U. S. SECURITIES AND EXCHANGE COMMISSION



Washington, DC 20549



Form 10-QSB



/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2007



Or



/_/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from _________ to ____________



Commission File No. 333-93475



CORNERSTONE MINISTRIES INVESTMENTS, INC.

(Exact name of small business issuer as specified in its charter)



|                                             |  |  |  |                                     
|-------------------------------------------- |  |  |  | ------------------------------------
|Georgia                                      |  |  |  | 58-2232313                          
|(State or other jurisdiction                 |  |  |  | (IRS Employer Identification Number)
|of incorporation or organization)            |  |  |  |                                     
|                                             |  |  |  |                                     
|                                             |  |  |  |                                     
|2450 Atlanta Highway, Suite 904, Cumming, GA |  |  |  | 30040                               
|(Address of principal executive office)      |  |  |  | (Zip Code)                          



Issuers telephone number, including area code: (678)-455-1100



Former name, address and former fiscal year, if changed since last report.



Check whether the issuer (1) filed all reports required to be filed by the Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 past 90 days.



Yes X  No__



As of March 31, 2007, there were issued and outstanding 898,282 shares of the common stock of the issuer.



Transitional Small Business Disclosure Format (Check one): Yes [  ] No [X]





1





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Cornerstone Ministries Investments, Inc.



Index



Page



Form 10-QSB Title Page

1



Index

2



PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



Report of Independent Registered Public Accounting Firm

F-1



Consolidated Balance Sheets as of March 31, 2007 and 2006

F-2



Consolidated Statements of Operations for the three months

ended March 31, 2007 and 2006

F-3



Consolidated Statements of Changes in Shareholders Equity

for the three months ended March 31, 2007 and 2006

F-4



Consolidated Statements of Cash Flows for the three months

ended March 31, 2007 and 2006

F-5



Notes to Consolidated Financial Statements

F-6



Item 2. Managements Discussion and Analysis of

Financial Condition and Results of Operation

3



Item 3. Controls and Procedures

8



PART II. OTHER INFORMATION



Item 1. Legal Proceedings

8



Item 2. Changes in Securities and Use of Proceeds

10



Item 3. Defaults on Senior Securities

10



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

10



Item 5. Other Information

10



Item 6. Exhibits and Reports on Form 8-K

10



Signatures

10



Certifications  Exhibits 31 and 32

11





2





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To The Board of Directors

Cornerstone Ministries Investments, Inc.



We have reviewed the accompanying consolidated balance sheets of Cornerstone Ministries Investments, Inc. as of March 31, 2007 and 2006, and the related consolidated statements of operations, changes in shareholders equity, and cash flows for the three-month periods then ended. These financial statements are the responsibility of the Companys management.



We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.



Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.





/s/ Berman Hopkins Wright & LaHam, CPAs and Associates, LLP



Winter Park, Florida

May 11, 2007



F-1





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|                                                     |  |      |             |      |   |            
|---------------------------------------------------- |  | ---- | ----------- | ---- | - | -----------
|CORNERSTONE MINISTRIES INVESTMENTS, INC.             |  |      |             |      |   |            
|CONSOLIDATED BALANCE SHEETS                          |  |      |             |      |   |            
|March 31, 2007 and 2006                              |  |      |             |      |   |            
|                                                     |  |      |             |      |   |            
|                                                     |  | 2007 |             | 2006
|ASSETS                                               |  |      |             |      |   |            
|Cash and cash equivalents                            |  | $    | 2,365,276   |      | $ | 4,616,606  
|Loan guarantee receivable                            |  |      | 91,000      |      |   | -          
|Loans in process                                     |  |      | 552,568     |      |   | 690,524    
|Real estate loans, net (including $82,716,511 and    |  |      | 134,181,052 |      |   | 121,444,742
|$40,822,994 from related parties - see note 4)       |  |      |             |      |   |            
|Real estate joint venture investments, net           |  |      | 21,948,209  |      |   | 16,156,514 
|Consolidated real estate assets                      |  |      | 9,512,328   |      |   | -          
|Bond holdings and accrued interest                   |  |      | 2,233,773   |      |   | 2,055,001  
|Property and equipment, net                          |  |      | 502,747     |      |   | 530,215    
|Refundable income taxes                              |  |      | 54,982      |      |   | -          
|Deferred tax asset, net                              |  |      | 621,801     |      |   | 181,070    
|Goodwill                                             |  |      | 450,997     |      |   | 450,997    
|Unamortized debt issue costs                         |  |      | 3,179,883   |      |   | 2,605,229  
|Foreclosed real estate held for sale                 |  |      | -           |      |   | 290,679    
|Real estate held for investment                      |  |      | 340,000     |      |   | 340,000    
|Other assets                                         |  |      | 49,809      |      |   | 55,070     
|                                                     |  |      |             |      |   |            
|TOTAL ASSETS                                         |  | $    | 176,084,425 |      | $ | 149,416,647
|                                                     |  |      |             |      |   |            
|LIABILITIES                                          |  |      |             |      |   |            
|Investor certificates and accrued interest           |  | $    | 143,528,618 |      | $ | 139,235,173
|Mortgage participations and accrued interest         |  |      | 5,454,819   |      |   | 3,578,597  
|Loans payable and accrued interest                   |  |      | 20,151,900  |      |   | -          
|Accounts and other payables (including               |  |      | 120,991     |      |   | 113,952    
|$67,224 and $19,458 to related parties - see note 4) |  |      |             |      |   |            
|Consolidated real estate obligations                 |  |      | 306,093     |      |   | -          
|Loan guarantee obligations                           |  |      | 451,610     |      |   | 234,000    
|Building mortgages                                   |  |      | 402,006     |      |   | 413,801    
|                                                     |  |      |             |      |   |            
|TOTAL LIABILITIES                                    |  |      | 170,416,037 |      |   | 143,575,523
|                                                     |  |      |             |      |   |            
|SHAREHOLDERS' EQUITY                                 |  |      |             |      |   |            
|Series A Convertible Preferred Stock, no par         |  |      |             |      |   |            
|value; 235,000 shares authorized, no                 |  |      |             |      |   |            
|shares issued and outstanding                        |  |      | -           |      |   | -          
|Common Stock, $0.01 par value; 29 million shares     |  |      |             |      |   |            
|authorized; 898,282 and 886,607 shares               |  |      |             |      |   |            
|issued and outstanding                               |  |      | 8,983       |      |   | 8,866      
|Paid in capital                                      |  |      | 5,610,166   |      |   | 5,536,550  
|Retained earnings                                    |  |      | 49,239      |      |   | 295,708    
|                                                     |  |      |             |      |   |            
|TOTAL SHAREHOLDERS' EQUITY                           |  |      | 5,668,388   |      |   | 5,841,124  
|                                                     |  |      |             |      |   |            
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           |  | $    | 176,084,425 |      | $ | 149,416,647
|                                                     |  |      |             |      |   |            
|                                                     |  |      |             |      |   |            
|SEE ACCOMPANYING NOTES                               |  |      |             |      |   |            





F-2





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|                                                                |  |      |           |      |   |          
|--------------------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|CORNERSTONE MINISTRIES INVESTMENTS, INC.                        |  |      |           |      |   |          
|CONSOLIDATED STATEMENTS OF OPERATIONS                           |  |      |           |      |   |          
|For the three months ended March 31, 2007 and 2006              |  |      |           |      |   |          
|                                                                |  |      |           |      |   |          
|                                                                |  | 2007 |           | 2006
|REVENUES                                                        |  |      |           |      |   |          
|Real estate loan and joint venture interest and fees (including |  | $    | 4,419,492 |      | $ | 3,704,498
|$2,565,042 and $991,767 from related parties - see note 4)      |  |      |           |      |   |          
|Loan participation and other income (including $15,000          |  |      | 188,642   |      |   | 303,756  
|and $15,000 from a related party - see note 4)                  |  |      |           |      |   |          
|                                                                |  |      |           |      |   |          
|TOTAL REVENUES                                                  |  |      | 4,608,134 |      |   | 4,008,254
|                                                                |  |      |           |      |   |          
|EXPENSES                                                        |  |      |           |      |   |          
|Investor and loan interest expense                              |  |      | 3,519,315 |      |   | 2,990,797
|Loan loss expense                                               |  |      | 90,000    |      |   | 46,000   
|Marketing expenses                                              |  |      | 301,614   |      |   | 290,068  
|Payroll expenses                                                |  |      | 55,906    |      |   | -        
|Management and advisory fees to related party (see note 4)      |  |      | 409,560   |      |   | 349,089  
|Operating expenses                                              |  |      | 436,783   |      |   | 186,206  
|                                                                |  |      |           |      |   |          
|TOTAL EXPENSES                                                  |  |      | 4,813,178 |      |   | 3,862,160
|                                                                |  |      |           |      |   |          
|Income (Loss) Before Provision For Income Taxes                 |  |      | (205,044) |      |   | 146,094  
|                                                                |  |      |           |      |   |          
|Income Tax Provision (Benefit)                                  |  |      | (83,074)  |      |   | 30,079   
|                                                                |  |      |           |      |   |          
|NET INCOME (LOSS)                                               |  | $    | (121,970) |      | $ | 116,015  
|                                                                |  |      |           |      |   |          
|Basic and Diluted Earnings (Loss)                               |  |      |           |      |   |          
|per Common Share                                                |  | $    | (0.14)    |      | $ | 0.13     
|                                                                |  |      |           |      |   |          
|                                                                |  |      |           |      |   |          
|                                                                |  |      |           |      |   |          
|SEE ACCOMPANYING NOTES                                          |  |      |           |      |   |          







F-3





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|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|---------------------------------------------------------- |  | ------------- |  | ------- | ----- | --------- | - | --------- |  | -------- | - | ------ | - | --------- |  | - | ---------
|CORNERSTONE MINISTRIES INVESTMENTS, INC.                   |  |               |  |         |       |           |   |           |  |          |   |        |   |           | 
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY |  |               |  |         |       |           |   |           |  |          |  
|For the three months ended March 31, 2007 and 2006         |  |               |  |         |       |           |   |           |  |          |   |        |   |          
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|                                                           |  | COMMON STOCK: |  | PAID-IN |       | PREFERRED |   | RETAINED  |  | TOTAL   
|                                                           |  | SHARES        |  | AMOUNT  |       | CAPITAL   |   | STOCK     |  | EARNINGS |   | EQUITY
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|BALANCE, DECEMBER 31, 2005                                 |  | 891,914       |  | $       | 8,919 |           | $ | 5,570,992 |  | $        | - |        | $ | 179,693   |  | $ | 5,759,604
|Net income                                                 |  |               |  |         |       |           |   |           |  |          |   |        |   | 116,015   |  |   | 116,015  
|Common stock issued                                        |  | -             |  |         | -     |           |   | -         |  |          |   |        |   |           |  |   | -        
|Common stock redeemed                                      |  | (5,307)       |  |         | (53)  |           |   | (34,442)  |  |          |   |        |   |           |  |   | (34,495) 
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|BALANCE, March 31, 2006                                    |  | 886,607       |  | $       | 8,866 |           | $ | 5,536,550 |  | $        | - |        | $ | 295,708   |  | $ | 5,841,124
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|BALANCE, DECEMBER 31, 2006                                 |  | 885,096       |  | $       | 8,851 |           | $ | 5,526,483 |  | $        | - |        | $ | 171,209   |  | $ | 5,706,543
|Net loss                                                   |  |               |  |         |       |           |   |           |  |          |   |        |   | (121,970) |  |   | (121,970)
|Common stock issued                                        |  | 15,380        |  |         | 154   |           |   | 99,814    |  |          |   |        |   |           |  |   | 99,968   
|Common stock issuance costs paid                           |  |               |  |         |       |           |   | (1,892)   |  |          |   |        |   |           |  |   | (1,892)  
|Common stock redeemed                                      |  | (2,194)       |  |         | (22)  |           |   | (14,239)  |  |          |   |        |   |           |  |   | (14,261) 
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|BALANCE, MARCH 31, 2007                                    |  | 898,282       |  | $       | 8,983 |           | $ | 5,610,166 |  | $        | - |        | $ | 49,239    |  | $ | 5,668,388
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|                                                           |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          
|SEE ACCOMPANYING NOTES                                     |  |               |  |         |       |           |   |           |  |          |   |        |   |           |  |   |          





F-4





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|                                                                                 |  |      |              |      |   |             
|-------------------------------------------------------------------------------- |  | ---- | ------------ | ---- | - | ------------
|CORNERSTONE MINISTRIES INVESTMENTS, INC.                                         |  |      |              |      |   |             
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                            |  |      |              |      |   |             
|For the three months ended March 31, 2007 and 2006                               |  |      |              |      |   |             
|                                                                                 |  | 2007 |              | 2006
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            |  |      |              |      |   |             
|Net income (loss)                                                                |  | $    | (121,970)    |      | $ | 116,015     
|Adjustments to reconcile net income to cash                                      |  |      |              |      |   |             
|from operations-                                                                 |  |      |              |      |   |             
|Depreciation and amortization                                                    |  |      | 414,303      |      |   | 284,664     
|Gain from sale of property and equipment                                         |  |      | -            |      |   | (51,540)    
|Loan loss expense                                                                |  |      | 90,000       |      |   | 46,000      
|Changes in-                                                                      |  |      |              |      |   |             
|Loans in process                                                                 |  |      | (98,636)     |      |   | (306,262)   
|Accrued bond interest, net                                                       |  |      | (42,798)     |      |   | 288,265     
|Bond holdings principal discount amortization                                    |  |      | (1,895)      |      |   | (1,895)     
|Accrued real estate loan/joint venture interest and deferred loan fees           |  |      | (1,632,830)  |      |   | (765,993)   
|(including ($569,719) and ($191,266) from related party loans)                   |  |      |              |      |   |             
|Deferred taxes                                                                   |  |      | (139,891)    |      |   | (37,233)    
|Refundable income taxes                                                          |  |      | 6,817        |      |   | -           
|Investor and mortgage participation interest payable                             |  |      | (1,543,925)  |      |   | 827,826     
|Accounts and other payables                                                      |  |      | (211,808)    |      |   | (486,359)   
|Other assets                                                                     |  |      | 1,545        |      |   | 17,150      
|                                                                                 |  |      |              |      |   |             
|NET CASH USED BY OPERATIONS                                                      |  |      | (3,281,088)  |      |   | (69,362)    
|                                                                                 |  |      |              |      |   |             
|CASH FLOWS FROM INVESTING ACTIVITIES:                                            |  |      |              |      |   |             
|Real estate loans made (including $15,479,456 and $5,454,615 to related parties) |  |      | (20,400,498) |      |   | (25,187,957)
|Real estate loan principal payments received (including                          |  |      | 15,549,726   |      |   | 10,538,444  
|$14,792,583 and $4,289,001 from related parties)                                 |  |      |              |      |   |             
|Real estate joint venture investments made                                       |  |      | (1,092,839)  |      |   | (1,127,611) 
|Consolidated real estate assets purchased                                        |  |      | (861,767)    |      |   | -           
|Bonds redeemed or sold                                                           |  |      | -            |      |   | 11,974,400  
|Property and equipment purchased                                                 |  |      | (580)        |      |   | (1,685)     
|Proceeds from sale of property and equipment                                     |  |      | -            |      |   | 272,362     
|                                                                                 |  |      |              |      |   |             
|NET CASH USED BY INVESTING ACTIVITIES                                            |  |      | (6,805,958)  |      |   | (3,532,047) 
|                                                                                 |  |      |              |      |   |             
|CASH FLOWS FROM FINANCING ACTIVITIES:                                            |  |      |              |      |   |             
|Investor certificates sold                                                       |  |      | 4,119,430    |      |   | -           
|Investor certificates redeemed                                                   |  |      | (6,872,308)  |      |   | (4,647,655) 
|Mortgage participation agreements sold                                           |  |      | 4,000,000    |      |   | 1,025,000   
|Mortgage participation agreements redeemed                                       |  |      | (1,224,199)  |      |   | -           
|Debt issue costs paid                                                            |  |      | (222,587)    |      |   | (128,255)   
|Building mortgage principal payments                                             |  |      | (3,121)      |      |   | (164,508)   
|Capital lease principal payments                                                 |  |      | -            |      |   | (1,231)     
|Common stock issued, net of issuance costs                                       |  |      | 98,076       |      |   | -           
|Common stock redeemed                                                            |  |      | (14,261)     |      |   | (34,495)    
|Dividends paid                                                                   |  |      | (286,420)    |      |   | (278,034)   
|                                                                                 |  |      |              |      |   |             
|NET CASH USED BY FINANCING ACTIVITIES                                            |  |      | (405,390)    |      |   | (4,229,178) 
|                                                                                 |  |      |              |      |   |             
|Net change in cash and cash equivalents                                          |  |      | (10,492,436) |      |   | (7,830,587) 
|Cash and cash equivalents at beginning of period                                 |  |      | 12,857,712   |      |   | 12,447,193  
|                                                                                 |  |      |              |      |   |             
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       |  | $    | 2,365,276    |      | $ | 4,616,606   
|                                                                                 |  |      |              |      |   |             
|Supplemental Information-                                                        |  |      |              |      |   |             
|Interest paid during the period                                                  |  | $    | 5,074,001    |      | $ | 2,174,626   
|Income taxes paid during the period                                              |  | $    | 50,000       |      | $ | 375,000     
|Non-cash transactions-                                                           |  |      |              |      |   |             
|Investor certificates matured and re-invested                                    |  | $    | 9,237,241    |      | $ | -           
|Loan interest financed and included in loan principal (including                 |  | $    | 1,900,071    |      | $ | 494,021     
|$1,140,911 and $49,189 on related party loans)                                   |  |      |              |      |   |             
|                                                                                 |  |      |              |      |   |             
|SEE ACCOMPANYING NOTES                                                           |  |      |              |      |   |             





F-5





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CORNERSTONE MINISTRIES INVESTMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Consolidated Financial Statements include the accounts of Cornerstone Ministries Investments, Inc., its majority owned subsidiaries and variable interest entities consolidated under the provisions of FIN46R (collectively the Company).  All material intercompany transactions have been eliminated in these Consolidated Financial Statements.  The Company originates and purchases mortgage loans.  The Company offers specialized loan programs for churches, non-profit or for-profit sponsors of senior housing facilities and non-profit or for-profit sponsors of affordable/low income or age-restricted housing projects.  The Company also invests in other real estate projects for the purpose of selling at a profit or leasing.  Substantially all of the Companys loans and investments are in projects located in the southeastern and southwestern United States.



Cash and cash equivalents include bank accounts and short-term investments with original maturities of 90 days or less.



Real estate loans and senior housing loans classified as real estate joint venture investments include unpaid principal and accrued interest balances net of deferred loan fees and unearned discounts, less an allowance for loan losses.  Interest income is recognized monthly on the accrual basis in accordance with loan terms.  Interest income is recognized on the cash basis for loans with a recorded impairment loss (other than restructured loans) and the possibility of future loss considered remote.  If the possibility of future loss is probable, then interest income is not recognized and interest payments are credited to outstanding loan principal.  Loan origination fees are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method.   Amortization of deferred loan fees is discontinued when a loan is placed on non-accrual status.  Interest income and loan fees recognized from real estate loans and senior housing loans classified as real estate joint venture investments are reported as Real estate loan and joint venture interest and fees in the accompanying Consolidated Statements of Operations.



The Company receives monthly interest payments on its real estate loans and senior housing loans (classified as real estate joint venture investments) except when the terms of a loan allow a borrower to finance interest payments.  Interest is financed in the following circumstances:



•

Family housing loans may finance interest while the project is in the development and pre-sales phase, which normally lasts 12 to 36 months depending on the size of the project.  The Company receives the financed interest as the borrower sells homes in the development.

•

Church construction loans may finance interest while the church building is under construction.  This takes three to nine months, depending on the size of the building.  When the building is operational, the financed interest from the construction phase is included in the loans principal amount and the Company begins receiving monthly interest payments from the borrower.

•

Senior housing loans may finance interest during the construction, renovation and lease-up stages of the borrowers operations.  This takes two to six months if there is an existing building and 12 to 24 months if the financed property is raw land and a new building is being constructed.  When the facility is operational, the financed interest is included in the loans principal amount and the Company begins receiving monthly interest payments from the borrower.



Senior housing loans are classified as real estate joint venture investments if the Company participates in a propertys residual profits and all of the following exist at the inception of the loan:



•

The borrower has title but not a substantial equity investment in the property.

•

The Company does not have recourse to substantial tangible, saleable assets of the borrower other than the underlying collateral of the loan and there is no irrevocable letter of credit for a substantial amount of the loan.

•

There is no take-out commitment for the full amount of the loan from a creditworthy, independent third-party.

•

The facility does not have lease commitments which will provide sufficient cash flow to service normal principal and interest loan amortization.



The Company normally provides all or substantially all of the funding (directly or through loan guarantees) for the acquisition and development of these facilities, which are owned by non-profit entities.  The Company participates in residual profits through loan participation agreements, which enable the Company to receive income from the borrower when the property in which the Company provided financing is sold or refinanced with another lender.  The participation is between 25% and 33% of the borrowers gain.  Loan participation income is recognized when the borrowers sale or refinancing is completed and the Company receives cash from the borrower.



F-6





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Loans in process are amounts advanced or expended on behalf of borrowers prior to completion of the loan documentation.  Interest is not accrued on these amounts until the loan documentation is complete and the borrower acknowledges the debt and associated interest.  Substantially all of these expenditures are converted to loans within one year or less.



Unamortized debt issue costs include the costs and commissions associated with issuing Investor Certificates, Mortgage Participation Agreements and other loans payable.  These costs are being amortized on a straight-line basis over the term of the associated debt, generally five years.



The allowance for loan losses for real estate loans and senior housing loans classified as real estate joint venture investments is maintained at a level which, in managements judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is determined in accordance with SFAS No. 5 (collective loan losses) and SFAS No. 114 (specific impaired loan losses).  A collective loan loss is recognized when the characteristics of a group of loans indicate that it is probable that a loss exists even though the loss cannot be identified with a specific loan.  The collective loan loss allowance amount is based on observable data that management believes is reflective of the underlying credit losses inherent in the portfolio.  The components of this evaluation include trends in the Companys historical loss experience, changes in credit risk and credit quality, credit concentrations, economic conditions, collateral values, and other risks inherent in the portfolio. Specific impaired loan loss allowances are made when it is determined that a loan is impaired and the loans carrying amount exceeds the present value of estimated future cash flows, or, if the loan is considered collateral dependant, the loans collateral value. A loan is considered impaired if it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated. The allowance is increased by a provision for loan loss and reduced by charge-offs, net of recoveries. Changes in the allowance relating to specific impaired loans are charged or credited to loan loss expense.  Loans are charged-off to the extent the loans carrying amount exceeds the net realizable value of the collateral, with the charge-off occurring when it is likely that the loan is uncollectible and foreclosure will occur.



Foreclosed real estate acquired through, or in lieu of, foreclosure are held for sale and initially recorded at the lower of the assets fair value or the loans carrying amount, which establishes a new cost basis for the asset.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of the new cost basis or fair value less estimated costs to sell.



The Company uses FIN 46R, Consolidation of Variable Interest Entities to identify variable interest entities (VIE).  A VIE is an entity in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties.  A company that holds a variable interest in a VIE is considered the primary beneficiary and will need to consolidate the entity if the companys interest in the VIE is such that the company will absorb a majority of the VIEs expected losses and/or receive a majority of expected residual gains, if they occur.  Additional disclosures are also required by primary beneficiaries and other significant variable interest holders.



Bond holdings consist of tax-free local government securities and church bonds.  The Company accounts for these investments using SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and classifies the bonds as available for sale securities.  The bonds are initially recorded at cost and if the bonds are purchased for a discount or premium from their par value, the discount or premium is amortized to income over the bonds remaining life as an adjustment to the bonds yield.  The bonds are also adjusted for unrealized holding gains and losses.  Temporary unrealized holding gains and losses are reported, net of deferred taxes, as a separate component of shareholders equity until realized.  If an unrealized holding loss is judged to be other than temporary, the cost basis of the security is written down to fair value and included in earnings and the amortization of the premium or discount is suspended.



Property and equipment are valued at cost when purchased.  Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which are three to five years for furnishings and equipment, and 40 years for office buildings.



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Real estate held for investment includes land which the Company owns and intends to hold as an investment for more than one year.  The assets are carried at the lesser of cost or fair value.  Impairment losses are recognized when the carrying amount of a long-lived asset is determined not to be recoverable and the carrying amount exceeds fair value.  Profit from real estate sales is recognized when the collectibility of the sales price is reasonably assured and the Company is not obligated to perform significant activities after the sale to earn the profit.  If either of these conditions exists, all or part of the profit is deferred and recognized using the installment sale method or cost recovery method as prescribed by SFAS No. 66, Accounting for Sales of Real Estate.



Interest on Investor Bonds is accrued from the date of issuance. Bond holders choose, at the time of purchase, to have interest paid semi-annually or upon redemption.  Investors holding five year bonds in multiples of $10,000 may receive interest monthly.  Unpaid interest is compounded semi-annually.  Interest on Mortgage Participation Agreements is accrued from the date of issuance and is paid monthly.



Mortgage Participation Agreements are accounted for as secured borrowings with pledges of collateral because the agreements do not meet the definition of a sale of a financial asset under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.



The Company is guarantor on certain loans secured by church, senior housing, single family and affordable apartment facilities which are owned by various Company borrowers.  A loan guarantee obligation is recognized based on the loan guarantees estimated fair value.  The Company normally charges the loan guarantees fair value to the respective borrower as compensation for the Companys risk and payment is expected within 30 days of the guarantees origination or modification date.  Unpaid amounts are classified as Loan guarantee receivables in the accompanying Consolidated Balance Sheets.  If the loan guarantees fair value is not charged to the respective borrower, deferred loan fees related to the borrowers loan with the Company are reduced by the guarantees fair value.  The reduced deferred loan fees are amortized to earnings over the life of the loan.  Loan guarantee obligations are analyzed at the end of each quarter and if the fair value of the loan guarantee has declined, the carrying amount of the obligation is reduced and credited to earnings.



Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to the difference between the methods of accounting for depreciation, amortization, start-up costs, allowance for loan losses, and installment sales for financial and tax-reporting purposes.  The deferred taxes represent the estimated future tax consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled.  Accelerated depreciation methods and shorter asset lives are used for tax reporting, and straight-line depreciation is used for financial statement reporting.  The Company calculates deferred taxes under the provisions of SFAS No. 109 which provides for deferred tax assets and liabilities to be carried on the balance sheet at current tax rates.



Management uses estimates and assumptions in preparing these Consolidated Financial Statements in accordance with generally accepted accounting principles.  The estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses.  Actual amounts may vary from the estimates that are used.



Basic earnings per common share are calculated by dividing net income by the weighted average number of common shares outstanding during the year.  Diluted earnings per common share are calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive shares of Series A Convertible Preferred Stock.



New Accounting Pronouncements:

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a comprehensive financial statement model of how a company should recognize, measure, present, and disclose uncertain tax positions that the Company has taken or expects to take in its income tax returns.  FIN 48 requires that only income tax benefits that meet the more likely than not recognition threshold be recognized or continue to be recognized on the effective date.  Initial derecognition of amounts would be reported as a cumulative effect of a change in accounting principle.  FIN 48 was effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material impact on the Companys financial statements.



F-8





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In September 2006, the FASB issued FAS No. 157, Fair Value Measurements, which establishes a framework for reporting fair value and expands disclosure about fair value measurements. FAS 157 is effective for the Companys 2008 fiscal year.  The Company is currently evaluating the impact of this standard on its financial statements.



In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115.  FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  FAS 159 is effective for fiscal years ending after November 15, 2007.  The Company is currently evaluating the impact of adopting FAS 159 on its financial statements.



NOTE 2  PROPERTY AND EQUIPMENT & FORECLOSED REAL ESTATE HELD FOR SALE

At March 31, property and equipment is composed of:



|                                                    |  |      |           |      |   |          
|--------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                    |  | 2007 |           | 2006
|Office Condominiums                                 |  | $    | 550,116   |      | $ | 546,316  
|Office Computers, Furnishings, Software & Equipment |  |      | 147,916   |      |   | 147,336  
|Vehicles                                            |  |      | 30,351    |      |   | 30,351   
|Less: Accumulated depreciation                      |  |      | (225,636) |      |   | (193,788)
|Property and equipment, net                         |  | $    | 502,747   |      | $ | 530,215  
|                                                    |  |      |           |      |   |          
|Depreciation expense                                |  | $    | 7,199     |      | $ | 12,783   



In the first quarter of 2006, the Company sold its office condominiums which were being leased to a third party.  The net proceeds received at closing were $272,362.  The carrying value of the property sold was $220,822; therefore, a $51,540 gain was recognized from this sale.  With the closing proceeds, the Company paid off the $160,332 in outstanding principal on the mortgage loan that secured the property.



In December 2005, the Company foreclosed on a church loan in Dade City, FL and repossessed the land and building.  The foreclosed asset was initially recorded at the loans carrying value of $290,679 because the Companys management estimated the assets fair value to be greater than the loans carrying value.  In December 2006, the Company sold the land and building and financed the $275,000 purchase price.  A loss of $34,442 was recognized from this sale in the fourth quarter of 2006.



NOTE 3  COMMITMENTS AND CONTINGENCIES

Loan Commitments

The Company makes loan commitments in connection with certain real estate loans and joint venture investments that include funding for project development, building construction, renovations, lease-up operations, financed interest and other amounts that the borrower may draw upon in accordance with the loan agreement.  For existing loans, the Company has $38,012,000 in approved, unused loan commitments for real estate loans and $5,317,000 for real estate joint venture investments as of March 31, 2007.  The Company has four new approved real estate loan commitments totaling $8,600,000 as of March 31, 2007 which the Company expects to fund by year end.





Legal Proceedings

The Company occasionally becomes involved in various claims and legal actions arising from the ordinary course of its business.  It is the opinion of the Companys management that the ultimate disposition of these items will not have a material effect upon the Companys financial position or results of operations.



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NOTE 4  RELATED PARTY TRANSACTIONS

Cornerstone Capital Advisors, Inc.  Management and Advisory Service Agreement

The Company has a Management and Advisory Services Agreement with Cornerstone Capital Advisors, Inc. (CCA) to provide loan management, administration, and accounting; investor relations; marketing; computer and management information systems administration; record maintenance; executive management; and bookkeeping and accounting services.  The agreement is for renewable one year terms and it may be terminated by either party upon 60 days written notice.  The Companys only employee is its president.  CCA is subject to the supervision of the Companys board of directors.  One former Company executive officer and director serves on CCAs parent companys board of directors and the Companys Chief Financial Officer is employed by CCA.  The agreement obligates the Company to pay CCA the following fees:



•

Management Fee  equal to 10% of the Companys revenues from all sources other than loan fees, loan participations and revenue received from CCA plus 30% of loan participation revenue.  This fee is payable monthly.

•

Loan Origination Fee  equal to 30% of the total loan fee charged by the Company to its borrowers.  The fee is generally paid from loan proceeds and reduces deferred loan fees.



For the three months ended March 31, the Company paid CCA as follows:



|                      |  |      |         |      |   |        
|--------------------- |  | ---- | ------- | ---- | - | -------
|                      |  | 2007 |         | 2006
|Management Fees       |  | $    | 409,560 |      | $ | 349,089
|Loan Origination Fees |  |      | 298,699 |      |   | 640,875
|                      |  | $    | 708,259 |      | $ | 989,964



As of March 31, 2007 and 2006, the Company owed CCA $67,224 and $19,458, respectively under this agreement.



Cornerstone Capital Advisors, Inc.  Office Lease

Effective August 1, 2004, the Company and CCA entered into a lease agreement whereby CCA is leasing the Companys corporate office building and office/computer equipment in Cumming, GA.  The lease payment is $5,000 per month.  The initial lease term ended on August 31, 2005, after which time the lease converted to a month-to-month lease.  The Companys cost basis in the office building and office/computer equipment is approximately $620,000.  The Company received $15,000 from CCA under the terms of this lease during each of the three month periods ending March 31, 2007 and 2006.



Loans made to subsidiaries of Cornerstone Group Holdings, Inc./Church Growth Foundation, Inc.

During 2005 and 2006, eight loans were made to wholly-owned subsidiaries of Cornerstone Group Holdings, Inc (CGH).  At the time that these loans were originated, two of the Companys directors served as directors of CGH.    These loans were made at similar terms to that of the Companys third-party loans.  All of the loans accrue interest at 10% per annum and mature at various dates in 2007 and 2008.  A summary of all loans to CGH subsidiaries as of March 31, 2007 is as follows:



|                            |  |           |           |         |                                                             
|--------------------------- |  | --------- | --------- | ------- | ------------------------------------------------------------
|                            |  | Principal |           | Purpose
|Cushman Apartments, LP      |  | $         | 2,115,622 |         | Acquisition/renovation of affordable apartments/condos      
|Meridian Housing, LLC       |  |           | 967,851   |         | Acquisition/development of affordable apartments/housing    
|Lauren Ridge Apartments, LP |  |           | 1,684,656 |         | Acquisition/construction of market rate apartments          
|Preston Ridge, LLC          |  |           | 794,517   |         | Acquisition/construction of affordable single family housing
|Ashton Park Apartments, LP  |  |           | 503,195   |         | Acquisition of land for low income tax credit apartments    
|River Run Apartments, LLC   |  |           | 1,512,043 |         | Acquisition/construction of market rate apartments          
|Cambridge Place, LLC        |  |           | 521,395   |         | Acquisition/construction of affordable single family housing
|Madison Pointe, LLC         |  |           | 570,576   |         | Acquisition/construction of affordable single family housing
|Total                       |  | $         | 8,669,855 |         |                                                             



During the third quarter of 2006, both of the Company directors who also served as directors of CGH resigned their positions on the CGH board.  Also, in late 2006, CGH was dissolved by its parent company, Church Growth Foundation, Inc. (CGF); therefore, CGHs ownership interest in the above entities was transferred to CGF.



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Loan to Wellstone Retirement Communities I, LLC

In December 2005, the Companys two largest borrowers sold eight senior housing properties to Wellstone Retirement Communities I, LLC (WRC) which is managed by Cornerstone Capital Advisors, Inc. (CCA), which also serves as the Companys manager.  As a result of this transaction, the Company received $60,677,668 in loan principal and $2,512,500 in bond holdings principal.  The Company immediately supplied subordinated financing of $37,901,607 at 9.5% interest and a two year maturity to WRC to purchase the property.    Approximately $10,151,000 in equity was contributed to WRC by independent accredited investors with the remaining $64,077,000 needed to purchase the properties supplied by third-party first mortgage financing.



On January 31, 2006, an additional senior housing property was sold by Sage Living Centers, Inc. to WRC.   The Company received $11,974,400 in bond holdings principal and immediately supplied an additional $1,548,796 in subordinated financing to WRC.  WRC also received an additional $10,922,801 in third party financing at this time.



WRC received additional senior debt financing and equity contributions that allowed WRC to decrease the Companys loan principal by approximately $25,570,000 during 2006.  In January 2007, WRC refinanced its senior debt and was able to completely pay off the Companys remaining loan amount of $12,331,338 with proceeds from the refinance and from additional equity contributions.



Loan to Castleberry Properties, LLC

In March 2006, the Company originated a loan to Castleberry Properties, LLC (Castleberry) for the acquisition of land that is being developed into an office park.  Cornerstone Capital Advisors, Inc. (CCA), the Companys manager, owns 50% of Castleberry.  As of March 31, 2007, the loan principal outstanding is $871,765 and CCA has contributed $172,000 in equity into Castleberry.  The loans maximum commitment is $950,000.



Loans to Wellstone, LLC

In September 2006, two Company officers and two CCA officers each acquired an 18.75% ownership interest in Wellstone LLC, the Companys largest borrower.  All of the loans accrue interest at 10% per annum and mature at various dates during 2007 and 2008.  All of the loans were originated at terms similar to that of the Companys third-party loans.  As of March 31, 2007, principal outstanding on the nine project loans to Wellstone LLC totaled $75,082,786.  Seven of the nine project loans were outstanding prior to September, 2006.  Two loans, with total principal outstanding of $6,527,508, were added after Wellstone LLC became a related party.  Effective March 31, 2007, one of the Company officers mentioned above resigned his position and is now working for Wellstone LLC.



NOTE 5 - REAL ESTATE LOANS

At March 31, the Company had Real Estate Loans outstanding as follows:



|                                 |  |      |             |      |   |            
|-------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                 |  | 2007 |             | 2006
|Family housing development loans |  | $    | 125,549,034 |      | $ | 80,187,251 
|Church mortgage loans            |  |      | 11,005,424  |      |   | 7,368,154  
|Senior housing mortgage loans    |  |      | 1,093,054   |      |   | 36,613,403 
|Total principal                  |  |      | 137,647,512 |      |   | 124,168,808
|Accrued Interest                 |  |      | 836,832     |      |   | 882,093    
|Unearned Loan Fees               |  |      | (2,960,292) |      |   | (2,828,159)
|Allowance for loan losses        |  |      | (1,343,000) |      |   | (778,000   
|Total Real Estate Loans          |  | $    | 134,181,052 |      | $ | 121,444,742





These loans mature as follow: 2007 - $72,724,817; 2008 - $60,018,326; 2009 - $378,129; 2010 - $0; 2011 and beyond - $4,526,240.  Loan maturity may be accelerated in accordance with loan terms, generally upon certain events of default such as non-payment of scheduled payments or bankruptcy.



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Based on the terms of the loans, the Company allows borrowers with loans related to certain family housing and church properties to finance interest payments while the properties are in the development and construction phase of operations.  For the three months ended March 31, the net interest payments financed were:



|                                           |  |      |           |      |   |          
|------------------------------------------ |  | ---- | --------- | ---- | - | ---------
|                                           |  | 2007 |           | 2006
|Current year interest financed             |  | $    | 1,723,077 |      | $ | 891,642  
|Previous years financed interest received |  |      | (110,737) |      |   | (452,065)
|Net financed interest                      |  | $    | 1,612,340 |      | $ | 439,577  



On March 31, 2007, the Company had significant credit risk concentrations in the following states:



|               |   |   |           
|-------------- | - | - | ----------
|Georgia        | - | $ | 31,468,535
|Texas          | - | $ | 67,769,301
|South Carolina | - | $ | 27,725,119



Impaired loan disclosures for the three months ended March 31:



|                                           |  |      |           |      |   |        
|------------------------------------------ |  | ---- | --------- | ---- | - | -------
|                                           |  | 2007 |           | 2006
|Number of impaired loans                   |  |      | 2         |      |   | 1      
|Carrying amount                            |  | $    | 1,128,494 |      | $ | 363,524
|Weighted average investment  year-to-date |  | $    | 1,120,314 |      | $ | 365,041
|Impaired loan interest income              |  | $    | 26,161    |      | $ | 8,566  



No allowance for specific impaired loan loss has been recorded because the carrying amount of the impaired loans as of March 31, 2007 and 2006 was less than the present value of their expected future cash flows.



NOTE 6  REAL ESTATE JOINT VENTURE INVESTMENTS

As of March 31, certain of the Companys mortgage loans on senior housing facilities are classified as real estate joint venture investments, as follows:



|                                           |  |      |            |      |   |           
|------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|Location                                   |  | 2007 |            | 2006
|St. Petersburg, FL                         |  |      | 8,449,764  |      |   | 5,464,960 
|Lewisville, TX                             |  |      | 545,000    |      |   | 545,000   
|Chattanooga, TN                            |  |      | 6,232,859  |      |   | 5,730,991 
|San Antonio, TX                            |  |      | 4,578,777  |      |   | 2,268,370 
|Edmond, OK                                 |  |      | 1,815,333  |      |   | 1,598,689 
|Total principal outstanding                |  |      | 21,621,733 |      |   | 15,608,010
|Accrued interest                           |  |      | 326,476    |      |   | 552,037   
|Unearned loan fees                         |  |      | -0-        |      |   | (3,533)   
|Allowance for loan losses                  |  |      | -0-        |      |   | -0-       
|Real estate joint venture investments, net |  | $    | 21,948,209 |      | $ | 16,156,514





All of the loans mature in 2007.  Loan maturity may be accelerated in accordance with loan terms, generally upon certain events of default such as non-payment of scheduled payments or bankruptcy.



The Company participates in the residual profits of the real estate joint venture investments through loan participation agreements, which enable the Company to receive income from a borrower when a property for which the Company provided financing is sold or refinanced with another lender.  The participation percentage for each property varies between 25% and 33% of the borrowers gain.



All loans accrue interest at 10% per year and, except as noted below, interest-only payments are received monthly.  The original loan terms are for one year with either one or two, one year extensions at the Companys option.  The Company charges a 10% loan origination fee which is financed and included in the loans principal balance.



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In accordance with loan terms, the Company allows certain borrowers to finance interest payments while their facilities are in the construction or renovation phase of operations.  For the three months ended March 31, the net interest payments financed were as follows:



|                                           |  |      |         |      |   |          
|------------------------------------------ |  | ---- | ------- | ---- | - | ---------
|                                           |  | 2007 |         | 2006
|Current year interest financed             |  | $    | 287,731 |      | $ | 891,642  
|Previous years financed interest received |  |      | -0-     |      |   | (452,065)
|Net financed interest                      |  | $    | 287,731 |      | $ | 439,577  



The Company analyzes the underlying operations and collateral of each facility in which there is an outstanding loan by requiring independent appraisals every 12 to 24 months, reviewing loan balances and comparing them to the established loan budgets, and by analyzing income and cash flow statements that are submitted by the borrowers.  If it is determined that it is probable that the Company will be unable to collect all amounts due according to the contractual terms of a loan, the loan is considered impaired and a loan loss will be recognized to the extent the collaterals fair value is less than the current loan carrying amount.



One real estate joint venture investment loan was considered impaired as of March 31, 2007 and 2006. The impaired loans carrying amount as of March 31, 2007 and 2006 was $6,362,510 and $6,200,445, respectively.  The loans average carrying amount for the first three months of 2007 and 2006 was $6,350,639 and $6,142,411, respectively.  A total of $153,637 and $141,068 in interest was earned in the three months ended March 31, 2007 and 2006, respectively from this loan.  The loans collateral is appraised at $7,400,000; therefore, no loan loss allowance has been established.



NOTE 7  LOANS TO VARIABLE INTEREST ENTITIES (VIE)

Loans to VIEs  Company not considered the primary beneficiary:



In 2005, the Company originated a loan with a for-profit entity that did not have enough equity at risk to absorb all of its estimated expected losses.  The Company is not considered the primary beneficiary since the entitys equity guarantees are estimated to be sufficient to absorb the majority of its estimated expected losses, if they occur.  The loans carrying amount on March 31, 2007 was $989,564.



In September 2006, Senior Housing Services, Inc. (a non-profit entity) and its subsidiaries sold its ownership interests in seven family housing projects to Wellstone LLC, a for-profit entity formed by the projects third-party management group.  As part of the purchase agreement, Wellstone LLC assumed all of the Companys outstanding real estate loans on these projects.  Wellstone LLC is considered a variable interest entity because it does not have enough equity investment at risk to absorb all of its estimated expected losses.  The Company is not considered the primary beneficiary since Wellstone LLCs subordinated financial instruments are expected to be sufficient to absorb the majority of its estimated expected losses, if they occur.  The Companys seven original project loans to Wellstone LLC plus two new project loans originated in November 2006 and January 2007, had a total carrying amount of $73,239,536 as of March 31, 2007.



During 2006, the Company originated six loans to borrowers who are considered variable interest entities because they do not have enough equity at risk to absorb all of their estimated expected losses.  Wellstone Retirement Communities I, LLC (WRC) has provided guarantees to these entities which, if needed, will be adequate to absorb the majority of each borrowers estimated expected losses, if they occur; therefore, the Company is not considered the primary beneficiary.  WRC is a related party because Cornerstone Capital Advisors, Inc. manages both entities (see Note 4).  As of March 31, 2007, the six loans have a total carrying amount of $5,502,753.  The borrowers are developing real estate for use as market rate apartments, low-income apartments and affordable single family homes.



As of March 31, 2007, the Company has 16 loans with a total carrying amount of $79,731,853 to VIEs in which the Company is not the primary beneficiary.  These loans are classified as Real estate loans, net in the accompanying Consolidated Balance Sheet.



F-13





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Loans to VIEs  Company considered primary beneficiary:



The Company originated one loan in 2006 and one loan in 2007 in which the Company is considered the primary beneficiary.  The borrowing entities are developing real estate for use as low income apartment facilities.  These two loans have a total carrying amount of $6,017,934 as of March 31, 2007 and they have been eliminated in consolidation.  Please see Note 9 for additional information on these investments.



NOTE 8  ALLOWANCE FOR LOAN LOSSES

For the three months ended March 31, 2007 and 2006, a summary of changes in the allowance for loan losses by loan type is as follows:



|                   |  |        |     |         |        |           |        |             |               |       |             |     |  |   |          
|------------------ |  | ------ | --- | ------- | ------ | --------- | ------ | ----------- | ------------- | ----- | ----------- | --- |  | - | ---------
|                   |  |        |     |         |        |           |        |             |               |       | Real Estate |     |  |  
|                   |  |        |     |         | Family |           | Senior |             | Joint Venture |       |             |    
|                   |  | Church |     | Housing |        | Housing   |        | Investments |               | Total
|Balance  12/31/05 |  | $      | -0- |         | $      | 732,000   |        | $           | -0-           |       | $           | -0- |  | $ | 732,000  
|Loan loss expense  |  |        | -0- |         |        | 46,000    |        |             | -0-           |       |             | -0- |  |   | 46,000   
|Charge-offs        |  |        | -0- |         |        | -0-       |        |             | -0-           |       |             | -0- |  |   | -0-      
|Recoveries         |  |        | -0- |         |        | -0-       |        |             | -0-           |       |             | -0- |  |   | -0-      
|Balance 3/31/06   |  | $      | -0- |         | $      | 778,000   |        | $           | -0-           |       | $           | -0- |  | $ | 778,000  
|                   |  |        |     |         |        |           |        |             |               |       |             | -0- |  |   |          
|Balance  12/31/06 |  | $      | -0- |         | $      | 1,253,000 |        | $           | -0-           |       | $           | -0- |  | $ | 1,253,000
|Loan loss expense  |  |        | -0- |         |        | 90,000    |        |             | -0-           |       |             | -0- |  |   | 90,000   
|Charge-offs        |  |        | -0- |         |        | -0-       |        |             | -0-           |       |             | -0- |  |   | -0-      
|Recoveries         |  |        | -0- |         |        | -0-       |        |             | -0-           |       |             | -0- |  |   | -0-      
|Balance 3/31/07   |  | $      | -0- |         | $      | 1,343,000 |        | $           | -0-           |       | $           | -0- |  | $ | 1,343,000



Components of allowance for loan losses at March 31:



|                                |  |      |           |      |   |        
|------------------------------- |  | ---- | --------- | ---- | - | -------
|                                |  | 2007 |           | 2006
|Collective loan losses-         |  |      |           |      |   |        
|Historical experience           |  | $    | -0-       |      | $ | -0-    
|Current credit risk assessment  |  |      | 1,343,000 |      |   | 778,000
|Total collective loan losses    |  |      | 1,343,000 |      |   | 778,000
|Specific impaired loan losses   |  |      | -0-       |      |   | -0-    
|Total allowance for loan losses |  | $    | 1,343,000 |      | $ | 778,000



The Company incurred its first loss from a loan in 2006 when the Company sold a foreclosed church property at a loss of $34,000.  Due to the immaterial amount of recognized losses from loans during the Companys operating history, there is no collective loan loss allowance related to the Companys historical experience.  For the three months ended March 31, 2007 and 2006, the charges to loan loss expense were due to an increase in the principal outstanding on Family Housing loans.



F-14





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NOTE 9  CONSOLIDATED REAL ESTATE ASSETS AND OBLIGATIONS

Consolidated real estate assets and obligations include the assets and liabilities of majority-owned subsidiaries and variable interest entities (VIE) in which the Company is considered the primary beneficiary.  As of March 31, 2007, one majority-owned subsidiary (Heron Lake, LLC) and two VIEs in which the Company is considered the primary beneficiary (Preston Pointe Apartments, LP and Bear Place Village, LP) have been consolidated.  As of March 31, 2007, the following assets and liabilities are included in the Companys Consolidated Financial Statements:



|                           |  |            |           |       |   |           |  |   |          
|-------------------------- |  | ---------- | --------- | ----- | - | --------- |  | - | ---------
|                           |  | Subsidiary |           | VIEs |   | Total    
|Assets:                    |  |            |           |       |   |           |  |   |          
|Land                       |  | $          | 2,460,779 |       | $ | 1,242,990 |  | $ | 3,703,769
|Buildings and improvements |  |            | -0-       |       |   | 4,465,187 |  |   | 4,465,187
|Construction in Progress   |  |            | 836,140   |       |   | 15,866    |  |   | 852,006  
|Loan issue costs           |  |            | 399,441   |       |   | 40,252    |  |   | 439,683  
|Other assets               |  |            | -0-       |       |   | 51,683    |  |   | 51,683   
|Total assets               |  | $          | 3,696,360 |       | $ | 5,815,968 |  | $ | 9,512,328
|                           |  |            |           |       |   |           |  |   |          
|Liabilities:               |  |            |           |       |   |           |  |   |          
|Current liabilities        |  |            | -         |       | $ | 103,593   |  | $ | 103,593  
|Long-term debt             |  |            | -         |       |   | 202,500   |  |   | 202,500  
|Total liabilities          |  |            | -         |       | $ | 306,093   |  | $ | 306,093  



The Company acquired its subsidiary in 2006 by purchasing an 89% ownership interest in an entity which is developing real estate for use as market-rate apartments.  Preliminary construction activities began in the fall of 2006 and construction is expected to start in mid-2007.  A United States Department of Housing and Urban Development backed loan is expected to be used for construction and permanent financing.



The VIE investments were acquired in 2006 and 2007.  Bear Place Village, LP is in the construction stage of operations.  Preston Pointe Apartments, LP completed construction in December 2006 and lease-up operations are in progress.  The operating results from the subsidiary and VIE investments that are included in the Companys Consolidated Statement of Operations for the three months ending March 31, 2007 are as follows:



|                           |  |   |           |  |                           
|-------------------------- |  | - | --------- |  | --------------------------
|Rental and related revenue |  | $ | 3,168     |  | (included in other income)
|Operating expenses         |  |   | 106,775   |  |                           
|Net loss                   |  | $ | (103,607) |  |                           



NOTE 10 - GOODWILL

Goodwill associated with the Companys fiscal year 2000 acquisition of Presbyterian Investors Fund, Inc. is carried at $450,997.  Goodwill is tested for impairment at the end of each year using the present value of expected future cash flows to determine its fair value.  At December 31, 2006 and 2005, Goodwills fair value exceeded its carrying value; therefore, no provision for impairment loss has been recorded.  No goodwill was acquired or sold in either of the periods presented in these financial statements.



NOTE 11 - UNAMORTIZED DEBT ISSUE COSTS

Unamortized debt issue costs consist of legal, accounting, and filing costs incurred to register the Companys debt securities, commissions paid or accrued on the sale of debt securities, and loan fees and costs associated with the Companys loan from Bernard National.  These costs are amortized on a straight-line basis over the period the associated securities/loan are outstanding, generally five years for bonds and three years for the Bernard National loan (See Note 17).  At March 31, 2007, unamortized debt issue costs consist of:



|                                                |  |   |            
|----------------------------------------------- |  | - | -----------
|Costs incurred to obtain Bernard National loan  |  | $ | 1,061,889  
|Costs incurred to register debt securities      |  |   | 975,431    
|Commissions paid on the sale of debt securities |  |   | 5,583,146  
|Less: Accumulated Amortization                  |  |   | (4,440,583)
|                                                |  | $ | 3,179,883  



F-15





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Amortization expense was $363,010 and $271,881 for the three months ended March 31, 2007 and 2006, respectively.  Estimated amortization expense for the next five years:



4/2007  3/2008: $1,169,867

4/2009  3/2010: $659,483

4/2011  3/2012: $113,148

4/2008  3/2009: $1,021,728

4/2010  3/2011: $215,657



NOTE 12 - BOND HOLDINGS



|                                      |  |      |           |      |   |          
|------------------------------------- |  | ---- | --------- | ---- | - | ---------
|Bond holdings at March 31 consist of- |  | 2007 |           | 2006
|Local Church Bonds, maturing 2013     |  |      | 1,965,298 |      | $ | 1,957,716
|Accrued interest receivable           |  |      | 268,475   |      |   | 97,285   
|                                      |  | $    | 2,233,773 |      | $ | 2,055,001



The bonds are not traded on an exchange; however, management estimates, based on the fair value of the bonds collateral that the fair value of the individual securities is greater than or equal to their carrying amount.  Accordingly, no unrealized holding gains or losses have been recorded in 2006 or 2005.



The local church bonds are considered impaired by the Company due to non-payment of interest.  The Company is working closely with the borrowers to resolve this situation.  As stated above, no unrealized holding loss has been recorded because the Company estimates that the bonds collateral value exceeds its current carrying amount.



The local church bonds are recorded net of $48,702 and $56,284 in unamortized bond discounts as of March 31, 2007 and 2006, respectively.  The face amount of the bonds is $2,014,000.  During the three months ended March 31, 2007 and 2006, $1,895 and $1,895 in bond discounts, respectively, were credited to interest income.



Proceeds from the sale or maturity of bonds were $0 and $11,974,400 for the three months ended March 31, 2007 and 2006, respectively. No realized gains or losses were recognized in either period.  The Company uses the specific identification method to determine realized gains and losses.



Tax-free interest income was $0 and $75,359 for the three months ended March 31, 2007 and 2006, respectively.



NOTE 13 - INCOME TAXES

The net deferred tax asset in the accompanying Consolidated Balance Sheets includes the following components as of March 31:



|                         |  |      |           |      |   |          
|------------------------ |  | ---- | --------- | ---- | - | ---------
|                         |  | 2007 |           | 2006
|Deferred tax assets      |  | $    | 762,219   |      | $ | 368,081  
|Deferred tax liabilities |  |      | (140,418) |      |   | (187,011)
|Net deferred tax asset   |  | $    | 621,801   |      | $ | 181,070  



The deferred tax liabilities result from the use of accelerated depreciation methods for property and equipment and from using the installment method for tax accounting.  The deferred tax assets result from tax versus financial reporting differences in accounting for allowance for loan losses, amortization of debt issue and start-up costs, and variable interest entities.  The Company estimates that future taxable income will be sufficient to realize the net deferred tax assets; therefore, no valuation allowance was provided for as of March 31, 2007 and 2006.



Components of the Companys income tax provision (benefit) for the three months ended March 31:



|          |  |         |  |      |           |      |   |         
|--------- |  | ------- |  | ---- | --------- | ---- | - | --------
|          |  |         |  | 2007 |           | 2006
|Current:  |  | Federal |  | $    | 51,192    |      | $ | 58,112  
|          |  | State   |  |      | 5,625     |      |   | 9,200   
|Deferred: |  | Federal |  |      | (126,042) |      |   | (33,547)
|          |  | State   |  |      | (13,849)  |      |   | (3,686) 
|          |  |         |  | $    | ($83,074) |      | $ | 30,079  



F-16





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Reconciliation of the Companys income tax provision (benefit) rate to the statutory federal rate for the three months ended March 31:



|                                        |  |  |         |  |  |        
|--------------------------------------- |  |  | ------- |  |  | -------
|                                        |  |  | 2007    |  |  | 2006   
|Statutory federal rate                  |  |  | (35.0%) |  |  | 35.0%  
|Effect of graduated federal rates       |  |  | 1.00%   |  |  | (1.0%) 
|State taxes, net of federal benefit     |  |  | (3.7%)  |  |  | 3.7%   
|Effect of tax-free bond interest income |  |  | -       |  |  | (17.5%)
|Other, net                              |  |  | .1%     |  |  | .4%    
|Effective tax provision (benefit) rate  |  |  | (37.6%) |  |  | 20.6%  



Current income taxes payable were $0 and $59,350 as of March 31, 2007 and 2006, respectively, and are included in accounts and other payables in the accompanying Consolidated Balance Sheets.



NOTE 14 - CASH CONCENTRATION RISK

A cash concentration risk arises when the Company has more cash in a financial institution than is covered by federal deposit insurance. At March 31, 2007, the Company had cash in excess of insured limits totaling $2,025,743.  The Companys policy is to place its cash investments with high quality financial institutions and has never experienced any loss on holdings in excess of insured limits.



NOTE 15 - INVESTOR BONDS

The Company has three types of bonds outstanding:



Access bonds have no stated maturity and are due on demand.  The minimum investment amount is $100.  The interest rate is determined by the Board of Directors each quarter.  The directors may change the rate between quarters if market conditions warrant such a change.  The current interest rate is 5%.

Graduated rate bonds can be redeemed yearly and have a five year maximum maturity.  The minimum investment amount is $500.  The interest rate increases based on the length of time that the bond is outstanding.  For bonds sold prior to 2004 the rate starts at 7% and increases .5% for each year the bond is outstanding with a 9% maximum rate.  Bonds (Series E & F) sold in 2004 and 2005 have an initial interest rate of 6.25% and increase .5% for each year the bond is outstanding with an 8.25% maximum rate.  Series G bonds do not include graduated rate bonds.

Five year bonds have a five year maturity and a $500 minimum investment.  The interest rate is 9% for bonds sold prior to 2004 and 8.25% for bonds (Series E, F & G) sold in 2004 and thereafter.



The bonds are not collateralized and no sinking fund is required to fund redemptions at maturity.  All of the bonds have been registered with the Securities and Exchange Commission under the Securities Act of 1933.

Five year schedule of principal maturities for bonds outstanding at March 31:



|                                                              |  |                                                                            |  |                                                                            | 
|------------------------------------------------------------- |  | -------------------------------------------------------------------------- |  | -------------------------------------------------------------------------- | 
|Years to Maturity
On demand & 1 year
2
3
4
5+
Total Principal |  | 2007
$  39,279,778
7,587,542
40,314,544
13,027,631
28,605,845
$128,815,340 |  | 2006
$  33,174,959
30,209,125
7,713,061
40,483,453
13,078,857
$124,659,455 | 



At March 31, 2007 and 2006, accrued interest payable was $14,713,278 and $14,575,718, respectively.  Interest rates for bonds outstanding at March 31, 2007 are:



5.00% - $592,473

7.25% - $2,521,455

8.50% - $498,894

6.75% - $1,588,194

8.25% - $81,948,018

9.00% - $41,666,306



The Company filed a Form SB-2 Registration Statement with the Securities and Exchange Commission in February 2006 with $60,000,000 in Series G Investor Bonds and $32,500,000 in Common Stock available for issuance.  The terms of the Series G Investor Bonds are similar to the Series E and F bonds.  After a full review by the Securities and Exchange Commission, the registration statement became effective on September 11, 2006 and the Company began to sell securities on September 25, 2006.  For the three months ended March 31, 2007, the Company sold $4,119,430 in bonds and $99,968 in Common Stock (15,380 shares at $6.50 per share).  Also, $9,237,241 in maturing bonds was reinvested into Series G bonds during the three month period ended March 31, 2007.



F-17





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NOTE 16  MORTGAGE PARTICIPATION AGREEMENTS

Mortgage Participation (MP) Agreements are debt instruments that are collateralized by specific loans owned by the Company and they entitle the investor to a proportionate share of the interest earned on the collateral.  The MP Agreements have not been registered and therefore, are only available to accredited investors.  Interest is paid monthly to the MP investor after the Company receives interest payments on the related collateralized loans.  The agreements have no stated maturity date.  Principal payments are made when the Company receives principal payments on the collateralized loans.  Losses that the Company may incur on the collateralized loans are shared pro-rata with the MP Agreement holders.  The Company has the right but not the obligation to redeem the MP Agreements at any time.  The MP Agreement investors do not have the right to sell or repledge their interest in the underlying collateral.  Interest expense related to MP Agreements was $48,246 and $76,917 for the three months ended March 31, 2007 and 2006, respectively.  MP Agreement principal and interest outstanding and related collateral as of March 31, 2007:



|                                                     |  |             |           |                  |   |          
|---------------------------------------------------- |  | ----------- | --------- | ---------------- | - | ---------
|                                                     |  | MP Amount   |           | Total Collateral
|                                                     |  | Outstanding |           | Carrying Amount 
|                                                     |  |             |           |                  |   |          
|Bluffton, SC family housing loan; matures 5/15/07    |  |             |           |                  |   |          
|with no available extensions                         |  | $           | 1,430,674 |                  | $ | 2,863,417
|Chattanooga, TN senior housing loan; matures 6/30/07 |  |             |           |                  |   |          
|with one available extension                         |  |             | 4,000,000 |                  | $ | 6,362,510
|Accrued interest payable                             |  |             | 24,145    |                  |   |          
|                                                     |  | $           | 5,454,819 |                  |   |          



The Bluffton loan which collateralizes the MP Agreements is classified as a real estate loan and the Chattanooga loan is classified as a real estate joint venture investment in the accompanying Consolidated Balance Sheets.  The total carrying amounts are equal to the loans principal plus accrued interest.



NOTE 17  LOANS PAYABLE



|                                           |  |   |           
|------------------------------------------ |  | - | ----------
|Outstanding at March 31, 2007:             |  |   |           
|Bernard National Senior Funding, Ltd       |  |   |           
|Interest rate equal to the greater of 8.5% |  |   |           
|or LIBOR + 3.5%  currently 8.82%;         |  |   |           
|matures August 31, 2009                    |  |   |           
|Principal outstanding                      |  |   | 20,000,000
|Interest payable                           |  |   | 151,900   
|Total principal & interest outstanding     |  | $ | 20,151,900



Interest expense for the three months ended March 31, 2007 was $441,096.



The Bernard National Senior Funding, Ltd. (Bernard National) loan is a $40,000,000 revolving credit facility.  The loan is secured by 19 of the Companys first mortgage real estate loans which had a carrying value of $49,153,610 at March 31, 2007.  Interest-only payments are due monthly.  No principal payments are due until the maturity date unless certain loan to value ratio minimums (as defined in the agreement) are not met.  If these ratio minimums are not met, the Company is required to make a payment which would decrease the loan amount outstanding to an amount which would then allow the Company to meet the loan to value ratio minimums.  As of March 31, 2007 the loan to value ratio minimums have been met.



As part of the Bernard National transaction, the Company formed a wholly-owned subsidiary, CMI Asset Pool I, LLC (CAP), and contributed the 19 first mortgage loans to CAP.  These loans were then pledged as collateral to Bernard National as security for the revolving credit facility.  The assets, liabilities and results of operations for CAP are included in these Consolidated Financial Statements.



F-18





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NOTE 18 - GUARANTEES

The Company is guarantor on 10 loans secured by senior housing, low income housing, affordable family housing and church facilities.  Certain real estate joint venture investments and real estate acquisition and development loans in which the borrower chooses to secure outside financing may require the Company to guarantee the loan as a condition of the extension of the loan by the financial institution.  The loan guarantees are solely limited to amounts drawn under credit facilities and cover outstanding principal and accrued interest and terminates upon maturity and principal repayment or at project stabilization (as defined by the agreement).  Only upon an uncured payment default and upon demand by the financial institution would the Company be required to perform under its guarantee obligations.  The Companys recourse would be limited to repossession of the underlying collateral and subsequent resale of the facilities.  As of March 31, 2007, all loans which had a guarantee were current based on their loan terms.  Loan guarantees as of March 31, 2007:



|                    |  |             |  |            |  |           |            |             |         |            |      |   |        
|------------------- |  | ----------- |  | ---------- |  | --------- | ---------- | ----------- | ------- | ---------- | ---- | - | -------
|                    |  | Renewal/    |  |            |  |           |            |             | Current |            | Loan
|                    |  | Origination |  | Maturity   |  | Maximum   |            | Principal   |         | Guarantee 
|Location            |  | Date        |  | Date       |  | Guarantee |            | Outstanding |         | Obligation
|Charleston, SC      |  | 12/30/2005  |  | 4/1/2008   |  | $         | 11,500,000 |             | $       | 11,500,000 |      | $ | 100,000
|Beaufort, SC        |  | 12/30/2005  |  | 4/1/2008   |  |           | 8,850,000  |             |         | 8,850,000  |      |   | 150,000
|Blythewood, SC      |  | 8/25/2000   |  | 8/25/2008  |  |           | 250,000    |             |         | 250,000    |      |   | 3,750  
|Seneca, SC          |  | 9/8/2006    |  | 9/8/2008   |  |           | 860,000    |             |         | 860,000    |      |   | 12,900 
|Spartanburg, SC     |  | 9/26/06     |  | 9/26/08    |  |           | 925,000    |             |         | 925,000    |      |   | 13,875 
|Lexington, SC       |  | 12/29/2006  |  | 12/29/2008 |  |           | 18,250,000 |             |         | 3,171,686  |      |   | 91,000 
|Dallas, TX (church) |  | 5/16/2006   |  | 5/16/2009  |  |           | 219,000    |             |         | 219,000    |      |   | 2,153  
|Dallas, TX (church) |  | 6/9/2006    |  | 6/9/2009   |  |           | 331,661    |             |         | 331,661    |      |   | 3,215  
|Dallas, TX (church) |  | 8/24/2006   |  | 8/24/2009  |  |           | 371,700    |             |         | 371,700    |      |   | 3,717  
|St. Petersburg, FL  |  | 12/18/2004  |  | 8/15/2007  |  |           | 7,347,300  |             |         | 6,753,240  |      |   | 71,000 
|                    |  |             |  |            |  | $         | 48,904,661 |             | $       | 33,232,287 |      | $ | 451,610



The guarantees related to the Charleston, SC and Beaufort, SC low income housing facilities also include a construction cost guarantee and various operational performance guarantees as defined by the agreements.  The non-profit owner of these facilities is a co-guarantor with the Company.  Also, the developer of these projects has agreed to defer the collection of approximately $2,950,000 in developer fees and costs from the projects construction budgets until after the Companys guarantee obligations have been released.  Any operating or construction cost shortfalls will reduce the deferred developer fees paid by the borrower and will be used to reimburse the Company and the non-profit owner for any amounts paid under the guarantee agreements.



NOTE 19 - BUILDING MORTGAGES



|                                                                |  |      |         |      |   |        
|--------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|Outstanding at March 31                                         |  | 2007 |         | 2006
|Fidelity Bank  collateralized by corporate office building     |  |      |         |      |   |        
|Interest rate equal to prime + 1.5%, currently 9.75%; monthly |  |      |         |      |   |        
|principal & interest payment of $4,322; matures Sept. 1, 2009,  |  |      |         |      |   |        
|at which time a balloon payment of $367,628 is due.             |  |      |         |      |   |        
|Total principal outstanding                                     |  | $    | 402,006 |      | $ | 413,801
|                                                                |  |      |         |      |   |        
|Interest expense                                                |  | $    | 9,846   |      | $ | 11,215 





Estimated annual principal payments:

2007 - $9,817;     2008 - $14,257;     2009 - $377,932.



F-19





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NOTE 20 - SERIES A CONVERTIBLE PREFERRED STOCK

In 2001, the Company amended its Articles of Incorporation to provide for the issuance of up to 235,000 shares of Series A Convertible Preferred Stock.  The shares do not accrue dividends unless such dividends are declared by the Board of Directors.  The shares entitle the preferred shareholder to have one vote per share, presently equal to the voting rights of Common shareholders.  Each share is convertible, after 3 years, into shares of Common Stock based on a formula.  No Series A Convertible Preferred Stock was outstanding on March 31, 2007 and 2006.



NOTE 21 - EARNINGS PER SHARE

Basic earnings (loss) per share for the three months ended March 31, 2007 and 2006 have been calculated as follows:



|     |  |                                   |  |   |          
|---- |  | --------------------------------- |  | - | ---------
|2006 |  | Net Income                        |  | $ | 116,015  
|     |  | Average Common Shares Outstanding |  |   | 888,107  
|     |  | Earnings per Common Share         |  | $ | 0.13     
|     |  |                                   |  |   |          
|2007 |  | Net Loss                          |  | $ | (121,970)
|     |  | Average Common Shares Outstanding |  |   | 891,504  
|     |  | Loss per Common Share             |  | $ | (0.14)   



Diluted earnings (loss) per share are the same as basic earnings (loss) per share because there are no shares of Series A Convertible Preferred Stock outstanding.  Other than the Series A Convertible Preferred Stock, there are no other potentially dilutive securities, stock options or warrants outstanding.



NOTE 22  MAJOR CUSTOMERS

The Company received more than 10% of its total revenue for the three months ended March 31, 2007 from the following customers:



|                                               |  |        |           |   |        |                                 |                                                                                   
|---------------------------------------------- |  | ------ | --------- | - | ------ | ------------------------------- | ----------------------------------------------------------------------------------
|                                               |  | Amount |           | % |        | Description of Revenue Received
|Wellstone, LLC                                 |  | $      | 2,145,729 |   | 46.60% |                                 | Interest and fees from real estate loans                                          
|                                               |  |        |           |   |        |                                 |                                                                                   
|Senior Housing Services, Inc  and subsidiaries |  | $      | 905,051   |   | 19.60% |                                 | Interest and fees from real estate joint venture investments and real estate loans
|                                               |  | $      | 3,050,780 |   | 66.20% |                                 |                                                                                   



Wellstone, LLC is considered a related party of the Company  please refer to Note 4 for additional information about the relationship.



Senior Housing Services, Inc. and subsidiaries (SHS) is not a related party.  SHS neither directly or indirectly controls, is controlled by, nor is under common control of the Company.  There is not common ownership interest, officers, or directors and the Company does not have the power to direct or significantly influence the management or operating policies of SHS.



NOTE 23  FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:



Cash and cash equivalents  Fair value approximates their carrying amount due to the initial maturities of the instruments being three months or less.



Bond holdings  These bonds are not traded on an exchange; therefore, fair value is estimated based on the present value of expected future cash flows, which approximates their carrying amount.



Investor bonds and mortgage participations  Fair value is estimated based on the present value of expected future cash flows, which approximates their carrying amount.



F-20





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Building mortgage and capital lease obligation  Fair value approximates carrying value since stated rates are similar to rates currently available to the Company for debt with similar terms and remaining maturities.

Loan guarantee obligations  Fair value approximates the risk-factored net present value of possible future cash flows related to the specific loan guarantee obligation.



The estimated fair values of the Companys financial instruments at March 31, 2007 are:



|                           |  |                 |             |            |   |            
|-------------------------- |  | --------------- | ----------- | ---------- | - | -----------
|                           |  | Carrying Amount |             | Fair Value
|Financial assets:          |  |                 |             |            |   |            
|Cash and cash equivalents  |  | $               | 2,365,276   |            | $ | 2,365,276  
|Bond holdings              |  | $               | 2,233,773   |            | $ | 2,233,773  
|Financial liabilities:     |  |                 |             |            |   |            
|Investor bonds             |  | $               | 128,815,340 |            | $ | 128,815,340
|Mortgage participations    |  | $               | 5,430,674   |            | $ | 5,430,674  
|Building mortgages         |  | $               | 402,006     |            | $ | 402,006    
|Other loans payable        |  | $               | 20,000,000  |            | $ | 20,000,000 
|Loan guarantee obligations |  | $               | 451,610     |            | $ | 451,610    



F-21





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



Selected financial data.

Please read the following selected financial data in conjunction with the rest of this Managements Discussion and Analysis or Plan of Operation and with our financial statements and related notes in this filing.



|                               |  |                    |           |      |   |           
|------------------------------ |  | ------------------ | --------- | ---- | - | ----------
|                               |  | Three months ended
|                               |  | March 31,         
|                               |  | 2007               |           | 2006
|Revenues                       |  | $                  | 4,608,134 |      | $ | 4,008,254 
|                               |  |                    |           |      |   | 2,990,797 
|Investor interest expense      |  |                    | 3,519,315 |      |   | 2,990,797 
|Loan loss expense              |  |                    | 90,000    |      |   | 46,000    
|Marketing expenses             |  |                    | 301,614   |      |   | 290,068   
|Management/advisory fees       |  |                    | 409,560   |      |   | 349,089   
|Payroll and related costs      |  |                    | 55,906    |      |   | -0-       
|Operating expenses             |  |                    | 436,783   |      |   | 186,206   
|Total expenses                 |  |                    | 4,813,178 |      |   | 10,991,649
|Operating income (loss)        |  |                    | (205,044) |      |   | 146,094   
|Income tax provision (benefit) |  |                    | (83,074)  |      |   | 30,079    
|Net income (loss)              |  | $                  | (121,970) |      | $ | 116,015   



Overview of operations.

We have always focused on serving non-profit organizations.  We offer specialized programs for church and other non-profit sponsors of senior housing and affordable/moderate income and age-restricted housing programs.  Nearly all of our earnings prior to 2001 came from financing church facilities.  During the last quarter of 2000, we began to realize revenues from investment in senior and affordable/moderate income housing projects. During the last quarter of 2004, we began to make loans to for-profit sponsors of affordable and low-income housing projects and in 2005 we began making loans to for-profit owners of senior housing facilities and age restricted for-sale housing projects.  We generate revenue from:

•

interest on loans

•

origination and renewal fees on loans

•

loan participation income

•

interest on securities



We currently charge a 5% to 10% fee on new loans, based upon expected terms, and renewal fees of as much as 5% of the outstanding balance of the renewing loan.  Our interest rate on all new loans is currently from 9% to 10.5%. Our interest rate and fees are higher than a standard bank would charge because we are willing to lend money to borrowers who lack the capital or operating histories necessary to use traditional bank loans.  Some loans are participating loans, which enable us to receive income from the borrower when the borrower sells or refinances (with a third-party lender) the property for which we provided the financing.  The participation percentage varies between 25% and 33% of the borrowers gain.



Participating loans are classified as real estate joint venture investments if all of the following exist at the loans inception:



•

The borrower does not have a substantial equity investment in the property.

•

The Company does not have recourse to substantial tangible, saleable assets of the borrower other than the underlying collateral of the loan and there is no irrevocable letter of credit for a substantial amount of the loan.

•

There is no take-out commitment for the full amount of the loan from a creditworthy, independent third-party.

•

The facility does not have lease commitments which will provide sufficient cash flow to service normal principal and interest loan amortization.



Comparison of Periods Ended March 31, 2006 and March 31, 2007

General. Assets increased from $149,416,647 at March 31, 2006 to $176,084,425 at March 31, 2007 for an increase of $26,667,778 or 18%.  The increase is due to our new $20,000,000 revolving credit agreement loan with Bernard National Senior Funding, Ltd and an increase in outstanding Investor Bonds and Mortgage Participation Agreements.  With the cash generated from these increases and with cash already on hand, we invested in real estate loans and joint venture investments, net of principal payments received, of $18,528,005.  We also invested in one subsidiary and two consolidated variable interest entities totaling $9,512,328. Total revenue increased for the three months ended March 31, 2007 by $599,880 (15%) to $4,608,134.  Net income (loss) for the three months ended March 31, 2007 was ($121,970) compared to $116,015 for the same period ended March 31, 2006.



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Total real estate loans and joint venture investments outstanding on March 31, 2007 was $156,129,261 compared to $137,601,256 on March 31, 2006 for an increase of $18,528,005 or 13%.  This increase is due to the cash received from the Bernard National loan and an increase in Investor Bonds and Mortgage Participation Agreements and the subsequent origination or refinancing of real estate loans and joint venture investments, as follows:



|                                                           |  |   |             
|---------------------------------------------------------- |  | - | ------------
|New real estate loan originations                          |  | $ | 23,492,516  
|Decrease in existing loans, net of principal received      |  |   | (10,756,206)
|New real estate joint venture investments made             |  |   | -0-         
|Increase in existing real estate joint venture investments |  |   | 5,791,695   
|                                                           |  | $ | 18,528,005  



Consolidated real estate assets increased due to our investment in one subsidiary (Heron Lakes, LLC) and two variable interest entities in which we are the primary beneficiary.  Heron Lakes, LLC is constructing a market rate apartment facility in South Carolina.  We currently own 89% of this entity.  The two variable interest entities are building low income apartments in South Carolina.  Please refer to Note 9 of the Notes to Consolidated Financial Statements for additional information about these investments.  We are actively pursuing the sale of our ownership in Heron Lakes, LLC and the investment of additional capital into the two variable interest entities so that we will not have to consolidate these entities into our financial statements.



All other assets composed primarily of cash, bond holdings, property and equipment, and unamortized debt issue costs were $10,442,836 as of March 31, 2007.



During the second quarter of 2006, we determined that our church bond holdings, with a carrying value of $2,233,773, are impaired due to the non-payment of interest by the borrower.  Our initial and on-going evaluations of the underlying collateral shows that the collateral is worth more than the current carrying value of the bonds; therefore, we have not charged earnings with an unrealized loss and we are continuing to recognize interest from this investment on the accrual basis.  We are working diligently with the borrower and the other bond holders to ensure that this situation is resolved and that our financial investment is preserved.  We were informed on May 2, 2007 that the owner of the collateralized property received a contract for the property which, if it closes, will allow us to be paid in full on our outstanding principal and interest.



Our cash balance decreased $2,251,330 from $4,616,606 on March 31, 2006 to $2,365,276 on March 31, 2007.  This decrease was caused by our redemption of approximately $5.4 million in maturing bond principal in March 2007.



Principal and interest payable on Investor Bonds and Mortgage Participation (MP) Agreements increased $6,169,667 or 4.3% from $142,813,770 as of March 31, 2006 to $148,983,437 as of March 31, 2007.  We have sold approximately $18 million in new Series G bonds since September 2006; however, this increase has been offset by approximately $12 million in bond redemptions from maturing bonds.  The large number of redemptions is due to: 1) not having new bonds available for sale for most of 2006 and 2) we are not registered in a number of states that were affected by the Chicago Stock Exchange issue (see page 8 for more on this item) which means that we could not reinvest maturing bonds from investors living in these states.



In August 2006 we entered into a revolving credit agreement with Bernard National Funding, Ltd.  This agreement provides up to $40,000,000 in financing to us and it is secured by 19 of our first mortgage real estate loans.  As of March 31, 2007 we had drawn $20,000,000, which was used to fund new real estate mortgage loan commitments.  We pursued this financing because management believes that we need alternative financing programs available to us outside of our traditional Investor Bond program.  By adding to our financing options we can continue to grow our loan portfolio as we find suitable projects even if the timing of a new Investor Bond series is delayed.



Real estate loan and joint venture interest and fees earned. Interest income and fees from real estate loans and joint venture investments for the three months ended March 31 is as follows:



|                                           |  |      |           |      |   |           |  |   |         |  |       
|------------------------------------------ |  | ---- | --------- | ---- | - | --------- |  | - | ------- |  | ------
|                                           |  | 2007 |           | 2006 |   | Increase  |  | %
|                                           |  | $    | 4,419,492 |      | $ | 3,704,498 |  | $ | 714,994 |  | 19.30%
|The increases were due to the following:   |  |      |           |      |   |           |  |   |         |  |       
|Increase in average outstanding principal  |  |      |           |      |   |           |  | $ | 494,797 |  |       
|($152,764,350  2007; $132,944,190  2006) |  |      |           |      |   |           |  |   |         |  |       
|Change in weighted average interest rate   |  |      |           |      |   |           |  |   | 42,615  |  |       
|(9.90% - 2007; 9.77% - 2006)               |  |      |           |      |   |           |  |   |         |  |       
|Change in loan fees recognized             |  |      |           |      |   |           |  |   | 177,582 |  |       
|                                           |  |      |           |      |   |           |  | $ | 714,994 |  |       



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The increase in average outstanding principal and the increase in loan fees recognized are due to the addition of 18 new real estate loans.



Loan participation and other income.  For the three months ended March 31, loan participation and other income decreased $115,114 from $303,756 in 2006 to $188,642 in 2007.  This decrease is due to the following: 1) a $52,000 gain from a fixed asset sale in the first quarter of 2006 and 2) the disposition of $11,974,400 in bond holdings in the first quarter of 2006 which reduced the amount of investment income received in 2007 compared to 2006.



Investor interest expense. Investor interest expense for the three months ended March 31, 2007 was $3,519,315 which is an increase of $528,518 (18%) compared to 2006.  The increase is due to:



|                                                                 |  |   |         
|---------------------------------------------------------------- |  | - | --------
|Increase in average outstanding certificate principal, including |  | $ | $214,521
|interest payable subject to compounding                          |  |   |         
|($143,428,635  2007; $135,826,303  2006)                       |  |   |         
|Change in weighted average interest percentage                   |  |   | (13,682)
|(8.69% - 2007; 8.73% - 2006)                                     |  |   |         
|Decrease in average outstanding Mortgage Participation principal |  |   | (28,671)
|($1,929,840  2007; $3,076,680  2006)                           |  |   |         
|Bernard National loan                                            |  |   | 441,096 
|Construction period interest capitalization  rental properties  |  |   | (84,746)
|                                                                 |  | $ | $528,518



The construction period interest capitalization relates to the consolidated real estate assets that we obtained when we acquired our 89% ownership interest in Heron Lakes, LLC and from our investment in one consolidated variable interest entity which had property under construction during the first three months of 2007.  During the construction of an asset, interest that is accrued which relates to the assets under construction can be capitalized and included in the cost of the asset.



Loan loss expense and allowance for loan losses.  We charged $90,000 and $46,000 for the three months ended March 31, 2007 and 2006, respectively to loan loss expense.  These charges were due to increases in the family housing development loan portfolios outstanding principal.



All of the allowances for loan loss increases that we made are classified as collective loan loss allowances.  A collective loan loss allowance is recognized when the characteristics of a group of loans indicate that it is probable that a loss exists even though the loss cannot be identified with a specific loan.  The allowance for loan losses is reviewed quarterly and increases or decreases are made based on the results of these reviews.



As of March 31, 2007, two church loans and one real estate joint venture investment loan were considered impaired because they are at least six months behind on their interest payments.  The real estate joint venture investment loan had a carrying amount of $6,362,510 and the church loans had a combined carrying amount of $1,128,494 for a total impaired loan amount of $7,491,004 as of March 31, 2007.  At March 31, 2006 we had two church loans and one real estate joint venture investment loan that were considered impaired with a total carrying amount of $6,563,969.  We have received an appraisal on the real estate joint venture investment loans collateral and it is estimated to be worth approximately $1.0 million more than the loans carrying amount; therefore, we have not recognized an impairment loss on this loan.  We will continue to monitor the operating progress of this borrower, and we are actively involved in possible re-financing opportunities for the property.



As of March 31, 2007, allowance for loan losses as a percent of outstanding loan principal by loan type:



|                                      |  |                     |           |                       |   |             |  |     
|------------------------------------- |  | ------------------- | --------- | --------------------- | - | ----------- |  | ----
|                                      |  | Loan Loss Allowance |           | Outstanding
Principal |   | %          
|Family Housing Development Loans      |  | $                   | 1,343,000 |                       | $ | 125,549,034 |  | 1.1%
|Church Mortgage Loans                 |  |                     | -0-       |                       |   | 11,005,424  |  | 0%  
|Senior Housing Mortgage Loans         |  |                     | -0-       |                       |   | 1,093,054   |  | 0%  
|Real Estate Joint Venture Investments |  |                     | -0-       |                       |   | 21,621,733  |  | 0%  
|Total                                 |  | $                   | 1,343,000 |                       | $ | 159,269,245 |  | .8% 



Marketing expenses. Total expenses for the marketing of Investor Bonds for the three months ended March 31, 2007 were $301,614 compared to $290,068 for the same period in 2006.  The increase is due to an increase in sales commission amortization expense which is a result of the sale of new bonds and MP Agreements since March 31, 2006.



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Selling commissions paid to brokers for selling Investor Bonds and Mortgage Participations, costs incurred to register Investor Bonds and loan fees related to the Bernard National loan are initially charged to Unamortized debt issue costs, which is classified as an asset on our balance sheet.  These costs are then amortized to expense over the term of the related debt.  The Unamortized debt issue cost balance was $3,179,883 and $2,605,229 as of March 31, 2007 and 2006, respectively.



Operating, management and payroll expenses. Management and advisory expenses for the three months ended March 31, 2007 increased $60,471 (17.0%) from $349,089 in 2006 to $409,560 in 2007.  This increase is due to an increase in revenues.



Our management and advisory agreement with CCA obligates us to pay CCA the following fees:

•

A monthly management fee equal to 10% of our revenues from all sources other than loan fees, loan participation revenue, and revenue received from CCA plus 30% of loan participation revenue.

•

A loan origination fee equal to 30% of the total loan fees charged by the Company to its borrowers.  The fee is generally paid from loan proceeds and reduces deferred loan fees that we will recognize over the life of the loan.



Please see Note 4 of the Notes to Consolidated Financial Statements for additional information about our agreement with CCA and for amounts that we have paid to CCA during the three months ended March 31, 2007 and 2006.



For the three months ended March 31, 2007 operating expenses were $436,783, which is a $250,577 increase over 2006s operating expenses of $186,206.  The increase is due to the following:



|                                               |  |   |        
|---------------------------------------------- |  | - | -------
|Loan issue cost amortization                   |  | $ | 89,241 
|Consolidated real estate asset operating costs |  |   | 106,775
|Legal fees                                     |  |   | 31,506 
|Other                                          |  |   | 23,055 
|                                               |  | $ | 250,577



Loan issue cost amortization increased due to the Bernard National loan (discussed in previous paragraphs) which was added in the third quarter of last year.



The increase in consolidated real estate asset operating costs resulted from the purchase of Heron Lakes, LLC and our investment in two variable interest entities in which are considered the primary beneficiary.  One of the variable interest entities is an operating apartment facility and its operating expenses of $82,674 have been included in our financial statements.  Start-up and administrative costs from the two under construction properties, which totaled $24,101, also contributed to this expense.



Legal fees increased due to some additional legal costs related to the Chicago Stock Exchange issue (see the Legal Proceedings section for more information on this issue).



Effective October 2006, our president is now employed directly by us instead of by Cornerstone Capital Advisors.  Therefore, payroll costs increased in the first three months of 2007 by $55,906.  This cost includes wages and related taxes, benefits and administrative costs.



Income tax provision (benefit). The income tax provision (benefit) for the three months ended March 31, 2007 was ($83,074) compared to $30,079 for the same period ended March 31, 2006.  The increase in income taxes is due to an increase in pre-tax income.  The Companys effective tax provision (benefit) rate was (37.6%) and 20.6% for the three months ended March 31, 2007 and 2006, respectively.  A reconciliation of the Companys effective tax provision rate to the federal statutory rate is included in the attached Notes to Consolidated Financial Statements (Note 13).



Dividends.  Dividends of $286,420 and $278,034 were paid in January 2007 and 2006, respectively.



Liquidity and Capital Resources

Cash flows from operations.  Net cash provided (used) by the Companys operations for the three months ended March 31, 2007 and 2006 was ($3,281,088) and ($69,362), respectively.  The increase in cash used by operations in 2007 of $3,211,726 was due to a $2,371,751 decrease in investor interest payable and an increase in accrued loan interest offset by an increase in depreciation/amortization, loan fees received and other accounts payable.



The decrease in investor interest payable is due to interest payments which were made as a result of a large bond maturity on March 15, 2007.  Some of our investors had previously elected to reinvest the interest due to them until maturity.  At maturity we then paid five years worth of interest to these investors which increased our cash used by operations.



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Included in the 2007 and 2006 changes in accrued real estate loan and joint venture interest and deferred loan fee amounts is $1,900,071 and  $494,021 in interest which was financed as part of loan principal.  We receive monthly interest payments on our loans except when the terms of certain loans allow borrowers to finance interest payments while the collateralized property is under development or construction.  A summary (by loan type) of the amount of net financed interest for the three months ended March 31, 2007 and 2006 is as follows:



|                           |  |      |           |      |   |          
|-------------------------- |  | ---- | --------- | ---- | - | ---------
|                           |  | 2007 |           | 2006
|Family Housing Development |  | $    | 1,556,756 |      | $ | 732,597  
|Church Construction        |  |      | 55,584    |      |   | (69,333) 
|Senior Housing             |  |      | 287,731   |      |   | (169,243)
|                           |  | $    | 1,900,071 |      | $ | 494,021  



The amount for 2007 represents interest accrued and financed in 2007, net of payments received in 2007 that were financed in previous years.  2006s amount represents interest accrued and financed in 2006, net of payments received in 2006 that were financed in previous years.



The increase in the family housing net financed interest in 2007 compared to 2006 is due to the addition of 10 new projects which are in their development phase of operation and are financing their interest.  This increase in projects in their development phase is partially offset by two projects which have gone into their sales phase and are paying interest to us as they sell homes.  We expect the net financed interest amount to decrease starting in the second quarter of 2007 as two or three more projects are scheduled to go into their sales/operating phase and then start paying interest.



In the first quarter of 2006, we received $69,333 in previously financed church loan interest due to significant pay downs on two church loans.  In late 2006 and early 2007 we originated nine new church construction loans which financed $55,584 in interest in the first quarter of 2007.



The increase in senior housing financed interest in 2007 is due to: 1) the receipt of $223,687 of previously financed interest due to a large loan pay-down in January, 2006 and 2) in 2007 we financed interest on three senior housing loans in which the borrower has started a second phase which is now under construction.  Two of these three properties in which we financed interest during the first quarter of 2007 were sold to a third-party buyer in April 2007; therefore, our financed senior housing loan interest will substantially decrease in the second quarter.



Cash flows from investing activities.    For the three months ended March 31, 2007, the Company used $6,805,958 in cash from investing activities which is an increase of $3,273,911 from $3,532,047 for the three months ended March 31, 2006.  In 2006 we received $11,974,400 from the sale of bond holdings and $252,262 from the sale of our rental office building.  These two items reduced our cash flows used in investing activities in 2006.  We did not have any similar transactions in 2007 so cash used by financing activities increased compared to last year.



Cash flows from financing activities.  During the three month period ended March 31, 2007, cash flows used by financing activities was $405,390 compared to $4,229,178 in 2006.  Normally financing activities provide cash for us to grow our lending business.  However, in the first quarter of 2007 and 2006 this did not happen.  In the first quarter of 2007 we sold $8,119,430 in new bonds and MP Agreements.  However, we redeemed $6,872,308 in maturing bonds and we redeemed $1,224,199 in MP Agreements, which off-set the cash that we received from the sales.  We had a large bond maturity in March 2007 and because we have fewer states in which we are able to sell our bonds (due to the Chicago Stock Exchange issue  see the Legal Proceedings section for more information) we could not reinvest as many maturing bonds as we have in past years.  The MP Agreement redemptions were due to normal pay-downs on the loan which collateralized one of the MP Agreements.  These redemptions plus normal cash payments for debt issue costs and dividends caused 2007s cash flows from financing activities to be negative (a use of cash).



The first quarter of 2006s cash flows from financing activities was negative because we had no registered bonds for sale; therefore, all maturing bonds were redeemed for cash.



Dividends of $286,420 and $278,034 were paid in the first three months of 2007 and 2006, respectively.



We have $39,279,778 in Investor Bonds coming due or redeemable upon demand in the next 12 months.  $8,478,180 of this amount is for graduated certificates, which allow an investor to redeem their certificate each year on the anniversary date of the purchase.  Based on our historical experience, we expect that less than 25% of the graduated certificates will be redeemed for cash during the next 12 months.



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The Securities and Exchange Commission approved our Series G registration statement in September 2006 with approximately $60,000,000 in Series G Investor Bonds available for issuance with terms similar to our Series E and F bonds.    Our historical experience indicates that more than 75% of the maturities will be reinvested into new Investor Bonds; however, with fewer states available for selling our bonds we cannot guarantee that this will happen in the future.  We will ensure that we have enough cash available to handle these maturities.



Among the measures we take to mitigate any demands for cash are:



● Maintain a minimum cash balance, normally no less than $3,000,000.

● Have readily marketable loans that can be sold for par or a premium.

● Ask investors their intentions at least 30 days before their bonds mature.

● Have a bank willing to extend credit lines if needed.

● Spread maturity dates throughout the year.

● Limit each investor to not more than $500,000 maturing in any three-month period.



We believe that cash on hand, cash generated by operations and expected refinancing and pay-offs of existing loans, will be sufficient to meet our financing and capital needs for the coming year.  The amount and timing of our future capital requirements will depend on factors such as the origination and funding of new investments, any opportunities for acquisitions of related businesses and the overall success of our marketing efforts for certificates, shares and any other securities.



Item 3. Controls and Procedures



The principal executive officer and the principal financial officer of the small business issuer, Cornerstone Ministries Investments, Inc., have, as of March 31, 2007, evaluated the small business issuers disclosure controls and procedures, as defined by Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934. Based on their evaluation, they have concluded that those disclosure controls and procedures are designed and implemented effectively to ensure that information required to be disclosed by the small business issuer in the reports that it files or submits under that Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms.



Part II. Other Information



Item 1. Legal Proceedings



Laws of many states provide an exemption from registration for offerings of securities approved for listing on the Chicago Stock Exchange.  Between April 2000 and December 2004, we believed that our securities had been approved for listing on the Chicago Exchange.  Prospectuses for our public offerings of bonds and common stock, as well as our publicly-filed reports, have included statements that our common stock was approved for listing on the Chicago Exchange.



On December 3, 2004, a letter from the Chicago Exchange denied our application for listing and said that it had not previously approved our common stock for listing.   However, on February 4, 2005, a second letter from the Chicago Exchange said that, upon review, it had apparently approved our common stock for listing subject to the completion of an offering that would meet the Chicago Exchanges numerical standards for shareowners equity, number of public shareholders and publicly held shares.  A March 1, 2005 clarification from the Chicago Exchange said that it agreed that our status was not inconsistent with our being approved for listing upon notice of issuance, the language used in state exemption laws.  That being said, our common stock and other securities will not be listed on the Chicago Exchange in the future.

Based upon the Chicago Exchanges position in its December 3, 2004 letter, securities regulators for several states have raised the issue of whether we lawfully offered and sold securities without registration in those states and/or whether our prospectuses and publicly-filed reports were false and misleading, in their reference to Chicago Exchange approval for listing.  The following paragraphs describe the status of some of such states' regulators proceedings.  While we do not believe that we have violated any securities laws in connection with our previous reliance on the Chicago Exchange exemption, we have to date elected to settle all such related state regulatory actions where the costs of such settlements are likely to be significantly less than the costs of litigation in each state.



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On February 4, 2005 the Texas State Securities Board told us that, by February 11, 2005, we must either sign an Agreed Cease and Desist Order and pay a $25,000 fine or it would obtain an emergency administrative cease and desist order, without our being represented.  We chose to sign the order on February 9, 2005 and paid the fine.  The order states that we must immediately cease and desist from engaging in conduct that is materially misleading or is otherwise likely to deceive the public in connection with the offer for sale of any security in Texas.

On March 10, 2005 we attempted to register our Series F bonds and common stock in New Jersey by filing a registration statement with the New Jerseys Bureau of Securities.  Because our initial prospectus for the Series F bonds and common stock included the statement that the our common stock was approved for listing on the Chicago Exchange upon notice of issuance, the New Jersey Bureau of Securities denied the effectiveness of our registration statement by issuing a Stop Order on October 5, 2005.  According to the Stop Order we are prohibited from selling the Series F bonds and common stock in the State of New Jersey.

On April 26, 2005 we consented to an entry of a Cease and Desist Order by the Minnesota Commissioner of Commerce that we cease and desist from offering and selling securities in Minnesota until we are in compliance with Minnesota statutes and until the Commissioners further order.  We also agreed to redeem all certificates purchased by Minnesota residents and to pay an $8,000 civil penalty.

On August 11, 2005, the Ohio Division of Securities sent us a draft of a Cease and Desist Order, the terms of which did not require us to pay fines or give rescission offers.  We to agreed to the Cease and Desist Order, and on September 12, 2005, the Ohio Division of Securities issued the Cease and Desist Order. According to the terms of the Order, we are ordered to refrain from offering to sell unregistered securities in Ohio unless a proper exemption from registration exists.

On August 25, 2005, at the informal request of Maines Office of Securities, we made rescission offers to investors in Maine.

On September 20, 2005 we entered into a Consent Agreement with the Indiana Securities Division, the terms of which required us to give rescission offers to Indiana investors, pay a $600 investigation expense cost, and refrain from violating provision of the Indiana Securities Act in the future.

On September 19, 2005 we entered into a Consent Order with the Michigan Office of Financial and Insurance Services, and we agreed to make rescission offers to investors, and pay a $4,000 fine to the State of Michigan Office of Financial & Insurance Services.

At the request of the Tennessee Department of Commerce and Insurance Securities Division, and because the Tennessee Securities Division believed four Tennessee shareholders received incorrect prospectuses when buying our registered common stock, we redeemed eight shares of our common stock owned by these four Tennessee shareholders, and in October 2005, the Tennessee Department of Commerce and Insurance Securities Division approved our calculation of rescission offers made to these four Tennessee shareholders.

On October 27, 2005, the Colorado Division of Securities sent us a draft of a Stipulation for Consent Cease and Desist Order, the terms of which would require us to make rescission offers to certain Colorado investors.  We agreed to the terms of this particular Order, and have subsequently made the rescission offers set forth in the Order.

Since February 2005, we have been discussing our previous offers to sell securities in Kansas with the Kansas Office of the Securities Commissioner, and on August 24, 2005, the Kansas Office of the Securities Commissioner requested that we provide them with additional information relating to these offers to sell.  On September 12, 2005, we provided the Kansas Office of the Securities Commissioner with the requested additional materials, and as of the date of this filing, we have not received any additional requests or correspondence from the Kansas Office of the Securities Commissioner.

On July 5, 2006, the North Carolina Securities Division requested that we enter into a Consent Order to Cease and Desist.  The draft order provides that we must cease and desist from offering and selling securities in or from North Carolina unless and until such securities have been registered under the North Carolina Securities Act., are exempt from registration in North Carolina, or are covered under federal law.  The order also requires us to make a rescission offer to investors in North Carolina who purchased our securities from May 7, 2001 through February 21, 2005.

As a result of the aforementioned rescission offers we have made in Colorado, Indiana, Maine, Michigan, North Carolina and Tennessee, combined with the redemption order issued by the state of Minnesota, we have paid approximately $1,065,500 to those investors who either elected to accept our rescission offers or received our mandatory redemption payments.



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As of May 11, 2007, we are not aware that any other state has instituted any formal proceeding on this or any other issue related to any of our securities offerings, and we are not a party to any other pending legal proceeding.  We are not aware that any of the properties covered by our mortgage loans is subject to any pending legal proceeding or that any governmental authority is contemplating any legal proceeding involving us or any of those properties, other than as described above.

Item 2. Changes in Securities



Not Applicable



Item 3. Defaults upon Senior Securities



Not Applicable



Item 4. Submission of Matters to a Vote of Securities Holders



Not Applicable



Item 5. Other Information



Not Applicable



Item 6. Exhibits and Reports on Form 8-K



(a)

(1)  Exhibits 31 and 32, Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



(b)  No Form 8-K was filed in the first quarter of 2007.



Signatures



In accordance with the requirements of the Securities and Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Dated: May 11, 2007

Cornerstone Ministries Investments, Inc. (Registrant)





By: S/Jack Wehmiller

Jack Wehmiller

President and acting Chief Financial Officer





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