months Ended September 30, 2015
	Common Stock			Real Estate Company Investments		2014 Call Options			Series A Warrants			Series B Warrants			Put Option Liability			Third-Party Call Options Liability			Contingent Call Options Liability			Total
Fair value, net, January 1, 2015	$	8,018,621		$	—	$	6,644,680		$	9,947,368		$	4,227,632		$	(9,973,684	)	$	—			—		$	18,864,617
Realized / unrealized gains (losses) included in earnings		(2,128,941	)		—		(164,835	)		(9,823,026	)		(2,515,523	)		9,849,013			234,030			—			(4,549,282	)
Purchases ¹		6,505,820			277,500		—			—			—			—			—			—			6,783,320
Sales		(3,497,583	)		—		—			—						—			(621,977	)		—			(4,119,560	)
Settlements / exercises		—			—		(5,505,820	)		(124,342	)		—			124,671			—			—			(5,505,491	)
Transfers in and /or out of Level 3		—			—		—			—			—			—			—			—			—
Fair value , net, September 30, 2015	$	8,897,917		$	277,500	$	974,025			—		$	1,712,109		$	—		$	(387,947	)		—		$	11,473,604

Unrealized gains (losses) still held	$	7,892,735		$	—	$	973,575		$	—		$	1,712,109		$	—		$	(387,947	)		—		$	10,190,472

¹ Purchases of Twinlab common stock were made at various dates at $0.76 per share.

-17-

CAPSTONE FINANCIAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 5 – MARKET, CREDIT AND LIQUIDITY RISK

Market risk is the potential loss the Company may incur as a result of changes in the market or fair value of a particular financial instrument. Risks arise in options and warrant contracts from changes in the market or fair value of their underlying financial instruments.

Credit risk is the potential loss the Company may incur as a result of the failure of a counterparty or an issuer to make payments according to the terms of a contract. Credit risk can arise from investment activities in financially distressed issuers. To manage this risk, the Company may seek to diversify its investment portfolio with respect to specific credits, sectors and asset classes.

The Company is also subject to market concentration risk since a significant portion of its investment portfolio has similar characteristics, and is therefore affected similarly by changes in economic conditions.

Investments of the Company trade in relatively thin markets and throughout the year, depending upon market conditions, may be considered illiquid. As a result, the market values can be more volatile and difficult to determine relative to other securities. In addition, if the Company is required to liquidate all or a portion of its portfolio quickly, it may realize significantly less than the value at which it previously recorded its financial instruments.

NOTE 6 – INCOME TAXES

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Income tax benefit for the nine months ended September 30, 2015 was $2,519,324 at an effective tax rate of 39.77%, which was greater than the federal statutory rate due to the state income tax expense.

The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The disclosures regarding the Company's unrecognized tax benefits at December 31, 2014 included in the Company's 2014 Annual Report on Form 10-K continue to be relevant for the periods ended September 30, 2015 as to the Company’s unrecognized tax benefits at September 30, 2015.

NOTE 7 – TREASURY STOCK PURCHASES

The Company is authorized to repurchase shares of the Company’s common stock in private transactions from time to time. During 2015, the Company repurchased 200,500 shares at an aggregate cost of approximately $220,000, which included approximately $218,000 in satisfaction of an outstanding note receivable.

NOTE 8 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were available to be issued. Except as noted below, there are no events which require adjustments to, or disclosure in, the financial statements for the periods ended September 30, 2015.

In October 2015, the Company sold 303,947 Twinlab shares to unrelated third parties for $231,000.

-18-

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements and involves risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows, and business prospects. Forward-looking statements may appear throughout this report, including without limitation, the following sections: Part I Item 2 “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 our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on April 30, 2015, and in particular, the risks discussed under the caption “Risk Factors” in Part I Item 1A thereof, and those discussed in other documents we file with the 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.

Overview and Outlook

Our business focus is to use our own capital to acquire the outstanding equity securities of other companies. We do not produce goods or services ourselves. Rather, our primary purpose is to own and trade shares of other companies. We seek to discover, unlock and grow value in privately-held or illiquid companies, including through the exercise of friendly influence at a company in support of operational improvements and strategic initiatives. In some cases, we might be one of the largest shareholders of the other company.

We seek to work closely and constructively with the management and boards of the other companies. While we do not manage the day-to-day operations of these companies, we seek to maintain a thorough understanding of how they operate and evaluate their performance and prospects on an ongoing basis.

We may also seek to actively trade in our strategic investment positions and/or enter into private securities transactions with regard to those positions, to capitalize on price fluctuations and realize profits or minimize losses.

We were initially formed to design and sell mobile apps for smart phones and other mobile platforms such as tablets. We never launched an active business based on this focus.

During the third quarter of 2013, we refocused ourselves as a financial services company.

-19-

On January 15, 2014, in support of our financial services business focus, we effected a reverse triangular merger whereby Capstone Affluent Strategies, Inc. (“Affluent”), a California corporation, became our wholly owned subsidiary. Affluent, a financial services company, had been wholly owned by Darin Pastor.

In March 2014, we refocused ourselves again, to our current business model. We believe our current business model is likely to result in lower expenses levels than would have been associated with our financial services company business model.

On August 11, 2014, we effectively unwound the Affluent merger transaction, due to Affluent’s inability to produce audited financial statements as required and the change in our business focus. In October 2014, we acquired from Darin Pastor certain Affluent assets and assumed certain Affluent liabilities. (Affluent had been dissolved earlier in 2014.)

Currently our primary strategic investment position is in securities of Twinlab Consolidated Holdings, Inc. (“Twinlab”). In August 2014, we purchased 10,987,500 shares of common stock of Twinlab in private transactions from 25 shareholders, for nominal consideration. Additionally, in August 2014, we purchased options to acquire 8,743,000 currently-outstanding shares of Twinlab’s common stock (collectively, the “2014 Call Options”) from 14 shareholders in a private transaction, for nominal consideration. The 2014 Call Options exercise price was $0.0001 per share and the 2014 Call Options expiration date was August 2015. (In February 2015, we exercised the Call Options. Optionors honored the exercise as to 7,244,500 Twinlab shares. Other optionors have not yet honored the exercise, as to at least 1,498,500 Twinlab shares. We intend, if necessary, to file suit to enforce the exercises as to those shares.)

On September 30, 2014, Twinlab issued to us a Series A Warrant to purchase up to 52,631,579 shares of Twinlab common stock at an exercise price of $0.76 per share (the “Series A Warrant”), and a Series B Warrant to purchase up to 22,368,421 shares of Twinlab common stock at an exercise price of $0.76 per share (the “Series B Warrant”). By their original terms, the Series A Warrant and the Series B Warrant were both exercisable from October 2014 through October 2017.

On September 30, 2014, Twinlab and we also entered into the Put Agreement. Pursuant to the Put Agreement, if we did not exercise the Series A Warrant by February 16, 2015 and thereafter at a rate of no less than 1,461,988 shares of Twinlab common stock (the “Minimum Amount”) per month (the “Minimum Rate”) over the term of the Series A Warrant, Twinlab had the right (subject to certain conditions) to require us to exercise the Series A Warrant at the Minimum Rate for the duration of the Series A Warrant. In the event Twinlab exercised its right to require us to exercise the Series A Warrant, the purchase price per share of Twinlab common stock thereunder would have been $0.775.

In November 2014, we sold 436,681 of our Twinlab shares for approximately $1,000,000.

We did not exercise the “Minimum Amount” of shares per the Put Agreement. In April 2015 we exercised the Series A Warrant as to 657,895 Twinlab shares.

-20-

During the nine months ended September 30, 2015, we sold an aggregate of 3,976,647 units of Twinlab securities to various unrelated third party accredited investors. Each unit consisted of one share of (unrestricted) Twinlab common stock and a detachable call option (“Third-Party Call Options”) to purchase from us, for $1.00 per share, one (restricted) share of Twinlab common stock. The term of each such call option was three years from the respective unit sale date. In each case, the sale price per unit was $0.76.

In addition, in the second quarter of 2015 we sold 464,466 Twinlab shares (without any associated Third-Party Call Options) for $353,000, and in the third quarter of 2015 we sold 980,894 Twinlab shares (without any associated Third-Party Call Options) for $745,480.

In total, during the nine months ended September 30, 2015 we sold Twinlab securities for $4,120,732.

On May 28, 2015, we entered into a Compromise Agreement and Release and an Amendment No. 1 to Series B Warrant, each between Twinlab and us. Pursuant to these two agreements:

The Put Agreement was terminated.

We surrendered the entire remaining-unexercised portion of the Series A Warrant (51,973,684 warrants).

We surrendered 4,368,421 of the warrants under the Series B Warrant.

The remaining 18,000,000 warrants under the Series B Warrant were deemed divided into four tranches, each with an associated date beyond which it would no longer be exercisable: one tranche for 2,000,000 warrant shares (no longer exercisable after November 30, 2015); one for 4,000,000 warrant shares (no longer exercisable after March 31, 2016); one for 6,000,000 warrant shares (no longer exercisable after July 31, 2016); and another for 6,000,000 warrant shares (no longer exercisable after November 30, 2016);

	-	We granted Twinlab three contingent call options, at $0.01 per share, to acquire Twinlab shares from us to the extent that upon effective expiration of the second, third and fourth tranches we had not exercised the warrants within such tranches (the “Contingent Call Options”). The three Contingent Call Options would be for a number of Twinlab shares equal to 25% of such unexercised warrants (i.e., a maximum of 1,000,000 shares if we exercised no warrants from the second tranche, a maximum of 1,500,000 shares if we exercised no warrants from the third tranche and a maximum of 1,500,000 shares if we exercised no warrants from the fourth tranche). In addition, Twinlab cannot exercise a Contingent Call Option unless it has satisfied such option’s “Liquidity Condition,” namely that for each of the three or four months before the tranche’s effective expiration date Twinlab must have a financial position sufficient to show a 1.15x fixed charge coverage ratio for a certain trailing period, all as defined by Twinlab’s Credit and Security Agreement dated January 22, 2015.

	-	Given that we have identified, and may in the future identify, to Twinlab on a confidential basis persons to whom we might sell our Twinlab shares, Twinlab agreed (the “Noncircumvention Provision”) that it shall not, without our prior written consent, privately place Twinlab equity securities to any persons theretofore or thereafter first introduced to Twinlab by us; provided that Twinlab may, without our consent, privately place Twinlab equity securities to such a person at any time after the earlier of (a) the date the entire Series B Warrant has expired and/or been exercised, or (b) the first anniversary of such particular introduction.

-21-

As a result of these two agreements, our investment position in Twinlab as of immediately after the two agreements was as follows:

We have no further potential cash obligation to Twinlab under the Put Agreement; an imminent cash obligation to Twinlab of approximately $40.8 million was thereby avoided.

-	We retained all of our 14,476,567 outstanding Twinlab shares (13,818,672 unrestricted, free-trading Twinlab shares and 657,895 restricted Twinlab shares).
	-	Later in the second quarter of 2015 we sold an additional 464,466 unrestricted, free-trading Twinlab shares to accredited investors.
	-	In the third quarter of 2015 we sold an additional 980,894 unrestricted, free-trading Twinlab shares to accredited investors.
	-	We obtained an additional 526,316 restricted Twinlab shares upon a partial exercise of the Series B Warrant on July 7, 2015.
	-	We obtained an additional 131,579 restricted Twinlab shares upon a partial exercise of the Series B Warrant on July 23, 2015.

-	Our obligations to our accredited-investor counterparties under the 3,976,647 Third-Party Call options continued unchanged.

-	We retained 18,000,000 warrants under the Series B Warrant, at an unchanged $0.76 per share exercise price, with effective expiration dates ranging from November 30, 2015 to November 30, 2016 (and with at least 14 months of remaining term for 12,000,000 of the warrants).
	-	We exercised 526,316 of such warrants on July 7, 2015.
	-	We exercised 131,579 of such warrants on July 23, 2015.
	-	If not exercised by November 30, 2015, 1,342,105 of such warrants will expire on November 30, 2015.

The Registration Rights Agreement remains in full force and effect to enable the Securities Act registration of all Twinlab shares issued upon exercise of the Series B Warrant.

Under the Contingent Call Options, we undertook a contingent obligation to deliver to Twinlab (at $0.01 per share) up to 4,000,000 Twinlab shares, but the obligation would be reduced or entirely eliminated to the extent we exercise the last three deemed tranches of the Series B Warrant and/or to the extent that Twinlab fails to meet a required fixed charge coverage ratio for certain months. The redelivered Twinlab shares would not have to be free-trading Twinlab shares.

- As noted below, the Contingent Call Options were eliminated on October 1, 2015.

On July 5, 2015, Twinlab and we entered into an Agreement for Limited Waiver of Noncircumvention Provision (the “Limited Waiver Agreement”), pursuant to which we agreed to waive the Noncircumvention Provision as to a particular potential investor (B. Thomas Golisano) whom we had introduced to Twinlab in June 2015 and to whom the Noncircumvention Provision would otherwise apply, in exchange for substantial compensation in cash and Twinlab warrants calculated on the basis of the size and pricing of such investor’s purchase(s) of Twinlab securities.

On October 1, 2015, Twinlab and we entered into an Amendment No. 1 to Agreement for Limited Waiver of Non-Circumvention Provision and to Compromise Agreement and Release, pursuant to which the Limited Waiver Agreement was amended to remove our right to any compensation for the waiver of the Noncircumvention Provision as to B. Thomas Golisano and his affiliates, and the Compromise Agreement and Release was amended to eliminate the three Contingent Call Options.

-22-

As of September 30, 2015 (and also giving effect to the October 1, 2015 Amendment’s elimination of the three Contingent Call Options), our position in Twinlab securities was as follows, and we had no contingent liabilities to Twinlab:

We held 13,689,102 outstanding Twinlab shares (12,373,312 unrestricted, free-trading Twinlab shares and 1,315,790 restricted Twinlab shares).

We held 17,342,105 warrants under the Series B Warrant, at a $0.76 per share exercise price, with effective expiration dates ranging from November 30, 2015 to November 30, 2016 (and with at least 10 months of remaining term for 12,000,000 of the warrants). If not exercised by November 30, 2015, 1,342,105 of such warrants will expire on November 30, 2015.

The Registration Rights Agreement remains in full force and effect to enable the Securities Act registration of all Twinlab shares issued upon prior or future exercises of our Warrants.

We have a claim against third-party optionors for delivery to us of 1,498,500 Twinlab shares against the Call Options which they granted to us and which we have exercised.

We are contingently obligated to our accredited-investor counterparties under the 3,976,647 Third-Party Call options.

We have no actual or potential Contingent Call Option liability.

At September 30, 2015, the fair value of the liability under the 3,976,647 Third-Party Call Options was recorded on our balance sheet at $387,947.

On October 28, 2014, we entered into a transaction in which we acquired from Darin Pastor certain assets which had been assets of Affluent and assumed certain liabilities which had been liabilities of Affluent, including liabilities under notes in favor of Darin Pastor. At September 30, 2015, the outstanding principal amount of and accrued interest on such assumed notes was $68,606.

On June 17 and 18, 2015, we filed a Form 4 and an amended Schedule 13D statement to report a June 10, 2015 sale by us of 13,157,895 shares of Twinlab common stock to a third party. The third party did not timely honor its payment obligation under the sale contract and still had not honored it as of the filing date of this Quarterly Report on Form 10-Q, and accordingly we will not reflect this “sale” in our financial statements unless the purchase price is actually paid, and until then we will treat the transaction as a non-event for financial reporting purposes.

In July 2015, in exchange for $277,500, we acquired a 20% interest in privately-held Western New York real estate companies LC Strategic Realty, LLC and LC Strategic Holdings, LLC, as well as in all other business conducted by the firms’ majority holders to the extent such other business has a primary focus on (a) real estate (subject to the exclusion of certain specified projects), (b) media/entertainment/show business, or (c) endorsements/advertisements/personal appearances/use of likeness/ monetization of celebrity.

We currently are considering electing to become a Business Development Company and/or filing (or causing an affiliated company to file) an application with the United States Small Business Administration to become a Small Business Investment Company. We can give no assurance that such an application will be filed or that, if filed, it will be granted.

-23-

In addition, we are working toward a substantial energy-related development project. We can give no assurance that such project will come to fruition or that, if it does, it will be successful.

Results of Operations for the Quarterly Periods Ended September 30, 2015 and 2014

Revenues. Total revenues (excluding gain and loss on investment securities) for the quarters ended September 30, 2015 and 2014 were $18,460 and $44,475. The 2015 period included services income of $16,660 and the 2014 period included services income of $33,335. Due to our current business focus, we do not expect to regularly generate material amounts of services income.

Realized and Unrealized Gain (Loss) on Financial Instruments. We recorded a $346,368 realized gain on financial instruments for the quarter ended September 30, 2015, primarily as a result of our sales of Twinlab shares to third parties during the quarter as well as the cancellation of the Twinlab contingent call options liability.

We also recorded a $2,213,158 unrealized loss on financial instruments for the quarter ended September 30, 2015, primarily as a result of the reduction of our fair value determination for Twinlab stock from $0.76 to $0.65. Other factors included sales of Twinlab shares to third parties during the quarter.

The overall net loss on financial instruments for the quarter was $1,866,790.

If our assessments/estimates of the fair value of our holdings of Twinlab securities change from quarter to quarter, there will be significant changes in our unrealized gain on such holdings, which in turn would result in significant gain or loss on our statement of operations for the quarter in question. At December 31, 2014, March 31, 2015 and June 30, 2015, our determination was that the fair value of Twinlab common stock was $0.76 per Twinlab share. However, at September 30, 2015, our determination was that the fair value of Twinlab common stock was $0.65 per Twinlab share. Our judgment to reduce the fair value figure arose primarily from certain direct issuances by Twinlab of large amounts of securities, late in the third quarter and early in the fourth quarter, for meaningfully less than $0.76 per share. We believe those were extraordinary transactions that reflected unusual circumstances including a relative absence of bargaining power on Twinlab’s part and an urgency to sell to raise funds, and accordingly we did not reduce the fair value figure all the way to the values in such issuances (e.g., in the case of Twinlab’s October 2, 2015 issuance of 88,711,241 shares of common stock, representing 30% of its outstanding common stock, to Golisano Holdings LLC, for $25,000,000, $0.2818 per share). We ourselves continued to sell Twinlab shares for $0.76 throughout the third quarter and into the fourth quarter. On balance, we considered that a reduced fair value determination of $0.65 per Twinlab common share as of September 30, 2015 best reflected all of the available evidence pertaining to fair value.

Although our sales of Twinlab stock in the third quarter of 2015 generated cash proceeds of $744,371, we did not record an overall net gain on financial instruments on such sales, because the sales prices ($0.76 per share) were the same as the fair value we had determined for our Twinlab stock and at which we were carrying the Twinlab stock on our books. The sales merely resulted in a transfer of unrealized gain to realized gain.

-24-

We first acquired ownership of any Twinlab securities in the third quarter of 2014.

Payroll. Payroll for the quarters ended September 30, 2015 and 2014 was $137,048 and $57,926, respectively; the increase in 2015 was primarily due to increased staffing following our move to our East Amherst headquarters in May 2015. We are holding the salaries of our most senior officers at very low levels.

Professional Fees. Professional fees for the quarters ended September 30, 2015 and 2014 were $318,808 and $39,745, respectively. The increase was primarily due to legal fees for preparing documents for production as required by legal process.

General and Administrative. General and administrative expenses (excluding payroll expense and professional fees) for the quarters ended September 30, 2015 and 2014 were $451,862 and $120,870, respectively; the increase in 2015 was primarily due to increased activities following our move to our East Amherst headquarters in May 2015.

Results of Operations for the Nine Months Periods Ended September 30, 2015 and 2014

Revenues. Total revenues (excluding gain and loss on investment securities) for the nine months ended September 30, 2015 and 2014 were $132,922 and $63,170, respectively. This included services income of $116,662 and $33,335, respectively. Due to our current business focus, we do not expect to regularly generate material amounts of services income.

Realized and Unrealized Gain (Loss) on Financial Instruments. We recorded a $480,088 realized loss on financial instruments for the nine months ended September 30, 2015 as a result of the effect of the May 28, 2015 transaction with Twinlab in which we surrendered the entire remaining-unexercised portion of the Series A Warrants (51,973,684 warrants), amended the Series B Warrant terms and amount (combined realized loss of $14,050,658) and terminated the Put Agreement (realized gain of $9,849,013), which outweighed our combined sales of 5,150,915 Twinlab shares to third parties during the nine months period.

We also recorded a $4,069,194 unrealized loss on financial instruments for the nine months ended September 30, 2015, primarily as a result of the reduction of our fair value determination for Twinlab stock from $0.76 to $0.65; this factor alone accounted for $2,269,378 of the unrealized loss. Other factors included our sales of 5,150,915 Twinlab shares to third parties during the nine months period (resulting in a transfer of $3,495,958 of gain from the category of unrealized gain/loss to the category of realized gain) and unrealized loss of $623,140 for the establishment of the Third-Party Call Options, partially offset by $2,366,784 of unrealized gain recorded for the Series B Warrant as amended on May 28, 2015.

The overall net result on financial instruments for the nine months period ended September 30, 2015 and 2014 was a $4,549,282 loss and a $19,207,116 gain, respectively.

-25-

If our assessments/estimates of the fair value of our holdings of Twinlab securities change from quarter to quarter, there will be significant changes in our unrealized gain on such holdings, which in turn would result in significant gain or loss on our statement of operations for the quarter in question. At December 31, 2014, March 31, 2015 and June 30, 2015, our determination was that the fair value of Twinlab common stock was $0.76 per Twinlab share. However, at September 30, 2015, our determination was that the fair value of Twinlab common stock was $0.65 per Twinlab share. Our judgment to reduce the fair value figure arose primarily from certain direct issuances by Twinlab of large amounts of securities, late in the third quarter and early in the fourth quarter, for meaningfully less than $0.76 per share. We believe those were extraordinary transactions that reflected unusual circumstances including a relative absence of bargaining power on Twinlab’s part and an urgency to sell to raise funds. Based on the nonstandard nature of those transactions, we did not give full weight in our fair value determination to the pricing of such issuances (e.g., in the case of Twinlab’s October 2, 2015 issuance of 88,711,241 shares of common stock, representing 30% of its outstanding common stock, to Golisano Holdings LLC, for $25,000,000, $0.2818 per share). We ourselves continued to sell Twinlab shares for $0.76 throughout the third quarter and into the fourth quarter. On balance, we considered that a reduced fair value determination of $0.65 per Twinlab common share as of September 30, 2015 best reflected all of the available evidence pertaining to fair value.

Although our sales of Twinlab stock in the first nine months of 2015 generated cash proceeds of $4,120,732, we did not record an overall net gain on financial instruments on those sales to the extent that the sales prices (ranging from $0.60 to $0.76 per share) were below or equal to the fair value we had determined for our Twinlab stock and at which we were carrying the Twinlab stock on our books. The sales merely resulted in a transfer of unrealized gain to realized gain.

We first acquired ownership of any Twinlab securities in the third quarter of 2014.

Payroll. Payroll for the nine months ended September 30, 2015 and 2014 was $228,593 and $180,081, respectively; the increase in 2015 was primarily due to increased staffing following our move to our East Amherst headquarters in May 2015. For most of the first quarter of 2014 our business focus was that of a financial services company. We are holding the salaries of our most senior officers at very low levels.

Professional Fees. Professional fees for the nine months ended September 30, 2015 and 2014 were $920,402 and $225,267, respectively. The increase was primarily due to legal fees for preparing documents for production as required by legal process, and accounting and legal fees related to required restatements of financial statements and amendments of previous SEC periodic reports.

General and Administrative. General and administrative expenses (excluding payroll expense and professional fees) for the nine months ended September 30, 2015 and 2014 were $760,187 and $486,806, respectively; the increase in 2015 was primarily due to increased activities following our move to our East Amherst headquarters in May 2015. For most of the first quarter of 2014 our business focus was that of a financial services company.

Liquidity and Capital Resources

As of September 30, 2015, we had $425,270 in cash and cash equivalents, Twinlab and other securities owned which we recorded at an $11,861,551 fair value, and $85,000 of deposits. There is no active liquid public market for our Twinlab or other securities.

-26-

We anticipate obtaining additional financing to fund operations through common stock offerings, sales of Twinlab stock and sales of future-acquired strategic investment securities, to the extent available. There can be no assurance we will be successful in raising the necessary funds to execute our business plan. The realization of cash proceeds, if any, on sales of our securities positions would likely be “bunchy,” unpredictable and irregular. We can make no assurances and therefore we may incur operating losses and/or negative cash flows in one or more future periods.

Our current intention is to use meaningful amounts of any free cash flow we generate to make further partial exercises of the Series B Warrant, in order both to help Twinlab maintain and grow its business (thereby benefiting the value of our remaining Twinlab securities) and to avoid or reduce the risk of in effect having a “short” position in Twinlab stock (as described in the following paragraph).

The $9,973,684 warrant put option item on our December 31, 2014 balance sheet arose from the contingent possibility that a Put Agreement obligation might arise in the future. There was no such item on our September 30, 2015 balance sheet, because our May 28, 2015 compromise agreement with Twinlab terminated the Put Agreement. However, the September 30, 2015 balance sheet included a $387,947 liability item arising from the Third-Party Call Options we granted to certain accredited investors in connection with certain of our 2015 sales of Twinlab common stock to such investors. Our actual risk under the Third-Party Call Options would be magnified if, due to sales of Twinlab common stock and/or expiration of unexercised Series B Warrants, we do not have as many Twinlab shares and/or available Series B Warrants as the number of shares we could be obliged to deliver under the Third-Party Call Options (i.e., to the extent we in effect are “short” Twinlab shares). The expiration date of the Third-Party Call Options is a substantial number of months after the expiration of the Series B Warrants. If we wish to avoid being “short” Twinlab shares in the manner just described, it may be necessary for us to purchase and hold Twinlab shares through the expiration date of the Third-Party Call Options, which would tie up a large amount of otherwise available cash. If insufficient cash is available for this purpose, it may be necessary for us to run the risk of having what in effect is a short position.

The Third-Party Call Options were eliminated under an October 1, 2015 agreement with Twinlab. Accordingly, the balance sheet shows a zero fair value for the Third-Party Call Options liability as of September 30, 2015.

The $5,372,538 deferred tax liability item on our September 30, 2015 balance sheet represents the income taxes we would owe if we sold, during tax years in which our taxable income levels were large enough to support such current income taxes, all the Twinlab securities which we held as of September 30, 2015, at a price resulting in realization of all of the unrealized gain we recorded for such assets on our balance sheet (based on our fair value assessment as of September 30, 2015). No such taxes would be actually payable unless and until after we sell the Twinlab securities, and the amount of actual taxes payable would depend on the actual sales prices.

From time to time after October 28, 2014 our controlling stockholder Darin Pastor has made advances and direct-payments to assist us in covering expenses; he is not obligated to make any such advances and direct-payments and there can be no assurance that any such advances and direct-payments will continue. In addition, the amounts of these advances and direct-payments are reimbursable to him upon his demand at any time. At September 30, 2015, $180,151 of such advances and direct-payments had not yet been reimbursed.

-27-

At September 30, 2015, the remaining balance on the notes payable to Darin Pastor, which we assumed as part of our October 2014 transaction involving assets and liabilities of the former Capstone Affluent Strategies, Inc., was $68,416, plus $190 of accrued but unpaid interest.

We remind readers that our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by emerging companies. Also, our limited operating history makes predictions of future operating results and cash needs difficult to ascertain.

The following table provides detailed information about our net cash flow for the respective first nine months of our 2015 and 2014 fiscal years.

	For the nine month periods ended September 30,
	2015			2014
Net cash provided by (used in) operating activities	$	415,639		$	(1,170,609	)
Net cash used in investing activities		(2,039	)		—
Net cash (used in) provided by financing activities		(1,015	)		1,308,700
Net increase in cash		412,585			138,091
Cash, beginning		12,685			—
Cash, ending	$	425,270		$	138,091

Operating activities

Net cash provided by operating activities was $415,639 for the first nine months of 2015, despite our $3,816,942 after-tax net loss for that nine months period. Although our sales of Twinlab securities in the first nine months of 2015 generated $4,120,732 in cash proceeds, we did not record an overall net gain on financial instruments on such sales to the extent that the sales prices (ranging from $0.60 to $0.76 per share) were below or equal to the fair value we had determined for our Twinlab stock and at which we were carrying the Twinlab stock on our books. In addition, the $4,069,194 net change in unrealized gain on (i.e., additional net loss on) financial instruments and the $480,088 net change in realized gain on (i.e., additional net loss on) financial instruments were noncash items. These net changes were largely driven by our determination that the fair value of Twinlab common stock had fallen to $0.65 per share as of September 30, 2015, versus the $0.76 per share figure used as of December 31, 2014.

For the first nine months period of 2014, net cash used for operating activities was $1,170,609, after adjustment of our $11,078,198 net income for that nine months period for large items of deferred tax liability and net unrealized gain on financial instruments associated with the establishment of our initial positions in Twinlab securities.

Financing activities

Net cash provided by financing activities in the first nine months of 2014 was attributable to capital raised through the issuance of our common stock.

-28-

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 and the accounting and financial reporting conventions of the investment company industry 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 2 – Summary of Significant Accounting Policies in our Notes to Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

This item is not applicable, as we are classified as a smaller reporting company.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Securities Exchange Act, as of September 30, 2015 we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, who concluded that our disclosure controls and procedures are effective. The errors which required the restatement of financial statements and the amendments of periodic reports, as reported and summarized in our Current Report on Form 8-K filed on November 13, 2014 (as amended on November 24, 2014) and in such amendments and as further stated in the following paragraph of this item, were, in their judgment, not due to ineffectiveness of our disclosure controls and procedures.

-29-

Our Board of Directors concluded in November 2014 that the previously issued audited consolidated financial statements and other financial information contained in our initially-filed Annual Report on Form 10-K for the fiscal year ended December 31, 2013 failed to properly account for certain financial information. Consequently, the Board concluded that for comparative purposes the previously issued unaudited financial statements and certain other financial information contained in the initially-filed Quarterly Reports on Form 10-Q for the fiscal periods ended June 30, 2013, September 30, 2013, March 31, 2014, and June 30, 2014, and our earnings releases and other financial communications after the filing of our initially-filed Annual Report on Form 10-K for the fiscal year ended December 31, 2013, should no longer be relied upon.

We thereafter filed corrective amendments of these periodic reports.

Internal Control Over Financial Reporting

Our management is 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) promulgated under the Securities Exchange Act of 1934 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.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2015. In making our assessment, we used the framework and criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework in 2014. Based on that assessment, our management has identified certain material weaknesses in our internal control over financial reporting.

-30-

Our management concluded that as of September 30, 2015 our internal control over financial reporting was not effective, and that material weaknesses existed in the following areas as of September 30, 2015:

(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 respect to 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, and the performance of account reconciliations and approval;

(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; and

(4)

we do not have a functioning audit committee of the Board of Directors and our Board of Directors, in its performance of the functions generally associated with audit committees, lacks a majority of (indeed, lacks any) independent members and lacks a majority of (indeed, lacks any) outside directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls, approvals and procedures.

To attempt to remediate these material weaknesses, we have increased (and plan to enhance) our use of external accounting services, adopted policies to improve timely reviews by management and coordination with accounting consultants, and engaged corporate and securities legal counsel with better capabilities than our previous provider’s, and we plan to add financial department employees as our resource priorities allow. We believe these actions will continue to improve items (1), (2) and (3) noted above.

Changes in Internal Control Over Financial Reporting

No substantial changes in our internal control over financial reporting occurred during the third quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

-31-

PART II

Item 1. Legal Proceedings

We are not a party to any material legal proceedings.

Item 1A. Risk Factors

This item is not applicable, as we are classified as a smaller reporting company. To better inform the readers of this Quarterly Report on Form 10-Q, however, we refer to the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 30, 2015, and to certain other risks identified within this Quarterly Report on Form 10-Q.

In addition, investors should take note that we carry our strategic investments at market value or, if there is no readily available market value, at fair value as determined by our board of directors in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the accounting and financial reporting conventions of the investment company industry. Typically, there is not a liquid public market for the securities of the companies in which we intend to invest. Where a liquid public market exists we would simply use market value, but where there is no public market or where the public market is illiquid (with the result that the reported public trading is not a reliable indicator of true value), we will value these securities quarterly at fair value as determined in good faith by our Board of Directors.

Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our determinations of the fair value of our trading positions on a given date may be materially understated or overstated compared to the value that we may ultimately realize upon the sale of those positions. Indeed, our determinations might be inaccurate even as of the determination date.

There is no guarantee that we will be able to realize the fair value as evaluated by our Board of Directors upon disposition of the asset.

Given that a large percentage of our assets and net income are based on our fair value figures for Twinlab securities, readers should be especially aware of the risk.

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

We made no unregistered sales of securities of our securities during the quarter ended September 30, 2015.

Item 3. Defaults Upon Senior Securities

None.

-32-

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On July 5, 2015, Twinlab and we entered into the Limited Waiver Agreement, pursuant to which we agreed to waive the Noncircumvention Provision as to a particular potential investor (B. Thomas Golisano) whom we had introduced to Twinlab in June 2015 and to whom the Noncircumvention Provision would otherwise apply, in exchange for substantial contingent compensation in cash and Twinlab warrants calculated on the basis of the size and pricing of such investor’s purchase(s) of Twinlab securities. (We thereafter surrendered this contingent right to compensation, in exchange for the immediate elimination of the Contingent Call Options.)

Item 6. Exhibits

(a) The following exhibits are included as part of this report:

-33-

			Incorporated by reference
Exhibit		Filed			Filing
Number	Exhibit Description	herewith	Form	Exhibit	date
2.1	Stock Purchase Agreement dated September 6, 2013 between Ryan Faught and Darin Pastor		10-K	2.1	2/18/2015
2.2	Stock Purchase Agreement dated September 6, 2013 between Ryan Faught and George L. Schneider		10-K	2.2	2/18/2015
2.3	Agreement and Plan of Merger among the Company, Capstone Sub Co. and Capstone Affluent Strategies, Inc., dated December 13, 2013		8-K	2.1	12/13/2013
2.3.1	Articles of Merger filed January 15, 2014, between Capstone Sub Co. and Capstone Affluent Strategies, Inc.		8-K	3(i)(d)	1/16/2014
2.3.2	Rescission of Agreement and Plan of Merger among the Company, Capstone Sub Co. and Capstone Affluent Strategies, Inc.		8-K	10.1	5/1/2014
3.1	Articles of Incorporation of Creative App Solutions Inc. dated July 10, 2012		S-1	3(i)(a)	10/17/2012
3.1.1	Certificate of Amendment to Articles of Incorporation filed August 26, 2013		8-K	3(i)(a)	8/29/2013
3.1.2	Certificate of Change filed September 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		10-K	3.2.1	2/18/2015
10.1	Securities Purchase Agreement dated July 24, 2015 among the Company, LC Strategic Realty, LLC, Christopher Naugle and Lorissa Naugle	X
10.2	Members Agreement dated July 24, 2015 among the Company, LC Strategic Realty, LLC, Christopher Naugle and Lorissa Naugle	X
10.3	Non-Competition Agreement dated July 24, 2015 among the Company, LC Strategic Realty, LLC and Christopher Naugle	X
10.4	Non-Competition Agreement dated July 24, 2015 among the Company, LC Strategic Realty, LLC and Lorissa Naugle	X
10.5	Securities Purchase Agreement dated July 24, 2015 among the Company, LC Strategic Holdings, LLC, Christopher Naugle and Lorissa Naugle	X
10.6	Members Agreement dated July 24, 2015 among the Company, LC Strategic Holdings, LLC, Christopher Naugle and Lorissa Naugle	X
10.7	Non-Competition Agreement dated July 24, 2015 among the Company, LC Strategic Holdings, LLC and Christopher Naugle	X
10.8	Non-Competition Agreement dated July 24, 2015 among the Company, LC Strategic Holdings, LLC and Lorissa Naugle	X

-34-

10.9	Agreement for Limited Waiver of Noncircumvention Provision, between the Company and Twinlab Consolidated Holdings, Inc., dated July 5, 2015		8-K	10.1	10/8/2015
10.10	Amendment No. 1 to Agreement for Limited Waiver of Non-Circumvention Provision and to Compromise Agreement and Release, between the Company and Twinlab Consolidated Holdings, Inc., dated October 1, 2015		8-K	10.2	10/8/2015
31.1	Certification pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – CEO	X
31.2	Certification pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – CFO	X
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – CEO	X
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – CFO	X

-35-

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: November 20, 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,	November 20, 2015
Darin R. Pastor	Chief Executive Officer (Principal Executive Officer)
/s/ Halford W. Johnson	Chief Financial Officer	November 20, 2015
Halford W. Johnson	(Principal Financial Officer and Principal Accounting Officer)

-36-

LC STRATEGIC REALTY, LLC

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is entered into on July 24, 2015, by and between LC Strategic Realty, LLC, a New York limited liability company (the “Company”), Capstone Financial Group, Inc., a Nevada corporation (“Capstone”), Christopher Naugle and Lorissa Naugle, who hereby agree as follows:

1. PURCHASE AND SALE OF STOCK.

1.1 Sale and Issuance of Membership Interest Units. Subject to the terms and conditions of this Agreement, Capstone shall purchase from the Company at the Closing, and the Company shall sell and issue to Capstone at the Closing, membership interests of the Company representing a 20% equity ownership interest in the Company, for a purchase price of $138,750 cash. The membership interests issued to Capstone pursuant to this Agreement shall be referred to in this Agreement as the “Membership Interest Units.”

1.2 Mechanics.

(a) Closing. Subject to the terms and conditions of this Agreement, the initial purchase and sale of the Membership Interest Units shall take place remotely via the exchange of documents and signatures immediately after the execution and delivery of this Agreement (the “Closing”), whereby the Company shall sell and issue to Capstone, and Capstone shall purchase from the Company, the Membership Interest Units. In addition, at the Closing, the parties shall enter into the mutually agreed upon Members Agreement and the two mutually agreed upon Non-Competition Agreements (together with this Agreement, the “Transaction Agreements”).

(b) At the Closing, the Company shall issue to Capstone a certificate representing the Membership Interest Units that Capstone is purchasing, against payment of the purchase price therefor by check, wire transfer, or any combination thereof, or such other form of payment as shall be mutually agreed upon by Capstone and the Company.

(c) All references herein to “Membership Interest Units” shall be deemed to be references to such Membership Interest Units as constituted on the date of this Agreement, and in the event of any split, reverse split or recapitalization the indicated number of Membership Interest Units shall automatically be deemed adjusted prospectively to reflect such event.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company hereby represents and warrants to Capstone that (except for any matters expressly set forth on a Disclosure Schedule previously delivered by the Company to Capstone and countersigned by Capstone, if any such Disclosure Schedule has been so delivered and countersigned) the following representations are true and correct:

2.1 Organization; Good Standing, Qualification. The Company is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of New York, has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted, to execute and deliver this Agreement, to issue and sell the Membership Interest Units, and to carry out the provisions of this Agreement. The Company is duly qualified and is authorized to transact business and is in good standing

-1-

as a foreign limited liability company in each jurisdiction in which the failure to so qualify would have a material adverse effect on the Company or its business.

2.2 Authorization. All limited liability company action on the part of the Company, its managers, officers, directors and members necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance, sale and delivery of the Membership Interest Units being sold hereunder, has been taken. This Agreement and the other Transaction Agreements to which the Company is a party constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors’ rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

2.3 Valid Issuance of Membership Interest Units. The Membership Interest Units that are being issued to or purchased by Capstone hereunder, when issued, sold, and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable. Assuming the accuracy of the representations of Capstone in Section 3 of this Agreement, the Membership Interest Units will be issued in compliance with all applicable federal and state securities laws. Capstone will not, by virtue of owning such Membership Interest Units, be subject to any mandatory capital calls or be subject to any potential liability beyond the possible loss of its Membership Interest Units investment.

2.4 Capitalization.

(a) Immediately before the Closing, Christopher Naugle and/or Lorissa Naugle own all of the issued and outstanding membership interests of the Company. All of the outstanding membership interests have been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws.

(b) The Company has not reserved any membership interests for issuance to managers, members, officers, directors, employees and consultants of the Company pursuant to any stock option, profits interests or other equity incentive plan. There are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first offer or first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Company any membership interests, or any securities convertible into or exchangeable for membership interests, or any other equity-linked rights or securities.

2.5 Litigation. There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or to the Company’s knowledge, currently threatened in writing against the Company or any officer or director of the Company. Neither the Company nor any of its managers, members, officers or directors is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality (in the case of managers, members, officers or directors, such as would affect the Company). There is no action, suit, proceeding or investigation by the Company pending or which the Company intends to initiate.

2.6 Compliance with Other Instruments. The Company is not in violation or default (a) of any provisions of its articles of organization or operating agreement, (b) of any instrument, judgment, order,

-2-

writ or decree, (c) under any note, indenture or mortgage, (d) under any lease, agreement, contract or purchase order to which it is a party or by which it is bound, or (e) to its knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company, the violation of which would have a material adverse effect on the Company. The execution, delivery and performance of the Transaction Agreements and the consummation of the transactions contemplated by the Transaction Agreements will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any such provision, instrument, judgment, order, writ, decree, contract or agreement; or (ii) an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to the Company.

2.7 Financial Statements.

(a) The Company has delivered to Capstone its audited financial statements as of and for the fiscal year ended December 31, 2014, and its unaudited financial statements (including balance sheet, income statement and statement of cash flows) as of and for the period ended May 31, 2015 (collectively, the “Financial Statements”). The Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods indicated , except that the unaudited Financial Statements may not contain all footnotes required by GAAP and are subject to customary and non-material year-end adjustments. The Financial Statements fairly present in all material respects the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Financial Statements to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business after May 31, 2015; (ii) obligations under contracts and commitments incurred in the ordinary course of business; and (iii) liabilities and obligations of a type or nature not required under GAAP to be reflected in the Financial Statements, which, in all such cases, individually and in the aggregate would not have a material adverse effect on the Company. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.

2.8 Agreements; Actions.

(a) Except for the Transaction Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound that involve (i) fixed or (if reasonably likely to be realized for an amount above such threshold) contingent obligations of, or payments to, the Company in excess of $50,000; (ii) the license of any patent, copyright, trademark, trade secret or other proprietary right to or from the Company; (iii) the grant of rights to license, market, or sell its products or services to any other individual, corporation, partnership, trust, limited liability company, association or other entity (“Person”) that limit the Company’s exclusive right to license, market, or sell its products or services, or (iv) indemnification by the Company with respect to infringements of proprietary rights.

(b) No Company manager, employee or consultant is subject to any agreement (with a Person who previously employed or engaged him or her) which to any extent restricts him or her from competing, from engaging in any business, or from soliciting personnel.

2.9 Intellectual Property. All Company employees and consultants have entered into customary nondisclosure/ nonuse/ proprietary-information-protection/ intellectual-property-

-3-

assignment agreements with the Company, and all such agreements remain in full force and effect. To the Company’s knowledge, no product or service marketed or sold (or proposed to be marketed or sold) by the Company violates or will violate any license or infringes or will infringe any intellectual property rights of any other party. Other than with respect to commercially available software products under standard end-user object code license agreements, there are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the Company Intellectual Property, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person. The Company has not received any communications alleging that the Company has violated, or by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights or processes of any other Person. The Company has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its personnel for their use in connection with the Company’s business. To the Company’s knowledge, it will not be necessary to use any inventions or works of authorship of any of its managers, employees or consultants (or Persons it currently intends to hire) made before their employment or engagement by the Company. Each manager, employee and consultant has assigned to the Company all intellectual property rights he or she owns that are related to the Company’s business as now conducted and as presently proposed to be conducted. “Company Intellectual Property” shall mean all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, tradenames, copyrights, trade secrets, domain names, mask works, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses in, to and under any of the foregoing, and any and all such cases as are necessary to the Company in the conduct of the Company’s business as now conducted and as presently proposed to be conducted.

2.10 Disclosure. No representation or statement made by or on behalf of the Company to Capstone contains or contained any untrue statement of a material fact or, to the Company’s best knowledge, omits to state a material fact necessary in order to make such representation or statement not misleading in light of the circumstances under which they were made.

3. REPRESENTATIONS AND WARRANTIES OF CAPSTONE.

Capstone hereby represents and warrants to the Company that:

3.1 Organization; Good Standing. Capstone is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada, has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted, to execute and deliver this Agreement, to purchase the Membership Interest Units, and to carry out the provisions of this Agreement.

3.2 Authorization. All and any corporate action on the part of Capstone, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the purchase of the Membership Interest Units being sold hereunder, has been taken. This Agreement and the other Transaction Agreements constitute valid and legally binding obligations of Capstone, enforceable in accordance with their respective terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors’ rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable

-4-

remedies.

3.3 Purchase Entirely for Own Account. This Agreement is made with Capstone in reliance upon Capstone’s representation to the Company, which by its execution of this Agreement it hereby confirms, that the Membership Interest Units to be issued to or purchased by Capstone will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that it has no present intention of selling, granting any participation in, or otherwise distributing the same.

3.4 Reliance Upon Capstone’s Representations. Capstone understands that the Membership Interest Units are not registered under the Securities Act of 1933, as amended (the “Securities Act”) on the ground that the sale provided for in this Agreement and the issuance of securities hereunder is exempt from registration under the Securities Act pursuant to an exemption from the registration provisions thereof, and that the Company’s reliance on such exemption is predicated on the bona fide nature of the investment intent and the accuracy of the representations of Capstone set forth herein.

3.5 Accredited Investor. Capstone further represents to the Company that it is an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act.

3.6 Restricted Securities. Capstone understands that the Membership Interest Units may not be sold, transferred, or otherwise disposed of without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Membership Interest Units or an available exemption from registration under the Securities Act, the Membership Interest Units must be held indefinitely. In particular, Capstone is aware that the Membership Interest Units may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of that Rule are met. Among the conditions for use of Rule 144 may be the availability of current information to the public about the Company. Such information is not now available and the Company has no present plans to make such information available.

3.7 Legends. Capstone understands that, to the extent applicable, each certificate or other document evidencing any of the Membership Interest Units shall be endorsed with the legends substantially in the form set forth below:

(a) The following legend under the Securities Act:

“THE MEMBERSHIP INTEREST UNITS REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”

(b) Any legend imposed or required by the Company’s operating agreement or applicable state securities laws or by any agreement entered into in connection with this Agreement.

4. MISCELLANEOUS.

4.1 Entire Agreement. This Agreement (together with the other Transaction Agreements) constitutes the entire agreement among the parties with respect to the subject matter hereof and thereof and

-5-

supersedes all prior and contemporaneous agreements and undertakings, both written and oral, between the parties, with respect to the subject matter hereof; provided, that any prior confidentiality agreement is not superseded and shall remain in full force and effect.

4.2 Survival of Warranties. The warranties and representations of the Company and Capstone contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing.

4.3 Successors and Assigns; Transfers. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including permitted transferees of any Membership Interest Units sold hereunder). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

4.4 Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York. The parties hereto agree to submit to the exclusive jurisdiction of and venue in the federal and state courts seated in Erie County, New York with respect to the interpretation of this Agreement or for the purposes of any action arising out of or relating to this Agreement.

4.5 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Such counterparts may also be delivered by email.

4.6 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

4.7 Notices. Unless otherwise provided, all notices and other communications required or permitted under this Agreement shall be in writing and shall be mailed by United States first-class mail, postage prepaid, sent by email or delivered personally by hand or by a nationally recognized courier addressed to the party to be notified at the address or email address indicated for such person on the Company’s records, or at such other address or email address as such party may designate with 10 days’ advance written notice to the other parties hereto pursuant to this Section 4.7. All such notices and other written communications shall be effective on the date of mailing or delivery.

4.8 Amendments and Waivers. No amendment or modification hereto or waiver of any of the terms or provisions hereof shall be valid unless set forth in a writing that is executed by each of the parties hereto. No such waiver of any term, provision or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a further waiver of any such term, provision or condition or as a waiver of any other term, provision or condition of this Agreement.

4.9 Facilitation. Each party hereto agrees to execute and perform such other documents (including without limitation an appropriate amendment of the Company’s operating agreement) and acts as are reasonably required in order to facilitate, effectuate and evidence the terms of this Agreement and the intent thereof, and to cooperate in good faith in order to effectuate the provisions and intent of this Agreement.

4.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance

-6-

with its terms.

5. AFFILIATED ENTITIES. Christopher Naugle and Lorissa Naugle agree that they shall cause any other entities or proprietorships through which the Company and/or either of them directly or indirectly carry on any business with a primary focus on (a) real estate, (b) media/entertainment/show business, or (c) endorsements/advertisements/personal appearances/use of likeness/monetization of celebrity (other than LC Strategic Holdings, LLC) to issue to Capstone, for no additional consideration, a number of its equity interests sufficient to give Capstone a 20% equity interest therein (Provided, that without Capstone’s express prior written consent Capstone shall not be given any equity interest which results in it having unlimited liability, e.g., a general partnership interest, or being subject to mandatory capital calls). It is understood that this Section 5 shall not apply to Syndicated Properties, LLC so long as its business is limited to a property at 37 Bridgman Street, Buffalo, New York and shall not apply to Syndicated Holdings, LLC so long as its business is limited to the Fillmore Creek Townhouses project in Ellicottville, New York and/or a property at 22 Somerton Avenue, Kenmore, New York.

IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the date first written above.

COMPANY:	LC STRATEGIC REALTY, LLC


	By:	/s/ Lorissa Naugle
	Name: Lorissa Naugle
	Title: Chief Executive Officer



CAPSTONE:	CAPSTONE FINANCIAL GROUP, INC.


	By:	/s/ Darin Pastor
	Name: Darin Pastor
	Title: Chief Executive Officer



	/s/ Christopher Naugle
	CHRISTOPHER NAUGLE


	/s/ Lorissa Naugle
	LORISSA NAUGLE

-7-

LC STRATEGIC REALTY

MEMBERS Agreement

This MEMBERS Agreement (this “Agreement”) is made and entered into as of July 24, 2015, by and among LC Strategic Realty, LLC, a New York limited liability company (the “Company”), Christopher Naugle and Lorissa Naugle (collectively referred to herein in the singular and masculine forms as “Naugle”), Capstone Financial Group, Inc., a Nevada limited liability company (“Capstone”), and each other Person who becomes a party to this Agreement pursuant to Section 6.09 (such Persons, collectively with Naugle and Capstone, the “Members”).

WHEREAS, the parties hereto deem it in their best interests and in the best interest of the Company to set forth in this Agreement their respective rights and obligations with respect to the units of membership interest of the Company now or hereafter owned by any Member.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Article I

Definitions

Capitalized terms used herein and not otherwise defined shall have the meanings set forth in this Article I.

“Affiliate” means, with respect to any Person, (a) a Person directly or indirectly controlling, controlled by or under common control with such Person; (b) a Person owning or controlling 10% or more of the outstanding voting securities of such Person; (c) an officer, director, member, or partner, or member of the immediate family of an officer, director, member, or partner, of such Person; or (d) a member or ex-member of a Person’s immediate family. When the Affiliate is an officer, director, member, or partner or member of the immediate family of an officer, director, member, or partner, of such Person, any other Person for which the Affiliate acts in that capacity shall also be considered an Affiliate. For purposes of this Agreement, “control” means, as to any Person, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise (and the terms “controlled by” and “under common control with” shall have correlative meanings).

“Agreement” has the meaning set forth in the preamble.

“Applicable Law” means all applicable provisions of (a) constitutions, treaties, statutes, laws (including the common law), rules, regulations, decrees, ordinances, codes, proclamations, declarations or orders of any Governmental Authority, (b) any consents or approvals of any Governmental Authority and (c) any orders, decisions, advisory or interpretative opinions, injunctions, judgments, awards, decrees of, or agreements with, any Governmental Authority.

“Articles of Organization” means the articles of organization of the Company, as filed on May 15, 2014, with the Secretary of State of the State of New York and as amended, modified, supplemented or restated from time to time.

-1-

“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in the city of New York are authorized or required to close.

“Capstone” has the meaning set forth in the preamble.

“Company” has the meaning set forth in the preamble.

“Naugle” has the meaning set forth in the preamble.

“Fiscal Year” means for financial accounting purposes, January 1 to December 31.

“Fully Diluted Basis” means, as of any date of determination, all issued and outstanding Membership Interest Units of the Company and all Membership Interest Units issuable upon the exercise, exchange or conversion of any outstanding Membership Interest Units Equivalents as of such date, whether or not such Membership Interest Units Equivalent is at the time exercisable, exchangeable or convertible.

“GAAP” means United States generally accepted accounting principles in effect from time to time.

“Government Approval” means any authorization, consent, approval, waiver, exception, variance, order, exemption, publication, filing, declaration, concession, grant, franchise, agreement, permission, permit, or license of, from or with any Governmental Authority, the giving notice to, or registration with, any Governmental Authority.

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of law), or any arbitrator, court or tribunal of competent jurisdiction.

“Joinder Agreement” means the joinder agreement in form and substance of Exhibit A attached hereto.

“Lien” means any lien, claim, charge, mortgage, pledge, security interest, option, preferential arrangement, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever.

“Members” has the meaning set forth in the preamble.

“Membership Interest Units” means membership interests in the Company (expressed in terms of percentage ownership of the Company) purchased, owned or otherwise acquired by a Member as of or after the date hereof, and any securities issued in respect of any of the foregoing, or in substitution therefor, in connection with any membership interests split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or similar reorganization.

“Membership Interest Units Equivalents” means any security or obligation that is by its terms, directly or indirectly, convertible into or exchangeable or exercisable for Membership Interest Units, and any option, warrant or other right to subscribe for, purchase or acquire Membership Interest Units or Membership Interest Units Equivalents (disregarding any restrictions or limitations on the exercise of such rights).

-2-

“Operating Agreement” means the operating agreement of the Company, as amended, modified, supplemented or restated from time to time.

“Permitted Transfer” means: (a) any Transfer by a Member that is an entity of any of its Membership Interest Units or Membership Interest Units Equivalents to any Affiliate of such Member; (b) any Transfer by a Member that is a natural person of any of its Membership Interest Units or Membership Interest Units Equivalents to: (i) such Member’s spouse, siblings, or lineal ancestors or descendants by birth or adoption (collectively, “Family Members”); (ii) a trust under which the distribution of Membership Interest Units or Membership Interest Units Equivalents may be made only to such Member and/or any Family Members of such Member; (iii) a charitable remainder trust, the income from which will be paid only to such Member during his life; (iv) a limited liability company, partnership or limited liability company, the Members, partners or members of which are only such Member and/or Family Members of such Member; or (v) for bona fide estate planning purposes, either by will or by the laws of intestate succession, to such Member’s executors, administrators, testamentary trustees, legatees or beneficiaries; or (c) any pledge by a Member of any of Membership Interest Units or Membership Interest Units Equivalents made in connection with a bona fide loan transaction that creates a mere security interest, if the pledgee executes a counterpart copy of this Agreement and becomes bound thereby as a Member in the event that and to the extent that such pledgee ever acquires ownership of such Membership Interest Units.

“Permitted Transferee” means the recipient of a Permitted Transfer.

“Person” means an individual, limited liability company, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

“Purchase Agreement” means by that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and Capstone.

“Related Agreements” has the meaning set forth in Section 6.07(a).

“Representative” means, with respect to any Person, any and all managers, members, directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

“Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.

“Selling Member” has the meaning set forth in Section 3.01(a).

“Tag-along Exercise Notice” has the meaning set forth in Section 3.01(d)(i).

“Tag-along Exercise Period” has the meaning set forth in Section 3.01(d)(i).

“Tag-along Notice” has the meaning set forth in Section 3.01(c).

“Tag-along Pro Rata Portion” means, for any Selling Member or Tag-along Member, a fraction determined by dividing (a) the number of Membership Interest Units (or applicable Membership Interest Units Equivalents) on a Fully Diluted Basis owned by such Member immediately before such time by (b) the aggregate number of Membership Interest Units (or applicable Membership Interest Units Equivalents) on a Fully Diluted Basis owned by the Selling Member and all of the Tag-along Members

-3-

timely electing to participate in the applicable Tag-along Sale pursuant to Section 3.01(d)(i) immediately before such time.

“Tag-along Sale” has the meaning set forth in Section 3.01(a).

“Tag-along Membership Interest Units” has the meaning set forth in Section 3.01(a).

“Tag-along Member” has the meaning set forth in Section 3.01(a).

“Third-Party Purchaser” means any Person who, immediately before the contemplated transaction, (a) does not directly or indirectly own or have the right to acquire any outstanding Membership Interest Units or Membership Interest Units Equivalents or (b) is not a Permitted Transferee of any Person who directly or indirectly owns or has the right to acquire any Membership Interest Units or Membership Interest Units Equivalents.

“Transfer” means to, directly or indirectly, sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any Membership Interest Units or Membership Interest Units Equivalents owned by a Person or any interest (including a beneficial interest) in any Membership Interest Units owned by a Person.

Article II

Management and Operation of the Company

Section 2.01. Compensation. The Company and each Member acknowledge and agree that:

(a) Compensation of Naugle. Naugle’s compensation as a service provider to the Company (together with Naugle’s compensation as a service provider to all other real estate, media and/or endorsement businesses and for all other direct real estate, media and/or endorsement activities) shall not exceed $100,000 per annum. Pro rata distributions of Company net income to Members are not subject to this cap.

(b) Related Parties. The Company shall not, without Capstone’s express prior written consent, pay or incur any obligation to any Affiliate or Family Member of Christopher Naugle (other than Lorissa Naugle) or of Lorissa Naugle (other than Christopher Naugle) as a service provider or counterparty.

Article III

Transfer of Interests

Section 3.01. Tag-along Right.

(a) Participation on Sale of Membership Interest Units. Subject to the terms and conditions specified in this Section 3.01, if Naugle (the “Selling Member”) proposes to Transfer any of his Membership Interest Units (the “Tag-along Membership Interest Units”) to any Person, Capstone and its Affiliates (each, a “Tag-along Member”) shall be permitted to participate in such sale (a “Tag-along Sale”) on the terms and conditions set forth in this Section 3.01.

-4-

(b) Tag-along Sale Exceptions. Notwithstanding anything herein to the contrary, the provisions of this Section 3.01 shall not apply to any Transfer of Tag-along Membership Interest Units that is:

(i) a Permitted Transfer; or

(ii) a summer 2015 Transfer to Keith Marshall of Membership Interest Units equal to 20% of all Membership Interest Units on a post-Transfer Fully Diluted Basis (i.e., post-Transfer Keith Marshall would have no more than 20% and Capstone would have 20%), but only if Keith Marshall enters into a Joinder Agreement as contemplated by Section 6.09; or

(iii) made pursuant to a bona fide firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act.

(c) Tag-along Notice. The Selling Member shall deliver to the Company and each Tag-along Member a written notice (a “Tag-along Notice”) of the proposed Tag-along Sale within 20 Business Days before the consummation of any Tag-along Sale. The Tag-along Notice shall make reference to each Tag-along Member’s rights hereunder and shall describe in reasonable detail:

(i) the number of Membership Interest Units of Tag-along Membership Interest Units the Selling Member proposes to Transfer;

(ii) the identity of the prospective Transferee(s);

(iii) the proposed date, time and location of the closing of the Tag-along Sale, which shall not be less than 20 Business Days after the date of the Tag-along Notice;

(iv) the purchase price per share for the Tag-along Membership Interest Units and the other material terms and conditions of the Transfer; and

(v) a copy of any form of agreement proposed to be executed in connection therewith.

(d) Exercise of Tag-along Right.

(i) Each Tag-along Member may exercise its right to participate in the Tag-along Sale on the terms described in the Tag-along Notice by delivering to the Selling Member a written notice (a “Tag-along Exercise Notice”) stating its election to do so no later than 10 Business Days after receipt of the Tag-along Notice (the “Tag-along Exercise Period”). The election of such Tag-along Member set forth in a Tag-along Exercise Notice shall be irrevocable, and, to the extent the offer in the Tag-along Notice is accepted, such Tag-along Member shall be bound and obligated to consummate the Transfer on the terms and conditions set forth in this Section 3.01. If one or more Tag-along Members elects pursuant to a Tag-along Exercise Notice and this Section 3.01(d)(i) to participate in the Tag-along Sale, the number of Membership Interest Units of Tag-along Membership Interest Units that the Selling Member may sell in the Tag-along Sale shall be correspondingly reduced.

(ii) The Selling Member and each Tag-along Member timely electing to participate in the Tag-along Sale pursuant to Section 3.01(d)(i) shall have the right to Transfer in the Tag-along Sale the number of Membership Interest Units equal to the product of (A) the aggregate number of Membership Interest Units set out in the applicable Tag-along Notice and

-5-

(B) such Tag-along Member’s Tag-along Pro Rata Portion. Any Tag-along Member may elect to sell in the Tag-along Sale less than the number of Membership Interest Units (or Membership Interest Units Equivalents) calculated pursuant to this Section 3.01(d)(ii), in which case the Selling Member shall have the right to sell the applicable Membership Interest Units of Tag-along Membership Interest Units not elected to be sold by a Tag-along Member.

(e) Waiver. Each Tag-along Member who does not deliver a Tag-along Exercise Notice in compliance with Section 3.01(d)(i) shall be deemed to have waived all of such Tag-along Member’s rights to participate in the Tag-along Sale with respect to the Membership Interest Units (or applicable Membership Interest Units Equivalents) owned by such Tag-along Member, and the Selling Member shall (subject to the rights of any other participating Tag-along Member) thereafter be free to sell to the prospective Transferee the Tag-along Membership Interest Units identified in the Tag-along Notice at a per share price that is no greater than the applicable per share price set forth in the Tag-along Notice and on other terms and conditions which are not in the aggregate materially more favorable to the Selling Member than those set forth in the Tag-along Notice, without any further obligation to the non-accepting Tag-along Members.

(f) Conditions of Sale.

(i) Each Tag-along Member participating in the Tag-along Sale shall receive the same consideration per share of Tag-along Membership Interest Units. In addition, no Transfer of any Tag-along Membership Interest Units by the Selling Member in the Tag-along Sale shall occur unless the prospective Transferee simultaneously purchases the Membership Interest Units (or applicable Membership Interest Units Equivalents) elected to be sold by the Tag-along Members pursuant to Section 3.01(d)(i) and if any such Transfer is in violation of this Section 3.01, it shall be null and void in accordance with the provisions of Section 6.09(b) hereof.

(ii) Each Tag-along Member shall deliver Membership Interest Units free and clear of Liens (except any Liens to which the Selling Member’s Membership Interest Units are also subject) and shall execute the applicable purchase agreement, if any, and shall make or provide the same representations, warranties, covenants and indemnities as the Selling Member makes or provides in connection with the Tag-along Sale; provided, that each Tag-along Member shall only be obligated to make representations and warranties that relate specifically to a Member (as opposed to the Company and its business) with respect to the Tag-along Member’s title to and ownership of the applicable Membership Interest Units (or Membership Interest Units Equivalents), authorization, execution and delivery of relevant documents, enforceability of such documents against the Tag-along Member, and other similar representations and warranties made by the Selling Member, and shall not be obligated to make any of the foregoing representations and warranties with respect to any other Member or their Membership Interest Units (or Membership Interest Units Equivalents); provided, further, that all indemnities and other obligations shall be made by the Selling Member and each Tag-along Member severally and not jointly and severally (A) with respect to breaches of representations, warranties and covenants made by the Selling Member and the Tag-along Members relating to the Company and its business, if any, pro rata based on the aggregate consideration received by the Selling Member and each Tag-along Member in the Tag-along Sale, and (B) in an amount not to exceed for the Selling Member or any Tag-along Member, the net proceeds received by the Selling Member and each such Tag-along Member in connection with the Tag-along Sale, as applicable, plus the amount of any consideration forfeited by the Selling Member or such Tag-along Member, as applicable, to which it is entitled but has not yet received (including, without limitation, as a result of an escrow agreement, earn-out or similar arrangement).

-6-

(iii) Each holder of then currently exercisable Membership Interest Units Equivalents with respect to Tag-along Membership Interest Units proposed to be Transferred in a Tag-along Sale shall be given an opportunity to convert/exercise/exchange such Membership Interest Units Equivalents into the applicable Tag-along Membership Interest Units before the consummation of the Tag-along Sale and participate in such sale as holders of such Tag-along Membership Interest Units.

(g) Cooperation. Subject to Section 3.01(f)(ii), each Tag-along Member shall take all actions as may be reasonably necessary to consummate the Tag-along Sale, including, without limitation, entering into agreements and delivering certificates and instruments (including Membership Interest Units certificates evidencing the applicable Membership Interest Units, duly endorsed in blank or accompanied by Membership Interest Units powers or other instruments of transfer duly executed in blank), in each case, consistent with the agreements being entered into and the certificates and instruments being delivered by the Selling Member.

(h) Consummation of Sale. Subject to the requirements and conditions of this Section 3.01 and the other applicable provisions of this Agreement, the Selling Member shall have 90 days following the expiration of the Tag-along Exercise Period in which to consummate the Tag-along Sale, on terms not more favorable to the Selling Member than those set forth in the Tag-along Exercise Notice (which 90-day period may be extended for a reasonable time not to exceed 120 days to the extent reasonably necessary to obtain any required Governmental Approvals). If at the end of such period the Selling Member has not completed the Tag-along Sale, the Selling Member may not then effect a Transfer that is subject to this Section 3.01 without again fully complying with the provisions of this Section 3.01. At the closing of the Tag-along Sale, each of the Tag-along Members timely electing to participate in the Tag-along Sale pursuant to Section 3.01(d)(i) shall enter into the agreements and deliver the certificates and instruments, in each case, required by Section 3.01(f) and Section 3.01(g) against payment therefor directly to the Tag-along Member of the portion of the aggregate consideration to which each such Tag-along Member is entitled in the Tag-along Sale in accordance with the provisions of this Section 3.01.

Article IV
Representations and Warranties

Section 4.01. Representations and Warranties. Each Member, severally and not jointly, represents and warrants to the Company and each other Member that:

(a) Such Member has full power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite action of such Member. Such Member has duly executed and delivered this Agreement.

(b) This Agreement constitutes the legal, valid and binding obligation of such Member, enforceable against such Member in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby and by the Purchase Agreement require no action by or in respect of, or filing with, any Governmental Authority.

(c) The execution, delivery and performance by such Member of this Agreement and the consummation of the transactions contemplated hereby and by the Purchase Agreement do not

-7-

(i) conflict with or result in any violation or breach of any provision of any of the organizational documents of such Member, (ii) conflict with or result in any violation or breach of any provision of any Applicable Law or (iii) require any consent or other action by any Person under any provision of any material agreement or other instrument to which the Member is a party.

Article V

Term and Termination

Section 5.01. Termination. This Agreement shall terminate upon the earliest of:

(a) the consummation of an acquisition of the Company;

(b) the date on which none of the Members holds any Membership Interest Units;

(d) upon the unanimous agreement of the Members.

Section 5.02. Effect of Termination.

(a) The termination of this Agreement shall terminate all further rights and obligations of the Members under this Agreement except that such termination shall not affect:

(i) the obligation of any Party to pay any amounts arising on or before the date of termination, or as a result of or in connection with such termination;

(ii) the rights which any Member may have by operation of law as a member of the Company; or

(iii) the rights contained herein which by their terms are intended to survive termination of this Agreement.

(b) The following provisions shall survive the termination of this Agreement: this Section 5.02 and Section 6.03, Section 6.12 and Section 6.14.

Article VI

Miscellaneous

Section 6.01. Expenses. Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with the enforcement of this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

Section 6.02. Release of Liability. In the event any Member shall Transfer all of the Membership Interest Units held by such Member in compliance with the provisions of this Agreement, without retaining any interest therein, then such Member shall cease to be a party to this Agreement and shall be relieved and have no further liability arising hereunder for events occurring from and after the date of such Transfer.

Section 6.03.

-8-

Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by email if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 6.03):

If to the Company:

LC Strategic Realty, LLC

8685 Sheridan Drive

Williamsville, NY 14221-6353

Attn: Christopher M. Naugle

Email: chris@lcstrategicrealty.com

If to Naugle:

c/o LC Strategic Realty, LLC

8685 Sheridan Drive

Williamsville, NY 14221

Email: chris@lcstrategicrealty.com

If to Capstone:

8600 Transit Road

East Amherst, NY 14051

Attention: Darin Pastor

Email: dpastor@capstonefg.com

with a copy to (which shall not constitute notice):

Stradling Yocca Carlson & Rauth, P.C.

4365 Executive Drive, Suite 1500

San Diego, CA 92121

Attention: Hayden Trubitt

Email: htrubitt@sycr.com

Section 6.04. Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. The definitions given for any defined terms in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. Unless the context otherwise requires, references herein: (x) to Articles, Sections, and Exhibits mean the Articles and Sections of, and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Exhibit

-9-

referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if it was set forth verbatim herein.

Section 6.05. Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

Section 6.06. Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

Section 6.07. Entire Agreement.

(a) This Agreement, together with the Purchase Agreement, the Non-Competition Agreements, the Articles of Organization, the Operating Agreement and any Joinder Agreements executed after the date hereof (collectively, the “Related Agreements”) and all related Exhibits and Schedules hereto and thereto constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter.

(b) In the event of an inconsistency or conflict between the provisions of this Agreement and any provisions of any Related Agreement with respect to the subject matter herein, the terms of this Agreement shall (to the extent permitted by law) control.

Section 6.08. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

Section 6.09. Joinder Agreement; Transfers in Violation of this Agreement.

(a) No Transfer of Membership Interest Units pursuant to any provision of this Agreement (including without limitation a Permitted Transfer) shall be deemed completed until the Transferee shall have entered into a Joinder Agreement.

(b) Any Transfer or attempted Transfer of any Membership Interest Units in violation of this Agreement, including any failure of a Transferee, as applicable, to enter into a Joinder Agreement pursuant to Section 6.09(a) above, shall be null and void ab initio, no such Transfer shall be recorded on the Company’s books and the purported Transferee in any such Transfer shall not be treated (and the Member proposing to make any such Transfer shall continue be treated) as the owner of such Membership Interest Units for all purposes of this Agreement.

Section 6.10. No Third-party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, except as expressly stated herein.

Section 6.11.

-10-

Amendment. No provision of this Agreement may be amended or modified except by an instrument in writing executed by all parties hereto. Any such written amendment or modification will be binding upon the Company and each Member and all assignees.

Section 6.12. Waiver. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. For the avoidance of doubt, nothing contained in this Section 6.12 shall diminish any of the explicit and implicit waivers described in this Agreement, including in Section 3.01(e) and Section 6.14 hereof.

Section 6.13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than those of the State of New York.

Section 6.14. Waiver of Jury Trial. Each party hereto hereby acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby.

Section 6.15. Equitable Remedies. Each party hereto acknowledges that the other parties hereto would be irreparably damaged in the event of a breach or threatened breach by such party of any of its obligations under this Agreement and hereby agrees that in the event of a breach or a threatened breach by such party of any such obligations, each of the other parties hereto shall, in addition to any and all other rights and remedies that may be available to them in respect of such breach, be entitled to an injunction from a court of competent jurisdiction (without any requirement to post bond) granting such parties specific performance by such party of its obligations under this Agreement or enjoining such party from taking actions prohibited by this Agreement. In the event that any party files a suit to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach thereof), the prevailing party in the suit shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conduction the suit, including reasonable attorney’s fees and expenses.

Section 6.16. Legend.

(a) In addition to any other legend required by Applicable Law, all certificates representing issued and outstanding Membership Interest Units shall bear a legend substantially in the following form:

THE MEMBERSHIP INTEREST UNITS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A MEMBERS AGREEMENT AMONG THE COMPANY AND ITS MEMBERS, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE MEMBERSHIP INTEREST UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH MEMBERS AGREEMENT.

-11-

(b) The Company shall have the right to require, as a condition to any Transfer, receipt of an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Company, to the effect that such Transfer is not required to be registered under the Securities Act, and is not in violation of any Applicable Law.

Section 6.17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by email or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Members Agreement as of the date first above written.

“COMPANY”

LC Strategic Realty, LLC,
a New York limited liability company


By:  /s/ Lorissa Naugle
Name:  Lorissa Naugle
Title:   CEO

“NAUGLE”

/s/ Christopher Naugle
CHRISTOPHER NAUGLE

/s/ Lorissa Naugle
LORISSA NAUGLE

“Capstone”

CAPSTONE FINANCIAL GROUP, INC.,
a Nevada limited liability company

By: /s/ Darin Pastor

Name: Darin Pastor
Title: CEO

-12-

Exhibit A

Joinder Agreement

THIS JOINDER AGREEMENT (this “Joinder Agreement”) to the Members Agreement, dated as of July 24, 2015 (as amended from time to time, the “Members Agreement”), by and among LC Strategic Realty, LLC, a New York limited liability company (the “Company”), and certain Members of the Company, is made and entered into as of __________ __, 20__ (the “Effective Date”).

Pursuant to and in accordance with Section 6.09 of the Members Agreement, the undersigned transferee (“Transferee”) hereby agrees that, upon the execution of this Joinder Agreement, it shall become a party to the Members Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Members Agreement as though an original party thereto and shall be deemed to be a Member of the Company (with the obligations of Capstone thereunder) for all purposes thereof.

Capitalized terms used herein without definition shall have the meanings ascribed thereto in the Members Agreement.

IN WITNESS WHEREOF, the undersigned Transferee has executed this Joinder Agreement as of the Effective Date.

	“TRANSFEREE” Print or type name By: Name: Title:
	Address for notices: Attention: Email:

Exhibit A – Page 1

LC STRATEGIC REALTY / CHRISTOPHER NAUGLE

NON-COMPETITION AGREEMENT

THIS NON-COMPETITION AGREEMENT (this “Agreement”) is made and entered into as of July 24, 2015 (the “Effective Date”), by and among LC Strategic Realty, LLC, a New York limited liability company (“Company”), Christopher Naugle (“Naugle”), and Capstone Financial Group, Inc., a Nevada corporation (“Capstone”).

W I T N E S S E T H :

WHEREAS, Naugle is a principal of Company;

WHEREAS, Company and Capstone are parties to that certain Securities Purchase Agreement, dated as of the Effective Date (the “Purchase Agreement”);

WHEREAS, pursuant to the transactions contemplated in the Purchase Agreement, Capstone is acquiring a 20% ownership interest in Company and providing substantial financing to Company, thereby benefiting Company and the prospects of Naugle’s ownership interest in Company;

WHEREAS, Naugle will obtain a substantial indirect financial benefit from the consummation of the transactions under the Purchase Agreement; and

WHEREAS, the execution and delivery of this Agreement by Naugle is a condition to Company’s consummation of the transactions under the Purchase Agreement and is necessary to preserve the value of Company and of the ownership interests being acquired by Capstone pursuant to the Purchase Agreement;

NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, Company and Naugle and Capstone hereby agree as follows:

Section 1. DEFINITIONS. In addition to terms defined elsewhere in this Agreement, the following terms have the following meanings:

“Affiliate” means, with respect to any Person, (a) a Person directly or indirectly controlling, controlled by or under common control with such Person; (b) a Person owning or controlling 10% or more of the outstanding voting securities of such Person; (c) an officer, director, member, or partner, or member of the immediate family of an officer, director, member, or partner, of such Person; or (d) a member or ex-member of a Person’s immediate family. When the Affiliate is an officer, director, member, or partner or member of the immediate family of an officer, director, member, or partner, of such Person, any other Person for which the Affiliate acts in that capacity shall also be considered an Affiliate. For purposes of this Agreement, “control” means, as to any Person, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise (and the terms “controlled by” and “under common control with” shall have correlative meanings).

“Business” means any business or division of any business with a primary focus on (a) real

-1-

estate, (b) media/entertainment/show business, or (c) endorsements/advertisements/personal appearances/use of likeness/monetization of celebrity. However, it is specially agreed that the term “Business” shall not include the real estate activities for a property at 37 Bridgman Street, Buffalo, New York, the Fillmore Creek Townhouses project in Ellicottville, New York and/or a property at 22 Somerton Avenue, Kenmore, New York.

“Person” means any entity, corporation, company, limited liability company, association, joint venture, joint stock company, partnership, trust, organization, individual (including personal representatives, executors, administrators, legatees and heirs of a deceased individual), nation, state, government (including agencies, departments, bureaus, boards, divisions and instrumentalities thereof), trustee, receiver or liquidator, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.

“Restricted Period” means the period commencing on the Effective Date of this Agreement and ending on the earlier to occur of (a) six years after the Effective Date, and (b) two years following the last date on which Naugle is associated with Company.

“Restrictive Covenants” means the covenants contained in Section 2.

Section 2. COVENANT NOT TO COMPETE.

2.1. Covenant Not to Compete. Naugle shall not at any time during the Restricted Period have any ownership interest (of record or beneficial) in or have any interest as an employee, salesman, consultant, advisor, manager, officer or director in, or otherwise aid or assist in any manner, any firm, corporation, limited liability company, partnership, proprietorship or other business that engages in any market or geographic area within the United States in the Business, so long as Company, or any successor in interest to the business and goodwill of Company, remains engaged in such Business (or would have remained engaged in such Business but for the nonparticipation of Naugle and/or Naugle’s Affiliates) in such market or geographic area or continues to solicit customers or Future Customers (as defined below) therein, in each case other than on behalf of (x) Company, (y) a wholly-owned subsidiary of Company, or (z) a Person in which Capstone holds an equity interest of 20% or more; provided, however, that Naugle may own, directly or indirectly, solely as an investment, securities of any person which are traded on any national securities exchange if Naugle does not, directly or indirectly own one percent or more of any class of securities of such person.

2.2. Solicitation of Business/Other Injurious Activities. During the Restricted Period, Naugle shall not solicit or assist any other person to directly or indirectly solicit any business (other than for Company) from any present or Past Customer of Company or any of its Affiliates; or request or advise any present or Future Customer of Company or any of its Affiliates to withdraw, curtail or cancel its business dealings with Company or any of its Affiliates; or commit any other act or assist others to commit any other act which could reasonably be expected to injure the business of Company or any of its Affiliates. For purposes of this Agreement, “Past Customer” shall mean a Person who was a customer of Company during the two years preceding the purported solicitation; and “Future Customer” shall mean a prospective customer with whom Company conducted discussions about becoming a customer during the six months preceding the purported solicitation.

2.3. Solicitation of Employees, Etc. During the Restricted Period, Naugle shall not

-2-

directly or indirectly solicit or encourage any manager, employee, consultant or agent of Company or any of its Affiliates to leave or reduce his/her level of services to any such entity; provided that the foregoing shall not apply with respect to any manager, employee, consultant or agent who (without having previously been contacted) responds to a general solicitation not targeted at such individual.

2.4 Rights and Remedies Upon Breach. If Naugle breaches (or, for the purposes of Sections 2.4(a) and 2.4(c) only, threatens) to commit a breach of, any of the Restrictive Covenants, Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to Company under law or in equity:

(a) Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, all without the need to post a bond or any other security or to prove any amount of actual damage or that money damages would not provide an adequate remedy, it being acknowledged and agreed that any such breach or threatened breach may cause irreparable injury to Company and that monetary damages may not provide adequate remedy to Company; and

(b) Accounting. The right and remedy to require Naugle to account for and pay over to Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Naugle, or any Affiliated party deriving such benefits, as the result of any such breach of the Restrictive Covenants; and

(c) Indemnification. The right and remedy to require Naugle to indemnify Company against any other losses, damages (including special and consequential damages), costs and expenses, including actual attorneys’ fees and court costs, which may be incurred by them and which result from or arise out of any breach of or need to enforce the Restrictive Covenants.

2.5 Severability of Covenants/Blue Penciling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions, and the affected portion shall be construed as if it were written so as to both be valid and to effectuate the parties’ expressed intent to the maximum extent consistent with validity. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the breadth or duration of such provision or the area covered thereby, such court shall have the power to and is requested to reduce the breadth or duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Naugle hereby waives any and all right to attach the validity of the Restrictive Covenants on the grounds of the breadth of their scope or the length of their term.

2.6 Enforceability in Jurisdictions. Company and Naugle intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Company and Naugle that such determination not bar or in any way affect the right of Company to the relief provided above in the courts of any other jurisdiction within the scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as

-3-

they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

2.7 Acknowledgments.

(a) Naugle acknowledges that the covenants of Naugle herein are intended to preserve and protect the value of the goodwill of Company for the benefit of Company and Capstone.

(b) Naugle further acknowledges that Company and Capstone have given and Naugle has received valuable consideration pursuant to the Purchase Agreement, and that the covenants of Naugle therein are intended to preserve and protect the value of the goodwill of Company for the benefit of Company and Capstone. Naugle further acknowledges that Company and its employees and Naugle have over a long period devoted substantial time, effort and resources to developing Company’s trade secrets and its other confidential and proprietary information as well as Company’s relationships with customers, suppliers, employees and others doing business with Company; that such relationships, trade secrets and other information are vital to the successful conduct of Company’s business in the future; that Company, in the furtherance of its business, has in the past provided Naugle with the opportunity and support necessary to allow him to establish personal and professional relationships with customers, employees and others having business relationships with Company; that because of the opportunities and support so provided to Naugle and because of Naugle’s access to Company’s confidential information and trade secrets, Naugle would be in a unique position to divert business from Company and to commit irreparable damage to Company were Naugle to be allowed to commit any of the other acts prohibited herein; that the enforcement of said restrictive covenants against Naugle would not impose any undue burden upon Naugle; that none of said restrictive covenants is unreasonable as to period or geographic area; and that the ability to enforce said restrictive covenants against Naugle is a material inducement to the decision of Company and Capstone to consummate the transactions contemplated in the Purchase Agreement.

Section 3. CAPSTONE AS BENEFICIARY. Capstone is hereby declared to be an express beneficiary of Naugle’s obligations and covenants under this Agreement, and shall be entitled to enforce such obligations and covenants against Naugle in Capstone’s own name and/or in the name of Company (it being understood that due to Naugle’s control of Company, Company would not be likely to seek to enforce this Agreement other than in a collusive manner which would in fact tend to the defeat of Company’s and Capstone’s interests); and accordingly Company further agrees not to, without Capstone’s express written consent, seek to enforce this Agreement against Naugle or to settle, release or waive any claims or rights against Naugle hereunder.

Section 4. CONSTRUCTION. Each party hereto has had an adequate opportunity to have this Agreement reviewed by counsel. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto. This Agreement shall be construed without regard to any presumption, rule or burden of proof regarding the favoring or disfavoring of any party hereto by virtue of the authorship of any of the provisions of this Agreement.

Section 5. MISCELLANEOUS.

(a) Entire Agreement. This Agreement (together with the other Transaction Agreements) constitutes the entire agreement among the parties with respect to the subject matter

-4-

hereof and thereof and supersedes all prior and contemporaneous agreements and undertakings, both written and oral, between the parties, with respect to the subject matter hereof; provided, that any prior confidentiality agreement is not superseded and shall remain in full force and effect.

(b) Successors and Assigns; Transfers. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(c) Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York. The parties hereto agree to submit to the exclusive jurisdiction of and venue in the federal and state courts seated in Erie County, New York with respect to the interpretation of this Agreement or for the purposes of any action arising out of or relating to this Agreement.

(d) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Such counterparts may also be delivered by email.

(e) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(f) Notices. Unless otherwise provided, all notices and other communications required or permitted under this Agreement shall be in writing and shall be mailed by United States first-class mail, postage prepaid, sent by email or delivered personally by hand or by a nationally recognized courier addressed to the party to be notified at the address or email address indicated for such person on Company’s records, or at such other address or email address as such party may designate with 10 days’ advance written notice to the other parties hereto pursuant to this Section All such notices and other written communications shall be effective on the date of mailing or emailing or delivery.

(g) Amendments and Waivers. No amendment or modification hereto or waiver of any of the terms or provisions hereof shall be valid unless set forth in a writing that is executed by each of the parties hereto. No such waiver of any term, provision or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a further waiver of any such term, provision or condition or as a waiver of any other term, provision or condition of this Agreement.

(h) Facilitation. Each party hereto agrees to execute and perform such other documents and acts as are reasonably required in order to facilitate, effectuate and evidence the terms of this Agreement and the intent thereof, and to cooperate in good faith in order to effectuate the provisions and intent of this Agreement.

(i) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

-5-

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

LC STRATEGIC REALTY, LLC

/s/ Lorissa Naugle

Signature: _____________________
Name: Lorissa Naugle
Title: CEO

CAPSTONE FINANCIAL GROUP, INC.

/s/ Darin Pastor

By:___________________________

Name: Darin Pastor

Title: CEO

/s/ Christopher Naugle

______________________________
CHRISTOPHER NAUGLE

-6-

LC STRATEGIC REALTY / LORISSA NAUGLE

NON-COMPETITION AGREEMENT

THIS NON-COMPETITION AGREEMENT (this “Agreement”) is made and entered into as of July 24, 2015 (the “Effective Date”), by and among LC Strategic Realty, LLC, a New York limited liability company (“Company”), Lorissa Naugle (“Naugle”), and Capstone Financial Group, Inc., a Nevada corporation (“Capstone”).

W I T N E S S E T H :

WHEREAS, Naugle is a principal of Company;

WHEREAS, Company and Capstone are parties to that certain Securities Purchase Agreement, dated as of the Effective Date (the “Purchase Agreement”);

WHEREAS, Naugle will obtain a substantial indirect financial benefit from the consummation of the transactions under the Purchase Agreement; and

Section 1. DEFINITIONS. In addition to terms defined elsewhere in this Agreement, the following terms have the following meanings:

“Business” means any business or division of any business with a primary focus on (a) real

-1-

“Restrictive Covenants” means the covenants contained in Section 2.

Section 2. COVENANT NOT TO COMPETE.

2.3. Solicitation of Employees, Etc. During the Restricted Period, Naugle shall not

-2-

-3-

they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

2.7 Acknowledgments.

(a) Naugle acknowledges that the covenants of Naugle herein are intended to preserve and protect the value of the goodwill of Company for the benefit of Company and Capstone.

(b) Naugle further acknowledges that Company and Capstone have given and Naugle has received valuable consideration pursuant to the Purchase Agreement, and that the covenants of Naugle therein are intended to preserve and protect the value of the goodwill of Company for the benefit of Company and Capstone. Naugle further acknowledges that Company and its employees and Naugle have over a long period devoted substantial time, effort and resources to developing Company’s trade secrets and its other confidential and proprietary information as well as Company’s relationships with customers, suppliers, employees and others doing business with Company; that such relationships, trade secrets and other information are vital to the successful conduct of Company’s business in the future; that Company, in the furtherance of its business, has in the past provided Naugle with the opportunity and support necessary to allow her to establish personal and professional relationships with customers, employees and others having business relationships with Company; that because of the opportunities and support so provided to Naugle and because of Naugle’s access to Company’s confidential information and trade secrets, Naugle would be in a unique position to divert business from Company and to commit irreparable damage to Company were Naugle to be allowed to commit any of the other acts prohibited herein; that the enforcement of said restrictive covenants against Naugle would not impose any undue burden upon Naugle; that none of said restrictive covenants is unreasonable as to period or geographic area; and that the ability to enforce said restrictive covenants against Naugle is a material inducement to the decision of Company and Capstone to consummate the transactions contemplated in the Purchase Agreement.

Section 5. MISCELLANEOUS.

(a) Entire Agreement. This Agreement (together with the other Transaction Agreements) constitutes the entire agreement among the parties with respect to the subject matter

-4-

(e) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

-5-

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

LC STRATEGIC REALTY, LLC

Signature: _/s/ Lorissa Naugle
Name: Lorissa Naugle
Title: CEO

CAPSTONE FINANCIAL GROUP, INC.

/s/ Darin Pastor

By:___________________________

Name: Darin Pastor

Title: CEO

/s/ Lorissa Naugle

______________________________
LORISSA NAUGLE

-6-

LC STRATEGIC HOLDINGS, LLC

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is entered into on July 24, 2015, by and between LC Strategic Holdings, LLC, a New York limited liability company (the “Company”), Capstone Financial Group, Inc., a Nevada corporation (“Capstone”), Christopher Naugle and Lorissa Naugle, who hereby agree as follows:

1. PURCHASE AND SALE OF STOCK.

1.2 Mechanics.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

-1-

as a foreign limited liability company in each jurisdiction in which the failure to so qualify would have a material adverse effect on the Company or its business.

2.4 Capitalization.

-2-

2.7 Financial Statements.

2.8 Agreements; Actions.

2.9 Intellectual Property. All Company employees and consultants have entered into customary nondisclosure/ nonuse/ proprietary-information-protection/ intellectual-property-

-3-

3. REPRESENTATIONS AND WARRANTIES OF CAPSTONE.

Capstone hereby represents and warrants to the Company that:

-4-

remedies.

3.5 Accredited Investor. Capstone further represents to the Company that it is an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act.

(a) The following legend under the Securities Act:

(b) Any legend imposed or required by the Company’s operating agreement or applicable state securities laws or by any agreement entered into in connection with this Agreement.

4. MISCELLANEOUS.

-5-

4.6 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

-6-

with its terms.

5. AFFILIATED ENTITIES. Christopher Naugle and Lorissa Naugle agree that they shall cause any other entities or proprietorships through which the Company and/or either of them directly or indirectly carry on any business with a primary focus on (a) real estate, (b) media/entertainment/show business, or (c) endorsements/advertisements/personal appearances/use of likeness/monetization of celebrity (other than LC Strategic Realty, LLC) to issue to Capstone, for no additional consideration, a number of its equity interests sufficient to give Capstone a 20% equity interest therein (Provided, that without Capstone’s express prior written consent Capstone shall not be given any equity interest which results in it having unlimited liability, e.g., a general partnership interest, or being subject to mandatory capital calls). It is understood that this Section 5 shall not apply to Syndicated Properties, LLC so long as its business is limited to a property at 37 Bridgman Street, Buffalo, New York and shall not apply to Syndicated Holdings, LLC so long as its business is limited to the Fillmore Creek Townhouses project in Ellicottville, New York and/or a property at 22 Somerton Avenue, Kenmore, New York.

IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the date first written above.

COMPANY:	LC STRATEGIC HOLDINGS, LLC


	By:	/s/ Lorissa Naugle
	Name: Lorissa Naugle
	Title: Chief Executive Officer



CAPSTONE:	CAPSTONE FINANCIAL GROUP, INC.


	By:	/s/ Darin Pastor
	Name: Darin Pastor
	Title: Chief Executive Officer



	/s/ Christopher Naugle
	CHRISTOPHER NAUGLE


	/s/ Lorissa Naugle
	LORISSA NAUGLE

-7-

LC STRATEGIC HOLDINGS

MEMBERS Agreement

This MEMBERS Agreement (this “Agreement”) is made and entered into as of July 24, 2015, by and among LC Strategic Holdings, LLC, a New York limited liability company (the “Company”), Christopher Naugle and Lorissa Naugle (collectively referred to herein in the singular and masculine forms as “Naugle”), Capstone Financial Group, Inc., a Nevada limited liability company (“Capstone”), and each other Person who becomes a party to this Agreement pursuant to Section 6.09 (such Persons, collectively with Naugle and Capstone, the “Members”).

Article I

Definitions

Capitalized terms used herein and not otherwise defined shall have the meanings set forth in this Article I.

“Agreement” has the meaning set forth in the preamble.

“Articles of Organization” means the articles of organization of the Company, as filed on May 19, 2014, with the Secretary of State of the State of New York and as amended, modified, supplemented or restated from time to time.